Walking the floor of MJBizCon 2021, you could see clear signs of an industry in the midst of rapid growth. Show organizers tell me some 27,000 people attend this year’s event and hundreds of vendors exhibited on the show floor. You’d hardly know there was a pandemic still playing out in the country.
The activity on the floor was focused on operations and production. Vendors, and the conversations being had, were by-and-large geared toward the needs of people trying to scale and refine their business operations. From all types of equipment suppliers to engineering firms, the show floor had something for anyone looking to improve and scale their operations. But indicators of the cannabis industry’s rapid expansion and maturity weren’t only to be found on the show floor.
In my time at MJBizCon 2021, my calendar was mostly booked with meetings happening away from the show floor. In nearby suites, restaurants, and hotel meeting rooms, I met with chief financial officers, head legal counsels, private equity investors, risk managers, and other executive decision makers from mid-sized and larger companies. It was a highly productive sampling of the industry and concerns about the unique risk and liability issues it faces as it grows in a legal grey zone.
For the small companies ramping up with limited licenses, revenue and personnel, the focus seemed to be on getting required insurance at the lowest cost possible. It’s a tricky place to be in the market because there are a lot of policies of questionable value being offered in the cannabis space, stuffed with worrying exclusions.
For the larger companies – mid-tier businesses with multiple licenses and multi-state operations, on up to publicly traded, national scale companies – I saw a more sophisticated understanding and approach to their risk issues and how to manage them.
These businesses understood their large, complex exposures – from operational safety to product liability – required policies and coverages tailored to their unique circumstances. As they navigate the legal uncertainties of the industry, they are very concerned about ensuring the coverage they’re buying will actually respond to claims. It’s no surprise then that I was seeing many legal team members, including chief legal counsels, in my meetings.
These mid-tier and larger businesses also understood that the pricing environment for coverage is being affected by cannabis’ federal status as a Schedule 1, legally controlled substance. Despite having very low claims costs, cannabis companies are seeing very high premium rates in the market.
Operating in this legal gray zone, cash rich and unable to write off typical business costs, these businesses were looking for alternative ways of structuring insurance costs. Taking on more risk in the form of a higher deductible in exchange for a reduced premium rate, for instance, would leave them with more cash to deploy for operations and growth. When you’re a mid-tier outfit facing a $400,000 annual property and casualty premium or a publicly traded company facing workers comp premiums in the multi-millions of dollars, finding alternative financing structures is a pressing concern.
Beyond dollar costs and specific coverage terms, the mid-tier and larger firms shared concerns around risk mitigation. For the up-and-coming firms in the mid-tier – multiple site licenses, perhaps starting to operate in multiple states – the safety challenge lay in a conflict between resource and need. While they understood that improving safety could help their claims history and coverage costs, they weren’t yet of a size where they could justify dedicating dollars to an in-house resource. They were interested in connecting with specialists who could fill this gap as-needed in concurrence with their insurance programs.
The need for specialist expertise was a common theme of the meetings I had at MJBizcon. Some of the larger companies I met with already had a very capable broker working on other industries within their portfolio, but were out of their depth in cannabis. Executives at the savvy, more mature companies, I met with understood that a typical, generalist approach to risk and liability was not a good fit for their needs. They were looking for practical options and very open to new ideas, and that’s why I was there.
Couldn’t make it to MJBizCon, but want help with your cannabis business’ risk and liability challenges? Risk Strategies can help.
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