Saving green

Liability protection for cannabis businesses is evolving, but remains a challenge

Gabrielle Saulsbery//August 16, 2021//

Saving green

Liability protection for cannabis businesses is evolving, but remains a challenge

Gabrielle Saulsbery//August 16, 2021//

Listen to this article
Cannabis dispensaries may face supply issues until growers come online.- JACQUELINE FERRARO
Cannabis business insurance is a “slow developing product.” – JACQUELINE FERRARO

In a recent interview with Yahoo Finance, U.S. Sen. Cory Booker clarified his stated intention to “lay [himself] down” in front of senators who seek to pass the cannabis banking and insurance-focused Secure and Fair Enforcement Act before approving far-reaching federal cannabis reform. Booker said he supports the SAFE Act but called it “a necessary sweetener to get people to move along on the equitable justice elements” of federal cannabis reform like the Cannabis Administration and Opportunity Act introduced by him and other senators July 14.

Cannabis businesses have long struggled to get appropriate insurance coverage due to cannabis’ continued scheduling under the Controlled Substances Act. Schedule I classification means that any “manufacturing, possession, sale or use of marijuana” is a federal crime, and the conflict between federal and state cannabis laws cause issues with respect to criminal liability for insurance providers.

Cannabis business insurance is a “slow developing product,” according to Brach Eichler cannabis law co-chair Charles Gormally, and that’s attributable to the industry’s bipolar, legal-in-state-but-not-nationally nature.

A safe harbor provision included in the SAFE Act provides that “an insurer that engages in the business of insurance with a cannabis-related legitimate business or service provider or who otherwise engages with a person in a transaction permissible under State law related to cannabis” will not be held accountable under federal law.

Gormally, who represents industry clients in New Jersey and California, said that while it’s easier for cannabis businesses to find insurance now than a year or so ago, it’s unclear how encompassing these policies are. “You can find someone to write you a policy now. But what kind of policy? That’s yet to be determined. You have zero policy or litigation to determine that, so far in New Jersey,” he said. “Sure, there’s insurable risks out there, but there hasn’t been a claim history enough to say ‘this a great policy’ or ‘this is a crummy policy.’”

“One particular area that’s particularly gnarly in cannabis law is product liability insurance. You go into Costco and you buy something off the shelf, and there’s a whole stack of insurance policies behind those products that protect folks if they get injured by the product – Costco, the person who supplied Costco, the manufacturer – all those companies have insurance. It begs the question: How will this stack of insurance be applicable to cannabis sales?” Gormally asked.

“How do you deal with someone who says ‘this particular thing gave me cancer or injured me in some direct way’? You’ve got a product that’s illegal under federal law. Is the insurance carrier providing robust product liability insurance protection to cannabis businesses that manufacture and dispense cannabis is a similar way to traditional consumer products? Some of that only gets decided when you have a claim and the insurance carrier responds by either providing coverage or claiming their policy excludes such coverage. This is a highly changeable marketplace with little claim experience to help us predict likely outcomes. It will come…we just aren’t there yet,” he said.

Legislatively, movement has happened at the state level as well, though not recently.

Assemblyman Joe Danielson, D-17th District, introduced Assembly Bill 377 in February 2020 to “[create] certain protections for insurers and insurance producers engaging in business of insurance in connection with cannabis-related businesses.” It passed the assembly within weeks and Sen. Joe Vitale, D-19th District, introduced it in the senate thereafter. However, nothing has happened with it since March 2020, and Vitale was not available to answer questions on the bill’s future by press time.

“If we want to create an environment in New Jersey for a successful industry, all facets of that industry at all levels have to be protected. It’s not just the employees and drivers, but it’s the banks and doctors and hospitals and insurance companies,” said Danielson on why he introduced the bill. “There are people that are so ignorant upon the facts of cannabis – it’s uses, its benefits – that we have to legislate protections.”

Danielson noted that insurance protections for cannabis companies “should have been included in the original bill.”

New Jersey Cannabusiness Association President Edmund DeVeaux said that while he hears from members that insurance is still “somewhat challenging,” he equates the conversations to those about the banking industry. “You have people who say there’s no banking for cannabis. That’s not true. Bayonne Community Bank is a great example, and they sit on our board. By the same token, you hear people say you can’t get insurance in the cannabis industry. Not true – people are standing up businesses that are in fact with financial institutions and insurance,” he said.

Large insurers don’t appear to be involved in the industry, but “the good news is the cannabis industry has been so entrepreneurial you have smaller boutique insurance companies, just like smaller banks, to step into the role and provide those services,” DeVeaux said.

Several of these businesses are cropping up around New Jersey. Bernadette Wanczyk at Green Knolls Insurance Solutions in Morris Plains began offering policies for cannabis businesses when the ballot initiative passed, covering everything from the crop itself to the processing equipment to deliveries. Build Insurance Group in Hackensack offers specialized plans for cannabis businesses, as does Axis Insurance Services LLC in Franklin Lakes.

Several others, such as Cannasure in Denver and Cover Cannabis in Anaheim, Calif., serve New Jersey cannabis businesses but are based elsewhere.