Buying insurance for a cannabis business is possible, but not without conditions and costs

Purchasing insurance has proven difficult and expensive for Vermont cannabis business owners.File photo of Glenn Russell/VT Digger

Cannabis entrepreneurs in Vermont face many high costs as they enter the legal recreational market that opens Saturday.

One particularly daunting one is insurance.

“Get your wallet out,” said Scott Sparks, who plans to open his own store, Bud Barn, in Brattleboro on Oct. 17. 17. “It’s very expensive.”

The Cannabis Regulatory Commission requires cannabis businesses to obtain a “commercially reasonable” level of insurance or put funds in escrow to cover potential liability.

Small growers must pay at least $10,000 in hosting fees if they can’t get insurance. Medium and large manufacturers and medium growers must deposit at least $50,000 in hosting fees. Retailers, wholesalers, general licensees, testing labs, small manufacturers and large growers must deposit at least $250,000 in escrow fees.

Small growers can get a minimum coverage of about $750 a year, said Michael DeNault, an insurance broker at Charles River Insurance, a Massachusetts-based agency that represents about 50 Vermont clients.

But this insurance is minimal.

Cannabis businesses — like most businesses — need to go far beyond the bare minimum to protect themselves, said Louis Olave, managing partner of Burlington insurer Good Harbour Solutions.

If people use their vehicles to transport their cannabis products, they must obtain additional transport insurance, Olaf said.

Insuring inventory has its own challenges. Insurers require businesses to store marijuana in concrete vaults or barbed wire cages, Olaf said.

Middlebury attorney Dave Silberman, who advises cannabis businesses, will open a retail store in Middlebury, FLORA, on Saturday, saying an insurance company would ask him to install a sprinkler system , and then to provide security for his theft.

“You tell me what that means,” Silberman said. “I can understand using it for fire reporting, but it’s kind of silly for theft.”

Then there is product liability insurance.

“Product liability is essential insurance, like if someone uses one of your products and they get sick, they can sue you because something happened to them medically,” Olaf said.

All this extra insurance can get expensive. Olaf said some of his clients pay close to $30,000 a year in premiums.

“For example, it’s very expensive for a retail store to get effective theft insurance,” Silberman said. “Because this is a cash-intensive business and most insurance policies, the standard form only covers your $10,000 in cash losses, and on a busy three-day weekend, a cannabis business can generate hundreds of thousands of dollars in cash, so how do you insure Yet?”

Sparks just said his down payment on the Bud Barn policy’s premiums is $10,000.

Tito Bern, who has applied for a retail, cultivation and manufacturing license, said it was relatively easy to find insurance despite the high cost. He plans to buy an umbrella policy at a premium of “well over” $10,000 a year. He said his mid-sized farming business alone would cost him $7,000 to $8,000 a year in premiums, excluding his theft.

“All you have to do is put the word ‘marijuana’ in front of it and it doubles immediately,” Bern said of the costs involved in Vermont’s latest retail.

Brandon Pollock is CEO of Theory Wellness, a Massachusetts and Maine company that is applying for a retail license in Brattleboro. Pollock said that when he co-founded the company five years ago, insurance was twice as expensive as it is today.

“It just got better,” he said. “But it still has a big premium over any other normal business.”

Olaf said he is one of the few insurance agencies in Vermont that covers marijuana businesses.

According to Emily Brown, deputy commissioner of the Bureau of Insurance, Vermont’s marijuana business has no recognized insurers — those regulated by the Department of Financial Regulation. All marijuana insurance is covered by the remaining line carriers, she said. Surplus line carriers are not regulated by the department and are not eligible for reinsurance if they cannot cover claims, she said.

“Standard carriers don’t insure these types of things, so you have to go to a specialty carrier,” Olaf said, noting that he works with seven insurers in the U.S. and around the world that specialize in cannabis.

“There’s nothing on this planet that you can’t guarantee,” he said.

There are many home cannabis businesses in Vermont, which require a special kind of insurance. That’s one reason many have turned to Massachusetts agent DeNault.

Cannabis entrepreneurs, including about 175 home growers in Vermont, should be mindful of existing home or business policies that don’t specifically cover cannabis, DeNault said. Those operators have the right to deny coverage if they find marijuana involved, he said. DeNault said he has contacted clients’ home and business insurers to ask them to explicitly include or exclude marijuana, but they declined to provide that clarity.

“These are the people who provide most of Vermont with homeowner policy or most of the policy for (non-marijuana) businesses,” DeNault said.

Olaf said cannabis entrepreneurs came to him to say their insurance companies had dropped them.

“They called and said, ‘Hey, I’m going to grow cannabis on my land, do you agree?'” Olaf said.

Olaf said that when insurers said “no,” they were waived.

“So we tell our clients, ‘Don’t call your homeowners insurance company until you talk to us, because there are other options out there.'”

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