The Cannabist Article: California cannabis company receives historic $1 million insurance payout following fire

The Cannabist article below by Bruce Kennedy refers back to the piece we were featured in last month by the Santa Barbara Independent:

California cannabis company receives historic $1 million insurance payout following fire

"It’s believed to be the largest insurance award ever given to a legal marijuana business. Industry insiders also see the event as another indicator of how rapidly the legal cannabis industry has matured, and how much corporate America’s “take” on cannabis companies has changed.

Last month the Santa Barbara Independent reported that a Southern California cannabis cultivator received a payout of well over $1 million from an unnamed insurance carrier in Great Britain, for crop damages that the grower suffered during the massive Thomas Fire this past December and January.

Matt Porter, a vice president at Cannabis Insurance Professionals, a division of Brown & Brown Insurance and one of the largest insurance intermediaries in the world, helped to put together the policy that paid the claim. He tells The Cannabist that the policy’s language evolved from other agricultural businesses but was focused on some of the risks found specifically in the cannabis industry.

“This policy contained some wording related to what we consider atmospheric change, or contaminants coming into the greenhouse,” he said.

And that wording was fortunate, according to Porter, when ash from the Thomas Fire began “falling like snow” and seeping into his client’s cannabis greenhouses, contaminating the plants inside with toxic chemicals.

The insurance coverage was not cheap for the affected cultivator, a company that Porter declined to name: with a $30,000 premium and $25,000 deductable. The payout was so large and unprecedented, however, that the London-based insurer has decided to limit its work with the legal cannabis industry.

“If there’s going to be coverage like this going forward it’s going to be significantly more expensive,” said Porter.

But he and other cannabis industry insurers believe the payout is an indication of positive changes within the insurance industry regarding legal cannabis firms.

“This was a legitimate claim that was paid,” Patrick McManamon, CEO of Cleveland-based Cannasure Insurance Services, told The Cannabist. “These companies are actually standing by what they said. In the past I think we’ve all heard horror stories of insurance companies (coming up with) some cockamamie something-or-other in their policy to get out of paying a claim. And here’s one that obviously…stood by its policy and paid it. That’s all you can ask for.”


Photo by AEvenson/iStock / Getty Images
Photo by AEvenson/iStock / Getty Images

McManamon has been working with legal cannabis businesses since 2009, and said it’s far less difficult now for those companies to get insurance.

“You just have to know the right local agent,” he noted, “and then that local agent has to have the knowledge to go to the right wholesale MGA (managing general agent) to secure the proper coverage.”

Which is not to say the big-name insurance companies are at all ready to talk to pot businesses.

“We’re still many, many years away from that,” said McManamon, who pointed to current federal laws and prohibitions on cannabis.

“Until you see a major shift there I don’t think you’re going to see…those types of companies come in. Now you’ll have a person like me that goes and talks to an insurance company and the door opens a little easier, but we’re not seeing more and more companies jump in. We’re just seeing more and more conversations happening.”

But McManamon said there’s a positive shift in how mainstream insurance companies view cannabis businesses and that the cannabis industry is “definitely more on people’s radars” as insurers look for more growth opportunities, particularly as more states legalize medical and recreational cannabis.

“Because of the attitude shift it’s come across the Mississippi, if you will. And when these East Coast states and these Midwestern states now have medical and recreational, it’s obviously a much more common occurrence — because it’s in their own back yard and they’re used to it now.”

Brown & Brown’s Matt Porter also points to how cannabis legal states like California have imposed rules and regulations on cannabis firms, which combined with the maturation of cannabis insurance companies has helped to calm down the big insurance carriers and remove the outlaw stigma still surrounding cannabis.

“We know what we’re writing; we understand what we’re insuring,” he said. “You’ve got state permits; you’ve got track-and-trace. You’ve got all these things in place to where, on our side of the business, there are now procedures and parameters around controlling this product. So it’s actually an insurable risk. They’re going to start developing actuarial tables and…claims projections and it will become just like standard insurance.”"

Santa Barbara Independent Article: Cannabis Farmer Gets Over $1 Million Insurance Payout

Image from the Santa Barbara Independent by Morgan Maassen

Image from the Santa Barbara Independent by Morgan Maassen

Currently featured in the Santa Barbara Independent by Kelsey Brugger, the article below is about one of our cannabis farming clients:


Cannabis Farmer Gets Over $1 Million Insurance Payout

"One Carpinteria farmer won an insurance payout well in excess of $1 million after ashes from the Thomas Fire destroyed thousands of his plants. What was unusual was that the plants were marijuana.

As cannabis cultivators come out of the shadows, pot businesses are starting to operate like any other businesses — they have lawyers, accountants, bankers, and, more recently, insurance brokers.

Most of the Northern California cannabis farms scorched by last fall’s wildfires did not have insurance. They were forced to suffer huge losses. But now insurance brokers in Santa Barbara County are starting to tap into the once-illicit industry.

“A lot of this wasn’t insurable,” said Matt Porter, a vice president at Brown & Brown Insurance, one of the largest firms in the world, with offices in Goleta. But in the last several months, Porter and his colleagues have won over area cannabis operators. They now have about 20 clients in Carpinteria and Lompoc, he said. They are expected to get up to $8 million in insurance claim payments for their Carpinteria clients.

While the recreational cannabis industry is legal in California, marijuana is a Schedule 1 drug under federal law. And an air of secrecy still exists. The market is still pulling itself up from underground. Porter joked he cannot cold-call cannabis farmers and say: “I want to sell you insurance. Tell me more about your marijuana operation.”

Just months before the Thomas Fire broke out, Porter had written the crop insurance policy for the Carpinteria cannabis grower. The policy included precise language — “change in atmospheric conditions” — that triggered the $1 million payout. The insurance carrier is based in London, England.

During the fire, the tiny white ash particles that suffocated the Santa Barbara area crept into the greenhouses, which have retractable roofs, Porter explained. When they sent a random sample of the plants to a lab for testing, they came back with high levels of asbestos, lead, arsenic, and magnesium.

In the end, the farmers were able to get about market price for the damaged product. Market value of cannabis ranges from $1,000-$1,600 per pound and higher.

Crop insurance in general is a hard sell. It can be pricey, and farmers are known to run their businesses as cheaply as possible. In the 50 times he has presented crop insurance, only about 10 percent of growers decided to buy it, Porter said.

Now that cannabis businesses are legitimate under state law, they require insurance for workers compensation, buildings, and liability. “It’s not the Wild West,” he said.

For the crop insurance, the Carpinteria farmers paid $30,000 in premiums with a $25,000 deductible.

Because the payout was so huge, the carrier has decided to no longer cover cannabis farmers. Porter said he is in talks with other carriers in Europe to fill the gap."

Crop Insurance -Protecting Your Harvest

Prepare Now Before Disaster Strikes - Seed to Sale Insurance

By: Matt Porter

The cannabis industry is continually evolving in the United States, with laws pertaining to its use changing almost daily and new states approving not only medical but recreational use every election cycle. As these states and the country as a whole begin to see the potential economic boom, the cannabis industry will face unique risks.

The most catastrophic exposures faced by the industry are those that put the marijuana crop itself at risk. If the crop is compromised, not only will the cultivator suffer this loss to their business, but any other ancillary businesses that rely on that crop will also suffer.

As cannabis moves into a fully regulated business with government oversight, approval, and regulation, insurance companies will now be allowed to legally pay for losses. To best protect the crop itself, a cultivator must find a reliable advisor who has expertise and knowledge in this field.

Cannabis Insurance Professionals does just that. With our team of experienced brokers, we can offer our proprietary crop insurance programs to cultivators in all states where medical or recreational use is legal.

Whether the cultivation is done indoors in a large warehouse, or outdoors in greenhouses or hoop houses, our proprietary programs can be tailored to the specific risks facing your grow. For years cannabis cultivation has operated as a self-insured industry, which meant there was no true insurance in the event of a loss. Rather than risk losing the business you have worked hard to develop, we can provide insurance that will pay in the event of a loss.

With our programs and expertise, not only can we offer coverage for the harvested product, we can protect the product from “seed to sale.” This means when you purchase a clone or seeds to begin a new harvest, we can help insure these at any stage of the growing process. If there is a loss, you will be paid for the value of what those plants would have been worth at full flowering and harvested selling stage in the market.

A handful of other insurance programs and brokers operate in the industry and advertise their abilities to insure the cannabis crop. The vast majority of these will not offer coverage until the plant is fully harvested, or at the very least in the flowering stage. Even then, other programs almost always have a disadvantage in which they will only pay the amount which is required to replace the plant. Only paying to replace a plant leaves a significant gap in coverage for the cultivator. The cultivator has lost the value of the additional cost that was added to that plant to grow it to the stage it was in when the loss occurred. Not to mention, only replacing the cost doesn’t make up for the potential lost income by not being able to bring the harvest to market.

By having an experienced broker on your team, these shortcomings can be addressed and protected against. Through our expertise and relationships in the industry, we have been at the forefront to develop the most comprehensive programs available. Our proprietary crop insurance program has been developed from the ground up, and it offers the most comprehensive coverage at a competitive price. Our office is a division of Brown & Brown, Inc. Located in Santa Barbara, CA, we represent clients in all states wherever cannabis is legal medically or recreationally. Contact us today.