Adam Grimmett stood on the roof of Little Rock’s oldest skyscraper, one named for an old insurance company, and pondered the oddity of insuring buildings full of marijuana.
“Everybody needs a ‘why,’” said Grimmett, 32, chief risk consultant at Growbrite Risk Management. “I’m a veteran who spent 18 months in Afghanistan, and I want to serve these veterans and help them get the treatments they need. Everybody in cannabis-related businesses has a why for being in this business. I am just not going to judge veterans on how they get relief.”
Grimmett’s company, born in August of last year, serves more than half of Arkansas’ new medical marijuana businesses from his sixth-floor offices in Pyramid Place, the former Pyramid Life building at Second and Center streets. So far, in 14 months of operation, his company has yet to pay a single claim.
The 10-story 1907 landmark is steeped in Little Rock insurance history, dubbed the Home Insurance Building in 1929 and renamed for the Pyramid Life Insurance Co., which bought it in 1938. But after leaving a traditional insurance brokerage up the street, Grimmett opened Growbrite in August 2018 looking to the future. Last week on the rooftop, he looked down at the Arkansas River and up at the Stephens Inc. building, reflecting on his path.
“I wanted to be in this space,” Grimmett said, revealing how he and partner Adam Hodge discovered a glitch in the state’s original bond requirements for medical marijuana business licenses and got a leg up on Arkansas’ MMJ insurance market.
“Offering insurance and risk management is what we do, but it’s not really why we’re in this industry,” Grimmett said. “The reason I’m in it is personal. I want to help fellow veterans.”
Business is good for both the state’s medical cannabis industry and its top insurer, Grimmett said.
As of Oct. 22, the 10 open medical cannabis dispensaries in Arkansas had sold 2,159 pounds of marijuana in just over five months, an amount worth $15.36 million. The first dispensary opened May 10, and the growing list of Arkansans with medical marijuana cards now tops 26,000. That figure could eventually triple, industry insiders say.
But still, medical cannabis companies are cautious.
“We don’t reveal who our clients are, but I’m comfortable saying we serve the majority of cannabis-related companies in the state,” Grimmett said. “I think it’s fair to say that we initiated the market. We have a few competitors nationally, but not really any within the state.”
Discovering a Glitch
Grimmett and Hodge, known as “the Adams” in Arkansas’ insular world of legal cannabis, discovered a fault in the state’s original licensing process for marijuana cultivators and dispensers. Companies had to prove they were bonded, an expensive proposition, even to apply in the extremely competitive process.
“It was something funky we discovered on the bond form, so Adam and I went to the Department of Finance and said this doesn’t make any sense. So we built a preapproval system for the department to use,” basically assuring that license applicants would be bonded when approvals came through.
“That’s probably what leveraged us to winning all the business we have now,” Grimmett said. “When we offered that, it meant you had to buy a bond only after being approved. Our process worked like preapproval for buying a car. The result was that it introduced us to all of these business owners. I am comfortable in saying that between marijuana and CBD from hemp, we work with over half the people in business in the Arkansas market. This is our only practice, cannabis.”
He said the business model closest to his might be insuring liquor stores. “There are large amounts of inventory in a highly regulated industry, and the business is high risk to some degree.”
Grimmett, round-faced and constantly smiling, said he and Hodge left positions at the insurance broker Insurica to get into cannabis coverage. Like most major companies, Insurica was wary of the cannabis trade. “You’re just now seeing major carriers get into the market,” he said, predicting that their involvement will remain limited by the quirks of offering higher-risk coverage.
Standard vs. Excess Lines
“There are standard lines of insurance to serve businesses that fit inside a certain box,” Grimmett said. “None of the cannabis businesses — or the businesses affiliated with them — fit in that box. So we sell mainly surplus lines of insurance, also known as excess lines.”
He called them similar to policies for gas and oil companies and manufacturers of over-the-counter drugs, “any business with high risk factors of security” and liability.
“Insurers like Travelers and Hartford and Liberty Mutual are never going to come and play in this game.”
John Foley, a partner in Abaca, the Little Rock provider of financial services to the cannabis industry, described contrasts between standard and surplus lines of coverage. Marijuana business owners generally come from professional backgrounds and are accustomed to simply calling their local agent. “The rates/premiums charged by the standard carriers are filed with the Arkansas State Insurance Department annually,” he said in an email to Arkansas Business. “The markets the [marijuana-related businesses] are forced to use are called non-standard or surplus lines, which do not have to file rates” with the state, “and as such can charge higher premiums. This has caused a little sticker shock for the owners.”
Foley, a former banker who co-founded a major regional insurance brokerage called the Insurance Center, said that most marijuana-related businesses have no problems entering workers’ compensation insurance markets. “In health insurance, Arkansas Blue Cross & Blue Shield is writing employee-sponsored plans” for companies, he added.
Along with property, inventory and business income insurance, Growbrite offers risk management services, including counseling on cash and product handling, internal drug policy compliance, internal and external theft prevention and corporate security, not to mention digital and cyber defense and energy sustainability.
“A business doesn’t have to offer health insurance in Arkansas generally until they have 50 or more employees,” Grimmett said. “A lot of our clients are just starting to approach that level, so they’re exploring health insurance. We’ve gotten with a partner agency to be able to provide that coverage when the medical marijuana businesses are ready.”
Grimmett said his biggest competition has come from cannabis business owners’ previous insurers. “Many of the businesspeople getting into this industry may have had a relationship with their insurance guy forever,” he said. “So every once in a while we run into a coverage offer from the previous broker. But our hit ratio is around 92%, which means that almost all of what we submit gets approved. Because of the levels of commission we’re starting to place, we’re starting to get a little bit favorable rates because we’re placing heavier volume. Just like anything you buy in bulk, you get a little better price.”
One quirk is that surplus-line insurance premiums must be paid 100% up front. “Companies can go to a third-party financier, but if your standard line insurance at Travelers is $20,000 a year, they’re going to let you break that up into monthly payments,” Grimmett said. “With surplus lines, that $20,000 is due the day you buy your policy.”
Growbrite allows clients to finance the premium with a 20% downpayment, but has found the offer often declined. “A lot of these businesses in this space are accustomed to paying up front,” Grimmett said.
He ticked off Growbrite’s common products and services. “We insure the property and inventory on hand, the actual cannabis,” he said. “We offer business income policies, basically meaning that if something happens, owners have income to replace their lost revenue.”
The company also offers protection for general liability and product liability, which has become a hot topic since vape-related illnesses and deaths made national headlines. “That’s why all of our clients underwritten here have to show what labs they’re going to use, along with what testing techniques are employed. I have an advantage because when the distribution and cultivation businesses use a lab, in a lot of cases I’m insuring the lab, too. We know all the players, and have made a point of becoming experts on every aspect of the industry.
“I was happy enough in my old job, but this is my passion,” Grimmett concluded. “And I’ve learned to follow passion over money.”