Marijuana Insurance Buds in Arkansas

Paul Dunn of Paul E. Dunn Insurance in Fayetteville says he saw firsthand how medical marijuana helped his brother "be able to eat and fight the nausea" of lung cancer.

The moment last year that Arkansas voters approved the use of medical marijuana, Paul Dunn knew he wanted to sell insurance for the industry.

Dunn, who owns Paul E. Dunn Insurance of Fayetteville, had seen how marijuana aided his brother in enduring lung cancer before he died about 10 years ago.

“During the chemo and radiation, it helped him be able to eat and fight the nausea,” Dunn said.

Dunn will be one of the several agents who will sell insurance to companies in the new cannabis sector in Arkansas.

But it won’t be easy. The federal government still considers marijuana illegal.

“It’s like Prohibition,” Dunn said.

Marijuana growers, for starters, won’t be able to get crop insurance from the Federal Crop Insurance Corp.

The problem with the unobtainable crop insurance was highlighted last month when hundreds of marijuana farms were destroyed by wildfires in northern California, said Josh Drayton, a spokesman for the California Cannabis Industry Association.

“If the crop was growing indoors, there might have been the possibility that your insurance provider would cover that indoor crop,” Drayton said. “But outdoor cultivation has been the most affected by the fires and by the lack of insurance.”

Drayton estimated the fire loss to the marijuana industry could be in the millions of dollars or tens of millions of dollars.

“In general, the folks in the cannabis industry that have been purchasing insurance have typically been purchasing only the required amount to keep you in compliance,” he said. “So they tended to underinsure their businesses.”

Federal law means it is also harder to get banking services from federally insured financial institutions, and that can mean piles of cash at dispensaries. The increased risk of robberies and burglaries is reflected in higher insurance premiums.

The Arkansas Medical Marijuana Commission hasn’t awarded licenses to distribute or grow medical marijuana. The commission will receive 95 cultivation applications on Dec. 15 and then begin reviewing those documents, said Scott Hardin, a spokesman for the Arkansas Department of Finance & Administration.

Up to five growers will be selected to receive licenses, but a decision isn’t expected until after the first of the year, he said.

After the cultivation applications, the commissioners will receive 227 dispensary applications to review. A date for that hasn’t be set, Hardin said, but eventually the commission will award up to 32 dispensary licenses.

Insurance Sales
Meanwhile, the insurance industry is gearing up to sell products to growers and distributors.

Eric Herget, president of Hub International of Arkansas, the Little Rock branch of a global insurance brokerage, said he didn’t know how much premium the marijuana industry will generate in Arkansas.

“At this stage, it’s five cultivators and 32 dispensaries,” he said. “That’s not going to amount to a huge amount of premiums for any one insurance carrier, but it’s still enough premiums out there to get their interest.”

Herget said Hub International has offered insurance for medical and recreational marijuana in other states and will offer it in Arkansas.

Insurance brokers with ties to financial institutions, Herget said, might think twice before selling insurance to the cannabis industry, “knowing that they’ve got federal regulators that visit them often” for their banking business.

The Arkansas Insurance Department hasn’t had any applications from companies that want to sell insurance to the new industry, Ryan James, a spokesman for the AID, said in an email to Arkansas Business.

He also said that he’s not aware of any insurer offering any product to entities in the marijuana industry. James also added, though, that there’s nothing in the insurance code that prevents an insurer from offering products to companies in the marijuana industry.

The Lines
For those in the cannabis industry, product liability coverage is recommended, said Michael Aberle, senior vice president of Next Wave Insurance Services LLC of San Diego, an underwriting group that offers specialty lines of insurance, a majority of which are for the marijuana industry.

“There are certain things that are required of these businesses when you provide a consumer-based product,” he said.

Startups might be so focused on getting their marijuana licenses that they forget about employment, product liability and consumer laws that could result in insurance claims against the company, he said.

If a product is recalled, state law might require the marijuana company to notify people in a certain way within a certain amount of time — “or that could be held against them,” Aberle said.

Herget, of Hub International, said a wide variety of insurance lines is available for those in the cannabis industry, including crop insurance and policies that would cover a business interruption in case of something like a fire that wipes out a marijuana farm.

Premium Costs
Cannasure Insurance Services LLC of Cleveland also offers marijuana business insurance for growers and dispensaries and plans to offer it in Arkansas, said Patrick McManamon, the managing director of the company.

In general, the cost for coverage for companies in the marijuana industry will be higher than those entities in comparable fields, he said.

“Any time there’s a newer industry, the insurance companies are usually not the first ones to be on the cutting edge of it,” McManamon said. “However, I think they’ve responded pretty well.”

Aberle, of Next Wave Insurance, said premiums for coverages it offers, such as product liability, through Next Wave start at $500 annually. “We didn’t want to exclude the smaller mom-and-pop shops,” he said. Those businesses could grow and turn into larger clients for Next Wave, he said.

The prices for the premiums could vary, and policies also could come with strict requirements.

Dispensaries, for example, will require security measures that might not be demanded for other businesses, said Dunn, the Fayetteville insurance agent.

After hours, dispensaries will have to store marijuana products in a half-ton or larger safe, which will be bolted to the floor.

In addition, a burglar alarm system has to have contacts on all windows and doors open to the outside and all windows and doors adjacent to common stairways or hallways, he said. The alarm also is required to have motion detectors that cover the room where the safe is kept.

“It’s a high-risk business,” Dunn said.

Dunn said he didn’t know how much the marijuana industry will add to his business, which he’s been in for nearly 24 years. “It’s such a new product,” he said. “I couldn’t tell you that.”