Takeaways from our conversation on cannabis SMO insurance
It seems that every week there are more and more mergers and acquisitions of cannabis. And as these businesses grow, so does their reach.
In the end, 2021 may have been the year of cannabis mergers and acquisitions, but it was also the year of the multi-state operator.
One would think that securing these cannabis MSOs would be a particular challenge. For starters, insurance laws vary from state to state. And cannabis laws vary even more widely depending on what state you’re doing what – legal, non-legal, varying amounts of possession, medical-only or recreational use, who can and who can’t use, who can and cannot sell, how it can be sold (and where), if it can be transported, cultivation rules. Again and again.
In our latest cannabis insurance podcast, we spoke with Heather Miller, account manager at Midwest Series of Lockton Companies, and Matthew Johnson, vice president of QuadScore Risk Services, a risk-based program founded with the goal of to provide comprehensive insurance solutions, on insuring MSO cannabis.
Here are some quick takeaways from that conversation.
Miller, who says about 80% of her business volume is in cannabis, said the space is unlike anything she has experienced in her career.
âIt’s very unique because there are a limited number of players, but at the end of the day if you have a big real estate program they all have to work together,â Miller said. âSo I think of them almost as a kind of family, where they’re all siblings and they fight every now and then, but at the end of the day they all need to get along. So it’s a very small community. Everyone talks to everyone and every time we get a big real estate calendar they end up having to work together. “
MSOs take up a significant portion of Johnson’s time – he takes care of a lot of them. And finding insurance for an MSO takes time and effort.
âIn 2021, we are seeing an unprecedented year of M&A activity, truly leading to some consolidation in the cannabis space,â Johnson said. âWhen you buy another cannabis business, you can inherit their old insurance program, but it’s important to look at it and make sure your buildings are all properly insured. You are not underinsured or overinsured and you pay too little and you risk having an uncovered claim down the road or you pay too much and get nothing for it, again, in the event that a loss would occur. “
Some of these MSOs don’t just work in many states, they have properties everywhere. Property insurance is a difficult issue these days, more difficult even for cannabis operators. Dealing with a company with many portfolios in many places is even more difficult.
âYou are dealing with a space in insurance that is lacking in capacity right now,â Johnson said. âThere aren’t enough reinsurance companies operating in this space to provide a single carrier with the capacity to resolve the largest locations, either in terms of area or total insurable value, simply because it This is a new space within insurance. “
He said they have been working on securing unique locations to over 2 million square feet.
âI think we’re working on (this) is going to be bigger than that, seeing about a quarter of a billion dollars of total insurable value in one place,â he said. âIt is certainly a challenge to muster the necessary capabilities to meet the insurance needs of these customers who have obviously gone to great lengths to build their facilities. “
Another difficult line of insurance is the commercial automobile.
When the pandemic hit, it led states to start declaring cannabis businesses essential and to help social distancing, with many states easing restrictions on cannabis deliveries.
âAs you know, if they are transporting cannabis, their special license has to be in place and each state is a little different,â Miller said. “But the automobile remains one of the most difficult lines to place for our multistate operators, because there really is no good carrier that can write in all 50 states.”
To deal with this, Miller said they were working with carriers that “you would never have thought of in the commercial space.”
âProgressive insurance is insurance that we work with a lot and they treat their policies almost like a personal insurance policy,â she said. It is therefore a very heavy administrative burden for our clients to obtain all the information from us. Besides, it’s not a normal line of communication that we have in commercial insurance.
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