CannGen's Charles Pyfrom discusses insurance coverage for cannabis entities

The explosive growth of cannabis-touching businesses highlights the need for proper coverage and risk management strategies.

Charles V. Pyfrom (Credit: promesaartstudio / Adobestock.com)

Cannabis sales in 2021 were $26 billion according to flowhub, and are expected to exceed $32 billion in 2022. The industry currently supports over 400,000 jobs. New Frontier Data estimates that the industry’s value could exceed $57 billion by 2030. That’s pretty significant growth for an industry still unregulated at the federal level.

According to the National Conference of State Legislatures, medical marijuana is currently legal in 37 states, three territories and Washington, D.C. Recreational or non-medical use marijuana is legal in 19 states, Washington, D.C., and two territories.

Charles Pyfrom is the chief marketing officer of California-based CannGen Insurance Services, which provides a full range of insurance products for cultivators, distributors, laboratories, processors and harvesters, as well as transporters, manufacturers, dispensaries and other cannabis, hemp and CBD-related businesses. He has served on the company’s executive team since 2017, and oversees CannGen’s carrier and broker relations, and handles their program development and long-term underwriting strategy. With more than 14 years of insurance industry experience, he understands the risks and coverage needs for a wide variety of businesses.

PropertyCasualty360.com asked him to share what he’s seeing in the industry, how pending legislation could affect insurers, banks and cannabis entities, and about frequent risks businesses can overlook.

PC360: Since dispensaries are high-cash businesses, what are some of the unique security challenges they face, and how can they address them? What are some risk products or strategies to consider?

Pyfrom: Theft and robbery are common concerns among dispensaries in legal markets. CannGen requires its customers to keep all of their cash in a safe or vault to help prevent this. In addition, we suggest that businesses have strong security protocols, whether that be personnel or security systems to monitor their facilities. It’s important for dispensaries to secure product liability coverage as well.

PC360: What types of insurance should dispensaries purchase to protect their business & employees? What factors go into determining the appropriate coverage limits for a business?

Pyfrom: While we believe that the coverages a dispensary needs varies from business to business, some typical coverages include product liability, workers’ compensation, property, general liability, transportation, and in some cases, especially with larger chain dispensaries, management liability.

There are a variety of factors that help to determine coverage limits including what security and safety measures a business is taking and the size of their business. In the beginning, it was challenging for us to figure out how much coverage different types of cannabis businesses required, mainly because it is a relatively new legal industry to have insurance needs, but after working with some of the largest cannabis multi-state operators and around 10,000 cannabis businesses in the U.S., we have a very clear picture of what those limits are.

Also, many states where cannabis is legal require these types of businesses to meet a minimum limit for specific lines of insurance.

PC360: What questions should they ask their broker or agent to ensure that they are knowledgeable about the risks cannabis businesses face?

Pyfrom: In addition to general questions about what risks their specific business is facing, dispensary owners should ask their agent about any location-related risks and/or state/city-specific requirements for coverage. They should also have a conversation about how their coverage limits may grow as the business grows and how coverage may change as new regulations and cannabis laws take effect.

PC360: Are more carriers offering coverage now? Is insurance coverage a little easier to obtain, or is it still a challenge since cannabis is illegal at the federal level?

Pyfrom: It’s not difficult for cannabis companies to obtain insurance coverage, but it is difficult for them to find a carrier that offers them all the coverages they need in one place. Many cannabis businesses have to use multiple providers to make sure that their cash, products, property and employees are safe.

We were the first Managing General Underwriter (MGU) to exclusively focus on the legal cannabis industry and we are one of the only to offer all the coverages that a dispensary or other cannabis business might need to be fully compliant and secure.

PC360: If the SAFE Banking Act is passed, what protections will that provide for cannabis businesses in the short- and long-term?

Pyfrom: The SAFE Banking Act has the power to create a tremendously positive shift in the cannabis industry and could significantly decrease the risk of theft and make it safer for employees of cash-only cannabis businesses.

Allowing legal operators to finally have access to much-needed banking and loans – just like any other traditional industry – will not only help current businesses but will encourage new players, big and small, to jump into the market. Our goal is to insure all of those companies, no matter what size they are, so that they can feel safe and secure.

PC360: Are there common mistakes you see dispensaries making when assessing their risks? What role does a strong risk management plan play in helping cannabis businesses obtain insurance coverage?

Pyfrom: Risk management is the number one priority when helping cannabis businesses obtain coverage. Make sure your insurance provider knows the nature of your business. If you do not, and your insurance provider learns you work with cannabis after a claim is filed, they may not honor your policy.

Having general liability coverage as a core part of their insurance policy protects their assets from a lawsuit and ensures they have the funds necessary to maintain their business. Property insurance covers cash, valuable documents, hardware and machinery, products, and even the personal effects of employees and visitors.

But what many dispensary owners aren’t thinking about is the risk associated with their employees. Just like any other business, dispensaries should make sure that their employees are covered in case of any type of accident. Earlier this year, CannGen announced that we are now offering lower workers’ comp rates so that businesses of all sizes can take advantage of this type of coverage.

Editor’s Note: ALM recently launched the Cannabis Insurance Coverage Specialist  (CICS) designation that provides a general overview of the cannabis industry, a review of the issues involving risk management, real estate, and claims, workers’ comp and legal employment questions, and a look at factors for business advisors to consider when working with companies operating in the cannabis space. For more details on the CICS, visit www.nutraining.com.

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