It seems every week there are more and more cannabis mergers and acquisitions. And as these companies get and bigger bigger, so does their reach.
When it’s all said and done, 2021 may have been the year of cannabis M&AS, but it was also the year of the multistate operator.
One would think that insuring these cannabis MSOs would be a particular challenge. To start with, insurance laws vary state by state. And cannabis laws vary even more broadly depending on which state you’re doing what in – legal, not legal, varying possession amounts, medical use only or recreational, who can and who can’t consume, who can and can’t sell, how it can be sold (and where), whether it can be transported, rules for growing. On and on.
In our latest Insuring Cannabis Podcast, we spoke with Heather Miller, an account executive at the Midwest Series of Lockton Companies, and Matthew Johnson, vice president of QuadScore Risk Services, a specialty risk program founded with the purpose of providing comprehensive insurance solutions, about insuring cannabis MSOs.
Following are brief takeaways from that conversation.
Miller, who says about 80% of her book of business is in cannabis, said the space is unlike anything she’s experienced in her career.
“It’s very unique because there’s a limited number of players but at the end of the day, if you have a large property schedule, they all have to work together,” Miller said. “So I think of them almost as a type of a family, where they’re all siblings and they fight occasionally 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 whenever we do get a large property schedule, they end up having to work together.”
MSOs take up a significant portion of Johnson’s time – he deals with a lot of them. And finding insurance for an MSO takes time and effort.
“In 2021, we’re seeing an unprecedented year of merger and acquisition activity, truly leading to some consolidation in the cannabis space,” Johnson said. “When purchasing another cannabis company, you might inherit their old insurance program, but it’s important to review that and make sure that your buildings all are accurately insured. You’re not under or over insuring any locations and either paying too little and risking that you’re going to have an uncovered claim down the road or paying too much and not getting anything for it, again, in the event that a loss occurs.”
Some of these MSOs don’t just operate in many states, they have properties all over the place. Property insurance is a tough ask nowadays, tougher even for cannabis operators. Dealing with a company with numerous portfolios in many places is tougher yet.
“You’re dealing with a space in insurance that is starved for capacity right now,” Johnson said. “There aren’t enough reinsurance companies active in this space to provide any one carrier with the capacity needed to solve for the largest locations, be it in terms of square footage or total insurable value, just because it’s such a new space within insurance.”
He said they’ve worked on insuring single locations at 2 million-plus square feet.
“I think we’re working on (that’s) going to be larger than that, seeing about a quarter of a billion dollars of total insurable value at a single location,” he said. “It is definitely a challenge working to put together the capacity needed to solve for the insurance needs of those clients who have obviously gone to extreme lengths to build out their facilities.”
Another difficult line of insurance is commercial auto.
When the pandemic hit, that led states to begin declaring cannabis businesses to be essential, and to help with social distancing, many states eased restrictions on cannabis deliveries.
“As you know, if they’re transporting cannabis, their special license that have to be in place and each state’s a little different,” Miller said. “But auto remains one of the toughest lines for us to place for our multi-state operators, because there’s really no good carrier out there that can write in all 50 states.”
To deal with this, Miller said they are working with carriers that “you would never think of in the commercial space.”
“Progressive Insurance is one that we work with a lot and they treat their policies almost like a personal lines policy,” she said. So it ends up being a really administrative heavy burden for our clients to get us all the information. And then, it’s not a normal line of communication that we have in commercial insurance.”
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