How can brokers branch out into cannabis coverage? Industry veteran tells all

How can brokers branch out into cannabis coverage? Industry veteran tells all

The legalization of recreational cannabis in Canada is one of the hottest topics in insurance right now. A host of brokers are asking themselves: how do I even begin to approach this mysterious new market?

Lars Rittmann (registered broker, Erb and Erb Insurance) is an expert on the subject, who will be speaking at the upcoming webinar ‘Cannabis Cover: current needs and future opportunities’ on February 08.

We asked him just what brokers can expect from this new market …

Insurance Business: Why should brokers get involved in this market? What benefits does it offer over other niche areas?

Lars Rittmann: It’s going to be big. Way larger than expected.

It’s important to think beyond just cannabis. After legalization, farmers can start growing hemp again. You can make paint out of it, building material, clothing, homes … so there’s all kinds of things beyond cannabis legalization that could be coming out of this that no-one’s even looking at. Imagine if we started growing hemp and used it to make fuel for cars.

Also, just look at the edibles market. In Amsterdam, for example, there’s ice-cream and gummi bears and chocolates infused with THC. People are making pizzas with THC infused sauce. In 10 years restaurants might serve THC-infused meals. There are so many opportunities for someone to create a business that will need insuring out of this.

There’s also a lot of people out there who want to look at the medical benefits of cannabis. Once the testing begins in earnest, the sky is the limit. We don’t know the benefits until we start the research. Moving forward on a medical aspect, the growth is limitless. We’re at the tip of an iceberg right now.

From a broker’s viewpoint, we have no idea what the entrepreneurs’ ideas are moving forward. It could be a cure for cancer, for all we know.

IB: What are the key things brokers should learn before getting involved?

LR: They should understand the history of cannabis and the logistics of the plant itself. As a broker in this field, I understand the market. I’ve read a lot of books on the plant itself, I know how it works, I know all the different types of chemicals in it, so I have a pretty good idea how the plant has come to be what it is culturally.

IB: What are the needs of a typical cannabis business and how can you protect them against these risks?

LR: The biggest risk a lot of people face is theft – breaking and entering. I think every broker should talk to their clients about safety and security. That’s huge from a risk management standpoint. That’s something I always discuss with my clients.

The most policies I have now are for ACMPR growers – medical users who have been granted permission to grow for themselves. You can’t grow it at home because home insurers won’t insure you, so a lot of these guys go into commercial buildings and set up shop in these locations. The building owner now has an issue because some of the big insurance players don’t want to insure his building if marijuana growing is going on there. So, I’ve been providing coverage for the building owners who have nothing to do with the growing but who provide the space.

Then you have your licensed producers, your large-scale growers. Most of these guys own the buildings themselves and set up business on a much larger scale – 200 to 10,000 plants.

Then of course we have dispensaries. Those are the three types of marijuana operations I’m insuring right now. Dispensaries for the most part will disappear upon legalization. The government will be selling cannabis direct to the consumer, just how it sells alcohol to Canadian consumers. The provinces will be running Cannabis Control Boards, so soon we won’t be providing insurance for the older methods of distribution.

The risk of an online disaster is a bigger risk, I believe, than any involved with selling the product itself. As a broker, if you insure a licensed producer who’s selling online, you have to ask that person ‘how do you collect payments?’. I tell producers that they should have a third-party like a PayPal system collecting this information, so that they’re not doing it directly – preventing them from being hacked, or that information being stolen.

For most ACMPR growers I just set them up with premises liability and coverage for their property. There are a handful of companies right now offering coverage for stock, but only for licensed producers, the biggest players.

The same applies to dispensaries – just premises liability. There’s no coverage available for the goods they’re selling. So, if someone were to take the plants home, smoke it, get sick and decide to sue the person who distributed or made it, there’s very little coverage for that right now.

It’s my understanding that there are some new players coming into the market. There are some companies who didn’t provide coverage a year ago who are now moving forward in this area. So, this is like anything in the insurance business – it moves slowly, but once there’s profit to be made people take a better look at it.

IB: How do you see this market growing and developing in the future?

LR: The government has no idea how big this market will become. They’re just seeing it as tax dollars in their pocket for the distribution – but there will be so many new offsets. There will be a huge number of business around the legal market that we haven’t even envisioned yet. There will be so many things coming out of this. We don’t know how this will blow up.

The demand from recreational users is going to drive this industry. It’s going to force the government to change some of the rules and create opportunities for the entrepreneur moving forward. But … just like Colorado and Las Vegas had to declare a state of emergency because they ran out of cannabis within the first month of making it legal there … I predict the same thing will happen here in Canada. There simply won’t be enough to keep all the shelves stocked.
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