How Does a Lack of Available Services Impact Cannabis Companies
As many in the cannabis industry know, securing even basic business services can be a challenge. Important services like insurance, banking, and credit processing are all affected by this shortage of providers willing to work in the cannabis market. Much of this apprehension around working with cannabis businesses comes from the continued illicit status of cannabis at the federal level.
Let’s take a look at how this lack of business services, like insurance, affects the cannabis industry and the individual companies operating within it.
Need for Cannabis Business Services
One of the biggest concerns for cannabis operators has long been obtaining the essential business services necessary for maintaining a successful business. There are many nuances in the conversation about cannabis businesses and their difficulty securing even basic business services. However, at the center of it all is capacity.
In many cannabis markets there simply aren’t enough providers that are willing and able to meet the demands of a rapidly growing, but risky, cannabis industry. This is especially true with insurance providers. According to Reuters, the nearly $20 billion cannabis industry only held about $250 million in insurance policies in 2020. As the cannabis industry continues to grow, it is likely that the number of businesses looking for coverage will outpace the number of insurance providers working in the cannabis space, further widening this gap between available supply and increasing demand.
Access to services like insurance can vary widely from state to state. Cannabis businesses in states where cannabis is largely accepted, like California, will have an easier time than businesses in newly legal cannabis states or those states where attitudes towards cannabis are more conservative. Even when services are available, many providers are inexperienced and under-educated on the intricacies of the cannabis industry.
Often, this means cannabis companies are limited to specialty providers to insure their business assets. However, these specialty providers can sometimes be small, boutique companies unable to take on the volume of business the market needs. That’s why it is important to choose insurance partners wisely.
Feeling the Pinch
The anticipated increase in demand for cannabis services will further affect already scarce availability, making it even harder to find services like an insurance partner in some markets. It isn’t always a quantity issue when trying to purchase insurance coverage, though. Many times the difficulty lies in getting the right coverages. When insurance policies for cannabis businesses are available, some companies are shocked to still find that the coverage they want can’t be secured. For example, while crop insurance is available for indoor grows, coverage for outdoor farms is largely unavailable, limiting the ability for cultivators to protect themselves against risk. In other instances, businesses may find that their coverage is capped at certain levels or their premium is untenably large due to the perceived risks of the cannabis industry. Whether a company is uninsured or under-insured, it leaves assets vulnerable to the consequences of negative impact events.
Ending Federal Prohibition
Federal prohibition continues to be a barrier for cannabis businesses and discourages many providers from working with the cannabis industry out of fear of federal prosecution. Only legalization at the federal level will fully remove this barrier to the cannabis industry.
However, the Clarifying Law Around Insurance of Marijuana (CLAIM) Act and the Secure and Fair Enforcement (SAFE) Banking Act were introduced to congress with the goal of providing protections for companies that work with cannabis businesses to provide insurance and banking services until nationwide legalization becomes a reality. If these two bills pass, availability of these types of business services will be free to catch up with rising needs.
Choosing a Qualified Cannabis Insurance Partner
If you don’t currently have an insurance provider, it is important that you find a partner with prior experience working with cannabis companies. They should also have the necessary knowledge of cannabis regulations to ensure your business is fully covered against potential risk. Contact CannGen here to see what coverages you need to best protect your cannabis business.
More Cannabis Industry News
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Disclaimer: Information shared is for general purposes only.