Charles V. Pyfrom, Chief Marketing Officer, CannGen Insurance Services
A majority of U.S. states now permit recreational and/or medicinal use of cannabis products, which are derived from marijuana. As states have relaxed their laws, a complex industry has emerged and continues to expand. In this Q&A, CannGen Insurance Services LLC’s Chief Marketing Officer, Charles Pyfrom, discusses how insuring cannabis industry risks presents a long-term growth opportunity.
How will the cannabis, CBD and Hemp industry develop over the next 12-18 months?
The cannabis industry will continue to evolve and become more “normal” over the next few years. Larger, more sophisticated operators will begin to emerge as the front-runners in this up-and-coming industry, and merger and acquisition activity will flourish. From the insurance side, we would expect to see more and more insurers and reinsurers enter the mix, bringing more capacity and limits as the stigma continues to erode. The passing of the 2018 Farm Bill also had a material change in how our farmers look at/assess what kinds of crops they will use their land for. CBD and industrial hemp forecasts are even more aggressive than cannabis has historically been, and our company continues to be flooded with applications for CBD/hemp operations versus being predominantly cannabis centric prior to the Farm Bill passing. The transportation industry will also be directly affected as the de-scheduling of CBD from the Controlled Sub-stances Act and will allow for interstate transport — something that is forbidden in the cannabis arena.
At the moment, 16 states do not permit recreational or medicinal use of cannabis. What will the cannabis industry look like if some states allow it while others do not?
It is only a matter of time before federal legalization will be in the mix. Recent polling continues to suggest an overwhelming number of Americans support legalization, and elected officials, we believe, will continue to lean on topics like this to generate economic opportunities within their respective jurisdictions. Until federal legalization occurs, however, business will continue to operate as it has for the last decade. Multi-state operators (MSOs) will have to continuously have “state by state” playbooks about how they run their businesses, ranging from standard operating procedures at a retail storefront to the licensing and regulatory side of the house at a corporate level.
What are some of the biggest misconceptions about insuring the cannabis industry?
Often people have the idea that we are insuring the “Cheech and Chong” operators of the world. Make no mistake about it, this is a big-time business with significant investment support from both private and capital markets. No longer is this an underground market where you have to hide what you do as a cannabis grower. You can be transparent and completely above board with all aspects of running this business like any other peer industry. Another common misconception we hear is “You can insure cannabis?” or something to that regard. Cannabis retail is not that different from any other kind of storefront, and cannabis growers are not that different from the growers of hothouse tomatoes, flowers or other things. It tends to hit home and the reality of insurance solutions bespoke to this industry become readily apparent.
What are some of the biggest risks that cannabis industry businesses face?
Like any other business, cannabis operators find themselves at the mercy of regulation — but on a much higher scale than peer industries. A common business practice for a traditional storefront operation might be several times more challenging for a cannabis business, and it certainly takes longer from a timing standpoint. Finding appropriately zoned commercial retail establishments is more difficult than opening a 7-Eleven or something similar. Additionally, things often are more expensive than for peer operators. The cost of licensing and regulatory oversight gets passed on to the operator and ultimately on to the consumer. Add vertically integrated operations to the mix and the potential for different levels of scrutiny increases. When MSOs expand, it’s never as simple as “copy, paste, repeat.” As respects insurance risks, and despite the infancy of this industry, they’re not immune to claims issues. Just like other businesses, they face the ongoing risk of fire/theft/slip and fall claims as much as other industries. The complexity of profitably underwriting emerging industries is not lost on our team, and despite our expertise in this space, multimillion-dollar claims happen. We’re proud to see our exclusive carrier partners continue to support the cannabis, CBD, and hemp industry by actively investigating and paying claims that are covered under the policy provisions.
How have cannabis, CBD and Hemp Insurance policies evolved?
When we created our first insurance policies that were dedicated to the cannabis industry back in 2015, our intent was to provide “clear coverage terms for a fair price in an already gray industry.” These operators have enough on their plate with just opening their doors every day that they should not have to worry if their policies are actually going to cover losses. We continue to bring innovative products to the market such as Onsite Consumption liability, Product Withdrawal coverage, as well as being the first to offer coverage for cash in transit in meaningful amounts for those businesses engaged in the transportation aspect of this industry through our Cargo policies. Every operator will have a coverage line that is relevant to them. For example, a cultivator whose sole source of revenue is selling their crop to a processor or manufacturer should invest in crop insurance. On the flip side, a retailer who merely provides the end product to the consumer should carry product liability to prevent them from being on the hook for someone else’s manufacturing issue or contamination issue. Our very successful workers compensation program has recently expanded into writing multi-state policies for operators in the CBD and hemp space — another step in the evolution of bringing coverage to the mainstream norms. We recommend all operators work with a knowledgeable broker to assess their unique exposures and obtain the meaningful amounts and lines of coverage to keep their business afloat should claims arise. Looking ahead, we’re excited to announce new carrier partnerships in the not too distant future, as well as confirming that a comprehensive auto solution that will further round out our “all lines, one stop” value proposition for retail and wholesale brokers across the country.
What qualities or practices make a cannabis, CBD and Hemp Business attractive to insurance underwriters?
Underwriters, by their nature, like things that are black and white. Unfortunately, there’s lots of gray in the cannabis industry. That’s where expertise in this industry comes into play. Working with operators who have clearly documented best practices and procedures is a great starting point. Taking it a step further, working with insureds on meaningful risk mitigation is another win/win that insurers and insureds can both support. At the end of the day, “best in class” experience and product offerings continue to raise the bar in supporting the cannabis industry and making sure that operators continue to thrive for years to come.
Charles V. Pyfrom is the Chief Marketing Officer at CannGen Insurance Services, where he oversees the P&C underwriting operation, program development/ direction, as well as carrier/broker relations. Prior to joining CannGen, he spent five years as Vice President of Program Management at a privately held program carrier overseeing nearly $300 million in annualized gross written premium and spent four years with Farmers Insurance Group in management roles at their home office. He holds a Bachelor of Science degree in Business Administration/Finance from California Lutheran University, and an MBA from the Graziadio School of Business & Management at Pepperdine University.
CannGen Insurance Services operates as a Managing General Underwriter (MGU) dedicated to providing comprehensive insurance solutions which support the cannabis, CBD, and hemp industry. They have more than a decade of experience in this niche and have become the "go to" market for independent insurance agents and brokers that have risks in the space. CannGen's experience and dedication to the industry are unparalleled as they continue to develop new lines of coverage to provide producers and policyholders with comprehensive “seed to sale” insurance protection for their unique business needs.
More information about the firm can be obtained at www.canngenins.com.
Disclaimer: This Risk Perspective should not be consulted as insurance advice or legal advice. Readers should consult licensed professionals for advice in developing insurance and compliance programs.
The Independent Insurance Agent's Guide to Excess, Surplus and Specialty Markets
Over the last several years, the market has seen a dramatic uptick in Excess, Surplus and Specialty lines. As the standard market continues to adjust, the specialty markets will almost certainly continue to grow at a fast pace. This trend can be a highly opportunistic time for Smart Choice agency partners who have access to our Express Markets search tool in the Agency Business Center. See how this indicates a great opportunity for independent agencies in the 2021 Issue 2 of Smart Choice Magazine.