Hartford Business Journal

14 HARTFORDBUSINESS.COM | May 9, 2022 Marijuana plants growing in Curaleaf's Simsbury grow facility. Cannabis companies face various challenges in finding insurance coverage from traditional insurers. HBJ PHOTO | STEVE LASCHEVER Liability Protection With major players sitting on sidelines, cannabis companies seek alternatives in finding insurance coverage By Skyler Frazer sfrazer@hartfordbusiness.com H artford arguably still owns the title of "insurance capital of the world," but many national insurers that call Connecticut home are expected to shy away from the state's recreational cannabis market because the substance is still illegal at the federal level. That represents yet another challenge for cannabis companies looking to launch or expand in the state to serve the new adult-use market. The Connecticut Insurance Department (CID) published a report in January outlining the insurance market for cannabis companies. It concluded that no "admitted" insurers, or companies licensed by the agency to write insurance in the state, are currently providing coverage for marijuana businesses, meaning big players like The Hartford and Travelers Cos. are opting to sit on the sidelines for now. "For the bigger and larger carriers, it may take them a little bit of time to come around until it's federally regulated and legal, because insurance is an old business and it's very conservative," said Kara Collins, an account executive at HPM Insurance, an independent insurance agency with operations in Connecticut, Massachusetts and New Hampshire. HPM recently began serving the cannabis market. The company works with several insurance carriers to provide coverage, Collins said, and she expects independent agencies and brokers to take up the responsibility of helping insure future cannabis businesses. Smaller, more niche cannabis- focused insurers have become the primary coverage option for the marijuana industry nationwide, and will likely play a key role in providing protection to companies that enter Connecticut's recreational market, experts said. Like other employers, cannabis companies will have to get liability and property coverage and workers' compensation insurance. Cultivators will also need agriculture insurance, and delivery or distribution companies may need auto insurance. Other coverage needs could arise as new license types develop, experts said. The issue George Bradner, assistant deputy commissioner and director of the property casualty division at the Connecticut Insurance Department, said many national insurance companies are hesitant to enter a heavily- regulated market that is still technically illegal federally, something that has been common in other states as they've legalized cannabis. At the same time, many legalization states, such as California and Massachusetts, have made insurance a requirement for licensing marijuana businesses. Connecticut hasn't formally made that declaration yet, but it may. "You have to remember that we deal with risk," said Eric George, president of the Insurance Agency of Connecticut (IAC). "That's what insurance deals with all the time, and while the state can say that something is permissible and legal, the federal government has said that it's not. So, when you have an industry that bases everything it does on risk, and you're talking about permission being granted at the state level but not at the federal level, you have concern." The IAC is an industry trade organization for homeowner, auto and life insurance carriers in the state. George and Bradner both said the issue with insurance companies is similar to the banking industry as it relates to cannabis: without federal legalization, there are barriers. Insurers are conservative by nature and developing cannabis coverage is a challenge because the industry is new and there isn't a long history of loss trends, making it harder to price risk. "New and innovative insurance products for which there is no loss history are difficult, if not impossible to appropriately price using common actuarial methods," the CID report said. "Often, after a new coverage has generated sufficient data, the coverage eventually becomes a standard product in the admitted market but that has not yet happened in the emerging cannabis market." Representatives from both The Hartford and Travelers declined to comment about their involvement in the cannabis industry. Further, several existing medical dispensaries also declined to comment about what types of insurance they have, and who provides it. Sarah Westby, co-chair of Hartford law firm Shipman & Goodwin's cannabis industry practice, said there have been bills proposed in Congress to allow insurance companies to cover cannabis businesses without the threat of federal penalties, like the CLAIM Act, which was introduced in March 2021. "However, like with proposed banking legislation, nothing has passed both houses of Congress yet," she said. Other options, for now Working with smaller insurers or creating captive insurance could be options for upcoming cannabis companies, experts said. Non-admitted insurers, also called surplus lines insurers, are companies that aren't technically licensed by the Connecticut Insurance George Bradner Sarah Westby Eric George Kara Collins

• Cover