Wildfires in California expose the Vulnerability of the State’s Marijuana Industry

The devastating fires in California this month shed a spotlight on the lack of insurance coverage the marijuana industry receives. Because marijuana is still considered a Schedule I drug under the Controlled Substances Act, it is almost impossible for farmers to insure the plant. The Cannabist reports that marijuana’s federally illegal status:

makes it extremely difficult, if not impossible, for most of the marijuana businesses affected by those disasters to access crop insurance, emergency bank loans, and disaster relief assistance available to other agriculture sectors.

Meanwhile, marijuana’s legal limbo has also scared away many major insurance companies from offering their services to the cannabis industry. For instance, Lloyd’s of London, a giant in the specialty insurance and reinsurance market, stopped insuring all cannabis operations in 2015, “unless and until the sale of either medicinal or recreational marijuana is formally recognized by the Federal government as legal.”

During the month of October, the fires destroyed at least 34 marijuana farms, burning thousands of acres of land on which
the marijuana was growing. Unfortunately, the farmers that own this land have been left with almost no recourse due to the preventative federal laws, despite the fact that many of the farmers have spent thousands of dollars to ensure compliance with state law.

Last week, California’s state insurance commissioner, Dave Jones, encouraged commercial insurance companies to insure marijuana businesses that are in compliance with state law, reasoning that “it’s [their] job as state officials “to make sure [they] successfully implement the legalization of cannabis.” It remains to be seen whether any insurance companies will accept his pleas, but Jones’s efforts have come too late for farmers in the current predicament.

Given the uncertain future of insurance for marijuana and marijuana related businesses, California may be able to take a note from Colorado in order to partially protect the industry from natural disasters in the future. Gerry Jones and Mark McNeely, employees of Cannabis Insurance Solutions in Denver, explained that although outdoor agricultural programs are federally insured and back, there is some leeway when it comes to indoor agricultural programs.

You have crop insurance and general liability for the building and professional liability for the people who come in and spray the crops and those kind of things. So the full gamut of coverages any other businesses would have access to," Jones said.

In Colorado, all dispensaries and cultivation operations are licensed with the state, which provides additional funding. Therefore, a business is covered if it is destroyed by a natural disaster, as long as the business is insured. It may be worth it for California to take a look at this indoor-farm workaround as a way to recoup some losses in the case of a future natural disaster, at least until there is a response from the insurance industry after the requests made by Commissioner Jones.

--Taylor Wood