Vermont’s cannabis entrepreneurs face many heightened costs as they head into the legal recreational market that opens Saturday.
A particularly daunting one is insurance.
“Get your wallet out,” said Scott Sparks, who is planning to open Bud Barn, his store in Brattleboro, on Oct. 17. “It’s incredibly expensive.”
The Cannabis Control Board requires cannabis businesses to get “commercially reasonable” levels of insurance or place funds in escrow to cover potential liability.
If they are unable to secure insurance coverage, small growers must place at least $10,000 in escrow. Medium and large manufacturers and medium growers must place at least $50,000 in escrow. Retailers, wholesalers, integrated licensees, testing laboratories, small manufacturers and large growers must place at least $250,000 in escrow.
Michael DeNault, an insurance broker with Charles River Insurance, an agency in Massachusetts that handles about 50 Vermont clients, said a small grower can get the minimum coverage for about $750 a year.
But that insurance is the bare minimum.
Louis Olave, managing partner of Good Harbor Solutions, a Burlington insurance agency with about 40 Vermont clients in the cannabis business, said cannabis businesses — like most businesses — need much more than the bare minimum to protect themselves.
If people are using their vehicle to transport their cannabis products, they have to get additional transportation insurance, Olave said.
Insuring inventory poses its own challenges. Olave said insurance carriers require businesses to keep cannabis in a concrete vault or a wire mesh cage.
Dave Silberman, a Middlebury attorney who advises cannabis businesses and is opening FLORA, a retail store in Middlebury on Saturday, said one insurance company would have required him to install a sprinkler system before it would cover him for theft.
“You tell me how that makes sense,” Silberman said. “I can understand having that for fire coverage, but it’s a little silly for theft.”
Then there is product liability insurance.
“Product liability is essential coverage, like somebody uses one of your products and they get sick, they can sue you because medically something happened to them,” Olave said.
All that extra insurance can get expensive. Olave said some of his clients are paying nearly $30,000 in annual premiums.
“It’s very expensive, for example, for a retail shop to get effective theft insurance,” Silberman said. “Because it's a cash-heavy business and most insurance policies, the standard form only covers you for $10,000 of cash loss, and on a busy three-day weekend, a cannabis business might generate a couple hundred thousand dollars of cash, and so how do you get that insured?”
Sparks said just his down payment on the Bud Barn’s insurance policy’s premium is $10,000.
Tito Bern, who has applied for retail, growing and manufacturing licenses, said it has been relatively easy to find insurance, despite the cost. He plans to buy an umbrella policy for “well over” $10,000 a year in premiums. His medium-sized growing operation alone will cost him $7,000 to $8,000 a year in premiums, he said, and that would not cover him for theft.
“All you have to do is put the word ‘cannabis’ in front of something, and it immediately doubles,” Bern said of the costs involved in Vermont’s newest retail sector.
Brandon Pollock is chief executive officer of Theory Wellness, a Massachusetts and Maine company that is applying for a retail license in Brattleboro. When he co-founded the company five years ago, Pollock said, insurance was twice as expensive as it is now.
“It’s gotten better,” he said. “But it still carries a significant premium over any other normal business.”
Olave said his is one of the few insurance agencies in Vermont that cover cannabis businesses.
No admitted insurance carriers — meaning carriers regulated by the Department of Financial Regulation — cover cannabis businesses in Vermont, according to Deputy Commissioner of Insurance Emily Brown. All the cannabis insurance is carried by surplus line carriers, she said. Surplus line carriers are not regulated by the department and are not eligible for coverage by the guaranty association, which guarantees that other insurance companies will cover claims if one of their members is unable to do so, she said.
“Standard carriers don’t insure these types of things, so you have to go to a specialty carrier,” Olave said, noting that he works with seven insurance companies in the United States and globally that specialize in cannabis.
“There’s nothing on this planet that you can’t insure,” he said.
Vermont has many home cannabis businesses, and that requires a particular kind of insurance. It’s one reason so many have turned to DeNault, the Massachusetts broker.
DeNault said cannabis entrepreneurs, including the roughly 175 home-based growers in Vermont, should beware of existing home or business policies that do not specifically cover cannabis. Those carriers have the right to deny coverage if they find out that cannabis is involved, he said. DeNault said he has approached his clients’ home and business insurance companies to ask them to specifically include or exclude cannabis for clarity, but they refuse to provide that clarity.
“These are the folks who provide homeowner policies to most of the state of Vermont or most of the policies to (non-cannabis) businesses,” DeNault said.
Olave said cannabis entrepreneurs have come to him to say that their insurance company dropped them.
“They called up and said: ‘Hey, I’m going to grow cannabis on my property, are you OK with that?’” Olave said.
When the insurance company said “no,” they were dropped, Olave said.
“So we tell our clients, ‘Do not call your homeowners insurance company until you talk to us, because there’s other options out there.’”
Correction: An earlier version of this story incorrectly described surplus line carriers' eligibility.
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