Cannabis insurers may see premiums fall and their marketplace contract due to the pandemic caused by the novel coronavirus.
"We're starting to have some requests for people lowering their sales, or restating sales, which obviously would affect gross written premium," said Patrick McManamon, CEO of cannabis-focused insurance brokerage Cannasure Insurance Services LLC.
The demand for coverage remains, said Erich Bublitz, vice president of cannabis underwriting for Admiral Insurance Group, a Berkley Co., noting that March saw an uptick in cannabis insurance requests as people across many states rushed to buy products prior to government-ordered lockdowns.
But COVID-19 is throwing up major barriers for sales as national travel slows dramatically and dispensaries struggle to stay on top of delivery requests. For example, Nevada is big market for cannabis, but that is predicated on tourist activity.
"If the tourists aren't there, the sales aren't there," McManamon said.
Many states where the product is legal have deemed both recreational and medical cannabis as an essential business, introducing new insurance exposures to help cover things such as deliveries, which have become a part of the business model during the pandemic, said McManamon. But other states are taking different approaches.
Massachusetts, a state where the legal cannabis market is fairly new, has opted to designate recreational cannabis businesses as non-essential. They have been forced to close from late March until the beginning of May. McManamon attributed the governor's decision to a desire to stop "out of staters" from traveling over state lines to buy cannabis products.
Regardless of sales, the risks are all still there, McManamon said. And a decline in premium dollars puts pressure on the amount of income available to pay out potential claims.
"As the premium continues to go down, we can see a contraction of the insurance marketplace," McManamon said. "If you start seeing massive restatements of gross written premium when it comes to this, then it could be a further issue."
For the time being, however, sales are "pretty consistent" McManamon said, noting that there was a slight decline following the surge in March, but nothing "catastrophic" so far.
Bublitz echoed this and added that the resulting cannabis premiums are closely matching those of the liquor industry.
Over the long term, Bublitz said there could be some negative impact as disposable income goes down in the U.S., but for now people are still buying medical cannabis and appear to be prioritizing recreational cannabis as an expenditure as well.
Although some dispensaries could struggle with premium payments, McManamon said his company is working with all customers to make sure it does not become an issue and plans to only cancel policies as an "absolute last resort." If a policy were to be canceled, the carrier may have to return premium payment that was received in advance to the premium finance company the dispensary was working with.
McManamon added that cannabis carriers, like their counterparts across the industry, are likely to experience issues from business interruption claims as well. He noted however that at least some of those policies include exclusions for communicable diseases from virus and bacteria, which could make it harder to obtain coverage.
In addition, Eric Rahn, who serves as a managing partner at cannabis-focused insurance broker S2S Insurance Specialists, said directors and officers claims might also come into play with regard to the responses by companies' management teams to the pandemic.
"I think that's going to be one of the big areas of claims this year," Rahn said. "Did they notify their employees, practice safety first, or were they going for profits?"
Rahn also sits on the National Cannabis Industry Association's Risk Management and Insurance Committee and was involved with some of the lobbying efforts for a bill currently sitting in the U.S. Senate that would provide certain legal and regulatory protections for insurance companies that opt to work with the cannabis industry, which experts say could prompt a rush of insurance carriers jumping into the marketplace.
The bill was expected to gain the momentum it needed to pass the Senate last year, but industry experts say it may now take some more time with the coronavirus being the highest priority.
"I don't think we're going to get it done until we have some clarity on where this virus is and when we're going to be able to go back to normal," Rahn said of the bill.
McManamon said the unique nature of the situation, where many cannabis businesses have been deemed essential but are not able to qualify for federal relief, could lead to the bill getting pushed forward. However, it could also get sent to the back of the line.
"Honestly it's anyone's guess as to where it's going to go," McManamon said.