Vermont’s cannabis entrepreneurs face a big cost when they enter the legal recreational market that opens Saturday.
Especially scary is insurance.
“Get your wallet out,” said Scott Sparks, who plans to open his store in Brattleboro on Oct. 17.
The Cannabis Regulatory Board requires cannabis businesses to obtain “commercially reasonable” levels of insurance or set aside funds to cover liability.
If they cannot secure insurance coverage, small growers must set aside at least $10,000 in storage. Medium and large producers and medium growers must keep at least $50,000 in escrow. Retailers, wholesalers, integrated licensees, testing laboratories, small producers and large growers must deposit at least $250,000 in escrow.
An insurance broker with Charles River Insurance, an agency that serves about 50 Vermont clients in Massachusetts, said a small grower can get the minimum coverage for $750 a year.
But that insurance is the lowest.
Lewis 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 more than the bare minimum to protect themselves.
If people use their cars to transport their cannabis products, they should get additional transport insurance, Olav said.
Insuring inventory creates its own challenges. Olav says insurance carriers require businesses to keep cannabis in concrete vaults or wire cages.
Dave Silberman, a Middlebury attorney who advises cannabis businesses and owned the retail store FLORA on Saturday, said an insurance company wanted him to install a sprinkler system before covering it for theft.
“Tell me how that makes sense,” Silberman said. “I can understand this being a cover for fire, but it’s a bit silly for theft.”
Then there is product liability insurance.
“Product liability is an important coverage, just like if someone uses one of your products and gets sick, they can sue you because something happened to them medically,” Olav said.
All that extra insurance can be expensive. Olav says some of his clients are paying close to $30,000 a year.
“It’s very expensive for a retail store, for example, to have effective theft insurance,” Silberman said. “Because this is a cash-heavy business and most insurance policies, the standard form will only cover you for $10,000 in cash losses, and on a busy three-day weekend, a cannabis business might bring in two hundred thousand dollars in cash, and how do you get that insurance?”
Sparks said his advance payment on Bud Barn’s insurance policy premium was $10,000.
Titus Burns, who applied for retail, grow and manufacture licenses, said it was easy to get insurance despite the costs. He plans to buy an umbrella policy for more than $10,000 a year. He said the moderately growing operation alone costs him $7,000 to $8,000 a year in premiums, which doesn’t cover theft.
“All you have to do is put the word ‘cannabis’ in front of something, and it immediately doubles,” Byrne said of spending on Vermont’s new retail sector.
Brandon Pollock is CEO of Theory Wellness, a Massachusetts and Maine company applying for a retail license in Brattleboro. When Pollock founded the company five years ago, insurance was more than double what it is now.
“It’s improved,” he said. But it still carries a huge premium over any other regular business.
Olav said he is one of the few insurance agencies in Vermont that covers cannabis businesses.
Insurance Services Deputy Commissioner Emily Brown said no approved insurance carriers — carriers regulated by the Department of Financial Regulation — cover cannabis businesses in Vermont. All cannabis insurance is carried by premium lines carriers, she said. Profit lines carriers are not regulated by the department and are not eligible for reinsurance if they cannot cover claims, she said.
Olav says that he works with seven insurance companies in the United States and companies that specialize in cannabis.
“There’s nothing on this planet you don’t insure,” he said.
Vermont has many home cannabis businesses, and that requires separate insurance. That’s one reason many turn to DeNault, a Massachusetts brokerage.
He said cannabis entrepreneurs, including 175 home growers in Vermont, should be wary of home or business policies that don’t cover cannabis. Those carriers have the right to deny coverage if they know cannabis is involved, he said. DeNault said he has approached his clients’ home and commercial insurance companies to ask them to include or exclude cannabis for transparency, but they refuse to provide that transparency.
“These are the people who provide homeowner’s policies for most of the state of Vermont or most of the policies for (non-cannabis) businesses,” DeNault said.
Olav claims that cannabis entrepreneurs have come to him and said their insurance company has abandoned them.
“They called and said, ‘Hey, I’m going to grow cannabis on my property, are you okay?'” Olav said. said Olaf.
The insurance company said “no,” and they were dismissed, Olav said.
“So we tell our clients, ‘Don’t call your homeowners insurance company until you talk to us, because there are other options.'”
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