In 2016, medicinal cannabis, or medicinal marijuana, became legal in Australia. However, access to the drug for medical reasons is restrictive and varies from state to state. Despite that, Medicinal Cannabis Industry Australia (MCIA) says the industry has “grown rapidly”.
However, the experience of Peter Greenham (pictured above), director of AllCover Insurance Brokers, suggests that, despite the opportunities, it can be very tough for industry stakeholders to find insurance coverages.
“The whole field of psychoactives and products [like medicinal cannabis] being used for mental health is certainly being trialled and showing some promise,” said Greenham. “It’s moving forward very, very rapidly and the insurance market is struggling to keep up.”
About 18 months ago, Greenham started looking for insurance coverages for a client who planned to build a medicinal cannabis facility. Since then, he’s changed jobs and now runs his own brokerage, so he no longer deals with the client. However, he agreed to discuss the insurance challenges with Insurance Business.
“It wasn’t something I was fully across at the time so I did dive down the rabbit hole of doing some research and obviously it’s a growth market with medicinal cannabis now coming into the mainstream,” said Greenham.
He said the client’s plan involved building a brand-new, purpose-built cannabis farm with temperature controlled growth rooms, air quality filtration and the correct lighting.
“Everything was on point to have a really quality growth environment for the products,” he said.
The facility was located in regional Queensland outside a town.
“There is a bit of privacy around it so I don’t want to give too much away [about the location],” said Greenham. “But that was one of the first challenges: It was not near a full time, manned fire station.”
He said there was some EPS [expanded polystyrene] in the construction which proved to be another complicating factor. EPS cladding can be a major fire risk.
However, he said the environment of this particular facility was more controlled than other cannabis projects that grow the cannabis plants in shade houses or outdoors.
“If you had this facility in a semi suburban area where there might be a fire brigade 10 minutes away, it would have probably been easier [to get insurance covers],” said Greenham.
However, it wasn’t just the fire risk that was an issue.
“It was a combination of things which made it challenging to work on,” said Greenham. “With cannabis itself, insurers seem to be a little bit gun shy or nervous about it and it can be a treaty exclusion for them to write any business that has anything to do with that particular occupation of growing marijuana.”
He explained the coverages required by a cannabis farm of this kind.
“Initially, it was for the facility itself,” said Greenham. “It was going to be about a $2 million construction project and each individual room inside – there were about five or six – cost around $300,000 to fit out.”
Finding the construction insurance coverage, he said, wasn’t as difficult as the property covers once the building was complete.
“That was the biggest challenge,” said Greenham. “Then also, we had to secure some liability for the activity of producing the products.”
IB asked Greenham, how did insurers respond?
“For some it was just a, ‘No, we can’t place that, it’s not an occupation we can cover’,” he said.
However, he said some insurers would like to have written the risks and could see it was a quality build from an insurance risk perspective.
“Their security - I’m talking about underwriting agencies in general here - just wouldn’t allow them at the time,” said Greenham. “They were hoping that might change in the not-too-distant future.”
He was turned down by no less than 25 insurance markets, he said.
“I could count on one hand the number of people where you would move on to some sort of further discourse,” said Greenham. “It’s one of those emerging fields where I think smart underwriters are wanting to move towards it but the facilities or capital providers behind them, aren’t so progressive at times.”
He said the challenges included jurisdictional issues with different state and federal authorities, even though a firm might be able to get Therapeutic Goods Administration (TGA) approval and a license to grow the products.
In the end, Greenham was able to find a Lloyd’s underwriter willing to offer coverage.
“The terms of the pricing was OK, but because of the location they hit that one with a high fire excess, which we had to roll with at that time because we literally came down to one option at the end of the day,” he said.
When IB suggested that, despite the steep fire excess, just finding coverage was probably a win, Greenham agreed.
“Yes, it always feels good to get it over the line, even if I do hate it when I think it could be done a little bit more effectively for the client,” he said.
Greenham hopes Australia’s medicinal cannabis industry and the regulatory landscape around it catches up to the US and European markets.
“They’re a bit more advanced in their legal approach to the products,” he said.
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