The cannabis industry is a relatively young one, whether we’re talking about Canada or on a global basis. With a growing market come rapid changes, with the cannabis companies and regulations that guide their operations, as well as with the insurers who provide coverage for the industry.
“We’re seeing it change nearly hourly, with new insurers coming in, new applicants to Health Canada, and new markets overseas, so that brings its challenges because you’ve got small companies that suddenly have a microscope on them and the microscope starts at the board level,” said Scott Saddington (pictured), Canadian practice leader for financial lines, and mergers and acquisitions at Willis Towers Watson, and a speaker at the upcoming Cannabis Cover masterclass in Toronto.
Nonetheless, risk management is not usually the first thing that budding companies think about. When the Willis Towers Watson teams speaks to current and potential clients, they are often bringing up the need for proper risk mitigation for the first time.
“We ask them about their risk management framework and they usually look at you in a quizzical manner because they’re just about product and trying to make money, so the whole range of insurance is needed – the general liability, premises, product, property, equipment breakdown,” explained Saddington. “It’s just a little more of a tweak to some of the coverages because of the existing stigma of cannabis.”
As a transactional risk expert, Saddington also keeps an eye on M&A in the cannabis industry, and even in that sphere, changes happen quickly.
“There’s been over $12 billion in M&A activity in the cannabis space in the past 12 months, and I only see it getting accelerated as larger companies dominate more and more,” he said. “I think smaller companies and smaller grow operations, the mom-and-pop shop with a couple of acres, will just be snapped up.”
To that end, reps and warranties insurance is available, though tax indemnity insurance is still a new area for many of these companies.
“Risk management and regulatory issues weren’t ever thought about at their companies when they were starting out, so as you can imagine they [may not have] done filings on time or they may have missed the tax filing,” said Saddington. “And when you’re buying a company, you want to know that everything’s up to date, and there are a few markets that are willing to put up policy limits to cover a tax indemnity.”
When it comes to D&O insurance, Saddington says that carriers are also offering coverage – it’s just about presenting cannabis clients to underwriters with as much information as possible.
“I was recently in London speaking to over a dozen Lloyd’s syndicates, and we didn’t pitch the presentation as an underwriting presentation. We pitched it as an educational session, because the insurance market and individual underwriters do want to learn about this new market and some of the risks,” he explained. “I think if you’re a broker and you have a client who’s in the cannabis industry, you need to really open the kimono [about that client] with, ‘this is who we are, this is our business plan, this is the ownership, these are our backers, this is what we’re doing from a risk management perspective, this is what we’re doing from even an employee engagement and health and benefits perspective because a lot of these companies have gone away from black [market] companies to regulated companies, and it’s new ground for them.”
In this day and age, added Saddington, you need to be an old-school broker, which means not broking by email or by electronic submission.
“It’s sitting down face to face with underwriters and with your client,” he told Insurance Business. “Our company, we feel we built the biggest D&O towers globally, and we continue to do so. We have clients who purchased over $100 million in limits, and they’re listed on the New York Stock Exchange. So, when I hear people saying, ‘Oh, it’s very hard to place,’ I don’t necessarily agree. I think it’s how you broke it.”
From seed to point of sale and beyond, the growing cannabis market presents unique risks and exposures. To learn more, attend Cannabis Cover Toronto at Vantage Venues on November 06, 2019. To sign up, click here
