Outdoor cannabis crop growers in Canada are still finding it very hard to secure insurance coverage almost two-years after recreational-use cannabis was legalized countrywide.
The reasons for this are tenfold. First and foremost, outdoor cultivators are subject to weather-related exposures, which we all know can be quite extreme (and often random) in Canada. It’s very hard for actuaries and underwriters to determine risks for outdoor crops and predict losses for plants when dealing with such an uncertain foe as Mother Nature – especially in a new industry with very little data to turn to. Technically, underwriters could turn to the traditional agricultural crop sector for guidance on how to underwrite outdoor cannabis cultivation, but there is still a lot of uncertainty around the value of each plant and how the coverage should work.
Indoor cultivators and greenhouse growers have much more control over natural hazards. In fact, they can basically override nature and create the perfect growing environments, with controlled air quality, temperature and lighting. The outdoor growers do not have these risk management luxuries, which is another reason why underwriters remain cautious. Furthermore, outdoor cannabis crops are more vulnerable to accidental contamination with pesticides, human contamination, and they’re more difficult to secure against perils like theft and vandalism. The list of difficulties goes on.
Despite these challenges, there’s a lot of potential for outdoor cannabis crop cultivation in Canada, according to Marcus Sargent (pictured), business account executive at Steer Inc. He said: “In my opinion, outdoor growing is the future – with the exception of Quad A, high-end crops with super high THC and unique terpenes, which will continue to be grown indoors. But the rest of the market, especially the 2.0 producers (edibles, topicals, vapes, etc.), are likely going to use the biomass that comes from outdoor crops, simply because they’re far less expensive to cultivate.
“I think extractors [with skin in the cannabis 2.0 game] are in a fantastic position to partner with outdoor crop cultivators in order to realize the crop’s potential every year. I think that’s the future; it’s just a matter of finding the right people and committed capital that believe in these outdoor growers, some of whom have been doing it successfully for a long time.”
To further this vision along, Sargent and some experienced cannabis insurance broking peers, are spearheading an insurance solution for outdoor cannabis crop growers, using data from a select number of successful risks. When asked what makes a successful outdoor grower, he said it takes “a two-pronged approach.”
“First of all, you want to make sure you pick the right environment to grow in – that certainly limits your risk,” he told Insurance Business, “and then you want to be able to control it as best possible so that, number one, the crop lives, and number two, you can actually sell the crop. Of course, there are elements of the outdoors that can compromise a crop, and each grower has a different style on how to manage those risks. Things like hail, wind and flood are all huge risks, but there are other things to consider, such as regulation. There are certain specifications set forth by Health Canada that will trigger either a crop to be recalled or simply not allow it out the front door to begin with. The important things to remember are: pick the right location, and make sure you have the right people and experience on hand to manage and avoid potential risks.”
Outdoor growers who get those things right should, according to Sargent, soon gain access to further capital (especially with the rise of cannabis 2.0) so that they can develop their businesses further and lend against their future crops. But in order for that to happen, they need access to insurance, and fast.
