The Cannabis Captive Insurance Connection

On Thursday, September 13, we'll be giving a webinar titled, Using a Captive For a Cannabis Company

This half-hour webinar will discuss:

1.) Risk -- what it is, what it isn't, and how we fund it
2.) Insurance -- what it is and what it isn't
3.) Forming and running the captive.
4.) The Cannabis piece

The webinar is at noon and will last about half and hour before questions. 

You can sign up at this link.

 
            Of all the topics that I thought I would be writing about when discussing captive insurance, cannabis was most assuredly at the bottom of the list.  Yet there is no denying that the legalization of marijuana at the state level has opened up the idea of insuring businesses that grow and supply pot.  Here, I want to briefly point out some of the historical parallels with other known captive fact patterns and the newly developing cannabis industry.

This is a new risk which is definitely a captive insurance specialty.  I refer to big, third-party insurers as “mutual funds with an annuitized cash outflow.”  They want predictable losses that they can reliably match with investment portfolio incomce.  The only way to obtain predictable losses is to have a wealth of information from which to calculate potential losses.  That doesn’t exist with the cannabis business: there isn’t any data for actuaries, which means big insurers will shy away from this risk.  That makes this a “captive” market.  This is the same fact pattern as the Ocean Drilling Case.

This is a high-risk business.  The biggest problem that cannabis companies face is they’re mostly cash, which obviously invites theft.  Banks won’t touch the business:  

A captive can easily underwrite employee fidelity and theft-related policies.  This is the same fact pattern as Stearns Rogers or Humana.  It also leads to point number three:
 
3. Custom insurance policies: one of the greatest benefits of captives is they allow the parent company to draft their own insurance policies.  Don’t like a standard clause in an ISO contract?  Take it out!  With cannabis companies, you literally have a blank canvas on which to write the exact, specific policy language you want for your company.  This is the same fact pattern as Beech Aircraft.

In closing, cannabis companies have ample and sufficient business purpose in forming a captive.  Please call us at 832.330.4101 if you'd like to discuss this in more detail.