“I Have Insurance” But For How Long?

Imagine that you own and operate a dispensary and for the past three years things couldn’t have run more smoothly. You have a steady stream of clients, you haven’t suffered any losses, and you’re beginning to build a solid reputation around the area. The next thing that you know, you get a call from your insurance agent saying that you’ve just been cancelled and have to get new insurance.

You’re shocked. You think, “How can this be? I haven’t submitted a claim, what reason do they have for cancelling me?” To your credit, this is logical thinking. Why would you be cancelled when you haven’t had any losses or even submitted a claim to your insurance carrier to merit the possibility of being cancelled?

The scenario above is true and happened to my client Michael Thomas, owner of High Tides Dispensary in Gualala, California. His policy was cancelled by his insurance carrier back in June of this year. Why was he cancelled after being with them for 3+ years with no losses or claims? The reason is that his former agent placed him with Farmers Insurance, which does not work with the cannabis industry. 

You’re probably thinking “If Farmers doesn’t work with the cannabis industry, then how is it possible that he was insured by them?” Again, this seems logical. The reason that he was insured with Farmers was because his agent at the time classified his business as a “gift shop” rather than a “dispensary,” in order to have Farmers quote and insure the business. However, once Farmers found out what that agent had done, they cancelled the policy on the spot, leaving the dispensary with no coverage and the owner having to scramble to find and implement the proper insurance.

What’s worse is that this was all unknown to Michael, who had assumed that his agent classified him correctly rather than misrepresenting his business, because he knew that his agent was aware his business was a dispensary. That is the correct assumption Michael should have made. How would he know or think that his agent would misrepresent his business and put him in this position? I’ll tell you a couple of possible reasons insurance agents would take this action:

1.They don’t understand the cannabis industry.

2.They can’t access the specific cannabis markets that have an appetite for this industry.

3.They think they can get away with it and reap the additional benefits of placing him in a standard market.

In this scenario, it happened that the former agent didn’t have a complete understanding of the industry and the operations of High Tides, and did not do it maliciously or for his own gain. However, this, along with the three reasons above does not excuse the agent for putting Michael and High Tides in this position. The agent should have been upfront and said that he either didn’t truly understand the industry/this business or that he couldn’t access the markets that were needed. Instead, he ultimately put Michael in the vulnerable position of being uninsured during the time that it took us to properly implement correct coverages. 

What happened to Michael wasn’t the first time this has happened to a business and it won’t be the last—because some agents are more concerned with writing business than making sure that they are providing correct coverage. Compound this with the fact that because only a handful of specialty insurance markets will cover the cannabis industry, what happened to Michael is even more likely to happen to other cannabis businesses.

This highlights the importance of working with someone who acts as more than just your insurance agent, that you hear from maybe once a year and then around renewal time. You want someone who acts as an advisor and works with you to ensure that your business, employees, equipment, inventory, etc., are all properly insured so that you—as a business owner—can rest easy at night knowing that your business is protected.

After hearing about what happened to Michael and High Tides, how confident are you that your business is properly insured? Feel free to reach out, as I’m more than happy to review your current insurance program to see if it is indeed set up correctly to protect your business or if you should expect a call from your insurance carrier soon.

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Max Meade
Cannabis Insurance Advisor
Brown & Brown
Email: Mmeade@bbdvins.com
Office: 856-552-6358