lmost any business can benefit from purchasing equipment breakdown insurance. Even small companies can lose thousands of dollars when their computers break down or their copy machines quit copying. Equipment breakdown insurance covers the repair or replacement of vital machines and often the loss of income from these incidents. It’s easy to imagine the financial losses that a conveyor belt breakdown would cause a factory or a bulldozer malfunction would cause a construction company. The equipment required for growing and distributing hemp and cannabis is also expensive and vital, but those in the industry may have problems getting this coverage. After all, cannabis is still illegal on the federal level in the United States, and hemp was as well until just recently. Fortunately the changing legal status of cannabis and hemp is opening up the insurance market and giving producers and distributors more options for equipment breakdown insurance as well as other coverage types.
Cannabis and Hemp Equipment
Producing hemp and cannabis requires expensive equipment and sophisticated technology. The hemp industry received a huge boost from the 2018 Farm Act which legalized hemp and made it a more attractive crop choice for farmers. More farmers are willing to plant and harvest hemp because they can now get loans from FDIC banks and crop insurance from the federal government. Producing hemp in large quantities requires seed drills, transplanters and combines. All agricultural equipment is quite expensive. For instance, a combine can cost $300,000 or more. In addition, producers need large trucks to transport their products to market. Any hemp business needs equipment insurance to keep them profitable.
Cannabis growers also need expensive equipment in order to produce a healthy and profitable crop. Indoor producers need to create the right environment, which often includes grow tents or modified warehouses. The lighting must be conducive to cannabis production by maintaining the optimum amount of light and warmth for the plants. Specialized grow lights are a necessity.
Indoor producers need to provide the right level of air flow, which requires an air system with exhaust, intake and circulation components. Cannabis will not do well without clean, fresh air. Outdoor producers also have to closely monitor their crops and provide advanced security and lighting for their grow area. Both types of producers need to invest in safe and secure transport in order to get their crops to market.
Dispensaries must invest in advanced climate control for their buildings as well as state-of-the art security systems, lighting and storage. Starting and maintaining a cannabis or hemp operation is an expensive proposition, and equipment failure can wreck a harvest or disrupt retail operations. In fact, the loss of equipment could ruin an entire harvest, costing owners and investors hundreds of thousands, if not millions, of dollars. Equipment breakdown insurance is essential for these entrepreneurs.
Until this year, the hemp industry had the same problems acquiring insurance as the cannabis industry still does. It was illegal on the federal level, which meant hemp farmers could not use FDIC banks for loans or accounts. They also did not have easy access to crop insurance or equipment insurance since mainstream insurance companies would not touch them for fear of legal consequences. Since hemp is now legal according to federal law, producers and distributors should be free of these problems. In fact, they should have many options for coverage, especially after the insurance industry adjusts to hemp’s new status.
Cannabis production and sales, on the other hand, are still difficult to insure. Many states have legalized it for medical use and about a dozen for medical and recreational use. Of course, cannabis remains illegal under federal law. While the US government is not currently trying to enforce federal law in states that have legalized the substance, mainstream banks and insurance companies don’t want the risk. Since the banks won’t knowingly take cannabis money, producers and distributors work with huge amounts of cash. This reliance on cash makes them a higher risk for insurance companies. And while cannabis growing and harvesting equipment is not strictly illegal, insurance companies are still not eager to provide coverage. Many prefer to steer clear of a business they consider at least partly illegitimate.
Cannabis growers and distributors have come to rely on the “green” market for their insurance needs. These are companies that specialize in providing coverage for this particular niche market, and they have especially thrived in states like Colorado and California, which changed their cannabis laws early. As the laws change on the state level, the reluctance of mainstream insurance companies to cover this industry is likely to ease as well.
Since cannabis business owners do have to depend on these niche companies, many of which are new, they have to be careful to choose wisely. They need to know exactly what these policies cover and what they do not. They also need to know if the company reliably pays out on their policies. Unfortunately, some cannabis business owners have been quite disappointed with their coverage.
Experts warn buyers to make certain all of their risks are covered, including equipment, crop, liability, theft, etc. Those in the market should also study all exclusions on the policy. Standard insurance has an illegality exclusion, which is why the big insurance companies don’t want to cover cannabis. Obviously, any cannabis policy cannot have this traditional exclusion or basically any claim could be denied.
Producers and retailers need to watch for contraband exclusions as well as any language limiting coverage due to criminal acts and smoking products hazards. They should look for policies that specifically note that state law will “govern” the policy.
Despite their relative newness, green insurance companies are the experts on crafting language for the cannabis industry. Before buying, owners and distributors need to shop around for the best rates and coverage available. Recommendations from others in the business are an excellent way to find the right insurance company for cannabis businesses. And most state-legal businesses involve medical marijuana and not recreational. By far the majority of states still have laws against recreational cannabis.
Cannabis and hemp have a huge market already, and it’s expanding. It’s getting more and more socially acceptable to use CBD oil, hemp products and marijuana. The conflict of federal law versus state law does cause a significant amount of confusion, particularly with the banking and insurance industries. Of course mainstream businesses want in on the profits from cannabis, but they are restricted by fear of federal law enforcement. They certainly don’t want to be labeled part of a criminal enterprise. Currently, any problems with hemp insurance coverage likely stems from the product’s recent status change. The policies will continue to evolve as the industry settles into mainstream status.
Cannabis will be legal on the national level at some point in the future, but until this change takes place, those in the industry will continue to have financing and insurance issues. Anyone searching for insurance coverage will have to find a reputable company that understands how to properly cover the industry. Any policy must cover equipment repair or replacement as well as revenue loss from breakdowns. A cannabis business needs carefully crafted, special insurance to cover their specialized risks.