Canadian Underwriter

Cultivating medicinal cannabis…at home


July 18, 2018   by Greg Dalgetty


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GETTY IMAGES / COLIN BRYNN

At some point later this year, Canadians will be allowed to grow as many as four pot plants in their place of residence. And the early indications are that growing your own pot at home won’t void your home insurance policy.

“If the growing of four plants is legal, we’re not going to turn around as the insurance industry and say we won’t accept that,” says Marc Lefebvre, underwriting coordinator with the Insurance Bureau of Canada’s legal division.

But that four-plant rule won’t be of much use to medical marijuana users who are licensed to grow their own cannabis. Medical users can obtain a licence to grow dozens of plants at home. And then there are designated growers, who are permitted to grow on behalf of up to four licensees.

Cultivating medicinal cannabis at home is a perfectly legal activity for licensed growers, but it’s an activity that has seen insurers in Canada denying claims and declaring existing home insurance policies void.

Last April, a B.C. resident’s home went up in flames after a fire broke out in his kitchen, according to a report in the Peachland View. The homeowner’s insurance claim was denied because he had a Health Canada-sanctioned grow operation for medical cannabis in his home. The insurer acknowledged that the grow-op had nothing to do with the fire, but that was of no help to the homeowner, who ended up having to borrow money from his sister to move into a trailer.

But, with the legalization of recreational cannabis on the horizon, is it possible we might start to see domestic insurers offer coverage for homes with medical grow-ops?

Finding a home-grown solution

Karen McGee is the senior vice-president and chief operating officer of O2 Insurance Services, an MGA in B.C. that has arranged coverage for residences with legal medicinal grow-ops.

“There’s an opportunity in this, and in all likelihood it will generate above-average premiums, which always makes it an interesting target market for anybody to consider.”

O2 offers a full residential package for licensed growers, which includes a liability policy and errors and omissions coverage for designated growers. Some of O2’s clients are licensed to grow up to 700 plants at home.

Most of the coverage is arranged through Lloyd’s of London, and McGee thinks it’ll be a while before we start to see domestic insurers offer similar coverage.

“Perhaps in five or 10 years, a domestic residential market might look at this as an opportunity, but they haven’t as of yet,” she says. “They’ve had lots of opportunities — this has been going on for several years, going back to the MMAR [Medical Marijuana Access Regulations] licensing, and they haven’t wanted to engage in providing coverage.”

Eric Lock, a broker with AC&D Insurance in Kelowna, B.C., has helped people with legal medical grow-ops in their houses obtain home insurance. He believes insurers in Canada are thinking about offering this type of coverage, but no one is willing to take the plunge yet.

“It’s not that they’re not thinking of it—they just don’t want to be the first in, in my opinion,” he says. “I think they just don’t have enough data.”

Lefebvre agrees that insurers are likely considering getting into the space, but it may take some time before any of them step forward.

“I think it’ll take a while for the mainstream insurers to get a lay of the land and see what they’re comfortable with,” he says. “Insurers are traditionally conservative and will likely take a wait-and-see approach.”

Analyzing the risk

All of this poses the question of just how risky it is to grow your own pot at home. Well, the answer depends on how many plants you plan on growing, for one thing.

According to Bill MacDonald, coordinator of Niagara College’s Commercial Cannabis program, the four plants Canadians will soon be allowed to grow aren’t a particularly risky proposition—especially if homeowners only plan to cultivate cannabis on their windowsills. But that’s not how growing your own pot is typically done.

“Anybody who’s doing it seriously is using what’s called a grow tent, which you can get from a hydroponics store or Amazon,” MacDonald says. “Within that, you’ve got your carbon filters, a place to hang your lights—that sort of thing.”

The kind of lights used will impact the level of risk involved, MacDonald notes.

$5.7 billion
The amount Canadians spent on cannabis (medicinal and recreational) in 2017.

Source: Statistics Canada

108

The number of licensed producers of medical cannabis in Canada (at press time)

Source: Government of Canada

“I would much prefer someone using LED light, which has lower heat output and lower energy consumption than one of those higher HID (highintensity discharge) lights, like HPS (high-pressure sodium),” he says.

Things get a bit more complicated when people are cultivating cannabis for medical use and the number of plants starts piling up.

“If you’re going to be growing that many…you’d have to get one of those commercial tents, and do it inside that,” MacDonald says. “With that number, you are going to get more humidity, and you’re going to want to get that out.”

But that’s just one of the issues medicinal home growers face.

“The biggest thing is the smell,” MacDonald explains. “When those things are flowering at the end, all the terpenes have quite a smell to them. You’d want to go through a charcoal filter and then vent outside.”

McGee says that when it comes to clients who are allowed to grow dozens—if not hundreds—of plants at home, it’s necessary to make sure that the electrical work in the house is up to snuff.

“Electrical issues are always a concern,” she says. “When we look at a risk, we want to make sure that any changes or modifications to the architecture of the electrical panel or wiring has been done by a proper electrician, that it has been permitted and it has been inspected.”

Managing the humidity levels of large home grows is also essential.

“Obviously, you want to make sure you’ve got proper ventilation,” McGee says. “The last thing you want is excess humidity, for two reasons. If you have excess humidity in your grow space, your plants don’t perform very well. But if you have excess humidity in your grow space, you can also create mould issues in your residence, and you certainly don’t want to have that happening.”

Water is also a big exposure, McGee notes. Most plants are fed either by a drip mechanism or by hand, she says, so home growers will want to ensure they have water catchments to capture any excess water. And if you’re using a water reservoir, you’ll want to remain in the room when you’re refilling it.

“If you do have a water reservoir in your home—a large barrel—just make sure that when you have to refill it, you don’t leave it unattended,” McGee says. “We’ve had some losses that have happened where they’ve gone to refill the reservoir—and it’s a fairly big container—and they’ve walked away, got distracted doing something else…and it’s overflowed and caused water damage.”

“I think it’ll take a while for the mainstream insurers to get a lay of the land and see what they’re comfortable with.”

But, more than anything else, McGee says the potential for theft remains the largest risk for people growing cannabis at home. It remains to be seen whether that will change when recreational marijuana is legalized, but in the meantime, she says most people growing at home “take extraordinary care” to ensure their grow-ops are well concealed.

Looking ahead

As long as the risks associated with medicinal home grows can be managed safely, Lock believes domestic insurers will eventually come around to covering houses that have them.

“My opinion is that as long as all precautions are taken, this should be a quantifiable, calculable risk,” he says. “That’s why I think the Canadian market will get resolved.”

And, given the potential for profit, it could just be a matter of time before we see a Canadian insurer write a home with a medicinal grow-op in it.

“I think you’ll see over time that someone will turn around and realize there’s a potential here,” Lefebvre says. “There’s an opportunity in this, and in all likelihood it will generate above-average premiums, which always makes it an interesting target market for anybody to consider.”

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Copyright © 2018 Transcontinental Media G.P. This article first appeared in the May edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.