June 28, 2018 by Greg Meckbach
Brokers looking to place product liability policies for cannabis vendors might face an uphill battle.
The cannabis industry “desperately” needs access to the same coverage that insurers already provide to non-cannabis businesses in agriculture pharmaceutical or manufacturing, said Wendy Sinclair, managing director of Jones Brown Inc., in a recent interview.
A bill making it legal for Canadians to possess and share up to 30 grams of dried cannabis for recreational use was passed into law June 21. Prime Minister Justin Trudeau has reportedly said recreational marijuana will be legal in Canada, effective Oct. 17, 2018.
Medical marijuana has been legal in Canada for several years due to a series of court decisions that struck down several laws.
“There are lots of carriers and MGAs trying to figure out” whether they are going to provide insurance to the marijuana industry – and if so how they are intending to cover it and price it, Dave Bresnahan, executive vice president of Berkshire Hathaway Specialty Insurance, told Canadian Underwriter last week.
The legalization in Canada of recreational marijuana “is a big opportunity and I think people are still in the throes of trying to figure that out,” Bresnahan added.
But capacity in Canada is limited, Sinclair said June 22 in an interview. The “entire cannabis supply chain” needs to have insurance coverage – such as product recall and contingent business interruption. Cannabis vendors also need product liability coverage, she added.
Asked whether the issue is that existing insurers are not offering high enough limits or whether product liability insurance for cannabis is hard to place, Sinclair said there is a “limited number of players” offering product liability to cannabis producers in Canada.
“As regulated as the industry has been in the medical side, so far, there are still patients smoking hydrogen cyanide that were created by banned pesticides [used] during the growing process,” Sinclair noted.
Asked whether the product liability risk is whether a non-cannabis substance is accidentally put in a cannabis product or whether cannabis poses a health risk to consumers in any case, Sinclair replied, “I would really hesitate on commenting on long-term effects.”
The Canadian Medical Association notes there is “insufficient evidence on risks and benefits” of medical use of cannabis and there are “significant” risks associated with cannabis use.
Risks “include mental illness, impaired driving, dependence, lower grades at school, cognitive decline and lung disease,” the Canadian Medical Association notes. “Legalizing it won’t change that.”
Apply the risks of cannabis use to alcohol, except change lung disease to liver disease, and we’re talking about the same thing. When prohibition ended in the latter part of 1933, were the same questions asked of market placement relevant to the manufacture, sale and use of liquor? In the same way that the deplorable state of Ontario auto insurance should be solved, perhaps our fine federal government should bear the first million of liability for any claims arising out of cannabis, it’s manufacture, sale and use. They have created a potential market problem, they should pay the brunt.
From where I stand am not quite certain that there is enough research data, loss experience and case profiles for actuaries and underwriters to work with to attain appropriate pricing. Hence no matter levels of limits, deductibles nor policy terms can cut it for underwriters I feel.The Ontario state should take up the liabilities for now maybe to reasonable exposures while underwriters wrap their heads around this. It’s here to stay am afraid.
Insurers gladly insure breweries, wineries, and distilleries. The long-term effects of Cannabis use are well known and the risks associated with alcohol are far greater than they are with Cannabis. For our part we have no problem finding creative insurers that understand this and are will to provide capacity for these risks. It would be nicer to have a few more options in the marketplace but we are not seeing capacity nor current pricing as an issue for our insureds.