By Jack Clements, President, Arizona Operations Hub International
In the first 10 days after Arizona state cannabis sales began in January, dispensaries rang up $2.9 million in recreational sales, after the state Department of Health Services approved licenses for 73 facilities.
Cannabis is one of the fastest-growing industries in the country, but the business is not without its risks. Aside from the developing legality of the industry and the rapidly changing regulations from state legislatures, cannabis businesses — from grower to distributor to retailer — face numerous problems, including finding adequate insurance.
Obtaining Property Coverage
For most cannabis businesses, property coverage can cost as much as seven to 10 times what traditional manufacturing and retail outlets experience. For landlords and building owners, taking in a cannabis tenant can be tricky as well. Because of the higher theft and manufacturing risks, many underwriters are unwilling to offer coverage. Here are some steps new Arizona cannabis businesses can take to calm the rising tide of rent and property coverage costs:
- Consult your broker. Before leasing to a cannabis tenant, talk with your insurance carrier. Non-disclosure of a new high-risk tenant could result in a claim being denied and you losing your policy.
- Work with a cannabis specialist. Because the market is so volatile, make it a point to work with a broker or carrier who specializes in cannabis and understands the intricacies of various coverages.
- Tell your insurance story. Let the carrier know your current risk management practices and what you’re doing to reduce claims. This will go a long way toward potentially minimizing premium costs and exclusions and obtaining broader coverage.
- Get another set of eyes. Most carriers require a lengthy application from cannabis businesses. Have a reliable person review the contract for any stipulations in the application you may have missed.
Risk Management Considerations
Carriers are more likely to provide a policy to cannabis businesses that are doing what they can to minimize risks, like these practices:
- Have a plan to prevent or respond in the event of a robbery.
- Use vaults and safes properly.
- Install alarms, cameras and other safeguards.
- Consider installing fire sprinklers on site.
- Consider hiring a third party, properly insured, armed guard to safeguard your storefront.
About the author:
Jack Clements, CPA, CIC, is based in Tucson and is the president of Arizona Operations for global insurance brokerage Hub International. Clements joined HUB in 2020 as part of the Clements Insurance and HUB Southwest acquisition. He has been in the insurance industry since 1989 and manages a portfolio of challenging and complex cannabis, healthcare, real estate and construction accounts. He is a member of Hub Southwest’s Executive Management Team and heads the operations for Hub’s Arizona offices.