The increasing impact of climate change is forcing business owners to rethink risk management strategies—especially in the cannabis industry. The record-breaking 2024 hurricane season and ongoing environmental uncertainties underscore the urgency for cannabis operators to prioritize comprehensive insurance coverage.
Why Insurance Matters for Cannabis Businesses
For cannabis license holders—particularly those operating cultivation facilities, dispensaries, and retail stores—insurance isn’t just a regulatory requirement. It’s a critical safeguard against unpredictable disasters. However, securing coverage remains challenging due to federal restrictions and the reluctance of insurers to underwrite cannabis-related policies.
As I’ve witnessed firsthand in Colorado, the worst time to realize your insurance coverage is insufficient is when you need to file a claim. And with climate risks intensifying, the likelihood of such claims is growing every year.
The Growing Threat of Climate-Related Disasters
Recent extreme weather events have demonstrated the vulnerability of cannabis businesses:
- Wildfires: Smoke and fire damage in Southern California destroyed crops and facilities in early 2024.
- Hurricanes: Hurricane Helene devastated Southern Appalachia, causing widespread flooding and property loss.
- Temperature Extremes: Unexpected freezes and heat waves disrupt cultivation cycles, impacting yields and quality.
Over the past five years, cannabis businesses across the U.S. have suffered heavy losses:
- Los Sueños Farms (Colorado, 2019): Lost 20,000 cannabis plants to an early October snowstorm.
- California Wildfires (2020-2021): Caused $2.4 billion in damages and reduced cannabis production by 25%.
- Hurricane Ian (Florida, 2022): Forced the closure of hundreds of dispensaries and negatively impacted cannabis stock prices.
Navigating the Insurance Challenges
Cannabis businesses face additional hurdles when trying to secure insurance:
- Federal Prohibition: Many mainstream insurers refuse to cover cannabis operations, limiting options.
- Surplus Line Insurance: Instead of standard policies, many cannabis operators must rely on costly and complex specialized insurance products.
- Self-Insurance: Some states, like Vermont, require cannabis businesses to hold funds in escrow for liability protection if they cannot obtain commercial insurance.
- Rising Premium Costs: Crop insurance, a necessity for cultivators, is becoming more expensive due to increased climate risks and a lack of historical cannabis data for insurers.
A Changing Landscape for Cannabis Insurance?
There have been some advancements, such as the USDA’s 2021 expansion of crop insurance for hemp farmers, which could serve as a blueprint for future high-THC cannabis policies. However, until federal cannabis laws evolve, businesses must navigate these complexities with diligence.
Key Insurance Questions for Cannabis Operators
To mitigate risks and ensure adequate coverage, cannabis business owners should ask their insurers the following:
- What exclusions apply to my policy?
- What documentation is required to file a claim?
- What steps are involved in appealing a denied claim?
Ignoring insurance gaps in an era of escalating climate threats can result in devastating financial losses. Proactive risk management and thorough policy reviews are essential to ensuring the long-term stability of cannabis businesses.
As the industry expands—especially with new legal markets like Nebraska entering the scene—operators must stay ahead of these challenges to safeguard their investments and livelihoods.