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Transportation Risks

Cannabis Transport Risk

There are billions to be made, but those transporting the product tread carefully.
By: | February 20, 2018 • 6 min read

While driving around with a hundred pounds of marijuana might be a criminal activity in most places, it’s just another part of the business day in states like California, Nevada and Colorado.

As legal marijuana gains a foothold across the United States, those in the industry say it’s an exciting and challenging time. With a small, high-value product and lots of cash involved, the risk of theft is high. Add in the myriad of state regulations and the prospect of a federal crackdown, and legal cannabis transportation can be a risky business.

 High Value Product with Big Risk

Recreational cannabis is now legal in eight states, and it is on track to become a $24 billion industry by 2025, according to the Cannabis Industry 2017 Annual Report. From the fields to counters of dispensaries, the growing industry continues to face a number of operational challenges due to its unique legal status.

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Because cannabis remains illegal under federal law, many banks and insurers do not want to participate, leaving large parts of the industry unbanked and uninsured.

As a result, there are notable risks in transporting product. Cannabis distributors not only transport hundreds of pounds of high-value product but also six-figure sums of cash.

For transport companies like Hardcar Security in California, the risk is big. It took the company eight months to find insurance to cover their operations, product and cash, said CEO Todd Kleperis.

“You become a huge target [for criminals] and your risk profile is off the charts,” Kleperis says.

“It’s not an easy business to get in.”

Hardcar Security transports cannabis products and cash in California for the medical and recreational marijuana industry. Due to the risk involved, Hardcar operates more like a military operation than a transport company, Kleperis said.

Trucks are unmarked, armor-plated and equipped with bulletproof glass. Most drivers are former military veterans, travel armed, and take different routes to minimize risk.

“We want to make sure that when people see our trucks, they don’t know if its product or cash. I don’t even want them knowing what our trucks look like,” said Kleperis.

Green Insurance Options

The legal marijuana industry is in its infancy, but a few insurers and brokers are starting to enter the market. Zeyger Insurance in Calabasas, Calif., offers insurance to every area of the cannabis industry, from manufacturing and transportation to retail.

Zeyger president and founder Michael Senderovich has been attending cannabis industry meetings and events to stay in touch with the concerns and needs of businesses. There is strong interest coming from California, he said.

How to cover government seizure is the number one question when we’re at trade shows. It’s specifically excluded in every policy I’ve seen.– Denny Christner of Cannabis Insurance Associates

“There are already 10,000 applications in the city of Los Angeles alone, and they are all still pretty much pending. It’s moving very slowly, but there is a lot of interest. And they need insurance,” Senderovich said.

Much like any other industry, cannabis companies are seeking insurance products like general liability, workers’ compensation and product liability. What complicates the matter is that cannabis remains illegal under federal law and is subject to varying state and local laws, especially when it comes to transportation and distribution.

There is no straightforward path to coverage and every policy is written differently according to the market and risk, says Lisa Chaumont, vice president of underwriting, Cannabis Insurance Solutions, in Broomfield, Colo.

Denny Christner
Cannabis Insurance Associates

“It depends on a number of factors. Whether they are transporting for themselves or for a third party. Whether it is armored, how it is carried,” Chaumont said.

One of Chaumont’s main carriers offers a policy that covers up to $100,000 in product and up to $50,000 in cash.

One unique aspect is that product coverage is only triggered when an entire load is stolen. A typical deductible is $2,500, and while it can vary dramatically by strain, the average going rate for a pound of cannabis in California is $1,600.

While there are many brokers and insurers advertising coverage, many don’t offer the coverage cannabis companies really need, Senderovich said. Many have fine-print marijuana exclusions.

So, while policies may cover general liability, auto and property, they likely don’t cover cannabis. For those that do offer full coverage, the requirements can be high.

“Our insurance would not allow us to do both product and cash without armored trucks. There is no insurance carrier in the world that would do that,” Kleperis said.

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“Seed to sale” regulatory systems in many legal states track products with packaging and barcodes from the time it leaves the farm until the time it is sold. This chain of custody not only helps regulators track product, but also can help insurers, Chaumont said.

In one recent claim for stolen product, the insurer was able to verify the cannabis all the way back through the system to the farm.

Good coverage also doesn’t come cheap, and underwriters want to see a lot of documents, including business licenses and appropriate state and local cannabis permits. In California, the Bureau of Cannabis Control started accepting applications for retailers and distributors in early-December.

“We get a lot of startups that don’t have a permit yet are looking for quotes or coverage, and we really can’t continue that process until they show proof. Underwriters are doing a good job of classifying and clearing the prospects,” said Denny Christner, CIC, Cannabis Insurance Associates, a division of Brown & Brown Insurance in Lafayette, Calif.

 Regulations and Federal Law Uncertain

Cannabis’ illegal status under federal law continues to be the biggest hurdle in the industry, one that scares away most insurers, Christner said. While federal legalization could make the industry “no different than alcohol,” challenges will remain as long as marijuana remains on the DEA’s list of Schedule I drugs, he said.

Michael Senderovich
President and Founder of Zeyger Insurance

The federal government has had a lax attitude over the past couple of years, but transporters cannot cross state lines or any place that is considered federal land.

At Hardcar, drivers are routed to ensure they do not approach any federally-regulated lands or risk going through federal checkpoints.

“If you cross a federal checkpoint anywhere within the state of California, you put yourself in immediate risk,” he said. “You have to route your drivers to ensure they’re not going anywhere near them.”

In December, the California Highway Patrol seized a vanload of 1,875 pounds of marijuana from distribution company Old Kai.

While the company produced documents proving they were complying with new state and local laws, authorities said it didn’t matter because the rules were not yet in place until January 1, 2018. And even within legal states, cities and counties are starting to create their own laws.

“How to cover government seizure is the number one question when we’re at trade shows. It’s specifically excluded in every policy I’ve seen,” Christner said.

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And the risks from the federal level could be growing. U.S. Attorney General Jeff Sessions announced in early January 2018 the rescinding of an Obama-era policy that discouraged federal prosecutors from pursing marijuana-related charges in states that had legalized it.

Most in the industry say it’s symbolic only and unlikely to have any impact.

Politicians in legal states note that the federal government is unlikely to confront states given the growing public acceptance of marijuana use. Sessions did not order prosecutors to go after legal cannabis but instead said the decision would be up to each of the 93 U.S. district attorneys.

“It will be business as usual …The risk you put yourself at, personally and financially, is very high. But the bigger the risk, the bigger the potential windfall.

“The people who are now on top of the alcohol industry and are worth billions are those that took risk in the prohibition era,” Kleperis said. &

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

The risk manager for Boyd Gaming Corp. says curiosity keeps him engaged, and continual education will be the key to managing emerging risks.
By: | May 1, 2018 • 4 min read

R&I: What was your first job?

I was trained as an accountant, worked in public accounting and became a CPA. Being comfortable with numbers is helpful in my current role, and obviously, the language of business is financial statements, so it helps.

R&I: How did you come to work in risk management?

Working in finance in the corporate environment included the review of budgets and the analysis of business expenses. I quickly found the area of benefits and insurance — and how “accepting risk” impacted those expenses — to be fascinating. I asked a lot of questions. Be careful what you ask for — I soon found myself responsible for those insurance areas and haven’t looked back!

R&I: What is the risk management community doing right?

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I have found the risk management community to be a close-knit group, whether that’s industry professionals, risk managers with other companies or support organizations like RIMS and other regional groups. The expertise of the carriers and specialty vendors to develop new products and programs, along with the appropriate education, will continue to be of key importance to companies going forward.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

As I’m sure many in the insurance field would agree, Hurricanes Katrina and Rita in 2005 changed our world and our industry. It was a particularly intense time and certainly a baptism by fire for people like me who were relatively new to the industry. This event clearly accelerated the switch to the acceptance of more risk, which impacted mitigation strategies and programs.

Bob Berglund, vice president, benefits and insurance, Boyd Gaming Corp.

R&I: What emerging commercial risk most concerns you?

The fast-paced threat that cyber security represents today. Our company, like so many companies, is reliant upon computers, software and IT expertise in our everyday existence. This new risk has forged an even stronger relationship between risk management and our IT department as we work together to address this growing threat.

Additionally, the shooting event in Las Vegas in 2017 will have an enduring impact on firms that host large gatherings and arena-style events all over the world, and our company is no exception.

R&I: What insurance carrier do you have the highest opinion of?

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With the various types of insurance programs we employ, I have been fortunate to work with most of the large national and international carriers — all of whom employ talented people with a vast array of resources.

R&I:  How much business do you do direct versus going through a broker?

We use brokers for many of our professional coverages, such as property, casualty, D&O and cyber. We are self-insured under our health plans, with close to 25,000 members. We tend to manage those programs internally and utilize direct relationships with carriers and specialty vendors to tailor a plan that works best for team members.

R&I: Who is your mentor and why?

I have been fortunate to have worked alongside some smart and insightful people during my career. A key piece of advice, said in many different ways, has served me well. Simply stated: “Seek to understand before being understood.”

What this has meant to me is try everything you can to learn about something, new or old. After you have gained this knowledge, you can begin to access and maybe suggest changes or adjustments. Being curious has always been a personal enjoyment for me in business, and I have found people are more than willing to lend a hand, offer information and advice — you just need to ask. Building those alliances and foundations of knowledge on a subject matter makes tackling the future more exciting and fruitful.

R&I: What have you accomplished that you are proudest of?

Our benefit health plan is much more than handing out an insurance card at the beginning of the year. We encourage our team members and their families to learn about their personal health, get engaged in a variety of health and wellness programs and try to live life in the healthiest possible way. The result of that is literally hundreds of testimonials from our members every year on how they have lost weight, changed their lifestyle and gotten off medications. It is extremely rewarding and is a testament to [our] close-knit corporate culture.

R&I: What’s the best restaurant you’ve ever eaten at?

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Some will remember the volcano eruption in Iceland in spring of 2010. I was just finishing a week of meetings in London with Lloyd’s syndicates related to our property insurance placement when the airspace in England and most of northern Europe was shut down — no airplanes in or out! Flights were ultimately canceled for the following five days. Therefore, with a few other stranded visitors like myself, we experimented and tried out new restaurants every day until we could leave. It was a very interesting time!

R&I: What is the riskiest activity you ever engaged in?

I am originally from Canada, and I played ice hockey from the time I was four years old up until quite recently. Too many surgeries sadly forced my recent retirement.

R&I: What do your friends and family think you do?

That’s a funny one … I am a CPA working in the casino industry, doing insurance and risk management, so neighbors and acquaintances think I either do tax returns or they think I’m a blackjack dealer at the casino!




Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]