The Cannabis Captive

Captive insurance for cannabis could be a viable option.
By: | March 5, 2018 • 4 min read

Estimated to be worth $20 billion by 2025 and to employ tens of thousands of people, the rapid growth of the cannabis industry is driven by states such as Colorado, Oregon and Washington. With California the latest state to legalize and 12 more considering following suit, that growth will only increase.


However, problems exist. Cannabis is illegal under federal law, despite being legal to cultivate and sell medical marijuana in 29 states and recreational marijuana in nine. Many large players, including Lloyd’s of London, have pulled out of the market.

Added to that are the tough safety and regulatory measures and a lack of historical loss data. The end result for cannabis growers and dispensaries has been scarcity or prohibitively high costs of traditional insurance market coverage.

That lack of coverage was laid bare by last September’s hurricanes, which devastated cannabis operations in Florida and Puerto Rico, and the wildfires that swept through Northern California a month later.

But for those savvy cannabis entrepreneurs, a new solution is emerging. Closely-held captives, licensed in more than 30 states, can plug the coverage gap.

“This is the greatest captive opportunity of the 21st century,” said Matthew Queen, general counsel, CCO, Venture Captive Management. “Captives and risk retention groups are uniquely positioned to provide value to the cannabis community because of the unique and unknown cannabis exposures.”

Regulatory and Safety Risks

Cannabis regulation is a gray area because of differences in federal and state laws. Many carriers, particularly those that operate in multiple states, deny coverage because of the drug’s illegal status.

Matthew Queen, general counsel, CCO, Venture Captive Management

“This is a real challenge, because the large commercial carriers generally refuse to provide coverage for a federally illegal substance,” said Queen. “Regardless of the merit of the federal government’s position, this means that every individual operating in the cannabis space is either liable for violating the CSA or aiding and abetting the commission of a felony.”

Worse still, in May 2015, Lloyd’s of London, one of the cannabis industry’s biggest specialist insurers, instructed its underwriters to cease coverage until marijuana is decriminalized at the federal level. The ban had a far-reaching effect, extending to crop, property and liability insurance, as well as cover for banking-related services provided to these operations.

Lack of Coverage

The problem for cannabis businesses or landlords is that insurance can be inadequate, expensive or unavailable. Then, even with coverage, carriers will often challenge cannabis-related claims and many courts will side with them.

Marshall Gilinsky, shareholder, Anderson Kill’s New York office, who practices in the firm’s insurance recovery and commercial litigation departments, said there is anecdotal talk that insurers are hiking up premiums due to reputational and criminal risks. Because loss ratios on cannabis are often lower than those of mainstream crops, carriers can rake in larger profits, he added.

“Captives provide absolute control of the terms and conditions of the coverage and remove any questions about the enforceability of insurance contracts. Moreover, the absence of the largest commercial carriers creates a market opportunity for smaller players.” — Matthew Queen, general counsel, CCO, Venture Captive Management

“Pricing for cannabis plants is no different than, say, soya beans. But insurance companies are adding a ticker because of the risk they could get indicted for aiding and abetting or even money laundering.”

“Another problem is that brokers mistakenly sell the wrong type of coverage that excludes cannabis,” said Jeffrey Rosen, president, Tailored Benefits.

Captive Solution

A potential solution is captive insurance, or more specifically, closely-held captives (CICs). Cannabis companies can be a fit due to their strong capital position, risk appetite and entrepreneurial spirit.

Typical risks include: auto, BI, casualty, crop, commercial, cyber, general and product liability, property, surety, workers’ compensation and even armored car insurance. A captive’s coverage can extend to product recall, intellectual property, legal defense, crime and employee theft. Landlords can self-insure their property risks through a captive.


CICs are licensed insurance companies allowed, under special provisions, to sell cover to affiliated businesses but not to the general public, making them more efficient to form and operate than traditional insurance companies. They provide businesses with greater control over insurance and claims handling practices and allow them to retain underwriting profit and put it back into the business.

“Captives provide absolute control of the terms and conditions of the coverage and remove any questions about the enforceability of insurance contracts. Moreover, the absence of the largest commercial carriers creates a market opportunity for smaller players,” said Queen.

Dave Provost, deputy commissioner, Vermont’s Captive Insurance Division, was more skeptical. He said that until cannabis becomes legal at the federal level, it won’t find much of a niche in the captive market.

“If and when it does become legal, an alternative market ‘solution’ is unlikely to be necessary,” he said. “There may be opportunities for group programs in the future, but my guess is that the traditional market will be ready to step in the day after it becomes legal.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him 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?


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?


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?


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]