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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.


That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.


Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]