Insurance allows businesses to better manage and transfer risk. Businesses in the cannabis industry face risks, just like businesses in any other industry. But for a variety of reasons—some valid and others dubious—the risks associated with the cannabis industry are seen as somewhat unusual. In part because of this perception, cannabis businesses sometimes find it difficult to insure certain risks, and they typically are charged higher prices than traditional businesses for common insurance products.
For decades, savvy insurance purchasers faced with overpriced or unavailable insurance have used alternative risk transfer strategies to meet their risk management needs. Foremost among these strategies is the use of captive insurance. A “captive” insurance company is a wholly owned subsidiary set up by the policyholder that operates as a true insurance company and charges actuarially sound premiums, in exchange for manuscripted insurance policies tailored to the parent company’s needs. Although an active market exists through which cannabis businesses can access a wide array of commercial insurance products, captive insurance may be an appealing option for some cannabis businesses seeking better pricing and broader coverages compared with the current options in the commercial marketplace.