Since kicking off recreational sales in late 2022, Rhode Island’s cannabis industry has undergone sweeping changes this year, with seven recreational dispensaries currently operating in the Ocean State and, after extensive delays, a Cannabis Control Commission now overseeing the burgeoning industry.
But one thing that hasn’t changed, business owners say, is the high costs and extensive efforts needed to meet insurance requirements.
Joseph Pakuris, CEO of Mother Earth Wellness Inc. in Pawtucket, has seen this divide between obtaining insurance coverage for a cannabis business and getting coverage for other types of business. Compared with Pakuris’ remodeling business, Kitchen & Countertop Center of New England LLC, insurance rates for Mother Earth are about double, he says.
Under Rhode Island law, companies in the cannabis sector, including dispensaries, cultivators and manufacturers, must meet the same insurance standards as any other business. But for cannabis businesses across the sector, checking off these boxes means spending a lot more money.
“Nothing’s really changed since [cannabis] has been legalized recreationally,” Pakuris said, with many insurers still hesitant to work within a newer sector and in an industry selling a product that remains illegal to sell and possess at the federal level.
For cannabis businesses, working with insurance companies also requires more time, resources and advanced planning, Pakuris says.
“My insurance agent had to shop quite extensively for the right company to fit our business model,” Pakuris said. “When we applied, there were only about five companies that would write the policy …. and all were specialized cannabis insurance companies.”
Businesses are also seeing their insurances increase with inflation – a trend that isn’t unique to the cannabis industry but compounds the already-elevated rates.
While Aquidneck Harvest Co. LLC, a Warwick cannabis processing facility, didn’t have major issues obtaining insurance, “rates have gone up pretty substantially since we first went active in September of 2020,” said CEO Timothy Ryan.
The business just renewed its insurance policy in August, and “it’s probably gone up at least five times from last year,” Ryan said.
Echoing Pakuris, he estimated that if Aquidneck “were in any other industry, we’d probably be paying half of what we’re paying now” in insurance premiums.
While not all business owners are feeling relief, some insurers say they’re noticing a difference brought on by in-state recreational cannabis legalization. That includes Donna Dalton of The Insurance Center Inc. in Warwick, which provided brokerage services to Aquidneck Harvest.
As recreational use becomes more commonplace, Dalton says, more insurers have identified the sector as a growth area and are expanding the types of cannabis businesses they’ll work with, with their clients ranging from dispensaries to cultivators, manufacturers and growers.
“We have a market for just about anything now, whereas maybe three or four years ago, we didn’t,” Dalton said. At that time, more insurers limited their cannabis clientele to growers.
“We have come to a point where now, insurance companies know what’s needed and are ready for it,” she said. “I know our agency can write anything in that arena.”
Dalton projects that insurance rates will continue to increase for cannabis businesses but that this trend will extend broadly across industries.
And while rates could run higher than other common types of insurance, Dalton says, she wouldn’t describe the difference as astronomical.
“Is it high compared to car insurance? Yes, it may be a little higher,” Dalton said. “But business insurance, anything commercial is high.”
Multiple factors drive up these rates, Dalton says, such as increased risks stemming from product liability or theft. But observers have mixed thoughts on how strongly federal illegality influences a higher price tag for insurance.
Dalton, for instance, doesn’t harbor anxiety over this legal status.
“As long as [the business] is legal in the state of Rhode Island, and the state they’re selling and manufacturing in … we’re good so far,” she said.
James Whitcomb, CEO of Connecticut-based Frontier Risk Group, also says he doesn’t see cannabis’s federal classification as a major impact on insurance prices. The company, founded in 2022, provides brokerage services and risk management solutions geared specifically toward cannabis businesses.
Federal illegality “isn’t really the driving reason a lot of insurers aren’t getting involved,” Whitcomb said. “I would say that the high pricing is a symptom of some other brokerages that have not gotten involved because they think there’s a stigma.”
Additionally, the industry is relatively new and doesn’t have the historical loss data that insurers use to evaluate risk.
But cannabis businesses suspect this federal status has added to their insurance woes.
“Insurance companies aren’t going to want to write insurance policies where it’s kind of an illegal activity, even though they don’t enforce it,” Pakuris said.
Not much can be done at the state level to counter the federal status, observers say, but those within the industry are pushing for legislation that would change cannabis’s drug classification, or at least provide additional protections to appease financial institutions that could work with cannabis businesses.
“If they passed the SAFE Banking Act, I think we’d be able to offer better benefits, retirement programs,” Pakuris said, referring to legislation that would provide protections for federally regulated financial institutions that serve state-sanctioned marijuana businesses. “A lot of this we’re not able to do because [of] cannabis being a [controlled substance], which is … ridiculous.”
