Cannabis Commercial Property Insurance

What Does Cannabis Commercial Property Insurance Cover?

Commercial property covers direct physical loss to buildings and business personal property from covered causes such as fire, wind or theft. For cannabis businesses, the key questions are whether cannabis stock is covered and whether business income is included.

Most commercial property policies follow the ISO Building and Personal Property Coverage Form (CP 00 10). Business personal property under that form includes furniture and fixtures, machinery and equipment, stock, and tenants' improvements and betterments (fixtures, alterations, installations or additions to a building the insured occupies but does not own). The form defines stock as merchandise held in storage or for sale, raw materials, and in-process or finished goods, including packing and shipping supplies.

Common components for cannabis operators include:

• Building: for operators that own the structure.
• Tenant improvements: build-out a tenant paid for, such as vaults, grow rooms or extraction booths.
• Equipment: lighting, HVAC, dehumidification, extraction and packaging equipment, point-of-sale systems.
• Cannabis stock: harvested, in-process and finished product, when the policy covers it.
• Business income: lost income after a covered loss interrupts operations. See business interruption insurance.

Living plants are a separate question. See cannabis crop insurance.

Why Is Commercial Property Different For Cannabis Businesses?

The standard ISO property form lists contraband and growing crops as property not covered, and ISO's cannabis property endorsements add cannabis to that list and exclude related income loss. Theft exposure, extraction fire risk and high inventory values add underwriting scrutiny.

The CP 00 10 form lists as property not covered both "contraband, or property in the course of illegal transportation or trade" and "land, water, growing crops or lawns." In December 2019 ISO released cannabis exclusions for commercial property: CP 99 03 (Cannabis Exclusion) and CP 99 04 (Cannabis Exclusion With Hemp Exception). Both add cannabis to property not covered and exclude business income and extra expense from a suspension of operations involving cannabis activities. Business owners policy versions were released earlier in 2019.

Courts have tested the older wording. In Green Earth Wellness Center v. Atain Specialty Insurance (D. Colo. 2016), smoke and ash from a wildfire damaged a medical marijuana grower's plants and harvested product. The court found the contraband exclusion ambiguous, noted the parties shared a mutual intention that the policy would insure the marijuana inventory, and let the claim for harvested product proceed. Growing plants fell under the growing crops exclusion.

Other drivers:

• Theft: the NAIC's 2023 regulatory guide reports that about 70% of cannabis-related businesses operated cash-only, and that one of Colorado's largest retailers, with 21 locations, reported 15 burglary attempts in 90 days in 2020.
• Fire: the NAIC notes that processing derivative products involves solvents, pressure, heat and distillation. NFPA 1, the Fire Code, has a chapter on cannabis growing, processing and extraction facilities.
• Market: the NAIC reports that most cannabis commercial insurance is written in the non-admitted market.

Which Cannabis Businesses Commonly Carry It?

Any licensed operator with a physical location, equipment or inventory commonly carries commercial property coverage. The NAIC lists premises and property, inventory and business interruption among the coverages cannabis retailers need.

• Dispensaries: finished inventory, vaults, security systems and build-out.
• Cultivators: lighting, HVAC and irrigation systems, drying and curing rooms, and harvested product.
• Processors and manufacturers: extraction systems, kitchens, packaging lines and work in process.
• Distributors: warehoused stock. Product in transit is usually addressed under cargo or auto coverage; see commercial auto.
• Testing labs: analytical instruments and lab build-out.
• Property owners: buildings leased to cannabis tenants, which carry their own building coverage and face the same exclusion questions.

How Are Limits Typically Structured?

Property limits are set per location, typically with separate amounts for building, business personal property and business income. Cannabis stock often has its own limit or valuation terms, and harvested crop limits may be set up to a fixed dollar amount per unit of weight.

Terms to understand on a cannabis property policy:

• Limits by category: separate dollar limits for building, business personal property, stock and business income at each location.
• Valuation: the basic CP 00 10 form values loss at actual cash value at the time of loss unless replacement cost or another method is added. For cannabis stock, the valuation clause determines what a claim pays.
• Per-weight limits: the Connecticut Insurance Department reports that harvested crop limits may be set up to a fixed dollar amount per unit of weight, such as per pound.
• Sublimits: categories such as theft or equipment breakdown may carry their own caps or require endorsements.
• Deductibles: per occurrence, sometimes with separate deductibles for specific causes of loss.

Limits interact across policies. The NAIC reports that low cargo limits can force companies to split shipments, a reminder that property, stock and transit limits work together.

What Do Carriers Ask For When Quoting Commercial Property?

Underwriters look at the building's structure and condition, safety protocol compliance, equipment, internal controls, management experience and employee training. For extraction operations, the solvent-based process draws added attention.

The Connecticut Insurance Department lists six criteria underwriters may weigh for cannabis risks: management experience, internal controls, structural features and condition of the building, compliance with safety protocols, types of equipment, and the selection, training and experience of employees.

Property submissions commonly cover construction and fire protection, security systems, extraction methods and equipment, inventory values by location, and prior losses. Fire and security rules vary by state and municipality, so verify requirements with the state cannabis regulator and the local fire authority before relying on this page.

Frequently Asked Questions