Cannabis Canada – Are you prepared for new risks?

Cannabis Canada – Are you prepared for new risks? 1024 683 A.M. Associates

The Cannabis Act is now Canadian law. The new legislation, which received royal assent in June by Canada’s governor general, will legalize access to recreational marijuana. The law comes into effect on October 17, 2018. What does this mean for your business? What are your risks? What are the benefits? Our newsletter article from last fall – revised and reprinted below – provides more information and touches on possible exposures. You will also find at the end a couple of links to other sites of interest.

Cannabis Canada – Are you prepared for new risks?

Since its very beginnings, the insurance business has been faced with ever-changing risks and exposures that have challenged our industry on many fronts. Now we are faced with another set of risks and exposures from a product that is illegal in most countries but will become legal in Canada if the current government has its way.

Existing exposures to commercial cannabis operations

Insurers outside of Canada may be unaware that Health Canada has been licensing commercial production and sale of cannabis since 2014. Patients are required to have a prescription for cannabis and the products are delivered via courier or through the post or, in some provinces, may be purchased directly at a retail outlet. In British Columbia, some retailers wave the requirement for a prescription altogether and allow the patient (consumer) to purchase marijuana without proof of any medical issue.

The existence of cannabis producers, wholesalers and retailers presents both property and liability risks that some insurers may be unprepared to accept. Other underwriters may be prepared to accept licensed businesses that are operating under the current legal regime. For guidelines and information on licensing of commercial operations, please refer to Cannabis Regulations for Licensed Producers under the Government of Canada website. Underwriters should review their current underwriting guidelines to ensure that guidance is provided on this existing exposure, and that applications and surveys ask the right questions.

Big changes coming to recreational cannabis legislation

Currently, Canada has passed a suite of new laws that will significantly change Canada’s approach to marijuana cultivation, processing, selling and use. If adopted (the target date is October 2018) this legislation makes Canada the only country in the G7 to legally allow recreational use of marijuana in addition to the currently allowed medical use. The new laws will allow people age 18 and over to possess and consume up to 30 grams of cannabis, and individuals will be allowed to grow up to four plants for their personal use. There is also new legislation making it illegal to sell cannabis to a person under 18 years of age. The products will be sold through authorized retailers, although whether these will be existing liquor retailers or pharmacies or other retail venues has not been decided. In fact, this decision is left up to each province and is one of the many unanswered questions on this hotly debated topic. In the lead-up to the change in legislation on recreational marijuana, illegal dispensaries have multiplied across the country.

The question over whether cannabis should be legalized or “simply” de-criminalized at all is being examined by all members of the federal, provincial and municipal governments, health practitioners, law enforcement agencies and other advocates and opponents on all sides and it remains to be seen whether the legislation as currently proposed will pass into law in its current format.

With regard to the proposed legislation, which will provide a legal framework for recreational use, underwriters should consider the impact on automobile, health and homeowners’ insurance policies in addition to the commercial insurance exposures. Endorsements and limitations may have to be developed to cope with the increased risks to property and personal health, as well as liability exposures faced by both personal and commercial insureds.

Links

Home-grown cannabis may hike insurance premiums (CBC.ca)

Types of coverage affected for licensed producers of cannabis taken from Clearing the haze – What insurance professionals need to know about cannabis in Canada (insuranceinstitute.ca):

  • Commercial General Liability
  • Broad form Building and Equipment
  • Earthquake and Sewer Backup
  • Equipment Breakdown
  • Business Interruption and Extra Expense
  • Directors & Officer’s Liability
  • Crime – for coverage of employee theft, for example
  • Crop (Stock) – given that LPs are required to grow all their crops indoors, this is not the traditional crop insurance that’s usually meant to protect against weather hazards such as drought; this specific type of coverage is similar to the type a cultivation facility might have, which covers the plant materials at all stages – from genetics to final product
  • Product Liability and Product Recall – for example, this might include coverage for claims related to unintended side effects or if there’s an error in the manufacturing process.
  • Cargo/Transit/Contingent Cargo – the LP should consider whether to rely on the shipper’s insurance, or to obtain their own coverage for shipping product

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