Bermuda-based insurer Relm is currently working with partners to develop a parametric-based solution for the North American commercial cannabis market.

Cannabis use and cultivation is currently booming in the USA as a number of states have continued down the path to legalisation. Indeed, the industry has had certainly had several years of progress in this regard, and 2021 was no exception as Connecticut, New Mexico, New Jersey, New York and Virginia all legalised adult-use.

Indeed, the legalisation of marijuana has spread slowly across the country since 1996, when California became the first state to legalise medical-use marijuana.

Currently, 18 states allow for adult-use and 36 allow for medical use. In 2021, legal sales hit $25 billion, according to estimates by analysts at Cowen, and it will grow into a $100 billion industry within the decade.

However, there continue to be issues with regard to obtaining commercial insurance coverage for growers. According to Chicago-based broking conglomerate Hub, traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances, as well as the impact the weather has on yields.

The solution, it suggests, is parametric insurance , offering a programme that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related: the policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail.

Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for western BC won’t be the same as a policy for Ontario.

A parametric offering for the market could soon be on offer, however. According to Joe Ziolkowski, CEO of Relm, the insurer is working with platforms Arbol and Chainlink to provide a parametric form of living plant coverage for cannabis growers.

Commenting on the suggestion that the actuarial profession does not yet have the sufficient data set to be sufficiently comfortable with a parametric product for cannabis growers, Ziolkowski was upbeat:

“The majority of those data sets are the same as for soya bean growers, as they are for corn, as they are for all kinds of other agricultural industries that are able to obtain and purchase living plant coverage for decades,” he said.

“Our starting point is there, and it’s going to involve working with some of our insureds that have an appetite for that type of coverage, to ensure that whatever the remaining two or three percent of data points that need to be tracked specific to cannabis growing operations are incorporated into the model.”

The solution, it suggests, is parametric insurance , offering a programme that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related: the policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail.

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