Does your Insurance Broker really understand your business?

Author: Bryan Verpoort - Berkley Risk

How do you protect your cannabis business?
When we mention protection of cannabis assets most of us think of physical security, CCTV, electric fences, biometrics and vaults. However there is so much more to consider.

Anticipate Risk
As experienced insurance advisors and risk managers, we anticipate and identify potential risk from the moment we turn the indicator onto the farm road. Neighboring properties, informal settlements, long grass, ease of access – these are all considerations.

Each site is different but there are a number of typical tell-tale signs you are entering a cannabis facility. For security reasons, we won’t elaborate further.

Generally, illegal sites or cultivators doing illegal activities on the side all act in a similar way. Unfortunately we cannot assist operations that are not willing to comply with regulations and therefore we choose to walk away to minimize our risk.

The future of Cannabis
Fortunately there is a large group of professional cultivators planning for long-term operational competence. This is where we spend many days and weeks discussing risk, advising on risk mitigation and optimization of their insurance spend.

Successful cultivators can produce quality product of a consistent THC / CBD percentage at scale on a consistent basis. As recreational cannabis becomes a reality, we foresee the licensed commercial growers playing an important role in delivering quality product to the market at low cost – this is the end game.

Operational Functionality
Frequently, we see impressive greenhouse structures alongside under-scaled processing facilities. Rarely do we find processing facilities to scale – the reason is that they are expensive Capex items.

Most licensed cultivators have identified suitable strains that they are able to cultivate at a level of consistency. This is what the offtakers expect – stability tested, consistent percentages, cycle after cycle. Boring is good!

The difficulty comes when they want to scale… how many crop cycles? Do we have a winter crop? Supplementary heating, energy costs, water processing facilities and storage capacity all become factors of production.

Production bottlenecks – Can we process product efficiently and distribute finished product in time and before the next crop cycle? Or do we have bottlenecks, excess stock sitting in vaults and delayed SAHPRA export permits…

SAHPRA also needs to lift its game…
Sahpra has vital and important role to support the licensed Medicinal Cannabis industry - 21 days to issue an export permit is just crazy. They too need to review their application and approval processes to ensure operational efficiency.

Their delays cause much hardship for cultivators wanting to comply… shipping delays impact on cash flow and the financial strain of a compliant cultivator. With monthly operational overheads in the hundreds of thousands or millions of rands – delays could mean an additional month of overheads and much frustration to the end-buyers.

The purpose of insurance
The function of insurance is to protect Cultivators against sudden and unforeseen events, liability from the sale of product or personal liability in their capacity as a director or officer of a cultivation facility.

An example of a Physical Event could be a veld fire, tornado, windstorm or snowstorm – tall grass and strong winds is a perfect recipe for a run-away veld fire. A lack of fire breaks, fire-fighting equipment and a fire plan will undoubtedly lead to a disputed insurance claim.

That is why it is critical to have the correct insurance advice. As a licensed Financial Services Provider (FSP) your broker is required to conduct a needs analysis relevant to your business. To ensure that your insurance aligns with your grow operation could take a minimum of 2 to 3 weeks and then ongoing review larger sites can take months. The cost of insurance is risk related, the better the site, the lower the premium rate. The objective is to ensure that the relevant cover is purchased – quality cultivation facilities understand that building a tailored insurance product takes time but is essential in reducing potential risks and future uninsured losses.

Berkley provides Insurance and Consultancy services to licensed Cannabis growers in South Africa and Lesotho. For assistance in addressing your operational risks contact us at www.berkley-risk.com