The Role of Captives, Risk Retention Groups, and Joint Underwriting in Cannabis Insurance
You may have thought that it was no easy task trying to get insurance cover on cannabis operations. The market is unique, complicated, and frankly a little intimidating. Since cannabis remains federally prohibited in the U.S., it makes traditional insurers reluctant or costs them sky-high premiums. This leaves most of the businesses either underinsured or compelled to do away with insurance altogether.
But there’s hope. Solutions like captives, risk retention groups, and joint underwriting are transforming cannabis insurance. They’re crafted specifically for this high-risk, fast-growing industry, giving businesses a safer way to protect themselves without overspending.
Let’s explore what these options are and why they matter.
Why You Can’t Rely on Traditional Insurance
Imagine yourself running a cannabis dispensary or grow operation. You need insurance to cover your property, your products, and your team, things every business must have. But regular insurance companies see cannabis as a legal minefield, often turning you away or hitting you with costly, limited policies.
This isn’t because your business is any less trustworthy; it’s mostly because insurers don’t have enough data about cannabis risks. How do you price coverage when the laws keep shifting and when there’s little claims history to learn from? It’s a tough spot.
Captive Insurance: What it is and Why it Matters
Captive insurance might sound modern, but it’s simpler than you think. It’s basically insurance you create for yourself or a group you belong to. Instead of buying insurance from a big company, you set up your own small insurance company. This way, you control what’s covered and avoid paying extra premiums to outside insurance companies.
For cannabis businesses, captives allow you to:
Customize your insurance policies for your exact needs.
Save money by avoiding traditional insurers’ expensive markups.
Keep control over risk management and even earn back profits if claims stay low.
Think of it as building your own safety net designed just for the cannabis world.
What are Risk Retention Groups (RRGs)?
Risk retention groups are kind of like captives, but with a twist: they’re groups of businesses in the same line of work pooling their risks and premiums. Because they share the risks and rewards, RRG members can often get much better coverage and pricing.
In cannabis, these groups are particularly helpful because they gather businesses facing the same challenges, cultivators, processors, and dispensaries, and offer insurance based on collective knowledge and accountability.
Joint Underwriting: A Collaborative Approach
This is a less common but important strategy. Joint underwriting means multiple insurers team up to cover particularly risky cannabis businesses. By sharing the risk, they’re each willing to cover parts of bigger or more complex policies.
While rarer than captives or RRGs, joint underwriting agreements help push more insurance offerings into cannabis markets where single insurers would say “no thanks.”
Key Cannabis Business Risks Insurance Should Cover
Cannabis businesses face heavy risks that insurers typically avoid. These include:
Product liability: If someone claims harm from your product, you want solid coverage.
Property risks: Any grower knows how easily fire, theft, or crop loss can ruin a season.
Directors and officers liability: This covers leadership against lawsuits, which is crucial in an industry facing regulatory hurdles.
Cyber and crime coverage: Cannabis shops handle a lot of cash and personal data, making them juicy targets.
Legal uncertainties: Many policies have hidden exclusions linked to cannabis’s legal status, so tailored policies matter.
Captives and RRGs let businesses build insurance that acknowledges these risks head-on.
Where Do These Programs Usually Live?
Not every state allows companies to create captives or RRGs. Those that do typically welcome cannabis businesses with open arms. Popular domiciles include:
Arizona
Colorado
Florida
Delaware
Vermont
Washington
These states provide friendlier laws and regulations that make forming your own cannabis-focused captive or joining an RRG smoother.
Future of Cannabis Insurance: Trends & Opportunities
The future is bright but cautious. As more states legalize cannabis and more data is collected through captives and RRGs, traditional insurers will get more comfortable writing policies. This means slowly, you’ll see more choices and competitive pricing for cannabis businesses in the mainstream market.
For now, captives and risk retention groups remain the lifeline that many cannabis companies rely on. They offer flexibility, control, and the ability to adapt fast in this ever-changing landscape.
Bottom Line
If you’re in the cannabis business, you can’t rely on off-the-shelf insurance like everyone else. Cannabis insurance through captives, RRGs, or joint underwriting might just be the best way forward.
Because these options treat your business as the unique, high-potential (and yes, high-risk) entity it is. They give you control, they help keep costs manageable, and they provide peace of mind in a legally complex world.
