Understanding Risks Associated with Insuring Cannabis Facilities

By Dan Turpin | Published November 2, 2022

The economic impact of losing a cannabis crop is devastating — especially when you put countless hours and effort into growing your merchandise that is likely sold before it’s even grown. For outdoor growers, one of the most common concerns are natural disasters like the wildfires that occur in California and Colorado. Fire, smoke, and ash all play a part in destroying crops. 

But farming indoors poses other problems as the expensive grow operations invested in, when not installed or maintained properly, can lead to a chain reaction of catastrophic events like fire, fungus growth and bug infestation that leads to major loss. While there is a higher level of control with indoor growing, disaster can strike from inside the facility ruining the plants. The culprit? The crucial systems growers depend on.

3 System Disasters That Can Ruin Marijuana Plants

Consider the impact to your cannabis crop if any of the following three systems malfunction in your marijuana grow room. 

1. Electrical systems in many indoor farms have elaborate LED grow light setups. Designed for optimal growth, this type of lighting runs on software that distributes a predetermined and strategic amount of illumination for rapid and controlled growth. Cultivators should hire a qualified contractor or engineer to inspect the existing system to ensure it is in good repair and has the capacity to run all systems required for the operation. Systems that are overstressed or use wiring that is too small in diameter will cause excessive heat buildup, which can result in a catastrophic failure of the system or a fire.

2. HVAC systems keep humidity and temperature at a controlled level, conditioning the space to help with optimal growth. Utilizing a system that is under-powered or poorly maintained could result in failure of the system, and in the worst case, a fire. Having a maintenance plan for the system is the best way to keep it running.

3. Drip irrigation systems deliver the exact amount of water marijuana plants need daily. Many of these systems are bonded to a machine that applies vitamins, minerals and fertilizers to the crop at specific times of the day. The elaborate hose, valve and metering systems are often overlooked during maintenance, especially if the system appears to be operating properly. Keeping control panels clean and in a well-ventilated area will reduce the risk of overheating or dust particles attaching to the internal components, causing damage to the system.

Finding ways to preserve the product and quickly get plants back to optimal health is key during disaster recovery. The reality is that even with expert help, 50% of the time the plants cannot be saved. But insurance companies can work with consultants that understand plant biology to salvage plants and transport them to temporary housing with an HVAC system to maintain costly marijuana plants that are already purchased for fulfillment of orders.

Understand the Risks Before Underwriting

A new industry without years of data, growing marijuana may seem like a big risk for insurance companies. With so many gray areas between compliance and legal/illegal operations, it’s important for underwriters to consider the following when offering coverage:

Is the nursery structurally sound?

There are typically two types of buildings that are being used for marijuana growth; the type of building used depends on where the cannabis facility is located.

• Older nurseries and buildings are used to grow plants in environmentally optimal locations like California and Oregon. These buildings may be old and not maintained or updated to reflect today’s marijuana grow needs.
• Repurposed facilities like old big-box stores or strip malls are leased or purchased and typically found in the East Coast or Midwest. Some have been vacant and unmaintained for years and do not have an adequate power supply or the infrastructure was not properly retrofitted to meet the needs of a cannabis grow facility.

No matter the type of building used, ensuring the nursery is structurally sound can help reduce the chances of plant damage and the likelihood of fires.

Does the nursery have an adequate power supply?

Many older buildings have a hodgepodge of electrical systems that can easily become overloaded. Ensure the building being used has proper electrical hookups and confirm the electrical retrofit was installed correctly to reduce the risk of fires.

Does the nursery have an up-to-date HVAC supply?

HVAC systems must be installed properly by professionals with permits. Cutting corners can result in roof cave-ins and loss of valuable plants and harvests if the systems are installed closely together.

How well do you know your client?

There are a lot of marijuana facilities out there, but not all are created equal. Because the industry used to be “underground” and is now required to follow codes and standards for growth, consider facility upgrades that need to be made for optimal growth conditions, the contractors used to construct the upgrades, and how the business is actively meeting compliance requirements.

Partnering with an experienced team to protect your cannabis facility against risk can make all the difference. Reach out to RMC Group to help you pinpoint potential issues that could impact your cannabis facility and crops.

This information is intended for informational purposes only. Each restoration project has unique properties and must be evaluated individually by knowledgeable consultants. RMC Group is not liable for any loss or damage arising out of or in connection with the use of this information.