As Michigan begins to license medical marijuana businesses, a new association seeks to offer an array of financial services to the industry.
The Grand Rapids-based Michigan Cannabis Risk and Financial Association LLC wants to connect medical marijuana growers, processors, testing facilities, distributors and sellers with insurance and other professional services they need for their businesses.
Under one deal already in place, CannGen Insurance Services LLC offers discounts to association members for property, liability, product and professional liability, workers’ compensation and commercial automobile liability coverage.
Association founder and Director Kevin Cross hopes to have five to 10 insurance and risk management products available for members by mid July.
“We hope to be the go-to business association to help licensees navigate the roadblocks to become successful businesses in the cannabis space,” said Cross, president and owner of Linkfield & Cross Agency Inc. in Grand Rapids. “What I’m trying to do is set up a business organization that will be able to service these licensees with professional people who can inform them on what products are available, (and) what the limitations are in those products in the insurance and risk industry.”
One of the association’s first offerings is a $100,000 liability insurance policy that state law requires companies to carry in case a patient is harmed by adulterated medical marijuana or adulterated marijuana-infused products. The coverage is available through a separate entity the association set up.
Cross began working on the association after a client approached him late last year and asked about the requirements to apply for a medical marijuana business license. Cross found only a small number of insurance carriers nationally that underwrite policies to the industry, and none in Michigan.
He then went on to pursue the business opportunity and create an organization to fill what he saw as a market void in Michigan.
Other possibilities for the association include working with a credit union in the state to handle banking for members, who today have limited options because marijuana remains illegal on the federal level. That’s generally left financial institutions, especially if they are federally chartered, reluctant to take on medical marijuana businesses as clients because of federal anti-money-laundering regulations.
The Michigan Cannabis Risk and Financial Association has had “very productive talks” with one credit union about serving the industry in Michigan, Cross said.
If that were to occur, it would make a significant difference, said Roberta King, co-owner of Canna Communication LLC, a public relations and marketing agency for the cannabis industry.
Securing insurance coverage for a medical marijuana business “isn’t that difficult,” King said. Specialized national underwriters are writing policies and more insurance agencies in Michigan are beginning to serve to the industry, she said.
“The financial services are more problematic and that’s where the offering of a credit union is appealing,” King said. “If that happens, that’s the big game-changer.”
ESTABLISHING THE INDUSTRY
Creation of the Michigan Cannabis Risk and Financial Association represents an effort to organize and bring professional services into the medical marijuana industry in Michigan. Although voters first approved allowing medical marijuana a decade ago, the state gave the industry greater structure under a 2016 law that established a licensing process.
“That brings professionalism to it,” King said. “As a startup in a startup industry, we all struggle with finding good partners who understand the business we’re in and the challenges we’re facing and will provide services without judgment.”
Many law firms jumped into the industry following passage of the 2016 Michigan Marihuana Facilities Licensing Act.
Some accounting firms followed suit after the Michigan Department of Licensing and Regulatory Affairs in May 2017 issued a ruling that cleared the way for CPAs to serve the industry, as long as they remain compliant with state laws and regulations.
Professional service providers supporting the industry are “looking more and more to get into the space” as medical marijuana ramps up and a statewide ballot proposal to legalize adult recreational use of marijuana goes before voters in November, said Alexander Leonowicz, an attorney with the Royal Oak office of Howard & Howard PLLC.
Leonowicz heads the firm’s cannabis industry group, which formed last summer.
“You can’t ignore it,” Leonowicz said of the cannabis industry. “They’re recognizing that regardless of your beliefs in medical or recreational, it is a monster industry coming to Michigan.”
NO PRECEDENT TO FOLLOW
Insurance agencies that now serve the industry are generally “boutique” firms formed for that purpose, Leonowicz said. As well, only a limited number of insurance companies nationally underwrite policies for medical marijuana businesses, he added.
“It’s not like you can call Geico and ask them to insure your grow facility. They’re not interested, and so it’s really resulted in a few brokers in the state that have really entered into this space,” he said. “Insurance is a slow-moving industry. It takes some time.”
Lending to medical marijuana companies will “be much further behind” and won’t occur “for quite some time” because of the federal regulations, Leonowicz said.
As a startup industry, medical marijuana also is a business that comes with high risk. Even if the federal law weren’t a hindrance, Leonowicz doubts many banks would pursue business with the industry.
“It’s a startup. Even in a state like Michigan, which is so promising for both the medical and recreational cannabis space, it’s still brand new,” he said. “We’ve never had one commercial-style (grower) in Michigan ever, so we don’t know what that industry’s going to look like (or) how it’s going to work. There are so many different issues that could cause a company to go under.”