Growing a successful business in the cannabis industry can be a challenge because your focus is essential in many different areas. Whether it is a product, marketing and sales, supply chain and logistics, day-to-day operations, employees, safety and security, and compliance with regulations and insurance. Of course, properly insuring your business is important, recognizing the complex (and mandatory) requirements of each state is critical. In Michigan, the laws and insurance requirements have had a few amendments clarifying what is required.

Michigan licensees are familiar with the insurance requirements under Section 408 of the Medical Marihuana Facilities Licensing Act (MMFLA). This states that an applicant/licensee must provide proof of financial responsibility in an amount not less than $100,000 for liability for “bodily injury” to “lawful users” resulting from the manufacture, distribution, transportation, or sale of “adulterated marihuana.” Each licensee then purchases a Product Liability insurance policy to comply with Section 408 and the issuing insurance carrier completes an Attestation form, certifying that “no products liability exclusion exists in the liability coverage”. (The most recent changes to the insurance requirements were to include “Gram Shop” laws in Michigan and the clarifications outlined in Michigan’s Senate Bill (SB) 461 and Public Act (PA) 55.)

Specifically, state law now requires the following:

• The insurance policy is issued by a licensed insurance company or licensed captive insurance company in this state.
• The insurance policy does not include a provision relieving an insurer from liability for payment of any claim for which the insured may be held liable under the act.
• The insurance policy covers bodily injuries to a qualifying patient, including those caused by the intentional conduct of the licensee or its employee or agent. However, the policy would not have to cover bodily injuries to qualifying patients caused by the licensee or its employee or agent when acting with the intent to harm.

In addition, a licensee must file an “attestation of compliance” with the requirements of the statute with the Cannabis Regulatory Agency (CRA), on a form approved by the CRA, which is signed by the officer of the licensed insurance company or licensed captive insurance company that issues the policy.

While the legislation may have some unintentional challenges and consequences for Michigan cannabis companies, the purpose of the law is to avoid insurers relying on specific exclusions to deny coverage when a licensee is sued. Should a licensee fail to maintain proof of financial responsibility as required under statute, the CRA will immediately suspend the licensee’s license until such proof is provided. A licensee also cannot cancel required liability insurance unless the licensee gives the CRA 30 days’ prior written notice and procures new proof of financial responsibility and delivers that evidence to the CRA within 30 days after giving notice.

These requirements certainly make it challenging for licensees in several ways:

• Cannabis operators are required to become experts on insurance and regulations, especially since there have been many changes since 2018.
• It creates barriers to insurers due to broad wording and the challenge of accurately price a policy that does not contain any exclusions. 
• Each claim scenario is unique and therefore, we will most likely see claims of adulterated cannabis products denied. This would most likely lead to a cannabis license being suspended.
• It limits competition for cannabis insurance, leaving Michigan licensees with fewer insurance options, higher premiums, and ineffective coverage for products in many cases.