Cannabis Products: Transportation Insurance Challenges

As the country slowly embraces the legalization of cannabis, new business opportunities emerge. Cannabis transportation, for example, has grown tremendously in recent years — especially in the last-mile sector. The number of states allowing businesses to deliver cannabis products directly to consumers continues to increase. Navigating this world, however, comes with a unique set of challenges and insurance considerations. Here are four obstacles, along with tips to protect your business: 

1. Federal cannabis legalization remains elusive

One of the most significant hurdles for your cannabis business is the federal illegality of the plant. Every state has different cannabis laws and regulations — including for transportation. This makes it challenging to create a one-size-fits-all insurance solution for cannabis delivery providers.

Major insurance carriers are reluctant to enter the market due to the potential legal complexities involved. The conflicting federal and state laws create uncertainty and legal risks for insurers.

2. Insurers lack data on cannabis transportation

Auto insurers have been slow to embrace the emerging cannabis market. More carriers have entered the scene, expanding your options, but it’s still hard to secure auto coverage for vehicles transporting cannabis products. 

Many carriers rely on a “filed rate structure,” which is a state-regulated pricing framework. This structure outlines premiums, charges, and rating factors used for commercial transportation coverage. Historical data underpins this approach, ensuring fair, risk-based rates that comply with regulations and support a balanced insurance market.

Because there’s not much historical cannabis transportation data yet, insurers lack the actuarial information to develop and price appropriate coverage solutions. The ever-changing legal landscape adds to the complexity of assessing and pricing the risk.

Specialized insurers are emerging with innovative solutions to meet the unique needs of cannabis-related businesses on a state-by-state basis under strict guidelines. As the market matures and more data becomes available, coverage choices will likely expand. 

3. Delivering cannabis products involves risk

Offering delivery service can be a vital competitive differentiator for a cannabis business. In this age of instant gratification, consumers like the speed and convenience of receiving cannabis products at home. However, this rapid delivery also brings heightened risks on the road. 

Navigating tight schedules and dense residential areas, delivery drivers face an increased likelihood of fender benders and minor accidents. Additionally, cash-rich cannabis deliveries can attract theft or robbery attempts. Some of this risk is inherent in any last-mile delivery business. The cash element and cargo value heighten the loss potential in cannabis transportation. 

4. The cash conundrum remains a hang-up

The cannabis industry's dependence on cash transactions is a significant concern. Federal restrictions make it difficult for cannabis businesses to access traditional banking services, resulting in a cash-heavy environment. The risks associated with cash handling and transportation are a primary concern for insurers. While emerging mobile payment apps and online payment portals have eased these challenges, the lack of safe banking options remains a roadblock. 

Tips for proactive risk management 

The last-mile industry is inherently volatile, further exacerbated by social inflation and nuclear verdicts. Vigilant risk mitigation is imperative in final mile delivery. When introducing cannabis into this equation, proactive measures are non-negotiable. 

Technology is a valuable tool for enhancing your drivers’ safety and reducing claims frequency. Many cannabis delivery providers now equip their vehicles with in-cab and exterior cameras to monitor driving behavior and traffic details. Route audits help identify areas for improvement.

Implementing safety standards, driver training, route guidelines, and real-time monitoring can significantly reduce the frequency of accidents and potential claims. You need rigorous, documented processes to ensure your drivers comply with your protocols. If you do not have a full-time safety manager, consider contracting with a safety expert to conduct regular audits.

Hiring managers need to methodically check that prospective and current drivers have clean motor vehicle records. Perform a thorough criminal background check on all new hires. 

Looking at the road ahead 

As the industry continues to evolve, you can expect inventive solutions to cannabis business insurance challenges. Carriers and cannabis companies are joining forces to create comprehensive coverage solutions. The goal? To safeguard cannabis delivery drivers and the industry as a whole.