By Evan Stait
In the wake of legalized cannabis, everyone is seeking to grow a unique, nuanced product that stands out from the rest. One way to achieve that is by growing the cannabis outside, where its flavour develops through the local air, water and land. In fact, the industry is set to harvest more outdoor cannabis than ever before this fall.
But outdoor cultivation brings with it some unique challenges. Each component of the weather – wind, rain, temperature – plays a role in whether a crop succeeds or fails. While conditions one year may easily lead to a bumper crop, the conditions the following year may not be as favourable. And as the weather becomes more volatile due to climate change, growers are ever more at risk, especially when they aren’t insured.
Traditional crop insurance isn’t available for outdoor cannabis cultivators, primarily because of a lack of data on yield performances – and the impact the weather has on yields. Insurance companies don’t create policies until they have the data to back the policy. But meanwhile, the growers are assuming all the risk.
The solution? Parametric insurance. Parametric insurance is a program that pays out after a certain parameter is met. In the case of cannabis growers, the parameters are weather-related. The policy is triggered when the weather varies from the average – if there is too much rain during a specific period of time, for example, or an occurrence of large hail. Because the policy is related to average weather, it has to be tailored to the specific growing region – which means the parameters for western BC won’t be the same as a policy for Ontario.
Coverage can be created for the following parameters:
- Rain (recorded in mm of rainfall over a period of time)
- Wind (recorded in kph or mph)
- Early freezing (using recorded temperatures)
- Hail (measures intensity and size of the hail)
- Drought (for non-irrigated plots)
Once a parameter has been set, the policy starts to pay out at the strike point, or the average measurement specified in the policy. Coverage continues to pay out until the exhaust point, or the entire limit of the coverage is paid out. It works well because it’s straightforward: The further away from the average, the more the likelihood of catastrophic loss.
Parametric insurance isn’t for everyone. It’s a program designed to fill gaps that exist within the traditional insurance system. Nor is it designed to stand alone. But it can protect outdoor cannabis cultivators from weather risks that are truly beyond their control.
In addition, it works for two simple reasons:
- Simplicity: Recorded weather events leave no room for ambiguity or dispute. You don’t even need an adjuster to guide the claims process. The official weather data proves what happened.
- Correlation: There is a high degree of correlation between measurable weather events and potential damage to outdoor crops.
Parametric coverage is not widely available. Many insurance professionals may not even know of it. But if you’re looking for an insurance solution to protect you and your cannabis business from weather-related disaster, parametric coverage may be your best bet – so make sure you speak to a broker who knows about it.
HUB International’s advisors and cannabis specialists are available to work with you to review and assess your risk mitigation options. We can help you understand what processes need to be in place in order to secure insurance coverage and provide recommendations to best mitigate your exposures.