The risks of cannabis have long outpaced the availability of insurance, due in large part to its status as a federally illegal substance and the risks of extraction and production. But it now shares many of the same risks as other industries – catastrophic damage to crops, cyber risks and a shortage of skilled workers.
With rationing becoming more and more common, the industry is in a position to achieve exponential growth despite these challenges. However, the companies that will benefit the most are those that are best able to manage risk.
Here are four barriers to growth in the industry in 2022 and how companies can combat them:
Cybercrime will be at the top of the manufacturing risk
Both cybercrime and cannabis have seen major booms since the start of the COVID-19 pandemic. Cannabis companies have seen healthcare and pharmaceutical organizations hit hard by cybercriminals in 2020, and now the threat could head their way.
For cannabis retailers, the weakness lies in their reliance on point-of-sale technology, while the threat to growers is within their robust use of intelligent automation to manage the growing environment. Across the industry, the lack of sophisticated IT security systems is a beacon to bad actors.
Nearly 60% of cannabis companies say they have not taken the necessary steps To prevent cyber attacksBut the wind is changing. Given these concerns and the growing interest in cybercrime in the industry, cyber coverage is expected to rise 30% or more in 2022, placing a burden on risk management practices that will help prevent cyber attacks and ensure coverage from risk-conscious insurers.
Barriers to business growth may lead to more mergers and acquisitions
As of summer 2021, 18 US states have Regulated adult use 37 countries have ratified medical cannabis.
While this opens opportunities for many of the cannabis businesses, the United States remains a complex market. Federal regulations continue to hinder further growth of the cannabis industry by restricting lending to the industry from traditional banking and financial institutions. While it is not illegal to do service with the cannabis industry, many establishments are kept away due to their high risk.
Small cannabis companies are heavily affected by this barrier and are waiting for passage of the Safe Banking and Fair Enforcement Act (SAFE) and Claims on Marijuana Insurance (CLAIM) to allow easier access to capital. Together, these two statutes will provide guidance on how to legally work with legal cannabis companies and prohibit penalizing or discouraging businesses from doing business with them.
Meanwhile, M&A activity is expected to increase in 2022 as large cannabis companies have the means to access capital and acquire these smaller companies. This includes Canadian cannabis companies, unencumbered by federal restrictions, which are expected to increase cross-border mergers and acquisitions.
Inclement weather is restless
Severe natural disasters are no longer rare, and have added more uncertainty to an industry that has always struggled to secure crop insurance.
For example, policies that communicate the risks of wind damage and hurricanes in Florida or wildfires and smoke pollution in California are virtually non-existent for cannabis — and for outdoor growers, a single weather event can wipe out an entire crop without recourse.
One possible solution for cannabis companies that cannot insure traditional crop insurance is standard insurance, which is paid in full when the weather component reaches a minimum, regardless of actual damage.
Farmers undertaking indoor operations, or those considering moving in this way, must also contend with energy conservation initiatives. Measures like Those in California That could require indoor growers to use LED lighting by 2023 could cost the industry millions and pose a direct threat to the viability of small operations. This makes it important for cannabis producers to take conservation measures and take risk mitigation measures such as improved safety measures in indoor growing facilities ahead of the 2022 renovations.
As it is a constantly emerging market, the risks of cannabis are significant. Adding to these pressures are the increasing impacts of climate change and cybercrime that are raising the bar even further. The growth of the cannabis industry in 2022 will depend on robust risk management solutions and the ability of cannabis companies to implement them.