Welcome to another edition of The Cannabis Reporter Pro Series featuring HUB International, a global insurance brokerage that serves the cannabis industry.
Unlike businesses in other sectors, cannabis companies have unique challenges and, due to legal ambiguities prevalent in this space, they have been grossly underserved when it comes to highly-regulated industries like banking, securities and insurance. In fact, until just a few years ago, most institutional service providers either refused, or were prohibited from, working with cannabis companies.
HUB International is one of the few major insurance brokers that provides an array of insurance options for cannabis companies. Having developed an entire vertical serving the cannabis sector, HUB International now serves cannabis industry clients in 33 states, throughout Canada and other countries around the world where cannabis is legal.
In this Pro Series interview, practice leader TJ Frost explains how HUB International has capacity to provide iron-clad coverage for just about every size and type of company in the cannabis industry and explores what stakeholders should expect in terms of coverage.
About Our Guest:
TJ Frost is a practice leader for HUB International specializing in providing insurance solutions for companies operating in the cannabis sector. His unique understanding about the regulatory landscape of the cannabis industry qualifies him to provide clients with expert advice on risk services, loss prevention, claims management, and compliance support. Having amassed a vast network of experts and carriers that can meet the unique demands of this ever-evolving industry, he can fully customize insurance programs that provide optimal coverage for large and small cannabis companies.
What is, perhaps, most compelling about TJ is his passion for the sector that was born from a personal loss, which inspired him to serve as an unrelenting advocate to help cannabis companies navigate the complexities of insuring their businesses against unexpected losses.
Read the Interview
Snowden Bishop [00:00:00] TJ, I’ve been looking forward to speaking with you so thank you so much for joining me now.
TJ Frost [00:00:04] Thanks for having me and looking forward to the conversation.
Snowden Bishop [00:00:07] Thank you so much for being here. I’d really like to hear in your own words how you began working in the cannabis industry with HUB International.
TJ Frost [00:00:18] So it’s actually a good story — sad, but a good story. I came to hub in 2015 right after my father lost his battle to cancer. My wife and I were getting married and we were planning kids but I was in a career that wasn’t really suited for a family life — working 70 to 80 hours a week. So, I had a good friend working at HUB International and he said I should come over and talk to them. After watching my father battle cancer with opiates before he began medicating himself with cannabis and CBD, I became a proponent and a big advocate for cannabis. So, when I learned that HUB would allow me to participate in the cannabis field, it was an easy transition, especially working locally in Seattle where the industry has a big presence. It was a fantastic start. Of course, my wife, being a first-grade teacher [said], “So you’re going to insure cannabis companies? I don’t know about this!” [laughter] But, I took the job and she was fine with it. I’ve been doing it ever since I came on board in 2015. It’s been fantastic. So, with our practice, in 2017 HUB really began participating at a high level and said that we were going to ensure the cannabis space in the U.S. and, in 2018, we made an international vertical and now we’re just rocking and rolling. It’s a blast.
Snowden Bishop [00:01:39] I’m so sorry to hear about your father, but I’m glad that he was able to find comfort with cannabis. That is a big issue. And, I’m glad you found the space because I think it is very important. And I’m also glad to hear that you were able to find a company that was amenable to entering the industry because this is a challenge I think for industries that are regulated, especially like banking and insurance, industries like that. So, what about in the rest of the world? I know that HUB International insures people all over the world but are you doing anything in cannabis like say in Europe or Australia?
TJ Frost [00:02:15] Yes. I currently insure [clients] in 33 states and seven countries personally.
Snowden Bishop [00:02:20] And what are those countries?
TJ Frost [00:02:22] Colombia, Deutschland (Germany), Canada of course, Jamaica. Those are the ones off the top of my head.
Snowden Bishop [00:02:30] Excellent. Okay. And what were some of the challenges of being in the insurance industry to working in the cannabis space?
TJ Frost [00:02:41] I mean, for HUB alone, the challenge was really you know we’re the sixth largest broker in the world and to publicly announce that we were doing cannabis we had to have a good following and a good background and HUB has that story. And when Lloyd’s pulled out of the marketplace in 2014, it really shocked the industry and there wasn’t a program out there that was to the standards and HUB saw you know an industry that was struggling and wanted to participate in it and see what we could do. And, we really did. And you know our conversations are at a carrier level and at an underwriting level, but also on a client facing level. As we’re the broker for the industry, we’re able to have played both sides. I typically call myself a referee because I’m in the middle of a carrier versus our client and we do what’s best for our client. So, it’s fantastic that we do have HUB’s backing there.
Snowden Bishop [00:03:36] How many carriers are there that actually will ensure the cannabis industry?
TJ Frost [00:03:42] That’s a great question. You know daily we’re getting more and more involved. I get calls all day long and every week about “Hey How’s this looking? Do you think we should get into this field? I had a meeting earlier today with a carrier that was thinking about getting in the D & O space when they do general liability and so right now in total we’re probably about 26 to 28 carriers but that’s ever changing. Unfortunately, some stick their toe in the water and it doesn’t work out. And then some have been doing it for three four or five years and you know we’re really trying to paint a broader picture and and more of a holistic approach versus having someone come into this space for you know six months to a year and then say, “No, we’re out,” you know what I mean? We saw that with Lloyd’s and we don’t want that to happen.
Snowden Bishop [00:04:26] Of course it is an emerging industry and so there are regulatory constraints that are different in each state. So how do you deal with that in terms of dealing with your clients? I mean what do you advise them about the insurance needs and are there differences in the states and as the laws vary in different states?
TJ Frost [00:04:50] Yeah, of course it varies state by state. I mean since cannabis is not federally legal and it’s legal on a state level, each state is in control of, say their own…
Snowden Bishop [00:05:01] Regulatory constraints?
TJ Frost [00:05:03] Regulatory constraints, exactly! Right? And, some states mandate general liability and product liability while other states are just general liability and then the limits as well. Some states you have to be with an admitted carrier. Well, there aren’t a lot of admitted carriers out there, so there are some restraints but nothing that’s crippled the industry or withheld growth, in my opinion. It is like you said. It’s a growing industry. And these policies are growing of course as well. And it’s just being with an expert brokerage or agent that can help you expand that knowledge at the carrier level.
Snowden Bishop [00:05:43] So are there any limitations as to what you can cover in terms of loss prevention? I mean, are there any restrictions that would bar you from insuring certain losses?
TJ Frost [00:05:54] So there’s always misconceptions and myths about coverage and our point of view and you know we’ll have client meetings and they’ll say, “Well I can’t get outdoor crop coverage.” Well that’s not true. You know? Someone had told them that. I can do outdoor crop; we can do workers comp; we can do product liability; we can do product withdraw. There’s not an issue, or a line let’s say, or risk that we can’t insure against. Of course, if the federal government comes in and seizes our product, we can’t insure against the federal government. But that’s the same with the toy store manufacturer. If the federal government comes in and takes all the toys, they’re not going to get them back and you can’t insure against that loss as well, so it’s the same. You know, are there premium differences? It’s all in the eye of the beholder really.
Snowden Bishop [00:06:35] You read my mind because I was thinking about that. There always is that risk that the federal government could make a law change that would completely debilitate the industry. So those are losses that really can’t be insured even in other industries, right?
TJ Frost [00:06:53] Right. Exactly right. I mean in this if we were concerned about that at any level obviously we wouldn’t be in this space and in the industry. But obviously we see in the forecast that it will be legal at a federal level. The states are doing a fantastic job monitoring it and we’re looking forward to some big changes coming up.
Snowden Bishop [00:07:13] Yeah, I think that this industry has so much potential and it looks like within the next couple of years there will be some major changes at the federal level. So, I’m wondering, what is the first thing you tell someone when they come to you and say, “I’ve had trouble getting insurance for my grow and I really need to have coverage.” What is the first thing you explain to people? What are some of the pitfalls and some of the things that they can look forward to by choosing your company?
TJ Frost [00:07:46] Well, we want to take it as a consultative approach and we want to learn more about their business I get, “Yeah I’m a grower.” OK, well, tell me more what does that mean? Are you growing indoor or are you growing outdoor? Do you have employees? Is this your first time having insurance? Let’s learn about you, the company, where you want to take it and, then, build a business plan around that when it pertains to insurance because what we do is we paint the picture with the carrier. Right? Like we talked about earlier, if a carrier [cancels] in six months to a year, we don’t want that. We want to build a three-year plan essentially saying, “Here’s where they are today and here’s how we grow.” And with our experience with previous customers, we can take the experience to a new state that’s coming on board and they don’t know much about the insurance or have never been in the space. Well, with our experience, we can say, “Here’s what’s been successful in the past” and we work down from there. We say, “You know, here’s every line of coverage that we think it’s valuable at these indications, but since it’s your first year, we know what your struggles are going and that your money is going to be tight. And everything’s going to be cash poor because these businesses take a while to get up and running. Everyone thinks these businesses are cash cows like it’s the new oil and gas. That’s not the case. A lot of those [start-ups may] do a lot of gross sales in revenue, but they could be struggling at the income level as well. And so, we want to make sure that we’re cost effective to them too. So, we take it as a full meal deal package and then we customize it from there. Yeah. This this limits a little bit higher this year. Let’s take a look at that next year and then we’ll just work down from there and see where their focal points are.
And so we do it as a consultative approach and we take that as well as their risk management and their safety. We want to make sure that their safety programs are in place and we can help develop those autos a huge exposure. So we want to develop you know checklist for auto. Security measures are a big issue as well in the industry. So, of course, we want to paint that picture and help them do the right thing at the property level so we can paint it to the carrier level to show them that, hey, these guys really care and this is what they’re doing to help it.
Snowden Bishop [00:09:57] So really it sounds like a holistic approach because every company in this space is really different. And there’s a much bigger learning curve in this industry than in other industries. So that’s really good to hear. And then do you also ensure dispensaries at the retail level plus wholesalers and people who have transportation concerns like I know that there are some states that grow hemp and have it shipped to another state. And now that hemp is federally legal in a certain extent you still have to abide by laws of each state. There are some states that haven’t really come on board like Idaho, for example. But do you insure against losses in those aspects as well?
TJ Frost [00:10:46] We do, yeah. And you know we always say seed to sale. Right? We can we can insure from seed to sale and all operations in between. You know, there hasn’t been a risk that’s come across my desk or my team’s desk that we haven’t been able to insure whether that’s at the cultivation level or so that’s at the distribution level or retail level. And, at that, we can go to the board level as well and the investor level. We have insurance that can protect the seed to sale, the whole program. So everyone’s being protected financially.
Snowden Bishop [00:11:13] That’s really good to know. And what about errors and omissions because you were talking about compliance a moment ago and somebody may forget something. [Laugh] There might be something missed. How does that work?
TJ Frost [00:11:29] Yeah. So it’s a great question. You know and really the claims that have been going on in the industry right now that are all public knowledge are E & O and D & O claims and with that you know there are obviously a few directors and officers and you know carriers that are out there some better than others. But you know we’re very lucky to have them in the field and in the industry. They saw a need with all the money and investors that are flying around. They saw a need and they wanted to participate in it. So obviously the E & O and the D & O’s are there to protect creditors, investors, clients, employees, suppliers and even competitors all about you know wrongful acts, errors and omissions, management of the company. We have products for that and we’re getting really good limits as well. And so we’ve seen some claims in that, and we’ve seen them being paid. And it’s fantastic.
Snowden Bishop [00:12:16] You know, I was curious: is there a way to mitigate risk of losses due to upstream supply chain noncompliance? For instance, if someone’s working with a supplier who happens to do something wrong, are there policies that’ll protect against that?
TJ Frost [00:12:32] There are. And that’s a fantastic question. So, we actually experienced a claim like this and I’m happy that you brought it up. You know, one of our large producer processors can’t keep up with the demand of their product. They have a very, very good name. They produce about 10,000 pounds a week but then they buy an additional 15,000 pounds a week outsource and they put that product and you know edibles and vape cartridges and distillate and their personal product is it goes on a higher level. One of the farms that they buy from it’s all on the Pacific Northwest and, in the Pacific Northwest, there’s a 3 to 1 Sulphur ratio that they can use for the plants. Well the logo looked the exactly same as a cultivator using a one-to-one sulfur ratio. The cultivator to use a one-to-one ratio we bought the product; we put it in this lit and we put it in cartridges and then when customers smoked that, it tasted like burning matches. So, what we did is a product withdraw. We took everything off the shelves — anything that was to do with that batch — and then we obviously did a product withdraw claim and then we subjugated to the farm that we bought it from. And we were able to not pick up all of our losses, but about 80 percent of them and that was a big win for us. Because of the fact that the farm that we got it from didn’t have product liability, we had to go through some hoops and around in circles to get this taken care of. And, our carrier was on our side and was able to do this for us. It was a fantastic win for all parties.
Snowden Bishop [00:14:05] That’s fantastic to know because I’ve heard these horror stories as you can imagine. [Laugh] I hear a lot and there’s really no way to monitor every single person in that supply chain. So that’s very good to know. And then if a client needs to go into litigation to recover some losses, will have international actually help them with that as well?
TJ Frost [00:14:27] Yeah. Depends on what level. I mean, we are a full spectrum brokerage firm so we have a solution to pretty much everything and when it comes to insurance or risk mitigation. But, if we can’t find it and it’s the legality of having an attorney that focuses on the cannabis space, we built partnerships over the years where we can introduce them to focusing parties in that sector of legal. So that’s the nice thing about being in the field for a number of years now is that the relationships that we’ve built but for the most. Our HUB has a solution for any level there.
Snowden Bishop [00:15:02] That’s also really good to hear. And I mean there have been a lot of issues like on the health side of insurance as well. There’s fine print. How do you explain policies to people to be sure that they are really aware of the fine print? I’m curious because there are a lot of people listening who are in this industry and there might be some concerns about that.
TJ Frost [00:15:30] Absolutely. And you know I’m going to beat a dead horse again about having someone as an expert to be on your side because you know a lot of the language that you’re talking about it goes under the radar and no one brings it up. Well let’s take that language and bring it back to the carrier. How do we get rid of this? How do we take this exclusion off? If they say we won’t do it, OK, what’s it going to cost to do it? You know give me something, you have to work with me. A lot of times we go back and forth with the carriers. I mean, originally, you know in the early stages, there weren’t a lot of carriers insuring the cannabis industry so it was, well, “take it or leave it.” It’s not the case now. And luckily, at HUB we’ve built a great name and we are the experts that carriers want to work with us. Well what they want to work with us they’ve got to be willing to work with us on the language as well. We’re not selling policies that are you know under insuring our clients. We’re selling policies to protect our clients and essentially protecting the carrier.
TJ Frost [00:16:30] So it’s about learning these ins and outs. I know on page 33 of a of a policy I won’t mention there’s a hemp and cannabis exclusion. How many brokers know that? I know everything and every policy that’s out there. I know the ins and outs because this is the only industry that I insure in — 98 percent of my book is cannabis. The rest of it are friends of family.
Snowden Bishop [00:16:51] Wow. And then how often do you find that clients, the end users, have to have a combination of several different carriers to insure one operation?
TJ Frost [00:17:01] It’s very common. You know, just because of the fact that limit capacity isn’t quite there yet on certain aspects of the industry pertaining to the carrier side, there are multiple cures involved. I don’t think that’s a bad thing. But it is getting more streamlined. You know a few years ago there we were at a cap of 10 million dollars per location for property values. Now we’re seeing upwards of 40, 50 and 70 million dollars and so we’re getting better and better and the industry is really growing in a great way.
Snowden Bishop [00:17:32] Yeah, you’re right. It is growing leaps and bounds. [Laugh.] And I don’t think that 10 years ago anybody expected this industry to be as powerful as it is – or as lucrative as it is. So, it’s good to know that there is a solution for insurance for this because, as you know, there wasn’t before. How long ago did HUB International start carrying policies for the cannabis industry?
TJ Frost [00:17:58] Since we’re the broker in the industry and we’re not the carrier side, it’s hard to really pinpoint down exactly when we started insuring cannabis. The fact is you know we have 450 offices and 11000 employees. We did make the… you know we really consciously did it in the U.S. in 2017, but 2018 is when we actually built the vertical and took it international. I personally my first risk was early in 2015. I got a phone call from a friend that I knew 20 years ago. He got awarded a cannabis license and he said, “Hey, I know you just switched to insurance. can you come out and take a look at it?” And I found a carrier to do it. And I spent two weeks out there learning everything about his industry because you know this is what I really wanted to do. And it just snowball-effected from there. And we’re very lucky to have HUB’s support and backing.
Snowden Bishop [00:18:50] Absolutely. So, how do people find you? Because, it sounds like you’re very passionate about this and you could really provide some great insights to people who are in the industry. How do they find you?
TJ Frost [00:19:07] Yeah, I am passionate about it. This is you know this is this is my baby. [Laugh] You know I helped build the industry when it comes to insurance and so you know I want to make sure it’s done correctly because unfortunately we all know that you know I can all go up in smoke because it’s not federally legal yet. So you can find me on LinkedIn you can find me HUB. But Linked is probably the easiest way. My tag name is TJ Frost Washington but I love these interviews and I love getting our name out there and being able to protect the industry. It’s fantastic. I just love watching that grow and to have your support is great. And, what you’re doing is amazing.
Snowden Bishop [00:19:46] Thank you so much for saying that. Yeah. I’m passionate about it too. And for a lot of reasons. I started writing about this in 2010, so it’s been a real pleasure to watch this industry grow and to watch businesses like yours actually get on board with this industry because it is so important and it is a legitimate industry. And it took a long time for people to realize that it was a legitimate industry. It wasn’t just all about a bunch of people wanting to sit on the couch and get high. [Laugh]
TJ Frost [00:20:17] Yeah, I think that you bring up a good point. You know on our end as well, as you know all brokers are really not created equal, right? And you really have to deal with an expert in the space as you become an expert over the years and you’ve spent nine years doing it. We’ve spent a number of years in the industry as well and you know we always joke that you know six months in the industry is like dog-years right? [Laugh].
Snowden Bishop [00:20:41] It’s like 10 years!
TJ Frost [00:20:43] Yeah right? [Laugh] So we’re very lucky. We want you know as you want the industry to succeed. So do we. But being with an expert in the insurance field we can only help people with that.
Snowden Bishop [00:20:54] Well it’s really great to know that you’re out there and I will make sure that all of your information is listed along with this particular podcast under our Pro Series label. And I just want to ask you is there really anything else that you have a burning desire for people to know?
TJ Frost [00:21:14] No, I mean… Really it’s, again, being the experts, being with someone that knows the ins and outs of this field, I mean if I can help in any or my team can help in any way, we just want the industry to succeed and we want to be an advocate in this space. And we’re very lucky to be the front runner, but we just want to make sure that this doesn’t go away. I’d hate to see everyone’s hard work go away. So, if there’s anything we can do, we’re here to help.
Snowden Bishop [00:21:40] Wow. Well thank you so much T.J. this is really great to know. And I’m sure that this is something that people who look for information about the industry will really be in search of because there really isn’t a lot of information out there just on general searches for companies insuring the cannabis industry. So, I thank you for the work that you’re doing and I’m really heartened to hear you’re passionate about it. That’s what it’s all about, really.
TJ Frost [00:22:10] Really is. Makes it fun that’s for sure.
Snowden Bishop [00:22:13] Yeah, absolutely. Well it’s about time to start wrapping up this interview but thank you again so much for joining me. I really appreciate it. And we certainly appreciate your support as well.
TJ Frost [00:22:26] It was my pleasure. Thank you.