Welcome to another edition of The Cannabis Reporter Pro Series featuring HUB International, a global insurance brokerage that serves the cannabis industry.
In our last Pro Series interview, we spoke with TJ Frost, a practice leader for the global insurance brokerage, HUB International, which is one of the few major insurance brokers offering a full-service cannabis vertical serving companies in the U.S. and around the world. Having pioneered HUB’s cannabis vertical, TJ provided some amazing insights about insurance in the cannabis industry and advice about risk services, claims management, and compliance support cannabis companies need to consider. This week we’ll be delving into another aspect of HUB International’s cannabis vertical – Management and Professional Liability with Patrick Ryder.
As an increasing number of states move to legalize cannabis, new and established cannabis enterprises face more and more competition to secure market share and attract enough talent meet the demand of a growing consumer base. They also face greater risks, which requires scalable insurance solutions that protect stakeholders from liabilities that are unique to this industry and provide security for their workforce. These protections also help to attract and retain talented employees in this competitive landscape. This is an area of business I have yet to learn about, so I’m excited to introduce our guest.
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.
About Our Guest:
Patrick Ryder is a practice leader and with nearly two decades of experience in the insurance industry. As Vice President of HUB Colorado, he specializes in Management, Professional and Cyber Liability insurance and consults with clients on program design and risk management techniques as they relate to exposures that are unique to cannabis enterprises.
Read the Interview
Snowden Bishop [00:00:00] Patrick thank you so much for joining me today. I’m really glad that you could be here.
Patrick Ryder [00:00:04] Well thank you for having me.
Snowden Bishop [00:00:06] Oh you’re welcome. And as you know we spoke with T.J. Frost last month and he gave us a really good overview of insurance in the cannabis industry. I know that your field of specialty is more on the management liability side of insurance in the cannabis sector. Tell me a little bit about your expertise and how you came to HUB International to start working in this area.
Patrick Ryder [00:00:36] Yeah. So, I was born and bred into the insurance industry. My mother was a reinsurance specialist and then kind of walked me right into the industry at a very young age. I started off on the carrier side, specifically on the underwriting side, and have worked in management professional liability for the entirety of my career — about 19 years in underwriting. After a while, I got the opportunity to come join HUB International on the brokerage side to head up the management professional liability here in Colorado. So, now I sit in the Denver office and we’ve got a nice team here that does nothing but management professional liability, servicing the middle-market and the large clients across the U.S. and throughout Europe. Cannabis came to us a number of years ago about four or five years ago and it was an area where it was brand new. And there’re only so many opportunities for somebody who’s in one of the oldest industries in the world to get into something brand new and HUB has really put a great deal of time money and resources into developing a practice group. It’s actually the largest practice group that’s dedicated to this space and I really wanted to be a part of it. So I raised my hand and said I’ll take the charge of doing market development and foreign development and getting this thing off the ground so that we could offer our clients a service that really wasn’t out there in the marketplace. For the last three and a half years it’s been quite a wild ride.
Snowden Bishop [00:02:13] Well, you know, I think that a lot of companies have had challenges when it comes to getting services from regulated industries, so it’s actually really great to hear that you have such a robust program for people in the cannabis industry. But, when it comes to Management Liability, that’s a term that I wasn’t really familiar with until we met. And I I’d like you to explain it to people who don’t really know what it is.
Patrick Ryder [00:02:43] Sure. So medical liability is a suite of coverage is not dissimilar from property casualty. So, property casualty using about general liability is about property product liability, auto or comp and that’s the suite of coverages associated with that vernacular. Management liability protects the C Suite. So, when we talk about management liability, we’re talking about Directors and Officers insurance, Employment Practices Liability, Fiduciary Liability and, to a certain extent, Crime Insurance and Professional Liability, transactional risk — whether that be reps and warranties or some tax liability insurance — and then Cyber liability. So that group of coverages make up what we call management professional liability.
Snowden Bishop [00:03:27] How does this practice area differ from like regular operations and what does it that you tell people who are interested in that type of insurance.
Patrick Ryder [00:03:37] Sure. The key differentiator here I think is the type of loss that’s picked up. When you’re talking about property casualty insurance, you’re talking about bodily injury or property damage. For the most part, that’s kind of a 10,000-foot view. When you talk about management liability, we’re talking about covering the liabilities of the organization from a management perspective — whether that’s the mismanagement of finances, whether that’s the mismanagement of investment dollars that roll in, incorrect statements on prospectuses and the professional exposures that A C Suite is providing, not only to the organization, but also to investors and potentially vendors, suppliers and anyone that they’re doing business with.
Patrick Ryder [00:04:24] Additionally when you talk about management liability you as an operator have a responsibility to your employees. And so, when you think about a point of practice practices when during the hiring process or the termination process or any time during the lifecycle of an employee, you have an exposure a liability associated with various regulations to make sure that harassment and discrimination and hostile work environments or constructive discharge. None of those things should be a part of an organization. Unfortunately, they are and there are insurances, specifically employer practices liability, to respond to that. The last part of that would probably be in the cyber arena. When you pick up employees along the way and you’re going to process and maintain a certain amount of employee data, whether it’s or social security number or their personal health I.D. You’re going to pick up that information you have a responsibility to protect and safeguard that information. All of the responsibilities that you have to your employees and to the organization at large create opportunities for liability at the back end, what you call the fiduciary duty. And so, this coverage really protects the management and the operators of the business in a meaningful way.
Snowden Bishop [00:05:42] So how would this differ for people who are operating let’s say dispensaries or clinical practices in the cannabis industry versus medical offices, for example?
Patrick Ryder [00:05:56] You know honestly the way that we view the industry as a practice group is it’s not dissimilar at all. The exposures are prevalent and the exposures are the same whether you’re managing a five million-dollar revenue dispensary or you’re managing a five million-dollar revenue convenience store. Right? You’re still kind of operating along the same vein. I know we have some clients that will disagree and say that we do things way differently. At the end of the day, from an insurance standpoint, we’re trying to categorize these risks in a way that is palatable and giving away from the stigma of being a marijuana company as opposed to a [conventional] business. And we think that we’re starting to see that trend be bucked and really start to normalize cannabis operators inside the insurance realm.
Snowden Bishop [00:06:50] Okay. And so, as far as the Cyber liability is concerned, it’s not too dissimilar from abiding by HIPAA laws for example breaching those rules. Is that correct.
Patrick Ryder [00:07:02] Well, when you’re talking about Cyber liability depending on the type of data that you gather, you are not immune from the regulators. Regardless of whether it be a HIPAA regulator for a medical clinic or a medical dispensary or a doctor’s office, you still have the same responsibilities under HIPAA that you would have whether or not you were just a straight up practitioner or you were a medical dispensary. And likewise, if you were a credit card processo and you have a credit card exposure, there’s no difference in the PCI requirements if you’re in a dispensary that accepts debit cards versus a retail establishment that’s selling socks. They’re still the same type of contractual risk transfer evolved from a PCI standpoint. Both industries.
Snowden Bishop [00:07:50] Right. And, speaking of stocks, I’m curious… In the cannabis industry, publicly-traded companies have been around for quite a while — especially originating out of Canada, but now on the U.S. stock market. Investors are finally beginning to find publicly-traded cannabis companies to be attractive for investment. And, in your practice area, if someone’s trying to go public or attract investors what kind of coverages would you recommend for cannabis companies aiming for that?
Patrick Ryder [00:08:28] Sure. There are two very distinct types of companies. Alright, where you have a privately held company and you have a publicly traded company the for the purposes of this conversation, a publicly traded company raises money on a public market by issuing securities. Privately held companies can raise money in a myriad of different ways but doesn’t necessarily fall under the same purview of regulation nor the number of investors that you would have at a public company. From an insurance standpoint you have two different products, one that covers the exposure to shareholders of a private security standpoint — that being a publicly traded company or a publicly traded policy. And, the second is a privately held policy whereby you’re actually protecting the balance sheet of the organization. Two very different policies that span two very different exposures from an investor standpoint. As we look at the landscape right now we have a lot of private companies that are going through private placements and doing things in the private sector with the anticipation that they’re going to go public. There are very specific rules and regulations when you start trading in the public markets and the liabilities associated with the prospectus leading up to that listing whether it’s an IPO or the US or RTO in Canada you’ve got some exposures that are very real. Directors and Officers policies, which are designed to protect the organization from securities exposures or this balance sheet and private companies and the directors and officers themselves, need to be able to bridge that gap. So, any company that is planning on a public offering, whether it be an IPO or an RTO, needs to be able to have a runup of coverage to span that transaction. And, in the insurance world, they’re very different and the liabilities associated with that transaction could be very real. We’ve seen a lot of companies that make the transition without the appropriate securities coverage and, because of misstatements or errors in their registration documents, open themselves up – especially from the directors’ and officers’ standpoint – to a myriad of liabilities. And, if the policy is not structured appropriately, they’re at risk for securities exposure before it actually exists. From the issuance of securities, there’s a big gap in coverage, which could cripple the organization and, more importantly, really hinder the ability of the directors and officers to do their jobs and potentially put their personal assets at risk.
Snowden Bishop [00:11:00] So, essentially, what you’re saying is that having coverage like this would actually make the company as a whole more attractive to investors. Is that correct?
Patrick Ryder [00:11:10] Specifically, for someone taking an active role as an active investor, and who wants to give a substantial amount of money to the company and take a board seat – many of our clients won’t actually take a board seat unless the appropriate Directors and Officers coverage is in place. It’s not just having the coverage in place, it is having a meaningful risk transfer policies and indemnification policies, whether it be through insurance or through the company’s bylaws. That is something that is very important to these individuals who want to take a board seat and contribute in a meaningful way.
Snowden Bishop [00:11:52] And when you’re approaching new clients who are seeking to insure their companies or insure their management structure, what are some of the first things that you tell them.
Patrick Ryder [00:12:11] So, we begin the conversation with just kind of a forward-looking process and ask, “Where does the company want to be in the next three to five years and how are you going to get there?” We then allow our clients to tell us their story. From there we can start making some determination as to what types of coverages they need. What types of risk they’re going to be facing as they transition from a fundraising company into an operator into an acquisition target or into a potential publicly traded company. And really through that interview process, we have the ability to make the determination as to what suite is going to fit them best in three years and today. We’re not just selling a suite of insurance products. I think what we would tell our clients is that this is what we do. We have a team of individuals – you mentioned T.J. Frost, the US Cannabis Practice Leader who spends 100 percent of his time in the cannabis industry. I head up our national practice for management professional liability. I spend 100 percent of my time in this industry. So, we have dedicated some very significant talent and very significant resources into making sure that you can navigate these waters, which are different – there are different exclusions; there are different risk transfer protocols; and certainly there are different ways to deal with the tax implications of buying insurance. And we like to walk our clients through all of that so that they know what they’re getting up front and then, hopefully, I think we do a pretty good job of executing on those promises.
Snowden Bishop [00:13:52] It certainly sounds like it. And when it comes to employees do the coverages that you offer also deal with employee benefits?
Patrick Ryder [00:14:04] That’s a very interesting question. Yeah, we do quite a bit with the Employee Benefit sector in a couple of different arenas. So, when it comes to employee benefits, the cannabis industry is actually utilizing employee benefits as a way to attract talent. There is a lot of transition right now specifically from the younger workforce into the cannabis industry away from some traditional bills. And in that transition, there has become a very competitive marketplace. So we, at HUB, had developed a program and a process and, again utilizing this national practice approach, some proprietary products around giving our clients the best set of tools to attract talent into their organization. From an employee benefit standpoint that could mean health and welfare plan. It could mean a 401K plan and we have dedicated approaches for that. Now from a liability standpoint as an organization, again from a management liability perspective, any time that you enter into a service for your employees you’re also exposing yourself to some liability.
[00:15:13]I mentioned at the outset of coverage called fiduciary liability fiduciary liability is a little bit different than a fiduciary duty in that it covers your exposures as it relates to the selection and administration of employee benefit plans, whether that be for one key plan or a health and welfare play. Anytime you select that type of plan specifically on the follow up case either the financial side of things, you’re actually exposing yourself to personal liabilities for the administration or that plan, whether it’s selecting the correct provider, managing the fees associated with that program, making sure that you’re not offering a 20-year retirement for one day when you have a bunch of 60-year-old employees that are going to retire in five years. So, you really need to tailor your program to suit your employee base and by doing that with a dedicated broker that specializes in this space you can help mitigate some of those liabilities.
Snowden Bishop [00:16:10] That makes sense. And what about covering errors and omissions made by employees? For instance, in the dispensary business, there could be potential risk or exposure for the company if, let’s say a patient comes in and asks for medical advice that he or she should not be asking for from someone who’s a salesperson in a dispensary and the employee decides to give advice that that employees should not be giving because that employee is not a doctor or a medical professional, how would you recommend that companies protect themselves against that kind of exposure?
Patrick Ryder [00:16:51] So with any exposure there’s a couple of different ways to do it. So, you can transfer risk by insurance you can accept risk by saying we train our people very, very well and therefore we’re comfortable with the advice they give or you can avoid risk until you people not say anything and just sell products. I don’t think the latter is the right option especially if you’re in the sales business you’re in a very competitive environment. So, from a risk transfer standpoint, we offer solutions in the Errors and Omissions or Professional Liability arena. The I guess the vernacular or what we’re calling it in the industry is the Budtender Errors and Omissions. So, it really gives an owner operator of dispensaries, specifically at the retail level, the ability to feel comfortable. They’re putting in a lot of time and a lot of effort into training. And the training is not just at the budtender level, it’s also inside the technology. So you’ve got you know dispensaries that have I’ve had out there that are telling you that this sativa is a certain type of sativa that people with the THC content of X and it’s designed to do Y. Or an indica, same type of thing, or the hybrid over here is of this certain genetic makeup. All of those things, all of the information that you release to a client, could potentially result in errors and omissions or professional liability type of exposure.
Patrick Ryder [00:18:22] So you can purchase insurance that picks up the errors and emissions of an individual in the delivery of professional services. And we at HUB really believe that the individuals that are working in the dispensaries are just that. They are professionals in the cannabis industry. And if you hold yourself to that standard, there’s the potential for the courts to as well. So, anybody that has that type of exposure should at least explore that option. It is not a compulsory. It’s not workman’s compensation. It’s not general liability. You don’t haveto buy it. But, as the best practices and as a way to attract talent, it’s certainly something that you could add into your tool belt if you want your insurance program to be an asset for the organization.
Snowden Bishop [00:19:09] So how often are you seeing cannabis operators offering or expanding their benefits to attract talent — is this something that’s super common?
Patrick Ryder [00:19:17] We really operate through the lifecycle of a cannabis company. And right you know in the last two years we’ve seen a lot of people go from the fundraising efforts into operational mode and we’re starting to see a lot of our clients start to turn profit. And as you turn profit, there’s even more of a focus on the development of robust employee benefits plans. It kind of starts off with, “What can we afford?” And then it almost always ends with, “What can’t we afford to do?” So, if we don’t do this are we going to lose power? If we don’t have these types of offerings to our employees, are we going to be able to attract the best people that we possibly can?, And I look at the startup culture that we had going on here in Denver and certainly in the 90s, you saw ping pong tables and beer fridges and everything that you needed to attract young millennial talent into the startup community. I think it’s a little bit different in the cannabis sector in that you don’t have that kind of gamesmanship mentality with a bunch of video games and beer fridges and ping pong tables. It’s more around what can we do to create a life for these people inside the industry so that they don’t leave, so that they don’t say, “Well this is just the cannabis thing.” And they say, “No, this is a business that I want to be a part of for a long time.”
Snowden Bishop [00:20:43] And forgive me, you’ve already sort of covered this, but I just wanted to clarify — can you also provide those employee benefits the insurance benefits to employers to offer to their employees?
Patrick Ryder [00:20:56] Absolutely. We have a we have an entire division inside the cannabis practice that does nothing but employee benefits. So, whether it’s a health and welfare plan, negotiating for 401K waters, going to vision, going to dental, all of those types of things, we have not only the products that are available and kind of the ability to sell you those types of products, but we also have compliant solutions to make sure that your organization, which may not have purchased employee benefits in the past, has a solution that is compliant with federal and state regulations.
Snowden Bishop [00:21:31] That’s really great to know. So, I’m wondering is there anything else that you really have a burning desire for our audiences to know?
Patrick Ryder [00:21:40] You know the audience that I’m sure that we’re talking to here has a vested interest in seeing this industry succeed. And I think it’s important that we start talking about insurance — although it is a line item on your budget, there is a certain “get which you pay for” -type of insurance that is out there. There is “check the box” coverage that will certainly suffice and allow you to complete certificates and pass statutes. But on a bad day, it’s just a piece of paper. I think what is equally important is to have a relationship with an insurance firm that specializes in this space and understand the exclusionary language that can be associated with a Management Liability policy or with a Product Liability policy and it has access to not only markets but to Risk Management Services and the ability to craft a program that is holistic in nature so they can really support the industry. This is not just a play-to-sell insurance. This is really a way for us specifically at HUB to support this industry and help it thrive not just survive.
Snowden Bishop [00:22:58] It’s great that you are providing these solutions to employers in the cannabis industry. I give you lots of kudos for being an early adopter in this industry because I think it is such an important aspect of operating in the cannabis industry. So kudos to you.
Patrick Ryder [00:23:18] Well we appreciate that and I know that we started this off and I will end it was saying T.J. Frost has really almost single handedly created an insurance industry around the cannabis sector. He deserves a lot of credit not only for what we’ve done at hub but across the industry at large with the way that he has elevated coverages and elevated just that knowledge around the industry. And there’s some very good operators in this space and they take very very seriously. We really appreciate that.
Snowden Bishop [00:23:58] Well the industry is definitely growing leaps and bounds! [laugh] I enjoyed our conversation with T.J. Frost and, if anyone listening hasn’t heard that interview yet, I highly recommend it. There’s a lot of great nuts-and-bolts information in there, especially, if you are entering the cannabis industry and curious about insurance solutions that are really specifically designed for the cannabis industry, I completely recommend that interview. But I really appreciate your support of this Pro Series program because as everyone knows this is a sponsored program that allows you to offer in-depth information more specifically about the company at large than in the editorial radio interviews and it supports all of the education that we do here at The Cannabis Reporter. I thank you so much for your support in that regard.
Patrick Ryder [00:24:52] It’s absolutely my pleasure. If anyone listening we want to reach out and get some more information on us or what we’re doing, probably the best way to do it is go to HUBInternational.com or you could find me, Patrick Ryder, on LinkedIn. And we’d be happy to entertain any questions or engage in any conversation. And, to be perfectly honest, I spent a lot of time on United and Southwest, so if you want me to come to see you, I’d be happy to do so.
Snowden Bishop [00:25:21] Well that’s great to know and, Patrick, I will put all of your information online on the podcast post and, when people go into the Web site and look for this particular interview, they’ll be able to pull up a page that’ll have all of this information on it. But before we wrap it up any last thoughts?
Patrick Ryder [00:25:41] You know I just I really enjoy the day today and I just want to reaffirm the fact that we were committed to this industry. We’re committed to seeing it succeed. And we really appreciate what you do as well. So, thank you very much.
Snowden Bishop [00:25:52] Well thank you for saying that. I really appreciate it and I appreciate your support. And we know who to recommend in the event anyone’s asking us about the best insurance for this industry. So, thank you so much Patrick for joining me today. I really enjoyed this conversation.
Patrick Ryder [00:26:10] Thank you very much. Thank you for listening to me for this time. I really appreciate it.
Snowden Bishop [00:26:15] You’re certainly welcome.