Federal Prohibition Left California Cannabis Farmers Without Insurance or Banks When Wildfires Struck

The cannabis industry has been cut off from access to the banks and insurance companies other businesses can rely on to get them through disasters.



Northern California has been devastated by a series of vicious wildfires over the past month. Some 8,900 buildings have been destroyed, 43 people have been killed, and another 100,000 were forced to evacuate their homes. The fires have hit agribusiness hard as well, with the flames sparing neither the region's famous vineyards nor its newly legal marijuana fields. (California legalized recreational marijuana by ballot initiative last year.)

Many of these farms will be back up on their feet soon, courtesy of generous insurance payouts and easy-to-access savings and loans. But California's cannabis cultivators won't have that help. Thanks to the persistent federal prohibition on their product, they have been denied access to the basic financial services that allow other agricultural interests to guard against the risk of wildfires and to rebuild after disaster strikes.

"We have members that have lost their farms, that have lost their crops, that have lost their homes," says Josh Drayton of the California Cannabis Industry Association. Thanks to federal pot prohibition, he adds, many members have lost their entire savings as well.

Since marijuana is still illegal at the federal level, most banks refuse to do business with the cannabis industry. Of the 12,000 or so banks and credits unions in the United States, fewer than 400 are willing to service the needs of marijuana dispensaries, growers, and wholesalers. That left many growers without bank accounts where they could deposit the returns from their operations.

"A lot these folks who were living at their cultivation sites tended to actually keep their cash in their home," Drayton tells Reason, "whether it was in their safe or in a barrel."

The Los Angeles Times tells the story of one cannabis cultivator who buried $40,000 in the form of gold and silver coins. Another stashed "tens of thousands of dollars" in an underground safe. The fires destroyed both.

That loss of savings is compounded by the cannabis industry's restricted access to insurance. They are unable, for obvious reasons, to purchase crop insurance directly from the federal government, and getting it from a private provider can be exceedingly tricky. Remarkably few insurance policies exist specifically for marijuana. And while general commercial liability and crop insurance is available, even then there is no guarantee that these business will be covered if something happens to their product.

Of the cannabusinesses that do have insurance, "50 percent are covered by policies that flat out exclude marijuana," says Michael Aberle, senior vice president of Next Wave Insurance Services. His company has been underwriting commercial insurance policies for the cannabis industry for the past decade.

Years of prohibition have seen insurance companies insert clauses to guard against having to cover "health hazards," "contraband," or even Schedule I drugs. These disqualifying terms can be easily missed by marijuana business owners unfamiliar with buying insurance, and by insurance agents unaccustomed to having clients whose companies violate federal law. "When you have 'Schedule I' or 'health hazard,' those are two words in a policy that could be 5,000 or 10,000 words," Aberle notes.

As a result, countless cannabis farms have lost multi-million-dollar crops to California's conflagrations. "The fires came at a horrible time. This has been a very emotional learning experience," says Drayton.

It's a learning experience whose lessons cannot be fully adopted as long as federal marijuana prohibition is in place.