Marijuana

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.

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Meepoohya/Dreamstime

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.

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  1. Farm subsidies for cannabis growers is the new cosmotarian crusade.

    1. I think they were referring to ordinary business insurance. Right? Not federally subsidized crop insurance. Lets all just read it that way, regardless, OK?

      1. Well, since there are zero mentions of subsidies in Christian’s article, I think we are well-served by the standard policy of ignoring what SIV says and calling him psychotic.

        1. Or… you could just point out it’s a minor non-sequitur and not look like a psychotic yourself.

        2. Please excuse Hugh, he is a si.mpleton

          Many of these farms will be back up on their feet soon, courtesy of generous insurance payouts

          There is no free market, non-government “crop insurance”

  2. So burning pot is considered a disaster? Isn’t that what they grow the stuff for? I can hear all the farmers now – “Oh no! All my pigs and cows and chickens were killed and eaten! I need a bailout from this disaster!”

    1. Sarcasm at its weakest.

    2. Where, when and by what are kind of important.

      1. if “When” = “after I get paid”.

        The rest is kinda irrelevant at that point.

    3. Libertarian Magazine Demands Federal Crop Insurance For Pot Farmers.

      It’s “equal protection”, just like same-sex marriage!

  3. Didn’t they end Operation Choke Point this summer?

    1. “Justice Department to end Obama-era ‘Operation Choke Point’.”
      ?POLITICO, 08/17/2017

      1. Yup. I’m not much of a Trumpster, but we should take note of the good things (or in this case, the cessation of bad things).

  4. These people have never heard of safe deposit boxes?

  5. Sounds like a chance to start to set up a truly free-market insurance system. And banking system too.

    When the Feds try to rush in to control either, then we can take a look at the old paper thingy and see if they are authorized to so do.

  6. he 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.

    The fire destroyed $40k in gold and silver coins that were burried?

    Uh…. I don’t think so.

    Unless you mean the fire destroyed both cultivators. That would be pretty horrific.

    1. Yeah, I don’t care how hot the fire got. If it was buried and wasn’t flammable, it didn’t get destroyed.

  7. marijuana is still illegal at the federal level,

    No, it’s NOT.

    There is no constitutional authority for a federal ban on any drug or agricultural commodity. Any act of congress purporting to do so is not a law at all, it’s a usurpation. Could Reason at least quit repeating this stupid canard?

    -jcr

    1. Well, it might be a theoretical canard…. but the full power of the federal government argues to the opposite via the “might makes right” theory. And since all three branches of the federal government agree, there really isn’t much of a recourse.

      1. And if you felt strongly about this, you should have voted for me on my “see how fast they can impeach me” presidential run.

        After freeing all prisoners convicted of consensual crimes and ending prohibition, I would have ended all unconstitutional actions of the federal government. Since that would have required firing most federal employees and ending hundreds of billions of dollars in payouts to citizens, I think it is safe to say they would have managed an impeachment in a remarkably expedited manner. Maybe hours…

        1. They got the guns but… we’ve got the numbers. Gonna win, yeah, we’re takin’ over… come on! –Jim Morrison

        2. Screw impeachment, I think you’re looking at a firing squad.

        3. You have the wrong-headed notion of what the President is supposed to do. His job is to “see that all laws are enforced”. He doesn’t get to pick and choose much.

    2. You should be right, unfortunately SCOTUS’ current interpretation of the magical Commerce Clause says it is kosher.

    3. John C. Randolph wrote:

      “There is no constitutional authority for a federal ban on any drug or agricultural commodity.”

      WRT the “agricultural commodity” cannibus/marijuana there is, John (see below).

      “Any act of congress purporting to do so is not a law at all, it’s a usurpation.”

      The law ? the Controlled Substances Act of 1970 ? is a result of the United States being a signatory to the ‘Single Convention on Narcotic Drugs of 1961’ which prohibits making cannibus/marijuana a “legal” drug for ‘recreational purposes.’

      “Could Reason at least quit repeating this stupid canard?”

      Maybe you should do a little research before making stupid postings such as the one above, John.

      1. Typo correction: “cannabis”

  8. Gosh… so it has finally become clear to a Reason editor that there is an actual causal link between coercive fanatical prohibitionism and economic catastrophe? It’s a pity Herbert Hoover, the anti-dog-eat-dog prohibitionist isn’t around to see this!

  9. Federal Prohibition Left California Cannabis Farmers Without Insurance or Banks When Wildfires Stuck.
    No edit button for writers either?

  10. Farm subsidies for cannabis growers is the new cosmotarian crusade.

  11. I’ve said it before and I’ll say it again ? if you want to legalize marijuana then Congress needs to change the law. Unless and until that happens everyone that grows and sells it is committing a crime even if the states are enforcing the federal law prohibiting it. It’s not surprising that most banks and insurance companies don’t want to get involved with it.

    1. “aren’t enforcing”

  12. Uh, at the risk of sounding like a 9/11 conspiracy idiot, I must point out that fire cannot destroy gold coins.

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