National Flood Insurance Unavailable to Cannabis–What are my Options?
If the flood wasn’t bad enough. Collecting insurance money will be even worse.
The cannabis insurance industry is fraught with complexity and coverage gaps when it comes to buying insurance. Flood insurance is another example of how difficult it is to obtain coverage.
The National Flood Insurance Program (“NFIP”) administers the federal program to provide flood insurance covering personal and business property in the United States. Heavy rains or over flowing rivers will destroy buildings and business property. If you are business other than operating in the cannabis industry buying flood insurance is relatively simple. The NFIP becomes your preferred source for flood insurance.
Flood insurance is typically purchased when a property is located in a designated flood zone. A lender may require flood insurance as a condition of a loan.
However, if you’re in the cannabis industry you should be aware the NFIP will not cover your building or property if insured through them. The underwriting manual recognizes even though cannabis licensees may operate in states where it is legal it doesn’t matter. Federal law trumps state law.
The NFIP may not knowingly insure a building or its contents used for the manufacture or distribution of a controlled substance in violation of federal law. Doing so would directly promote, effectuate, or encourage a violation of the law, which would violate public policy and general principles of insurance.
2020 NFIP Manual
What’s the Big Deal if I don’t disclose my marijuana business to the NFIP?
The answer isn’t good. The NFIP will deny your claim and void the insurance policy. Both of these are harsh consequences. This means a cannabis building located in a flood zone could suffer a catastrophic financial loss ending their business operation.
The bottom-line is don’t apply for flood insurance through the NFIP.
The NFIP will not issue a policy to a person or entity that acknowledges the property to be insured is used in violation of 21 U.S.C. § 856, for example: a marijuana grower or dispensary; and the NFIP will void a policy and deny a claim where the NFIP discovers the property is likely in violation of 21 U.S.C. § 856 because it is used primarily and principally for the manufacture or distribution of a controlled substance.
2020 NFIP Claims Manual
What to do if located in a flood zone and need flood insurance?
The number of carriers offering flood insurance to cannabis companies is very limited. But, we were able to discover one carrier with a specific cannabis flood program. If your loan closing requires flood insurance you have an option. The program is new and pricing seems reasonable.
For the sake of the cannabis industry, we hope the carrier will be a reliable source into the future for flood insurance.