“The stars are aligned for cannabis in captives now”, according to Ross Ellick, equity partner at Wilson, Elser, Moskowitz, Edelman & Dicker.
Ellick, who was moderating the cannabis and captives: the case for alternative risk solutions for the legal cannabis industry panel at the World Captive Forum (WFC), explains that there’s a lack of availability of traditional commercial cover.
He suggests that the captive sector is “a relatively sophisticated industry base that is willing to take risks”.
However, he highlights that there are only a few cannabis captive programmes.
Chris Payne, CEO of CLIC Risk Retention Group (RRG), explains that there are three things that need to be put into place when setting up a cannabis captive.
The first is a domicile, Payne highlights the need for a regulator who is familiar with captives and is able to license them. The second is banks in that domicile that are willing to support the programme. Payne notes that “anything to do with cannabis creates problems with the banks”.
Finally, Payne adds that for CLIC, they had to operate in a state in which cannabis is entirely legal so that anyone doing business with them had the protection of the State.
“Lining up all those three things at the same time is challenging but it’s been done,” adds Payne.
Banking concerns
Banks are a huge problem for the cannabis industry as a whole, states Payne.
He explains that a lot of banks handle cannabis money but there are very few banks that will do it so openly.
“For us, we’re operating in a transparent regulatory environment and those banks need to be in communication with the regulators,” he adds.
As time goes on, Payne suggests it will become easier but highlights that “it is extremely difficult to get all those stars aligned”.
Payne says: “Regulators want cannabis to be well-insured businesses, they want to know what the businesses have got proper insurances and that the public is properly protected. So I think if we go to the regulators with that kind of mission statement, they are very supportive.”
“But the banks are a chokepoint on the whole cannabis industry,” he adds.
Future of cannabis captives
Looking at how this industry might progress in the future, Ellick explains that the industry continues to see exponential growth.
He highlights that more US states are legalising cannabis and that the Federal Government under both President Barack Obama and President Donald Trump had no appetite to prosecute responsible operators and ancillary service providers.
Scott Foster, senior vice president at NFP, notes that it is having more conversations with their clients and prospects that are involving their captive team.
“I do think there’s going to be a lot more activity in this space as that level of comfort continues to grow, as well as these companies continue to grow and expand,” Foster adds.
When speaking about if cannabis would ever be a scheduled one drug, Rocco Petrilli, chairman of the National Cannabis Risk Management Association, highlights that if the Federal Government came up with a solution for the banking issue, “the cannabis industry would be happy to leave the legislation at the state level”.
