There is ‘significant interest’ in cannabis companies looking for alternative ways to deal with insurance problems, and captives are a great way for them to look at solving that challenge, according to Patrick Ferguson, Canadian captive and global life re sales leader, Marsh Canada.
Ferguson's comments were made on a panel at this year’s virtual Bermuda Captive Conference. The panel focused on the rationale for setting up a cannabis captive programme in Bermuda.
The Bermuda Monetary Authority (BMA) has been in support of cannabis insurance vehicles in the country, providing that they are federally legal.
Moderator of the panel, Kim Willey, senior counsel, ASW Law, explained that she has seen considerable interest, primarily from Canadian listed and large Canadian Private cannabis entities and setting up captives and been through the process.
There has not just been an increased interest in new captives but also the expansion of existing captive programmes. Bron Turner, director, KPMG in Bermuda, says: “The captives that we've set up in the cannabis space have almost entirely started with director and officer (D&O) coverage just because of practicalities in the market, but we are seeing an expansion and use of captives for a variety of purposes.”
Regulation
There is not just growth in the cannabis industry, there is also policy and legal change.
Turner says: “In the US there is both recreational legalisation and 17 state decriminalisation and 13 having permitted medical cannabis use, so there clearly is a lot of momentum.”
“In the US, the Safe Banking Act has passed the House and is going to the US Senate, but as of yet, no movement at a federal level,” he adds.
But if and when this does happen, Turner says: “What are the implications, what are we expecting to see and what kind of impact will it have on the Bermuda market in particular?”
He explains: “There has been much discussion about getting a bank account, or getting credit, or lending rates and you can't do that in the US. Even though it's legal in certain states, the legislation varies state by state, which is even more complex.”
“I don’t expect to see insurers flooding to the market to start writing business,” he notes.
Also weighing in, Ferguson says there is still a lot of risk in the industry and that is going to continue. He explains that if legalisation were to happen at the federal level, there are going to be contradictions in laws, which then create massive amounts of risk.
“I think what is so important for anyone looking, to look at a captive as it gives you the flexibility to navigate through that, or at least a better chance of navigating through that, and to mitigate the risk involved,” Ferguson concludes.
