Captives offer cannabis sector choices with pros, cons: Experts

Captive insurance structures and vehicles can be advantageous to cannabis sector companies facing restrictive terms and capacity when seeking coverage, experts say. 

Rocco Petrilli, chairman of the National Cannabis Risk Management Association, said captive insurance arrangements can offer the covered group a level of enforcement and control that is necessary “to give the insured body access to the types of products and coverages and capacity that they’re looking for,” speaking Thursday morning at the Business Insurance Cannabis & Hemp Conference, held online.

Captive insurance can, however, be “a bit more difficult in their complexity, to and to operate,” a worthwhile tradeoff given the flexibility captive offer, he said.

Insurance capacity remains tight in the cannabis market, said Mr. Petrilli, largely due to the federal criminal conflict. “Captive formation can help meet the desperate need for capacity.”

Tim Schermerhorn, vice president at Hub International, said the broker has formed a homogeneous, private captive exclusive to cannabis and hemp companies. The captive, he said, “allows maximum freedom for groups to tailor their cost containment to meet their individual needs.”

Mr. Schermerhorn added that captives give flexibility to employers compared traditional carrier options.

Brian Wall, vice president for Adaptive HR, said the professional employee organization captive model allows the organization to collect data, such as demographic information, from a large swath of workers, data that can be used to inform benefits decisions.

Brian McLaughlin, market leader with My Benefit Advisor LLC in Wallingford, Pennsylvania, said data collected through a captive insurer can be used to build better risk management programs and “better manage risk.”