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Plunging wholesale cannabis prices have affected the insurance sector in various ways, including coverage and claims issues.
The cost of whole flower cannabis is estimated by several sources to have dropped sharply, from $2,000 to $3,000 per pound to about $1,000.
Ian Stewart, chair of the national cannabis and hemp law practice at Wilson Elser Moskowitz Edelman & Dicker LLP in Los Angeles, said there has been a general drop in wholesale flower prices but unevenly across different states, with California “particularly hard hit.”
Such large changes in price can affect insured values and make responding to and evaluating claims difficult.
“The fluctuation in prices can have a dramatic effect on the value of theft or fire loss and business income valuation,” Mr. Stewart said.
The decline in prices can also lead to operators spending less on insurance, he said.
The fall in the price of cannabis is leading to an industry consolidation, as larger operators absorb smaller, less profitable businesses, said Michael Hall, vice president of Golden Bear Insurance Co. in Stockton, California.
The consolidation has led to a decline in the number of accounts, even with the same number of dispensaries and other businesses operating, Mr. Hall said.
“You need real industrial farming. You’re not seeing as many single location operations anymore,” he said, adding that production costs are lower at greater scale as fixed costs such as compliance are distributed over a larger base.
The deterioration of prices in the wholesale market could discourage more insurers from deploying capital into the sector as it becomes less profitable, said Charles Pyfrom, chief marketing officer for managing general underwriter CannGen Insurance Services Inc. in Livermore, California.