IBA: How did you get your start in the industry?
Galen Hayes: When I was 29, a man I consider my mentor recruited me. He was a district manager for Farmers Insurance – he recruited me in 1983, and I was a Farmers agent for a while, and then I became a commercial broker. This agency opportunity came up, and my mentor was great at showing me what my potential was, so I got going. Like any other business, it took a while before I made any money, but then finally I starting turning a profit.
I’ve been having fun for 34 years, and I have been doing cannabis for 23, so I’m never bored, and it’s always lots of fun.
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IBA: How did you get into insuring medical/recreational marijuana?
GH: The recreational marijuana insurance industry has not been around for a very long time, but medical has. In 1994, we were approached by a group of people who were in the hemp business. Before marijuana was legal in California, we had hemp clothing, belts, oils, etc. that were legal. This group of people was doing a festival in Northern California and needed event and liability insurance in order to rent a fairground. We were the 12th insurance broker they called, and we handled their festival insurance for them.
Two years later, those same people wrote Proposition 215 [to allow medical marijuana in California], and when it passed in 1996, everything changed. From 1996 to 2006, we were the only broker in California that wrote marijuana insurance. We wrote the original underwriting rules with Lloyd’s of London having to do with how to rate general liability and property for the industry. Those underwriting rules are still used today. Also, that client who wrote Prop 215 is still our client 23 years later.
IBA: What trends are currently impacting the cannabis industry?
GH: There are a lot of things influencing the cannabis business right now. The most volatile aspect for everything cannabis is political. In some states, cannabis is still very illegal and a very serious crime. On the other hand, in some states like California, you don’t even need a medical card.
During the eight years of the Obama administration, when it would be an election year, we would see the DEA raid dispensaries and grows, because marijuana is a federal felony. As soon as the election was over, they would back off and stop the raids.
Another challenge is the economics of supply and demand. Right now, in Oregon, it seems everyone is growing cannabis – to the point where supply is outrunning demand. We are seeing prices go down and some clients going out of business. I’ve learned that there are two kinds of people in this industry: the businesspeople who take care of business, and the other people who don’t take care of the business. So if you are not a good businessman and the profit margin isn’t great, as is the case in Oregon, then you don’t make it.
IBA: What are the main risks and challenges in insuring this market?
GH: When I approach this issue, I ask people to understand that cannabis is in many ways similar to any other business. For instance, if you have employees, then you run the risk of them getting injured on the job, so you must carry workers’ comp insurance.
There are other areas of risk that are similar to other businesses, such as fire risk, theft risk, products liability risk and many more. Sometimes cannabis tax bonds are required. In several states, a dispensary is required to bond a certain amount of money in case they don’t pay their sales tax.
If you look at the history of insurance, companies have actuarial statistics of 150 years’ worth of data when it comes to homeowner’s and auto insurance. With cannabis, the insurance industry doesn’t have that luxury. We have essentially 21 years of information, but with a relatively small number of insured businesses to collect information from. Insurance companies don’t like to go into a market that they don’t know much about. The result is that insurers come in and out of the market, and pricing and coverage availability tends to be inconsistent
