CANNABIS EXCLUSION ENDORSEMENTS

(December 2022)

INTRODUCTION

Cannabis has long been considered Not Covered Property under the Capital Assets Coverage form because, as a Schedule I drug under the Controlled Substances Act of 1970, it falls under item g. Contraband, or property in the course of illegal transportation or trade. Some recent Federal rule changes are making this less definite. To clarify the intent for both insured and insurers, ISO has introduced two new endorsements. Both are optional.

OP 99 07–Cannabis Property Exclusion

This endorsement could be considered to be maintaining the status quo and clarifying the intended position of the insurance industry.

Property Not Covered

Cannabis is added to the list of Property Not Covered.

Example: Growing Fine manufactures a number of alternative products including hemp derived products that are legal to process in the state where it is located.

The hemp-derived products are valued at $150,000.

All other products are valued at $2,500,000.

Growing Fine should be purchasing cover for only the $2,500,000 because the $150,000 is property not covered.

Business Income And Extra Expense Operations Not Covered

This eliminates business income or extra expense coverage for that part of the named insured’s operations that are attributed to any of the following cannabis-related operations which are suspended:

· Design

· Cultivation

· Manufacture

· Storage

· Processing

· Packaging

· Handling

· Testing

· Distribution

· Sale

· Serving

· Furnishing

· Possession

· Disposal

This item B. would apply even if the reason for the loss was due to damage to only non-cannabis property.

Example: Growing Fine calculates its annual business income loss could be $1,500,000. However, it would not be paid for any loss of income or extra expense that is incurred due to the hemp-derived product. Growing Fine estimates the hemp product will represent $100,000 of revenue, so it should purchase only $1,400,000 annual coverage

Cannabis Definition

If a good or product contains ANY amount of Tetrahydrocannabinol (THC) or another type of cannabinoid, it is considered cannabis. This applies whether the amount is natural or synthetic.

Examples of items that could contain the THC or cannabinoid are:

· All and any part of the Genus Cannabis L. Seeds, stems, flowers, stalks and roots are all examples of parts.

· Whether or not derived from the above, compounds, byproducts, extracts, derivatives, mixtures containing THC or cannabinoids such as the following examples:

· Oil	· Wax	· Resin
· Hash	· Hemp	· Infused liquid
· Edible cannabis

OP 99 08–Cannabis Property Exclusion with Hemp Exception

This endorsement is identical to OP 99 07 except for the addition of paragraphs under Item A. and B. which remove certain types of cannabis products from the exclusion.

Property Not Covered – Hemp Exception

Paragraph 2. states that the following hemp-derived or hemp-contained products are not subject to the Cannabis Not Covered item.

· Seeds	· Food	· Clothing
· Lotions, oils or extracts	· Building materials	· Paper

There is a limitation. If any of the above exempted products are illegal or prohibited under any state or local statute where the product or good is located, that product or good is not exempted.

Example: Growing Fine is located in a state that allows hemp-derived product sales, so it requested that OP 99 08 be attached.

Scenario 1: If a loss occurred, all of Growing Fine’s property would be paid because all would be considered Property Covered.

Scenario 2: Growing Fine accepts an order in a distant state where hemp product is approved. When the product is shipped, explicit directions are provided to ensure the truck never veers into states where the product is illegal. Unfortunately, flooding occurs, and the driver deviates from the plan and travels for a short time in a state where the product is not legal. The truck overturns, and the product is destroyed. Coverage is denied because, at the time of the loss, the product was considered illegal.

Business Income And Extra Expense Operations Not Covered – Hemp Exception

Paragraph 2. states that the following hemp-derived or hemp-contained products are not subject to the Business Income and Extra Expense Operations suspension of cannabis operations not being covered.

· Seeds	· Food	· Clothing
· Lotions, oils or extracts	· Building materials	· Paper

There is a limitation. If any of the above exempted products are illegal or prohibited under any state or local statute where the product or good is located, the suspension of operations related to such products or goods is not exempted.