Falling wholesale cannabis prices have affected the insurance industry in various ways, including coverage and claims.
The cost of whole-flower cannabis is estimated by several sources to have fallen sharply, from $2,000 to $3,000 per pound to about $1,000.
Ian Stewart, chairman of the national cannabis and hemp law practice at Wilson Elser Moskowitz Edelman & Dicker LLP in Los Angeles, said there has been a general decline in wholesale flower prices but unevenly across states, with California “particularly hard hit.”
Such large price changes can affect insurance values and make it difficult to respond to and evaluate claims.
“The fluctuations in prices can have a dramatic effect on the value of theft or fire loss and valuation of business income,”
; Stewart said.The drop in prices could also lead to operators spending less on insurance, he said.
The fall in the price of cannabis is leading to industry consolidation, as larger operators absorb smaller, less profitable companies, said Michael Hall, vice president of Golden Bear Insurance Co. in Stockton, California.
The consolidation has led to a reduction in the number of accounts, even with the same number of dispensaries and other businesses operating, Hall said.
“You need real industrial agriculture. You don’t see as many one-off operations anymore,” he said, adding that production costs are lower on a larger scale because fixed costs like compliance are spread over a larger base.
The deterioration in prices in the wholesale market could discourage more insurers from putting capital into the sector as it becomes less profitable, said Charles Pyfrom, chief marketing officer for chief executive CannGen Insurance Services Inc. in Livermore, Calif.
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