This discussion analyzes the new optional endorsement CP 99 06 10 22 Cannabis Coverage.

Overview:

Cannabis Coverage endorsement CP 99 06 10 22 provides insurers with an option to provide coverage for four types of cannabis related property losses: cannabis stock, cannabis stock of others, cannabis business income, and cannabis extra expense, each at a specific occurrence limit, as shown on the endorsement schedule. The coverage limits are included within, and not in addition to, the insured's limit that applies to business personal property.

The endorsement is available for attachment to the Building And Personal Property Coverage Form, CP 00 10, the Condominium Commercial Unit-owners Coverage Form, CP 00 18, or the  Standard Property Policy, CP 00 99. If the form is not attached to one of those forms, then the applicable cause of loss form may be added to this endorsement.

For convenience in our review, the Definitions are presented first rather than at the end as is in the endorsement.

G.   Definitions

For the purposes of this endorsement, the following definitions are added: 

1.  "Cannabis":

a.  Means: 

Any good or product that consists of or contains any amount of Tetrahydrocannabinol (THC) or any other cannabinoid, regardless of whether any such THC or cannabinoid is natural or synthetic. 

b.  Paragraph G.1.a. above includes, but is not limited to, any of the following containing such THC or cannabinoid: 

(1)  Any plant of the genus Cannabis L., or any part thereof, such as seeds, stems, flowers, stalks and roots; or 

(2)  Any compound, by-product, extract, derivative, mixture or combination, such as: 

(a) Resin, oil or wax; 

(b) Hash or hemp; or 

(c) Infused liquid or edible cannabis; 

whether or not derived from any plant or part of any plant set forth in Paragraph G.1.b.(1).

2. "Cannabis activity" means the design, cultivation, manufacture, processing, packaging, handling, testing, storage, distribution, sale, serving, furnishing, use, possession or disposal of "cannabis". 
3. "Market value", as used in this endorsement, means the price which the property might be expected to realize if offered for sale in a fair market at the time of loss or damage.

Analysis:

The "cannabis" definition is the same as is found in other ISO cannabis related endorsements, and includes any good or product containing any amount of THC (Tetrahydrocannabinol) or any other cannabinoid – natural or synthetic. The definition applies to any Cannabis L. plant, seed, stem, flowers, stalks, roots; or any compound, by-product, extract, derivative, mixture or combination, included but not limited to resin, oil or wax; hash or hemp; or infused liquid or edible cannabis, regardless of where or how it was derived.

This endorsement introduces two new definitions related to cannabis coverage- cannabis activity and market value. Cannabis activity serves to describe the type of functions involved in a cannabis operation, from the design stage through sale, use, possession, or disposal. 

The definition of market value is added, as the insured has the option of insuring certain cannabis stock at its market value. Market value is the cannabis stock's fair market sales value, less any unpaid taxes and paid taxes deemed refundable by law. The market value is determined at the time of loss or damage of the property. This is described in Paragraph E. Valuation.

Coverage 1 – Your Cannabis Stock

1. The Building And Personal Property Coverage Form CP 00 10, Standard Property Policy CP 00 99 and Condominium Commercial Unit-owners Coverage Form CP 00 18 are amended as follows:

1. The following is added to Paragraph A.2. Property Not Covered:

"Cannabis" 

2. Paragraph A.1. of this endorsement does not apply to goods or products containing or derived from hemp, including, but not limited to:

a.  Seeds; 

b.  Food;

c.  Clothing;

d.  Lotions, oils or extracts; 

e.  Building materials; or

f.  Paper.

However, this Paragraph A.2. does not apply to the extent any such goods or products are prohibited under an applicable state or local statute, regulation or ordinance, in the state where such goods or products are located.

B.    Business Income And Extra Expense

1. The Business Income (With Extra Expense) Coverage Form CP 00 30, Business Income (Without Extra Expense) Coverage Form CP 00 32 and Extra Expense Coverage Form CP 00 50 do not apply to that part of Business Income loss or Extra Expense incurred, due to a "suspension" of your "operations", which is attributable to "cannabis activity".

2. Paragraph B.1. of this endorsement does not apply to Business Income loss or Extra Expense incurred which is attributable to goods or products containing or derived from hemp, including, but not limited to:

a.  Seeds; 

b.  Food;

c.  Clothing;

d.  Lotions, oils or extracts; 

e.  Building materials; or

f.  Paper.

However, this Paragraph B.2. does not apply to the extent any such goods or products are prohibited under an applicable state or local statute, regulation or ordinance, in the state where such goods or products are located.

Analysis:

Paragraphs A. and B. of the endorsement exclude cannabis in all its forms from the property policy. An exception is made for hemp products unless those products are prohibited by applicable laws or regulations in the state where the hemp products are located. This is similar to the coverage provided by endorsement CP 99 04 Cannabis Exclusion with Hemp Exception, discussed here: ISO Commercial Lines Cannabis Exclusions

Section C. Coverages provides a description of the coverages shown in the endorsement schedule.

C.   Coverages 

1. Coverage 1 – Your Cannabis Stock

When a Limit Of Insurance is shown in the Schedule for Coverage 1 – Your Cannabis Stock, the Building And Personal Property Coverage Form CP 00 10, Standard Property Policy CP 00 99 and Commercial Condominium Unit-owners Coverage Form CP 00 18 are amended as follows:

a.   Your Business Personal Property under Paragraph A.1. Covered Property includes your "cannabis" "stock" and we will pay for direct physical loss of or damage to this Covered Property, but only to the extent that such "stock" is:

(1) Permitted under an applicable state or local statute, regulation or ordinance, in the state where such "stock" is located; and

(2) The direct physical loss of or damage to such "stock" is caused by or resulting from a Covered Cause of Loss as provided in Paragraph D. Covered Causes Of Loss of this endorsement.

However, with respect to any of your "cannabis" "stock" that is being cultivated, this Paragraph 1.a. only applies if such "stock" is being cultivated within a greenhouse or other building designed for the indoor commercial cultivation of "cannabis".

b.  For the purpose of Coverage 1 – Your Cannabis Stock:

(1) The following is added to Subparagraph e. of CP 00 10 (Subparagraph d. of CP 00 18) of Paragraph A.2. Property Not Covered:

Contraband does not include your "cannabis" "stock", and

(2) Paragraph A.1. of this endorsement does not apply.

Analysis:

Here the coverage being provided is for the cannabis stock only, and no other cannabis related property. "Stock" carries its standard definition of merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping. For example, if the insured has stock of cannabis leaves in their drying process, and a fire breaks out destroying those leaves then that cannabis stock will be covered.

A limit of insurance must be shown in the schedule for coverage to apply. The coverage for your cannabis stock will be included as part of the insured's business personal property coverage, and is provided based on the applicable cause of loss form and endorsements that apply to that coverage. The coverage will only apply to the extent permitted by law in the state where the cannabis stock is located.

The form specifies that contraband does not include "cannabis" or "stock", and that with regards to this coverage, the preliminary exclusion A.1. at the beginning of the policy does not apply. 

c.   For the purpose of Coverage 1 – Your Cannabis Stock, the following is added to Subparagraph h. of CP 00 10 (Subparagraph e. of CP 00 18) of Paragraph A.2. Property Not Covered:

Growing crops does not include your "cannabis" "stock" that is being cultivated within a greenhouse or other building designed for the indoor commercial cultivation of "cannabis".

d.   This Coverage 1 does not apply to goods or products containing or derived from hemp, including, but not limited to:

(1) Seeds; 

(2) Food;

(3) Clothing;

(4) Lotions, oils or extracts; 

(5) Building materials; or

(6) Paper.

Analysis:

The referenced subparagraph h. of CP 00 10 excludes land, water, growing crops or lawns (except lawns on a vegetated roof). So the purpose of subparagraph c. of this endorsement is to make it clear that the exclusion for growing crops does not apply to cannabis stock being grown indoors as part of its cultivation process. An insured growing cannabis in a greenhouse or other indoor facility would have coverage, but an insured growing cannabis outdoors on the land would not. 

Subparagraph d. clarifies that the cannabis stock coverage is not to be confused with the coverage exception for hemp products; they are two separate coverages. 

e.   The most we will pay for direct physical loss of or damage to Covered Property under this Coverage 1, in any one occurrence of loss or damage, is the Coverage 1 – Your Cannabis Stock Per Occurrence Limit Of Insurance shown in the Schedule. 

f.   The Limit of Insurance described in Paragraph e. above, is part of, not in addition to, the Limit Of Insurance stated in the Declarations as applicable to Your Business Personal Property. 

Therefore, payment under this coverage will not increase the applicable Limit of Insurance on Your Business Personal Property.

Analysis:

The coverage for cannabis stock is not an additional limit, but rather included in the insured's business personal property limit. The limit applies per occurrence, coinciding with the business personal property limit.

So if the insured has a business personal property limit of $500,000, and selects a limit of $100,000 for cannabis stock, then that $100,000 is part of and not in addition to the $500,000 business personal property limit, in effect making the cannabis stock a sub-limit of coverage. 

2.  Coverage 2 – Cannabis Stock Of Others

When a Limit Of Insurance is shown in the Schedule for Coverage 2 – Cannabis Stock Of Others, the Building And Personal Property Coverage Form CP 00 10, Standard Property Policy CP 00 99 and Commercial Condominium Unit-owners Coverage Form CP 00 18 are amended as follows:

a.   Personal Property Of Others under Paragraph A.1. Covered Property includes "cannabis" "stock" of others and we will pay for direct physical loss of or damage to this Covered Property, but only to the extent that such "stock" is:

(1) Permitted under an applicable state or local statute, regulation or ordinance, in the state where such "stock" is located; and

(2) The direct physical loss of or damage to such "stock" is caused by or resulting from a Covered Cause of Loss as provided in Paragraph D. Covered Causes Of Loss of this endorsement.

However, with respect to "cannabis" "stock" of others that is being cultivated, this Paragraph 2.a. only applies if such "stock" is being cultivated within a greenhouse or other building designed for the indoor commercial cultivation of "cannabis".

b.   For the purpose of Coverage 2 – Cannabis Stock Of Others:

(1) The following is added to Subparagraph e. of CP 00 10 (Subparagraph d. of CP 00 18) of Paragraph A.2. Property Not Covered:

Contraband does not include "cannabis" "stock" of others", and

(2) Paragraph A.1. of this endorsement does not apply.

c.   For the purpose of Coverage 2 – Cannabis Stock Of Others, the following is added to Subparagraph h. of CP 00 10 (Subparagraph e. of CP 00 18) of Paragraph A.2. Property Not Covered:

Growing crops does not include "cannabis" "stock" of others that is being cultivated within a greenhouse or other building designed for the indoor commercial cultivation of "cannabis".

d.   This Coverage 2 does not apply to goods or products containing or derived from hemp, including, but not limited to:

(1) Seeds; 

(2) Food;

(3) Clothing;

(4) Lotions, oils or extracts; 

(5) Building materials; or

(6) Paper.

e.   Our payment for loss of or damage to "cannabis" "stock" of others will only be for the account of the owner of the property.

f.   The most we will pay for direct physical loss of or damage to Covered Property under this Coverage 2, in any one occurrence of loss or damage, is the Coverage 2 – Cannabis Stock Of Others Per Occurrence Limit Of Insurance shown in the Schedule. 

g.   The Limit of Insurance described in Paragraph f. above, is part of, not in addition to, the Limit Of Insurance stated in the Declarations as applicable to Personal Property Of Others. Therefore, payment under this coverage will not increase the applicable Limit of Insurance on Personal Property Of Others.

Analysis:

If the insured selects a limit of coverage for cannabis stock of others, that coverage will apply in the same manner that coverage applies to the insured's own cannabis stock, the only differences being that any payment for such cannabis stock of others will only be for its owner, and the limit that applies to this coverage is part of the limit that applies to Personal Property Of Others, not the insured's business personal property limit.

3.  Coverage 3 – Cannabis Business Income

When a Limit Of Insurance is shown in the Schedule for Coverage 3 – Cannabis Business Income, the Business Income (With Extra Expense) Coverage Form CP 00 30 and Business Income (Without Extra Expense) Coverage Form CP 00 32 are extended to apply as follows:

a.   With respect to your "operations" which are attributable to "cannabis activity", we will pay for the actual loss of Business Income you sustain due to the necessary "suspension" of such "operations" during the "period of restoration". The "suspension" must be caused by direct physical loss of or damage to property at the premises described in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss as provided in Paragraph D. Covered Causes Of Loss of this endorsement. This Coverage 3 applies only to the extent that such "operations" are permitted under an applicable state or local statute, regulation or ordinance, in the state where such "operations" occur. 

However, this Paragraph C.3.a. does not apply if the "suspension" of your "operations" is caused solely by direct physical loss of or damage to "cannabis" "stock" which does not qualify as Covered Property under Coverage 1 or 2.

b.   For the purpose of Coverage 3 – Cannabis Business Income, Paragraph B.1. of this endorsement does not apply.

c.   Paragraph C.3.a. of this endorsement does not apply to Business Income loss which is attributable to goods or products containing or derived from hemp, including, but not limited to: 

(1) Seeds;

(2) Food;

(3) Clothing;

(4) Lotions, oils or extracts;

(5) Building materials; or

(6) Paper.

d.    The most we will pay for loss of Business Income under this Coverage 3, in any one occurrence, is the Coverage 3 – Cannabis Business Income Limit Of Insurance shown in the Schedule. 

e.   The Limit of Insurance described in Paragraph d. above, is part of, not in addition to, the applicable Limit Of Insurance for Business Income shown in the Declarations. Therefore, payment under this coverage will not increase the applicable Limit Of Insurance for Business Income shown in the Declarations.

Analysis:

The insured has the option of selecting a limit to apply to business income coverage for operations that are attributable to cannabis activity, as defined. The suspension of operations must be caused by direct physical loss or damage to property at the described premises. However, if the suspension of operations is caused solely by direct physical loss or damage to cannabis stock that is not covered by the endorsement, coverage will not apply. 

As with all cannabis, coverage is only available to the extent allowable by law in the state where the cannabis operations occur. 

The limit shown in the schedule for Cannabis Business Income is part of, and not in addition to, the limit of insurance that applies to Business Income shown in the policy declarations. 

4.   Coverage 4 – Cannabis Extra Expense

When a Limit Of Insurance is shown in the Schedule for Coverage 4 – Cannabis Extra Expense, the Business Income (With Extra Expense) Coverage Form CP 00 30 and Extra Expense Coverage Form CP 00 50 are extended to apply as follows:

a.   With respect to your "operations" which are attributable to "cannabis activity", we will pay necessary Extra Expense you incur during the "period of restoration" that you would not have incurred if there had been no direct physical loss or damage to property at the premises which are described in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss as provided in Paragraph D. Covered Causes Of Loss of this endorsement. This Coverage 4 applies only to expense incurred to avoid or minimize the "suspension" of business and to continue "operations", or to minimize the "suspension" if you cannot continue "operations", but only to the extent that such "operations" are permitted under an applicable state or local statute, regulation or ordinance, in the state where such "operations" occur.

However, this Paragraph C.4.a. does not apply if the "suspension" of your "operations" is caused solely by direct physical loss of or damage to "cannabis" "stock" which does not qualify as Covered Property under Coverage 1 or 2.

b.   For the purpose of Coverage 4 – Cannabis Extra Expense, Paragraph B.1. of this endorsement does not apply.

c.  Paragraph C.4.a. of this endorsement does not apply to Extra Expense incurred which is attributable to goods or products containing or derived from hemp, including, but not limited to: 

(1) Seeds;

(2) Food;

(3) Clothing;

(4) Lotions, oils or extracts;

(5) Building materials, or

(6) Paper.

d.   The most we will pay for Extra Expense under this Coverage 4, in any one occurrence, is the Coverage 4 – Cannabis Extra Expense Limit Of Insurance shown in the Schedule. 

e.   The Limit of Insurance described in Paragraph d. above, is part of, not in addition to, the applicable Limit Of Insurance for Extra Expense shown in the Declarations. Therefore, payment under this coverage will not increase the applicable Limit Of Insurance for Extra Expense shown in the Declarations.

Analysis:

If a limit of insurance is scheduled for Cannabis Extra Expense, this will provide the insured with extra expense coverage for operations attributable to cannabis activity. The loss or damage must be caused by a covered cause of loss described under this endorsement. As with all extra expense coverages, the expense incurred must be to avoid or minimize the suspension of operations. Coverage is limited to states where such cannabis operations are permitted by law.

So for example, a partial fire causes smoke damage to cannabis plants on drying racks. The insured can purchase replacement plants from a local grower, which are more expensive than what the destroyed plants were worth but yet purchasing these plants will shorten the period of time the insured will have to suspend their operations. The extra expense to purchase from the local grower will be covered extra expense. 

D.   Covered Causes Of Loss

With respect to the coverage provided under Paragraphs C.1.a., C.2.a., C.3.a. and C.4.a. when this endorsement is attached to:

1. The Building And Personal Property Coverage Form CP 00 10 or the Condominium Commercial Unit-owners Coverage Form CP 00 18, the Covered Causes Of Loss are determined by:

a.   An applicable Causes Of Loss Form, as indicated in the Schedule; and

b.   Endorsements, if any, which supplement or restrict the Causes Of Loss Form as indicated in the Schedule; or

2. The Standard Property Policy CP 00 99, the Covered Causes Of Loss are provided in the form and endorsements, if any, which supplement or restrict the Causes Of Loss under that form.

Analysis:

The applicable cause of loss form that is attached to the policy will be the cause of loss form that applies to coverages provided by this endorsement. If there are any exclusionary or limiting endorsements, or additional coverage endorsements, that apply to the property portion of the policy, then these same terms will apply to the coverages under this endorsement, if applicable to the coverage. For example, if an insured only has property coverage for three of their five locations, and there is a fire at an uninsured location, the endorsement will not cover the insured's cannabis stock at the uninsured location. 

E.   Valuation

The following is added to the Valuation Loss Condition:

We will determine the value of "cannabis" "stock" at replacement cost (without deduction for depreciation), except as provided in Paragraphs 1., 2. and 3. below.

1. With respect to replacement cost on the "cannabis" "stock" of others, the following limitation applies:

If an item(s) of "cannabis" "stock" of others is subject to a written contract which governs your liability for loss or damage to that item(s), then valuation of that item(s) will be based on the amount for which you are liable under such contract, but not to exceed the lesser of the replacement cost of the property or the applicable Limit of Insurance.

2. "Cannabis" "stock" you have sold but not delivered at the selling price less discounts and expenses you otherwise would have had; and

3. "Cannabis" "stock", which is described in the Schedule as subject to "market value", at "market value" less:

a.   Unpaid taxes; and

b.   Paid or determined taxes that are refundable pursuant to applicable law.

If any person or organization to or for whom we make payment under this endorsement has rights to recover prepaid taxes that are included in our payment, those rights are transferred to us.

Analysis:

The valuation provision sets forth how cannabis stock will be valued. Cannabis stock will be valued at replacement cost for cannabis stock, except for cannabis stock sold but not delivered, which will be valued at its selling price, less discounts and normal expenses. Thus, if an insured has stock that is sold and awaiting delivery to the customer, that stock will be valued at the amount the customer paid. 

The insured may select to cover certain stock at its market value; if so, it must be shown in the schedule. The market value option will not relieve the insured of their tax liability, so the value paid will be after-tax. 

F.   Deductibles

The following is added with respect to Coverage 1 – Your Cannabis Stock and Coverage 2 – Cannabis Stock Of Others:

1. If an Optional Deductible For Cannabis Stock is shown in the Schedule, such deductible applies to each occurrence of loss or damage to "cannabis" "stock". If no Optional Deductible For Cannabis Stock is shown in the Schedule, the Property Deductible shown in the Declarations applies to that coverage.

2. If an occurrence of a Covered Cause of Loss results in loss or damage to "cannabis" "stock" and to other Covered Property that is subject to a Deductible, only the largest Deductible will apply,

Analysis:

An optional deductible may be selected to apply to cannabis stock. If no deductible is selected, the policy's property deductible shown in the Declarations will apply. In the event of a covered property loss that also affects loss to cannabis stock, only one deductible will be required. The largest deductible amount will apply to the entire property and cannabis stock loss.

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