Mercury News
Hannah Whyte is one of thousands of Californians who have struggled to insure their property in the event of wildfire.
Her 77-acre farm nestled deep in a wildfire-vulnerable forest lost its coverage from State Farm after the mountainous region burned six years ago, and she’s found herself excluded from the state-created insurer of last resort designed to protect the most vulnerable. She’s become uninsurable because of her crop: cannabis.
Whyte’s plight is becoming increasingly common for weed farmers in the Emerald Triangle, which includes Humboldt, Mendocino, and Trinity Counties, and has long been the epicenter of US cannabis cultivation. California legalized marijuana for recreational use in 2016, but growers fueling the state’s $5 billion industry already struggle to find insurance given the federal ban on their crop.
With major insurers pulling back from California because of wildfire risk, pot farmers increasingly find themselves confronting the risk of catastrophe on their own. Whyte said she’s relying on “water pumps and a strong dose of bravery” to protect her home and farm, which produces up to 1,600 pounds of marijuana annually. (State Farm didn’t respond to requests for comment.)
“It leaves cultivators and homestead rural businesses at serious risk,” Whyte, 38, added, while walking between the rows of spiky green cannabis plants on her farm one recent afternoon.
Propelled by hot, dry and gusty conditions, California’s fire season is in full swing. This year, wildfires have scorched nearly 1 million acres, led to hundreds of thousands of evacuations, and destroyed more than 1,500 structures across the state. Firefighters are still battling three massive blazes in Southern California near Los Angeles. While temperatures are starting to cool, the threat of wildfires will continue into late fall for much of California. That leaves homeowners in wildfire-prone areas on edge, but the concerns are particularly acute for growers with homestead farms.
Legal marijuana cultivators are ineligible for the state-created FAIR plan, which provides coverage for customers who can’t find it elsewhere. An underwriting guideline prohibits any “‘illegal activity that increases risk to a property” that “presents an unacceptable hazard.” A spokesperson for the FAIR plan said insurers risk having no legal protection for violating federal law by covering properties involved in the marijuana business.
That’s left many small growers to contend with two risky options: forgo insurance or hide their business from the state-backed insurer. The latter carries substantial risk that could lead to a lawsuit or coverage loss. What’s emerging is a crisis for a multibillion-dollar industry that’s already struggling to stay afloat in the top pot-producing state.
“I’m surprised the FAIR plan is not writing insurance for properties where cannabis is being legally grown,” said former insurance commissioner Dave Jones. “The clear policy of the insurance commissioner and Department of Insurance is that there should be insurance for the cannabis industry.”
The FAIR plan’s underwriting guidelines must be approved by the insurance commissioner, which means that person has the authority to overturn the plan’s rules prohibiting coverage of properties with cannabis, Jones said.
Michael Soller, a spokesperson at the Department of Insurance, declined to comment on the commissioner’s authority to change the FAIR plan’s underwriting guidelines. He said that Insurance Commissioner Ricardo Lara “has taken numerous steps to improve cannabis coverage,” including sponsoring a 2022 state law that ensures it is not a crime for companies to provide insurance to people in the commercial cannabis industry.
“This is not simple or easy as it’s being portrayed,” Soller said in an emailed statement. “If so it would have been done years ago.”
The FAIR plan’s risk exposure has approached $400 billion as of June 30, up nearly 40% in the past year. Despite the strain, Lara in July announced a deal to extend coverage to higher-value properties.
“It’s enough of a situation where he can get away with not mandating it for cannabis,” Karl Susman, an insurance agency owner based in Los Angeles, said. “The amount of money that the FAIR plan has versus their total exposure in California is horrific.”
Most cannabis is grown on small family-owned farms. But over the years, legacy growers have been hit with competition from organized crime, high operating costs, the declining price per pound of wholesale cannabis and the state’s onerous web of regulations. Larger corporate growers have entered the market with more resources to lower costs and expand operations, squeezing out small farmers. There are about 5,000 active cultivation licenses in California as of September, roughly half of which are in the Emerald Triangle, according to the state’s Department of Cannabis Control.
Those troubles are now being exacerbated by California’s property insurance crisis. Cannabis is more prone to wildfire risk than any other crop grown in the state, according to a study from the University of California Berkeley’s Cannabis Research Center. Wildfires and smoke exposure in 2020 and 2021 alone caused $2.4 billion in damages.
“Wildfire risk is unique to cannabis as a crop, not because of some inherent quality of its cultivation but because of policy decisions around land use and where farms are allowed to be sited,” said Michael Polson, director at UC Berkeley’s Cannabis Research Center.
