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Thought Leader Q&A - Thomas Cioletti from McGowan Wholesale

With experience in many facets of the insurance industry, Thomas Cioletti brings a broad spectrum of experience to McGowan Companies.  Having worked as a retail insurance agent, then in product management as an underwriter and product and reinsurance analyst for Topa Insurance Company, he understands the needs of the insured and the insurer. A main responsibility during his time at Topa was the tracking and analysis of active and past wildfires, to ensure underwriting guides were sufficient in their scope regarding the company’s exposure to wildfire losses. This diverse experience in insurance inspires his drive to create and manage insurance products that benefit the policyholder and promote sustainability for the carriers within the industry they cover. 

1. How did you get your start in the cannabis industry?

I was recruited to be part of the team launching the TRICHOME Dispensary Insurance program in 2021 to assist with getting the program over the finish line by assisting with forms, rates, and systems integration.  Though I had previously worked at Topa Insurance on the Product Management team that oversaw Cannasure, I was not directly involved with the management of that program but rather assisted in the reporting to reinsurance partners. I jumped at the opportunity to help launch another program that served the rapidly growing cannabis industry. 

2. When people think of starting a business in this industry, insurance isn't always top of mind. How is insurance a factor in the industry? What do you see as the most important coverage need, and why?

Insurance is an important piece of the financial plan of any business, cannabis or otherwise, which aims to be sustainable.  Right now, many cannabis businesses, particularly independently owned dispensaries and smaller cultivators, opt for the bare minimum of coverage needed to satisfy license or lease requirements.  This stems from tight budgets and a lack of trust for the insurance industry. I see many submissions come in looking for premises general liability only, or with minimal property coverage.  Dispensary businesses will roll the dice on not covering certain aspects of their property, particularly their finished stock, if they feel the controls they have in place minimize their risk of loss or if the premium puts too high a strain on their budget.  

The most important coverage is often left out of their insurance plan by smaller operations due to budgetary concerns: Product Liability.  Any business involved in the cultivation or manufacturing process absolutely needs it and dispensary operations should have this coverage in the event they are pulled into a lawsuit against a product they sold, even if they had no hand in cultivating, manufacturing, or packaging that product. Additionally, many product liability policies have coverage options for product withdrawal, which would assist in expenses related to a state mandated recall of cannabis products deemed unsafe.  Even if the lawsuit is frivolous or is dismissed, legal fees alone could be enough to sink an independent operation on a tight budget.

3. What do you see as the biggest challenges confronting businesses in the industry today?

Money. In a time where the economy is a concern for all business owners, capital is the biggest issue for cannabis businesses. Smaller, independently owned operations are finding themselves struggling to balance competitive pricing on product with operating costs, particularly state taxes, forcing hits on profit to maintain sales. This drives them to find ways to trim their budgets, and insurance is where many of them find the extra few thousand dollars on their balance sheets. To insurance professionals it doesn’t make sense, but to a smaller operation accepting the prospect of a potential loss is more palatable than a tangible premium of $20,000 or more for insurance with all the bells and whistles.  This is especially true if they have yet to experience an insurable loss. 

4. What's your prognosis for the industry 5 and 10 years out?

Things remain unclear on where the federal government will land on some of the issues surrounding the rescheduling of cannabis, with some cannabis critics gaining confirmation for cabinet positions within the new administration and the introduction of bills that would continue to prohibit federal tax deductions on certain business expenses for cannabis businesses that others take advantage of.  

No matter what happens on the federal level, I foresee even more states moving toward legalizing recreational use of cannabis, even if they are currently allowing medical use. You can also bank on larger operations absorbing failing smaller businesses or simply outlasting them by having more access to capital. When the federal government finally settles in and creates a policy that allows for commerce across state lines it will allow for more competition among large and small operations alike. But for now, the larger ops with deeper pockets can weather the current climate better.

5.           What advice would you have for anyone coming into the industry today?

I would urge any operation to start small with a strong plan for creating a revenue stream.  If a group is seeking to open a dispensary, they should focus on their retail operation before aiming for opening a consumption lounge or delivery service, even if their state is issuing those licenses.  It often takes much longer to get doors open than the operators realize and having a business plan that has milestones for progress and adding new services as established ones become viable and sustainable is a better bet than trying to get multiple plates spinning all at once.  The regulations that cannabis businesses must abide by are many and result in large up-front costs for operators, so taking smaller steps on the outset can save headaches down the road. 

Getting a good insurance agent is important as well. Even if an operator thinks they can get by without a full suite of coverage, a good insurance agent will stay on them to cover the business in an adequate fashion even if they only purchase general liability insurance until their license is approved and they are ready to open theit doors. The last thing an operation wants to happen is to find themselves holding the bag for an insurable loss after working so hard to get their balance sheet into the black.

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