Overview
The Cannabis Industry is unique and unlike any emerging industry in recent history. It began with the passing of the Compassionate Use Act of 1996 (or Proposition 215) which legalized medical marijuana in California. Since then, many states have passed similar laws legalizing medical marijuana and some have even legalized recreational cannabis. The citizens of Colorado were the first to legalize recreational marijuana with the passing of Amendment 64 in 2012. Since then, Colorado has reported over $5.9 Billion in marijuana sales and $905 Million in tax revenue from sales taxes, licenses and fees. While cannabis is still federally illegal, many other states have followed suit with Colorado, namely California with its opening of recreational cannabis sales on January 1, 2018. The cannabis industry is extremely lucrative, growing fast, and is here to stay.
Rollins Accounting was engaged to assist with a business interruption claim resulting from a fire loss in June 2018 at a cannabis growing and production facility in northern California. The business is comprised of 8 greenhouses and a large production facility. The business is well funded and construction was completed one month before recreational sales started.
Our experienced team provides unmatched forensic accounting and inventory expertise and insight in the insurance claims process to help policyholders fully recover under the terms of their insurance policy from unexpected losses.
Issues
- Because of the limited business history and new industry, it was evident that this would be both a unique and complicated claim
- Of particular concern was the newly promulgated quality control testing standards by the California Bureau of Cannabis Control
- Up until this date, non-compliant product was sold freely in dispensaries across the state
- This regulation change put the impacted business in a unique position to take advantage of the market conditions as less sophisticated growers would not comply with these the strict new testing requirements
Solutions Applied
- Rollins Accounting did extensive research on the cannabis industry and attended a comprehensive walk-through of operations with the business’s Vice President of lab operations
- Rollins Accounting used historical growing statistics, forecasts of future production and changes in market conditions to project future sales during the restoration period
Outcome
In order to prepare a thorough and accurate business interruption claim, it is imperative that the preparer understand not only the business’s operations but the market/industry the business operates within. The Cannabis Industry is changing very rapidly and the preparer must be aware of any changes that could impact the business interruption loss. This example can be applied to all business interruption claims as well. Concentrating solely on the impacted business at the exclusion of the industry or market could be detrimental to the insureds resolution of the business interruption claim.
Rollins Accounting submitted the business interruption claim with the positive result that the insurance carrier paid the insured full policy limits.
Highlights
- When preparing a business interruption claim, the preparer must not only understand the business’s operations, but the market/industry the business operates within and the relevant trends.
- The Cannabis Industry is an example of an industry that is expanding exponentially while experiencing new and different regulations which impact it at a rate that is unique to such a burgeoning industry.
- The insurance carrier paid the insured full policy limits.