After years of rapid growth, many cannabis businesses today are experiencing a challenging market. Oversupply, stiff competition, and relentless regulatory burdens have triggered a wave of price compression, a sustained drop in wholesale and retail prices impacting each link in the supply chain.
For insurance agents serving the cannabis sector, this moment demands more than a basic understanding of cannabis business insurance. It calls for a strategic lens: one that factors in financial fragility, shifting underwriting appetites, and the real risks of coverage gaps. As Lee Woodruff, Vice President of Jencap’s Cannabis Practice, says, “Price compression isn’t just a revenue problem; it’s a risk management problem. And if agents don’t understand the domino effect it causes, they could miss serious red flags.”
Let’s break down what’s happening and what agents need to watch for.
Price Compression 101: Cannabis Business Trends
Optimism and new markets, along with enormous consumer and investor interest, drove the cannabis industry’s early boom. But in mature states like California, Oregon, and Colorado, that story has shifted. Cultivators have ramped up production, but retail demand hasn’t kept pace. And even where demand is steady, illegal markets continue to undercut legal operators.
The result? A glut of supply, falling prices, and an increasingly fragile economic landscape. According to Reuters, some California farmers are selling cannabis at $1,200 per pound or less, down from over $2,000 per pound just a few years ago. That pricing barely covers the cost of production, let alone overhead, taxes, or cannabis insurance premiums.
Meanwhile, dispensaries are trapped in a race-to-the-bottom pricing strategy, as highlighted by Flowhub and Vetrina Group. To stay competitive, many retailers are slashing prices, offering deep discounts, or taking on too much debt. Unfortunately, these short-term tactics rarely solve long-term structural problems.
“Operators are making tough choices right now,” says Woodruff. “And sometimes, those choices include cutting back on coverage or eliminating policies entirely. That puts everyone at risk if something goes wrong.”
How Price Compression Impacts Cannabis Business Insurance
While the headlines may focus on dwindling profits, the cannabis insurance implications are just as pressing, given how financial strain can ripple through a client’s coverage:
1. Underinsurance Becomes the Norm
Struggling cannabis businesses often try to lower their expenses by scaling back their insurance limits or dropping non-mandatory lines. But this opens the door to catastrophic exposure. A dispensary that skips product liability coverage, for instance, could be on the hook for millions if a tainted vape cartridge causes illness—a scenario with which Woodruff is all too familiar.
“Cannabis is still a volatile market with real risk,” says Woodruff. “But price compression makes people feel like they need to cut corners. Insurance is the wrong corner to cut.”
2. Increased Underwriting Scrutiny
Carriers view financially unstable businesses as higher-risk accounts. And when underwriters see signs of trouble like declining revenue, high debt loads, or poor claims history, they’re more likely to:
- Tighten requirements
- Apply more exclusions
- Increase premiums
- Decline coverage altogether
In this environment, agents need to go the extra mile to demonstrate client stability. That means submitting detailed applications, sharing financial statements when appropriate, and highlighting any risk mitigation strategies in place.
3. Coverage Gaps and Policy Lapses
Financial stress often leads to late or missed premium payments, especially for policies that aren’t required by law. This can result in unintended lapses, leaving clients unprotected just when they need coverage most. Worse, many cannabis businesses aren’t even aware that their policies have lapsed until they try to file a claim.
“We’re seeing a rise in policy cancellations and uninsured losses,” warns Woodruff. “When clients are in survival mode, they stop paying attention to things like renewals, and that can have devastating consequences.”
Red Flags and Watchouts: What Agents Should Monitor
It’s a retail agent’s job to secure the right insurance coverage that protects their client’s long-term viability. That means spotting risk signals early and stepping in before a claim derails their business.
Here’s what to watch for:
Operational Cutbacks
Has your client downsized staff, cut security services, or let safety inspections lapse? These changes can increase the likelihood of loss and hurt their insurability.
Defaulting on Payments
Missed premium payments, delayed invoices, or financial instability may indicate deeper issues. Engage your client proactively before coverage is lost.
Poor Communication
Is your client slow to respond to carrier requests? Are they vague about inventory or business operations? That’s a red flag for underwriters—and for you.
Blind Spot Thinking
Some cannabis operators still don’t understand their exposures. They may assume general liability covers everything or believe a product recall “won’t happen to them.”
Jencap Allows You to Lead with Confidence
When the market gets tough, agents need a partner who understands the pressure their clients are facing. That’s where Jencap comes in. Our dedicated Cannabis Practice has deep experience navigating distressed market conditions. We help retail agents structure realistic, right-sized solutions that balance affordability with robust protection in high-pressure economic cycles.
“We’ve placed cannabis insurance policies for businesses on the brink and helped bring them back from the edge,” says Woodruff. “The key is understanding their risk, telling their story clearly, and finding a carrier who sees the full picture.”
Whether your client is trimming costs or expanding into new products, Jencap can help you evaluate options, avoid coverage gaps, and present a stronger case to underwriters. Reach out to us today to get started.
