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What Kind of Insurance Will Farmers Need in a Hemp-Legal World?

By Spencer Mahoney

Assuming it’s adopted, this year’s federal farm bill would officially classify hemp as an agricultural commodity, a move expected to result in two big changes:

First, a flood of farmers, the common wisdom holds, would jump onto the hemp farming bandwagon. Hemp promises to deliver higher profits than crops such as corn, soybeans or tobacco, which are now plagued by low prices and trade troubles.

Secondly, a spike in demand for crop insurance will naturally follow.

For farmers who have long tilled the earth, the ins and outs of crop insurance are nothing new. But a lot of the next generation of hemp farmers – and many marijuana growers – are still learning about what kind of coverage they need.

Before we get any further, let’s stop to acknowledge that hemp and marijuana are both cannabis plants but, aside from appearance, share little else in common. Hemp contains only tiny amounts of THC, the psychoactive compound that gives its users a high.

Instead, hemp is used to make cannabidiol (CBD) pain relievers, teas, T-shirts and more. More than $650 million in hemp goods are sold in the U.S. each year, all made largely with materials imported from Canada, where industrial hemp has been legal to grow for the past two decades.

Farmers typically buy one of two types of crop insurance: multiple peril crop insurance (MPCI) and crop-hail coverage.

MPCI covers crop losses, including lower yields, caused by natural events, such as:

  • Destructive weather including hail, frost and damaging wind;
  • disease;
  • drought;
  • fire;
  • flooding and,
  • insect damage.

MPCI is federally supported and regulated, and is sold and serviced by private-sector crop insurance companies and agents.

More than 90 percent of farmers who buy crop insurance opt for MPCI. Both the cost of insurance and the amount an insurer will pay for losses are tied to the value of the specific crop. MPCI is available for more than 120 different crops, though not all crops are covered in every geographic area.

MPCI policies must be purchased each growing season by deadlines established by the federal government — and before a crop is planted. If damage occurs early enough in the growing season, the policy may include incentives to replant — or penalties for not doing do.

Crop-hail insurance, meanwhile, is frequently purchased by farmers in parts of the country that get lots of hail.

These policies are not part of the Federal Crop Insurance Program, and are purchased as a supplement to MPCI. Unlike MPCI, crop-hail insurance can be purchased at any point in the growing season.

Farmers can also purchase crop revenue insurance, which helps in low-yield years or when prices fall dramatically, protecting their earnings against wild swings in prices.

Hemp advocates expect the industry to grow fast, especially as researchers discover additional uses for cannabidiol oil, which can be derived from hemp.

But lawmakers will have to act first. When the House went out of session in late September, it eliminated any possibility that Congress would vote on the farm bill before the Nov. 6 election.

The good news is that the hemp legalization provision is championed by Senate Majority Leader Mitch McConnell, R-Ky., and has the support of Senate Minority Leader Charles E. Schumer, D-N.Y. Even U.S. Attorney General Jeff Sessions, an outspoken opponent of marijuana, has told McConnell he would not oppose legalization.

“We’re optimistic the 2018 Farm Bill will include hemp legalization,” said Jonathan Miller, general counsel for the U.S. Hemp Roundtable, a coalition of hemp companies working to legalize hemp farming. “It is one of those very rare issues that sees bipartisan support, where Democrats and Republicans are working together to make it happen.”

Amen to that!

Spencer Mahoney

Spencer Mahoney

Spencer Mahoney is a second-generation employee at CCIG, working as a trusted Commercial Insurance Advisor. Spencer began his career as a Middle Market Underwriter in Boston, where developed his underwriting skills.

Spencer has operated in the Cannabis, Technology and Healthcare industries for nearly a decade. He has experience managing Cyber Liability, Professional Liability and Management Liability programs for middle market clientele.

Spencer is a board member of the Insurance Charitable Foundation (IIFC), NephCure Colorado and Colorado Uplift.

A business graduate of the University of Arizona, Spencer holds a professional industry designation as a Certified Insurance Counselor (CIC). Spencer can be reached at [email protected]

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