New York, NY--Frontier Risk Group, a Connecticut-based commercial insurance startup specializing in the cannabis industry, has successfully raised $3.1 million in seed funding.
The funding round saw active participation from leading investors, including Casa Verde Capital. Euclid VC, Inter-Atlantic Capital Group, and lawyer Bruce Macfarlane also contributed.
Rising Cannabis Market Opportunities
According to an Axios report, the startup's significant funding follows the recent announcement from U.S. health officials urging the DEA to consider reclassifying marijuana as a lower-risk substance under the Controlled Substances Act.
Such a move could potentially provide a massive boost to the cannabis market.
Frontier Risk has fostered partnerships with reinsurers, many of whom are not well-versed or directly involved with the cannabis sector.
The startup posits that stringent regulations for cannabis cultivators indicate a lower intrinsic risk than other agricultural counterparts.
James Whitcomb, the former CEO of cannabis brand parallel, heads Frontier Risk.
"This historic recommendation is the best news for the cannabis industry in 70 years, but this isn't a done deal, as the DEA has to accept this recommendation before we see federal rescheduling actually happen,” he said, per the report.
"Rescheduling will remove some financial burdens unfairly placed on the cannabis industry, naturally freeing-up capital so companies can focus on streamlining, innovating and continuing to grow the industry," Whitcomb added in the report.
The Insurance Struggle for Cannabis Businesses
According to a Marketplace article, despite the growing acceptance and legalization of cannabis in roughly 20 states, obtaining insurance remains daunting for many businesses due to federal prohibitions.
In the article, Miriam Wood, proprietor of The Tea House dispensary in White River Junction, Vermont, shared her experience, mentioning the hefty price tag of over $10,000 for her business's insurance.
She recalls the challenges, noting, “It was difficult, we weren’t licensed, we didn’t have any revenue coming in.”
The article added that such high premiums arise from the varied state-by-state cannabis regulations, necessitating specialized policies.
Peg Brown, Deputy Commissioner at the Colorado Division of Insurance, explained that most available cannabis insurance falls under the "surplus lines market" category.
This form of insurance typically caters to unconventional entities such as a singer's voice or unique assets like a shop full of cannabis and cash.
Although regulators aim to standardize state policies, Brown emphasizes that the most straightforward solution would be a change in federal law.