Isle insurer ending workers’ compensation coverage for pot dispensaries

Hawaii’s medical marijuana dispensaries are facing another hurdle after the state’s largest workers’ compensation provider decided to drop their insurance policies.

Hawaii Employers’ Mutual Insurance Co., known as HEMIC, notified seven dispensaries Wednesday that its policies will be canceled in 30 days and that premiums would be refunded. The company said its board of directors unanimously agreed to the decision after two independent legal opinions determined HEMIC would be open to “potential exposure for criminal liability” based on federal law.

While Hawaii legalized medical marijuana in 2000, the federal government considers cannabis an illegal drug with no “currently accepted medical use and a high potential for abuse.”

The latest setback could delay the opening of Hawaii’s first dispensaries, three of which have already harvested plants and are ready to begin sales, unless the companies can find an insurer willing to offer the policies. Hawaii law requires companies to provide workers’ compensation insurance that covers medical expenses and lost income for employees who are injured on the job. It also protects businesses against lawsuits by injured workers due to workplace conditions.

An eighth dispensary, Maui Grown Therapies, has insurance with another workers’ compensation provider.

“The frustration with Hawaii companies not accepting our business is that we have to go take that business outside of the state and that’s money I feel should be staying here in the islands,” said Justin Britt, CEO of Green Aloha Ltd. on Kauai, adding that banking has been another problem because financial institutions are not willing to do business with companies selling a federally illegal drug. “If I can’t bank on island, we have to take our business elsewhere. So far we can’t even get armored car companies to work with us. Everything that we do is very difficult as a business because of the restrictions we have to deal with.”

Kerry Komatsubara, executive director of Hawaii Educational Association for Licensed Therapeutic Healthcare, a trade organization for the dispensaries, said the last-minute decision by HEMIC has put a significant roadblock in the start of the medical marijuana industry.

“They have to scramble around to get coverage within this 30-day period,” he said. “I’m not sure how and if they’re going to be able to get around this problem. This is just another hardship.”

Michael Takano, CEO of Pono Life Sciences Maui LLC, added that there’s currently no clear alternatives for the dispensaries.

“It’s really a critical time for our industry to get off the ground,” he said. “This will potentially affect the timing and cost of the products for patients.”

HEMIC, a private mutual insurance company whose directors are elected by its policyholders, said it has a “fiduciary duty to act in the best interest of the company, its stakeholders and its 6,500-plus policyholders.”

“We’re not providing an opinion or moral judgment on someone’s use of marijuana or not, and we’re certainly not taking a position opposed to the value of medicinal marijuana to treat certain medical conditions or chronic pain,” said Marty Welch, HEMIC’s chief executive officer. “This was really simply a legal decision.”

HEMIC initially accepted the workers’ compensation insurance applications starting in 2016 after the state issued licenses to dispensaries, but said under state law it can decline to insure “businesses engaged in illegal activities.”

“A strict interpretation of the conflicting state and federal laws would expose companies doing business with medical marijuana dispensaries to criminal prosecution under federal law,” the company said. “This may include the personal assets of the members of its boards.”

There are more than 16,000 medical cannabis patients registered with the state, though they have no legal way to obtain the drug. Act 241, passed in 2015, allowed the state to issue eight licenses, with each permitted to open two production centers and two dispensaries. Dispensaries were approved to open as early as July 15, 2016.

“Right now (marijuana) is a Schedule 1 drug. That’s what creates fear among the insurance companies and the banks,” Britt said. “They’re scared that the federal government could take recourse against them for working with a company that is not federally legal. It’s important that this medicine is removed as a Schedule 1 drug.”