Cross Purchase Agreements vs. Buy/Sell Agreements

Over the summer of 2021, we surveyed 831 Life & annuity companies in the united states to see if any would or had thought about accepting payments from cannabis companies. Without exception, every admitted carrier said they do not take premium from cannabis. 

So we were surprised to find a niche of agencies purporting to offer a solution, but as we dug in we realized the cross-purchase financing they offered was not the same as funding a buy/sell with an actual life insurance policy. 

If you just want to understand what buy/sell agreements are and why people use them, check out our blog post here.

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How are they are offering 'life insurance' to cannabis entrepreneurS?

If there are no insurance companies offering coverage to cannabis entrepreneurs how are these being setup?

Syndications or cooperatives

Before there were insurance companies, there were syndicates and cooperatives. 

Lloyds of London is a great example of a syndicate where members pooled together to cover their individual risks. Cooperatives operate in a similar manner, with  examples today creating alternatives to health insurance for example. 

There are significant differences with these structures which we’ll detail below. 

Material omissions

the dissonance between federal law and state law has created barriers & inefficiencies across legal cannabis. 

To meet the needs of a rising industry, before the market really began to adapt, savvy professionals found shorter term work arounds leveraging Hipaa or poor kyc due diligence.

this is dangerous with insurance products, as it can undermine the coverage you thought you secured, right when you need it.

syndications & cooperatives

Insurance syndications are as old as the sea-trade; you can learn a lot about this rich history here

They are amazing for covering unusual risks with short durations & high values. I actually know a 3rd generation lloyds of london syndicate owner who was involved in the payout for the challenger explosion! It’s a fascinating and complex business. 

The main thing to know about this kind of coverage is that it is expensive, short-term, & prone to litigation when the need for a claim arises. as I write this, a number of claims are working their way through international courts relating to the loss of planes which are being kept in russia to skirt seizure. 

Like I said, fascinating & complex. 

collecting a death benefit owed from a syndicate is not going to be as simple or fast as filing a death claim with a life insurance company. These contracts are not guaranteed. 

For cooperatives, they are similar, but rely on participants paying in at the time of joining and again as each claim comes in. 

What this means is there is no guarantee of payment or timely payment, if a claim is accepted. These products are not regulated and are not subject to oversight by insurance commissioners. 

Why is evergreen different?

We’re going to  be the first admitted carrier that is cannabis friendly. This means we’ll be the first true life insurer to provide solutions to legal cannabis. 

We’re not just offering a death benefit; our products will offer compelling solutions for broader financial planning. It’s our mission to bring you the features, benefits and access you deserve.

DISCLAIMER

At Evergreen, we’re attacking these risks today and are bringing the first cannabis friendly life insurance products to market. This means we’re also bringing the first cannabis buy/sell agreements to market. The risks and reasoning described here are just the tip of the iceberg that drives us to act. We believe ours is a noble cause. 

Out in the rest of the world – our attitude is aligned with the cannabis industry at large. Federal legalization needs to happen, for so many reasons. 

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