Insurance and Cannabis: What You Need to Know

Once a novelty industry in a handful of states, the cannabis industry has experienced an incredible boom of growth over the last few years. Today, 29 states (plus the District of Columbia) have legalized medical marijuana and eight states plus D.C. permit the recreational use of marijuana substances. This growth, however, has not been without issues. Although more states are voting to legalize cannabis every single year, it is still illegal on a federal level (however legalization is on the horizon), making supporting services (banking, insurance, etc.) for cannabis organizations difficult or impossible to find.

As the cannabis industry as a whole continues to grow, the risk associated increases as well. While annual sales generated by the cannabis industry topped out at $10.5 billion in 2018, that number is expected to reach almost $30 billion by 2021. Today, if problems or disasters occur for any of the operating businesses within the cannabis industry – storage facilities, growers, processors, or dispensaries – the businesses themselves are responsible for these costs if they don’t have proper cannabis coverage in place. According to Forbes, no other legalized businesses or industries in the United States are dealing with this kind of financial risk.

Here are a few things you need to know about the cannabis industry and insurance, whether you’re an agency, business, or broker:

• This line of business has the potential to be incredibly lucrative for insurance companies. The cannabis industry is no longer small, and there are over 230,000 people involved in this budding industry. The profits are there, the people are there, but a lack of resources has created a roadblock for risk protection. As insurance providers start to get behind this line of business, it has the potential to be financially rewarding for both sides.

• The risk for cannabis businesses continues to grow. With more people and more money invested in the industry than ever before, the risk has become incredibly high. In 2017, between 30 and 40% of California’s marijuana growers were impacted by the wildfires that swept through the state. Again, due to a lack of insurance and financial resources, many of these businesses were left to absorb these costs themselves. Natural disasters along with more common security threats (theft, fire, etc.) continue to loom heavy over the industry.

• There is also significant personal liability involved in the industry. Unlike other consumer retail-focused industries, the cannabis industry operates as a hybrid between retail and pharmaceutical. When asked about potential industry claims by Insurance Journal, Ian Stewart, a partner and chair of Wilson Elser’s Cannabis Law Practice team, said, “The sort of unspoken danger that a lot of… licensed operators don’t appreciate is the risk of consumer class actions. There are cases where a consumer will come in and they’ll buy a product that is technically adulterated or mislabeled or contaminated in some way, maybe they’re violating some state regulation, and the state cannabis regulations are really onerous. It’s really hard for operators to be fully compliant.”

Looking forward:

More than 64% of adult Americans support the decriminalization of cannabis, and as this number continues to grow more states will join the ranks of those that have legalized recreational use. Although insurers are still on the outskirts of this growing national conversation, there have been proactive steps made by both lawmakers and cannabis industry professionals to close these gaps in coverage and mitigate the risk involved. In 2018, the National Association of Insurance Commissioners (NAIC) created a Cannabis Insurance Working Group to identify and research a variety of different industry issues, including the availability and scope of insurance coverage. As the conversation around insurance and the cannabis industry continues, leaders on both sides of the aisle should be aware of the potential risks and rewards. To learn more about how this conversation impacts your business, you can talk to a myCOI specialist here.