As of now, there are 36 states and four territories that have initiated laws that legalize the use of cannabis for medicinal purposes. Simultaneously, 15 states and three territories have legalized cannabis for adult use.
As historically the case, complications arise when it comes to the interplay of federal and state regulations, which often caused division and uncertainty for those seeking clarity about this venture. It has also increased the number of questions related to cannabis insurance for business owners and insurance companies alike.
Lack of Stability
Ironically, a lack of stability is the only consistent trait that’s been evident when it comes to cannabis legalization and sales in the U.S.
In 1996, Proposition 215 allowed the cannabis business to become the latest “frontier” that American entrepreneurs could explore. Since then, it has been an unsettled landscape that many companies are trying to navigate.
The 2018 Farm Bill is a perfect example. This bill removed hemp from the Schedule 1 list of the Controlled Substances Act. This meant that things like CBD derived from hemp were no longer a concern for the Drug Enforcement Agency. However, because the CSA still contains cannabis on its Schedule 1 list, cannabinoids derived either from cannabis or from hemp remain subject to FDA regulations and control.
These types of discrepancies show that there are still so many things that have been left as “gray areas” when it comes to the cannabis industry.
2020 Trends in Cannabis Insurance
Even as insurance companies carefully evaluate and calculate these regulatory nuances, they have a clear idea about the needs of their prospective customers.
People who are invested in the cannabis business require attention to many of the same policy pitfalls as any other industry. They are often faced with the challenges of agricultural production, product development, packaging, distribution, and sales.
For example, cannabis businesses may have to deal with things like:
- Cyber security for online sales
- Product liability
- Worker’s compensation
- Crop insurance for growers
- Fire, theft, and other security issues for dispensaries
A number of small, local insurance companies have cropped up specifically to support the cannabis industry, but many of the larger carriers have, up until recently, chosen to instead monitor the situation from a distance for now.
As a result, there’s a predictable logjam in coverage. Nationwide, cannabis insurance coverage is a slow-moving industry, even as carriers receive thousands of submissions every week. This activity has drawn new insurance brokers into the space that are working with limited knowledge. This ultimately stretches carriers thin.
Additionally, new providers who are entering the market often offer only basic policies with limits that may not be enough.
There have also been a number of mergers and acquisitions taking place as larger operators partner with or acquire the early adopters. A central challenge to the industry is that fact that many insurance policies do NOT accept multistate exposures.
COVID-19
Undeniably, COVID-19 has affected and continues to influence cannabis businesses. In some cases, especially in places where shutdowns were mandated and there was a severe reduction in tourism, these businesses have suffered. At the same time, demand has risen nationally as people seek relief from an unprecedented and anxiety-ridden global pandemic.
In an already uncertain market, cannabis insurers have become even more hesitant to write for businesses and are requiring a greater number of safeguards, highlighting a new problem in an industry that already suffers from diminished limits and shallow coverage.
Looking Ahead
There’s a clear pattern in the review mirror, and the challenges ahead look much the same. Assessing national cannabis insurance services going forward indicates that it will most likely be an uphill climb.
There remains a dearth of available carriers, and some of those who were earliest into the market are in the process of merging, partnering, or even going out of business. The messy aspects of federal and state regulations are not significantly clearer than they were at this time last year, resulting in delayed options and increased wait times for business applications.
Meanwhile, no one knows how long it will take for the COVID-19 vaccination to instill that sense of “normalcy” and openness in which all businesses thrive.
About the Author
Corey Tobin is an NCRMA Appointed Broker and Senior Vice President of Bolton & Company, one of the nation’s largest employee-owned insurance brokers. He is focused on championing cannabis related businesses by focusing on the unique needs and challenges facing cannabis related business, including dispensaries, cultivators, extractors, developers and much more. To learn more visit https://boltonco.com/industries/cannabis/
