Insuring the Cannabis Industry

by | Mar 6, 2019

Currently, more than 50% of the U.S states have legalized either medical or recreational (or both). Canada, the current darlings of the industry, legalized marijuana in the last quarter of 2018. Lesser known, although no less significant due to the optimum growing conditions, was South Africa’s legalization. Moreover, joining this rise in legalization is a rise in demand and a steep increase in business opportunity.

Yet, what is one essential element of running a secure business operation? Insurance.

A cannabis business is an operation with the same insurance requirements of companies from all other industries. However, due to the division between the state and federal cannabis status, business owners are often left with minimal options or with policies offering restrictive plans. In the U.S, the contrast between the federal the state’s stance on cannabis is making it challenging for cannabis businesses to obtain insurance covering all of the necessary requirements.

The Risky Business of Insurance for the Cannabis Industry

Cannabis business owners are required to manage liabilities and risks, much the same as any other business. Protection and coverage of property is an essential element that needs to be covered by an insurance policy. Furthermore, loss of equipment due to such things as water and fire damage can present dramatic profit loss. Similarly, a cannabis business presents the regular risk of accidents or injuries for employees, as well as worker’s compensation. Product liability is another essential coverage that is required for cannabis producers. Essentially the industry requires the same necessities shared by other retail or manufacturing businesses.

The need for comprehensive coverage needs not to be expounded further.

Those looking at entering the cannabis business arena have these, among other, challenges to contend with- insurance in the cannabis industry is just one of many. In the U.S, the primary reason for this is the prohibition presented by federal law. Due to this, there remains some uncertainty as to how the future of the cannabis industry looks on a legal point of view. Therefore, traditional insurance avenues are often not a viable option. But, why are these insurers, whose business is based on risk, reluctant to step foot into the risk of insuring cannabis businesses?

Is Cannabis Insurance Legal?

Certainly, the answer is a resounding yes. While this question may seem bizarre in the turning tide of cannabis legalization, it is a valid question when one examines the status of cannabis under federal law.

With a clear and strict interpretation of this federal prohibition, traditional insurance companies could view a cannabis business as presenting a risk of criminal business activity. Because of this uncertainty, the majority of conventional insurers are discouraged from participating in the industry. Conventional insurers who have offered policies to cannabis businesses have often presented plans with exorbitant premiums due to this interpreted risk.

As it stands now, cannabis is a controlled substance according to the Controlled Substances Act (CSA). However, recently the 2018 Farm Bill specifically excluded Hemp from the list of schedule 1 drugs. Therefore, the DEA (Drug Enforcement Administration) will not see CBD which is derived from hemp as a controlled substance. However, the FDA will remain an overseer over CBD – whether it is sourced from hemp or other plants of the cannabis sativa family. This is because the FDA will need to regulate food products being offered and consumed to the American public.

In 1945, President Franklin D. Roosevelt signed a bill into law under The McCarran-Ferguson Act. Thanks to this doctrine, insurance is the state’s business. All insurance except for healthcare – and all it entails including regulation, licensing and insurance laws – is subject to state laws.

Furthermore, the legality of cannabis insurance is further cemented by the tenth amendment. The tenth amendment inhibits the national governing body from enforcing criminal declaration of acts within states. In simple terms, the tenth amendment makes it unlawful for the federal government to declare the insuring of cannabis businesses as illegal. States are within their full right to claim activities as legal or illegal, as they deem fit.

Looking Forward

Yes, if one takes a swift glance at the industry the tension between the federal and state is evident. However, the industry is evolving, gaining the attention of prominent businesses, professionals and, researchers. It is no longer a matter of shaping the cannabis industry, but of keeping up with its momentum. The emergence of cannabis specific insurers, such as cannasecure, is tapping into this market by offering insurance specially formulated for cannabis-specific operations.