Cannabis Coverage…Worth the Risk

Cannabis is a multi-billion-dollar market that continues to be underserved by the insurance industry. While the majority of states and the District of Columbia have legalized cannabis in one form or another, less than 30 insurers are participating in the marketplace nationwide. As the number of states moving toward legalization rises, the number of cannabis related businesses (CRBs) multiplies, and public acceptance of legalization increases, it is imperative that the insurance industry understand and normalize cannabis coverage.  

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The Risks

• Federal: The most conspicuous concern in cannabis business is the ever-present threat of legal enforcement by federal authorities.
• State: The next biggest risk in the cannabis industry, at least from a businessowner and cannabis consumer perspective, is potential noncompliance with state laws and regulations.
• Property Loss: Data surrounding CRB losses is scarce. However, carriers that serve the cannabis industry often report that theft[1] and fire are the primary leaders of first party property loss and that, generally, losses directly attributable to cannabis activities are not as prevalent as initially anticipated.
• Casualty: Some states require that cannabis licensees carry a minimum amount of liability insurance in recognition of the casualty risks that most CRBs face and in effort to ensure some degree of protection for potential injured consumers.

The Coverage

Despite these risks, carriers need not be afraid of cannabis. Industry specialists are hard at work creating specialized tools, forms, and rate adjustments to accommodate any appetite for cannabis coverage. AAIS has developed the Cannabis Businessowners Policy (CannaBOP) Program that incorporates various features and cannabis-specific conditions into a comprehensive package designed to address the many concerns and reservations of insurance carriers. Sample exclusions are also available to carriers, though they can vary significantly by scope and attention to detail.

The Future

Cannabis exposures are likely a permanent feature of the economy. As regulatory frameworks continue to mature, many carriers have found success in providing services to CRBs. Today, cannabis offers an emerging growth market for any interested carrier. However, like any complicated market, it must first be understood. Consideration of cannabis terminology, elevated risks, and the complex regulatory environment is critical to providing coverage that meets the needs of insurers and policyholders and the expectations of federal and state stakeholders.

Phillip Skaggs, Assistant Counsel at AAIS, also contributed to this article.

[1] One of the very first cannabis insurance cases asked whether a theft of twelve medicinal cannabis plants was entitled to coverage under a homeowners policy. See Tracy v. USAA Cas. Ins. Co., No. CIV. 11-00487 LEK, 2012 WL 928186 (D. Haw. Mar. 16, 2012).