Growing Cannabis Acceptance Leads to Industry, Insurance Changes

Cannabis insurance is a budding topic, growing alongside the expanding cannabis industry. Five states have approved recreational cannabis during the 2020 elections, bringing the total states where cannabis is fully legal to 15. What does this mean for the cannabis market, particularly for insurers involved with this growing industry?

AAIS Assistant Counsel Phil Skaggs is one of AAIS’s cannabis insurance experts, having worked on development of AAIS’s CannaBOP Program since its inception in 2018. Mr. Skaggs presented his thoughts on how the 2020 election could impact cannabis legislation and market growth at the 2020 Insuring Cannabis Summit, sharing how the growing adoption of legal recreational cannabis could change public perception and market development.

Legalization Successes

In the 2020 elections, Arizona, Mississippi, Montana, New Jersey, and South Dakota all passed legislation furthering the legalization of medical and recreational cannabis. To date, 36 states and Washington DC have approved medical cannabis programs, and 15 of those states and DC have legalized recreational/adult cannabis use. As a result of the 2020 election:

• Arizona: Arizona voters approved Cannabis Proposition 207 with nearly 60% in favor of legalizing cannabis for recreational sale and use. This is a significant change in comparison to 49% in 2016. There are rumors of opposition and estimated delays among conservative leaders, but Mr. Skaggs expects a full regulatory framework to be implemented sometime within the first half of 2021.
• Mississippi: Mississippi voters approved Proposition 65 with nearly 68% in favor. Proposition 65 proposes to allow patients with debilitating medical conditions to use medical marijuana and allows it to be provided by licensed treatment centers. Voters overwhelmingly approved the less-restrictive proposal with more definite start dates, eligibility factors, a capped tax rate, and no cap on the number of licenses that may be issued. The state must adopt regulatory rules by July 1 and begin issuing patient IDs by August 15.  
• Montana: Montana already has a healthy medical marijuana market with 70 million in sales projected for 2020. Montana voters approved two ballots to create a recreational cannabis market for consumers ages 21 and over. The recreational cannabis program could begin accepting seller license applications before the end of 2021.
• New Jersey: New Jersey voters approved recreational cannabis use via Public Question 1 with 67% support. This law will become effective on January 1, 2021. However, a full regulatory scheme and sales are not expected to materialize until late next year. The anticipated size of the NJ market is expected to be directly responsible for bringing in $1 billion dollars by 2024. New Jersey is also likely to be directly accountable for a possible “snowball effect” in surrounding states. A bill outlining implementation has been introduced and approved by the NJ Senate Judiciary Committee.
• South Dakota: South Dakotans approved two separate but equally essential measures. This is the first state in the history of the US to go from nothing to everything– passing both medical and recreational ballot questions. Mr. Skaggs expects implementations to be more logistically challenging and time-consuming for that reason. The approved measures become law in July 2021; however, regulations are not likely to be in place until much later in the year.

Snowball Effect

The snowball effect regarding cannabis presumes that once one state has legalized cannabis, neighboring states will be pushed to legalize. According to Mr. Skaggs, this can be attributed to cannabis tourism and the increased revenue it’s predicted to bring to legalized states. This is not only revenue that tourists could have given to their home states had it been legal, but when tourists return home, they’re bringing with them illegal contraband that requires increased law enforcement efforts and expenses that wouldn’t be needed if cannabis was bought legally and taxed in that home state. While this theory is “highly speculative,” Mr. Skaggs sees proof that elected officials “do consider this to be a factor and that [cannabis] policy changes in one state or region can have a real influence on neighboring states.” The snowball effect is likely to impact Idaho, Wyoming, states neighboring Mississippi, among others, in the coming months and years.

Biden/Harris Administration: What We Know:

Insurance Implications

Mr. Skaggs is often asked, “Is cannabis insurance still a risk for carriers?” While he is not aware of a single instance where the insurance industry, or an insurance carrier, has been targeted by the federal government just for doing business with a cannabis company”, he adds, “a Democratic executive branch is extremely unlikely to consider cannabis insurance to be a violation of the Controlled Substances act. Government officials are not stupid. They understand that liability insurance, for example, protects consumers, and the industry as a whole is less stable and more dangerous to consumers without insurance. The Biden presidency should be a good thing for both the cannabis industry and insurers serving that industry. And as more and more states legalize cannabis, carriers should be seeing opportunity rather than risk.”

To learn more about Mr. Skaggs’s and AAIS work with cannabis insurance and the AAIS CannaBOP Program, click here. If you’re interested in learning more and listening to Mr. Skaggs’s webinar, Are the Election Results a Greenlight for Cannabis? Click here.