Will New Cannabis Initiatives Result in Greater Opportunities for Insurers?

The division between state and federal statutes has made it difficult for legal cannabis businesses to receive all-inclusive, affordable insurance coverage and often leaves policyholders with restrictive plan options. According to the National Association of Insurance Commissioners (NAIC), conflicting state and federal laws, emerging standardization of business practices and rapidly evolving regulations have become formidable deterrents, discouraging many insurers from participating in this fast-growing and expanding market.

However, as federal prohibitions begin to ease, insurance carriers’ apprehensions will likely lessen. According to an article in Cannabis Wire, changes may come sooner rather than later with the Clarifying Law Around Insurance of Marijuana (CLAIM) Act of 2021. If passed, the CLAIM Act would:

  • Prohibit penalizing or discouraging an insurer from providing coverage to a state-sanctioned and regulated cannabis business, or an associated business.
  • Prohibit the termination or limitation of an insurer’s policies solely because the insurer has engaged in the business of insurance in connection with a cannabis-related business.
  • Prohibit recommending, incentivizing or encouraging an insurer not to engage in the business of insurance in connection with a policyholder, or downgrade or cancel the insurance offered to cannabis or cannabis-related business.
  • Prohibit the federal government from taking any adverse or corrective supervisory action on a policy issued to (a) an owner or operator of a cannabis-related business or (b) real estate or equipment that is leased to a cannabis-related business, solely because the owner or operator is engaged with a cannabis or cannabis-related business.
  • Protect employees of an insurer from any liability solely for engaging in the business of insurance with a cannabis or cannabis-related business.

According to Cannabis Wire, Sen. Bob Menendez of New Jersey, a senior member of the Senate Banking Committee and chair of the subcommittee that oversees the insurance industry, said, “Industries operating legally should have access to the same opportunities and basic products and services needed to do business.” A press secretary for Menendez, Steven Sandberg, also commented on the subject and told Cannabis Wire, “Very often insurance is also required for businesses seeking certain types of financing. It puts legal cannabis businesses at a disadvantage and their employees, customers and property at risk. This bill levels the playing field and will help the industry grow and thrive.”

The CLAIM Act, in addition to last year’s passage of the Marijuana Opportunity Reinvestment and Expungement (MORE) Act that removed marijuana from the list of scheduled substances and made small-business loans and services available to legal cannabis businesses, comes on the heels of the Secure and Fair Enforcement (SAFE) Banking Act, which is aimed at providing banks and federally regulated creditors with ties to state-legal cannabis businesses with legal protection.

At the end of the first quarter of 2021, approximately 30 surplus lines insurers and managing general underwriters currently service the cannabis industry, along with a limited number of admitted carriers, according to the National Law Review(NLR). As more carriers elect to expand their market capacity for property and casualty, product liability and workers’ compensation coverage, the NLR reports that it will become easier for licensed cannabis operators to find multiple coverage options at affordable pricing, including expanded coverage for commercial auto, indoor crop, pollution, crime and fidelity. It could also prompt carriers to offer larger cannabis operations increased limits on excess policies, directors and officers, errors and omissions, and cyber security coverages.

From dispensaries to growing and manufacturing, there exist today a large number of insurers that are already showing their support for the cannabis industry and offering quality and affordable insurance coverage. But if the above lobbying efforts tell us anything, it is that there will be even greater opportunities for insurers to better serve this emerging industry over the next several months. 

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