By Michael H. Sampson, Esq.
Like businesses in virtually any other industry, businesses in the cannabis industry require many different types of insurance coverage – not just property or product liability insurance. Cannabis-related businesses, for example, should consider general liability, management liability, and cyber coverages.
And, make no mistake, insurance coverage is available for the cannabis industry. That said, many insurance companies have been reluctant to sell insurance to businesses in this unique industry because marijuana has been a Schedule I controlled substance and federally illegal.
The more limited insurance options for cannabis-related businesses often means they face higher insurance premiums, and lower available policy limits, than do businesses in other industries.
The decision to reschedule marijuana from a Schedule I controlled substance to a Schedule III controlled substance – if the DEA signs off and lets it take effect – may encourage some previously reluctant insurance companies to more willingly write insurance coverage for the cannabis industry.
But, rescheduling is unlikely to have a dramatic effect on the availability of insurance for the cannabis industry in the short term. It seems unlikely, for several reasons, that those conservative insurance companies that, to date, have not wanted to provide coverage for cannabis-related businesses would be more likely to immediately do so even if marijuana were finally rescheduled.
For one, even if rescheduling is finalized, it will not suddenly create a federally legal recreational marijuana market akin to today’s existing state-legal recreational marijuana markets.
Therefore, at least for the adult-use cannabis industry, most, if not all, of the insurers’ same concerns seemingly would still be in play. As Common Reporting Standard (CRS) explains, “With respect to the manufacture, distribution, and possession of recreational marijuana, if marijuana were moved to schedule III, such activities would remain illegal under federal law and potentially subject to federal prosecution regardless of their status under state law.”
Even if a dispensary sells both medical and adult-use marijuana, it seems unlikely that an insurer would have the risk tolerance to cover just part of a dispensary’s operations, especially where money and, perhaps, even cannabis is fungible.
In fact, even after rescheduling, several hurdles still would remain to be cleared before marijuana even can be legally sold federally for medical purposes. Until then, many insurers are likely to continue to steer away from the industry.
Until all issues are resolved, it seems unlikely that insurers – which are generally cautious and risk adverse – will significantly change their behavior and start selling more insurance to the cannabis industry.
When marijuana is finally legalized or de-scheduled altogether at the federal level, insurers likely will be more willing to sell more insurance to cannabis-related businesses. As a result, options for coverage, as well as capacity, should increase and have a positive corresponding effect on pricing.
That time has not yet come, however.
In the meantime, cannabis-related businesses must continue to be extra vigilant about the language in insurance policies and how that language applies, or does not apply, to the
cannabis industry.
For example, some insurance policies require that the policyholder abide by “all” laws – which right now is still a practical impossibility in the cannabis industry. Other policies exclude coverage for illegal acts, acts that contravene public policy, or contraband.
There are also exclusions in many insurance policies offered for sale to the cannabis industry that preclude coverage for “health hazards,” carcinogens, or certain vaping products.
Due to existing federal and state law, as well as for other reasons, many of these insurance policy provisions will remain problematic for the cannabis industry – even after rescheduling. Rescheduling, of course, will have no impact on whether cannabis is determined to cause cancer or on the risks associated with lithium-ion batteries, which are often used in vaping products.
To best navigate these and other policy-language challenges, cannabis business executives should work with a knowledgeable insurance broker to make sure they understand not just the nuances of the cannabis industry but also how specific insurance policy language applies.
Without that understanding, cannabis-related businesses run the risk of buying coverage that may not align with their needs.
Just because an insurance policy is available for sale to a cannabis-related business does not mean that it is a good fit for the business or the risks it faces.
Policyholders must continue to protect themselves even if and as federal law and the insurance
market change.
Copyright
© Cannabis Business Executive
