With upcoming regulatory developments in the US and Canada expected to facilitate a significant growth of the legal cannabis industry over the next five years, Global law firm Clyde & Co sees considerable opportunities for insurers at Lloyd’s.
Sales are already projected to grow as much as ten-fold to reach $40 billion a year in the US by 2025 and around $5 billion in Canada within five years, presenting huge underwriting opportunities for insurers to provide D&O cover as well as other classes such as property, fidelity/crime and product liability.
Speaking at Clyde & Co’s annual Financial Institutions, Directors and Officers Conference in London last week, Prachi Shah, a Senior Counsel at the global law firm in Montreal said, “The cannabis market in Canada is set to increase significantly with this second wave of legalization. Smoking a joint might not appeal to large parts of the population, but they may not be averse to trying cannabis candies, chocolate or beer, and other products which incorporate cannabis.
“This second wave of cannabis legalization will provide more opportunities for operators who were not involved in the first wave, such as food and beverage companies, and further opportunities for first-wave cannabis companies.”
Clyde & Co notes that the Secure and Fair Enforcement (SAFE) Banking Act, which will be voted on by the Senate later this year, would offer protection to a wide range of financial institutions including insurance companies and banks, from federal prosecution should they service legitimate marijuana businesses and their service providers.
“In this event, Lloyd’s of London, which currently permits the underwriting of cannabis risks in Canada, may revisit its policy to allow entry into the US market,” explained Katelin O’Rourke Gorman, a Partner at Clyde & Co in New York.
“Legal cannabis is not going away – this is an industry worth billions of dollars but up to this point its businesses have struggled to gain access to critical financial services. While the SAFE Act passed the house with more Republican support than expected, it is still unclear whether it will pass the Senate.
“Should it be passed into law we would see banks, credit unions and insurers rush to the market in states where cannabis has been legalized. When the timing is right this would be a wise move as although the US insurance market for cannabis is currently some way behind Canada, it has the potential to be much, much bigger.”
