The rapidly emerging U.S cannabis market offers significant opportunities for daring insurance carriers, according to A.M. Best, although conflict between the drug’s legal status at the state versus federal level has so far been a deterrent for many.
The rating agency noted that there is demand for coverage from a broad array of industry participants, including growers, retailers, distributors, property owners and lab researchers, which in many cases is even required by state law.
Most marijuana businesses need general liability and product liability coverage, as well as property liability coverage, to protect against accidents and injuries that occur on a business’s premises.
However, currently only around 25 carriers are providing coverage in the U.S and Canada, and most offer only basic policies with relatively low aggregate limits, A.M. Best observed.
This is partially due to the challenge of finding reinsurers to back marijuana-related books of business, as reinsurance is typically a separate book or tower to cover these risks.
Other problems for business owners include shared limits between general liability and product liability, as well as non-stacking endorsements, which limit the amount of coverage available to an insured.
The barrier to entry for many potential insurance players in the cannabis industry has been the unique regulatory challenges of dealing with the drug’s complex legal classification.
The National Association of Insurance Commissioners created the Cannabis Working Group in August 2018 to help insurers study and resolve these issues, but they remain off-putting to many interest parties, analysts said.
“The status of marijuana legality in the US is tricky, a thick tangle of conflicting rules with states, counties, cities, and federal government each creating and trying to carry out their own laws,” A.M. Best stated. “Conceptually, for many, the governance of activities involving the drug is somewhat inconsistent.”
Moves to legalise marijuana have gained momentum quickly at both state and local levels since 2010, with 33 states and the District of Columbia currently permitting the use of medical marijuana.
Of those, 10 states, as well as DC, have legalised recreational marijuana, and Canada also moved to legalise the drug in October 2018.
Despite the legal hurdles, A.M. Best anticipates that the volume of insurance premiums collected related to marijuana coverage will increase significantly as the industry continues to grow and further states legalise the drug.
The market for insurance products will also develop as education about potential risks and the regulatory environment evolve, with more risks likely to emerge as the long-term effects of drug usage emerge, analysts added, particularly for workers compensation and auto coverage.