Note to the Insurance Industry: Marijuana Is a Thing

It’s high time the insurance industry embraces marijuana. That’s because pot has entered the mainstream. To date, 29 states and the District of Columbia have legalized medical marijuana, eight states (plus D.C.) permit its recreational use, and several other jurisdictions are inching toward legalized and regulated cannabis.

Public opinion is in weed’s corner, as well — 64 percent of adults in the U.S. support making the substance legal, according to a recent Gallup survey.

No doubt, the times they are a-changin’.

These days, even the tourism business has begun to recognize the opportunity pot presents with folks flocking to locations in Colorado, California, Nevada, Oregon, Maine, Massachusetts and beyond to legally smoke, vape, eat and drink the herb.

The not-so-veiled message to insurers: If you aren’t doing so already, perhaps you should be thinking about ways to provide coverage for various aspects of this burgeoning — dare I say “budding” — sector.

Lines of Coverage

Marijuana is a multi-billion-dollar industry, and the insurance implications are no different than any other large industry.

Just as the strains of cannabis are many, so too are the potential lines of coverage and ancillary issues that legalized pot brings to mind. Here’s an overview:

Property/Casualty Insurance

Businesses growing, distributing and selling cannabis and its extracts may want the full suite of insurance protection, which includes property coverage (pot producers cultivate product in places that need to be insured); fire (the stuff burns, which can be a pro for consumers and con for would-be claimants); commercial general liability (for that inevitable slip and fall in the dispensary); workers’ compensation (“hey boss, I’ve got carpal tunnel from rolling joints!”); business interruption (if the power goes out in the greenhouse); automobile (because ganja delivery is actually happening); employee theft (those edible gummy bears may be tempting to workers behind the counter); cyber (cannabis has gone high tech); and earthquake (a lot of Mary Jane is grown in California).

Clearly, a market exists for insurers thinking about dipping their toes — or diving head first — into the marijuana space, and the future will reward companies that contemplate the possibility of selling relevant insurance products.

Life/Health Insurance

Going forward, life and health insurance carriers would do themselves a favor by considering how pot will influence the way business is done and policies are written. Indeed, insurers should begin to look at current products differently.

An illustration: many doctors confirm the medical benefits to marijuana consumption — it’s used to treat a variety of conditions like Alzheimer’s disease, multiple sclerosis, cerebral palsy, epilepsy, anxiety, nausea and chronic pain, among them. But is the drug covered under health insurance contracts as presently configured? Should it be?

Obviously, the current stance of the federal government cannot be ignored, but how about when that stance changes? Will your company be ready? This is something insurers should address, especially when the cost of cannabis may pale in comparison to the overwhelming expense of some traditionally prescribed drugs. It might make sense to cover an insured’s $50 marijuana prescription if it serves to replace her Zofran that costs $1,000 or more.

Group medical is also in play given the hundreds of thousands of individuals now employed by so-called “grow” operations and dispensaries. Likewise, how might life insurance coverage be impacted when, for example, weed is found to stop seizures and help insureds live longer?

These and additional existing lines of insurance — non-major medical travel, to name another — are potentially affected by the trend toward legalization in this country. Insurance companies should respond accordingly.

Other Insurance-Related Products

As investors take significant positions in marijuana operations, surety bonds and forms of financial guaranty insurance become relevant factors. Consider a contractor building a large-scale “grow” facility — is he able to obtain the necessary surety bond? What about syndicates trying to finance expansion with debt, will they be able to obtain a credit wrap? And how about … wait for it … crop insurance for marijuana and hemp? Growers are certainly desperate to find it. Perhaps new products, specifically tailored to a different way of doing business, will be necessary (and profitable) in these instances.

Tension Between State, Federal Laws

It’s true, more than half the states in the U.S. have taken a relatively relaxed view of marijuana, as evidenced by laws that have legalized the substance for either medical or recreational purposes. That being said, pot continues to be illegal under federal law. In fact, the Controlled Substance Act classifies cannabis as a Schedule I drug, alongside heroin and LSD. Other federal statutes such as the Patriot Act (used primarily to justify the issuance of drug warrants as opposed to fighting terrorism) and the Bank Secrecy Act (with its anti-money laundering rules) also create significant stumbling blocks for those in the marijuana trade — a noteworthy problem for insurers hoping to get in the game.

As a consequence of the existing state vs. federal tug of war, many questions loom: If an insurance company were to work with a grower, dispensary or — for that matter — an individual user, could it be guilty of aiding or abetting a crime? What about possible racketeering? Would it be an illegal effort to circumvent federal statutes by forming group captives to insure a cannabis enterprise? If so, could the U.S. seize reserves held to pay claims? And more fundamentally, can marijuana even be insured in the first place, given that it’s illegal under federal law? According to one court in Tracy v. USAA Casualty Insurance Co., the answer to this last query could be “no,” because pot, or any other illegal substance, may not allow for an insurable interest.

Still, some states — Oregon is one of them — have passed (or seek to pass) legislation specifically preempting this ruling.

No doubt about it, the issues here are difficult ones, though it’s safe to say that interested insurers have their fair share of cover because they operate in an industry that’s primarily state regulated and protected by the McCarran-Ferguson Act, which exempts the business of insurance from many federal laws. In addition, the 10th Amendment delegates powers outside of the limits of the federal government to states.

These principles, coupled with the fact that state insurance commissioners seem, for the most part, to be in support of coverage in the marijuana space, indicate that risks related to pot are very likely insurable. And if they aren’t now, they soon will be because the momentum is undeniable — pot is going to become completely legal, it’s just a matter of time.

The Takeaway

These points are indisputable: marijuana is a major industry that requires coverage at the commercial and personal lines level; insuring weed-related risks is in its infancy; there are billions of dollars at stake; and proactive insurers have the opportunity to invent the market.

Sure, current federal laws make it somewhat problematic for companies to jump into the business uninformed, but the tension between state and federal rules is loosening and the proverbial “wall” created by federal statutes is sure to fall in the not-too-distant future.

Forward-thinking insurers and reinsurers should be ahead of the curve when it does. Why? Because marijuana is a thing.