We often talk of medical cannabis and its relationship with health insurance. But there is another part of the insurance equation to consider: business insurance. Legitimate businesses in any other industry carry multiple forms of insurance to protect themselves and their customers. What about companies in the medical cannabis industry?
Business insurance for cannabis companies is a mixed bag. Things are not very stable due to the fact that insurance companies run into many of the same problems experienced by banks and credit unions. This creates a challenging situation for cannabis companies that only want to be left alone to do business.
Coverage Is Spotty
Insurance coverage for cannabis businesses is spotty right now. Based on information from the National Association of Insurance Commissioners (NAIC), it appears that there are fewer than two dozen insurance companies nationwide willing to insure cannabis companies. Most of them are in the surplus lines market.
Insurance providers tend to avoid the industry thanks to inherently high risks relating to:
- Differences in state and federal regulations
- Continuing legal uncertainty at the federal level
- The industry’s ongoing and rapid evolution
- A lack of clear standards and business practices
Legal uncertainty is probably the biggest risk for insurance companies. Like banks, insurers run the risk of federal intervention should they choose to provide coverage for a cannabis business. They don’t want to run that risk.
What Companies Need
The unfortunate thing for cannabis companies is that a lack of insurance opens them up to significant financial losses in the event of a lawsuit. Their liability risks are tremendous. Those risks are exacerbated by the fact that cannabis is still illegal under the Controlled Substances Act (CSA).
Ideally, here is what cannabis companies need by way of insurance:
- General liability insurance
- Property insurance
- Workers’ compensation
- Product liability coverage
- Professional liability
- Employment practices liability
For practical purposes, consider the Beehive Farmacy medical cannabis dispensary in Salt Lake City, Utah. The pharmacy employs state-licensed pharmacists along with technicians and support staff. Any one of their employees could make a mistake that leads to a lawsuit. General liability would cover some types of mistakes while professional liability would cover others.
Should one of their workers be injured on the job, they would need worker’s compensation to cover medical claims and lost income. If a fire were to damage their building, they would need property insurance to cover the losses.
Lawmakers Could Fix It All
I am not one who usually advocates for government interference in business. And in a perfect world, all the problems faced by the medical cannabis industry would disappear by virtue of federal and state governments standing back and getting out of the way. But that’s not going to happen. Therefore, I am forced to acknowledge that lawmakers could fix it all. How? By reconciling currently conflicting laws.
Covering cannabis businesses is too risky for insurance companies because federal and state laws don’t agree. Federal law still classifies medical cannabis as illegal. Insurance companies are federally regulated to some degree. Therefore, it doesn’t matter that states have decriminalized medical cannabis. Federal law overrules them, and that presents too much risk to insurance companies.
The way out of this is to either reschedule or legalize cannabis. Rescheduling is a strong possibility, with the DOJ currently working on a final rule that could move marijuana to Schedule III within the next few months. If that happens, insurance companies might be more willing to take the risks necessary to work with cannabis companies. If Congress were to fully legalize marijuana, the insurance industry would dive right in.