Is the Insurance Market Involved with the Marijuana Industry?

Marijuana has been a topic of growing importance in the United States for decades. Recently, the widespread legalization of the herb has kept it in the news cycle. It seems as though every year more and more states legalize the drug. As more states legalize it, and more businesses pop up predicated on weed, it stands to reason that the insurance industry would also become interested in the growing (and very profitable) marijuana business. So far, that isn’t true.

Most of the hesitation on the insurance side of things stems from the fact that the federal government still classifies marijuana as illegal. While it is true that they have virtually stopped enforcing the law, it does not mean that they could not step up enforcement whenever it pleases them. That makes getting involved in the marijuana industry a very risky prospect for insurers.

A.M. Best recently released a report detailing the risks present in the marijuana industry that are preventing more widespread carrier participation.

“Those directly and tangentially involved in the industry need insurance that addresses the specific needs of growers, retailers, distributors, property owners and lab researchers,” the A.M. Best report says. “However, despite growing demand from both producers and retailers alike, many carriers are reluctant to embrace the industry, owing to its classification as a Schedule I drug in the eyes of the U.S. federal government, under the Controlled Substance Act of 1970.”

All of that being said, the fact that the federal government still considers marijuana to be illegal seems to be more of a political move than anything else. The majority of the general public is on board with marijuana legalization, as is evidenced by the growing preponderance of states that have legalized it themselves.

While most insurers still find the risks of getting involved in the marijuana industry to be too high, others are jumping in, hoping to get ahead of the curve. The report notes that even those insurers that are getting involved are just dipping their toes in, and not providing marijuana business owners with the amount of coverage that they actually need.

“Because this is an emerging market for insurance companies, insurers believe that their risk in these businesses is best managed with their current limits. Another reason for the low limits is 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,” A.M. Best said.

As of early 2019, 33 states and Washington D.C. have passed legislation that makes medical marijuana legal. Out of those, eleven have legalized marijuana for recreational use. The tide is shifting, which means there is a lot of money to be made for insurance carriers. According to A.M. Best the industry produced $8 billion in sales in 2017. With money like that, it’s all but certain that more carriers will want to get involved soon enough.


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