The cannabis industry is moving mainstream. Medical cannabis is now legal in 29 states plus the District of Columbia. Recreational cannabis is now legal in nine states and the District of Columbia. This three-part article will cover a brief historical look at the cannabis market in the US as well as the important coverage options available in today’s rapidly evolving cannabis trade.
Over 306 million Americans currently live under some sort of cannabis law, which creates a big market for the knowledgeable insurance agent. Cannabis has ranked as the number one cash crop in the US since 2003, averaging 50 percent more in typical production value than its closest competitor, corn, and five times that of wheat production, according to drugscience.org.
A 2017 Yahoo News and Marist College poll found nearly 55 million American adults used cannabis at least once or twice in the year prior to the poll. A majority of Americans believe that using cannabis is “socially acceptable,” with those who have tried it overwhelmingly in agreement with its acceptability. An October 2017 Pew Research Center poll found that 61 percent of those polled believe in the legalization of cannabis use.
The national opinion on cannabis use, whether for medicinal purposes or recreational use, is turning.
In a surprising turnabout, former House Speaker John Boehner, a formerly outspoken opponent of legalized marijuana, recently joined the board of Acreage Holdings, an 11-state cannabis operation. “My thinking has evolved,” he tweeted.
Millennials comprise a slight majority of cannabis users. Women currently own or founded roughly one quarter of all cannabis businesses, and minority owners are gaining a foothold. This industry may be the perfect place for your millennial agents to display and hone their marketing and coverage skills.
Your agency may have experience in this growing market or you may be considering entering it. An experienced wholesaler can help provide coverage essentials and access to this emerging market. This white paper will help you decide if the rapidly growing cannabis industry is a fit for your agency.
A Look at the Cannabis Industry by the Numbers
According to Joseph T. Clees of Ogletree & Deakins law firm in Arizona, 2016 was a “watershed” year for cannabis legislation. Recreational cannabis was on the ballot in five states: Arizona, California, Maine, Massachusetts and Nevada. The initiative failed only in Arizona. Vermont approved recreational cannabis in January 2018 by legislative action, rather than a ballot initiative. Four other states that approved medical cannabis measures are Arkansas, Florida, Montana and North Dakota. Some states offer broader medical marijuana laws than others, with the types of conditions that allow for cannabis treatment differing from state to state.
Agents who enter the cannabis market’s ground floor face a few challenges. However, with planning, they can earn great rewards. Revenue from the cannabis industry is predicted to reach $20 billion by 2020, with some estimates as high as $35 billion. Even the conservative Forbes Magazine predicts sales to top $20.2 billion by 2021. The cannabis industry’s growth rate “rivals the dot-com era,” according to Forbes. The Frontier Financial Group reports the compound annual growth rate at 16 percent. Forbes also predicts the cannabis industry will create more than a quarter of a million jobs, much greater than the expected growth of manufacturing jobs.
Legalities and History of Cannabis Use
Public policy used to be squarely against cannabis. The illegality of cannabis and its scheduling as a Class 1 drug made it uninsurable because policy provisions prevented insuring illegal operations. An important case in 2012, Tracy v USAA Casualty Insurance Co, ruled against a homeowner who had pot plants stolen from her property. USAA relied on federal law to argue that because cannabis was illegal, USAA could not cover the loss.
This case captured national attention, however, and Oregon, the first state in the nation to decriminalize cannabis in 1973, passed a statute that forbade contract un-enforceability based on federal law prohibition.
The Tracy case highlighted a key concern with insuring cannabis—if state law allowed cannabis use but federal law still banned it, insurers could deny claims based on illegality. The Obama administration stepped in. In 2013, the Cole Memo instructed US Attorneys “not to focus federal resources in your States on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of cannabis.”
The Trump administration, however, said, “Not so fast.” On January 4, 2018, Attorney General Jeff Sessions penned a one-page memo with a subject line “Cannabis enforcement.” The most significant line reads: “Given the Department’s well-established general principles, previous nationwide guidance specific to cannabis enforcement is unnecessary and is rescinded, effective immediately.” Immediately, Governors from states cash-heavy with cannabis tax dollars protested. Colorado Senator Cory Gardner blasted Sessions’ decision in a tweet, stating, “The Justice Department has trampled on the will of the voters in CO and other states….This must be left up to the states.” Colorado’s annual sales for 2017 surpassed the $1 billion mark by the end of August 2017.
Clearly, a states’ rights issue is imminent and the Sessions memo has caused some further contraction in an already limited commercial insurance market.
A Market in Flux – Carrier Expansion and Retraction
Where does the carrier market stand today?
Lloyds of London was one of the first markets to provide coverage for the cannabis industry, but withdrew from the market due to conflicts between federal and state laws. In 2015 Lloyd’s instructed their syndicates not to write cannabis coverage due to federal scheduled drug law. This created a market vacuum. While carriers continue to operate in this market, they may differ in their preferences for medicinal cannabis versus recreational exposures. Experienced wholesale brokers know which carriers in the cannabis space to approach depending on the exposures. In some lines of coverage, only one carrier may be available.
As of September 2017, no state regulatory agency prohibited writing cannabis insurance, and California Insurance Commissioner Dave Jones held a series of meetings to encourage major carriers into the California marketplace.
Reaction to the Sessions’ memo has increased banks’ unwillingness to do business with the cannabis industry, leaving dispensaries and other ancillary cannabis services with loads of cash on hand. Safety concerns at grow facilities, labs and dispensaries are forcing the industry to increase security. A 2017 report by GreenWave stated that many dispensaries and other ancillary businesses opened accounts without revealing the true nature of the business. However, once banks learned of a business’s cannabis association, they shut down the account.
Challenges are associated with writing these insurance policies, and market access is probably the biggest hurdle. A wholesale broker who has strong relationships with the few available cannabis markets and who understands the carriers committed to the marketplace will help retail agents place coverage and may help reduce the risk of an errors and omissions claim.
In the next post, we’ll discuss coverages and a few of the unusual exposures faced by today’s cannabis entrepreneurs.
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We offer unmatched tools, resources and strategies to help insurance agents and brokers expand their corporate accounts to include the rapidly growing cannabis market.
For more information, contact Ruth Boozer at email@example.com or (206) 538-5074, Jeff Conley at firstname.lastname@example.org or (213) 236-4534, Justin Lehtonen at email@example.com or (213) 236-4536, Jake Macer at firstname.lastname@example.org or (213) 236-4577, Morgan Moore at email@example.com or (213) 236-4566, Stacy Pointer at firstname.lastname@example.org or (213) 236-4575, or Brian Savitch at email@example.com or (415) 625-1287.