Insurers are quietly preparing for a potential ten-fold increase in sales to the booming cannabis industry at $ 17.6 billion a year as Congress moves closer to legalizing cannabis at the federal level.
While 36 states and the District of Columbia have legalized cannabis for medical or recreational use, insurance for breeders, test labs, and retailers is largely controlled by tough federal laws criminalizing cannabis alongside heroin, methamphetamine, and LSD.
Legal cannabis sales in the U.S. rose 45% last year and are projected to hit $ 41 billion in 2026, Colorado-based research firm BDSA said.
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But the industry only got about $ 250 million in policies last year, according to estimates by insurance reps for Reuters, with a handful of freight forwarders offering limited property and liability insurance.
According to more than a dozen insurers, brokers, agents, lawyers and cannabis executives surveyed by Reuters, businesses also need coverage for crops and theft, as well as higher withdrawal limits.
While Congress is considering bills that would relax federal laws, some insurers are trying to fill the void with new types of coverage. With insurers being regulated at the state level, they can now offer insurance coverage in states where the drug is legal, and federal decriminalization would expand the market.
“There is an overwhelming need for the right insurance,” said Rocco Petrilli, chairman of the National Cannabis Risk Management Association (NCRMA), a trading group of 3,000 cannabis companies.
NCRMA set up a proprietary insurer in April to provide property, business and product liability insurance to its members. The company plans to add employee compensation and auto insurance in the fourth quarter, Petrilli said. The captive approach only offers NCRMA members coverage tailored to their needs.
CannGen Insurance Services, a national managing general underwriter of cannabis, CBD and hemp risks working with commercial shipping companies, plans to introduce directors & officers (D&O) liability insurance and labor practices soon through a new division called CannGenPRO, said Charles Pyfrom , Chief Sales Manager. CannGen distributes through appointed retail and wholesale brokers to provide “one-stop shopping”.
Some big insurers like Progressive Corp., Farmers Insurance, Liberty Mutual, and AXA SA offer insurance coverage as more states legalize cannabis. They often sell through subsidiaries and work with CannGen or others, as state licensing records show.
Progressive said its vehicle policies cover civil liability and property damage in states that have legalized the transportation of cannabis, but do not insure cargo. The other companies declined to comment.
New policies can’t come soon enough for cannabis entrepreneurs as they say that insurance coverage is often difficult to find and expensive. For example, cannabis drug store owners told Reuters that their premiums were 20 to 30% higher than an ordinary retailer would pay. Some types of vehicle coverage can cost four or five times that, they said.
D&O insurance, which is vital to attracting skilled business leaders and raising capital, is also expensive, said Gavin Kogan, CEO of Grupo Flor, a licensed breeder, distributor and manufacturer with five pharmacies in California. He said he pays $ 85,000 to $ 100,000 annually for $ 1 million in D&O protection, “and the coverage is extremely limited.”
A lack of insurance coverage can also pose operational challenges and increase costs. For example, low coverage limits on cargo insurance can force companies to split shipments, said Gene Brown, an insurance agent in Carmel, Calif. Who specializes in cannabis coverage.
“They have large fleets that deliver large quantities of cannabis or move large quantities of money,” he said. You need $ 1 million coverage, but “You can only get $ 500,000 right now.”
As more states legalize cannabis, US lawmakers are under increasing pressure to follow suit. Last month Senate Majority Leader Chuck Schumer threw his weight behind the movement and unveiled an ambitious bill to legalize cannabis.
In April, the House of Representatives passed bipartisan bill that would allow banks to offer services to cannabis companies in states where it is legal.
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Given the slim majority of Senate Democrats and its broad scope, it is unlikely that Schumer’s measure will become law in its current form, said Ian Stewart, partner and co-chair of the cannabis practice at law firm Wilson Elser.
Still, analysts and insurance managers say such bills show that Congress is slowly moving towards looser cannabis laws.
BDSA expects some form of state legalization in 2022, and NCRMA’s Petrilli said that could bring insurance sales to cannabis companies to more than $ 3 billion over the next five years if the industry were insured like regular companies.
“Those who insure this industry with the necessary coverage at reasonable prices will be very, very successful,” said Kogan.
(Reporting by Alwyn Scott; Editing by Michelle Price and Nick Zieminski)