Cannabis insurance options shifting | Business Insurance

The insurance climate for cannabis operators and related companies remains cloudy, but it is improving and should continue to do so.

Developments ranging from the prospect of looser federal restrictions to improving policy language could benefit the industry. 

Capacity for cannabis operators and related businesses remains constrained, however, with some markets such as directors and officers liability insurance particularly difficult.

Two bills before the U.S. Congress could potentially remove some of the more substantial barriers facing cannabis operators when buying insurance (see related story).

Only four states have no laws relating to legal marijuana use — Idaho, Kansas, Nebraska and South Dakota, according to the National Conference of State Legislatures. In all other states, it is either legalized, decriminalized, allowed for medical use, or allowed for medical use and decriminalized.

Ian Stewart, chair of the national cannabis and hemp law practice at Wilson Elser Moskowitz Edelman & Dicker LLP in Los Angeles, said there is a “domino effect” among states legalizing or further legalizing cannabis in various forms, including New York and Virginia which recently acted, with New York choosing full recreational adult use.

“At the state level, things are not slowing down,” he said.

The drug remains illegal, however, at the federal level. Cannabis is classified as a Schedule I narcotic by the U.S. Drug Enforcement Administration. Schedule I drugs, substances or chemicals are defined as drugs with no currently accepted medical use and a high potential for abuse. 

There have been “some encouraging signs” for the cannabis sector, said Andrew Kline, senior counsel for Perkins Coie LLP in Denver. Mr. Kline, who worked for President Biden when he was a U.S. senator and vice president, and Mr. Stewart spoke recently during a series of webinars on the cannabis sector produced by Business Insurance

Capacity constraints continue to create problems for cannabis operators, according to webinar series participants, with the D&O sector being acutely tight.

Charles Pyfrom, Livermore, California-based chief marketing officer of

CannGen Insurance Services LLC, which covers cannabis businesses, said “the No. 1 ask” from cannabis operators is still capacity, as many are not able to secure limits they desire, especially for total insured values.

The Clarifying Law Around Insurance of Marijuana Act of 2021, which would provide a federal safe harbor for insurers covering cannabis businesses where sale of the drug is legal, could help broaden insurance markets for cannabis operators, Mr. Stewart said.

The markets for management liability coverage, including D&O and errors and omissions insurance, have been particularly difficult and could benefit from expansion, he said.

The best way to describe cannabis D&O is “a hard market within a hard market — very firm and difficult to operate in. It’s very difficult to buy limits up to and above $10 million,” said Ben Sibthorpe, Denver-based vice president in the management liability division of CannGen Insurance Services. Fewer than 10 insurers currently write such coverage, he said.

Sebastian Alia, New York-based deputy general counsel at Hudson Insurance Group, described the cannabis D&O market as “a hard market on steroids.” Cannabis “adds so many additional uncertainties” as a new industry with little available data and regulation that offers “so much gray area,” he said.

Matt Grimes, vice president of the cannabis specialty group at Hub International Ltd. in Chicago, said the brokerage is introducing a new D&O product for the cannabis sector. Hub has created an indemnity vehicle that “uses company-issued stock as collateral to provide for an increased limit structure,” he said. 

Meanwhile, policy wording standardization is expected to evolve along with the cannabis industry itself, and regulators are helping play a role in the quest for standardized policy language.

“We’ve found the departments of insurance have been incredibly flexible in our conversations and filings,” said Joseph Jonas, product manager, commercial lines, in Northwood, New Hampshire for the American Association of Insurance Services. 

From a claims perspective, some standardization of terms would be welcome, said Gerrit Nagarwalla, claims manager at Canopius Group Ltd. in St. Charles, Illinois. 

More standardization of policy language as the insurance market for cannabis matures would be beneficial, especially to claims people, Mr. Nagarwalla said.







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