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As the U.S. Congress crawls toward the federal legalization of weed, one industry closely watches what happens: insurance. And with good reason. While laws have prevented the insurance industry from extending services to cannabis businesses, they may soon have the opportunity to do so.
What kind of opportunity? An estimate by insurance agents done for Reuters projects that the insurers could see a ten-fold increase in sales once Congress clears a path by making weed legal across the country.
That’s great news for insurers. It will also be a welcome change for the cannabis industry, especially growers facing all the potential pitfalls of an agricultural operation without the same safety net offered to others. It’s become an even bigger issue as legalization spreads to more large states like Illinois and New York.
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Insurance is available in some cases, but it’s expensive
Marijuana farmers can get insurance from some agencies since insurance is state-regulated. However, most of those writing policies are smaller insurers or “boutique” companies, according to experts who spoke with Marijuana Business Daily.
One said that a “grey area” exists because of all the different regulators involved. Large insurance companies that operate nationwide do not want to develop multiple versions of a policy based on the individual products made by operations in each state. Without clear and concise rules at the federal level, many insurers will avoid writing policies for cannabis businesses.
That’s left many outdoor cultivation fields without an insurance policy or having to pay a premium for disaster policies from smaller companies.
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Insurance is another issue held up by the lack of federal legalization.
States’ rights are fine as far as that goes. Still, the lack of legalization at the federal level impacts insurance for cannabis operations, much in how it also affects banking services.
In the Reuters survey of industry experts, most said the situation would not improve until Congress acts. The insurance industry only wrote about $250 million in policies for cannabis companies in 2020, a small amount considering the industry’s nationwide sales are expected to pass $40 billion in 2026.
Some larger companies do offer coverage, but it’s limited in some way. For example, according to Reuters, Progressive offers coverage of commercial vehicles that transport cannabis in states where it is legal, but they do not insure the cargo.
And with the market limited, costs are high. Executives with cannabis companies told Reuters insurance premiums are 20 percent to 30 percent higher than other industries. Others reported paying premiums for vehicle insurance that are four to five times higher than other industries.
Meanwhile, coverage amounts are limited. Some companies have trouble insuring cargo for the amount required. That can lead to logistics issues as some split up a delivery into multiple cargo loads to lower the value of each one.
Legalization could change all of that for insurance companies who prepare. As Gavin Kogan, CEO of cannabis company Grupo Flor, told Reuters: “Whoever leads on providing reasonably priced insurance for this industry with the necessary coverage is going to be very, very successful.”
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