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Is Cannabis the Insurance Industry’s Newest Headache or Opportunity?

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Washington, D.C. and 33 states have legalized the dispensing of medical marijuana. Fourteen states have decriminalized but not legalized medical marijuana and 12 states and Washington, D.C. have already legalized recreational use of the drug. The insurance industry is concerned about the legality of insuring a product that is:

  1. Illegal per federal law
  2. Has not been approved by the Federal Drug Administration

In their Cannabis and Insurance article, The National Association of Insurance Commissioners (NAIC) explains, “Cannabis is an illegal substance under the Controlled Substances Act (CSA), which classifies it as a Schedule I drug and is stated ‘to have no currently accepted medical use in treatment in the United States.’” A provision in the 2018 Farm Bill removed hemp from the list of Schedule 1 controlled substances. As such, the U.S. Drug Enforcement Administration (DEA) will not consider hemp-derived cannabinoid (CBD) a controlled substance subject to the CSA. However, cannabis and CBD (regardless of whether its sourced from cannabis or hemp) is subject to Federal Drug Administration (FDA) approval under the Federal Food, Drug, and Cosmetic Act. The FDA has not approved a cannabis drug. It has, however, approved three CBD medicines for the treatment of epilepsy.”

There are a few other things for insurers to consider:

  • The general purpose of insurance is to indemnify losses and currently the data available is very limited.
  • The business is risky as it is impossible to predict the side effects of the products.
  • Theft is prevalent as this is currently a cash heavy business.
  • Cannabis infused products such as edibles could have increased risk of product liability and safety recall.
  • Auto insurance rates may be affected by the elevated risks of driving under the influence.
  • There is increased evidence of cannabis-induced psychosis.

Apart from Federal law, banking regulations and risks associated with farming—like fires, flooding, and insect infestation—these are the main challenges for Life and P&C carriers and actuaries. Regardless of the challenges, carriers are preparing for the day when federal laws change and remove the legal barriers and reputational risks of providing insurance coverage for the cannabis industry. While uncertainty around legislation remains, there is also uncertainty surrounding the nature and the severity of litigation that will be generated in, and by, the cannabis industry.

However, as with any new product, the stakeholders will be allowed to have their say and the federal government will put extensive guidelines in place eventually. “On May 31, 2019 FDA is holding a public hearing for stakeholders to share their experiences and challenges with products containing cannabis and cannabis-derived compounds, including information and views related to the safety of such products, as well as to solicit input relevant to the agency’s regulatory strategy related to existing products. As part of that hearing, FDA is opening a docket for the public to submit comments.”

The National Cannabis Industry Association (NCIA)—an American non-profit organization based in Washington DC, with an additional office in Denver, Colorado—will also be holding the California Cannabis Business Conference on October 8-9, 2019   . The conference will have over 3,000 attendees made up of cannabis industry leaders, policy makers, entrepreneurs and others. The purpose of this conference is to discuss best practices, brush up on policy issues, and exchange insider secrets.

All stakeholders agree that demand for cannabis related products are expected to grow as more states legalize the drug. The Center for Insurance Policy Research predicts cannabis sales will double over the next four years, reaching $20 billion in profit. Although this growing market is very tempting, carriers are unwilling to jump into the market until marijuana is decriminalized at the federal level and banking regulations change.

Disclaimer: The views and opinions expressed by the author do not necessarily reflect the views and opinions of VUE Software



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