Insurance Carriers Evaluate if We’re In or Out with Marijuana

The insurance industry as always been and will continue to be the oxygen to ignite any industry

 

On any given day it would appear if the cannabis insurance industry is having an identity crisis trying to determine if they should or should not insure the marijuana industry.  Recent announcements from the “in crowd” include California based Gold Bear Insurance Company and Topa Insurance.  The “out crowd” includes Evanston Insurance Company and Risk Placement Services.  If we’re keeping score its tied evenly.  Of course, this doesn’t take into consideration other insurance carriers outside our sphere and when Lloyds of London was perhaps the original domino to say no to marijuana.

The most recent cause for this neurosis seems linked to the reversal by the Department of Justice to retract the Cole Memorandum, while insurance executives witness the creation of the world’s largest cannabis market in California.  A interesting dilemma as two worlds collide between profit versus legality and reputation.

As one of our Surplus Lines Broker said about the fluctuating insurance market has necessitated a daily dose of stomach medication to calm their nerves.

Various US Attorneys in states like Colorado and Washington have issued their responses when their boss issued the new directive. Colorado Attorney General Cynthia Coffman went further in her Washington Post opinion piece stating “It is too late to dismantle the marijuana industry.” Coffman went further by recognizing the will of the voters and putting aside her lack of support to legalize recreational marijuana.

These reactions may provide the insurance industry with some level of “security” needed to continue to pioneer through these trails. The cannabis industry must have stable and reliable insurance partners to protect their companies, other parties, and as a matter of public policy. The insurance industry as always been and will continue to be the oxygen necessary to ignite any industry.

 

Justice News

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Thursday, January 4, 2018

Justice Department Issues Memo on Marijuana Enforcement

 

The Department of Justice today issued a memo on federal marijuana enforcement policy announcing a return to the rule of law and the rescission of previous guidance documents. Since the passage of the Controlled Substances Act (CSA) in 1970, Congress has generally prohibited the cultivation, distribution, and possession of marijuana.

 

In the memorandum, Attorney General Jeff Sessions directs all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities. This return to the rule of law is also a return of trust and local control to federal prosecutors who know where and how to deploy Justice Department resources most effectively to reduce violent crime, stem the tide of the drug crisis, and dismantle criminal gangs.

 

“It is the mission of the Department of Justice to enforce the laws of the United States, and the previous issuance of guidance undermines the rule of law and the ability of our local, state, tribal, and federal law enforcement partners to carry out this mission,” said Attorney General Jeff Sessions. “Therefore, today’s memo on federal marijuana enforcement simply directs all U.S. Attorneys to use previously established prosecutorial principles that provide them all the necessary tools to disrupt criminal organizations, tackle the growing drug crisis, and thwart violent crime across our country.”

Attorney General Jeff Sessions Federal Marijuana Enforcement Memorandum

ag_marijuana_enforcement_1.4.18_0(4)

The Cole Memorandum

DOJ James Cole Memo

Is The Admitted Insurance Market Ready to Insure Pot?

The Golden State Could Be a Game Changer for the Marijuana Insurance Industry

Breaking news out of California when The Californian reported California Insurance Commissioner Dave Jones wants admitted insurance carriers to insure marijuana. This will not be an easy task for Commissioner Jones considering the fact Lloyds of London does not offer insurance to the marijuana industry.

For those who may not know, admitted insurance carriers are well known companies approved and subjected to regulation by the state in which they operate. Admitted insurance carriers are typically companies like Travelers, Hartford, Farmers, and State Farm to name just a few. Historically, these companies have no interest in insuring marijuana.

Currently, the cannabis insurance industry purchases insurance through the non-admitted insurance markets. There is less competition, more stringent underwriting, and limited coverage offerings. For example, product liability and directors and officers insurance is extremely difficult to procure. The few insurance carriers offering the coverage dictate the terms leaving the cannabis business with few options. In our experience, most cannabis businesses simply opt out of insuring these risks all together.

If Commissioner Dave Jones is able to convince admitted insurance carriers to start insuring the cannabis industry, those carriers will need to carefully analyze the underlying risks, federal challenges, and repercussions to their reputation in states that are less cannabis friendly. We know that insuring of medical and recreational marijuana businesses has been profitable to the non-admitted insurance markets when distributed through the right channels. The most common claims have been theft of cannabis and employee injuries at a profitable level. Based on our knowledge product liability claims are rare.

The fact that marijuana remains a schedule 1 drug will have admitted insurance carriers analyzing any governmental contracts that could be terminated. The impact on their reputation will be perhaps the most difficult to predict. The majority of the United States (Procon.org: 29 States) has either recreational or medical marijuana laws may lessen the impact the first time a consumer in Arkansas sees their local agent advertising they sell marijuana insurance.

Admitted insurance carriers typically have either dedicated captive agents or independent brokers who by contract represent that particular carrier. The amount of competition and access to these types of insurance products will indeed offer the cannabis industry access to insurance products they never thought was possible.

The non-admitted insurance industry will be out of business if Commissioner Dave Jones gets his way

The impact on the non-admitted insurance industry will be devastating as clients flock to those retail insurance brokers or agents for better pricing and coverage options. Like Commissioner Dave Jones stated in The Californian more insurance carriers competing is good for the industry with better pricing and coverage options.

California could be the tipping point for the insurance industry as thousands of businesses prepare to become licensed and operate in the golden state.