Insurance and Bond Industry Watching and Waiting

Attorney General Jeff Sessions and the Department of Justice have finally taken a position on the marijuana industry.  Essentially, the AG is reversing the Obama era mandate to not dedicate DOJ resources in enforcing marijuana laws in those states with regulated industries such as Colorado, Washington, and Oregon.  The cannabis industry may no longer rely on the Cole Memorandum for being a safe harbor either.  This is not necessarily good news, but somewhat expected considering the tone of the current administration.

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.”

Cannabis insurance carriers continue to expand their coverage lines

A dramatic shift of this nature will get the attention of the insurance and bond industry.  However, we expect the insurance industry to make no changes with their coverage offering.  We contacted some of our underwriters to determine if the news was significant reason to stop selling marijuana insurance.  One underwriters response was the insurance carriers are watching what happens in Washington D.C, but its business as usual.  In fact, we continue to see insurance carriers expand their lines of insurance or aggressively pursue certain types of risks.

Cannabis bond market is worth watching how they respond

The bond or surety companies who offer licensing bonds are most likely to take special notice.  This industry segment has been historically tepid with offering bonds most likely influenced by litigation in the past when a bonding company was named as a defendant.  In the lawsuit, Plaintiffs Safe Streets Alliance; Phillis Windy Hope Reilly; Michael P. Reilly included Washington International Insurance Co has a co-defendant because they issued a bond to the cannabis licensee in Colorado.

The size of California’s cannabis industry maybe worth the risk

Consequently, the change in tone by the DOJ may not be good news for California licensees seeking a bond, if bonding companies decide to retract from the marketplace.  But, the shear size of California’s cannabis industry may be enough for insurance and bond companies to turn a blind eye when they consider the amount of business and profit they intend to make.