Why Limited Options Exist for Marijuana Business Insurance

Marijuana businesses are a very difficult class of commercial business insurance to place, only several insurance carriers provide coverage and those that do offer coverage with restrictions. Here are the top reasons why there is little choice in the marijuana business insurance marketplace.

Legal Implications: The Controlled Substances Act (CSA) passed in 1970 is the federal statute that placed Marijuana as a Class I scheduled substance. For something to be listed as a Schedule I substance the substance must have the following findings:

1. The drug or other substance has a high potential for abuse.
2. The drug or other substance has no currently accepted medical use in treatment in the United States.
3. There is a lack of accepted safety for use of the drug or other substance under medical supervision

Because marijuana is a Class I scheduled substance it’s illegal to exchange money due marijuana commerce. If money is exchanged the Racketeer Influenced and Corrupt Organizations Act (RICO) could apply to any business generating revenue associated with marijuana commerce.

Even though ballot measures in Colorado, Washington, Oregon and others have made it legal to possess recreational and medicinal use of marijuana these are states laws, and have no effect on Federal law.

Business Reputation: Insurance companies are conservative businesses and need to appeal to the masses. Until marijuana prohibition ends you won’t see them get involved with something that might be considered to be “controversial” for fear of reprimand from social channels.

Coverage Forms: Commercial Insurance Policies are complex legal instruments. The Insurance Services Office (ISO) Building and Personal Property Coverage Form (CP 00 10 04 02) has the following listed under Property Not Covered; Covered Property does  not include “Contraband, or property in the course of illegal transportation or trade.” Based on this do you think coverage could be denied for either a structure of business personal property claim? Nothing has been tested in court, yet.

Lack of Predictive Modeling: Marijuana business insurance pricing is based on data of losses. In order for an actuary to come up with pricing there needs to be 30 losses per year over a 5 year period to be analyzed. Because of the newness of the marijuana industry there is no benchmark data to be used to determine industry pricing. The more states that pass legislation to legalize marijuana the pool of losses will increase which will create accuracy with insurance rates.

High Risk: Insurance companies are hesitant to jump into this marketplace because of the history of litigation in the tobacco industry. The tobacco industry has paid out billions in claims. Even though there are no concrete medical studies that can address the long term effects of marijuana smoking and marijuana vaping it is assumed there will be litigation. Based on the history of the tobacco industry the damages will be expensive.

Until marijuana prohibition ends there will continue to be a limited marketplace to secure marijuana business insurance. I specialize in marijuana business insurance, if you’re interested in discussing marijuana business insurance or would like to receive a quote please call me at (503)-922-4847 or select “Request a Quote” below.

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