Last Updated 9/19/2019
Issue: Demand for cannabis is increasing dramatically. More than half of U.S. states have legalized some form of medical or recreational marijuana, and the demand for cannabis is increasing dramatically. The division between state and federal status makes it difficult for businesses to receive inclusive, affordable coverage and often leaves policyholders with restrictive plans.
Background: Conflicting state and federal laws, emerging standardization of business practices and rapidly evolving regulations have largely discouraged insurers from participating in this market. 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 (FD&C Act). The FDA has not approved a cannabis drug. It has, however, approved CBD medicines for the treatment of epilepsy. Federal law currently prohibits CBD from being added to any food or drink product. On July 22, 2019, the FDA issued formal letters determining that certain CBD products were sold in violation of the FD&C Act.
Cannabis-related businesses (CRBs) face many risks and obstacles. Some of the biggest risks involve theft, general liability and product liability. Companies functioning within state legality face severe banking restrictions due to federal regulations. CRBs may be forced to handle large sums of cash, subjecting them to a higher risk of theft. CRBs share the same general liability and other risks agricultural and manufacturing businesses face. This includes workplace accidents, damage to property and crop failure. CRBs are especially prone to fires from both wild and internal sources.
The popularity of cannabis-infused products, such as edibles, increases the risk of product liability and safety recalls. The psychoactive effects of cannabis raise the risk products may be deemed mislabeled, misrepresented or harmful. Standard general liability plans account for these claims in non-CRB businesses, but most insurers hesitate to provide such coverage for CRBs due to the legal uncertainties. Policy language specifically tailored to the cannabis industry is crucial in providing adequate coverage.
Individuals using cannabis also face insurance challenges ranging from legality issues to coverage deficiencies. Users may be faulted in workers’ compensation claims or subject to employment-disqualifying drug screening. In addition, insurers offering medical treatment options may have policies preventing the use of cannabis in treating a patient’s condition.
Auto insurance rates may be influenced by elevated risks associated with drivers under the influence. Complicating the situation is the lack of standardized methods for roadside detection of drug-impaired driving. Additionally, the variability of side effects and physiological reactions in each user increase the risk of misidentifying a driver’s status at the time of the incident.
Status: There are many legal uncertainties, unique hazards and emerging risks involved in legal cannabis-related activities. The CIPR’s May 16, 2018 Weeding through the Unique Insurance Needs of the Cannabis Industry examined many of these issues. Additionally, the NAIC Cannabis Insurance (C) Working Group was formed in 2018 to better understand the cannabis industry’s insurance coverage gaps and regulatory issues. Members will develop best practices for state insurance regulators to help them address these insurance needs. As part of this process, the Working Group adopted the Understanding the Market for Cannabis Insurance white paper in 2019. Its current focus is on collecting aggregated insurance availability and coverage gap information.
Committees Active on This Topic
Insuring the Commercial Cannabis Industry
January 2019, CIPR Newsletter
Marijuana and Banking Policy Position & Research
American Bankers Association
Cannabis: From Criminality to Commercial Enterprise
November 2018, NAMIC
FDA and Marijuana: Questions and Answers
August 2017, U.S. Food & Drug Administration
State Medical Marijuana Laws
February 2018, National Conference of State Legislatures
Cannabis and Insurance Initiative
California Department of Insurance
The Marijuana Policy Gap and the Path Forward
March 2017, Congressional Research Service
National Cancer Institute: Cannabis and Cannabinoids
November 2017, National Institute of Health
Drug Impaired Driving
April 2017, Governors Highway Safety Association
July 2017, National Highway Traffic Safety Administration
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Regulatory Research Specialist