As of February 2024, forty-seven states, Washington, D.C., and three territories—Guam, Puerto Rico and the U.S. Virgin Islands—allow for the use of cannabis for medical purposes, according to the Centers for Disease Control and Prevention (CDC). A further 24 states permit recreational use. However, these numbers, along with the laws around cannabis use, are changing.

Meanwhile, the U.S. cannabis industry faces major hurdles, even as sales are projected to reach a record $45.8 billion or more in 2025, according to analysis from Headset. 

Cannabis operators, as well as the carriers, brokers and insurance agents who serve the niche market, are facing several issues. Challenges persist primarily due to the regulatory landscape, an increase in product recalls, increasing premium rates and an industry consolidation, where small cannabis operators are finding it difficult to continue to operate because of price compression and increased competition from larger cannabis operators.

“In the more established state markets—where cannabis has been legal for a longer period of time—many operators are struggling with pricing," says Lee Woodruff, vice president, cannabis practice, Jencap Insurance Services.

Cannabis businesses are also struggling due to a lack of Internal Revenue Code (IRS) 280E withdrawals, huge debt service, and limited real estate options in various jurisdictions, explains Jim McErlean, business development manager, Cannasure. In some cases, “businesses are being forced to sell their assets, including their licenses, to survive," he says.

 “Facing financial challenges, operators are actively seeking ways to cut costs, including on insurance," Woodruff says. “Many are reducing coverage limits, increasing deductibles to save money, or even opting out of very important coverages like directors & officers insurance."

Agents working in these states are uniquely placed to offer risk management and risk mitigation options to deal with these challenges, as well as ensure clients understand the benefit of having adequate coverage in place.

Meanwhile, “states like Florida and Pennsylvania are expected to launch new recreational initiatives before the end of 2025, while Minnesota is just about to begin awarding the first wave of cannabis licenses," McErlean says. “Other states like Kentucky and Alabama are ramping up their recently launched medical cannabis programs, so in lieu of a national response, the cannabis industry continues to be very state-focused."

Another trend that is front and center for agents and operators is the potential rescheduling of cannabis from a Schedule I to a Schedule III substance under federal law. A final rule on rescheduling is due later in 2025 from the U.S. Drug Enforcement Agency (DEA). If successful, rescheduling would be a boon to the industry, easing federal restrictions and relieving state-legal cannabis businesses from IRS Code 280E, which prohibits businesses from deducting expenses associated with Schedule I or Schedule II substances, according to Reuters.

However, reclassification may not occur until further down the road. “I don't foresee a change, at least in the immediate future," says Jason Scheurle, national product manager, cannabis, Burns & Wilcox. “Unfortunately, that means that the industry has limited options when it comes to access to banking and financing. Smaller independent credit unions can help here or there, but, across the board, these operators need more access to banking and financing resources."

Further, agents operating in the workers compensation market need to keep up to date with the treatment of cannabis by employers. “State public policymakers continue to consider the issue of reimbursement of marijuana as a method of treatment in their respective state workers compensation systems," says Tim Tucker, executive director, legislative and government affairs, National Council on Compensation Insurance (NCCI). “In 2025, state legislatures are likely to continue to consider a range of reimbursement frameworks related to the use of marijuana in the treatment of workplace illnesses and injuries."

As far as any rescheduling impact on the insurance industry, “the markets are very quick to support any change," Scheurle says. “While two prominent carriers exited the market in 2024, I don't believe it was anything to do with the federal status of the substance or any particular state's viewpoint."

Olivia Overman is IA content editor.