The cannabis industry can certainly be considered unique, and with five newly legalized states as of November 2020, the landscape is ever-changing. With a projected $35 billion in U.S. legal sales over the next four years, according to industry research group New Frontier Data, legislators, insurers and agents alike are taking notice.

As the pandemic continued its spread across the U.S. in 2020, state and local governments adapted by declaring certain businesses and services as essential. The declaration of medical marijuana as an essential service was truly a historic moment for the industry.

“COVID-19 really rang the gong for cannabis to say we are an essential business," says Tyler Cline, CEO, Cannabis Insurance Business agency. 

“Never before in the product's history have so many states seen so much support toward naming this product as an essential business," says Keith Distel, casualty team leader and marijuana liability expert, Admiral Insurance Group. “Realistically, what the pandemic did was bring cannabis into the forefront."

“While operators have been in the legal market for the last several years with medical and recreational marijuana in certain states, it put a lot of operators front and center and gave them the title of essential, which basically legitimizes their actions and their business model," he continues.

Yet, while consumer sales jumped over 30% to approximately $19 billion in 2020, up from $13 billion in 2019, limited capacity continues in the market.

Carriers that are offering coverage, particularly on the property side, “are seen to be pulling back in what they are offering in terms of business interruption, directors & officers and employment practices liability coverage," says Max Meade, strategic insurance advisor with Brown & Brown Insurance. “Some carriers aren't even offering new policies to clients, depending on what their structures are, what procedures they have and if they never had certain coverages in place."

“Right now, carriers are continuing to remain on the sidelines," says Daniel Mayo, senior underwriter, Admiral Insurance Group. “However, I think we're going to see a bunch of carriers, as well as brokers and retailers, come into the market—but not until the federal government considers the substance legal."

As cannabis drifts further into the mainstream, the insurance industry has “been scratching our heads in trying to comprehend how we bite off this elephant here to insure cannabis, something that is not federally legal right now," Cline says. “While it was pushed into the wholesale, non-admitted markets, I do see more carriers offering admitted options now."

The key to opening the cannabis insurance market is legalization. Currently, support for full legalization of cannabis among U.S. residents is over 60%, according to Gallup, the global analytics firm.

“The majority of the country supports legalization, and they want to see cannabis be a product that has specific certifications and proper labeling," Distel says. “That's been one of the biggest trends I have seen in 2020."

Legislation such as the “SAFE Banking Act" will remove barriers for financial institutions and “will be huge for the banking side and will positively impact the insurance side, particularly because there are no standard insurance carriers currently offering a full-blown insurance program right now," Meade says.

Other legislation, such as the “MORE Act" and the “STATES Act," could also aid the industry's growth and with the Democratic party controlling Congress, it will likely “expedite some of the legislation we see has been on the books for a while," Meade explains.

The last decade has seen the cannabis industry develop extensively, but with the variances between state and federal legislation, carriers remain reluctant to enter the space. “States have done a very good job of essentially almost underwriting the risks for carriers," Distel says. “It's not easy for a cannabis operator in any state to acquire a license."

Nevertheless, a flourishing cannabis industry represents opportunities for a budding insurance market where it's difficult to secure adequate coverage at sensible commercial prices.

“I think we're at an educational and pivot point on an insurance and cannabis industry approach, where the insurance industry and the cannabis industry are trying to understand one another," Cline says.

Olivia Overman is IA content editor.