Marijuana Industry Still Faces Significant Insurance Coverage Issues

The expansion and availability of medical and legalized recreational marijuana along with future growth projections position the marijuana industry as an emerging market for insurers, according to A.M. Best.

The rating agency found that both medical and recreational marijuana are a rapidly growing business, with revenue that rivals popular industries in the United States such as coffee and movie tickets. In 2017, sales of legal marijuana reached $8 billion. With a growing number of states voting to legalize marijuana, the market for legal marijuana sales is projected to increase to $22 billion by 2022, according to the report.

Despite the industry's rapid growth, the integration of marijuana coverage for insurers has been slow and steady. As the industry matures and insurers gain greater access to quality statistics on actual loss history, insightful actuarial data, and more clarity on the effects of cannabis, more insurers are likely to enter the market, said A.M. Best.

One key challenge for businesses (and insurers) is deciding which coverage is needed—or not needed. Most marijuana businesses need general liability and product liability coverages, as well as property liability coverage, to protect against accidents and injuries that occur on a business's premises.

Most insurers who are just entering the marijuana market are offering a core set of policies that usually consist of the following, according to A.M. Best.

• Commercial general liability, with limits of $1 million per occurrence and a $2 million aggregate
• Property liability, with limits of $1 million per occurrence and a $2 million aggregate
• Product liability, with limits of $1 million per occurrence and a $2 million aggregate

However, the rating agency said these limits may be inadequate for marijuana businesses owners, who may need higher aggregate limits. Because this is an emerging market, insurers believe that risk in these businesses is best managed with their current limits. Another reason for the low limits is the challenge of finding reinsurers to back marijuana-related books of businesses, as reinsurance is typically a separate book or tower to cover these risks. Other problems for business owners are the shared limits between general liability and product liability, as well as nonstacking endorsements, which limit the amount of coverage available to an insured. Many of these policies also lack a duty to defend—a significant issue for marijuana businesses.

The market for insurance products for the cannabis industry will develop as both education about the potential risks and the regulatory environment evolve. More risks are likely to emerge as the long-term effects of proliferating drug usage emerge, particularly for workers compensation and auto coverage, said A.M. Best.

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