While 36 U.S. states and the District of Columbia have legalized cannabis for medical or recreational use, insurance for growers, testing labs and retailers is being held in check largely by strict federal laws that criminalize pot alongside heroin, methamphetamine and LSD.
U.S. legal cannabis sales jumped 45% last year and are expected to hit $41 billion in 2026, Colorado-based research firm BDSA said.
But the industry only wrote about $250 million in policies last year, insurance agents estimated for Reuters, with a handful of carriers offering limited property and liability coverage.
Businesses also need coverage for crops and theft, along with larger payout limits, according to more than a dozen insurers, brokers, agents, lawyers and cannabis business owners interviewed by Reuters.
'OVERWHELMING NEED'
As Congress considers bills that would loosen federal laws, some insurers are trying to fill the gap with new types of coverage. Because insurers are regulated at the state level, they can now offer coverage in states where the drug is legal, and federal decriminalization would expand the market.
"There is an overwhelming need for the right kinds of insurance," said Rocco Petrilli, chairman of the National Cannabis Risk Management Association (NCRMA), a trade group of 3,000 cannabis businesses.
NCRMA in April set up a captive insurer to offer coverage for property, general premises liability and product liability to members. It plans to add workers' compensation and auto coverage in the fourth quarter, Petrilli said. The captive approach provides coverage only to NCRMA members that is tailored to their needs.
CannGen Insurance Services, a national managing general underwriter of cannabis, CBD and hemp risks that works with commercial carriers, plans to introduce Directors & Officers (D&O) and employment practice liability cover soon, through a new division called CannGenPRO, said Charles Pyfrom, chief marketing officer. CannGen distributes via appointed retail and wholesale brokers to provide "one-stop-shopping."
Some large insurers, such as Progressive Corp Farmers Insurance, Liberty Mutual and AXA SA, are offering coverage as more states legalize pot. They often sell via subsidiaries and work with CannGen or others, state licensing records show.
Progressive said its vehicle policies cover liability and physical damage in states that have legalized transport of cannabis, but it does not insure cargos. The other companies declined to comment.
New policies cannot come soon enough for cannabis business owners, who say coverage is often hard to find and expensive. Cannabis dispensary owners told Reuters, for example, that their premiums are 20% to 30% higher than an ordinary retailer would pay. Some types of vehicle coverage can cost four or five times more, they said.
D&O insurance, which is crucial for attracting seasoned business leaders and raising capital, is also expensive, said Gavin Kogan, CEO of Grupo Flor, which is a licensed cultivator, distributor and manufacturer with five dispensaries in California. He said he pays $85,000 to $100,000 annually for $1 million of D&O protection, "and the coverage is super limited."
A lack of insurance can also create operational challenges and raise costs. Low coverage limits on cargo insurance, for example, can force companies to split shipments up, said Gene Brown, an insurance agent in Carmel, California, who specializes in cannabis coverage.
"You have big fleets delivering large amounts of cannabis or transporting large amounts of money," he said. They need $1 million coverage but "you can only get $500,000 right now."
LEGALIZATION PUSH
As more states legalize cannabis, U.S. lawmakers are under growing pressure to follow. Last month, Senate Majority Leader Chuck Schumer threw his weight behind the movement, unveiling an ambitious draft bill to legalize cannabis.
In April, the House of Representatives passed a bipartisan bill that would allow banks to provide services to cannabis companies in states where it is legal.
Schumer's measure is unlikely to become law in its current form, given Democrats' narrow majority in the Senate and its broad scope, said Ian Stewart, partner and co-chair of the cannabis practice at law firm Wilson Elser.
Still, analysts and insurance executives say such bills show Congress is slowly heading toward looser cannabis laws.
BDSA expects some form of federal legalization in 2022, and Petrilli, of NCRMA, said that could send insurance sales to cannabis businesses to more than $3 billion over the next five years, if the industry were insured like normal businesses.
"Whoever leads on providing reasonably priced insurance for this industry with the necessary coverage is going to be very, very successful," said Kogan.