The highs — and lows — of insurance for cannabis businesses and consumers

It seems like every election cycle another jurisdiction is voting to allow adult recreational marijuana use. And even more allow for the medicinal use of cannabis — it is legal for medicinal use in 38 states and the District of Columbia. With so many states recognizing cannabis as a medicine, it would stand to reason that health insurance should offer coverage. But that is very much not the case thanks to its illegal status with the federal government.

Because it is federally prohibited in the United States, no medical insurance here covers cannabis, even if it is prescribed by a doctor. Medicare definitely doesn't cover it. And most insurers rely on FDA-approved lists to build their prescription formularies. In fact, some insurance policies have specifically disallowed its providers from prescribing cannabis, even in legal jurisdictions, regardless of the fact it is not covered by the prescription plan.

There is a glimmer of hope all that might change. President Joe Biden's White House announced that marijuana's status as a Schedule I drug was going to be reviewed – but that announcement came nearly two years ago and any decision by the DEA is still pending.

So, for now, with its federal prohibition, even with a doctor's prescription, medical marijuana has to be paid for in full — with no help from health insurance.

Business of weed

Even if health insurance policies don't cover cannabis, there are plenty of other insurance policies that are happy to step into the marijuana market.

According to Valerie Taylor, vice president and national cannabis practice leader for The Liberty Company Insurance Brokers, cannabis companies have a slew of insurance policies they need to be considering. From plant-touching businesses to the companies that support the business of weed, major insurance policies that need to be considered include:

• General liability
• Product liability
• Property and crime
• Errors and omissions
• Employment practices liability
• Workers' compensation
• Cyber liability

"I see a vital need for a comprehensive approach," Taylor said.

While protection in all these areas is important, the order of importance really depends on what line of business the company is in. For example, plant cultivators need to prioritize crop insurance, while retailers need to prioritize theft coverage, and manufacturers must prioritize product liability.

But that doesn't mean the retailers or the farmers are off the hook when it comes to product liability. Anyone in the supply chain can be named in a suit if there is a faulty product. And don't forget about worker's compensation, which is legally required for any business with employees.

As the markets mature in states with legalized cannabis, several years of data has emerged showing risk and loss patterns, making marijuana business policies easier to price competitively. But even still, while there are non-standard carriers to be found to write these policies, coverage from many traditional carriers is still few and far between because of the federal taboo.

Homegrown risks

While business policies have become more straight forward, how cannabis is handled by private insurance policies is less clear cut.

In most cases of personal property, a homeowners or renters policy would step in if something goes awry. If a massive saltwater fish tank were to rupture, the damage it caused would certainly be covered by insurance. And if a robber made off with grandma's wedding ring, again, the policy would cover the theft — with certain coverage limits. But since cannabis is federally illegal, the case law governing its coverage is all over the place.

There have been plenty of claims made regarding cannabis, and many of those have resulted in lawsuits after homeowners policies refused to cover things from theft of marijuana plants to mold damage caused by indoor grow operations, and even a fire caused by processing cannabis at home.

Federal law dictates that insurers are regulated at the state level, so how any particular insurer would respond to a claim depends greatly on the state the policy was written in, and any exclusions specifically written into the policy.

Future of cannabis insurance

With cannabis treated differently at the federal and state levels, and with each state adopting its own way of approaching it, cannabis insurers have been forced to navigate a hodgepodge of regulations and a maze of legal precedent.

To help them navigate, there are advocacy groups specifically working to establish best practices in the area of cannabis and insurance including the National Association of Insurance Commissioners and the National Cannabis Industry Association.

Among the most pressing issues yet to be ironed out is how workers compensation claims should be handled if there is an on-the-job accident where the worker tests positive for cannabis — even if it was from a use several days ago.

Law enforcement is also eager to come up with some standards for reliable roadside sobriety testing that would be as effective as today's alcohol breath tests. There is also the question of how life insurers will end up treating cannabis use — smoking tends to be treated the same no matter what is being inhaled, but that still leaves the question of how that translates to edibles.

Industry leaders hope to find more clarity if action is taken at the federal level to unify how cannabis is handled. Rescheduling weed could even clear the way for cannabis businesses to deduct business expenses, such as business insurance — one of the biggest obstacles to profitability for many businesses in the space.