What’s in a Name? That which we call a rose by any other name would smell as sweet.[1]
The availability of insurance coverage for the nascent cannabis industry remains in flux. This is largely because the cannabis sativa plant—known for its many names and extracts, including marijuana, hemp, THC, and CBD—has a checkered past. After enjoying a brief status as a “fashionable narcotic,”[2] cannabis has been largely condemned in the United States since the Prohibition era until the most recent paradigm shift. But as the pendulum swings toward acceptance, the high-risk industry may offer an even higher reward to those insurers willing to delve into understanding this controversial cash crop.
The dichotomy presented by the (il)legality of cannabis in its many forms presents significant complexities for insurers and policyholders alike. Federal illegality has led to an absence of financial services support, which means that for some cannabis companies “money is still being transported around in buckets and being buried in backyards.”[3] Conflicting rules and regulations governing cannabis evolve on a near-daily basis, demanding vigilant scrutiny by investors and underwriters attempting to assess potential exposure. As with all other businesses, insurance is a prerequisite for proper capitalization and licensing of cannabis-related companies, but most insurers are risk-averse and fear entering the market without legalization. With federal law lagging behind the exploding cannabis market, many potential policyholders have found themselves in a catch-22 situation, unable to secure adequate insurance.