The cannabis industry is currently insured by a very small number of carriers, but that would almost certainly change if a bill sitting in the U.S. Senate becomes law.
The bill, which would provide certain legal and regulatory protections for insurance companies that opt to work with the cannabis industry, was approved by the U.S. House of Representatives late last month. Industry experts believe the legislation could prompt a rush of insurance carriers to jump into the marketplace, causing capacity to more than double.
Because cannabis is regulated on a state-by-state basis, the insurers are mostly restricted to using surplus lines companies to write individual policies in each state, said Eric Rahn, a managing partner at cannabis-focused insurance broker S2S Insurance Specialists. Rahn also sits on the National Cannabis Industry Association's Risk Management and Insurance Committee and was involved with lobbying efforts for the pending legislation earlier this year.
"There's only a handful of insurance companies fulfilling the needs of the rapidly, rapidly growing industry," he said.
If the bill becomes law, Rahn said it would allow larger admitted carriers such as Travelers Cos. Inc., American International Group Inc., Chubb Ltd. and Hartford Financial Services Group Inc. to offer products like property and casualty or management liability services on a multistate basis.
The legislation could open up cross-border opportunities as well, Rahn said, noting that Canadian companies, in particular, may be interested in using their U.S. operations to insure cannabis. The measure may also help companies that want to obtain directors and officers insurance that can cover them in both Canada, where cannabis production and sale is legal throughout the country, and the U.S. Rahn described the current state of the D&O market as "very overpriced."
Patrick McManamon, CEO of cannabis-focused insurance brokerage Cannasure Insurance Services LLC, said passage of the bill could also lead to growth on the reinsurance side, where capacity is limited and coverage is often "challenging" to obtain.

How the bill might work
As written, the bill would protect insurance companies from legal and regulatory exposure they may previously have had on the basis of simply doing business with cannabis-related entities in areas where the substance is legal to produce, distribute or sell.
The legislation primarily creates a safe harbor for banks by prohibiting federal regulators from penalizing depository institutions that provide services to legitimate cannabis-related businesses. Regulators would also be barred from restricting or terminating deposit insurance or share insurance solely because a bank offers financial services to a cannabis-related business.
Rahn said he had not been expecting that benefits for insurers would be bundled into the act.
"We thought banking would come first and then insurance would come later," Rahn said. "But it seems like the House wanted to incorporate everything at one time, which was a great success for the insurance industry."
The House of Representatives passed the measure Sept. 25 by a vote of 321-103. Rep. Steve Stivers, R-Ohio, who was responsible for adding an amendment to the bill that contained the insurance provision, told a group of reporters that if the bill does not pass the Senate then legitimate cannabis businesses will not have access to financial services.
"It's not just that these businesses can't be banked, they can't be insured," Stivers said, adding that he is "pretty confident" the bill will pass the Senate.
Sen. Mike Crapo, R-Idaho, and chair of the Senate Banking Committee, was initially opposed to the measure but has since offered his support. Crapo has signaled he will only make minor additions to the House bill to make it more palatable to him and his committee.
A spokesperson for the National Association of Insurance Commissioners said the group has not taken a position on the bill.
Concerns over lack of expertise
Though capacity for insuring cannabis stands to increase if the legislation passes, that may not provide the expertise needed to keep the market stable.
Erich Bublitz, vice president of cannabis underwriting for Admiral Insurance Group LLC, said insurers may be disadvantaged because they did not have the opportunity to grow expertise alongside the cannabis industry.
"If we as an industry aren't providing proper coverage, we're going to turn off an industry that has not been historically buyers of insurance from buying insurance going forward," Bublitz said.
A lack of expertise in underwriting could cause new insurers to write bad coverage and expose themselves to unexpected claims, which could then trigger a "mass exodus" from the market.
McManamon added that there could be some "wild swings" in what people are willing to offer in terms of coverage and the price that may "help some, but hurt others."
The bill seems like a substantial step forward, but that does not mean it is the "magic bullet" the industry may need, according to Aubrey Gann-Redmon, a partner with cannabis law firm Spark Legal Solutions LLLP.
Gann-Redmon noted that the amount of paperwork involved with doing business with a cannabis-related entity leads to a "bureaucratic nightmare."
"The bill would ease up some of those reporting requirements, but ultimately it doesn't solve the root of the problem which is the Schedule I classification of marijuana," she said.
