Since Colorado lawmakers voted to legalize medical marijuana in 2000 and recreational marijuana in 2012, the industry has grown rapidly, with sales having topped more than $6.5 billion. Tax, license, and fee revenues alone have surpassed $1 billion. 

Over the past decade, a significant number of businesses and individuals have begun working within the medical and recreational marijuana industry. As of July 2019, the state had issued over 1,300 Medical Marijuana licenses to businesses, including Medical Marijuana Centers, manufacturers, and testing facilities, among others, and close to 1,600 retail business licenses, with more than 550 stores and nearly 300 product manufacturers. Over 41,000 people in Colorado are licensed to work in the industry.

Because so many businesses and individuals are involved, the medical and recreational marijuana industry provides a vast potential market for insurance companies. Some firms that grow and dispense medical marijuana have found surplus or captive lines of insurance, but marijuana-related businesses (MRBs) need General Liability (including Product Liability) and Property insurance to follow best business practices and protect themselves from alleged negligence, product defect, theft, and damage. 

The types of businesses that require General Liability coverage are not limited to growers, dispensaries, and processors. Every business involved in the cannabis supply chain – from seed to sale – should have some level of cannabis-related General or Professional Liability. For example, when the transit services company transports cannabis from the warehouse to the dispensary, cannabis-related coverage is needed. A psychiatrist performing medical marijuana evaluations needs cannabis-related coverage. The firm offering security services for the dispensary needs unique coverage associated with cannabis. Even accountants preparing taxes and other bookkeeping services need GL coverage related to cannabis. The list goes on, including firms that sell rolling papers and/or vaporizers and other smoking devices. 

At the National Association of Insurance Commissioners 2018 meeting, California Insurance Commissioner Dave Jones encouraged insurers to provide specialty coverage to businesses involved in the cannabis supply chain. “Cannabis businesses face various insurance gaps—which means cannabis customers, workers, and business owners may not have access to insurance to help them recover if there are accidents, injuries, property damage, or any of the things commercial insurance typically covers,” explained Jones. “I will continue to ask insurers to expand insurance coverage for the cannabis industry so that they have access to the same insurance coverage as any other business.” 

Over the past few years, several insurance companies throughout the country have helped bridge the medical marijuana industry’s vast insurance gap by providing MRBs with seed-to-sale coverage. Aspera, for instance, provides coverage for all stages of the process, including cultivation, harvest and manufacturing, quality assurance testing, prescribing, and dispensing. 

Given the marijuana industry’s rapid growth, Colorado insurers must determine whether to provide coverage to MRBs, particularly those already-existing clients who participate in the cannabis supply chain and require specialty coverage. Though the federal classification of marijuana as a Schedule 1 drug makes insuring MRBs complicated, it is important to learn about the industry to meet the needs of this market. 

About the author: Trish King, assistant vice president at Aspera Insurance Services, has extensive claims, underwriting and marketing experience in the property and casualty admitted and excess and surplus lines markets.  
Aspera Insurance Services acts as an underwriting manager for personal lines and hard-to-place commercial casualty risks. For more information, email or call 804-774-2101.

This article was published in the October 2019 edition of Colorado Insurance News (COIN). To view more articles and read the whole COIN, click here.

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