Insurance Coverage Remains Sparse, Confusing for Cannabis Industry


A New York City Bar Association panel on Friday discussed the challenges that arise when it comes to insuring legal cannabis businesses across the country.

“There is a lot of confusion about what’s going on in the cannabis space,” Robert Easton, the deputy general counsel and chief compliance officer of insurance company Marsh LLC, said at the annual program, Current Issues in Insurance Regulation. “The confusion stems from the fact that we have a federalist system.”

Cannabis, of course, remains a Schedule I substance under the Controlled Substances Act, making it illegal to possess and sell under federal law. And though 33 states have legalized cannabis, either for medical or adult use, the “supremacy clause” in the constitution essentially maintains that federal law overrides state laws. This is why, Easton said, insurance companies and banks remain unsure about whether they can enter the cannabis space.

The panel said that this uncertainty has become more significant since former Attorney General Jeff Sessions in January 2018 rescinded the so-called Cole Memorandum, issued by the Department of Justice under President Barack Obama, which directed federal prosecutors to not enforce the federal ban on cannabis in states that followed specific enforcement priorities, like preventing youth access, and ensuring cannabis doesn’t cross state lines. Sessions then issued a new memo that “directs all U.S. Attorneys to enforce the laws enacted by Congress.”

(Though, during a DOJ budget hearing last week, Attorney General Bill Barr broke rank with his predecessor when he said to Hawaii Senator Brian Schatz, “I am accepting the Cole Memorandum for now, but I have generally left it up to the US Attorneys in each state to determine what the best approach is in that state.”)

Financial services companies are hesitant even when it comes to hemp, which was federally legalized through the Farm Bill in 2018 and removed from the Controlled Substances Act. Jonathan A. Havens, a partner at Saul Ewing, Arnstein & Lehr LLP, said that his clients who run hemp businesses still struggle to secure banking services and insurance coverage.  Providers are confused because though hemp is now legal, it is still a cannabis plant, said Havens.

Moreover, federal law requires banks and insurance companies to file suspicious activity reports, which takes a lot of work, said Easton. Since there is not enough clarity on which activities of a cannabis business would be considered suspicious under the Controlled Substances Act, financial companies are usually averse to taking the risk.

“The consequences of that is that cannabis-related businesses end up trafficking a lot in cash,” said Easton, adding, “Cash is often a means for engaging in money-laundering activities.”

Stacey Jackson, general counsel at Golden Bear Insurance Company, a California-based company, agreed. Cannabis businesses, said Jackson, have the same kind of insurance needs as any other business. Her company insures cannabis businesses against property or equipment damage and theft, and soon hopes to introduce protection against hacking of business information.

“Medical marijuana has been legal for decades and we now have an adult use program,” said Jackson, “And yet money is still being transported around in buckets and being buried in backyards. And honestly, that’s where we felt there is more risk.”

Jackson pointed to emerging risks that insurance companies need to keep in mind when it comes to the kind of coverage they would provide cannabis businesses.

“What are the risks to a dispensary, a manufacturer, or a cultivation operator for having provided someone a product that creates an intoxication that results in an auto accident?” Jackson asked.

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