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Optimism high for passage of federal cannabis insurance bill

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cannabis

Legislation introduced in Congress earlier this month that would allow insurers to cover cannabis businesses in many states without the threat of federal penalties would provide relief for the sector and has a good chance of passing, experts say.

The Clarifying Law Around Insurance of Marijuana Act of 2021, which has bipartisan support, could help open insurance markets for cannabis operators and companies in their supply chains, they say.

According to the text of the bill, which was introduced March 18 and is an update of 2019 legislation, its intention is “To create a safe harbor for insurers engaging in the business of insurance in connection with a cannabis-related legitimate business, and for other purposes.”

The legislation is sponsored by Senators Bob Menendez, D-N.J., Rand Paul, R-Ky., and Jeff Merkley, D-Ore., and Representatives Nydia Velázquez, D-N.Y., and Steve Stivers, R-Ohio.

The impetus behind the legislation is the differences between state and federal law. Although laws differ, most states allow some form of cannabis use — recreational, medical or cannabis-derived products — but the drug’s use remains illegal under federal law. While some insurers offer coverage to cannabis companies in the United States, many others are deterred by the potential for sanction under federal law.

A spokesman from Senator Menendez’s office called the measure “common-sense legislation” to help provide access to “basic tools” for business including insurance. The CLAIM Act also “recognizes states’ rights,” he said.

“The CLAIM Act is a comprehensive solution to provide legal certainty for our market while also preserving the states’ traditional role in regulating the business of insurance. We urge Congress to pass this commonsense legislation,” Nat Wienecke, senior vice president of federal government relations for the American Property Casualty Insurance Association, said in an e-mail.

If passed, the measure would be a boost for the cannabis insurance sector, industry experts said.

“Any piece of federal legislation that explicitly recognizes the cannabis industry as legitimate would have the effect of increasing capacity significantly for the insurance industry,” said Justin M. Lehtonen, vice president at wholesaler Worldwide Facilities LLC in Los Angeles, adding insurers and others “are looking for an opportunity to begin backing this business.”

The cannabis industry “definitely needs some kind of federal order,” said Jay Virdi, Toronto-based chief sales officer for Hub International Ltd.’s cannabis insurance and risk services in the U.S. and Canada.

In addition to establishing the safe harbor for insurers, the legislation is the first of what should be several steps to provide a federal regulatory framework for the cannabis industry, which could include oversight and regulation, such as the Food and Drug Administration overseeing quality and compliance with cannabis edibles, he said.

The CLAIM Act is designed specifically for the insurance industry and is simple to understand, said Ian A. Stewart, a partner with Wilson Elser Moskowitz Edelman & Dicker LLP in Los Angeles.

“It allows property/casualty and other types of insurers like life to operate with a legal safe harbor,” in terms of accepting cannabis-derived monies, he said.

The new legislation changes some definitions from the 2019 version, including those for “financial services” and “cannabis-related businesses” to make them broader and more inclusive, Mr. Stewart said.

Cannabis companies would benefit from increased competition among insurers, which could help drive down insurance prices, create more choice in some specialty lines, and alleviate capacity and policy language restrictions in the directors and officers liability insurance market, Mr. Stewart said.

The CLAIM Act would help businesses, with direct or indirect contact with state-legalized cannabis, access insurance products and services and the protections they provide, Mr. Wienecke said.

Change will not come overnight, however, and any new insurance industry participants entering the sector will have to navigate a “learning curve” for the cannabis business, said Mr. Virdi of Hub.

Insurance groups have welcomed the legislation, and “this time I think there is a palpable optimism for passage,” Mr. Stewart said.

The Senate and House CLAIM Act bills are bipartisan and bicameral, and momentum for Congress to enact the legislation has continued to build, Nicole Austin, senior vice president of federal affairs for the Reinsurance Association of America, said in an email.

“People from states with a significant amount of activity already in the cannabis industry want to see this moved forward. There is political will,” said Mr. Lehtonen of Worldwide Facilities.

In addition, more states have a meaningful amount of cannabis-related tax revenue, he said, adding, “There’s a lot of places in the country that have already seen that direct benefit.”

“If you look at how much tax revenue is being generated by the cannabis industry, it’s amazing. The states can really benefit from this revenue,” Mr. Virdi said.

 

 

 

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