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Coverage available for the cannabis industry is limited and may not be adequate for those seeking to enter it, according to a report Tuesday from A.M. Best Co.
A confused, even divisive regulatory environment also exacerbates the challenges, Best said.
Laws in 33 states and the District of Columbia allow the use of medical marijuana and 10 states, as well as D.C., have legalized recreational marijuana use, as well. In October 2018, marijuana became legal in Canada, too, Best said.
Marijuana revenue is expected to increase to $22.1 billion in 2022 from $13.7 billion in 2019, the ratings agency added.
The industry’s growth may challenge those in the cannabis industry and insurers, Best said.
Limits typically available only to $1 million per occurrence and $2 million aggregate in commercial general liability, property liability and product liability “may be inadequate for marijuana businesses owners, who may need higher aggregate limits,” Best said.
Furthermore, as the market for such coverage is nascent, it is scant with both players and data such as loss histories and other actuarial information, Best said, adding finding reinsurance is also a challenge.
“Because this is an emerging market for insurance companies, insurers believe that their risk in these businesses is best managed with their current limits. Another reason for the low limits is the challenge of finding reinsurers to back marijuana-related books of businesses, as reinsurance is typically a separate book or tower to cover these risks,” Best said.
In addition to limits, terms and conditions are also a problem for the cannabis business. “Many of these policies also lack a duty to defend — a significant issue for marijuana businesses,” Best said.
The regulatory aspect of the cannabis business remains unclear, Best said. “Some of the challenges come with regulating policies when the drug is legal at a state, but not a federal, level,” Best noted.
California Insurance Commissioner Dave Jones said Monday he has approved the first cannabis business owners policy in the state.