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Efforts to legalize recreational marijuana recently stalled in both New York and New Jersey, but that has not stopped insurance transactions from moving forward in those two states, experts say.
Meanwhile, a U.S. House of Representatives’ committee advanced legislation to make banking easier for those in the business, but the bill may face a tough battle in the Senate, experts say.
Insurance placements for cannabis-related businesses are already taking place in both New Jersey and New York, according to Morgan Moore, vice president for Worldwide Facilities LLC, a Los Angeles-based managing general underwriter.
“There is already a lot of investment going into New Jersey and New York in anticipation of a more favorable cannabis environment. We have made several placements over the last year in both states,” he said.
Some insurers see opportunity in the cannabis industry, experts say.
“Monitoring the marketplace, we know in talking to our companies that there are some surplus lines companies, for example, that are providing some coverage, and at our annual meetings we ask them where they see growth opportunities,” said David Blades, associate director in Oldwick, New Jersey with ratings agency A.M. Best Co. Inc. “This was one of the areas for those specific surplus lines companies.”
Several of these surplus lines insurers said they were looking at coverage for the supply chain for legal cannabis, said Robert Raber, associate director in Oldwick, New Jersey, with Best
Additional legal geographies and jurisdictions could mean “additional opportunity for those companies already in the market,” Mr. Blades said.
“I do know there are a few more excess and surplus specialty markets coming into the space,” Mr. Moore said.
Thirty-four states, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands have approved comprehensive, publicly available medical marijuana/cannabis programs, according to the National Conference of State Legislatures
Legislation in New Jersey was not brought up for a vote March 25 despite advancing through state House and Senate Committees.
Meanwhile, “there’s been a lot of back and forth over the past few months” in New York state over the legalization issue, said Neil M. Willner, attorney at law in White Plains, New York with Wilson Elser Moskowitz Edelman & Dicker LLP.
The significant pushback is related to a “lack of defined social equity initiatives” in the bills, especially the New York legislation, and vocal opposition to legalization efforts, Mr. Willner said. Both the Nassau County and Suffolk County executives publicly declared that if the state legislatures legalized marijuana, the counties would opt out, and New Jersey lawmakers had similar concerns, he said.
“As a general observation, it's becoming clear that legalizing adult-use marijuana through the legislature is a difficult task, which is why no state has successfully accomplished it yet, except for Vermont which only legalized the possession of marijuana,” he said. “Every other state that has adult-use legislation legalized marijuana via ballot initiative.”
But insurers have to carefully monitor their aggregation for catastrophic perils such as named storm, earthquake and flood to ensure they remain solvent after a large event and the demand for named storm coverage continues to be very high among East Coast cannabis business owners, said Justin Lehtonen, vice president with Worldwide in Columbus, Ohio.
“From a property insurance standpoint, the greatest challenge as more East Coast states legalize is the limited supply of capacity for named storm for coastal risks relative to the increasing demand for that capacity,” he said.
That capacity pinch is confined to the property market, however, according to Mr. Moore.
“If you are specifically talking property — yes, there is a lack of capacity. Casualty has markets that are ready and willing to quote, ” Mr. Moore said.
Still, despite the progress thus far in expanding the market and even adding admitted players in California, the insurance industry remains guarded about the cannabis industry, experts say.
“By the limited number of companies providing coverage right now, that comfort level isn’t there yet from an industry perspective,” Mr. Raber said. “The insurance industry is still getting its arms around” and getting comfortable with the cannabis business, he added.
In addition to a still unclear legal horizon, there is a dearth of data to support any insurance and underwriting activity.
“Insurance companies live on data, especially from an admitted standpoint, and the limited claims and other data available on the cannabis business is one of the key impediments” to its accessing wider insurance markets, Mr. Blades said.
U.S. House committee advances bill
On March 28, federal legislation to enable banking by the cannabis industry was advanced by the U.S House of Representatives’ Financial Services Committee, but could stall in the Republican-led U.S. Senate.
“This is the house; the hurdle is the Senate,” said Ian A. Stewart, a partner with Wilson Elser in Los Angeles. “This is good news but we have to be circumspect and not jump the gun.”
If passed, the legislation would greatly enhance the ability of the cannabis industry to engage in banking.
“This bill would expressly allow under federal law depository institutions to take cannabis money and not risk regulatory enforcement action,” Mr. Stewart said.
The New Jersey state Assembly and Senate advanced bills that would legalize recreational marijuana use in the state, according to information on the state website.