MIAMI – Cannabis businesses often face difficulty buying insurance coverage, but captive insurance may provide some relief, experts say.

Many insurers and other financial institutions are reluctant to offer coverage and services to the cannabis sector due to the discrepancy that marijuana is legal to varying degrees in a majority of states but remains illegal at the federal level. 

The lack of capacity available would make cannabis companies a natural fit for captives, but obstacles remain, according to participants in a session Thursday of Business Insurance’s World Captive Forum in Miami.

While more insurers are examining the captive sector, many companies find it tough to buy coverage that sufficiently protects their operations, said Jeffrey C. Conway, CEO of Conway E&S Inc. in Warrendale, Pennsylvania, which specializes in cannabis insurance placements.

“There’s a couple of large insurance programs out that will consider all types — retailers, cultivators, manufacturers, labs, the whole gamut — and they cover all lines, but the rest of the market is very segmented,” Mr. Conway said, adding that, as a result, capacity is limited.

“The largest placement we’ve ever been able to make in property is $72 million — that’s with every bit of property capacity in the world — but some of these facilities are worth more than $100 million,” he said.

The cannabis insurance market this year will likely total $250 million in gross written premium, said Rocco Petrilli, chairman of the National Cannabis Risk Management Association in State College, Pennsylvania.

“If cannabis companies were properly insured, that number would be closer to $1 billion,” he said.

The lack of traditional capacity would make cannabis companies good candidates for coverage through a captive, but they face some challenges, he said.

Large cannabis cultivators with few locations would be big enough to own a captive but would not have the diversity of risk to quality as an insurer under IRS guidelines, Mr. Conway said. Cultivators with locations in multiple states would likely be in a better position to form a captive.

And cannabis dispensaries are often small businesses that would not be able to support a captive, he said.

Continued consolidation in the cannabis sector, however, could create businesses that would be big enough to consider a captive, Mr. Conway said.