The cannabis, aka marijuana, market in the US is growing fast.
Despite its still being illegal under federal law—possibly its biggest
remaining challenge—as states have relaxed the rules on its use
and consumption, the size of the market has increased rapidly.
Sales of legal cannabis were worth $9.7 billion in 2017, growing 33
percent from $7.3 billion in 2016, according to report from Arcview
Market Research and BDS Analytics. The Mid-Year Update to the
State of Legal Marijuana Markets 5th Edition projects that by 2021,
the legal market will reach $24.5 billion.
Marijuana is currently legal for adult recreational use in nine
states—Alaska, California, Colorado, Maine, Massachusetts, Nevada,
Oregon, Vermont, and Washington—and Washington DC. Medical
marijuana is now legal in 29 states.
The growing sector is also providing an array of opportunities and
challenges for the insurance industry—and by extension the captives
Is it legal or not?
Marijuana is listed as a Schedule 1 drug under the US federal
Controlled Substances Act, which means it not legal for sale.
Furthermore, any money that is generated from the sale of the
substance may implicate federal anti-money laundering laws.
While a number of states have passed laws that permit the sale of
cannabis (for medicinal or recreational purposes), this conflict has
created uncertainty and hesitation within the insurance industry.
In the UK Lloyd’s of London pulled out of the cannabis insurance
industry in 2015, stating it no longer wanted to write business in
the US while the sale of marijuana remained illegal. Lloyd’s would,
however, reconsider its position if and when the federal vs state
conflict is resolved.
A bipartisan group of legislators has introduced a bill in Congress
that would reconcile the conflict between federal and states laws
The Strengthening the Tenth Amendment Through Entrusting States
(STATES) Act of 2018—introduced by Senators Cory Gardner and
Elizabeth Warren on June 7—would exempt individuals in compliance
with state marijuana laws, and a set of new federal guidelines, from
certain provisions of the federal Controlled Substances Act.
Joe Holahan, attorney at law firm Morris, Manning & Martin, believes
that the bill has a reasonable chance of being enacted into law, and
would “completely change the landscape for cannabis business”.
“If the bill passes, I would expect many more admitted carriers to
begin writing cannabis risks, but the captives industry would also have
an opportunity to help cannabis businesses develop self-insurance
programmes and access reinsurance markets,” Holahan says.
Why a captive?
With the unique insurance needs of the cannabis industry, there
are businesses in the US struggling to find suitable coverage, and
consequently, a very enthusiastic captive insurance industry.
Amye King, national sales director of Emerald Risk Solutions,
which assists legal cannabis-affiliated business owners in getting
comprehensive cannabis coverage in a captive, says that a captive
is an ideal business solution where commercial coverage is simply
unavailable or is failing to cover all their risk.
“Cannabis-related businesses either can’t get commercial coverage
or, if they can, we are seeing that it’s extremely expensive,” King says.
“Even with commercial coverage, there’s scepticism that claims will be
paid since cannabis-related business—even within a legalised state for
medical, recreational, or any purpose—is still a violation of federal law.”
Businesses that utilise a captive structure would have more control
over claims, and could even potentially reduce some of their current
commercial premiums while layering coverage with a captive solution
in place, she adds.
Holahan suggests that cannabis businesses have all the same risks
as any other business and need the same coverages.
www.captiveinternational.com US Captive 2018 11