State insurance regulators are keeping a watchful eye on the fast-evolving cannabis industry.
During its first meeting of 2023, on Tuesday, the National Association of Insurance Commissioners’ Cannabis Insurance Working Group voted to open public comment on its draft white paper tentatively titled “Understanding the Market for Cannabis Insurance 2.0.” The group first published a white paper on cannabis issues in 2019, and since then, in the words of the white paper’s authors, “much has transpired” and “the cannabis industry has become more sophisticated.”
NAIC will accept public comment on the paper, which has been in the works since 2021, until May 26, with the goal of presenting the final version to the full Association membership during the Summer National Meeting in August.
The white paper’s authors, as regulators in states where cannabis is legal for medical or adult use, have seen first-hand the complexities that have arisen for the cannabis industry amid federal prohibition. And, over more than 40 pages, the authors detail those points of friction, as well as possible solutions from Congress, such as the Clarifying Law Around Insurance of Marijuana Act, or the CLAIM Act, which was first introduced in 2019.
The introduction to the report clearly lays out the core issue: “Tension between federal and state law creates uncertainty with the insurability of cannabis and how policy language will be applied to coverages. Municipal bans on cannabis in states where cannabis has been legalized further complicate this issue. For these reasons, insurers remain reluctant to enter the cannabis space. Although capacity has improved since the first white paper’s publishing, most of the commercial insurance for cannabis‐related businesses is still found in the excess and surplus lines (also known as the non‐admitted) market.”
Toward the end of the brief meeting, Peg Brown, Deputy Commissioner of Insurance with the Colorado Division of Insurance, emphasized that “this is a very complex area” because of the patchwork of state laws across the country.
“It’s very important that we understand that not every state is alike, and that we need to come together, because the insurance and the interstate issues of insurance coverage are very important in this industry and beyond,” she said.
The white paper will be updated with an addendum on “emerging issues,” like on-site cannabis consumption spaces, which are starting to take off in California, and will soon be established in New York.
Other issues that might be included in the addendum include, for example, “cannabis-infused food and beverages and its oversight by the FDA” and “cannabis intoxication and the incidence of accidents.”
NAIC hasn’t taken a position on legalization, but it has previously endorsed the SAFE Banking Act, which would protect financial institutions that work with state-legal cannabis businesses from federal enforcement. The group also previously endorsed the CLAIM Act, which would provide similar protections to insurers. Neither legislation has yet been reintroduced in the new Congress.
In the absence of such legislation, the insurance industry remains largely unable to serve cannabis companies or ancillary businesses’ work with the cannabis industry.
NAIC isn’t alone in seeking these protections through legislative reform. Other insurance groups have endorsed these bills and, as Cannabis Wire previously reported, lobbied Congress on cannabis, including: the Reinsurance Association of America, the American Property Casualty Insurance Association, the Council of Insurance Agents & Brokers, the Wholesale & Specialty Insurance Association, the Independent Insurance Agents & Brokers of America, the American Land Title Association, and the National Association of Mutual Insurance Companies.
