Cannabis businesses have recently been given industry status. About 25 of the 50 states in the United States allow usage of marijuana for medical purposes. Also, there are 4 to 5 states which allow the use of marijuana for recreational purposes as well. Then, there are nations like Canada and Uruguay where the marijuana business is legalized throughout the country. This basically means that marijuana is no longer a small business. There are multi-million dollar corporations that exist in the marijuana business as well. It is estimated that by the year 2020, the total market for cannabis is expected to be close to $20 billion.
Since large companies have now started investing heavily in the marijuana business, it is important that proper services be provided to the industry. Up until now, the financial services industry has been reluctant to provide services to this industry. Recently, the banking industry accepted the cannabis business and started serving them. It is now time for the insurance business to follow suit. At the present moment, there are very few companies that provide insurance to cannabis companies. At the present moment, if something goes wrong, the companies themselves have to bear the costs. This may be about to change very soon.
In this article, we will have a closer look at the cannabis insurance business and the problems faced by them.
State vs. Federal Law
In the United States, cannabis companies are unable to receive insurance because of a discrepancy between federal and state law. The Federal law has an act called the Controlled Substances Act which makes it illegal to use, possess or distribute marijuana. In fact, marijuana is classified under as a schedule 1 drug which means the government thinks it is as dangerous as heroin or methamphetamine!
In many states, this contradicts the state law. As mentioned above several states allow the use of marijuana for medical as well as recreational purposes. From a legal standpoint, federal law trumps state law. Hence, if the government decides to act, it could claim that all businesses involved in selling or aiding to sell marijuana in any way are breaking the law. Insurance companies all across America are afraid of this judgment. This is the reason why they do not provide any service to the cannabis industry even though it may be economically viable to do so.
The cannabis industry is in dire need of many insurance products. Some of them have been listed below.
Product Liability Insurance
Cannabis is a product just like any other edible product. Hence, if people claim that they have suffered from adverse effects after the consumption of the product, companies that sell marijuana may have to pay out product liability claims. Such claims are likely to result out of improper labelling or the failure to warn the customers in some way. Since many pesticides and fungicides are used in the farming of marijuana, it is possible that some customers may be allergic to some product and might end up having an adverse reaction. Also since marijuana businesses have now become multi-billion dollar industries with very little formal backing, they may be vulnerable to attacks by malicious prosecutors.
Professional Liability Insurance
In states where only medial usage of marijuana is allowed, the onus of verifying the eligible patients falls on the doctors. The law states that if a patient is affected from certain conditions, they are allowed to possess and use small quantities of marijuana. It becomes the duty of the doctor to verify the medical condition and prescribe marijuana to patients. Doctors and dispensaries are likely to make a mistake while verifying the medical condition. This may expose them to professional liability. Hence, there is a need for specialised insurance coverage which protects professionals from such liabilities.
As mentioned above, cannabis businesses do not have access to basic banking facilities in many states. This means that they are dealing in a small, portable, high-value product. Also, most stores selling cannabis operate using cash. Hence, there is always a large amount of cash on the premises. This is the reason why these stores are likely to become prime targets for theft and armed robbery. There is also a likelihood that the staff itself will collude with criminals to rob the company of cash. This is the reason why cannabis companies need theft insurance.
If a commercial premise holds a marijuana store, then they are not eligible for receiving any kind of insurance! Insurance companies do not provide any sort of coverage to the property. Hence, the business is exposed to the risk of floods, fires, earthquakes, etc. This is unfair to the cannabis industry since they are conducting a legal business and hence should be able to at least insure their business against natural calamities.
Cyber Liability Insurance
Cannabis companies are supposed to keep a lot of private information on record. This includes identity proof as well as documents pertaining to medical conditions that the user has. Hence, it is the job of cannabis companies to keep this information safe and private. If they are unable to do so, they are likely to face a lawsuit where they may have to pay damages. At the present moment, cannabis companies have no ways to insure this risk.
From the above points, it is evident that cannabis companies are in dire need of many types of insurance products. Hopefully, the differences between federal and state law will be settled, and more insurers will start serving these companies.
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