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Obtaining Business Insurance in the Marijuana Industry

Feb 8th, 2017 Marijuana Laws Obtaining Business Insurance in the Marijuana Industry

While marijuana remains illegal at the federal level, a majority of States now have either medical or recreational marijuana.  And in some states, such as Michigan, the medical marijuana industry is expanding.  In fact, according to Arcsoft, the business will expand nationally 700% in the next five years!

Michigan’s newest law, which became effective last December, 2016, allows for the commercial growing and selling of medical marijuana.  While the law was passed last year, the regulations necessary to effectuate this law have yet to be written.  The law that was passed provides however that certain license holders must obtain insurance.  Unfortunately, based on what has transpired in other states, obtaining insurance has proven easier said than done.

According to Peter International Underwriters, “finding appropriate business insurance for the marijuana industry itself remains a substantial challenge.”  So, while millions of dollars are being raised by investors hoping to cash in on the burgeoning marijuana business “hedging that bet” by purchasing life and disability insurance can be very difficult.  This is true regardless of whether the investment is by medical marijuana growers, processors or distributors.

This difficulty has arisen because cannabis remains a federal schedule one drug, meaning it is still considered to be highly addictive and lacking in any accepted medical use or purpose. Even in some states, such as Michigan, cannabis remains a schedule one drug.  This illegality leads to a gray area, because the federal government could decide to shut down cannabis related business thereby making all business assets subject to forfeiture. Uncertainty is the Bain of any business, but for medical marijuana it means that many of the traditional markets for insurance are unavailable to the medical marijuana entrepreneur.  Thus far, international markets have been more friendly to the industry.

For example, according to PIU, underwriters in the Lloyd’s markets are willing to offer key person, loan and buy/sell insurance on the lives of the owners and operators of the multi-million-dollar distribution companies and grow operations popping-up throughout the U.S.”  But, not everyone will qualify, and international insurance is typically more expensive than traditional insurance.  However, there are domestic insurance opportunities do exist.

In the meanwhile, as the industry matures the same question facing entrepreneurs in Michigan also faces insurers in Michigan; will they find a stabilized market in the future?  The answer to this question will depend on how both the state and federal governments grapple and eventually resolve this conflict between the rising tide of legalization with the undertow of marijuana’s schedule one illegality.