Insuring Cannabis Businesses – Issues and Problems

Illustrate a cannabis plant

Insuring cannabis businesses can be problematic. During the course of the past two years, I’ve written several new insurance continuing education (CE) online and webinar courses for my client, A.D. Banker & Company. One of the most recent webinars is Insuring Cannabis Risks.

The course is the brainchild of inquiries submitted by individuals who attended a free monthly webinar I co-host with A.D. Banker vice president, Pam Reihs. During each 1-hour Insurance Trends Webinar, Pam and I talk about insurance topics of current relevancy. How to insure cannabis businesses is always at the top of the list. Questions we often receive are:

  • Why isn’t cannabis/marijuana legal in all the states?
  • In what states IS marijuana legal?
  • What about hemp, that’s legal, isn’t it?
  • Why is it so hard for cannabis businesses to establish relationships with banks and credit card companies?
  • What insurance companies write insurance for cannabis businesses?

The insurance CE webinar answers these and other questions for licensed insurance professionals. I recently wrote two blog posts for A.D. Banker that summarizes the most important information contained in the course. So, for you insurance and non-insurance people alike, feel free to visit those blog posts:

Check back as I provide ongoing updates about this evolving insurance marketplace. To register for the insurance CE webinar, click here. You can find my insurance webinar schedule here.

Update: Cannabis Regulation

In prepping for the SILA Foundation webinar I presented yesterday, I have two items to share with you since the last time I blogged on the topic of cannabis.

Topic #1: Decriminalization

A number of states have decriminalized marijuana. Contrary to what many people infer from the term “decriminalized,” it does NOT mean a person is not guilty of a crime of possessing, growing, or selling marijuana. Unless the state has passed a law that stipulates the medical, or adult recreational, use/possession/sale of marijuana IS legal, it is still a crime.

What the term means is that if a person has a “small amount” of marijuana in his or her possession, law enforcement will not arrest and charge that person with a crime. However, law enforcement may still confiscate the marijuana and the person can be fined for possession. Each state defines “small amount” differently. The most common amount is less than 1/4 of an ounce.

So, what does this mean? Let’s say I’m driving along the road in a state that has not legalized the medical or recreational use of marijuana, but has decriminalized it. A cop pulls me over for speeding and spots the ounce of pot I have sitting in the cup holder in my console. The cop can arrest me for illegal possession, I can be charged and found guilty of a crime, and I can be fined or jailed–however the state punishes that particular crime.

But, if the pot in the cup holder is less than the “small amount” defined by that state’s law, the cop can confiscate my pot (or not) and he can issue a citation that results in a fine (not a crime) for illegal possession ( or not).

Here’s a URL that lists how each of the 50 states and the District of Columbia handle the legalization of marijuana: https://disa.com/map-of-marijuana-legality-by-state

Topic #2: Court-Enforcement of Contracts re: Cannabis Businesses

A recent ruling by the Nevada District Court shows that federal courts are handing down different findings with respect the the enforceability of contracts to which cannabis-related businesses are a party.

If you want the full story, click the link above. Here’s the short story:

When a cannabis business sues or is sued over breach of contract, the federal courts seem to be taking one of two positions:

  1. If the matter at issue relates to insurance, federal labor laws, federal intellectual property rights, and other contracts and laws not directly related to the growth, sale, etc. of cannabis, they seem to be ruling in a way that enforces the contract. Why? Because enforcement of the contract does not violate federal law under the Controlled Substances Act, which deems marijuana a Schedule I substance–and illegal under federal law. In other words, if I own a cannabis dispensary and lied on my insurance application about whether I use a safe, and my insurance company later denied my insurance claim for theft, the court will likely enforce the contract and side with the insurer (if it has proof I lied and violated the warranty about the safe).
  2. If the matter relates to a contract that are directly related the growth, sale, etc. of cannabis (such as a loan to expand the business), they seem to be ruling in a way that does not enforce the contract. In other words, if I failed to repay the loan I secured to expand my cannabis dispensary and the lender sued me to get the money back, the court will likely NOT find in favor of the lender suing me because I breached the loan agreement. Why? Because finding for the lender puts it in a position where it benefits from assisting an illegal cannabis business conduct operations–which violates federal law under the Controlled Substances Act.

Summary

How we insure cannabis risks in this country is ever-evolving and so long as federal and state laws differ with respect to legalization of marijuana, we’re in for a wild and exciting rollercoaster ride. Check back for more updates as they become available.

SILA Foundation Webinar

I’m honored to have been asked by the SILA Foundation to develop and present a webinar for their monthly series.

The webinar will be presented live on Thursday, May 21 at 3 p.m. Eastern time. The topic is: Insuring Cannabis Risks.

Click here to register: https://www.silafoundation.org/2020/05/webinar-insuring-cannabis-risks/

Cannabis in the Insurance Industry

Because the federal government classifies marijuana under Schedule I of the Controlled Substances Act, its cultivation, possession, use, and distribution is illegal under federal law. Not all the states agree with the federal government.

11 states have legalized the recreational use of marijuana, 35 states have legalized medical marijuana programs, and many of the remaining states are considering doing one or both.

One of the biggest problems faced by those working in the cannabis industry–and insurance companies and agents working with those businesses–relates to money. Because cannabis businesses are considered illegal operations by the federal government, federally regulated banks won’t do business with them. A number of federal laws–including RICO and money laundering statutes–impose reporting restrictions and penalties on banks who don’t comply. Because these banks are concerned about repercussions by the federal government, they won’t open accounts for anyone in the cannabis industry.

Some local and county banks have been working with cannabis business in states that have legalized marijuana but the majority of these business deal strictly in cash, and face many challenges because they have a great deal of cash on hand. When a cannabis business can obtain insurance, the carrier will require specific and strict conditions to be met in connection with security … because of the crime exposure. Criminals targeting cannabis businesses are far more interested in finding cash than they are pot plants.

For more information about this topic, listen to today’s podcast, or check out any of the following resources:

Some Smoking New Marijuana Laws

As a freelance writer, I’ve been hired to write content about topics I never contemplated, and/or that don’t hold a personal interest for me. Then, when I dive into the research and put aside any personal feelings about the topic, I find myself swimming in a pool of information that sends meaningful ripples into other areas of my life. The subject of cannabis, and its legalization in the United States is once such topic.

Although I drink (my sister laughs when I say that), I’ve never been drunk. And the only controlled substances I’ve ever taken were those that knocked me out just before undergoing surgery. As you can imagine, any experience I’ve gleaned about alcohol and drugs has been as an observer rather than as a participant. Unfortunately, much of my personal observation was unpleasant and probably had a lot to do with my preference for being [mostly] a teetotaler.

One of the duties I’ve been assigned by one of my clients is to write content for webinars, and the the legalization of marijuana is garnering a great deal of interest. So, for those of you who are interested in what’s up these days, hang onto your hat because the pace with which laws are being proposed and enacted is moving at the speed of light.

As you probably know, federal law lists cannabis on Schedule I of the Controlled Substances Act. Federal law categorizes drugs, substances, and certain chemicals used to make drugs into five different classifications (i.e., Schedules I, II, III, IV, and IV) based upon the medical acceptability of their use and their potential for abuse or dependency. Schedule I drugs are considered by the federal government to have no accepted medical use and a high potential for abuse. Drugs listed in Schedules II through V all have medically accepted uses, and decreasing potential for abuse; they all contain narcotics.

An increasing number of states disagree with the federal government’s opinion about marijuana and THC, the mind-altering (psychoactive) compound in cannabis that generates the high and/or the medical relief some people experience when using it.

Until now, a total of 34 states have legalized the medical use of marijuana. Of those, 11 states have legalized the recreational use of marijuana for adults only. Marijuana is considered illegal in all cases, as it is under federal law, in the states of Idaho, Kansas, Nebraska, and South Dakota.

A total of 17 states have also introduced into their legislative assemblies bills that will legalize the recreational use of marijuana for adults. Those states include Arizona, Delaware, Florida, Hawaii, Iowa, Kentucky, Minnesota, Missouri, New Hampshire, New Mexico, New York, Pennsylvania, Rhode Island, Tennessee, Virginia, West Virginia, Wisconsin, and the U.S. Virgin Islands.

Ten states also have bills that hope to establish medical marijuana programs: Georgia, Indiana, Iowa, Kansas, Kentucky, Nebraska, North Carolina, South Carolina, Tennessee, and Wisconsin.

If you’re interested in keeping up with what’s what from a legal perspective, the National Conference of State Legislatures provides terrific, and current, information at: https://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx

One final note to keep in mind about the legalization of marijuana/cannabis: federal law HAS legalized the cultivation of hemp, which is a form of cannabis that contains minimal amounts of THC, but under strict regulation. Anyone who wants to grow hemp MUST be licensed by the state … and not all states have legalized hemp, as the federal government has.

Hemp is not only used for medicinal purposes because of its CBD properties (e.g., protective effects for people with certain types of arthritis and lymph node ailments), it is also used to make paper, textiles, industrial-grade thread, a fiberglass-like material, and in cement. The CBD derived from hemp plants is not mind-altering/psychoactive, and is listed as a Schedule III drug under federal law.