Marijuana insurance market falters as industry becomes fastest growing in the nation

by Caitlin Bronson23 Sep 2015
Legal marijuana is now the fastest-growing industry in the United States. According to a report from cannabis research firm The ArcView Group, the market for marijuana is now worth $2.7 billion – up 74% in the last year.

The industry is experiencing such momentum, researchers say marijuana could become larger than the organic food industry if made legal in all 50 states.

All of this is not lost on wholesale brokers. At the AAMGA Annual Meeting in May, 85% of brokers interviewed by Insurance Business named marijuana as one of the top industries for growth in the next five years.

“You have no idea how big this is going to get,” said JB Woods, owner of marijuana specialist Greenpoint Insurance in Colorado. “It’s a very profitable industry.”

Indeed, marijuana dispensaries typically buy insurance at rates two to 2.5 times higher than those for standard businesses, and the industry as a whole was identified as one of the top five commercial risks of 2015 according to an analysis of broker submissions by EvoSure.

But Woods and others have experienced a surprising development: instead of an increase in the number of carriers willing to insure dispensaries, some of the industry’s most prominent players have exited the market – even those in the surplus lines space.

Just this summer, the Lloyd’s market announced it would no longer take on risk related to the marijuana market, both refusing new business and refusing to renew policies currently in force. The reason? Friction between state and federal law.

“You still have to have a certain tolerance for risk if you’re getting involved in the industry,” said Taylor West, deputy director of the non-profit National Cannabis Industry Association. “Progress has been made, but nothing has been done to change the fundamental fact that this is illegal.”

The Lloyd’s exit left a big hole. Brokers told industry reporters that the insurer’s decision to abandon marijuana risk gave pause to other would-be insurance companies and spread “paranoia” among the market at large.

What’s more, coverage that is available is often inadequate for the real risks of running a dispensary.  Only two carriers currently offer the much-needed cannabis product liability coverage, and appropriate limits for D&O and umbrella policies are nearly impossible to find, Woods says.

However, he remains largely optimistic that the recent hesitation to insurance marijuana operations is temporary, and anticipates several new players and higher limits as the market matures.

“We’ll start to see interest in some of the bigger carriers. They’re going to want a piece of this,” he said. “My prediction is, without a doubt, in five more years the cannabis industry will be – if not the dominant industry – one of the most dominant industries. It’s already happening.