The legal US cannabis industry would pay about $1 billion in annual premiums if it were insured to levels normal for other businesses, according to a new report by specialist insurance intermediary New Dawn Risk Group.
New Dawn’s report, “Understanding and opening up the US cannabis insurance market,” discusses both the potential premiums and the size of the insurance gap for cannabis-related products in the US. Other key findings include:
- In 2018, sales of medical and recreational cannabis in the US were nearly nine times higher than sales of Oreo cookies.
- In 2018, the US market posted approximately $8 billion in legalized cannabis sales. This number could rise to more than $40 billion by 2025.
The report also considered the challenging legal environment for insurers, discussed possible coverage solutions and analyzed issues for each category of insurance coverage, including directors and officers, cyber, product liability, workers’ compensation, cash and contents, crop insurance, and fleet auto and cargo.
“Legal cannabis is a rapidly growing market, currently with a legal foothold in over 30 US states,” said Max Carter, CEO of New Dawn Risk. “Right now, the COVID-19 outbreak has led to an increased demand for cannabis in the US, and stores in many states have been allowed to reopen or offer curbside sales. However, the crisis has also exposed the financial pressures on many cannabis firms, with many VC-backed cannabis firms struggling already to meet financial projections. A COVID-19 recession, which seems all but a certainty, will only increase such financial pressures for young cannabis businesses.”
Carter said that the pandemic would make it even more difficult for cannabis producers to obtain insurance as providers tightened terms and introduced exclusions. Meanwhile, many insurers who may have been looking to enter the cannabis market have put those plans on hold.
“With the federal government shut down and the possibility of a change of administration in November’s presidential election, the progress of legislation that would open up the cannabis market to insurers will be delayed,” he said. “This reality fails to reflect the fact that many firms have significant insurance needs that are critical to help them manage the risks that exist in this young industry, with its untried legal and societal framework.
“Despite all this, the growth of the sector is inexorable, and New Dawn Risk is committed to working with carriers and clients to share knowledge and insights to help identify and deliver creative solutions for this market,” he said. “In just one example, we have already successfully placed cyber cover for a number of cannabis businesses. But we want to do more, which is what we hope this report can contribute.”
The report can be accessed on New Dawn Risk’s website.