Cannabis insurance market set to soar under Biden administration

De-criminalization and other legislation is inching closer to reality

Cannabis insurance market set to soar under Biden administration


By Alicja Grzadkowska

The cannabis market in the US got some uplifting news last week when officials in New York finalized a deal to legalize recreational marijuana in the state, opening the doors for a $4.2 billion industry, according to The New York Times.

The announcement is, however, just one of the many developments that will likely help spur this growing market. The impact of the pandemic on the cannabis industry, for instance, was another positive step. As it turned out, many states’ approach to this marketplace and deeming it an ‘essential’ one during shutdowns has shown the validity of its offerings.

“Those on the medical [side of the business] were able to continue operating, and I think that was a big eye opener to a lot of individuals … that see this is a real industry now,” said Max Meade (pictured), cannabis insurance advisor at Brown & Brown. “The fact that it was essential through all of this craziness shows that it’s an industry that needs to be around and that people, especially on the patient side, are benefiting from it.”

Yet, the key development that is set to have a positive impact on the cannabis industry has been the position of the Biden administration on legalization, which Meade predicts could put the de-scheduling of marijuana on the table, alongside other legislation focused on helping out growers and sellers.

“There’s more optimism now and an assumption that they’re going to work to pass some of these bills that have been in motion for a while now, but never hit the point of actually moving forward,” said Meade. “I’m also seeing more conversations around working to bundle some of these bills that they’ve been talking about and do a larger cannabis reform.”

Those bills include the proposed Safe Banking Act and Small Business Tax Equity Act, which would impact the cannabis industry in different ways.

In the latter, one of the biggest issues facing cannabis businesses is the 280E federal tax burden, which means that cannabis businesses can’t expense the normal cost of goods or anything that a normal business can during the course of operation, from utilities to payroll and rent. In turn, these businesses have a much higher tax bracket. To address this, the Small Business Tax Equity Act will include an exception into the Internal Revenue Code that will allow cannabis operators – as long as they’re in compliance with state laws – to do the deductions like any other business.

In turn, “They’ll have more capital to invest back into their [business] and bring on more employees, which will help with reducing prices,” said Meade.

Meanwhile, the Safe Banking Act would give financial institutions the ability to offer banking services to cannabis businesses, so that they can start banking normally and avoid more of the cash heaviness that they have right now, explained Meade, adding “The nice thing is they added a provision in there for insurers … that would protect insurers providing coverage to the businesses – again, as long as they’re within the state laws and in compliance with everything.”

The cannabis insurance advisor said he hopes that this move towards cannabis acceptance will help insurers realize the true risk profiles of the businesses, which tend to actually have less exposures than expected because of the degree of compliance measures they have to meet to win a license. As these bills get put into place, insurance carriers could start looking more into these operations and gain more interest in wanting to insure them.

“That’s going to be awesome for everyone. It’s going to provide myself with more options to present to [clients], and when you get more markets involved, that brings better coverage, better forms, better pricing, and that’s a win-win for everyone involved,” Meade said.

Since he’s gotten into the cannabis insurance game, Meade has already seen the insurance market make big strides in providing more coverages, but it’s important to also get the standard markets involved because they can do more from a competitive rate standpoint and they provide more add-on services, he noted.

“When the federal illegality issue [is resolved] or the Safe Banking Act gets passed, there is going to be that domino effect where we’re going to start seeing standard markets really jump in and want to work with these businesses,” said Meade. “The first carriers who can get in and show that they understand the space and want to work with them, they’re going to have the leg up on anyone else who will try to follow suit.”

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