5 May 2020Actuarial & underwriting

Cannabis industry would pay $1bn in annual premiums if insured at normal levels: New Dawn Risk

The legal US cannabis industry would pay about $1 billion in annual premiums if it was insured to levels that are normal for other businesses, according to research conducted by New Dawn Risk Group (NDR).

The finding was published in a white paper analysing insurance cover for the US legal cannabis, CBD and hemp markets, titled  Understanding and Opening Up the US Cannabis Insurance Market.

NDR also noted sales of medical and recreational cannabis in the US were nearly nine times higher than sales of Oreo cookies in 2018. That year, the US market saw an estimated $8 billion in legalised cannabis sales, NDR said.

This was achieved despite considerable legal challenges around obtaining insurance and banking services. “Marijuana companies cannot access any suppliers outside their states, as the payments to these companies would violate money-laundering laws,” the report said. “This means that virtually all insurance for cannabis-related businesses is supplied at a local level by smaller state-based insurers. Covers are limited and products are basic, while conversely premiums are high.”

As a result, most cannabis firms buy the minimum coverage they are legally required to obtain, such as workers’ compensation insurance, the report said.

The COVID-19 outbreak has led to increased demand for cannabis in the US and stores in many states have been allowed to reopen or offer curbside sales.

Max Carter, chief executive officer at NDR, said: “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.”

He warned COVID-19 will make it even tougher for cannabis producers to obtain insurance, as providers tighten terms and conditions and introduce additional exclusions. “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,” Carter added.

More on this story

USA analysis
10 March 2020   CLIC Management has been given approval to form CLIC Risk Retention Group (CLIC RRG), the first dedicated risk retention group for the cannabis industry.
3 March 2020   Relm, an insurer of emerging business categories, has officially launched its operations.