The SAFE and CLAIM Acts Brings Cannabis Legalization Closer, but Insurance Coverages Remain Problematic
Federal legislation could help bring some legitimacy to the cannabis industry, a market valued at $20.5 billion in 2020 and projected to rise to $90.4 billion by 2026.1 Even so, for cannabis businesses trying to get coverage, legitimacy may seem like a long way off.
After passing in the U.S. House of Representatives, the Secure and Fair Enforcement (SAFE) Banking Act is pending in the Senate. As of May 2021, the Clarifying Law Around Insurance of Marijuana (CLAIM) Act was being debated in the House.
If passed, these laws will provide a safe harbor for financial institutions and insurance companies seeking to service cannabis businesses without the threat of federal penalties. The SAFE Act allows banks to extend credit to cannabis businesses, while the CLAIM Act opens the U.S. insurance market to cannabis operations.
But for the cannabis industry, passage of these bills does not equal smooth sailing for managing financial and risk issues. Because cannabis businesses have been viewed as risky, most do not offer coverage.
The industry largely lacks internal expertise in cannabis, nor do most carriers have proven insurance programs; exclusionary cannabis language from their policies still inhibits widespread coverage. Before there’s widespread acceptance, financial institutions will need to change policy and ramp up products and services specific to the industry.
Cannabis insurance coverage exclusions for today and tomorrow
Even if the SAFE and CLAIM Acts become law, cannabis businesses still need to be wary of potential exclusions to their product liability, property, and general liability coverage for their businesses. Below are common exclusions in all three of these coverages.
Product liability
Health hazard exclusion. Customers may claim that the use of a cannabis product made them sick, resulting in a lawsuit against the manufacturer. A common exclusion on product liability policies absolves the insurance company from covering such claims.
Broad fungus exclusion. Exclusions for fungus means insurers may not cover a cannabis business should anyone make a claim they received a cannabis product damaged with fungus or mold.
Property coverage
Mob, riot and civil rights exclusion. If a cannabis storefront is vandalized during civil unrest, or another mob or riot event, this exclusion means the carrier would not cover rebuilding costs.
Armored vehicle for cash exclusion. Property policies require an armored vehicle to transit cash from a cannabis retail operation elsewhere. However, cannabis businesses run almost exclusively on cash but cannot realistically afford daily armored transport. In this case, the removal of cash without armored transport from the business is not covered.
The RICO exclusion. The Racketeer Influenced and Corrupt Organizations (RICO) exclusion absolves insurance companies from having to defend insureds in the case of a lawsuit, should the claim involve racketeering or corrupt organizations.
General liability
Intoxication of cannabis. If someone who is intoxicated with cannabis acts unruly, causing damage to a home or facility, a general liability policy with this exclusion will not cover the damage.
