It's happening more and more: insurance is responding to andlooking for new ways to protect individuals and business owners inthe medical marijuana industry.

The latest entry is CannabisInsurance Advisors, a specialty insurance division of ParagonUnderwriters, based in West Bloomfield, Mich. The newdivision services dispensaries, compassion clubs, collectives,cooperatives, growers, certification centers, bakeries and allother related medical marijuana businesses.

Cannabis Insurance President Kenneth Lipson isbullish on growing a pot specialty. Although most coverage iscurrently available solely in the E&S market and is likely toremain so for now, standard carriers will probably get into the actas medical marijuana legalization spreads to more states (it'scurrently legal in 15). Likening it to the alcohol business rightbefore the end of Prohibition, Lipson says of the nascent marijuanamarket: “We see it as one of the fastest-growing industries in ourlifetime.”

Currently, however, there is a big elephant in the room:Although some states have legalized pot for medical use, thefederal government still views growing, sales and possession as adrug crime, punishable by fine or prison. And federal law trumpsstate law, creating a huge disconnect in the current market(see this related article on pot raid coverage).

So wouldn't it make more sense for the federal government tosimply legalize marijuana, medical or otherwise?

Consider the possibilities. Marijuana dispensaries in Californiaare already adding pot to ice cream and other treats. Will cannabis becomethe next big food fad, like Vitamin E?

Right now, even without federal legalization, the insuranceimplications for marijuana-related products areimpressive. Crop insurance is a must, as is coverage fortransportation and distribution, along with the typicalcoverages needed by any business. Policy issues expertChris Amrhein adds the following:

• Contract bonds (guarantees of quality, fitness, meeting thespecs such as maximum stem/seed content)
• Dependent properties: loss of income due to failure orsuppliers, shippers arising from covered perils
• Dram shop liability, similar to alcohol, for improperly servingalready intoxicated, underage etc.

Can you imagine how business would boom if pot was legalized?Chris adds:

Never been to Amsterdam, but assume that if it becomes totallylegal, as opposed to medicinal only, there will remain somespecialty shops like you now have tobacco stores and wine bars forthe true aficionados, but the primary marketplace will move toeverywhere they now sell cigarettes or liquor. Good grief, Ijust (if you'll excuse the expression) flashed on themarijuana display at Costco! Actually, that's perfect–you can pickup your dope and major supplies of munchies in the same (ifyou'll excuse the expression) trip!

There would be other benefits, too. Cash-strapped states and thefederal government could levy taxes on sales. Decriminalization ofmarijuana use would free up law enforcement for more importantcrime prevention. Big Tobacco could become Big Pot, with theaccompanying big budget for sales, marketing and distribution. Newindustries would spring up. And bloody foreign drug cartels wouldtake a major hit where they live.

Do you currently have any marijuana-related clients? If so, howare you serving their coverage needs? And do you think theinsurance industry could benefit from legalizing marijuana?