“Don’t break out the Cheetos or the Goldfish too quickly,” Gov. John Hickenlooper of Colorado said to his constituents on Nov. 2, after they voted to legalize marijuana for recreational purposes.
Although this insurance niche is buzzing with opportunity, Hickenlooper’s cautionary words speak to insurance agents as well. As more states approve medicinal marijuana, the industry is still illegal, according to federal law.
Also complicating matters: States that have legalized medicinal marijuana (MMJ) have different laws about its cultivation, distribution and manufacturing.
And that’s just the tip of the iceberg—or bud. Two states—Colorado and Washington—allow marijuana for recreational use.
Think of a bar, restaurant or café. These may be insured by standard carries. Now in Colorado or Washington, these same places may now be able to sell cannabis or allow its use on the premise due to the new state laws. Will their policies cover any claims on the premises at this time? Are landlords covered at that time? Are tenants covered? Is cannabis use an approved classification for these carriers?
“These are all questions the insurance industry has to review quickly and understand,” said Mike Aberle, vice president of sales and marketing at GP Insurance Brokers, an MGA specializing in the MMJ insurance market. “The insureds may not educated enough—they think, ‘I can sell liquor and it’s legal. Why can’t I sell marijuana, my insurance should cover it?’”
Despite these roadblocks, MMJ is a growing niche for agents and brokers, especially among personal lines and captive agents.
“Their clients, whom they have served for years, say they grow marijuana or have a dispensary,” Aberle said. Most agents are unable to get MMJ coverage through their current companies.
These agents require much training and education in areas: What coverages are available, how to get into the niche, marketing of the program and what clients to attract.
Many agents have a fear of entering the MMJ industry—from both a legal point and the stigma surrounding cannabis. Agents need to learn what cannabis plants look like and understand how they grow. Some personal lines agents are unclear of the particulars involved with commercial insurance, including business basics such as alarm systems and video surveillance.
Agents also should consider partnering with lawyers, who specialize in this industry, to advise on local and state laws regarding cannabis.
Massachusetts, the most recent state to legalize MMJ, requires independent labs to test the safety and quality of MMJ sold in dispensaries. The tests will screen for metals, pesticides and mold, and measure MMJ’s active chemical compounds. Manufacturers must ensure that MMJ-infused foods are contained in childproof packaging. And dispensaries must obtain a $1 million occurrence and $2 million aggregate in its products completed operations coverage.
In that regard, GP Insurance Brokers offers an endorsement that allows full products completed operations with health hazard that includes cannabis and its derivatives. “It’s an achievement within the industry itself,” Aberle said. “You will never see a tobacco distribution have full products completed operations. We have convinced the carriers that this is a sound product to insure.” Coverage is run through the broker’s Lloyd’s of London syndicate.
Weed in Workers’ Comp
When legal, an increasing number of injured workers obtain legal prescriptions for MMJ to treat their symptoms and conditions, which are then filled at dispensaries.
State’s workers’ compensation guidelines typically are silent when it comes to the use of MMJ and cases have been challenged with mixed results. “Cases that are out today have been ruled in favor of the payer, rather than in favor of the injured worker,” said Jim Andrews, executive vice president of Pharmacy Services for Healthcare Solutions, an Atlanta-based medical cost management company.
For example, in Arizona, a claimant used marijuana for non-work related reasons. The carrier denied the claimant’s request for opioids on the grounds that using opioids and marijuana at the same time is medically contraindicated. At the hearing, the carrier prevailed.
Andrews details considerations regarding the inclusion of MMJ in workers’ compensation policies:
- MMJ is illegal on a federal level
- MMJ’s effectiveness as a treatment with injuries consistent with workers’ compensation
- Safety issues
- Pricing issues.
Because MMJ is a new treatment for on-the-job injuries, few studies and data substantiate its use, Andrews said. There’s strong interest in workers’ comp to ensure that drugs are medically appropriate for the injury. “We might find that the downside of using MMJ will be demonstrated long after the public starts using it,” he said.
If MMJ is approved for workers’ compensation, carriers would need to standardize pricing. In the pharmacy world, what would be the price for street-grade MMJ?
Andrews recommends the use of urine tests to monitor that the injured worker uses MMJ and other medications as prescribed. If the test results show that the injured worker is not using the medicine as prescribed, there is a case to be made that the drug was not needed in the first place.
For agents not quite ready to make the leap to insuring MMJ operations, another growing specialty is insuring farmers of industrial hemp.
GP Insurance Brokers offers a policy to hemp growers. “It’s similar to crop coverage and the liabilities are the same—only the risk is much less than when we talk about cannabis product,” Aberle said.
Marijuana and hemp are both varieties of the plant Cannabis sativa L. Hemp generally refers to the industrial or commercial uses of the plant’s stalk or seed, such as for textiles, foods, papers, detergents, body care products, plastics and building materials.
Unlike hemp, marijuana is cultivated from cannabis flowers. It contains 5 to 10 percent Tetrahydrocannabinoids (THC), which is the psychoactive chemical of the plant. Hemp is lower in THC—between 0.3 to 1.5 percent THC.
However, federal law defines hemp as a controlled substance. Some states allow cultivation of industrial hemp—Colorado, Kentucky, Maine, Montana, North Dakota, Oregon, Vermont, Washington and West Virginia—and a farmer in those states must obtain a special permit from the Drug Enforcement Administration prior to growing industrial hemp. The Controlled Substances Act places controls on hemp’s production and enforces standards governing the security conditions under which it is grown.