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

The latest entry is Cannabis Insurance Advisors, a specialty insurance division of Paragon Underwriters, based in West Bloomfield, Mich. The new division services dispensaries, compassion clubs, collectives, cooperatives, growers, certification centers, bakeries and all other related medical marijuana businesses.

Cannabis Insurance President Kenneth Lipson is bullish on growing a pot specialty. Although most coverage is currently available solely in the E&S market and is likely to remain so for now, standard carriers will probably get into the act as medical marijuana legalization spreads to more states (it's currently legal in 15). Likening it to the alcohol business right before the end of Prohibition, Lipson says of the nascent marijuana market: “We see it as one of the fastest-growing industries in our lifetime.”

Currently, however, there is a big elephant in the room: Although some states have legalized pot for medical use, the federal government still views growing, sales and possession as a drug crime, punishable by fine or prison. And federal law trumps state 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 to simply legalize marijuana, medical or otherwise?

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

Right now, even without federal legalization, the insurance implications for marijuana-related products are impressive. Crop insurance is a must, as is coverage for transportation and distribution, along with the typical coverages needed by any business. Policy issues expert Chris Amrhein adds the following:

Contract bonds (guarantees of quality, fitness, meeting the specs such as maximum stem/seed content)
Dependent properties: loss of income due to failure or suppliers, shippers arising from covered perils
Dram shop liability, similar to alcohol, for improperly serving already 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 totally legal, as opposed to medicinal only, there will remain some specialty shops like you now have tobacco stores and wine bars for the true aficionados, but the primary marketplace will move to everywhere they now sell cigarettes or liquor. Good grief, I just (if you'll excuse the expression) flashed on the marijuana display at Costco! Actually, that's perfect–you can pick up your dope and major supplies of munchies in the same (if you'll excuse the expression) trip!

There would be other benefits, too. Cash-strapped states and the federal government could levy taxes on sales. Decriminalization of marijuana use would free up law enforcement for more important crime prevention. Big Tobacco could become Big Pot, with the accompanying big budget for sales, marketing and distribution. New industries would spring up. And bloody foreign drug cartels would take a major hit where they live.

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

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