The program will be rolled out to over 1,700 Atlas appointed agents in California and another 4,000 agents in the other states with legal cannabis operations. (Photo: Shutterstock)

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Cannabis' place in U.S. society — and the question of itslegality — has been debated since the beginning of the20th century.  The movement to prohibitcannabis hit its high watermark in 1970 when President RichardNixon signed the Controlled Substances Act into federal law, whichdesignated cannabis as a Schedule I drug and made its possession,distribution and sale a punishable offense. Since that time,however, the pendulum has swung aggressively in the otherdirection.

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With the successful passage of ballot initiatives in Michigan,Missouri, and Utah in November's midterm elections, cannabis is nowlegal for medical use in 32 states and Washington, D.C., andavailable for recreational use in 10 states and Washington,D.C.

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Attitudes toward the substance have shifted dramatically sincein 1969, when only 12% of Americans supported the legal use ofcannabis. Shortly thereafter, cannabis became outlawednationwide.

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Despite all of this, cannabis, which is the scientific term formarijuana, remains illegal under federal law.  This facthas created a complex legal landscape that property & casualtyinsurers are now being forced to navigate.

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Related: Marijuana use could be jeopardizing safety on theroads, survey finds

P&C industry concerns

Consider the potential criminal and civil exposures resultingfrom marijuana's legal status under federal law, which extends wellbeyond those individuals or businesses directly involved in thecannabis supply chain. In addition to violating the ControlledSubstances Act, doing business with any part of the cannabisindustry can run afoul of several federal laws including theBanking Secrecy Act/Anti-Money Laundering Law, and the RacketeerInfluenced and Corrupt Organizations Act.

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For example, banks and insurers providing services toenterprises involved in the cannabis industry could find themselvesheld criminally liable or civilly liable for allegedly causing harmto others by aiding the operation of the business.

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Writers of homeowners', auto, commercial property, workers'compensation, and many other lines of insurance have faceddifficult questions about their role and relationship with suchcannabis business entities as growers, manufacturers, retailers andconsumers. Sometimes, this relationship has been unbeknownst to theinsurer. In these cases, insurance companies that do not have apolicy of reimbursing the cost of medical marijuana or that justbecame aware of the presence of cannabis at a home or commercialproperty have been taken to court over their denial of claims forlost, damaged, stolen, or "non-covered" medical cannabis.

Evolving legal precedent

Depending on the state and presiding judge, the courts have beenunpredictable in their decisions, sometimes favoring the insuranceprovider and other times favoring the claimant. In most cases,insurance companies have cited that the CSA preempts state lawsthat permit medical marijuana or adult use. Other courts have insome instances have ruled that the state law is the controllingstatute.

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Consider another potential issue in which stakeholders along thecannabis supply chain cannot find coverage in the private marketand resort to the state's residual market mechanism, which in manycases is an assigned risk pool.  If a company is requiredto offer coverage to a "canna-business" through a residual marketmechanism, this will put the company between the proverbial rockand hard place, facing a serious and fundamental conflict betweenstate and federal laws.

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Even insurance companies interested in offering coverage to thevarious entities along the cannabis supply chain must content witha complicated legal landscape. It follows that many continue to eyethe proliferation of a legalized marijuana industry with caution,hesitation, confusion and skepticism.

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It comes as no surprise, then, that there are very few admittedproperty & casualty insurers writing coverage in the cannabisspace. While some growers, processors, retailers,recreational/medical users, and other key players across thecannabis supply chain have found surplus or captives lines ofinsurance, they have continued to highlight an insurance gap andbroad demand for various insurance products and services for theirbusinesses.

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Regardless of one's personal views on the legalization question,it is unquestionable that the cannabis industry presents anenormous potential market for insurance coverages. Already a $9 billion industry by 2017, it is projected to grow tomore than $20 billion by 2020 with canna-businesses accounting formore than 280,000 jobs in agriculture, manufacturing, management,administration and retail operations.

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However, until and unless the fundamental legal conflictssurrounding cannabis are resolved, it is unlikely we will see theinsurance industry rushing to insure cultivators, manufacturers,users or others across the supply chain.

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Related: Fatal crashes doubled after state legalizedmarijuana, AAA says

Pushing policy forward

Last June, Sens. Cory Gardner (R-Colo.), and Elizabeth Warren(D-Mass.) introduced legislation that would amend the existing CSAto say it no longer applies to those following state, territory ortribal laws relating to the manufacture, production, possession,distribution, dispensation, administration or delivery ofmarijuana. In essence, the Strengthening the Tenth AmendmentThrough Entrusting States Act, or the STATES Act, intends toprotect states' marijuana laws from federal preemption via theCSA.

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No discussion of a potential market for insurers is meant toelide the other questions and externalities for the industry thataccompany legalization of marijuana. Among the many examples, thelack of a reliable impairment test for marijuana could prevent lawenforcement from identifying impaired drivers.  This alsocreates a serious issue with determining whether or someone is"high" on the job, which could lead to broader safety concerns foremployers, employees, and the general public.

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Even if no other states passed legalization laws and theindustry stopped growing — a dubious proposition indeed — it isclear property & casualty insurers need to understand how theywill potentially interact with the cannabis industry.  AsNAMIC outlined in the release of its public policy issue analysistitled "Cannabis:From Criminality to Commercial Enterprise: Understanding theIntersection With Property/Casualty Insurance," it is equallyimportant that lawmakers at the local, state, and federal levelsalso understand the potential issues. At the very least, robustsafe harbors from any legal liability under controlledsubstances-related law should be created if insurers are compelledto participate in any way with the cannabis industry.

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Jonathan Bergner ([email protected]) isassistant vice president of Federal Affairs for the NationalAssociation of Mutual Insurance Companies(NAMIC). These opinions are the author'sown.

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Related: Most medical cannabis users have operated vehiclesunder the influence, study finds

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