The ongoing federal prohibition of marijuana has left most insurance carriers cold to the idea of issuing property and liability policies to cannabis companies, but the market for the highly sought-after coverage may heat up if Congress approves two "safe harbor" bills that would protect banks and insurers from legal liability for serving legitimate marijuana-related businesses, according to a recent report from Law360.
"These [insurance] products are still largely untested, and there is a general lack of experience in the claims environment," said Benjamin Tievsky, a Pillsbury senior associate who represents policyholders. "And every cannabis company is different — a vertically integrated operation will have different needs than a lone dispensary or grower."
"It is still the Wild West in my view," Tievsky added, "and it will take time for the insurance industry and the cannabis industry to work together to understand and effectively underwrite coverage with acceptable wording and sufficient limits."
The first of two bills, the SAFE Banking Act, was approved by the U.S. House on September 25. The measure, which must now be considered by the Senate, would protect the banking sector from legal liability for serving legitimate cannabis companies, including setting up bank accounts and payroll services.
The other bill, known as the CLAIM Act, was introduced in the House and Senate in July and now sits in committees in both chambers. The legislation would extend the same type of federal safe harbor contemplated by the SAFE Banking Act to insurance companies, agents and brokers that serve pot businesses.
"The SAFE Banking Act and CLAIM Act are like two sides of the same coin," Tievsky said. "It is extremely difficult for businesses to procure insurance without access to the financial markets and credit institutions and also difficult for them to participate in the larger economy without sufficient insurance."
Tievsky added: "If the SAFE Banking Act is passed by the Senate and signed into law, that could open financial lifelines that businesses need to thrive and obtain insurance. The insurance market would likely grow in tandem with the increasing commercialization that the SAFE Banking Act allows for."