In 2022, Mississippi became the 37th state to legalize medical marijuana, and Rhode Island, Maryland, and Missouri approved recreational use for adults. On November 23, the US Congress also passed the first bipartisan cannabis bill, known as the Medical Marijuana and Cannabidiol Research Expansion Act, which will allow researchers to further study the benefits of cannabis for health and could lead to further federal regulation.
Along with the regulated marijuana industry, the hemp-CBD industry is now reaping the benefits of the 2018 Farm Bill, which eliminated hemp and cannabis derivatives with very low concentrations of the psychoactive compound delta-9-tetrahydrocannabinol (THC). ) (not more than 0.3% THC by dry weight), from the definition of marijuana in the Controlled Substances Act (CSA).
This new legality of CBD hemp opened the doors to funding, insurance, and paved the way for further development of cannabis products in the medical, health, and wellness space. Unlike hemp CBD, marijuana is still a Schedule 1 drug under the CSA, which has effectively prohibited insurance companies and financial markets from supporting the cannabis industry.
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“Marijuana regulated for medical or recreational use and CBD from hemp are two different risk profiles,” said Norman Ives (pictured left), a cannabis specialist at Amwins Brokerage in Los Angeles, CA. “A regulated marijuana business will have different insurance needs and different insurance available than a hemp CBD risk. Insurance companies are generally more comfortable with the federal position around hemp CBD.”
Morgan Moore (pictured right), executive vice president of Amwins Brokerage in Los Angeles, CA, said the regulated marijuana industry is still largely “underserved” by the insurance markets, with only a few options of “robust coverage” available. This could become problematic as the industry grows and more states legalize recreational use of cannabis for adults.
Disparity in the cannabis market: West vs. East
Western states were pioneers in adult marijuana legalization, with Washington and Colorado coming online in 2012, followed by Oregon in 2014 and California in 2016. While these states paved the way for the recreational cannabis industry, now cracks are being seen in its foundations.
“In mature markets, the wholesale price of cannabis has come down significantly,” Ives said. “In some cases, it actually sells for less than the cost of production, which puts enormous pressure on the grower and/or processors, particularly those at the lower or middle end of the revenue model. If they’re not producing a lot of cannabis, they have a hard time competing with the big players in mature markets.”
Eastern states have generally been slower to legalize cannabis. New York approved adult use in 2021 and has now begun issuing grower licenses, with the goal of having dispensaries up and running by the end of the year. However, delays are expected as the state is currently in a legal battle over its licensing criteria.
As more states legalize marijuana for adult use, growers, producers, processors, and distributors are looking to mature markets in Western states to understand their business models and see how they incorporate technology and innovation. They also focus on how to address social equity issues associated with the prior illegality of cannabis operations. But mature markets are far from perfect role models.
“Economically, many cannabis operators are not in a good place. There is a lot of debt in the cannabis industry, which is going to create a lot of compliance activity,” Moore said. “On top of that, more states are coming online and scrapping licenses, so we have this mix of people just starting out in the industry in certain states, and other states now reaching 5+ years of maturity and struggling financially. . ”
Product innovation: resorting to minor cannabinoids
Cannabis has been cultivated and used for medical and recreational purposes for centuries. While regulated marijuana is still ‘an emerging market’, many consumers are already familiar with the product. Therefore, cannabis companies are challenged to keep traditional users interested in legal products, while also attracting non-traditional users with innovative offerings such as gummies, beverages, and health and wellness solutions.
“Research and development of cannabis products is long overdue and there are many unknowns as to how far the product can go. The approval of some of these laws [like the Medical Marijuana and Cannabidiol Research Expansion Act] it’s opening up other avenues for investigation,” Moore said.
Ives said he’s seeing “a continued push toward minor cannabinoids,” which are naturally occurring compounds found in cannabis plants, often thought to have therapeutic and medicinal effects.
The two most common cannabinoids are cannabidiol (CBD) and tetrahydrocannabinol (THC), both of which are commonly featured in regulated products on the market today. But now companies are trying to find ways to produce and market other cannabinoids, including cannabinol (CBN), which is believed to aid sleep, and nonpsychotropic (meaning they don’t induce a “high”) substances like cannabigerol. (CBG) .
This can create insurance challenges, especially if the cannabinoid is synthetic, meaning it is a chemically engineered analogue. CBN, for example, is the product of oxidation and can be made by exposing THC to heat and light. To create CBN, growers may be tempted to purchase Farm Bill-approved hemp, which they can convert into their desired cannabinoid. However, Ives urged caution for those tempted to supplement their regulated THC or CBD products in this way.
“Many cannabis shippers exclude coverage for manufactured cannabinoids,” he told Insurance Business. “If you’re extracting a cannabinoid from a raw cannabis plant, that’s not a problem at all. But if you’re buying Farm Bill-approved hemp and converting it into another cannabinoid, you may not have insurance coverage. If your policy has an exclusion for analog or synthetic cannabis, you very well could be adding an ingredient that makes your product uninsurable.”
Tips for ‘Green’ Brokers for the Cannabis Insurance Industry
The regulated cannabis industry is always evolving. Companies are trying to innovate and capture new customers with fresh produce, while navigating a complex regulatory minefield.
“The cannabis market is growing. It’s an emerging industry, and we have this incredible amount of technology and evolution happening in a short period of time,” said Ives. “I would encourage agents and brokers to work with a specialist in the space. Don’t buy a policy, find a broker who knows what he’s doing and can help you understand the appetites and intent of different companies with their coverage.”
