Cannabis 2.0 opens up new market for insurers

Today brings the second wave of cannabis legalisation in Canada, and, with it, significant opportunities for insurers as a potentially vast new market is opened up in cannabis edibles, extracts and topicals.

Sales are projected to grow ten-fold to reach US$40bn a year in the US by 2025 and around US$5bn in Canada within five years, presenting significant opportunities to insurers at Lloyd's.

Clyde & Co’s senior counsel in Montreal, Prachi Shah commented: “The cannabis market in Canada is set to increase significantly with this second wave of legalisation. Smoking a joint might not appeal to large parts of the population, but they may not be averse to trying cannabis candies, chocolate or beer, and other products which incorporate cannabis.

“This second wave of cannabis legalisation will provide more opportunities for operators who were not involved in the first wave, such as food and beverage companies, and further opportunities for first-wave cannabis companies," she added.

Compliance with regulatory requirements will be vital, however. "Failure to do so would present risks to these businesses and their boards and management. This presents huge underwriting opportunities for insurers to provide D&O cover as well as other insurance classes including property, fidelity/crime and product liability,” Shah warned.

Recreational cannabis in dried or plant form was legalised in Canada last October. In the US, it remains illegal to use, sell or possess marijuana under the Controlled Substances Act, so, despite 33 states legalising marijuana for medical use and 10 for recreational, marijuana businesses are potentially subject to federal criminal prosecution for violations of the CSA, aiding and abetting and money laundering.

Partner at Clyde & Co in New York, Katelin O’Rourke Gorman said: “Legal cannabis is not going away – this is an industry worth billions of dollars but up to this point its businesses have struggled to gain access to critical financial services. While the SAFE Act passed the house with more Republican support than expected, it is still unclear whether it will pass the Senate. Should it be passed into law we would see banks, credit unions and insurers rush to the market in states where cannabis has been legalised. In this event, Lloyd’s of London, which currently permits the underwriting of cannabis risks in Canada, may revisit its policy to allow entry into the US market. When the timing is right this would be a wise move as although the US insurance market for cannabis is currently some way behind Canada, it has the potential to be much, much bigger.”

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