E/Insuring the Marijuana Industry

Abstract

Our ability to calculate risk and plan accordingly is one of the hallmarks of the modern era. It is inconceivable that a business venture of even moderate size could succeed without employing risk management strategies. I begin with the premise that the marijuana industry must manage a variety of risks in order to thrive as a commercial undertaking, and then focuses on the availability of effective commercial insurance as an important risk management tool. My thesis is that the marijuana industry can ensure its success only if it is able to insure itself effectively against risks. Many scholars have focused on the issues relating to enforcing commercial agreements generally or the difficulty in obtaining banking services, but this is the first scholarly article to consider issues of insurance coverage. The article reviews potential difficulties that the marijuana industry will face as it attempts to use commercial insurance products regularly used by other businesses to minimize its risks. Generic insurance products suitable for many businesses are not well suited to the emergence of a legal marijuana industry, given the legacy of many decades of federal and state prohibitions and the current situation in which the business remains illegal under federal law. Surplus lines insurers have emerged to fill the need of the new industry by providing specially drafted policies and underwriting strategies to deal with the special needs of the marijuana industry. The article traces some of the issues that will confront the marijuana industry as commercial insurance providers adjust to the unique circumstances of this business.

The article unfolds in two parts. In Part One, I sketch the historical background against which coverage issues will be determined. When marijuana cultivation and sale were illegal under both state and federal law, losses incurred were often expressly excluded by insurance policy terms and also under general public policy principles. This background sets the stage for coverage complications in an environment in which cultivation and sale are legal under state law but illegal under federal law. In Part Two, I describe how some of these complications are now playing out in insurance coverage litigation. The legacy of complete illegality, and the continuing illegality under federal law, pose the risk that insurance coverage might be an unreliable part of the risk management strategies adopted by new businesses.

Keywords: Insurance, Marijuana, Controlled Substances Act, Medical Marijuana, Recreational Marijuana