(Reuters) -Insurance companies are quietly preparing for a potential tenfold increase in sales to the booming cannabis industry of $ 17.6 billion a year as Congress draws closer to the legalization of the pot at the federal level.
While 36 U.S. states and the District of Columbia have legalized cannabis for medical or recreational use, insurance for growers, test labs and retailers is largely kept in check by strict federal laws that criminalize pot along with heroin, methamphetamine and LSD.
US legal cannabis sales rose 45% last year and are expected to reach $ 41 billion by 2026.
But the industry wrote only about $ 250 million in insurance last year, estimated insurance agents for Reuters, with a handful of insurance companies offering limited property and liability coverage.
Businesses also need coverage for crops and theft, along with larger payout limits, according to more than a dozen insurers, brokers, agents, lawyers and cannabis entrepreneurs interviewed by Reuters.
As Congress considers bills that would loosen federal laws, some insurance companies are trying to fill the gap with new types of coverage. Because insurers are regulated at the state level, they can now offer coverage in states where the drug is legal, and federal decriminalization would expand the market.
"There is an overwhelming need for the right kind of insurance," said Rocco Petrilli, president of the National Cannabis Risk Management Association, an industry group of 3,000 cannabis companies.
In April, NCRMA set up a captive insurer to offer property, general premises and product liability coverage to members. It plans to add employee compensation and auto coverage during the fourth quarter, Petrilli said. The captured approach only provides coverage to NCRMA members tailored to their needs.
CannGen Insurance Services, a national managing general guarantor of cannabis, CBD and ham risks working with commercial insurance companies, plans to introduce board members and executives and employment practices liability protection soon, through a new division called CannGenPRO, says Charles Pyfrom, Marketing Manager .
Some large insurance companies, such as Progressive Corp., Farmers Insurance, Liberty Mutual and Axa SA, offer coverage when more states legalize the pot.
Progressive said its vehicle policy covers liability and physical harm in states that have legalized the transportation of cannabis, but it does not insure cargo. The other companies declined to comment.
New policy may not come soon enough for cannabis business owners, who say coverage is often difficult to find and expensive. Cannabis dispensation owners, for example, told Reuters that their premiums are 20% to 30% higher than a regular retailer would pay. Some types of vehicle coverage can cost four or five times more, they said.
D&O insurance, which is crucial for attracting experienced business leaders and raising capital, is also expensive, says Gavin Kogan, CEO of Grupo Flor, a licensed grower, distributor and manufacturer with five pharmacies in California. He said he pays $ 85,000 to $ 1
Lack of insurance can also create operational challenges and increase costs. Low cargo insurance coverage limits, for example, can force companies to split shipments, says Gene Brown, an insurance agent in Carmel, California, who specializes in cannabis insurance.
"You have large fleets that deliver large quantities of cannabis or carry large quantities of money," he said. "They need $ 1 million in coverage, but" you can only get $ 500,000 right now. "Growing pressure to follow. Last month, Senate Majority Leader Chuck Schumer threw his weight behind the movement and presented an ambitious draft bill to legalize cannabis.
In April, the House of Representatives adopted a bipartisan bill that would allow banks to provide services to cannabis companies in states. where it is legal.
Sen. Schumer's action is unlikely to become law in its current form, given the Democrats' narrow majority in the Senate and its broad scope, says Ian Stewart, partner and co-chair of cannabis practice at the law firm Wilson Elser.  Still, analysts and insurance executives say such bills show that Congress is slowly moving toward looser cannabis laws.
Mr Petrilli, of the NCRMA, said it could send insurance sales to cannabis companies to more than $ 3 billion over the next five years. years if the industry would be insured as ordinary companies.
coverage comes to be very, very successful, says Kogan.