New Insurance Lines Will Help Emerging Marijuana Market

By | Right Street Blog | November 5, 2017

The end of Prohibition in 1933 was greeted with celebrations, as newspapers slapped large-type headlines on their front pages declaring, for instance, that “Prohibition Ends At Last.” President Franklin Delano Roosevelt’s reputed words have made it into the quotation books: “What America needs now is a drink.” He may have been drinking a dirty martini when he said it.

By contrast, the end of marijuana prohibition in California has come about slowly and with a lot less fanfare. In 1996, California voters approved Proposition 215, which legalized marijuana use for medicinal purposes. The California Legislature finally approved state-based rules overseeing that 20-year old proposition, which had been plagued by inconsistent local enforcement.

Last November, the state’s voters approved a measure that also legalizes recreational uses of marijuana under state law. State officials now are starting up a new marijuana-control agency and are busy creating a legal framework that could allow the new industry to flourish. Few people are publicly celebrating, including some marijuana activists who wonder whether the new regime will be too heavy-handed.

It’s a complicated, albeit fascinating, process to watch an outlawed product become legally available. These days, though, this means dealing with a regulatory miasma at various levels of governments. It’s further complicated by federal officials who dispute the right of several states to embrace a legalization rather than Drug War approach.

Actually, the real action on the marijuana front isn’t coming from pot activists or drug warriors, but from financial interests that are unceremoniously trying to solve the kinds of basic problems that emerge when any industry comes out from the shadows. For instance, California’s Board of Equalization has been looking at how to boost marijuana tax collections by figuring out ways around federal rules that bar these firms from having bank accounts.

And now we see that California Insurance Commissioner Dave Jones this week “approved the filing of the first admitted commercial insurance company to file cannabis business insurance, so that the insurer can begin writing policies and offering coverage for cannabis business owners,” according to a statement from his office.

“Consumers who visit cannabis businesses, workers who work there, businesses who sell products to or rent property to cannabis businesses, and the investors, owners and operators of cannabis businesses all should have insurance coverage available to help them recover when something goes wrong just as any other legalized business does,” Jones said in the statement.

It’s not often that I agree with Jones, but kudos to him on this front.

The statement added that Jones convened the nation’s first public hearing to identify insurance gaps in the cannabis industry, and brought together insurance companies and people from the cannabis industry. “The hearing revealed that while there is insurance available from surplus lines insurers, insurance coverage is limited in scope and, until the approval being announced today, commercial carriers were not yet writing insurance,” the statement added.

As usual, insurance companies have a remarkable way of solving complicated problems through actuarial tables and risk assessments. This is an interesting and potentially important step toward regularizing the marijuana business by having state financial services regulators provide guidance, given how difficult it has been for companies to secure financial and insurance services.

The feds still need to provide further clarity, but having the insurance regulator of the largest state sign off on an admitted market insurance product could be looked back on as groundbreaking. Maybe not as much as the ballyhooed end of Prohibition, but groundbreaking nonetheless.

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