A recent study published by the Journal of Addiction shows that daily marijuana use has surpassed daily alcohol use in the U.S. With over 85% of Americans supporting the legalization of marijuana for medical or recreational use, the cannabis industry has firmly established itself in mainstream culture. U.S. cannabis sales are projected to reach $32.4 billion in 2024, reflecting the industry’s rapid growth.

This booming market presents unique challenges, particularly in securing cannabis business insurance to protect operations. From regulatory changes to industry-specific risks, cannabis businesses need tailored insurance coverage to thrive.

The Evolution of Cannabis Regulations 

While the cannabis industry is booming, it has not always been embraced. In the early 20th century, cannabis faced increasing regulation, with 29 states criminalizing its use by 1931. Federal regulations, including the Controlled Substances Act of 1970, classified cannabis as a Schedule 1 drug, along with substances like heroin and LSD.

Fast forward to 2024, and the landscape has drastically shifted. Now, 24 states permit recreational cannabis use, while 38 allow medical marijuana. With new legislative developments like the SAFER Banking Act and CLAIM Act, the federal government is paving the way for increased access to financial services and insurance for the cannabis industry. However, many cannabis companies are still navigating the complexities of federal regulations while seeking adequate coverage options.

Challenges in Securing Cannabis Insurance

Despite state-level progress, cannabis remains federally classified as a Schedule 1 substance. Many large commercial insurers hesitate to offer cannabis insurance due to reputational concerns and legal risks. However, smaller, specialized carriers have stepped in, offering cannabis-specific coverage across various lines, including cannabis crop insurance and product liability policies.

The passage of the SAFER Banking Act—which allows financial institutions to work with cannabis companies without fear of federal penalties—and the CLAIM Act will likely expand the cannabis insurance market by alleviating concerns for larger insurers.

Cannabis Crop Insurance: Protecting Growers

Cannabis growers face unique risks, from theft to environmental disasters. Theft, in particular, accounts for 90% of cannabis insurance claims in the U.S. due to the plant’s high resale value and the predominance of cash-based transactions. For instance, Oregon’s BlueSky Gardens lost hundreds of pounds of cannabis in a violent robbery, highlighting the need for robust coverage.

Beyond theft, cannabis plants are highly susceptible to environmental factors like temperature and humidity fluctuations. Indoor operations, which rely on lights, irrigation, and climate control, are vulnerable to equipment failures, potentially leading to total crop losses. For example, Colorado's largest marijuana grower experienced millions in losses when an early winter storm froze half its crop before harvest.

To address these risks, cannabis crop insurance is essential for growers. It provides coverage for environmental damage, equipment failure, theft, and more, ensuring the long-term sustainability of cannabis businesses.

Valuing Cannabis Crops: Key Considerations

Determining the value of cannabis crops is a complex process, with factors ranging from growth stage to product type. The growth cycle, from seedling to sale, impacts insurance valuations. Growers using clones from a ‘mother plant’ can skip early growth stages, shortening the time to harvest. Indoor growers can harvest up to five times a year, while outdoor operations are limited by environmental conditions to one or two annual harvests.

Cannabis crop insurance typically covers the following stages:

• Living Plant Material: Seeds, seedlings, and mature plants in the growing medium.
• Harvested Plant Material: Plants in the drying and curing stages.
• Finished Stock: Fully processed and ready-for-sale marijuana.

The value of a plant depends on its stage of growth, expected yield, and market prices, which vary by state and product type. Accurate valuation is crucial for securing proper compensation in the event of a loss.

Navigating the Future of Cannabis Insurance

The growing demand for cannabis business insurance is reshaping the industry. As laws evolve and larger carriers enter the market, cannabis companies will benefit from more comprehensive coverage options. For cannabis growers and businesses, securing the right insurance is vital for protecting their investments and ensuring long-term success.

At Meaden & Moore, we understand the unique challenges and risks facing the cannabis industry. Contact us today to discuss how we can help safeguard your business and ensure long-term growth in this fast-evolving market. Let's work together to build a strategy that keeps your operations secure—now and in the future.

This article was co-authored by Hannah Dingley and Michael Sternstein. Research by Clara Waterman and Joe Tamburro.