California Insurance Commissioner Ricardo Lara and his working group are writing a how-to guide for other states on how to regulate insurance for the cannabis industry.

Lara is the state insurance commissioner, which means he oversees the insurance of the biggest cannabis economy in the U.S. He also heads up the National Association of Insurance Commissioners’ (NAIC) Cannabis Insurance Working Group. As chair, Lara and the other members of the working group released a white paper in December that outlines a framework for other states to incorporate insurance for cannabis businesses.

So far, every state has built its own blueprint to regulate the cannabis industry, and the insurance component is no different. The white paper called “REGULATORY GUIDE: UNDERSTANDING THE MARKET FOR CANNABIS INSURANCE” is intended to give other states a good place to begin making changes. And there are a lot of changes that need to happen for cannabis insurance to be feasible.

The white paper notes that the industry has been rapidly changing and growing “on a daily basis.” In 2018, the white paper notes that the overall cannabis industry was worth $10.4 billion in 2018 and could more than double (or quadruple) that in the next two years. The NAIC makes clear the size of the industry and its potential to grow, employing 121,000 people in 2017 and an estimated 340,000 jobs by 2022.

“In 2017, sales of medical and recreational cannabis in the U.S. were nearly nine times higher than Oreo cookies and almost on par with Americans’ collective spending on Netflix subscriptions,” according to the NAIC white paper. “With the addition of California’s recreational market sales in 2018, cannabis sales could easily eclipse McDonald’s annual U.S. revenue.”

The NAIC also highlights where there are insurance gaps in the cannabis industry, totaling 16 different categories including automobile, crop, and workers’ compensation. Aside from the question of federal legality, the increasing complexity of the cannabis industry makes providing coverage difficult. Some states are more difficult than others; the NAIC points to Delaware as an example where no cannabis farmer can get crop insurance at all. That is a major problem for communities.

“Insurance is essential the security and safety of cannabis businesses, their employees, and their customers,” according to the NAIC. “Lack of insurance for the industry adds layers of unnecessary risk and exposure for all market participants.”

The tough regulations that states have enacted for the cannabis industry are a point in favor of insuring them, since testing standards and tracking programs are likely to prevent bad product getting out to customers. Quality control is at a high standard, which should make insurers confident they can underwrite a cannabis business.

But the NAIC paper acknowledges that not all regulatory systems carry the same amount of risk. States such as Delaware have high security requirements for their stores, while other states have different rules. The needs of every market are a little different, but the white paper is designed to be a starting point for other state’s looking to get a grip on their cannabis insurance market.

–

Have you read the white paper? Let us know what your biggest takeaways were in the comments below.