Cannabis insurance is a budding, young market, and early fears about high claim rates have turned to optimism as reality has played out post-legalization in individual states.

When a new insurance market emerges, it’s common for insurance adjusters and underwriters to be conservative in their pricing. With little to no data about the kinds of claims that can be expected, premiums are higher than other markets to help hedge the bets of insurance providers. As legalization has played out along the West Coast, Colorado, and other states, they are beginning to see the real picture.

Insurance providers expected to be hit with claims of bodily injury and product liability and defects after evaluating the risks with little information. While some of those claims have been made, they are not nearly as prevalent as the market had estimated over two years ago. Most likely, the claims that are to be filed in the near future in this market are mislabeling, false advertising, and deceptive business practices (restrictions on health claims are high). In some areas like California where wildfires are prevalent during the summer, cannabis claims from natural disasters are likely to be higher.

Though the data is starting to come in, there are still significant challenges to the market as it currently stands. Reinsurance is hard to come by, which is basically insurance for insurance companies and a major tool they use to mitigate their risk. Some reinsurers are on board but others are waiting to see how the market plays out. Without historical data, some reinsurers and insurers are just relying on stereotypes about cannabis and over-inflated perceptions about dispensaries as crime magnets.

These challenges are why some have suggested captive cannabis insurance as an alternative way to provide insurance services to the cannabis market. Captive insurance companies are a kind of insurance provider that is created by the businesses in the cannabis industry. None have been created so far, as many are waiting to see what happens at the federal level.

As the market stands, there are limitations but many licensed cannabis businesses can get limited types of insurance coverage. But they don’t all know the value of insuring against the worst-case scenarios. To successfully market insurance in the cannabis industry requires good old fashioned networking. Meetings, mixers, dinners — this is how trust and connections are built, and when you let people know what you do, you’ll be surprised how many people will have someone they can refer to you.

Early in the process of onboarding a new cannabis business as a client, cannabis insurers must verify their cannabis license information. They must be approved and not just “in the process,” otherwise you may be waiting a long time before you can provide services.

The number of already-licensed businesses just keeps growing every day, and recent market predictions look promising. The regulated market is expected to reach $57 billion by 2027 worldwide, according to an Arcview market research and BDS Analytics. Within the next decade, North America is expected to reach $47.3 billion. If banking regulations are enacted, however, those numbers could be much higher as cannabis businesses will have access to loans and other crucial business financial services.