Insurers including Lloyd’s can benefit from legal cannabis in US and Canada
Insurers at Lloyd’s could benefit from the rapid growth of the legal cannabis industry in the US and Canada, a legal expert has claimed.
Upcoming regulatory developments in the US and Canada are set to accelerate the growth of the legal cannabis industry, with sales already projected to grow as much as 10-fold to reach $40 billion a year in the US by 2025, and around $5 billion in Canada within five years.
Recreational cannabis in dried or plant form was legalised in Canada in October 2018.
In October 2019, a second wave of cannabis legalisation in Canada, aka Cannabis 2.0, legalised cannabis edibles, extracts and topicals, opening up a potentially vast market.
Prachi Shah, a senior counsel at the global law firm in Montreal, said: “The cannabis market in Canada is set to increase significantly with this second wave of legalisation.
“As with the first wave of legalisation, everyone involved in production, distribution and sales in the cannabis industry will need to comply with the regulatory requirements. This presents huge underwriting opportunities for insurers to provide D&O cover as well as other insurance classes including property, fidelity/crime and product liability.”
In the US, the picture is less clear. While hemp has been legal under federal law since the introduction of the 2018 Farm Act, it remains illegal to use, sell or possess marijuana under the Controlled Substances Act (CSA).
This means that despite 33 states legalising marijuana for medical use and 10 doing so for recreational use, marijuana businesses are potentially subject to federal criminal prosecution for violations of the CSA, aiding and abetting, and money-laundering.
The Secure and Fair Enforcement (SAFE) Banking Act, which will be voted on by the Senate later this year, would offer protection to a wide range of financial institutions, including insurance companies and banks, from federal prosecution should they service legitimate marijuana businesses and their service providers.
Katelin O’Rourke Gorman, a partner at Clyde & Co in New York, said: “Legal cannabis is not going away this is an industry worth billions of dollars but up to this point its businesses have struggled to gain access to vital financial services.
“The SAFE Act passed the house with more Republican support than expected, but it is still unclear whether it will pass the Senate.
“Should it be passed into law we would see banks, credit unions and insurers rush to the market in states where cannabis has been legalised.
“In this event, Lloyd’s of London, which currently permits the underwriting of cannabis risks in Canada, may revisit its policy to allow entry into the US market.
“When the timing is right this would be a wise move, as although the US insurance market for cannabis is currently some way behind Canada’s, it has the potential to be much bigger,” she concluded.
