The Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”) was just re-introduced in the U.S. Congress this week. Not only would passage of this important legislation increase the banking options available to cannabis-related businesses, it would also likely yield a better insurance market for those businesses, i.e., more options, higher limits, lower premiums.
While most of the media and other attention remains focused on the SAFE Banking Act, passage of another, less-publicized piece of legislation – re-introduced in Congress this week as well – also could result in a better insurance market for the cannabis industry.
The Clarifying Law Around Insurance of Marijuana Act – aptly called the “CLAIM Act” – was re-introduced in Congress yesterday. “This is the third Congress in a row that the measure has been introduced[,]” reports Marijuana Moment. “The latest version of the CLAIM Act is identical to the bill filed last Congress.”
Generally, the CLAIM Act would “create a safe harbor for insurers engaging in the business of insurance in connection with a cannabis-related legitimate business ….”
More specifically, the legislation – which was introduced by U.S. Rep. Nydia M. Velázquez (D-N.Y.) and U.S. Rep. Warren Davidson (R-Ohio) – provides in pertinent part:
With respect to engaging in the business of insurance within a State, political subdivision of a State, or Indian country that allows the cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase of cannabis pursuant to a law or regulation of such State, political subdivision, or Indian Tribe that has jurisdiction over the Indian country, as applicable, an insurer that engages in the business of insurance with a cannabis-related legitimate business or service provider or who otherwise engages with a person in a transaction permissible under State law related to cannabis, and the officers, directors, and employees of that insurer may not be held liable pursuant to any Federal law or regulation –
-
- solely for engaging in the business of insurance; or
- for further investing any income derived from such business of insurance.
In the legislation, “[t]he term ‘cannabis’ has the meaning given ‘marihuana’ in section 102 of the Controlled Substances Act (21 U.S.C. 802).” “Cannabis-related legitimate business” is defined as follows:
[A] manufacturer, producer, or any person or company that –
(A) engages in any activity described in subparagraph (B) pursuant to a law established by a State or a political subdivision of a State, as determined by such State or political subdivision; and
(B) participates in any business or organized activity that involves handling cannabis or cannabis products, including cultivating, producing, manufacturing, selling, transporting, displaying, dispensing, distributing, or purchasing cannabis or cannabis products.
“Cannabis products” is defined in the CLAIM Act to “mean[] any article which contains cannabis, including an article which is a concentrate, an edible, a tincture, a cannabis-infused product, or a topical.”
Currently, because marijuana remains illegal under federal law, many insurance companies are unwilling to cover cannabis-related businesses. Rep. Velázquez noted the insurers’ fears in a recent press release: “Insurance companies are often times reluctant to provide coverage to cannabis-based businesses, due to discrepancies between federal and state laws.”
As a result, the insurance options available to cannabis-related businesses tend to be more limited than the options available to other businesses in other industries. A tight insurance market can create risk for cannabis-related businesses, potentially reducing the “safety net” protecting them, according to Rep. Velázquez. These businesses, she commented, “are left extremely vulnerable to natural disasters or fires that may destroy all they’ve worked to build.”
“This bill,” Rep. Velázquez continued, is intended to “help entrepreneurs operating in the legal cannabis sector access … the insurance they need to protect their business.”
That said – make no mistake — insurance is in fact currently available to cannabis-related businesses. No cannabis-related business should go uninsured. The options for insurance, though, are definitely limited.
The insurance market could – and likely would – change, however, if the CLAIM Act were to become federal law. Passage of this legislation almost certainly would make insurers – and, more conventional, or “mainstream,” ones at that – more willing to issue insurance policies to cannabis-related businesses. Not only would more insurers likely be willing to write coverage, but higher policy limits likely also would become available to businesses in the cannabis industry.
More options also – according to basic economics and the law of supply and demand – should result in lower premiums for policyholders in this industry.
Clearly, policyholders – as well as insurers – would benefit from passage of the CLAIM Act.
Thus, even if the SAFE Banking Act remains stalled in Congress, there is another path forward – and toward better insurance coverage – for the cannabis industry.
For assistance or more information, please contact Leech Tishman’s Insurance Coverage Group or the Cannabis Industry Group.
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