California's Cannabis Insurance Field of Dreams
If you build it, they will come. At least that is what the California lawmakers examining the insurance needs of the state's burgeoning cannabis industry are hoping. In multiple moves over recent weeks, officials have made clear their expectation that insurers begin treating the industry as they do any other legitimate line of business - whether or not the insurers are ready to do so. The Bureau of Medical Cannabis Regulation (BMCR) recently published its proposed licensing regulations for medical cannabis. Section 5108 of those proposed regulations set forth insurance requirements that the BMCR seeks to impose on all medical marijuana distributors. The penalties for non-compliance are to be harsh: No Insurance, no license. The proposed requirements sensibly mandate that all licensed distributors carry at least $1 million in general liability coverage (while the BCMR regulates medical distributors, California ultimately wants all cannabis businesses to carry at least a $1 million CGL policy). Distributors, however, would be required to purchase this insurance "from an insurance company authorized to do business in California by the Secretary of State." This "admitted carrier requirement" would cut out surplus lines carriers, which currently underwrite the vast majority of cannabis industry insurance policies due to the dearth of admitted carriers willing to brave the cannabis market. Admitted carries are required to To be sure, it is far from clear that admitted carriers currently have any appetite for insuring the entire California cannabis industry. While some admitted carriers have cannabis product offerings, including CGL policies, these carriers have only dipped their toe in the water. The BMCR regulations would require that at least one such carrier jump in head first. Recognizing that, Insurance Commissioner Dave Jones has set out to educate major carriers about the cannabis industry and bring them into the fold. Jones' efforts are similar to the efforts that California Treasurer John Chiang has undertaken to explore ways to increase the cannabis industry's access to traditional financial services like bank accounts. Taken in combination, these efforts signal a deep recognition by the State, that lack of access to standard business infrastructure tools, more than anything else, currently presents the industry's most significant road block. Because California is not in the business of creating new road blocks, the final BCMR regulations will almost certainly eliminate the "admitted carrier requirement." The supply is simply not yet available to satisfy the demand that such a requirement would create, leaving many distributors unable to obtain licensure. Equally clear, however, is the fact that California will continue to push the envelope with those in a position to make life incrementally easier for an industry projected to push $7 billion in California alone by 2020.