High Stakes: Why Cannabis Businesses Need Insurance This 4/20
By Michael Giusti
As we near the 30th anniversary of California legalizing medical marijuana, many things have changed in the industry – not the least of which being the ready availability of insurance policies for every aspect of the cannabis industry.
From the point the cannabis seed is planted in the ground to the point that the THC is consumed, there are insurance policies available to protect the industry that has grown up around medical and recreational marijuana.
And the insurance implications don’t end on the business side. Marijuana has found its way into discussions on the consumer side of insurance as well, whether that is with auto, health, life, or even homeowners policies.
And even in states that haven’t legalized marijuana, hemp-derived cannabinoids have extended the cannabis insurance question into nearly every corner of the country.
Today, 47 states have legalized some form of recreational or medical marijuana, with 24 states, two territories and the District of Columbia legalizing adult recreational use.
In the 2024 election, Nebraska approved two measures that will allow the state to create a system for medical marijuana, though that faces legal challenges.
Florida, North Dakota, and South Dakota voters rejected recreational marijuana in 2024. And marijuana remains illegal under federal law.
There has been a widely discussed movement to reschedule marijuana to a schedule III drug, similar to steroids and narcotic cough syrup, though that has seemed to have stalled in arcane Congressional procedures.
Regardless of its legal status, consumers and insurers across the country continue to grapple with the issues surrounding marijuana. This 2025 state of cannabis and insurance guide aims to look at all the ways the intoxicating plant intersect with the insurance industry and its consumers.
Business Implications
According to David Rahn, vice president of account services for S2S Insurance Specialists — which stands for seed to sale by the way — insurance policies are very much available for every aspect of the marijuana business.
“Everywhere from cultivation, distribution, intrastate delivery, cargo, testing, retail — that’s why we say it’s seed to sale,” Rahn said.
For the most part, insurance coverage for marijuana businesses is being written on the surplus, or non-admitted, market. And policies and coverage rules vary greatly from state to state.
Businesses shopping for policies would do well to work with local brokers who specialize in marijuana coverage because many of those policies can come with hidden pitfalls that could slip past an inexperienced agent and leave a business exposed. These are things like exclusions, coverage limitations, or schedules that aren’t immediately obvious.
Still, virtually every kind of business insurance is available to cannabis operators, including:
- Auto
- Cargo
- Commercial General Liability
- Commercial Property / Business Interruption / Crime
- Crop
- Cyber
- Directors and Officers (D&O)
- Employment Practices
- On-Premises Consumption
- Products Liability
- Professional / Errors and Omissions
- Recall Coverage
- Workers’ Compensation
According to Rahn, that on-premises consumption piece is one of the most relevant additions to the policy book that he has been dealing with these days.
“If a patron runs a consumption lounge and serves ready-to-drink beverages, we can have coverage for that,” Rahn said. “I have bars exclusively selling hemp beverages I am writing policies for.”
The biggest cost drivers across cannabis insurance lines tends to be theft, fire, and smoke — with product liability remaining a major concern.
For dispensaries, the risk profile closely mirrors that of high-value retail operations like jewelry stores. That means core coverages typically include business owner’s policies, premises coverage, and commercial property insurance.
Crime coverage takes on special importance here.
Insurers often require dispensaries to follow strict protocols, including keeping limited stock on the sales floor, locking the rest in secure vaults, maintaining constant surveillance, and installing “mouse trap” entry systems — entry chambers that feature pairs of doors that have to be individually released by a clerk.
Beyond theft, though, fire and even sewage backup account for many of the claims that dispensaries face.
On the manufacturing side, companies producing flower, edibles, and other consumer goods need more than just standard business insurance. Product liability and product recall policies are becoming must-haves.
The threat of recalls haunts manufacturers, particularly when lab tests reveal THC levels don’t match what was advertised.
As more edibles and infused products enter the market, manufacturers can expect product liability and recall costs to continue rising.
Executive coverage, particularly directors and officers insurance, remains one of the tougher policies in the space. Because cannabis remains a relatively young industry with limited historical data, insurers struggle to price directors and officers policies — making them hard to find and difficult to afford.
For ancillary businesses – so-called ‘belt-and-suspenders’ partners, such as accountants, marketing firms, and lawyers who don’t handle cannabis directly — the path to insurance has been smoother.
In some states specific licenses have been set aside for minority or under-represented groups. Although these so-called social equity licensees stand out for who can hold them, industry observers say their insurance implications are the same as any other license holder.
Across all the business lines, policy pricing has been relatively stable in most markets, though like everything in the economy, costs have been creeping up from year to year, especially in product liability.
Hemp and Novel Cannabinoids
While marijuana is federally illegal, because of a loophole written into the 2018 farm bill the same prohibition doesn’t extend to its botanical cousin, hemp. While hemp is largely the same plant as marijuana, it has a much lower THC concentration – generally lower than 0.3% THC by dry weight.
Many states don’t have laws specifically outlawing hemp-derived THC, so products with it have found their ways to store shelves, even in states that otherwise outlaw marijuana. These can take the form of edibles or drinks. There are breweries making THC beverages.
Some of those products are made by concentrating the naturally occurring THC. Some are made by using hemp-derived cannabinoids or isomers – so-called novel cannabinoids.
Some states have begun cracking down on these loopholes. Some are putting limits on concentrations or on total milligrams per container. Other states are outlawing them outright.
From an insurance perspective novel hemp-derived cannabinoids have become somewhat problematic.
“When you are just writing stand-alone THC and CBD coverage, the policies are fairly straight forward,” Rahn said. “But when you get to delta 8, delta 10, THCP – there are so many, the list goes on. Depending on which cannabinoid it is, that is a variable that can really drive up the price.”
These policies are especially difficult when it comes to product liability.
“Underwriters are writing a lot of exclusions for novel cannabinoids,” Rahn said. “There’s just a lot of demand for that, and it has really driven up the price.”
Consumer Insurance
Marijuana’s intersection with insurance isn’t limited to business coverage. Personal lines of insurance, including health, homeowners, auto, and life, are also impacted in ways that policyholders should be aware of.
When it comes to health insurance, the big question is whether medical marijuana is covered. For now, the answer is typically no. Because marijuana remains federally illegal, there is no federal mandate — including under the Affordable Care Act requiring insurers to cover medical marijuana. No state currently mandates coverage either, although some states allow it to be covered but don’t mandate that private insurers cover it.
Insurers typically say the sticking point is the lack of large-scale, peer-reviewed studies showing marijuana’s effectiveness as a medical treatment that would warrant coverage.
The Affordable Care Act does weigh in on marijuana use in another way — health insurance premiums. While smoking tobacco can increase a person’s premiums, marijuana use is not treated the same way. The Affordable Care Act limits the number of factors insurers can consider when setting premiums, and marijuana use isn’t one of them.
In the homeowners insurance world, marijuana raises a number of questions, including whether damage caused by growing cannabis is covered, if theft of a plant is reimbursable, and how insurers handle damage to the plants themselves.
Generally, damage resulting from marijuana cultivation is tricky. Many policies exclude common grow-related problems like mildew. However, some accidental damage, such as fires sparked by overloaded circuits, or water damage from leaking hydroponics, may be covered under standard terms.
Theft of marijuana plants has been tested in court, and rulings vary by state. In some places, judges have sided with insurers, ruling that because marijuana remains illegal federally, insurers don’t have to pay out. But other states have ruled the opposite — requiring coverage if marijuana is legal under state law.
As for damaged plants, some policies provide limited coverage under provisions for trees, plants, and shrubs that can kick in after a claimed peril. That protection typically maxes out at around 5% of the total dwelling coverage — with individual plant coverage often capped at $500 or less.
Selling homegrown marijuana, however, is where most homeowners could run into serious trouble. Besides being illegal, turning a grow operation into a business would violate commercial-use exclusions in homeowners policies. That means if the operation generates revenue, coverage could be denied unless the homeowner secures appropriate commercial insurance.
With auto insurance, the biggest issue is driving under the influence. DUI laws generally don’t distinguish between substances. Whether a driver is intoxicated from alcohol or marijuana, a DUI will carry the same premium consequences.
One challenge with marijuana enforcement is testing. Unlike alcohol, which can be measured with a breathalyzer, marijuana intoxication is harder to quantify. THC can linger in the body for days or even weeks, even though impairment usually lasts just a few hours. This has left law enforcement without a reliable, on-the-spot field test.
Life insurance underwriting around marijuana use varies widely between carriers. Some companies overlook marijuana use entirely, while others consider it a disqualifying factor.
Most insurers fall somewhere in the middle. Heavy users may face higher premiums than moderate users, and moderate users will likely pay more than those who abstain altogether.
How marijuana is consumed also matters. Many underwriters view smoke — whether tobacco or cannabis — as a red flag. That means someone who smokes or vapes marijuana might see higher rates compared to those who use edibles, tinctures, or other non-smoked forms.
But the most important thing to remember when applying for life insurance is honesty. Lying on an application is considered insurance fraud in all 50 states. If an applicant falsely denies using marijuana and later dies — especially within the policy’s contestability period — the insurer could deny the payout.
The Banking Question
Few aspects of federal prohibition affect the marijuana industry more directly than the issue of banking. Since it is federally illegal, national banks and credit card processors are still steering clear of most of the marijuana industry. The result is that the industry has been forced to operate largely in cash or by using creative workarounds.
Some have partnered with small, local banks that don’t operate across state lines, helping them avoid federal scrutiny. Others have adopted debit-based systems and so-called “cashless ATM” setups that allow customers to make purchases electronically, even if credit card networks are off the table.
That reliance on cash has made marijuana businesses prime targets for robbery and has complicated large financial transactions across the board.
Insurance payments have also been affected by the lack of banking access. With no traditional payment structures in place, businesses often have to prepay their insurance premiums in full. That can be a major strain — especially for larger multi-state operations that may need to come up with hundreds of thousands of dollars at once.
As an alternative, some businesses turn to premium financing, but those often come with high interest rates that can add significantly to the overall cost, though interest rates on that financing has come down in cost recently.
On Capitol Hill, some lawmakers have pushed for a solution. The Secure and Fair Enforcement Banking Act — better known as the SAFE Banking Act — has been introduced multiple times. It has also stalled multiple times.
“If you asked me seven years ago, I would have said that a fix at the federal level was likely seven years away. Today, I’d probably say the same thing,” Rahn said.
Conclusion
As marijuana continues to navigate a patchwork of state laws, federal restrictions, and evolving public attitudes, its relationship with insurance continues to grow.
From cultivation to consumption, and from business to personal coverage, insurance has had to adapt — often in creative and state-specific ways.
Whether it’s a dispensary securing crime coverage, a manufacturer protecting against product recalls, or a marijuana smoker buying a life insurance policy, the cannabis conversation is now firmly rooted in the insurance mainstream.
Michael Giusti, MBA, is Senior Writer and Analyst for InsuranceQuotes.com
