Until rather recently, “legal marijuana” was an oxymoron. Like it or not, pot is going mainstream with voters either approving it for medical use or legalizing it outright (at least on a state level). When insurance companies contemplate offering liability coverage specific to marijuana, it begs the question:
Is pot losing its counter-culture rebel cred?
What does this burgeoning industry have in store for the financial sector?
Pot, marijuana, weed, grass, call it what you will; it all comes from the cannabis sativa plant. The main chemical in pot that causes a “high” is delta-9-tetrahydrocannabinol, or THC. With recreational marijuana use now legal in Colorado and Washington, plus all the states that allow or are contemplating medical marijuana use, it is becoming quite mainstream.
Marijuana in History
According to the Drug Enforcement Administration, or DEA, records of pot use date back to China, over 4,500 years ago. Historical documents also indicate the ancient Greeks and Romans used marijuana, like many other plants, for medicinal purposes. The marijuana plant is not used solely for getting high, however. Over time, it was used to make clothing, ropes and paper. Today, many retailers carry lotions, cereals and drinks made from hemp, the fibrous portion of marijuana plants.
Cannabis sativa is classified as a Class I drug. In the early 1900s, states began passing anti-marijuana laws. The Controlled Substances Act of 1970 classified cannabis as a Schedule I drug, “…having a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use of the drug or other substance under medical supervision.” However, several studies refute the danger of marijuana as a medicine and question its addictiveness.
The Legalization of Pot
Why would anyone need marijuana insurance? In the United States, 20 states and the District of Columbia have legalized medical marijuana use. In 2012, Colorado voters passed Amendment 64, a constitutional amendment legalizing recreational use of marijuana. Sales of pot are legal only if:
- It is sold by a licensed marijuana purveyor.
- It is sold to people age 21 and older.
- It is only smoked in a private residence (using it on the street, in the park, etc. is still a big no-no).
The state of Washington also legalized recreational marijuana use by passing Initiative 502. The legislation includes licensing regulations for those working in the pot industry, namely growers, processors and sellers.
The law also provides:
- Growers and processers are barred from any financial investment in sellers’ businesses.
- Licenses must be renewed annually.
- Selling to minors is illegal.
- At any one time, adults may posses a maximum of:
- 1 ounce of useable marijuana
- 16 ounces of any solid marijuana-infused items
- 72 ounces of marijuana-infused liquids
However, on the federal level, there is still no such thing as legal marijuana, which leaves many legal and financial issues in limbo.
Selling Marijuana: Insurance Coverage for a New Breed of Retailers
In Colorado, because selling marijuana is now a legal business that requires a store, stock and workers, there is now a need for marijuana insurance. Colorado pot sellers need to protect themselves from the same liabilities as any other merchant.
Pot was once a mainstay of counterculture, but it doesn’t get much more mainstream than buying insurance coverage. Shop owners of any kind must obtain commercial general liability insurance coverage because they have the same risks as other retailers, including:
- Theft of product
- Damage or destruction of property due to fire, vandalism, etc.
- Loss of income and increased expenses due to an event
- Product liability issues
- Lawsuits due to slip-and-fall accidents or other injuries sustained in the premises
It is not just shop owners who want marijuana insurance. Washington and California growers want insurance to cover buildings, crop damage and liability. The one thing a grower’s insurance cannot cover is damage from a DEA raid. This is because pot is still illegal and still considered a controlled substance by the federal government (although some policies cover losses due to state or local police raids). Although the federal government has generally eschewed raids in states where medical marijuana is legal, the possibility of raids still exists. For instance, the Denver Post reported earlier this year that the DEA raided a medical marijuana producer and retailer due to alleged connections with certain drug cartels, although only one person (not the business owner) was arrested in connection with the raids.
The Marijuana Industry as an Investment Vehicle
There are plenty of people who want to get in on the action of legalized pot businesses because, make no mistake, it’s a big business that will only get bigger. Despite strict rules about who can become a licensed pot seller in Colorado, investors do not seem to be held to the same level of scrutiny. Many “traditional” investors wonder if there is a possibility that investing in the pot industry could generate significant legal income.
In terms of stock investments, the general consensus seems to be “no.” Michael Douglass and David Williamson, two health care analysts at Motley Fool, strongly recommended against buying stock in publicly traded marijuana companies because many are losing money and there have been some SEC violations associated with the stocks. They did, however, make it clear that the problems may just be an issue of a very new market sector with many start-up businesses that are learning as they go. However, Yahoo’s Daily Ticker discussed how the marijuana business, especially medical marijuana production, could become a great investment in the future, although there are presently very few marijuana company stocks traded on Wall Street.
However, there are indicators that the marijuana industry will develop into a very viable investment option. The federal government is slowly softening its stance on pot, including reducing DEA raids and allowing pot business profits to be legally deposited into banks, and states that legalized pot will likely generate considerable revenue from taxes and licensing fees. Pot producers and purveyors now have good reason to obtain marijuana insurance coverage to protect their businesses.