What Is the CLAIM Act In Cannabis?

Despite being legal for over half of Americans, cannabis is still a Schedule I substance under the Controlled Substances Act and federal drug laws, and this makes business challenging in many ways, especially in regard to banking services and insurance.

Because federal law still prohibits cannabis, financial institutions, and insurance brokers can refuse to work with legal marijuana businesses. This means a legal cannabis business could be denied basic banking services like bank accounts and insurance coverage — a devastating proposition for cannabis businesses.

Removing the federal prohibition on cannabis would make life easier for many people in the industry — but doing so is complicated by politics and bureaucracy. In the meantime, five senators and two House Representatives from across party lines have come together to introduce the CLAIMs Act, which would break down barriers to getting cannabis insurance for any regulated cannabis business.

The CLAIM Act (also called the CLAIMs Act) stands for Clarifying Law Around Insurance of Marijuana.

It is a cannabis banking bill that was brought forward in May by U.S. Sen. Bob Menendez, D-N.J, a member of the Senate banking committee, in conjunction with Sens. Rand Paul, R-Ky., Jon Tester, D-Mont., Steve Daines, R-Mont., and Jeff Merkley, D-Ore.

The CLAIMs Act was also brought forward in April in the House by Rep. Nydia M. Velázquez (D-NY) and Rep. Warren Davidson (R-OH).

In summary, the CLAIMs Act has five main points around banking services and cannabis insurance that expand protections for insurance companies that offer policies to state-legal cannabis businesses.

The Act would protect insurers from being punished for, or dissuaded from, providing insurance to the cannabis industry, including terminating or limiting the policies an insurer can offer. It would also provide protections against insurers being “incentivized” not to provide cannabis insurance, or cancel an existing cannabis policy simply because it is for a cannabis-related business.

Importantly, the CLAIMS Act would keep the federal government from “taking any adverse or corrective supervisory action” on existing insurance policies for cannabis business owners and limit employees of insurers from liability for doing their job providing insurance policies to cannabis-related businesses.

If it seems incredible that the federal government can prohibit insurance companies from offering cannabis insurance policies, that’s because it is. The passage of the CLAIM Act would immediately remove the barriers posed by current federal law and increase access to insurance services and financial institutions for cannabis businesses across the country. Agents and brokers who previously avoided the industry due to uncertainty, fear, or confusion, can confidently provide important policies that protect employees and business owners.

Because that’s what insurance policies do — they offer a safety net of protection in case an employee gets hurt, a break-in happens, or a lawsuit is filed. Having asset protections in place encourages businesses to grow and expand their operations. The less liability they have, the more they can invest in growth. Secure and fair enforcement of insurance regulations has the power to shift the cannabis industry for the better.

But crucially, the CLAIMs Act would normalize cannabis insurance. A medical or recreational market exists in 38 states and Washington DC. Over half of Americans live where recreational or medical marijuana is legal, and yet these cannabis businesses can be denied basic business protections simply for working with or adjacent to the plant.

Insurance policies are an important part of setting a business up for long-term success. How can owners be expected to grow if all of their personal assets and funds are tied up? Removing the threat of federal prosecution simply for issuing cannabis insurance policies would go a long way toward removing the many barriers cannabis entrepreneurs face.

The CLAIMs Act would also help insurance providers. The cannabis market is still a relatively new and untapped insurance market. The threat of federal prosecution makes many businesses wary to enter, but removing that would open up new avenues of potential profit.

Passage of the CLAIM Act would remove the fear and confusion around cannabis insurance, and promise secure and fair enforcement of the legal cannabis industry. It would also reduce the risk for insurers and financial institutions to enter the cannabis insurance market. Providing cannabis insurance policies provides new avenues of potential profit and creates diversity in portfolio investment — a win/ win in anyone’s books.

The cannabis industry is growing like a weed year over year, and ancillary businesses like insurance and financial institutions can still take advantage of that.

This is not the first time that the CLAIMs Act has been before Congress or the House of Representatives. It was introduced as a provision in the SAFE Banking Act, which has bounced on and off the Congressional floor for years.

The SAFE Banking Act is a more famous cannabis banking bill that was also re-introduced in 2023. If it succeeds, it could bring the CLAIMs Act along with it. But if the SAFE Banking Act fails again, the future of the CLAIM Act is uncertain.

There are also several other pieces of potential cannabis legislation before Congress right now, including the Harnessing Opportunity by Pursuing Expungement (HOPE) Act, which would create federal grants to fund expunging state-level cannabis-related offenses, and the Small Business Tax Equity Act, which would exempt legal cannabis sales from the tax burden of 280E.

2023 has the potential to be an exciting year in cannabis if the federal government moves forward with one or all of these. If all the Acts pass, the cannabis industry could look completely different entering 2024, opening the door for cannabis insurance and other financial services even without federal legalization. But, cannabis banking reform has not historically moved through Congress or the House successfully, and some experienced cannabis business owners are wary of being set up to be let down yet again.

Whether the CLAIM Act is passed or dropped, cannabis businesses remain in need of comprehensive insurance policies. And if you’re reading this, you don’t have to go far to find them.

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by emailing [email protected] or calling 646-854-1093 for a customized letter of commitment or learning more about your cannabis insurance options.