Cannabis Insurance Market Size: Where Are We Heading in 2024?

The size of the insurance market is heavily influenced by the cannabis industry. The current market has grown overall from 2022 to 2023 — but it hasn’t been a straight path forward.

2023 has been an indisputable challenging year in business for many, but there is hope heading into 2024. Capital investment was down, mergers and acquisitions were few, and far between, and smaller than in previous years, and any movement for cannabis descheduling or legalization at the federal level went stagnant.

But hope persists. Medical and recreational cannabis sales in Missouri surpassed $1 billion, an incredible total having only legalized recreational cannabis in November 2022. The rec market in Maryland opened in July and three states legalized new rec programs: Delaware, Minnesota, and Ohio. Kentucky was the only state to create a new medical program this year.

As new states legalize cannabis, be it medically or recreationally, the insurance market for cannabis expands. Insurance is a necessary part of doing business in any legal market and is necessary even during times of turbulence and uncertainty.

The start of 2023 saw increased access to cannabis insurance policies with more carriers offering cannabis insurance and lower premiums on policies such as Directors and Officers insurance, a trend that has continued, despite the decidedly hard insurance market.

The cannabis industry is a unique one to navigate in insurance as carriers must accommodate unique risks. It shares common business risks with the CGP market, overlaps with some pharmaceutical risks, and has some wholly individual challenges like federal prohibition.

High-Risk Activities

The cannabis industry demands the performance of high-risk activities. Cultivation facilities house thousands of dollars worth of products, transportation companies face the open road while loaded with products, and dispensaries move large amounts of cash daily. These risks aren’t limited to a few smaller businesses — they spread across the industry.

This is similar to the risks faced in the oil and gas industries. Insurers have created specialized risk assessment methodologies to deal with these risks like property insurance or theft policies, and they could easily be applied to the cannabis industry as well.

Regulatory Uncertainty

The constantly evolving regulatory environment in cannabis is similar to that of the pharmaceutical industry. The complexity of regulations, the speed at which they change, and the penalties for being out of compliance are mirror images, giving insurers in both spaces equal challenges.

Complex Supply Chains

The cannabis industry has a complex, segmented supply chain, consisting of cultivation, processing, distribution, and retail. While this specific segmentation is unique to cannabis, it is similar to that of the food and beverage industries, where insurers must assess and manage the risks associated with multiple stages of production and distribution.

Product Liability and Recall

A product recall is as devastating in cannabis as it is in the pharmaceutical or food and bev industries. Insurers must carefully assess potential risks associated with cannabis products and develop appropriate product liability insurance options to protect both producers and consumers.

What can business owners expect from the 2024 cannabis market? It’s impossible to say for certain, given the volatility of this market, but you can bet on the continuation of a few emerging trends.

Price Compression and Market Saturation in Mature Markets

West Coast cannabis markets are the oldest in the country, and indeed some of the oldest cannabis markets in the world. Here, recreational markets are saturated with brands and similar products, making differentiation and consumer loyalty paramount.

These markets, most notably California, have also experienced price compression, with the value of flower falling. High production volume paired with low prices creates a squeeze for cultivators and processors, and savvy cannabis consumers are considering more than just the THC percentage. Innovative brands will be forced to pivot and get creative to survive this squeeze.

Customized Insurance, Backed by Data

There’s a two-fold trend emerging in cannabis: customized insurance products driven by data-backed risk management plans. As the use of artificial intelligence and machine learning continues to grow, more insurance agencies are taking advantage of its predictive powers to expand the powers of underwriters, creating actuary tables and predicting risk.

This approach creates a more streamlined insurance process for cannabis business owners, more accurate pricing models for policies, and furthers collaboration between cannabis insurance agencies and canna-businesses. Expect more carriers will turn to machine learning in the years to come.

Cyber and Supply Chain Security

Cyber liability is a hot topic in business right now.

Cybersecurity and supply chain security go hand in hand for cannabis companies. Supply chain security is paramount in cannabis, because of the importance of product quality and the continued federal prohibition. The supply chain of THC products is highly regulated and monitored, and remaining in compliance is important for your bottom line and for customer trust.

But much of the security measures along the supply chain are digital, opening the door to cyber risk. Cyber attacks have been growing for the past several years, and are expected to do so in 2024 as well. Embracing cybersecurity best practices and having the proper insurance policies can help minimize cyber liability risk.

Increased Regulatory Oversight

A common pain point in the cannabis industry is the number of regulations and the challenges of staying compliant. Unfortunately, this isn’t going anywhere in 2024. Cannabis businesses will continue to have to juggle the task of regulatory compliance or risk being hit with a large fine or worse. Having a dedicated regulatory member of your team (or bringing on an outside expert), regular site audits, and can help your business succeed with compliance.

Insurance isn’t the flashiest or most glamorous side of the cannabis industry — but it is vital for every business. Every canna-business owner should stay informed on new insurance services to ensure your coverage net is comprehensive and keep up to date on relevant state and federal cannabis laws. Understanding new technology in the insurance space can help you save money long-term.

Yet, all of this demands time and attention, which is why a partner in cannabis insurance who understands the industry can be beneficial. If you have insurance providers who can’t keep up in the cannabis space, consider using a dedicated cannabis insurance agency.

Legislation has a major impact on the cannabis insurance space. Regulations regularly shift at the state level, and every canna-business owner needs to keep their finger on the pulse of the market of the state (or multiple states) that you’re in.

Changes in regulation at the federal level would have an instant and massive impact on cannabis companies. Should the SAFE Act or CLAIM Act pass, or if the re-scheduling movement succeeds, every cannabis business owner will need to evaluate their business plan and risk management plan with a new lens.

As the new year unfolds, now is the time to assess your business and risk management plan. 2024 promises to be another exciting year in cannabis, and you need comprehensive coverage to set your business up for long-term success.

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.