Federal marijuana ban deters insurers as U.S. states legalize

October 19, 2016

By Antonita Madonna, Regulatory Intelligence

The legal use of marijuana could increase substantially by the end of the year as several U.S. states, including California, vote on its use for recreational or medical purposes. This could open new markets for insurance coverage in areas including property and casualty and health. However, insurers, principally regulated by the states, are unlikely to step in while federal regulations still criminalize use of the drug. 


More than 25 states and the District of Columbia have legalized the use of marijuana for medical or recreational purposes. It remains banned under Schedule I of the Controlled Substance Act at the federal level, “with no currently accepted medical use and a high potential for abuse.” 

Insurers have shied away from explicitly stating whether coverage benefits are applicable to the marijuana-products industry and even denied coverage to individuals and businesses, despite more supportive regulation at the state level and even state requests for industry clarity. 

“Either legalization or confirmation that state programs will be left alone at the federal level, would allow insurers to understand that they can take this on as another market,” says Manny Munson-Regala, owner and principal at Root Cause Consulting, which specializes in health policy, insurance and medical marijuana issues. “Then they can move on to issues like underwriting and rating, without having to worry about whether a particular regulator is going to look at them sideways for providing for the market,” he added. 

Munson-Regala, a former assistant commissioner in the Minnesota Department of Health, had discussed his views before industry representatives at a September meeting of the Association of Insurance Compliance Professionals.

The Republican and Democratic presidential nominees, Donald Trump and Hillary Clinton, have indicated support for legalizing medical marijuana but not provided details on when or how they plan to do so. However, Clinton has made a statement supporting reclassifying marijuana to Schedule II from Schedule I, to facilitate the use of marijuana for medical purposes and foster research. She has also welcomed a state role as “laboratories of democracy” in the future of recreational-pot legalization.

Currently, marijuana is bundled with other drugs such as heroin, LSD, ecstasy and peyote in Schedule I. 

The legal marijuana market is expected to grow at a compounded annual growth rate of 29 percent from now until 2020, according to a report by Arcview Market Research and New Frontier Data. Data shows the industry is projected to rake in revenue of as much as $20.6 billion by 2020, in an almost equal split between medical and adult use, from $5.9 billion in revenue in 2015 when adult use comprised of only $1.2 billion of the total revenue.

However, the absence of insurers in the marketplace could act as a barrier to businesses, labor and scientific researchers aiming to participate in the industry. For example, health insurances policies do not currently cover medical marijuana. Crop cultivators remain at risk of sustaining business losses from damage to the crop and workers in the marijuana industry are unsure of their insurance coverage benefits for health or workers compensation, even if they do not consume the substance. 

Marijuana businesses have experienced similar obstacles obtaining services from banks, which are subject to federal laws against the handling of proceeds from illegal activities. 

States lead

This November, nine states will hold ballot initiatives to approve the use of marijuana for medical or adult-recreational purposes. While California, Arizona, Nevada, Massachusetts and Maine will vote on recreational use, Florida, Montana, North Dakota, and Arkansas will decide on medical marijuana. 

A majority of these states are likely to vote in favor of the law, polls show, but California alone could contribute to a huge spike in growth if the substance is legalized in the state. 

The market for legal cannabis in California currently represents about 38 percent of the total U.S. market by revenue in 2016, according to the data from Arcview Market Research and New Frontier Data. In 2020, revenue in the California market is projected to grow to $6.45 billion, with adult use accounting for about $4 billion of total projected revenue.

States such as Oregon, which legalized the use of medical and recreational marijuana last year, have mandated that insurers clearly specify their stance and extent on marijuana coverage in their disclosure agreements, to avoid losses and legal disputes from misunderstandings over the terms and conditions of an insurance policy. 

More states are expected to emulate this model to encourage more transparency when they adopt marijuana regulations for their own jurisdiction in the coming years. 

More state coordination would be needed, Munson-Regala said. “The concept of interstate compacts is one that states should consider, for more consistent regulations on medical use among adjoining states,” he said. “If you allow patients to access products from multiple jurisdictions, there’ll be a better chance that they find the relevant medical formulation while having some kind of uniformity in safety, quality and labeling.”

It would also unleash the power of competition, he added. 

Regulators and researchers have urged the insurance industry to become better informed about marijuana, to overcome resistance to providing coverage. Munson-Regala also noted that medical marijuana could be cheaper for health insurers to cover than prescription opioids, and carry fewer health risks.

Antonita Madonna is a correspondent for Thomson Reuters Regulatory Intelligence, based in New York.)

(This article was produced by Thomson Reuters Regulatory Intelligence and initially posted on Oct. 13. Regulatory Intelligence provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Regulatory Intelligence compliance news on Twitter: @thomsonreuters)

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