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Lloyd’s of London okays underwriters to insure Canadian cannabis industry

By Laura Kuhl
Sep 04, 2018

Commercial cannabis in Canada took another step towards legitimacy last week with an announcement that insurance firm Lloyd’s of London will allow its syndicate members to underwrite the legal marijuana industry come October 17. According to a story in Reuters, notice was sent out to the company’s 80-plus member firms approving them to insure cannabis firms in Canada provided those businesses follow both local and international laws.

Lloyd’s has taken the proper steps to ensure that servicing the cannabis industry will not breach the UK Proceeds of Crime Act, a parliamentary crime bill that gives investigative powers permission to confiscate, freeze or retain accounts, money, and property of national and international criminals.

A spokesperson from the insurance firm told Reuters by email that Lloyd’s “does not intend to prohibit syndicates...from underwriting cannabis-related business in Canada, provided that syndicates themselves ensure all of their activities meet local and international laws.”

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Earlier this month Hub International Limited made a similar announcement regarding plans to offer insurance for cannabis-related businesses in both Canada and the United States. Hub International is in Chicago, where medical marijuana is legal. The company provides liability and crop insurance, crisis coverage against cyber crimes, and site security assessments, among other customizable business insurance solutions.

Interestingly, the Rohrabacher-Farr amendment protects Hub against federal action only as long as Hub insures cannabis companies that follow the individual state marijuana laws where they’re based. If any one company fails to meet these requirements, Hub could be held responsible, a risk most banks are not willing to make.

Limited options for liability in the cannabis industry

The National Association of Insurance Commissioners noted that the 2014 Rohrabacher-Farr amendment prohibits the Department of Justice from spending federal funds to interfere in states where medical cannabis is legal. Passed as part of an omnibus bill on spending, Congress must renew the amendment every fiscal year. Even in countries like Canada, where cannabis is set to become legal, the insurance situation is still murky.

Lloyd’s announcement comes a few years after the insurer pulled out of the American cannabis market. With US law as it stands, cannabis-related businesses could be at risk for money laundering charges on top of federal drug charges, which is too high of a risk apparently. Most agree the law puts American cannabis businesses behind Canada regarding growth.

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“Currently, marijuana is listed as a Schedule I drug under US federal law, which means that it is not legal for sale,” Lloyd’s of London told the Insurance Journal at the time. “In addition, cash generated from the sale of marijuana may implicate federal Anti-Money Laundering laws. Nevertheless, a number of states have passed laws that permit the sale of marijuana for medicinal purposes and additionally a smaller number allow its sale for recreational purposes."

The Lloyd’s spokesperson continued: “Based upon a thorough review of all positions, unless and until the sale of either medicinal or recreational marijuana is formally recognized by the Federal government as legal (as opposed to subject to non-enforcement directives), Lloyd’s has asked that underwriters should not insure such operations in any form (including crop, property, or liability cover for those who grow, distribute or sell any form of marijuana or cover for the provision of banking or related services to these operations) in the United States.”


Courtesy New Frontier Data

An issue for more than insurance companies

Outdated federal laws aside, individual states are working their best to make strides in the industry. The Arcview Group predicts the potential of the American cannabis market to be $11 billion by years’ end. The US market grew over thirty percent last year, which could result in nearly half a million new jobs across the country despite federal regulations.

Arcview’s report, released in June, emphasized the growth potential of American cannabis. But it points out that the U.S. market will shrink to 73 percent of the world market. Right now, America represents 90 percent of the global cannabis market.

“The end of marijuana prohibition is in sight and what that means for this market cannot be overstated,” said Troy Dayton, CEO of the Arcview Group in a statement. “There are billions of dollars in institutional capital chomping at the bit to take advantage of this shift, but so far haven’t found a major way in. This leaves a limited window for businesses to get a foothold and build value for liquidity events that might come sooner than any of us thought possible just a few months ago.”

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While the insurance market struggles, American marijuana banking is seeing a slow and steady increase. FinCEN analyzed last year’s banking trends and released an update regarding marijuana banking services in the United States. Between 2014 and 2017, there was a steady increase in banks and credit unions servicing cannabis companies.

Interestingly, out of the over 39,000 Suspicious Activity Reports filed by these banks in the past three years, 28,000 of them were coined “marijuana limited.” As defined by the report, “marijuana limited” means that these cannabis-related businesses “do not raise any red flags as defined in the Cole Memo,” meaning that banks may continue to serve them because they are compliant with state laws.

If state and federal lawmakers could find some common ground, the number of reports could be cut in half. It’s just one example of how federal cannabis prohibition is costing the American cannabis industry.

“Uruguay and Canada are leading the way on adult-use legalization, and Germany broke barriers in 2017 on medical-use availability. This means worldwide spending on legal cannabis should hit $32 billion by 2022,” said Tom Adams, Editor-in-Chief at Arcview Market Research and Managing Director of BDS Analytics’ Industry Intelligence Division in a statement.

As more countries legalize cannabis and the global market expands, federal prohibition may cost the United States cannabis industry their chance to seize the market.

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