As the march to legalization slows,
product innovation drives growth
By Joseph S. Harrington, CPCU
Well, it’s happened. Cannabis is no longer on “Schedule I” of the federal government’s list of controlled substances along with highly dangerous drugs like heroin and LSD.
Following an executive order by President Donald Trump in mid-December 2025, cannabis is now listed on “Schedule III” with substances like codeine that pose less risk for abuse or addiction and are used in medical treatments.
Thanks to the reclassification, cannabis researchers can expect more funding and cannabis businesses can enjoy tax benefits they were previously denied. But are possession and use of cannabis legal at the federal level, or at least decriminalized? No and no, even though federal authorities are not actively investigating low-level cannabis offenses.
Individuals possessing cannabis without medical authorization can still be subject to federal prosecution, even in states where recreational cannabis use is legal. (As a Schedule III substance, cannabis possession would be subject to lesser federal sentencing guidelines.)
So, the progression toward legalized use, which seemed inexorable a decade ago, remains stalled, leaving users and providers of cannabis products—and their insurers—dealing in a patchwork legal environment likely to last indefinitely.
Drag on underwriting appetite
“Having cannabis legal in some states but illegal under federal law impacts insurance capacity, pricing, coverage terms, and claims handling for both property and liability risks,” says Lee Woodruff, vice president of the cannabis practice at Jencap, a wholesale broker with a cannabis specialty practice.
“Many admitted carriers avoid cannabis entirely due to its illegal status under federal law,” Woodruff adds. “This shrinks the pool of insurers willing to write P&C coverage, pushing most risks into excess and surplus lines markets. Reinsurance capacity is also limited, with Lloyd’s of London notably not participating in the cannabis market.”
With cannabis coverage concentrated in a relatively small number of insurers, Woodruff finds “tighter underwriting standards, higher rates, more limited coverage provisions, and more protection of the book of business” than for most other classes of business.
“The legal ambiguity doesn’t make the risk uninsurable, but it does mean capacity is more selective,” says Charles Pyfrom, executive vice president of sales and distribution for Starwind Specialty, a program manager and specialty insurance provider that is part of CRC Group.
“Many admitted carriers and reinsurers are still on the sidelines, or participate only in very controlled ways,” Pyfrom adds. “That makes cannabis insurance heavily reliant on the E&S market. You see more manuscript forms, specific exclusions, and very careful drafting of provisions addressing products liability, regulatory violations, and exposure for inhalation.”
Pyfrom notes that, with limited access to banking services, cannabis businesses continue to be heavily reliant on cash transactions. This results in greater exposure to crime and theft than comparable retail enterprises and increases the need for rigorous security and loss control.
Market maturity and growth
Despite the lingering legal ambiguity, “the prospects for cannabis industry growth remain high on a national level,” says Woodruff. “Although some mature market states are seeing sales flatten, growth will be driven by state expansion and market maturity, product innovation, and growing acceptance of cannabis use.”
The initial “green rush” growth driven by the issuance of new cannabis licenses is behind us, according to Pyfrom. Now, he says, growth will come more slowly but steadily as states expand legalized medical use of cannabis to recreational use, and from product innovation and consolidation in the cannabis business.
“Beverages, edibles, concentrates, and other products are expanding the market far beyond consumers of the traditional flower,” Pyfrom says. “Cannabis is showing up in forms that feel familiar to mainstream consumers.”
Regarding consolidation within the business, Pyfrom adds that large, well-capitalized operations backed by private equity firms are “rolling up” smaller operations. “This leads to scalable risks with better controls and more predictable performance that are more insurable,” he says.
The “flip side” to consolidation among buyers leads is heavy pressure on prices and margins for producers, Pyfrom adds. Overall, however, he finds that “underlying demand, product diversity, and regulatory maturation point to a long growth path in the cannabis sector.”
Market softening?
As Pyfrom sees it, the market for insuring slow-but-steady growth in the cannabis business is a “selective” one with “pockets of hardness.” Property coverage is “hard-ish,” he says, with increasing deductibles, tightening terms of coverage, and heightened scrutiny of sprinkler systems, security, and construction, along with more selectivity regarding total insured values and “challenging geographies” (territories).
“Many admitted carriers avoid cannabis entirely due to its illegal status under federal law. This shrinks the pool of insurers willing to write P&C coverage, pushing most risks into excess and
surplus lines markets.”
—Lee Woodruff
Vice President, Cannabis Practice
Jencap
“Blood-alcohol content is a well-established indicator for alcohol impairment. With THC, impairment is more difficult to quantify and prove. That complicates underwriting and claims, especially for auto and employers’ liability
insurance.”
—Charles Pyfrom
Executive Vice President,
Sales and Distribution
Starwind Specialty
Pyfrom finds market conditions slightly more relaxed on the liability side, as general liability claims tend to be stable and not too severe, although underwriters are closely monitoring products liability exposure for direct ingestion (both direct and unintentional) and for claims emerging from the incorporation of cannabis-derived substances into other products, particularly beverages.
For his part, Woodruff believes the market for cannabis coverage has softened over the past two years.
“Rates are generally stable to decreasing, as increased carrier competition is helping to drive down pricing for well-run operations,” he says. “The overall trend is toward more capacity, more insurance carrier options, improved coverage terms, and stable or decreasing pricing.
“The market today looks very different than it did in the early days of legalization,” Woodruff adds.
Beverage infusion
As the progression of states legalizing recreational cannabis slows down, growth in the business comes from the growing number of products containing two substances derived from cannabis:
- “CBD” (cannabidiol), a non-psychoactive substance that relaxes users
- THC (tetrahydrocannabinol), the psychoactive compound that produces the “high” experienced by people who ingest cannabis
Growth in product innovations means growth in liability exposure, and not only for products liability.
“From a liability insurance perspective, cannabis and alcohol share similar impairment related-exposures, particularly for edibles and beverages,” says Woodruff.
“A key difference is regulatory maturity,” he adds. “Liability coverage for alcohol benefits from consistent regulation, case law, and loss data, while cannabis operates under fragmented state regulation with limited historical loss data.”
So far, at least, cannabis use has not caused the number and scale of “catastrophic” losses long known to result from alcohol use, according to Pyfrom, but the historical record is thin and cannabis impairment is more difficult to determine than alcohol impairment.
“Blood-alcohol content is a well-established indicator for alcohol impairment,” he says. “With THC, impairment is more difficult to quantify and prove. That complicates underwriting and claims, especially for auto and employers’ liability insurance.
“While many people instinctively compare cannabis to alcohol, the better framing for underwriting is to treat cannabis as its own exposure class,” Pyfrom notes. “Underwriters don’t assume cannabis is benign; they’re looking at different indicators of frequency and severity.”
Non-cannabis accounts
As cannabis-derived substances are incorporated into more and more non-cannabis products, cannabis-related risk exposures and demand for corresponding insurance are emerging among businesses that are not part of the cannabis “industry.”
“For non-cannabis retailers, cannabis is becoming a material underwriting topic,” says Pyfrom. “When we consider a grocery store, bar, or restaurant account, we now ask questions about cannabis exposure.
“Do you sell THC or CBD products? What percentage of sales do they represent? Are they segregated from other products, ‘age-gated,’ and clearly labeled? Do you have strong supplier agreements regarding indemnification?
“Depending on the answers to those questions, an underwriter may charge additional premium, carve back coverage, or exclude coverage for certain products.”
Pyfrom concludes: “As THC and CBD move into more familiar formats, the exposure doesn’t disappear—it just migrates into new parts of the insurance portfolio, and underwriters have to adjust their questions, forms, and pricing to keep up.”
For more information:
Jencap
jencapgroup.com
Starwind Specialty
starwindins.com
The author
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P&C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.
