When the current Coronavirus pandemic finally ends, we’ll have seen that no industry was left unimpacted by its path of disruption and change. This includes the ever-expanding legal cannabis insurance industry in the United States. Below are what I believe to be six impacts of COVID-19 on the cannabis insurance market.
The good news for the cannabis industry is that it has been deemed an essential service by numerous states; similar to grocery stores, pet stores, and beverage centers, among other businesses. As such, the cannabis industry can continue to grow, sell, and distribute their product in a similar manner as before. And analogous to the large increases beer, wine, and alcohol sales, I would anticipate that the cannabis market will continue to see booming demand during the pandemic.
The recent trend of capital markets drying up for the cannabis industry will only be exacerbated by COVID-19. Additionally, coronavirus assistance through the CARES Act and other federal programs is unavailable to the cannabis industry. This will put further pressure on businesses that were not immediately profitable. With unemployment recipients receiving an additional $600 in unemployment benefits through the CARES Act, many of these smaller businesses will find it difficult to hire new employees. They may need to offer higher wages to entice furloughed individuals to reenter the workforce, further putting a squeeze on smaller businesses. It’s likely that larger companies will buy out some of these smaller entities, forcing consolidation of the industry. Cannabis insurers will need to be cognizant of the market forces impacting certain areas of the cannabis industry.
The efforts for the cannabis marketplace to continue to expand its presence has been put on hold. In New York, for example, last month Governor Cuomo conceded that it’s, “unlikely marijuana will be legalized in the state this year,” essentially delaying its legalization until 2021, at the earliest. With state governors dealing with more complicated issues, such as when to reduce/eliminate the quarantine restrictions, I don’t anticipate the legalization of cannabis to grab the attention of many state legislatures.
In March, the state of Pennsylvania requested that insurance carriers not submit any “non-essential” filings in their jurisdiction. With the possibility of other states potentially implementing similar restrictions on filings, it is possible that any new program or rate change filings would get further delayed or rejected by the states. This likely means that insurers will have short-term pricing power to increase premiums through flexibility in their rating plans. They will also be able to more closely underwrite their insureds without fear of losing business to the competition.
This has been evidenced in the vape pen manufacturers, especially those manufacturers who were sourcing products overseas. The COVID epidemic has begun to expose how underlying health issues are adversely impacting the death rate. It wouldn’t be a stretch to me if insurance carriers draft further exclusions, especially those that specialize in smokable cannabis products. It’s likely that COVID-19 is addressed, by name, similar to asbestos.
Fear of the unknown has always been a hindrance to the availability of reinsurance markets and the cannabis insurance industry is in the unenviable position of being a relatively new marketplace for reinsurers. The added stress and uncertainty of the future due to COVID-19 will only exacerbate the already tight market conditions for cannabis reinsurance. Hopefully, this will be at least somewhat offset by the natural aging process that an industry goes through, as reinsurers become more familiar with the risks and exposures they underwrite.
When this pandemic finally ends and life returns to “normal” or “new normal”, we should expect to see the cannabis market continue to grow, but with fewer and mostly larger entities. Insurers who understand this marketplace and can quickly adapt to these changes will be able to rapidly respond to its inevitable expanding insurance needs.