State of the Insurance Market:
2025 Outlook

Cannabis

The cannabis industry was caught in the middle of an election year with a lot of uncertainty. Cannabis, although a frequent topic during the election cycle, has had little movement towards federal legalization. While it continues to expand into new states and verticals, the complex nature of the varying laws and rules by states will continue to be the status quo in 2025.

Since cannabis remains illegal federally, the same insurance specific issues such as coverage capacity and carriers playing in this space will continue to be an issue. Understanding the regulatory issues and the growing new verticals, such as THC infused beverages, will be key to businesses not only surviving, but thriving in 2025.

With new segments of markets and products rolling out in 2025, it should be a good opportunity for the industry to spread into new markets.

Market Conditions

 

As of 2025, the cannabis insurance market is seeing some breathing room without many increases on the horizon as the market sees what will come from this most recent presidential election. A price sensitive market is on the horizon for all license holders who are starting to take a harder look at their bottom lines on most everything. With the investing world waiting to see what happens with cannabis this year from a legal scope, money is not being thrown into the industry like it once was. This should open the door for a more competitive experience between carriers.

The newest discussion is around the THC infused beverage space, especially from a risk management view. Businesses wanting to serve food, alcohol, and THC infused products will face challenges with their current insurance options. This could be a new segment of the market that cannabis carriers need to keep momentum and growth.

Several factors influence insurance buyers in the cannabis sector, including:

  • Regulatory compliance: The constantly shifting regulatory landscape creates uncertainty and potential liabilities, prompting businesses to seek more comprehensive insurance solutions.
  • Inflation and business costs: Rising operational costs, including wages and raw materials, are impacting profit margins and increasing the financial risks for cannabis companies.
  • Rising claims costs: The industry is witnessing an uptick in claims, particularly in product liability, due to incidents related to product contamination and consumer health impacts.
  • Market consolidation: As the industry matures, consolidation among cannabis companies is creating larger entities with more complex insurance needs, driving demand for customized insurance solutions.

Coverage Considerations

 

The hardening market in the cannabis insurance industry will likely flatten and some may see decreases in certain areas of coverage.

The potential reclassification of cannabis from a Schedule I to a Schedule III substance under federal law could positively impact the insurance market. This change would align federal regulations more closely with state laws, potentially reducing legal uncertainties and enhancing access to banking services. Such a shift could lower operational risks for cannabis businesses, making them more attractive to insurers and leading to more competitive insurance offerings. This has been on the table for a while now with little progress.

The directors and officers (D&O) insurance market for cannabis businesses is likely to see modest increases in premiums, shifting from last year's forecast of a potential decrease. The following factors drive this change:

  • Regulatory complexity: As cannabis businesses expand, they face increased scrutiny from federal and state regulators. This complexity raises potential liabilities for directors and officers, making insurers cautious.
  • Litigation risks: There has been an increase in shareholder lawsuits and regulatory investigations, particularly as the industry matures and companies go public. This elevates the risk profile for D&O insurance. The market has seen steady amounts of maturity even with the conversations revolving more around lines of coverage such as D&O.
  • Market growth: Despite regulatory challenges, the cannabis industry continues to grow, with new markets legalizing, whether at the medicinal or recreational level.

Insurance rates for other cannabis-related lines are expected to increase more significantly than previously projected. Key factors contributing to this forecast include:

  • Property and theft risks: There has been a 15% rise in property claims, as cannabis facilities face increased risks of fire and theft, influencing rate adjustments in property and casualty insurance lines.
  • Regulatory developments: The evolving regulatory landscape and the potential rescheduling of cannabis at the federal level creates opportunities and uncertainties, influencing how insurers price risk across various lines.
  • Operational costs and inflation: Rising costs, including inflation and increased wages, are putting pressure on cannabis businesses, translating into higher claims costs and influencing rate hikes. The constant struggle of expecting and not benefiting from tax breaks will also continue.

Cannabis Rate Forecast

 
Rate Forecast
Cannabis: Directors & Officers Insurance Flat to +5%
Cannabis: All Other Lines Flat to +10%

Recommendations

 

To navigate current market conditions, we recommend the following strategies:

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Enhanced risk management: Invest in comprehensive risk management and compliance programs to mitigate potential liabilities and improve attractiveness to insurers. Review tools with insurance brokers that can be implemented to help mitigate risk.

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Diversify insurance coverage: Explore a range of insurance products to cover various risks, including product liability, property, and cyber risks to ensure comprehensive protection. Not every coverage is right for every risk; all risks are unique.

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Leverage industry expertise: Partner with insurance providers and brokers specializing in cannabis to access tailored solutions and insights into best practices.

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Monitor regulatory changes: Stay informed about regulatory developments and adjust operations and insurance coverage accordingly to remain compliant and minimize risks.

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The contents of this report are for general informational purposes only and Risk Strategies Company makes no representation or warranty of any kind, express or implied, regarding the accuracy or completeness of any information contained herein. Any recommendations contained herein are intended to provide insight based on currently available information for consideration and should be vetted against applicable legal and business needs before application to a specific client.