Risk Strategies: Hardening in cannabis insurance market 'will likely flatten'

By Mia MacGregor

April 30 - (The Insurer) - Despite limited progress toward federal legalization, the cannabis industry is expanding into new states and sectors while continuing to navigate a complex patchwork of state-level laws and regulations, according to a recent market report from Risk Strategies.

The broker's 2025 insurance market report noted that the constantly shifting regulatory environment creates uncertainty and potential liabilities, prompting businesses to seek more comprehensive insurance solutions.

Rising operational costs, including increased wages and raw material prices, are also pressuring profit margins and heightening financial risks for cannabis companies.

At the same time, the industry is seeing a rise in claims, particularly in product liability, due to issues such as product contamination and consumer health concerns.

As the sector matures, consolidation among cannabis companies is creating larger entities with more complex risk profiles, driving demand for customized insurance solutions, the report stated.

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

The report also highlighted the potential reclassification of cannabis from a Schedule I to a Schedule III substance under federal law as a notable development in the industry.

If enacted, Risk Strategies said that this change could reduce legal uncertainties, improve access to banking services and ultimately lower operational risks for cannabis businesses.

According to the report, such a shift could make the industry more appealing to insurers and lead to more competitive insurance offerings, though progress on this front has been slow.

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The report forecasts modest premium increases in the directors and officers insurance market for cannabis businesses. This marks a reversal from last year’s prediction of potential rate decreases and is attributed to regulatory complexity, litigation risks and continued market growth.

Other cannabis-related insurance lines are expected to see more substantial rate increases.

Property and theft risks have grown, with a 15% rise in property claims reported, largely due to increased incidents of fire and theft at cannabis facilities.

At the same time, the evolving regulatory environment, including the possibility of federal rescheduling, adds both risk and opportunity for insurers.

Rising operational costs, inflation, and higher wages are also placing pressure on cannabis businesses, driving up claims expenses. Additionally, the ongoing lack of access to tax relief remains a financial strain for the industry, according to the report.

Risk Strategies also highlighted the growing THC-infused beverage market as a new area of focus, presenting unique challenges from a risk management standpoint.

The report noted that businesses aiming to serve food, alcohol and THC-infused products may find their current insurance options inadequate.

This segment could become a critical area for cannabis insurers to explore as they look to support momentum and growth, according to Risk Strategies.

“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,” the report stated.

“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.”