By T.J. Frost
The 2020 cannabis industry hinges on the passing of the Safe Banking Act. After a bipartisan push through the House, the bill currently awaits passage in the Senate. If all goes well, the bill will allow the financial sector to finally service cannabis businesses – from banking to investments and insurance. Here’s what else to expect in 2020:
- More hemp/CBD products go to market. Since the passage of the Farm Bill, anyone can grow hemp and sell it online. The ease of shipping product across state lines, as compared to cannabis, has led to a production boom. With little federal regulation around its manufacturing and distribution coupled with growing public interest, hemp/CBD products from edible oils to clothing and anti-inflammatory lotions are extremely profitable. Expect final federal Domestic Hemp Production Program rules on acceptable levels of THC in hemp/CBD products in 2020, based on the current rule draft.1 There’s a strong push to move industrial hemp into the federal crop insurance program, which could very likely happen in 2020.
- The need for product liability insurance is now a must. Significant vaporizer, battery and contamination claims currently in the courts will lead to higher product liability premium rates in 2020. Expect rates to jump 30% to 40%, depending on the resolution of these cases. As a result, carriers will be more diligent about underwriting and may ask for certification of insurance from vendors, and additional insureds on third-party policies. Cannabis businesses will need to exercise more caution and oversight when selecting vendors. Take a hard look at their business practices before entering a partnership.
- Industry growing pains surface in Phase II. Now that the cannabis gold rush is dying down, businesses are poised to enter Phase II of their growth. Those who failed to institute proper hiring processes, including background checks, as well as protocols to promote security and prevent theft are currently facing challenges. Significant industry consolidation is making way for cannabis conglomerates to become multi-state operators. Directors and officers that made poor investments or acquisitions are facing scrutiny at the hands of the SEC or business investors. Without D&O insurance — or adequate limits — directors and officers could find their personal finances drained. Insisting on adequate D&O protection going forward is a best practice for cannabis executives.
- State regulatory and product testing expand. While high-profile manufacturers and distributors are already moving toward standardization around cannabis, hemp and CBD ingredient labeling, others are taking advantage of the lack of rules. Fake and inaccurate labels, including THC content misrepresentation in products, have led to recent lawsuits and claims. As a result, states will begin to administer product testing and license regulations and enforce carrying time limits, track and trace and bag and tag rules. Get ready for fines, penalties and increased non-compliance liabilities in 2020.
- Increased availability of policies and limits. As the cannabis industry continues to balloon, so does the number of insurance carriers entering the market. This means higher limits – to the tune of $15M on product liability and $60M on property. There is now coverage for outdoor crop, and workers’ compensation as a blanket policy for businesses working across state lines. Should the Safe Banking Act pass, additional insurance opportunities will become available.
2020 Growth and Beyond
The 2020 presidential election will bring the federal legalization of cannabis to the forefront of public discourse. While the law may not change yet, passage of the Safe Banking Act and increased regulatory action at the state level will highlight the successes and failures of the 33 states and the District of Columbia that have legalized marijuana in some capacity. These will serve as a guiding light for federal legalization down the road.
Source: Hub International