FDA and Marijuana: Questions and Answers
August 2017, U.S. Food & Drug Administration
State Medical Marijuana Laws
February 2018, National Conference of State Legislatures
Cannabis and Insurance Initiative
California Department of Insurance
The Marijuana Policy Gap and the Path Forward
March 2017, Congressional Research Service
National Cancer Institute: Cannabis and Cannabinoids
November 2017, National Institute of Health
Drug Impaired Driving
April 2017, Governors Highway Safety Association
July 2017, National Highway Traffic Safety Administration
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Last Updated 2/16/18
Issue: More than half of U.S. states have legalized some form of medical or recreational marijuana, and the demand for cannabis is increasing dramatically. Legal sales in the U.S. grew by 30% in 2016 – annual growth bypassing even broadband internet. As the industry grows, the need for standardization and legal protection in the form of cannabis insurance is magnified. The division between state and federal status makes it difficult for businesses to receive inclusive, affordable coverage and often leaves individual policyholders with restrictive plans.
Background: Cannabis is recognized federally as an illegal substance under the Controlled Substances Act (CSA), in which it remains a Schedule I drug and is stated “to have no currently accepted medical use in treatment in the United States”. It also lacks Federal Drug Administration (FDA) approval and is subject to the Federal Food, Drug, and Cosmetic Act, which requires any marketed substance to be ruled both safe and effective. These conditions prohibit the cultivation, possession, and distribution of cannabis and violators of the law are subject to prosecution. Considering conflicting state and federal laws and the lack of product standardization and regulation, insurance companies are largely discouraged from offering plans with medical marijuana treatment options and providing businesses with proper coverage.
Cannabis Related Businesses (CRBs) face many risks and obstacles. Some of the biggest risks involve theft, general liability, and product liability. Companies functioning within state legality face severe banking restrictions due to federal regulations. CRBs may be forced to handle large sums of cash and for this reason they can be subject to a higher risk of theft. CRBs share the same general liability and other risks agricultural and manufacturing businesses face. This includes workplace accidents, damage to property, and crop failure. CRBs are especially prone to fires from both wild and internal sources. The popularity of edibles and other infused products increases the risk of product liability and safety recalls. Products may be deemed mislabeled, misrepresented, or harmful especially given the psychoactive effects of marijuana and the wide range of people drawn to edibles. Standard general liability plans account for these claims in non-CRB businesses, but most insurance companies will not write policies for CRBs due to uncertainty about the legality of these businesses. Policy language specifically tailored to the cannabis industry is crucial in providing adequate coverage.
Cannabis-using consumers also face insurance challenges ranging from legality issues to coverage deficiencies. Users may be faulted in workers’ compensation claims or subject to employment-disqualifying drug screening. In addition, insurance companies offering medical treatment options often have strict policies that may be insufficient in treating a patient’s condition. Drivers may also experience increases in auto insurance rates due to elevated risks associated with drivers under the influence. In a 2017 report, the Governors Highway Safety Association linked marijuana use with a slightly increased crash risk in experimental settings, citing the impairment of psychomotor skills and cognitive functioning in the drug’s presence. However, routine traffic stops are currently unable to test for or confirm a driver is under the influence without biomarkers, such as blood or oral fluid. Even with proper testing, the results may be unreliable. Tetrahydrocannabinol (THC), the primary psychoactive chemical compound in cannabis, is fat soluble and can be released into the bloodstream for over 30 days after consumption, potentially misidentifying a driver’s status at the time of the incident. On the other hand, detectable amounts may dissipate before lab testing is performed even hours after a crash. Due to the variability of side effects and physiological reactions in each user – largely dependent on the frequency of use – there is currently no standard method of roadside detection as there is with alcohol intoxication.
Status: The Rohrabacher-Farr amendment, passed in 2014, prohibits the Department of Justice from interfering with state medical marijuana laws. In 2016, the Federal Appeals Court affirmed the Department of Justice cannot spend funds on the prosecution of individuals cultivating, distributing, or using medical marijuana in accordance with state law. However, the amendment must be renewed each fiscal year to remain in effect, and it currently only applies to the states of the Ninth Circuit. That being said, the ruling may influence other circuits to follow suit and shelter the industry from federal offense. States currently enforcing the amendment can offer individuals and CRBs protection from DEA prosecution and therefore ease concerns of federal prosecution for both insurance companies and policyholders.
Software-as-a-service tools are also emerging in an effort to provide banks and regulators assurance that CRBs are in compliance with state regulations. These tools assist with audits and provide proof of compliance in the form of certifications and scores, and may bolster any effort to provide standardized banking.
Though medicinal properties of cannabis have been federally unproven, controlled research projects in association with the DEA and FDA are still testing for medical potential. Two synthetic substances containing compounds similar to those of marijuana have received FDA approval, paving the way for clinical trials on cannabinoids and relevant legislation.
California is leading the way in the inclusion and specification of CRB insurance coverage. In November 2017, California Insurance Commissioner Dave Jones approved the first filing of a cannabis business insurance product by a commercial insurance company. Once large insurance companies in California successfully offer and provide specified coverage to CRBs and patients, state carriers across the board may be encouraged to enter the market.
While the drug may remain technically illegal at the federal level until the FDA approval, industry protection by the state under the Rohrabacher-Farr amendment and commercial carrier coverage can solidify medical marijuana’s place as a local legality.
A memorandum issued by the Trump administration in January 2018 vaguely asserted the role the CSA will have in future marijuana enforcement. The language of this memorandum indicates the likelihood the administration will reject Obama administration spending measures and return to unrestricted federal prosecution in 2018.As with other products, state insurance regulators seek to understand the insurance needs and gaps as the insurance industry evolves to provide protection for new risks. The CIPR will explore these issues in an upcoming webinar this spring.