The recent midterm elections that ushered in a divided U.S. Congress have left legislative reforms to embolden insurers providing services to the cannabis industry in limbo.

The Clarifying Law Around Insurance of Marijuana Act (CLAIM Act), introduced in March 2021 by Rep. Nydia Velazquez, D-N.Y., and Sen. Bob Menendez, D-N.J., aims to "create a safe harbor for insurers engaging in the business of insurance in connection with a cannabis-related legitimate business."

Meanwhile, the SAFE Banking Act, also introduced in 2021, seeks to prohibit a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business while also offering similar protections to other "ancillary businesses" that serve them.

"The current version of the SAFE Banking Act includes language from the senator's CLAIM Act, which allows legitimate marijuana businesses located in states that have legalized medical or recreational use to access insurance coverage," a spokesperson for Menendez said in an email. "Sen. Menendez will continue to work to ensure that these essential protections remain a part of the legislation if it moves forward."

Both bills are currently facing an uncertain future after Republicans — historically more opposed to relaxing drug enforcement laws — gained control of the House of Representatives in November.

"A split chamber in Congress next year puts the pressure on legislators to do something during lame duck, even if it doesn't go as far as some Democrats may hope," according to Michelle Rutter Friberg, deputy director of government relations for the National Cannabis Industry Association, which represents approximately 1,000 cannabis producers.

While the House and Senate versions of the CLAIM Act have seen little movement since being introduced, there is now added urgency with the Democrats set to lose control of the House in 2023.

Senate Democrats attempted to include language from the SAFE Banking Act in a version of the National Defense Authorization Act, The Hill reported this week, but faced opposition on Dec. 6 from Senate Republican Leader Mitch McConnell. Ultimately, the defense bill moved forward without the SAFE Banking Act.

Creeping acceptance

In November, marijuana legalization was on the ballot in five states and was approved in Maryland and Missouri, while similar proposals were rejected in Arkansas, North Dakota and South Dakota. According to the National Association of Insurance Commissioners, 38 states have legalized some form of medical marijuana, and recreational marijuana is legal in 21 states.

"De-scheduling is the most important thing that can happen for the industry," said Mauricio Comi, head of insurance at Dutchie Co., a Bend, Ore., technology-based cannabis commerce platform that began offering cannabis insurance broker services in October. "If that doesn't happen, the SAFE Banking Act is incredibly important, because it will make all of these services accessible."

In addition to approval from statewide votes in Missouri and Maryland, localities in Republican portions of Ohio and Texas also voted to decriminalize the possession of small amounts of marijuana.

"There's no putting this genie back in the bottle, when there's an existing market it's not going away," said Erin Moffet, director of strategic communications for cannabis federal advocacy firm The Liaison Group. "So until Congress acts, they're going to continue to see this trajectory of states and localities moving in a forward direction while voters continue to call on the federal government to act."

Sprouting specialty insurance

With all this legislative and legal uncertainty, the insurers operating openly in this space to date have tended to be more niche players.

Dutchie decided to enter the insurance sphere after seeing how inconsistencies between state and federal cannabis regulations kept most traditional insurance services out of the industry, Comi said.

"Because there are much fewer carriers in this space offering those products, what ends up happening is that dispensaries and every other company in the value chain end up spending way more time looking for insurance because there's less out there available, including less expertise amongst the brokerage community," Comi said.

According to a 2021 report by New Dawn Risk, there were about 30 U.S. insurers offering cannabis coverage during that year, up from only six insurers in 2020. Among the companies offering cannabis insurance are MFE Insurance Brokerage, Cannabis Insurance Company, AFIG Cannabis Insurance and Cannasure Insurance Services LLC.

Cannasure has been providing insurance coverage for cannabis- and hemp-related risks for over a decade, according to spokesperson Grace Sawka, even among the impact of individual nuances in state laws.

"There are some subtle differences in the requirements to earn and secure licenses among states, while there are marked differences in others (financial stability, number of licenses issued per state/territory, and third-party testing to name a few)," Sawka said in an email. "In addition, factors that influence underwriting decisions include whether the jurisdiction is a limited license state or one without license caps, as well as whether the state has legalized medical only or is a recreational cannabis market.

Another company working to help cannabis producers find underwriters is Hub International, which has been working in the cannabis insurance industry for around eight years, according to Jay Virdi, chief sales operative for the company's specialty practices group.

"The two industries that couldn't be more different: an emerging cannabis industry that's moving at the speed of light and insurance, which moves very slowly and methodically," Virdi said. "We're really trying to bridge that gap, and frankly, sometimes we're not even waiting for some of the insurance carriers to catch up to the needs of the cannabis industry."