Cannabis and COVID-19: Pandemic's Impact on Legalization and Legislation
Unintended effects of the global pandemic may ultimately usher in a new wave of legalization and protection for marijuana businesses and the insurers and banks who work with them.
May 23, 2020 at 01:51 PM
8 minute read
By early 2020, marijuana had made tremendous strides toward legalization—for either medicinal or recreational purposes—in most states and even implicit federal recognition in the form of safe-harbor legislation for insurers and banks conducting business with the cannabis sector. But then COVID-19 struck, and progress predictably slowed. Nonetheless, unintended effects of the global pandemic may ultimately usher in a new wave of legalization and protection for marijuana businesses and the insurers and banks who work with them.
Jan. 1 marked the first day of adult-use marijuana sales in Illinois, the latest state to legalize marijuana for adults and the first to provide a comprehensive legal blueprint in the form of legislation that addresses everything from taxation to social justice. In all, at the beginning of 2020, medical marijuana was legal in 33 states, and another 11 had legalized recreational adult use, with several other states—most notably, New York and New Jersey—making a big push to do the same, despite marijuana's continued illegal status at the federal level.
Despite these milestones, however, even where legal, cannabis businesses faced substantial obstacles. Key components of risk management that any business relies upon, at least in part, have been limited for the cannabis industry. Adequate insurance coverage and beneficial banking relationships are essential risk-management strategies for any business. However, the cannabis industry has been largely excluded from these markets for three main reasons. First and foremost, insurers and banks balk at navigating a complex system of state and federal laws that are frequently at odds with each other. Simply put, they don't feel comfortable insuring or providing liquidity for an activity that the federal government still considers illegal. In addition to legal concerns, certain insurers and banks are concerned about the reputational risk associated with the cannabis industry. Finally, even insurers and banks who consider the cannabis industry a potentially promising market have nonetheless thus far declined to wade into the marijuana market because the industry is so new, with risks that are not well understood or even known.
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