This article was originally published in Insurance Day on 2 March, 2018 – Click here to read the original article.

Newly decriminalised marijuana businesses in the US present huge opportunities for the insurance market but the legal minefield between state and federal legislation will require careful navigation.

It has been said there is nothing new under the sun. Those of us connected to the insurance world know differently.

From the introduction of auto­nomous vehicles, new maritime health laws, the gig economy or even from the move to legalise cannabis production and consumption, the industry must come up with creative solutions to meet these new needs.

Early last year it became apparent an emerging market was developing in Canada and the US, as more individual states started to legalise mari­juana for medical and recreational use. The door was opened when the Obama administration wrote an open letter, saying it would leave the matter to the individual states. For the moment, though, the US federal government says marijuana is illegal to possess, consume or distribute.

From a state level, marijuana has been decriminalised by 29 states.  To date, eight states – Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington, plus the District of Columbia – have decriminalised marijuana for both medical and recreational purposes, while the remaining states have approved its use only for medicinal purposes. There are a dozen more states with various referendums or legislature in progress for the legalisation of marijuana.

For those more progressive states, however, at one fell swoop it radically reduced the illegal trade and all the associated evils that come with it, increased tax revenues and got citizens who have medical needs properly registered and treated by doctors. Those states also require everything is properly controlled, licensed and, of course, insured. But continuing federal prohibition means the banks cannot process any income derived from this source; only state-licensed credit unions are permitted to.

There is a clear need for insurance coverage that will protect marijuana-related businesses. With federal law against it, Lloyd’s cannot tread there. Many insurers and their actuaries are reluctant to get involved, some unable to see past the word cannabis, the drug culture connotations of the 1960s and a false belief use must lead on inevitably to harder drugs.

So product designers, the most creative of all those inhabiting the insurance world, and usually the least recognised, sit down to come up with solutions. First on their agenda is a need to get a clear and detailed understanding of what the product actually is, how it would operate and the size of the opportunity. Without knowing this, how can any product be properly designed or the risk assessed and priced properly?

The two main cannabinoids from the marijuana plant that are of medical interest are tetra­hydro­cannabinol (THC) and cannabidiol (CBD). An average batch of marijuana contains from 5% to 20% THC content. Some premium marijuana can have up to 30% THC. CBD and THC are the two most prominent cannabinoids found in recreational marijuana. THC can increase appetite and reduce nausea. THC may also decrease pain, inflammation (swelling and redness) and muscle control problems. Unlike THC, CBD is a cannabinoid that does not make people “high”. It may be useful in reducing pain and inflammation, controlling epileptic seizures and possibly even treating mental illness and addictions.

Medical game-changer?

Many researchers, including those funded by the National Institutes of Health (NIH), are continuing to explore the possible uses of THC, CBD, and other cannabinoids for medical treatment. CBD interacts with the body through the endogenous cannabinoid system (ECS) or endocannabinoid system. First discovered in the late 1980s, the endocannabinoid system regulates the body’s homeostasis, affecting functions like mood, sleep, appetite, hormone regulation and pain and immune response.

For instance, recent animal studies have shown marijuana extracts may help kill certain cancer cells and reduce the size of others. Scientists are also conducting pre-clinical and clinical trials with marijuana and its extracts to treat symptoms of illness and other conditions.

CBD has been the focus of more than 23,000 published studies about cannabinoids in relation to various medical indications including anxiety, epilepsy, inflammation, cancer and chronic pain, to name a few.

The product is marketed as either flower or buds, and comes in loose packaging or pre-rolled joints and are smoked orally. Oils are distilled from the cannabis plant and used topically or orally. They can also be inhaled through vaporisers without the risk of smoking. Edibles use distilled oils to create oral consumable such as candies and food products, which can deliver both THC and CBD’s without the need to smoke. Concentrates are distilled products from the cannabis plant and can be ingested or smoked.

Without giving away intellectual property secrets, there are tried and tested solutions that can create bespoke products, domestically located with the benefits of local knowledge, then using the reinsurance markets, most of which are found in Europe. The key will be how the US federal government overcomes its reluctance under the incumbent administration and how innovative insurance entrepreneurs can secure their market before the rest wade in once the true risk-takers have done all the hard work.