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Challenges for the Cannabis Industry in 2021

14 January 2021 / Category: Blog
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New Frontier Data projects that by 2025, the market value of the United States’ cannabis industry will reach annuals sales of $30 billion.

As the legalization movement continues to gain support nationwide, with members of Congress even voicing their public support for its federal legalization, the cannabis industry is set to expand into new sectors and its market value is expected to increase exponentially. But as a budding industry, many challenges to its survival lie ahead.

Here are some challenges we can expect to see in 2021:

1. Limited Banking Services

Banking is a significant issue for the prospective market. Under the Controlled Substances Act, cannabis is classified as a “Schedule I” drug. Banks are apprehensive about cooperating with businesses dealing with cannabis, as they fear that they may lose their Federal Deposit Insurance Corporation (FDIC) status or make themselves susceptible to money laundering charges relating to the illegal drug trade.

Because of this, cannabis dispensaries are forced to maintain a considerable amount of cash onsite, increasing the likelihood of the establishment experiencing theft, ransom, or extortion (Insuring the Commercial Cannabis Industry) . Skepticism from the banking sector further inconveniences companies dealing with marijuana by disabling them from applying standard business practices like paying employees, vendors, and other parties, turning these enterprises into targets for criminal activity.

In 2019, the United States House Committee on Financial Services proposed the SAFE Banking Act to “increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.” (H.R. 1595). The act seeks to protect financial institutions from federal prosecution when cooperating with cannabis companies as well as support services (such as insurance companies) from being charged with related financial crimes. While this is a sound solution, it is not known if or when this proposed legislation will be passed by Congress.

2. Exposure to Electronic Cigarettes and Vaporizers

Risks & exposure from cannabis usage have gone beyond traditional smoking. Vaporizers have rapidly become the mainstream method of consumption due to their convenience and increased efficiency. Businesses in the cannabis supply chain (cultivators, processors, distributors, and retailers) risk exposure from related products if a defect results in improper labeling or physical harm.

3. The Cannabis Stigma

Cannabis is generally stigmatized as a gateway drug with cannabis culture negatively jointed with a “slacker” stereotype.  On the contrary, cannabis is used for medical purposes by patients and its consumers come from an array of contrasting backgrounds.

Overcoming this stigma will continue to be an uphill battle for the cannabis industry as society slowly accepts (and grows more informed) about cannabis.

4. The Challenge of Insuring Cannabis

The difference between federal and state laws when it comes to cannabis presents a high-risk for insurers. For example, an insurance carrier providing coverage to a cannabis business can be held criminally liable for aiding and abetting in the sale of marijuana or conspiring to violate the Controlled Substances Act (CSA) – even when the business’ actions are considered legal under state law.

Some proprietors also feel that insuring cannabis businesses is expensive and instead opt to go uninsured, leaving assets unprotected and business owners exposed to personal liability. The rapid growth of the cannabis industry brings challenges but also new business opportunities.

Providing insurance to cannabis businesses can be complicated and demanding that insurers are meticulous and knowledgeable of legal issues, emerging risks, and the dynamic nature of regulations. It is highly advised for cannabis business owners to exercise due diligence when exploring available coverage to find one suited to their personalized needs and to utilize the availability of cannabis insurance to the benefit of their practice.