Insuring a cannabis business: why coverage is hard to find

Cannabis insurance is hard to find because marijuana remains a federally controlled substance even where states license it. That conflict leaves most admitted insurers on the sidelines, pushes much of the business into the surplus lines market, caps limits, and leaves gaps such as crop cover. In April 2026 the federal government moved state-licensed medical marijuana to Schedule III, but adult-use cannabis remains in Schedule I, and the process for the rest is on hold as of October 10, 2026, so the structural problems have eased less than the headlines suggest.

Where federal law stands in October 2026

Adult-use marijuana, unlicensed marijuana and synthetic THC remain in Schedule I. Medical operators gain relief from the Section 280E tax deduction disallowance and a DEA registration pathway, and interstate commerce remains prohibited, according to a Saul Ewing alert and Foley Hoag's April 27, 2026 update. Rescheduling is a federal change only; your state license rules still govern what you may do. These are legal developments, not coverage advice, and the sources I used describe a changing situation, so confirm the current status with counsel.

Why insurers hesitate

1. Lawful purpose. The NAIC's 2019 white paper on the cannabis market said the main obstacle for admitted insurers in many states is the requirement of a lawful purpose. A contract for an illegal purpose is not enforceable, and federal illegality invites the argument that no valid policy can exist.
2. Banking rules. Federal anti-money laundering law treats insurers as financial institutions, so handling premiums and claims for a business whose proceeds federal law treats as unlawful creates compliance friction. Wilson Elser's Ian Stewart wrote in Claims Journal (April 28, 2026) that this has kept many programs in the surplus lines market.
3. Reinsurance. Treaties often contain Schedule I barriers, which limit what a primary insurer can write. Stewart expects reinsurers to increase their presence selectively and capacity to grow incrementally, not as a flood of cheap capacity.
4. Physical hazards and data. Theft and cash, grow-room electrical loads, flammable solvents in extraction and product contamination are real losses, and loss data for them is thinner than for other trades.

How the market is built

According to the NAIC white paper (May 24, 2019), a few admitted insurers wrote cannabis businesses as regular risks, workers' compensation was an exception in states such as Colorado, Oregon and California where a state-admitted carrier acts as insurer of last resort, and most other coverage came from the non-admitted market. Recent reporting says that picture still holds: Insurance Business (September 2026) cites the NAIC for the point that most commercial insurance for cannabis-related businesses is placed in the non-admitted market, with gaps most pronounced for smaller companies, ancillary services, infused products and consumption lounges. It also notes that limits of $1 million per occurrence and $2 million aggregate across general liability, property and product liability are common, with some businesses needing $5 million to $10 million or more. Some programs go higher: Conifer Insurance Services launched a program with up to $25 million of property cover and $5 million per occurrence for general and product liability.

Buying through the non-admitted market has consequences. Surplus lines insurers are not backed by state guaranty funds, premium tax and filing rules apply, and forms are manuscript and carrier-specific. See admitted vs non-admitted insurers: what the difference means, excess and surplus lines insurance explained and wholesale brokers and surplus lines placement: how hard risks get insured.

Congress is considering a fix. The CLAIM Act, introduced in the House on September 16, 2026 by Reps. Nydia Velázquez and Warren Davidson (a Senate companion was introduced in July), would shield insurers, agents and brokers from federal penalties for serving cannabis businesses lawful under state law. It would not require anyone to write the risk, and earlier versions have not become law.

Coverage by segment

Whatever the segment, the policy should be read for how it handles the federal conflict. Under the standard ISO property form, CP 00 10 10 12, property not covered includes contraband or property in the course of illegal transportation or trade, and the causes of loss form (CP 10 30) excludes seizure or destruction by order of governmental authority. Cannabis programs are written on non-standard forms that modify these terms, so ask exactly what they say, because the standard wording would otherwise defeat a claim. See commercial property exclusions: what the standard policy won't pay.

Product risk is the fast-growing exposure. Wilson Elser's commentary notes that, with no FDA framework for state medical cannabis, insurers face gray areas on product safety, compliance warranties and pricing recall and product liability risk across differing state standards. See product liability insurance for makers, sellers and importers and product recall insurance. Crime and cash handling raise other needs; see commercial crime insurance: what it covers and what it excludes.

What underwriters ask

Expect a longer submission than other trades:

• State licenses by activity, inspection history and any violations
• Security systems, cash handling, armed guard use, and armored transport
• Seed-to-sale inventory tracking and testing procedures
• Extraction method and fire protection for any solvent use
• Electrical load and grow-room design
• Product labeling, batch records and recall plan
• Distribution channels and any hemp or CBD lines
• Prior losses and why a previous carrier left

A hypothetical

Say a state-licensed dispensary that holds both medical and adult-use licenses is renewing. Its broker places the program with a surplus lines carrier: $1 million per occurrence general and product liability, property with a theft sublimit, business income with a long waiting period and no crop or transit cover. Workers' compensation comes from a different source. The owner should compare the exclusions for controlled-substance seizure and government action, check how the policy treats inventory and business income when a regulator suspends a license, confirm what notice the carrier gives before cancelling, and recognize that a loss with a non-admitted carrier has no guaranty fund behind it. After rescheduling, the medical side may attract more carriers over time; the adult-use side still sits in Schedule I, and a dual-license operator faces two federal regimes at once.

Hemp and CBD are a different problem

Hemp has its own rules. A late-2025 federal law redefined hemp so that only products with 0.4 milligrams of total THC per container would remain legal after November 12, 2026, and a spending bill signed on September 2, 2026 moved that date to December 11, 2026 (Marijuana Moment, September 3, 2026). The date could move again. Insurers writing hemp and CBD sellers will be watching for product-liability and regulatory-change exposure; see Cannabis business insurance for the industry profile.

Key takeaways

• Cannabis cover is hard to find because of federal illegality, the lawful-purpose argument, banking rules and reinsurance restrictions, so most of it is placed in the surplus lines market.
• The April 2026 Schedule III order covers only FDA-approved products and state-licensed medical marijuana; adult-use stays in Schedule I and the broader proceeding was stayed on September 29, 2026.
• Expect manuscript forms, limits often at $1 million/$2 million, no guaranty fund, and gaps for crop, transit and ancillary businesses.
• Read the property form's contraband and seizure language and ask exactly how your program changes it.
• Rescheduling is expected to improve capacity gradually, not overnight; plan for the market you can buy today.