Article by Élif Oral, Norton Rose Fulbright
The proposed Cannabis Act provides for oversight of the legal cannabis industry, with the federal government establishing licensing and authorization requirements for production, packaging, and labelling, and provincial/territorial governments overseeing distribution and retail sales. It is widely expected the Cannabis Actwill come into effect by July 2018.
In anticipation of the legalization of cannabis for recreational use, the provincial/territorial governments are also introducing new legislation to regulate, among other issues, its distribution and retail sale. For more on legislation, we refer you to the table summarizing the broad strokes of the proposed federal and provincial/territorial legislation1 as of February 2018.
Below, we present an overview of just some of the issues facing the insurance industry as recreational cannabis becomes legal.
- The imminent legalization of recreational cannabis presents a specific challenge for the insurance market. Insurers, who now face the difficult task of re-assessing a variety of risks in order to adapt or create new products, will have to do so without the benefit of reliable Canadian data or statistics on the subject and while federal and provincial regulations – still not drafted – remain a very large blind spot.
- In other words, for those insurers who decide to jump on the bandwagon to participate in what has been coined by some as the “green rush,” it will mean insuring an evolving risk. Significant “wordsmithing” of existing insurance policies is therefore to be expected to ensure insurance products appropriately cover the risks and claims that will come with the changes in legislation.
- There are a number of reasons why insurance companies might choose to take a “wait-and-see” approach to the emerging market of insurance products targeting legal recreational cannabis. For example, since policy rates are in great part based on past claims, and with limited data available for the risks of a legal cannabis growth operation – and none for Canada – some insurers may choose to stand back for a few years before entering this new market. Others may decide to stay out completely out of concerns about reputational risk, much the same as they have historically done with the tobacco industry. Others still may stay out of the market for purely commercial reasons because of the high-risk nature of grow operations, mainly with respect to potential for fire and water damage, which can result in expensive business-interruption losses.