The Growing Business of Marijuana

by Cozen O'Connor

Cozen O'Connor

Cannabis is a banned controlled substance under the federal Controlled Substances Act and thus manufacturing, selling, or distributing cannabis violates federal criminal law. That notwithstanding, the marijuana business is growing as the number of states that have decriminalized or legalized medical and/or recreational use of marijuana continues to grow. Many states are addressing this issue now that the majority of Americans support legalization.

The legalization or decriminalization of marijuana raises a variety of issues, including those relating to federal prosecution, insurance regulation, and the enforceability of insurance policies issued to the cannabis industry. In an attempt to ease industry concerns relating to the threat of federal prosecution, a 2013 Department of Justice (DOJ) memorandum identified certain priorities of enforcement, including those focusing on the distribution of marijuana to minors, the diversion of marijuana into states where the sale is illegal, and the prevention of marijuana revenue going to criminal or gang enterprises. A similar memorandum, drafted to address fears relating to money laundering statutes, provided guidance to institutions that desired to finance marijuana businesses.

Notwithstanding these memorandums, significant uncertainty and risk still exist in states where the state and federal criminality of marijuana differs. Cases involving these DOJ pronouncements have not interpreted them as binding or a defense to federal marijuana prosecutions. The current administration, moreover, has promised increased federal enforcement, at least where recreational marijuana is concerned. The administration has also established a task force and a marijuana subcommittee to perform a comprehensive review of the federal government’s current treatment of marijuana legalization. The subcommittee’s review and report are due by the end of July 2017.

The uncertainty surrounding federal prosecution similarly surrounds the enforceability (and future availability) of insurance for the cannabis industry. Marijuana businesses need property and liability coverage, among others, to insure the many and varied risks associated with the cultivation, distribution, and retail sale of medical and recreational marijuana. Not surprisingly, many of these risks are the same or similar to those associated with “traditional” businesses that grow or manufacture products sold to the public. For example, marijuana businesses are seeking property coverage for damage or destruction to the marijuana plant during growth or transport, theft, physical damage to the location where marijuana is grown, and business interruption and extra expense coverages. Businesses are also seeking liability insurance for bodily injury and property damage claims arising from the personal ingestion of marijuana, claims that the marijuana user may have injured another person, and related losses.

The high demand and need for insurance, however, does not meet the supply. Many insurers are reluctant to become entangled with marijuana dispensers because of the continued threat of federal prosecution. The lack of available insurance is critical to the cannabis industry’s survival because, without it, most states will not allow distributors or dispensaries to operate. Certain states, like Washington, for example, require a marijuana licensee to carry a minimum of $1 million of comprehensive general liability insurance for bodily injury and property damage claims arising out of “licensed conduct.” The statute specifically requires coverage for damage “arising out of the licensee’s premises/operations, products, and personal injury” issued by an A - Class VII rated insurer (or better) that names the state as an additional insured. Failure to secure this insurance may result in the business losing its license. Other states, including Massachusetts, enforce similar insurance requirements.

The growth of the legalized marijuana business does not seem to be slowing down even in the midst of risk and uncertainty. A harder stance on legalized marijuana growth and distribution from the current administration, however, may change the landscape dramatically. It remains to be seen if the current administration will abandon the DOJ’s priority of enforcement in favor of more strict federal prosecution, and whether that shift will affect the legalization of both medical and recreational marijuana use.

DISCLAIMER: Marijuana is still classified as a Schedule I controlled substance by the U.S. Drug Enforcement Agency, and as such it remains a federal crime to grow, sell, and/or use marijuana. Any content contained herein is not intended to provide legal advice to assist with violation of any state or federal law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Cozen O'Connor | Attorney Advertising

Written by:

Cozen O'Connor

Cozen O'Connor on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.