The CLAIM Act and Cannabis Businesses:
Legislation Overview and Potential Impact for the Cannabis Industry
CannaBlog by Cory Parnell, COO of Bridge West CPAs & Advisors to the Cannabis Industry
Insurance is the financial safeguard for businesses and individuals alike unless you work in the state-legal cannabis industry. The Clarifying Law Around Insurance of Marijuana Act, or the “CLAIM Act,” has been written and introduced in both the House and the Senate. It is intended to provide safe harbor for institutions that provide insurance services to individuals and businesses operating in the state-legal cannabis industry without the threat of federal intervention. In this CannaBlog, we discuss the CLAIM Act and look at who it protects, what it does and doesn’t do, and how it can impact the cannabis industry.
Who is protected by the CLAIM Act?
The CLAIM Act protects insurance and financial service providers from federal intervention or prosecution for providing services to cannabis businesses or their employees. In this regard, the CLAIM Act is like the SAFE Banking Act in its acknowledgment of the struggles and legitimacy of cannabis businesses operating in compliance with state cannabis laws. However, it differs in the services protected, and the business and product insurance coverage.
The CLAIM Act shields insurance product providers from federal intervention. It states, “a federal agency may not prohibit, penalize, or otherwise discourage an insurer from engaging in the business of insurance in connection with a cannabis-related business or state … that exercises jurisdiction over cannabis-related legitimate businesses.” Legitimate businesses are identified as businesses that grow, manufacture, and sell cannabis-related products in state-legal markets. This law prevents any federal agency from interfering in providing services to cannabis-related legitimate businesses, licensed by states that have legalized cannabis for medical or adult use, their owners, or employees.
Much like the SAFE Banking Act, the CLAIM Act does not require insurers to provide services to cannabis-related legitimate businesses, their owners, or employees. This provides insurers with the option to provide services in a competitive marketplace with severability if the insurer chooses to no longer offer the service.
For the cannabis industry, the passage of the CLAIM Act can mean greater availability of insurance products at more competitive rates. As it currently stands, insurance is often more expensive and therefore cannabis companies are less likely to adequately insure their businesses according to the risks they face. This is due in large part to costs, but also to limited options for insurers willing to take a gamble on serving cannabis-related legitimate businesses. Passage of this legislation will lead to lower operating costs tied to insurance and increased coverage of businesses and products as markets mature and the risk of federal intervention is minimized.
As of the writing of this CannaBlog, this legislation is stalled in committee in both the House and Senate with very little movement. With the benefits this legislation can provide to cannabis businesses and the industry at large, it is important to request that legislators pass this bill and sign it into law. Providing insurers with protection from unnecessary federal agency interference through prohibition, penalty, or other methods of discouraging business interactions will provide greater validity to cannabis-related legitimate businesses. It will also assist in welcoming others to choose a career in the expanding cannabis industry.
Bridge West CPAs recognizes the impact that legislation like the CLAIM Act can have on essential business services and the importance of knowledgeable ancillary service providers. We invite you to reach out to our team to explore how our cannabis expertise and industry-specific accounting, tax, and advisory services build a bridge toward long-term success.
Cory Parnell, CPA, is the Chief Operating Officer of Bridge West LLC, CPAs & Advisors to the cannabis industry. For more information about the CLAIM Act or to schedule a confidential consultation, contact Cory at firstname.lastname@example.org or 651-287-6327.