With the advent of state-legal cannabis, the businesses that make up the rapidly growing billion-dollar cannabis industry are still having to struggle to secure many professional services non-cannabis businesses obtain as a matter of course – most notably banking. One bright spot for cannabis businesses, however, is insurance. Dozens of insurance companies that cater to the cannabis industry have sprung up in recent years and federal courts have held cannabis inventories is insurable despite federal prohibition.
But, what if you cultivate state-legal marijuana at home for your own use? Will your general homeowner’s insurance policy cover cannabis plants in the event of theft or fire? A number of large insurance providers would tell you the answer is “no,” and federal court decisions do not consistently side with policyholders. Here is what you need to know about the state of the law and factors to consider when approaching the issue of insuring cannabis in your home.
A U.S. District Court in Hawaii ruled in 2012 that the federal prohibition on cannabis meant that a homeowner’s insurance policy did not cover the theft of medical marijuana plants grown in accordance with state law. The policy in question contained an exclusion for coverage of “cocaine, LSD, marijuana and all narcotic drugs,” but included an exception for “legitimate use of prescription drugs by a person following the orders of a licensed physician.” The plaintiff argued that because she had fully complied with Hawaii’s medical marijuana laws, her plants should have been covered under her homeowner’s insurance policy. The court disagreed, concluding that it could not enforce the insurance contract against the insurer because of the Controlled Substances Act and the supremacy of federal law. A more recent case, on the other hand, should give policyholders hope: a 2016 decision in the U.S. District Court in Colorado held in favor of a cannabis business that sought coverage for its cannabis inventory. Like many aspects of state-legal cannabis, however, the insurability of cannabis is likely to remain uncertain and contested and state-by-state until there is reform at the federal level.
So, what should you do to protect yourself and your plants if you grow at home?
- Look at your policy and talk to your insurance provider. The terms of a homeowner’s insurance policy can vary, but most include some version of the language above regarding controlled substances and illegal activities. Only your insurance provider can tell you if it considers state-legal cannabis cultivation to violate this clause. Some insurers are more aggressive about enforcing these provisions than others.
- Do not become a business. Nearly all homeowner’s insurance policies do not cover business activities. The definition of what that means is not uniform in all jurisdictions, but be especially careful if you are a caregiver cultivating marijuana for someone else or if you sell your excess cannabis supply into state-legal channels.
- Stay compliant with state laws. It should go without saying, but be sure to maintain compliance with all state laws. At issue in the case from Hawaii was whether the plaintiff had more than the allowed number of cannabis plants under Hawaii state law. Even if you have a friendly insurer, failing to follow state marijuana laws will be a deal breaker. No insurer will be obligated to cover damage or theft to marijuana plants in excess of state limits.
For more on growing cannabis in your home state, check out the following:
- Home Grown Marijuana: Hawaii, New Mexico, and Nevada
- Home Grown Marijuana: New York, Rhode Island, and Vermont
- Home Grown Marijuana: Michigan and Illinois
- Home Grown Marijuana: California and Alaska
- Home Grown Marijuana: Washington and Oregon