Advisen

Legal marijuana still a liability maze

Most Americans now have access to legal marijuana. In total, 33 states have approved marijuana for medical use and 10 have legalized the drug for recreational purposes. Neighboring Canada recently legalized recreational marijuana.

Cannabis products may be legal in most states, but the liability landscape remains unsettled. Liability concerns range from workplace safety to product liability to medical malpractice. To complicate matters, while marijuana may be legal at the state level, it is still classified under federal law as a Schedule 1 drug, the same classification as for heroin and ecstasy. For these and other reasons, insurers have been slow to respond with cannabis-related coverage.

Medical marijuana resides in a legal and regulatory gray zone. “Doctors can’t prescribe marijuana, they can only recommend it for their patients,” explained Adam Dolan, head of the cannabis practice at law firm Goldberg Segalla. According to Dolan, doctors are unable to prescribe medical marijuana because under the Federal Controlled Substances Act, cannabis has no accepted medical use.

Dolan advises doctors to know their patients’ histories well before recommending cannabis products. Otherwise they may unintentionally expose their patients or themselves to unintended legal consequences. For example, recommending cannabis to a patient on probation could prove disastrous in some states if the patient is tested for drugs.

Dolan cited another example where a doctor temporarily had his license suspended until a hearing on the issue for recommending marijuana to a pregnant patient. He noted, however, that in this particular case, “if you look at all the facts, recommending marijuana may have been the best decision for this patient.” He advises doctors to thoroughly document patient histories and their reasons for recommending marijuana.

Employers that have a policy against marijuana use are faced with a dilemma when employees who use cannabis products with a doctor’s recommendation fail a drug test. Some employers accommodate those employees, but others rigorously adhere to their drug policies. In a growing number of cases, employees who were terminated for marijuana use are suing their former employers, and sometimes they are winning.

“The decisions are not uniform,” observed Dolan, noting that the difference between a doctor’s recommendation and a prescription is often sufficient to tilt decisions in favor of employers.

State laws also vary concerning employee rights. Recently, the United States District Court for the District of Connecticut granted summary judgment to a job applicant on her claim that an employer discriminated against her because of medical marijuana use, but in comparatively liberal Oregon, “employers are not required to accommodate medical marijuana usage,” according to Dolan.

Businesses that grow and distribute marijuana and cannabis products are faced with an array of both conventional and novel liability issues. A growing litigation trend against growers is suits filed by neighboring property owners claiming the smell of marijuana damages their ability to enjoy their land or depresses their property value. Such suits, which often allege violations of the federal Racketeer Influenced and Corrupt Organizations Act, have been filed in Colorado, California, Massachusetts, and Oregon.

So far these suits are proving to be “more a nuisance than a viable threat,” according to Al Fine, director of Risk Management for Emergent Risk Insurance Services, an insurance brokerage specializing in the cannabis industry. In a pair of recent cases, a Colorado jury found in favor of the grower defendant, and a judge dismissed claims in a federal court case in Oregon, ruling the plaintiffs failed to show a concrete loss in the value of their property.

Unlike alcohol, “there is no intoxication measurement system” for cannabis products, according to Kirk Miller, vice president of Emergent Risk Insurance Services. In other words there is nothing equivalent to blood alcohol level to mark when someone is legally considered a danger to themselves and to others. Dolan notes that this is an issue for both civil and criminal liability matters. “How do you test for sobriety?” he asked, noting that marijuana will register positive in a blood test days after it was consumed.

The unsettled liability picture is one reason why insurers have not rushed in to take advantage of the rapidly-growing legal marijuana industry.  Additionally, “data is a problem” according to Miller, noting that, without claims experience, insurers have a difficult time establishing underwriting criteria and setting rates.

Fine sees insurers falling into three buckets: those that don’t realize that they have marijuana exposure and don’t attempt to limit it, those that recognize that they have exposure and include exclusionary language in their policies, and those that expressly provide limited coverage for marijuana-related exposures. He estimates that the third bucket – those that offer coverage – is comprised of 15 to 20 insurers, most of which are non-admitted carriers.

As the market matures, and as the liability picture clears, insurers likely will become more comfortable with providing coverage to what is expected to become a $145 billion market by 2025. Until then, however, businesses and professionals with marijuana-related risks will have to contend with an insurance market that largely wants nothing to do with the exposure. “It’s a journey of fits and starts,” said Miller, “but I see the insurance industry coming to embrace and champion the cannabis industry in the years to come.”

David K. Bradford, Advisen’s Chief Strategy Officer and Director of Strategic Partnership Development can be reached at dbradford@advisen.com