The cannabis industry is evolving. While some mature markets are facing growing pains — marked by price compression and market consolidation — newer markets continue to see strong demand and expansion. With national cannabis sales projected to reach $50 billion or more in 2025, the industry remains a dynamic and lucrative space. However, operators in certain regions are experiencing economic challenges that require careful risk management. As an agent working with cannabis clients, you’re uniquely positioned to guide them through the changing landscape by securing the right coverage and mitigating risks.
The Economic Realities of Cannabis
Let’s examine cannabis industry trends more closely. These trends highlight where certain pressures are coming from that are impacting the market.
Price Compression from Oversupply
In mature markets, an oversaturated supply is driving down wholesale prices and squeezing profit margins for some producers. In California, for example, cannabis prices have dropped from over $2,000 per pound during the pandemic to around $1,200 per pound today. However, newer markets are still seeing strong growth as demand outpaces supply. The key takeaway? Supply-and-demand dynamics vary by state, and well– capitalized or strategically positioned operators continue to thrive. Agents working with clients in mature markets should know how pricing fluctuations factor into risk and coverage considerations.
High Operational Costs
From compliance with complex regulations to managing rising costs for labor materials, cannabis operators are paying the price. For mature markets, it’s particularly challenging, where smaller or cash-strapped businesses struggle to compete. In states like California, excessive taxation and competition from the illicit market have pushed some businesses to the brink. Meanwhile, operators in newer markets are still benefiting from high demand and limited competition.
Regulatory Uncertainty and the Tax Burden
Cannabis businesses are caught between state-level legislation and federal prohibition. While cannabis is legal for medical and recreational use in 38 states, it remains classified as a Schedule I substance under federal law, creating hurdles for operators and their insurers.
Another glitch for cannabis operators is IRS Code 280E. Because cannabis remains a Schedule I drug, businesses are barred from deducting common operating expenses like rent, payroll, and marketing, which results in effective tax rates of 70% or higher in some cases. If cannabis were rescheduled to Schedule III, it could allow operators to take standard business deductions — a welcomed tax break!
Limited Access to Capital
Federal restrictions continue to limit cannabis businesses’ access to traditional banking and financing. Many banks and financial institutions remain hesitant to work within the industry, leaving operators to rely on private investors and alternative lenders, or operate as cash-heavy businesses, which increases security risks and complicates day-to-day operations. While well-funded businesses are still growing and expanding, smaller operators with limited access to capital can struggle to invest in things like insurance — something you can help mitigate.
What Does This Mean for You?
More opportunity! Operators need guidance for navigating the pressures, risks, and rewards. You can add value by guiding clients toward more strategic cannabis insurance solutions.
Mergers and Acquisitions: Protecting Stakeholders
With market consolidation accelerating in mature states, Directors & Officers (D&O) insurance is a key safeguard for businesses involved in mergers and acquisitions. “M&A activity creates unique exposures for cannabis operators, especially around stakeholder liability,” says Anthony Manna, Senior Vice President – Financial Lines at Jencap. “Robust D&O insurance ensures that key decision-makers are protected during these transactions, particularly given the heightened regulatory scrutiny in this industry.” Agents can position themselves as strategic advisors by recommending D&O policies that align with the complexities of cannabis M&A deals.
Employment Practices Liability: Preparing for Layoffs
In states where market conditions are forcing companies to downsize, Employment Practices Liability (EPL) insurance is critical. This protects operators against lawsuits tied to wrongful termination, discrimination, or harassment. Lee Woodruff, Vice President of Jencap’s Cannabis Practice, emphasizes, “Employment decisions made under financial stress often carry risk. EPL coverage isn’t just a safety net — it’s a vital tool for protecting the company’s reputation and bottom line in these situations.” Use EPL insurance as a key talking point to help clients proactively manage workforce risks.
Fraudulent Claims: An Emerging Concern
Economic pressures often lead to an uptick in fraudulent claims, and the cannabis industry is no exception. Whether it’s theft, product liability, or property damage claims, operators need strong underwriting and risk management practices. “Fraudulent claims can devastate a business that’s already operating on narrow margins,” says Justin Sheerin, Cannabis Insurance Specialist at Jencap. “Agents can demonstrate value by identifying gaps in coverage and offering customized policies that protect against these risks.” Highlighting these protections reinforces your expertise and commitment to clients’ long-term success.
Price Sensitivity: Balancing Coverage and Cost
While some operators may be tempted to scale back coverage to cut costs, underinsurance is risky business. “Cost is always a factor, but cutting corners on coverage is a short-term mindset with long-term consequences,” says Woodruff. “Agents have an opportunity to educate clients on prioritizing essential coverage and finding creative solutions to manage costs without compromising protection.” By offering flexible, tailored insurance options, agents can position themselves as trusted partners in a challenging market.
Jencap’s team of experts is ready to help you support your book of business with customized insurance solutions and strategic advice. Contact us today to ensure your clients have the protection they need to thrive in this evolving market.
