From a broad view, data from the cannabis industry fails to paint an informative picture of what lies ahead for the business in 2024 or what the year holds for insurance professionals specializing in servicing the sector.
Despite a prevailing public focus on the cannabis glut hampering sales in long-legal states, data from industry analysts show cannabis sales overall in the U.S. are poised for growth next year and beyond – with strong performances from new states and emerging product categories.
Some of that growth is because cannabis is now legal for adult-use or medical-use in most states, putting 53% of Americans in a legal state, which is expected to help drive cannabis sales over the next few years to $54 billion by 2027, according to the MJBiz Factbook.
Dragging on that growth is increased competition that has pushed the average retail price of cannabis down. Data from cannabis analytics firm BDSA shows average retail prices across mature markets – Arizona, California, Colorado, Nevada and Oregon – fell 13% between the third quarter of 2021 and the same time in 2022, with some markets seeing price compression higher than 20%.
Despite the downward trend, cannabis consumer participation is literally higher than it’s ever been, and new legal markets are opening every year, making the cannabis “one of the fastest growing and most dynamic industries worldwide,” according to BDSA.
Next year, total U.S. cannabis sales are forecast to grow 10% or more, according to the firm.
What that broadly means for cannabis insurance specialists is there will be ample growth in newer markets, and tough competition in mature markets where businesses are eying bottom lines.
But the whole truth is far more detailed, and insuring cannabis opportunists may want to pay closer attention to the more granular data.
A new report out from Hub International examining 2024 in insuring cannabis reflects that mixed bag, and the reality of insurance in a riskier world – more severe wildfires in California and more severe storms and the realities of the risks inherent in any sort of agriculture. It also reflects the growing opportunities in emerging products and new markets.
“Losses related to catastrophic events such as fires, particularly those caused by a failure of High Intensity Discharge (HID) lighting systems used to grow crops, or theft of expensive cannabis products like cannabis oil, present further challenges to profitability,” Hub’s report states. “And a rapidly spreading plant pathogen called HLVd could cost cannabis growers billions of dollars in coming years.”
The report also addresses concerns with extreme weather events (droughts, floods, storms and wildfires) affecting yields for some cannabis growers.
“The impact of these events is a significant concern for the industry, with 62% of HUB International’s 2024 Outlook Executive Survey cannabis respondents citing climate change and natural hazards as a top risk to profitability in 2024, followed by loss of credibility and business interruptions,” the report states.
Jay Virdi, chief sales officer, specialty practices group, industry segment leader for North America at HUB, summed up his feelings on the insuring cannabis space in 2024.
“It’s an ongoing challenge,” Virdi said. “Mature markets will continue to struggle with growth as there are too many restrictions due to state regulations and federal illegality. There is some optimism about rescheduling and SAFER Banking all the way to the belief that federal legalization will happen sooner than later. With cautious optimism we will continue to support and advocate for the cannabis industry in every way that we can.”
Virdi was overall upbeat about the market, and plans to beef up staff in the speciality in accordance with that view, which he later expanded upon in an interview.
The possibility of new laws and regulations making doing business in cannabis better and more profitable seems to be a leading point of optimism for a number of specialists spoken with.
“We’ll be growing in all states,” said Charles Pyfrom, chief marketing officer and CannGen Insurance Services LLC. “What we’re optimistic about from a legal change is positive. We’re in a position of helping those who want to grow. I’m feeling really good about next year.”
Pyfrom acknowledged that his bullishness in part is because CannGen’s name and position means it will withstand any hard times in the mature markets.
“Everybody knows our name, and it’s a good position to be in,” he added.
TJ Frost, president of Symphony Grow, is also encouraged by the prospects of SAFE Banking and descheduling, but more importantly, he’s hearing from reinsurers who are encouraged by those prospects.
“I’ve received a significant amount of calls from reinsurers looking to enter into the space just because all of the movement around the possibility of descheduling the product,” Frost said.
When he was being interviewed by a reporter on Thursday, he’d just got off two phone calls from people at reinsurers who were asking him about their data and how Symphony Grow feels about certain aspects of the market.
“We’re going to see an expansion of carriers, we’re going to see an expansion of limits,” he said. “We just opened our 11th office location and now have international capabilities, and we’re focused on growing in the newer states.”
He continued: “Like everyone right now, we are continuing to keep a close eye on the East Coast, Midwest and South. We have expanded our footprint office and talent in those locations to better serve our clients in the surrounding areas.”
Virdi said Hub will continue serving all segments of the specialty whether or not they are plant-touching, such as HUB’s cannabis dispensary insurance program, its cannabis benefits captive insurance and its services for cannabis operations with retirement and wealth needs.
“Our main focus will be to assist the middle-market to large growers/processors that continue to expand their business rapidly,” he said. “We will assist them in staying compliant and protected as they grow their business.”
The bright-sides that color these insuring cannabis expert outlooks are borne out by analysis inside and outside the cannabis industry.
InvestorPlace’s assessment of 2024 is that “the cannabis sector stands at the cusp of an exciting era,” likely fueled by political backing and stronger public opinion on descheduling. The assessment also points to the U.S. Department of Health and Human Services’ recommendation to reclassify marijuana as a Schedule III controlled substance.
Cannabis Business Executive featured interviews with, of course, cannabis executives looking out to 2024 with thoughts including the possibilities of rescheduling and 280E tax relief enabling companies to pay down debt and reduce annual interest expenses, strategies of creating brands and products that resonate with consumers, and optimism for novel and hemp-derived cannabinoid products driving industry sales.
Prohibition Partners is forecasting international sales could be worth up to US $103.9 billion in the next two years, while New Frontier Data asserts total global consumer spending on legal and illicit high-THC cannabis alone is projected to grow to $496 billion by 2025.
Topics California Trends New York Data Driven Cannabis