Federal Push to Reclassify Cannabis Could Transform Insurance Market for Industry

An executive order signed by President Trump in December 2025 to expedite the reclassification of marijuana from a Schedule I to Schedule III drug may fundamentally alter the insurance landscape for cannabis-related businesses by addressing a decades-long conflict between state-level legalization and federal prohibition, according to an AM Best commentary.

“The executive order does not guarantee access to banking or insurance,” said David Blades, associate director of AM Best. “However, increased financial access generally leads to a more formalized and less risky business environment, which would benefit the insurance industry.”

Market Transformation Through Reclassification

The administration’s rescheduling initiative centers on accelerating medical marijuana and cannabidiol research, a move that could unlock significant benefits for the cannabis industry, AM Best said. Should marijuana reclassification proceed, cannabis businesses would gain access to federal business tax benefits currently unavailable to Schedule I operations, including deductibility of standard operating expenses such as rent, utilities, employee wages, insurance and marketing costs.

The shift could also attract traditional financial institutions and insurance companies to an industry that has operated largely in the shadows, the AM Best commentary said. Currently, major national carriers have largely avoided cannabis insurance due to federal illegality and concerns about regulatory backlash. A change in federal classification would potentially encourage carriers to reconsider their participation in this specialized market.

High costs currently plague cannabis insurance, the commentary said. Premiums remain elevated due to risks inherent to cash-heavy operations, valuable inventory sitting in facilities and rising product liability claims stemming from contamination or mislabeling. The lack of long-term actuarial loss data forces underwriters to price with extreme conservatism, further inflating costs.

Persistent Barriers to Expansion

Despite potential benefits from the reclassification, significant challenges remain. The executive order does not constitute federal legalization, leaving cannabis businesses still subject to federal anti-money laundering regulations and other compliance requirements. These barriers continue to make banks and insurers hesitant to fully engage without explicit legislative protections.

Industry experts point to the Secure and Fair Enforcement Regulation Banking Act, introduced in 2023 but not enacted, as the legislation needed to remove these obstacles. That proposed law would have created a “safe harbor” for federally regulated financial institutions to serve state-legal cannabis businesses without fear of federal penalties.

The absence of historical performance data compounds underwriting challenges. Cannabis insurance remains highly specialized, concentrated in the excess and surplus lines market where only specialized carriers operate. Emerging products, such as hemp-derived THC beverages, add complexity by introducing new product liability exposures with unclear long-term regulatory trajectories.

What Lies Ahead for Industry Players

Robust research emerging from reclassification efforts could lead to better testing, improved controls and a healthier market overall. Reinsurers will play a critical role in this evolution, determining capacity limits available to primary carriers and establishing pricing levels for both property and liability coverage.

For cannabis businesses, access to stable capital and predictable insurance pricing remain pressing concerns, AM Best said.

Obtain a copy of the commentary here. &