1. Prices will go up

Lloyd's of London was one of the first players in the medical marijuana insurance industry. As such it had the lion's share of the market with over 50% of all policies in the industry placed through their syndicates.

Many felt that the policies written by Lloyd's were underpriced, which created stiff competition with other insurers looking to gain a foothold in the industry. The lack of a large, low-cost rival allows these other companies to determine their own fair pricing, which is sure to drive up the cost of every policy in the next one to two years, possibly doubling the price of some policies.

2. Capacity will become an issue

In the next 12 months all of the medical marijuana industry policies written by Lloyd's will be non-renewed, leaving an untold number of insureds looking for new coverage. This will be an exciting time for insurers looking for new business, but it will create capacity issues.

Insurance carriers will need to figure out how to budget for new staff and facilities to handle the large influx of new insureds over a relatively short period of time. In the meantime, they may be slow to respond to quote requests. This will create more stringent underwriting guidelines.

With several months to go before reinsurance treaties are renegotiated, many carriers may not have the capacity to add the hundreds of policies that will be non-renewed by Lloyd's before the end of the year. Getting accounts out into the marketplace well before nonrenewal is a must.

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3. Underwriting will become more stringent

As with any other hardening market, the upper hand shifts from the insured to the insurer. Underwriting requirements will become more stringent with insurance carriers focusing on those things that will allow them to cherry-pick the best accounts due to both selection and capacity. These requirements may include:

• Security systems
• Financial stability (financial reports may be required)
• Background checks for owners
• Background checks for employees
• Strict compliance with all applicable state laws

While even the most legal of medical cannabis operations may be subject to Drug Enforcement Agency (DEA) raids, the insureds who are most above board in their operations may be less of a target, making them more desirable clients for the insurance companies.

4. New carriers will enter the marketplace

With Lloyd's on the sidelines of a market they once dominated, new carriers may decide to enter the industry. Fair pricing and less competition will be more attractive to newcomers who may have been looking to enter the cannabis insurance business.

Retail may not be the only place we see newcomers to the industry. With reinsurance treaties being negotiated at year end, new players may enter the market on the reinsurance side. It is also unclear whether Lloyd's will be pulling their reinsurance contracts for marijuana insurers as well, but that could open the door for new reinsurers to get in the game and for current insurers to increase their capacity.

5. Marijuana will become legal at the federal level

In December 2014, Congress included language in the budget bill that reduced the U.S. Department of Justice's authority to use funds to raid medical marijuana facilities in states where such facilities have been made legal. This non-enforcement also extended to funds produced by medical marijuana facilities being implicated by anti-money-laundering laws.

DEA raids are certainly a concern for any insurer, since they stand to lose the business when the facility they are insuring is raided and ultimately shut down. However, this “moratorium” on enforcement only extends to medical marijuana facilities, not recreational marijuana facilities.

Lloyd's exits the marketplace as 23 states and the District of Columbia have all passed legislation legalizing the use of marijuana medically and/or recreationally. Other states have bills currently making their way through the state legislative branches over the next several years.

Public opinion continues to sway towards legalization, even as the federal government puts pressure on banks and insurance companies to stop transacting with marijuana. What happens when the majority of states have legalized medical marijuana? It is the hope of the cannabis industry that this will pressure the federal government into legalization.

Federal legalization may be years down the road, but the impact of the Lloyd's decision will be felt immediately by other insurers and insureds in the marijuana industry.

Galen Hayes is president of Hayes Insurance. Hayes has insurance carriers that can handle every aspect of marijuana insurance including, but not limited to: dispensaries, cannabis growing operations, product manufacturers, landlords, testing labs, warehouse and delivery operations and cargo transport.