The Department of Justice issued an order on April 23, rescheduling state-licensed medical marijuana and Food & Drug Administration-approved cannabis products to Schedule III of the Controlled Substances Act (CSA). The order is also expected to jumpstart the stalled Drug Enforcement Administration rescheduling process for adult use marijuana, which currently remains in Schedule I. The order, therefore, narrows but does not eliminate federal prohibitions.
Historical Insurer Treatment of Marijuana
For years, federal illegality and Schedule I status fueled blanket exclusions, limited capacity, and encouraged a reliance on the excess and surplus market, where bespoke forms and higher premiums filled coverage gaps. Large commercial insurers consistently cited federal illegality and related banking/Anti-Money Laundering (AML) concerns as the principal reasons to stay out, with reputational risk present but fading over time. Federal AML rules under the Bank Secrecy Act (BSA) added compliance friction for “financial institutions,” a term that includes insurers, keeping many programs E&S-only.
Reinsurance treaties often include Schedule I barriers, limiting underwriting capacity and appetite. The result has been a fragmented market with tight limits, uneven forms and reinsurance constraints, while admitted options remained scarce.
Emerging Insurance Opportunities
Rescheduling removes a top financial headwind for state‑licensed medical operators by removing Internal Revenue Code Section 280E, enabling ordinary business deductions and improving margins and balance sheets that are essential for better insurance terms and capacity.
As profitability and transparency improve, carriers are likely to expand property and business interruption limits for medical cannabis insureds and lean back into reinsurance partnerships that were hard to place under Schedule I. Directors and Officers towers should also deepen if valuations, listings, and deal flow revive, though board risk will get more complex. On the casualty side, product liability and recall remain core needs across the supply chain, and demand should rise as operators scale and SKUs proliferate.
Underwriting and Risk Assessment
The expectation should not be for underwriting to get “easy” just because the schedule number has changed. Transitional risk is real as a result of new products, larger facilities, evolving QA systems, and changing oversight, which all add execution risk that underwriters will price and condition.
Reclassification may also spark short‑term turbulence if unregulated products spike or enforcement lines blur, amplifying exposures around labeling, warnings, and adverse event tracking. Carriers must continue to scrutinize controls around testing, traceability, facility security protections, and product compliance.
Regulatory and Compliance Implications for Insurers
Banking access should improve as perceived AML risk recedes, and Treasury’s Financial Crimes Enforcement (FinCEN) is widely expected to refresh guidance, which would materially reduce compliance concerns for insurers.
That said, federal law still treats marijuana as a controlled substance, and FDA/DEA frameworks do not harmonize with adult‑use state markets. The federal prescription drug system mandates FDA‑approved products, doctor prescriptions, pharmacy dispensing and uniform labeling. FDA has not approved “marijuana” itself for any condition, even though it has approved a CBD‑derived drug (Epidiolex) and several THC‑related drugs (Marinol, Syndros, Cesamet).
Related: DOJ to Loosen Marijuana Rules in Major Shift for $47B Industry
Schedule III drugs, by definition, require valid prescriptions. The new order recognizes state‑licensed medical marijuana within Schedule III, but it does not create FDA standards for those state‑program products.
The history of federal attention over CBD should be a cautionary tale for what may come next. Years after hemp was removed from the CSA, the FDA tried to police the quickly expanding consumer hemp product market but eventually gave up and punted the question to Congress in 2023. The regulatory status of CBD in consumer products remains unclear to this day. The move to Schedule III makes a similar pattern likely for medical marijuana products, while leaving intact the prohibition on interstate commerce for unapproved drugs.
With no FDA playbook governing state medical cannabis, insurers still face gray zones on product safety, compliance warranties, and how to price recall and product‑liability risk across a patchwork of state standards. To date, the DOJ has largely sidestepped how federal rules will interact with state markets, and even now FDA officials have signaled limited appetite and capacity to police the state industry. This uncertain compliance environment keeps the market in “proceed with caution” mode.
Broader Insurance Market Outlook
Even with the new Schedule III order and an expected acceleration of rulemaking for adult use cannabis products, most industry experts still forecast incremental, measured expansion rather than a flood of cheap capacity.
Specialty E&S markets will maintain their early lead, scaling capacity where controls are strong and data quality is high. Established carriers may test targeted segments, which may include well capitalized and vertically integrated operators with robust governance. Reinsurers, meanwhile, should selectively increase their presence as banking and financial reporting normalize. Admitted options may emerge first for lower hazard risks, but E&S will dominate complex risks until federal state alignment is clearer and product safety litigation trends stabilize.
Where We Are Going
Rescheduling is the green light many insurers have been waiting for, but the light is still flashing. Most importantly, the timing on rescheduling and rulemaking for adult use cannabis products remains uncertain. Taxes and banking are set to improve immediately for medical marijuana operators. In this environment, new insurance entrants will follow the underwriting experts who already know the terrain. The winners will be carriers and insureds who treat this as a disciplined pivot‒ lock in compliance, invest in quality systems, and build programs that can scale as federal guidance catches up.
The next 12 to 24 months should see steady capacity gains and a gradual transition from “can we insure it?” to “how well is it run?” Meanwhile, E&S is still calling the plays while the admitted market warms up on the sidelines.
Stewart is cochair of Wilson Elser’s Cannabis Law Practice and the regional managing partner of the firm’s Los Angeles and Orange County offices.
