How Agents Can Help Cannabis Clients as Expanded Federal Liability Raises Litigation Risks
The rapidly evolving legal landscape around the cannabis market is creating uncertainty not only for the cannabis operators within the market but for all those involved in the industry, including insurance carriers and independent agents.
“The biggest anticipated change is the rescheduling of cannabis, which looks more likely to happen in 2026 than ever before,” says Kieran O’Rourke, director of underwriting at Cannasure Insurance Services. “However, it won’t be a significant event in the cannabis insurance marketplace unless it’s coupled with a change in cannabis banking, which is included in the SAFER Banking Act that has been on Capitol Hill for years.”
While cannabis rescheduling was a frequent topic of debate throughout 2025, there was little movement towards federal legalization, allowing the current, complex nature of state laws and rules to persist. This allows for continued risks for operators and insurers who operate within the market.
The risks expanded even further when in April 2025 the U.S. Supreme Court issued a pivotal 5-4 decision ruling in favor of a commercial trucker suing three CBD companies under the Racketeer Influenced and Corrupt Organizations Act (RICO). The trucker claimed that he failed a random drug screening and was subsequently fired by his employer as a result of ingesting a product falsely marketed by the companies as containing 0% tetrahydrocannabinol (THC) — the primary psychoactive compound in cannabis.
“We can see the legal environment is becoming more complicated for cannabis businesses,” says Julia Merritt, cannabis commercial underwriter at Burns & Wilcox. “Even when operators are fully compliant with state regulation and federal laws, they still create an exposure, so being compliant doesn’t necessarily mean being protected from lawsuits.”
Consequently, “we are seeing more class action activity and increased regulatory attention around product safety and labeling business practices—that combo naturally affects insurance through both pricing and coverage availability, especially for product liability and management liability,” Merritt says.
As the legal landscape becomes more complex with expanding civil liability under federal statutes such as RICO, increased class action lawsuits and heightened regulatory scrutiny, “insurers are treating that complexity as real exposure,” O’Rourke says. Here are three reasons why, O’Rourke says:
1) RICO‑based claims. These remain a concern because even unsuccessful suits can be expensive to defend. Plaintiffs have become more creative in framing cannabis operations as “criminal enterprises,” particularly in nuisance and land‑use disputes.
2) Class action litigation. These are growing across several fronts: potency variance, mislabeling, consumer expectations, wage and hour issues, and shareholder suits. This uptick has had an obvious impact on defense‑cost assumptions.
3) Regulatory scrutiny is sharper than ever. States are more actively auditing COAs, enforcing packaging and labeling rules, and issuing recalls. Each enforcement action carries its own potential liability and expense.
“Together, these factors have pushed carriers to tighten forms, raise retentions, narrow product definitions and exercise much more discipline about who they’re willing to put limits behind,” O’Rourke explains. “Until federal clarity arrives, this cautious posture is going to remain the norm.”
Nevertheless, one notable change is set to take effect this year in the hemp industry. Within the fast-growing market built on hemp-derived cannabinoid products, the Continuing Appropriations and Extensions Act, 2026 (2026 CAEA) is set to fundamentally change the federal definition of lawful hemp when it takes effect in November 2026 as it will significantly narrow which finished products can still be sold as “hemp” under federal law.
As the market evolves, agents can become indispensable in their role as trusted advisors. Here are three ways to elevate this role, says Lee Woodruff, vice president, cannabis practice, Jencap Insurance Services:
- Build relationships outside of insurance. Network with cannabis focused attorneys and stay active at industry events. That’s where you really learn how the legal and operational landscape is shifting often before it shows up in underwriting.
- Help clients think about risk management beyond insurance. Not every problem is solved with a policy. Operational controls, contracts, security and compliance all play a role in keeping insurance costs down.
- Understand the marketplace and use it to your advantage. The cannabis insurance market changes fast and working with experienced wholesale brokers who can access all available markets helps ensure clients are getting the best possible terms and pricing not just the easiest or most convenient option.
Olivia Overman is IA content editor.
