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Product Liability: What You Need to Know About CBD

Cannabidiol (CBD) sales in the U.S. will surpass $20 billion by 2024. The biggest emerging trend in product liability insurance, the CBD market has unique challenges.
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Cannabidiol (CBD) sales in the U.S. will surpass $20 billion by 2024, according to recent research from leading cannabis researchers BDS Analytics and Arcview Market Research.

If you’ve never heard of CBD, it’s a naturally occurring chemical compound from the cannabis plant that is used in products like oils and edibles to produce feelings of relaxation and calm. Unlike tetrahydrocannabinol (THC), the other main player in the cannabis plant, CBD is not psychoactive.

Purchasing CBD is currently legal under federal law, as long as it is derived from hemp and doesn’t contain more than 0.3% THC. The legal situation for sellers, however, is complex and confusing.

Cannabis, meanwhile, is legal either recreationally or medically in 33 states and Washington, D.C. But while the new research considers CBD products sold through licensed dispensaries, pharmaceuticals and in general market retail, including cafes, smoke shops, grocery stores and pharmacies, BDS predicts that the majority of CBD products sales will soon occur in general retail stores rather than cannabis dispensaries—and reports that CBD product sales in dispensaries have grown at an even faster rate than overall sales in dispensaries since 2014.

“When you talk about opportunities in product liability insurance, the biggest emerging trend we see today is CBD products,” says Donnacha Smyth, president, global excess casualty, AXA XL. “You’ve just got to walk down the street to see shops selling CBD products everywhere.”

In the aftermath of the 2018 Farm Bill, which legalized hemp cultivation, “there are wide reports that this industry has tremendous growth potential,” Smyth continues. “But it also has its challenges as a young industry.”

For starters, it’s not closely regulated—“there is no substantive regulatory framework in place,” Smyth says. “We’re likely to see some regulation from the U.S. Food and Drug Administration as it develops, but the areas of concern for insurers include the supply chain of the products, contractual management and pure quality control.”

That’s because, due to the emerging nature of CBD, “companies that are actually harvesting and producing the products tend to be more unsophisticated type of businesses that might not understand the broader product risks,” Smyth explains.

Smyth notes that carriers like AXA XL are responding “slowly but positively” to the CBD market. “Specifically, we’re wanting to support medical use—cases where there’s a real human benefit,” he says. “What we’re seeking to avoid are products involved in lifestyle or injectable-type products, because we don’t think there’s been sufficient due diligence or testing done.”

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As insurers continue to respond to the growing CBD market, then, “underwriters might be asking questions like, ‘Where are the products placed in shops? Are they in the pain medication area?’ There’s a lot going on here, but I think it’s a tremendously growing industry and a great opportunity,” Smyth says. “We just have to approach it in a thoughtful, balanced way.”

Beyond CBD derivatives, cannabis as a whole is an emerging opportunity for the product liability space. But so far, “there are very few insurers willing to dive in and write direct marijuana-related facilities,” points out Marc Alder, managing director, Burns & Wilcox Brokerage.

The reason is simple: Despite the aforementioned state-by-state legalizations, cannabis is still illegal under federal law. “You’ve got a whole bunch of carriers that are still waiting on the sidelines because they don’t want to get into the dispute of state versus federal and insuring something that technically could be deemed illegal,” Alder explains. “There’s a long way to go on that.”

“It’s changing, and it’ll continue to change the more education and knowledge there is around it,” adds Alder, who notes that one of the carriers he works with recently announced it would write cannabis-derivative products like CBD—just not cannabis itself. “But until there’s legal continuity, you’re going to continue to see a lot of players sitting on the sidelines. Any real, significant change is going to be tied to how the legal climate changes.”

Jacquelyn Connelly is former IA senior editor.