The US midterm election results are good news for the cannabis captives market, according to Matthew Queen, general counsel and chief compliance officer at Venture Captive Management.
The midterm elections saw Michigan vote to legalise the recreational use of cannabis, while Utah and Missouri legalised the drug’s medical use.
The Republicans maintained control of the Senate, but the Democrats took control of the House of Representatives.
Currently, 31 states, Washington DC, Guam, and Puerto Rico have already legalised cannabis for medical use, while nine permit recreational use.
Queen suggested that these results would likely have an effect on the cannabis captive insurance market.
He explained: “The more states there are with legal cannabis to some degree the larger the overall market.”
“The hardest part about captives and cannabis at the moment is the fragmentation of the market.”
“There are only a limited number of companies with sufficient size to merit a single parent captive insurance company.”
Queen added: “Consequently, the market needs larger players or a consolidation before captives will provide meaningful solutions beyond the dozen to two-dozen companies that would currently be a fit for a single parent.”
“The cell captive strategy makes some sense for the market as it currently stands, but the smaller players often have banking issues that need remediation before captives can take effect.
One of the key issues for the captive industry in relation to cannabis is that the federal prohibition of the drug means banking services are particularly difficult to obtain.
According to Queen, more widespread legalisation could help to solve this problem.
He remarked: “Greater legalisation only increases the number of banks quietly working with cannabis companies, which eases the transition into a captive programme.”
The Democrats majority in the House of Representatives has created an interesting situation around the issue of cannabis legalisation, especially ahead of the 2020 US election.
Queen predicted that the new house majority could lead to legalisation in some capacity in the next few years.
He stated: “I suspect that legalisation in some capacity will be brought forward by the new house majority and the Republicans won’t take the time to fight back in any meaningful way.”
“In fact, the GOP would be wise to allow either full legalisation for medical or banking solutions in 2019 just to take cannabis off the table as a political football for the Democrats in 2020.”