On June 29, 2026, Virginia’s $207 billion budget bill became law, bringing a retail cannabis framework that authorizes licensed sales beginning July 1, 2027.  Businesses entering this market should be prepared for unique insurance challenges, as no Virginia court has yet interpreted how standard commercial policies apply to such businesses.

Commercial General Liability (CGL) coverage is among the most likely to come into play. CGL insurance covers actual or alleged injury to third parties arising from operations or defective products, and it usually requires an insurer to defend any potentially covered claims.  It may be implicated, for instance, if customers allege adverse health outcomes from cannabis products.  Businesses should be mindful of exclusions for carcinogens, criminal acts, and expected or intended injuries, which insurers may attempt to invoke to deny cannabis-related claims.

Cannabis businesses also face unique Directors and Officers liability (D&O) risks.  D&O policies protect insured businesses, as well as their officers and directors, against the risk of third-party claims and government investigation.  Such policies typically exclude indemnity for illegal or wrongful acts, although they often will cover defense costs until alleged illegal or wrongful acts are proven.  Key concerns include potential coverage gaps if a director is prosecuted under federal law, shareholder derivative suits, and increased board risk as the market grows more complex. 

Property policies likewise often contain exclusions for growing crops and contraband under federal law, which property insurers may attempt to invoke to contest coverage for cannabis-related property claims.  And, given that cannabis businesses typically have relatively limited financial track records, business interruption claims may turn on added complexities for insureds in the industry.

Recognizing that cannabis may no longer be considered contraband, some property and liability insurers have adopted exclusions that may function to limit or exclude coverage for certain cannabis-related risks.  Although some property and liability insurers have drafted their own exclusions, many insurers have opted instead to rely on endorsements that were introduced by the Insurance Services Office (or “ISO”) in 2019.  Two ISO property endorsements purport to treat cannabis as “property not covered,” while three ISO liability endorsements purport to exclude coverage for bodily injury and property damage arising from cannabis activities.  It should be noted, however, that ISO endorsements may contain exceptions for hemp-derived products. 

Carriers have also tried to avoid coverage by arguing that insuring cannabis is “illegal” or “against public policy.”  The few courts to address this question are split.  In Tracy v. USAA Casualty Insurance Co., a Hawaii federal court granted summary judgment for the insurer, holding that paying a claim for stolen medical marijuana plants would violate federal law and public policy. 2012 WL 928186 (D. Haw. Mar. 16, 2012).  But in The Green Earth Wellness Center LLC v. Atain Specialty Insurance Co., a Colorado federal court found the policy’s “contraband” exclusion ambiguous and allowed coverage, stressing the carrier knew it was insuring a marijuana business.  163 F. Supp. 3d 821 (D. Colo. 2016).  Similarly, in Kush, Inc. v. Van Vranken, a Nevada federal court applied a “more nuanced approach,” denying the defendant’s motion to dismiss.  2020 WL 8371452 (D. Nev. Jun. 19, 2020).

The insurance landscape remains in flux, and insurers may continue to advance contraband and public-policy defenses while cannabis is federally illegal. Moreover, the Department of Justice’s and DEA’s recent announcements of the intent to reschedule cannabis as a Schedule III drug may further complicate matters for recreational cannabis sellers, as recognizing cannabis’ medical use does not render the product broadly legal to sell or possess without a prescription. For now, to minimize the risk of coverage disputes, cannabis businesses should seek to have their policies specifically endorsed to provide coverage for their business property and specific business operations, and they should carefully review their policies and consult with coverage counsel when claims arise.