Cannabis operators are navigating an insurance environment that is structurally different from most industries: limited carrier participation, frequent exclusions, high retentions, and pricing volatility—often in the excess and surplus (E&S) / non-admitted market. The result is a familiar pattern: high premiums, incomplete coverage, and meaningful uninsured or poorly retained risk. This is exactly why every scaled cannabis business should at least evaluate a captive insurance company as part of its risk financing strategy.

Cannabis insurance is often a surplus lines problem—not a standard-market solution

The National Association of Insurance Commissioners (NAIC) has noted that most commercial insurance for cannabis-related businesses is still found in the excess and surplus lines (non-admitted) market. That market can be essential for complex risks—but it is also associated with less “off-the-shelf” coverage, more bespoke underwriting, and more variable pricing and terms.

At the same time, the overall surplus lines market has grown materially. The Wholesale & Specialty Insurance Association (WSIA) reports that surplus lines insurers’ share of total U.S. P/C (property and casualty) direct premiums written rose from 3.6% in 2000 to 12.3% at the end of 2024, and surplus lines’ share of commercial lines premium rose from 7.1% to 25.7% over the same period.

Many operators are underinsured—and they know it

A key reason to consider a captive is simple: many cannabis companies report that their insurance programs do not adequately protect profits against real-world loss scenarios. HUB International’s 2025 Outlook Executive Survey (Cannabis) reports that nearly three-quarters of cannabis industry respondents say their organizations do not have adequate insurance, often facing a choice between unaffordable rates and no protection.

The bigger issue is not just premium level—it’s coverage gaps and inefficient retention

High premiums tend to dominate renewal conversations, but the more strategic problem is that cannabis operators frequently retain significant risk through a mix of exclusions, sublimits, and high deductibles/self-insured retentions. In practice, many businesses are already self-insuring—just without a formal risk-financing structure, dedicated funding mechanism, or a way to capture underwriting upside.

NAIC’s cannabis insurance white paper emphasizes that the tension between state legality and federal illegality creates uncertainty about insurability and policy language application, contributing to carrier reluctance and persistent coverage gaps.

A captive can turn retained risk into a managed program—and potentially a profit center

A captive insurance company is a regulated insurance entity owned by the insured(s). For qualified cannabis operators, a captive can be used to finance predictable layers of loss (for example, deductible or self-insured retention layers), address gaps where commercial insurers restrict terms, and create a longer-term cost-stabilization mechanism.

Properly structured, a captive can also allow the business to retain underwriting profit that would otherwise be paid to third-party insurers—while still using excess insurance and/or reinsurance to protect against catastrophic severity. This aligns incentives: better risk control tends to translate into better financial outcomes over time.

The best-fit cannabis operators share a few characteristics

Captives are not a fit for every cannabis business. Generally, they are most effective for operators with meaningful premium spend, sufficient scale and cash-flow stability, and a willingness to run a multi-year risk strategy. The best-fit audience includes dispensary owners, cultivators/processors/manufacturers, cannabis tech platforms, packaging companies, testing labs, and ancillary businesses—especially cannabis operators with other non-cannabis operations that can diversify risk.

Smaller single-location retailers or low-profitability operators may lack the premium volume and capital to efficiently fund a captive program.

What “considering a captive” should look like in practice

A disciplined evaluation typically starts with a feasibility study and program design discussion that covers:

·   Your current premium spend, retentions, and the coverage gaps creating uninsured exposure

·   Loss history and expected loss modeling (frequency/severity) for candidate lines and layers

·   Capitalization requirements and liquidity planning

·   Governance, claims administration, and risk-control expectations

·   How the captive integrates with commercial excess insurance/reinsurance to cap tail risk

·   Long-term economics: whether retained underwriting results and investment income can improve total cost of risk

Bottom line

Cannabis insurance is unlikely to become “normal” overnight. State legalization continues to expand (for example, NCSL reported that as of June 26, 2025, 40 states allow medical cannabis programs and 24 states allow or regulate adult-use), but the state/federal mismatch remains a core constraint on insurance capacity and terms. In this environment, scaled cannabis operators should treat risk financing as a strategic decision—not simply an annual renewal outcome.

A captive is one of the few tools that can simultaneously address coverage gaps, reduce volatility, and create a path to retain underwriting upside—while reinforcing a risk-control culture that supports enterprise resilience.

If you’re spending significant premium dollars, carrying large deductibles, or living with known coverage gaps, it may be time to evaluate whether a captive belongs in your risk financing strategy. 3F Captive Services can help you assess feasibility and design a captive program that complements the traditional insurance market. Book an appointment to learn more.

Sources (for all statistics and cited statements)

[1] 3F Captive Services – Campaign Brief: Cannabis (Revised Dec 2025). Internal document provided by client.

[2] NAIC – Regulatory Guide: Understanding the Market for Cannabis Insurance: 2023 Update (adopted 07/18/2023).

https://content.naic.org/sites/default/files/cannabis-insurance-2023update-white-paper-adopted-07.18.2023.pdf

[3] NCSL – State Medical Cannabis Laws (medical and adult-use counts as of June 26, 2025).

https://www.ncsl.org/health/state-medical-cannabis-laws

[4] WSIA – Foundation Summary (surplus lines market share statistics through end of 2024).

https://www.wsia.org/wcm/wcm/Foundation/Summary.aspx

[5] HUB International – Cannabis (HUB 2025 Outlook Executive Survey; underinsurance statement and auto premium trend).

https://view.ceros.com/hub-international/specialty-template-cae-2025-4

[6] Risk Strategies – State of the Insurance Market Report (Cannabis) – 2025 initial outlook / 2024 wrap-up (market conditions: limited availability, high premiums).

https://www.risk-strategies.com/state-of-the-insurance-market-report-2024-cannabis

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