The cannabis industry continues to struggle for recognition in the U.S., even as more enlightened policies in Canada have tilted the competitive advantage in that country's favor.
But a new surety bond approval from the California Department of Insurance is giving the state's cannabis industry a push in the right regulatory direction. The department approved a surety bond issuance from Continental Heritage Insurance Co.
Continental is also offering surety bonds to licensed cannabis businesses in Ohio.
Surety bonds provide cannabis industry players of a way to make sure they can can comply with relevant regulations. For instance, if a company's product was contaminated, the bond would allow the company to cover costs of destroying or otherwise disposing of the product. Such material could not just be thrown in the trash.
In the case of California, the insurance regulator department appears aggressive in its support for the cannabis industry -- and making sure it's properly insured.
When it comes to U.S. cannabis businesses, Canada has a competitive edge as medical marijuana is legal at the federal level, and recreational use will likely be legalized this year.
Consequently, institutional capital is flowing into Canadian cannabis businesses. Last year liquor company Constellation Brands (STZ - Get Report) invested more than $200 million in a cannabis company, and another company set its self up for the $1 billion acquisition of CanniMed Therapeutics Inc. that was funded partially by a large PIPE transaction.
California's position may create a conflict with the federal's government's hostile policy changes on cannabis as delineated by attorney general Jeff Sessions, but that may not be a problem at the moment in the Golden State.
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The federal government in the U.S. has been known to alternate between passive and aggressive policies on cannabis enforcement. This regulatory uncertainty is one of the factors that makes institutional investment in the industry highly problematic.
"Californians voted to legalize the adult-use of cannabis in 2016 and the medical use of cannabis in 1996," a California Department of Insurance spokesperson told the TheStreet. "The department will continue to encourage insurers to write cannabis insurance products for the cannabis industry."
They added, "Moreover, as long as the Rohrabacher-Blumenauer amendment is in effect, which it is until March 23, the federal government cannot use federal funds to prosecute state-compliant medical cannabis businesses."
Rep. Earl Blumenauer, D-Ore., and co-chair of the Congressional Cannabis Caucus, backed the Rohrabacher-Blumenauer amendment, which was recently extended into March of this year. The legislation was designed to make medical marijuana available to individuals with health problems.
California has a complex regulatory environment for cannabis, much of which is defined by the Medicinal and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA) and the state's Bureau of Cannabis Control. These entities provide regulatory frameworks for growing, processing and distributing cannabis.
The California State cannabis portal provides information on a wide variety of legal and regulatory issues. "Our daily updates feature essential information related to the state's commercial cannabis regulations and guidelines, the licensing application process, and announcements from the state's three cannabis licensing authorities and their business partners," the site says.
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"Cannabis businesses should have insurance coverage available to them just like any other California business," Insurance Commissioner Dave Jones said in a Feb. 21 news statement.
"As Insurance Commissioner, my mission is insurance protection for all Californians, which includes insurance for California's legalized cannabis businesses. I encourage more insurance companies to file cannabis business insurance products with the department to meet the needs of this emerging market."
It remains to be seen how much of a conflict will develop between California and the U.S. federal government.