The risks of legalized marijuana


The risks of legalized marijuana

With the legalization of marijuana for medical and recreational use in a growing number of states, there is clearly a need for risk management professionals who specialize in this uncharted territory, says Michelle Foster Earle, president, OmniSure Consulting Group.

The reality is that, when it comes to the risk issues surrounding the legalized possession of marijuana, there are currently more questions than answers.

In September, I moderated an educational panel and debate for the Professional Liability Underwriting Society (PLUS) in Southern California with panelists who included a registered nurse, a forensic toxicologist, two attorneys, and two underwriters, all of whom have addressed various types of risk, liability, and legal issues arising from the use and dispensing of marijuana.

At the time of the panel discussion, 25 states and the District of Columbia currently have laws legalizing marijuana in some form. Four states and the District of Columbia have legalized marijuana for recreational use. In Alaska, adults 21 and older can now transport, buy or possess up to an ounce of marijuana and six plants. Oregon voters approved a similar measure allowing adults to possess up to an ounce of marijuana in public and 8 ounces in their homes. Colorado and Washington previously passed similar ballot measures legalizing marijuana in 2012. Washington State has received more than $70 million in tax revenue from recreational marijuana sales.

A number of states have also decriminalized the possession of small amounts of marijuana. Most recently, Delaware passed legislation that decriminalizes the private use of up to an ounce of marijuana, replacing penalties with a civil fine.

But one fact remains—marijuana usage is illegal under federal law. The federal position is that marijuana is a Schedule I drug and has no acceptable medical use. At the same time, it is an inefficient use of federal resources to prosecute medical marijuana-related crimes when the action is in compliance with state law.

One of the first basic operational challenges is the fact that marijuana dispensaries don’t have a lot of options when it comes to banking and accepting credit cards. Most banks will not do business with marijuana operations, which has turned marijuana dispensaries into a cash business. This is because distribution and possession are still illegal under federal law, and so any bank subject to federal regulation may potentially be implicated as a beneficiary of illegal activities or money laundering if it allows marijuana businesses to bank at its institutions.

"Can an employer terminate an employee for testing positive for marijuana use if that employee has properly obtained the drug for medicinal purposes?"

Another challenge is the difficulty in finding liability insurance. Recently Lloyd’s of London stopped insuring marijuana industry firms of any kind due to conflicts between federal and state laws. Historically, Lloyd’s has been the go-to marketplace for insurance policies that are difficult to find elsewhere. Yet Lloyd’s decided no longer to support insuring marijuana operations of any kind until the drug is formally recognized by the US government as legal.

Liability issues

When it comes to liability there are a number of areas that could present potential issues. General liability risks arise as a result of an inability of growers and dispensers to bank with Federal Deposit Insurance Corporation (FDIC)-insured institutions. The amount of cash on hand at a marijuana operation makes it a prime target for robbery. An estimated 20 percent of dispensaries have been robbed. Dispensaries and growers have taken to hiring armed guards because of the risk of robbery. This increases the scope of general liability exposure and the potential for more severe losses involving death or serious injury.

Perhaps most evident are the exposures affecting employment practices liability. One of the big questions is: can an employer terminate an employee for testing positive for marijuana use if that employee has properly obtained the drug for medicinal purposes? Attorneys Will Klatte of Klatte, Budensiek & Young-Agriesti, LLP, and John Barber of Lewis, Brisbois Bisgaard & Smith, LLP represent and advise companies seeking to determine whether employees are protected and both caution that case law is complicated by state differences and the changing legal landscape.

Nevertheless, some risk management tips for employment practices liability provided by Chris Reese, director of underwriting for NAS Insurance include referring to “best practices” put forth by the Society of Human Resource Management (SHRM) and consultation with counsel familiar with all applicable local, state and federal law. Some examples include:

Review the company’s drug-related policies. Ensure that human resources can clearly explain what the company’s expectations are of employees. Make sure everyone knows what the company’s drug testing policy is, both as it relates to pre-employment and random testing.

Consider basing policies on expected job results, and not specifically on marijuana use, where possible. Note that companies with federal contracts will be subject to federal law and cannot use employees to service those contracts if they test positive for marijuana use, or they may lose funding.

Remind workers that they are subject to being fired if they violate company policy.

Work with employees that have medical marijuana cards. Are there alternative forms of treatment? Is there a job that they can perform safely? Address medically documented use of marijuana by employees on a case-by-case basis. Is it possible to prevent the hazards posed by use?

Train managers on company policy and to recognize signs of drug use of any kind.

Another area of potential liability is with the dispensary. Deb Goldberg, director of medical underwriting for Markel Insurance, suggests you think of it like a pharmacy risk with a little bit more exposure added on. Unlike traditional pharmaceuticals where the MD prescribes a particular medication at a particular dose, the treating physician does not prescribe marijuana.

Rather, the physician affirms that the patient has a condition that could be treated with medical marijuana. Acceptable conditions vary by state, and there are many strains of marijuana that may treat symptoms to a greater or lesser degree depending on the symptoms. The dispensary can recommend a particular strain, and is also responsible for validating and tracking medical marijuana cards. Most have computerized systems to maintain records—this is a statutory requirement.

Physician risks

Other risks are associated with physicians who authorize medical marijuana cards. The question is whether the physician is meeting the standard of care in the state where he or she practices. This involves verifying that they are following the state regulations and guidance by the state medical board. Some allegations that can be brought against a physician include failure to properly evaluate the patient or failure to provide information necessary for the patient to use marijuana with proper informed consent.

Also according to Goldberg, potential products risk emerges as one of the largest growing areas in medical marijuana is the production and consumption of edibles: foodstuffs that contain the active ingredients THC and cannabinol. Many state laws require that edible products be labeled with information on amounts of active ingredients in the process but recent studies have found that the labeling is inaccurate in many cases.

In June 2015, the Journal of the American Medical Association published a study that examined 75 edible products in three cities. Of these 75 products only 17 percent correctly indicated the amount of THC in the sampled product—60 percent had less THC and 25 percent had more. Sampling was done on products for
CBD (cannabidol)—less than 30 percent were even labeled for this active ingredient, and of those that were labeled, none was labeled accurately.

Getting advice

OmniSure’s Lise Rogers, RN, a medical auditor and clinical risk consultant, has researched the impact of various risks to patient and employee safety and is available to speak with healthcare providers about medical and recreational marijuana use.

Panelist and OmniSure client, Kent Johnson, MS/FT, NRCC/TC, RP-SAMHSA, a toxicologist with Exceltox, and I both agree: when an industry is this new, uncertain and teeming with a wide range of risks, a risk management professional with industry-specific expertise is clearly required.


Michelle Foster Earle is the president of OmniSure Consulting Group, a risk management firm contracted by some of the nation’s leading medical professional liability insurance companies to help medical practices, hospitals, healthcare facilities and providers of healthcare and social services nationwide reduce risk, improve performance and avoid lawsuits. She has earned designations in healthcare management, is licensed general lines property and casualty agent in Texas, and is an associate in risk management. She can be contacted at:

Michelle Foster Earle, OmniSure Consulting Group, US