The Legalization of Cannabis and its Effect on Workers’ Compensation Insurance

The Legalization of Cannabis and its Effect on Workers’ Compensation Insurance

Modern businesses face many challenges as they conduct their daily operations. Some of these challenges are centered on employee health and safety, with businesses implementing safety-oriented programs and services to help keep workers safe and to reduce the expenses associated with workers’ compensation insurance claims. The legalization of cannabis in a number of U.S. states has further complicated the picture; how does cannabis play into workers’ comp claims, and what do business owners need to know? In this guide, we will explore this thorny issue, helping businesses understand their rights and responsibilities in regards to insurance claims.

Legalized Cannabis: an Overview

In the United States, a patchwork of municipal, state, and federal laws associated with cannabis has created confusion among business owners and operators. Currently, 33 states and the District of Columbia have passed legislation allowing the possession, use, and sale of medical cannabis. Eleven states and D.C. have also passed recreational cannabis laws. It is important to note that under federal regulations, cannabis remains illegal; cannabis is regarded as a Schedule 1 drug by the U.S. Drug Enforcement Administration (DEA), placing it alongside such dangerous drugs as heroin and LSD. 

Active chemical compounds found in cannabis further cloud the situation. There are two chemicals known as cannabinoids that are of particular interest in the discussion of cannabis legality: cannabidiol (CBD) and tetrahydrocannabinol (THC). THC is psychoactive and is responsible for producing the “high” associated with recreational marijuana use. CBD, on the other hand, is not psychoactive, and is commonly found in numerous medical cannabis products as a means of managing a broad range of health conditions. In theory, CBD is legal in all 50 states, regardless of current legalization initiatives. There is one important caveat, however: CBD must be derived from industrial hemp plants to enjoy legality in all states; CBD extracted from marijuana plants is subject to state and municipal cannabis laws and remains illegal on the federal level. 

Yet another consideration regarding legalized cannabis is that current drug screening protocols, such as employee urinalysis, does not differentiate between medical and recreational use. These screening tools cannot pinpoint the specific source of a given cannabinoid; if an employee were to test positive, this can have dramatic implications regarding workers compensation claims and employment eligibility. 

Implications for Workers’ Compensation Claims

It is clear that the varied laws and legalities of cannabis have created confusion within the business community. Employers are paying more attention to medical cannabis insurance issues, which may influence claims if a worker were to become injured on the job.

A recent case in New Mexico surprised many employers and may change how insurers and employers alike approach workplace injury claims. In the New Mexico case, ruled on by the state’s Court of Appeals, a worker received an injury that resulted in a 99-percent permanent partial disability. The Court ruled that the worker’s employer and its insurance provider must pay for medical cannabis, arguing that this treatment was part of a reasonable and necessary care provision. This ruling supports existing statutes within New Mexico and stands out from other state laws; in Washington, insurers have the option to cover or deny coverage for medical cannabis at their own discretion. 

Two scenarios regarding medical cannabis have the potential to make workers’ comp claims even more confusing. In the first scenario, an employee receives a workplace injury, and to treat pain, the caregiver prescribes medical cannabis. In the second scenario, a worker is injured on the job and is required to submit a drug test as part of the claims process. In both of these scenarios, any drug screens may return a positive result. Can workers’ comp insurers deny coverage for the claims? The answer is not clear. 

Many workers’ comp policies specifically deny coverage if an injured employee tests positive for drugs. Impairment from drugs or alcohol that leads directly to a workplace injury are also excluded from coverage under most policies. It is imperative that employers understand what is and what is not covered by their workers’ compensation insurance. Drug-free workplaces have been shown to reduce injury claims, reducing the expenses associated with workers’ compensation. In the face of changing cannabis laws, however, employers must balance legality with employee rights and with the potential for interference in processing or covering claims. 

About Caitlin Morgan

Caitlin Morgan specializes in insuring assisted living facilities and nursing homes and can assist you in providing insurance and risk management services for this niche market. Give us a call to learn more about our programs at 877.226.1027.