Experts in the cannabis industry predict an increase in bankruptcy filings and insolvency proceedings by cannabis companies as the market grows. This means that businesses struggling with cash may have to seek protection under bankruptcy and/or insolvency laws.
To protect against financial risks, it's important for owners, board members, and executives of private and public cannabis companies to consider getting director's and officer's liability insurance (D&O). D&O insurance protects these individuals fro
m claims made against them for mismanagement, misrepresentation, breach of duty, misappropriation of trade secrets, and other actions.
D&O insurance is essential because directors and officers can be held personally responsible for the financial consequences of their decisions without it. D&O policies cover legal fees, settlements, damages, and other costs.
Due to the hardening D&O liability insurance market, traditional industries have faced growing double-digit rate increases in recent years. The trend is expected to continue into 2020, especially for public companies.
The cannabis industry has unique challenges when it comes to D&O insurance. Only a few insurers are willing to provide coverage for plant-touching companies with THC exposure, and rates can be 2 to 10 times higher than in other industries. The high end of the premium range includes coverage for both federal and state regulatory actions.
Cannabis-related businesses are under increasing pressure to purchase D&O insurance as almost all funding and lending institutions now require it. D&O premiums for publicly traded companies are even more expensive due to potential exposure to securities class action lawsuits. With limited carrier options and high pricing, the demand for D&O protection will continue to rise as the industry evolves.
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