The cannabis industry continues to experience tremendous growth in the U.S., especially during the pandemic when it was considered an "essential business". According to recent reports, the cannabis industry is actually a leading job creator, employing over 400,000 workers. Projections value the cannabis industry to reach over 100 billion dollars in the next 10 years.
One of the most valuable and sought-after assets in any company is its directors & officers (D&O) liability insurance. A D&O liability insurance policy will protect a company's individual directors, officers, and executive teams, including their personal assets, from litigation based on how they run the company. Why hasn't the (D&O) and management liability insurance market not embraced the cannabis industry?
The cannabis industry faces considerable challenges trying to obtain D&O insurance. Very few insurance carriers are willing to insure or risk their profile in an industry that is still considered illegal under federal law. The situation has left executives and operators in charge struggling to acquire expert coverage.
Cannabis D&O premiums can cause sticker shock, typically priced 4 to 10 times higher than non-cannabis businesses. It is a cost that many cannabis businesses struggle to pay. The higher price tag can make it hard for operators in this industry, who already face tough competition and taxation issues at state and federal levels. Some have opted to not have this coverage, believing it is not worth the cost. Meanwhile, attracting and retaining talented executives typically depends on having this coverage.
The cannabis industry is a risky business. Even those carriers who entertain those risks are constantly evaluating and re-evaluating the ever-changing, complex state regulatory conditions, relatively new industry, lack of standardized valuation and accounting, and the lack of access to institutional financing, among other factors as well. In brief, the cannabis industry clearly possesses its own unique and evolving risks for D&O insurers.
The market for cannabis insurance is still emerging, and as data on the product appears, regulations will also change. It's essential to have a well-thought-out D&O policy in place. Without a good policy, it can be disastrous when defending claims or situations associated with your industry, even if you are operating privately rather than in a publicly-traded company.
Consulting with an agent specializing in management liability and cannabis will help you find the best coverage and value. It is also vital to obtain a policy from underwriters who actually know the cannabis industry to protect the companies and their executives in this exciting industry with explosive growth.
