Cannabis and the D&O market in 2022
In the early days of 2022, cannabis companies and investors have cause for guarded optimism. The once very real specter of federal intervention in the burgeoning industry seems to have faded into the background as successive presidential administrations have declined to push the issue, and now, all but two states have legalized cannabis in some form. With the cannabis industry reporting record profits despite a global pandemic and continued federal illegality, and numerous states and localities turning to it to fill revenue gaps left by COVID-19, it seems fair to say that cannabis has gone mainstream (see Earl Carr “What You Need to Know About Cannabis in 2022 and Beyond” Forbes).
Yet, as much as some things change, others stay the same. Despite the maturation and growth of the cannabis industry and its significant players, the directors and officers (D&O) insurance marketplace remains treacherous. Many major insurers still refuse to offer D&O coverage to the cannabis industry altogether (see Matthew Lerner “Finding D&O coverage remains a challenge for cannabis companies” Business Insurance), while a minority have decided that the opportunity outweighs the risk – with “opportunity” here meaning the ability to charge cannabis policyholders premiums between two and ten times the market average for coverage that is often quite limited. (See David Kennedy “Directors and officers liability insurance is increasingly important – and costly – for cannabis companies” MJBizDaily).
Cannabis companies, for their part, face a Hobson’s choice: either pay a substantial mark-up for a D&O policy that may or may not provide any meaningful coverage, or remain completely uncovered (others have turned to alternatives like captive insurance, a topic for another article (see, e.g., Ryan Smith, “ARS Launches Captive for Cannabis Company,” Insurance Business Magazine)). At a time when D&O insurance is increasingly expensive across all industry sectors, these factors have led some analysts to describe the cannabis D&O marketplace as “a hard market within a hard market.” (See Kimberly E. Blair, Jonathan E. Meer, & Ian A. Stewart “Cannabis Directors and Officers Liability: Cause for Optimism?” The National Law Review Vol. XI, 189, July 8, 2021)Continue Reading D&O insurance for the cannabis industry