With the high level of investment going into cannabis, there is a huge amount of pressure and liability put on companies to perform and produce a profit. The people who put their money in the pot want to see results, and given the turbulent nature of the Cannabis industry, that doesn’t always work out the way business owners might hope. The consequences of this can be drastic if the investors decide to sue over the mismanagement of their funds, or over operations of the business that they feel are costing them money from their investment. There is, however, a protection available to companies for this situation.
Directors & Officers insurance, or D&O, is the form of liability coverage that serves as indemnification (reimbursement) for losses or advancement of defense costs in the event an insured suffers a loss as a result of a legal action brought for alleged wrongful acts in their operations as directors and officers. It is generally used to protect owners of a business against litigation from their investors, or anyone who has a financial interest in the company. D&O insurance can be written to cover for-profit businesses, privately held firms, and nonprofits. In a sense, it acts as an errors & omissions policy for the management of a company.
This coverage is extremely important to the cannabis industry, and can be a huge factor in determining success. For new businesses seeking investors, it is an excellent way to instill a feeling of safety and security for ventures seeking to fund your enterprise. If investors know that there is financial protection against failure of their investment, it can make the decision process to invest quite a bit easier. For established businesses, it can provide protection for risky decisions on how to move the company forward. For example, let’s say your cannabis company wants to expand to increase profit. The believed correct steps are taken, but by some means it does not work out. This goes on to produce a loss for the company and the shareholders sue over negligence in handling the business and their funds. This is a catastrophic problems for businesses without this coverage, because not only have you angered the people providing funding for your organization, you will now also have to deal with the financial fallout of the litigation.
Director & Officers insurance is a coverage that is often overlooked by businesses in Cannabis, and it is a mistake that can cost a firm a great deal of money. Whether you are a new business trying to attract investors, or a growing company that wants to venture out into new arenas, it is a crucial element of protection for the organization. If you feel like this may be something you are interested in feel free to give us a call and see if this is a coverage that your cannabis business could use.