Insurance Premiums for Cannabis Executives Spike as Lawsuits Rise

Entry-level insurance premiums for cannabis industry directors and officers of public companies has more than doubled as lawsuits by investors claiming fraud and misinformation are on the rise, Reuters reports. The insurance can now run as much as $250,000 for coverage up to $1 million, on top of the $1 million firms must pay before the coverage kicks in.

Those rates are about three to seven times more than traditional industries.

Ian Stewart, partner at law firm Wilson Elser, said the firm expects “a flurry of cases holding directors personally liable,” while Avis Bulbulyan of cannabis consultancy Siva Enterprises estimates a 50 percent increase in litigation in the industry.

Law firm Goodwin released a report in April that found the number of class-action lawsuits in the U.S. against publicly traded cannabis companies more than doubled from 2018 to 2019 from six to 13. Some of the industry’s top companies were named in the report, sued for false and misleading statements about their business, including CV Sciences, Chronos Group, Aphria, CannTrust, Curaleaf Holdings, Canopy Growth Corp., Hexo Corp., Trulieve Cannabis Corp., and Aurora Cannabis Inc.

Charles Grodecki, senior vice president at insurance brokerage AmWINS Brokerage of the Carolinas, told Reuters that the company is “more frequently … seeing prospective investors and board members requiring D&O coverage in place prior to engaging with a company in order to ensure adequate protection in the event of…litigation.”

Kirk Miller, executive producer at cannabis risk-management firm Nine Point Strategies, notes that major insurers such as Lloyd’s of London and Bermuda have pulled out of the U.S. cannabis market recently due to the 25+ security class-action lawsuits filed against cannabusinesses over just the last two-and-a-half years.

“Underwriters’ appetite for cannabis is narrowing,” he said.