Cannabis operations are hungry for D&O coverage
Most of the top executive talent in this industry see D&O as an absolute must for a company serious about growing its operations.
Cannabis companies need D&O not just to protect their current executives and board members but to attract leading talent in the space as well as draw in new investors to scale up the business, according to Charles Pyfrom, CMO of CannGen Insurance Services, LLC.
“First and foremost, by not having D&O protection to interest the highest caliber of board or executive team members, an operator is limiting the pool of candidates they can attract to guide their company,” Pyfrom tells PropertyCasualty360.com. “A lot of clients tell me that adding D&O to their portfolio allowed them to attract board member X or investor Y. Absent that coverage, they couldn’t have accessed that growth.”
While the demand is there, the market is not without its challenges. Chief among those are federal prohibition and the stigma of running a business related to cannabis. Additionally, there is a level of uncertainty around operations looking to grow and ultimately go public, Pyfrom says, explaining other publicly traded cannabis companies have experienced class action and shareholder suits.
Claims by investors of mismanagement of funds or taking actions that are not in the best interest of shareholders are the most common types of suits these operators face that these policies could help cover.
Who’s writing D&O for this sector?
Because of these hurdles, only a handful of carriers will write D&O policies for this space.
As it stands, the market is also fairly segmented with high-end policies available from carriers that “are certainly getting their pound of flesh in pricing and retention limits,” Pyfrom says.
“Certain other carriers offer a basic ‘box-checking’ coverage,” he explains. “It will meet a requirement, but the operators are choosing to self-insure because policies at the bottom end of the spectrum don’t cover very much.”
Finding the middle ground between the two, while offering policies specifically tailored for cannabis operations, is “convincing a lot of operators that this is the solution to get them to the next level. It is changing the narrative that D&O is overpriced and under delivers,” Pyfrom says.
Editor’s Note: ALM now offers cannabis certification for insurance professionals. For more details, visit www.nutraining.com.
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