TORONTO — Canadian and U.S. cannabis companies are facing a spike in already high costs of insurance to protect top executives from personal liability, following a slew of lawsuits by disgruntled investors alleging fraud and misinformation, with more such action expected.
Some of the biggest cannabis companies, including Medmen Enterprises, Canopy Growth, CannTrust Holdings, Aphria Inc and Columbia Care, have faced shareholder litigation, accusing leaders of false claims, failing to act in the interest of all shareholders and attempts to defraud investors.
The lawsuits are yet another sign of souring sentiment against an industry that has failed to deliver on promises of boundless growth. And the rising costs are another headwind for companies already shuttering operations and cutting jobs due to slower-than-expected demand.
“More frequently we’re seeing prospective investors and board members requiring (directors’ and officers’) coverage in place prior to engaging with a company in order to ensure adequate protection in the event of…litigation,” said Charles Grodecki, senior vice president at insurance brokerage AmWINS Brokerage of the Carolinas.
“With claims starting to roll in, we’re beginning to see higher entry-level premiums.”
Cannabis companies generated a lot of investor excitement in recent years as the drug was legalized for recreational use in Canada and 11 U.S. states as well as the District of Columbia. Marijuana is authorized for medical use in many more. [Read More @ The New York Times]