Canadian Underwriter

How better boards may improve cannabis companies’ D&O options

January 6, 2023   by Philip Porado

Cannabis company executives examine the goods

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Improvements in capacity in the directors and officers (D&O) insurance space, combined with a rising quality of boards of directors membership, is making coverage for cannabis producers and distributors more accessible.

“We’ve seen a real shift in the experience levels of people that are running these organizations compared to when we first partnered up with them,” said Imran Pira, senior vice president and head of management and professional lines at NFP Canada.

When cannabis first received regulatory approval in Canada, Pira noted it was hard to get strong C-suites at companies due to the stigma attached to the industry. Another factor was that many of the mom-and-pop shops that went public after legalization had little or no corporate experience.

“Once that stigma evaporated, we were seeing more credibility and quality around professionals entering this emerging sector, leading to stronger composition of management teams and boards of directors,” Pira said. “It’s changed quite a bit over the past four years in terms of being able to recruit talent into this space with less barriers.”

Still, harder-to-write industry sectors, like cannabis and digital assets, will remain relatively limited markets for the time being, he said. The same is true for companies developing products containing ketamine – a therapeutic drug used for depression and pain relief. Ketamine has traditionally been stigmatized but companies are now exploring regulatory approvals.

“You might have seen a couple more players develop some appetite in the cannabis space and now a lot of the cannabis players have moved on to underwriting [things like] ketamine ventures,” Pira said. “I wouldn’t say it’s a lot more robust.”

Meanwhile the cannabis companies themselves, like many consumer-facing firms, are now coping with rising instances of product liability class action lawsuits, said Don Dear, a partner at Clyde & Co. in Calgary.

Claims against cannabis companies tend to stem from customers who purchase THC oil products for pain relief and then argue the products can lose potency over time.

“In one Alberta claim, the allegation is that the consumer buys a 5% THC product, and then by the time they get it open and start to use it, it is now 4%,” said Dear. “So, it’s a labeling litigation – more an economic damage than a bodily injury type damage.”


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