Has the CBD bubble burst? Cannabis firms see surge in insurance costs amidst slew of lawsuits

Has the CBD bubble burst? Cannabis firms see surge in insurance costs amidst slew of lawsuits

THE WHAT? Cannabis firms are witnessing a surge in insurance costs as they race to protect executives from personal liability. The prices hikes follow a slew of lawsuits lodged as investors cite fraud and misleading information, according to a report by Reuters. 

THE DETAILS CBD companies such as Medmen Enterprises, Canopy Growth, CannTrust Holdings, Aphria Inc and Columbia Care have all faced shareholder litigation, with many accusing executives of failing to act in their interest, false claims, and trying to defraud investors. 

Charles Grodecki, SVP at insurance brokerage AmWINS Brokerage of the Carolinas, told Reuters, “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.
“With claims starting to roll in, we’re beginning to see higher entry-level premiums.”

THE WHY? The increased insurance costs as a result of the lawsuits highlight a mounting discontent within the CBD market, with investors fighting back against unfulfilled promises of strong growth of the industry. 

With companies having faced losses within the industry prior to the pandemic, as well as the impact of COVID-19, cannabis consultancy Siva Enterprises expects a 50 percent spike in legal action.

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