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Cannabis sector faces particularly hard D&O market

cannabis webinar

Securing insurance coverage for cannabis operations can be challenging as rates climb in a hardening market, but buying directors and officers coverage can be especially difficult, experts say.

Risks particular to the industry and the lack of data in a nascent business are complicating factors, according to participants who spoke Thursday in the second of a series of webinars on the cannabis sector produced by Business Insurance.

While discussing alternative risk transfer, Matt Grimes, vice president of the cannabis specialty group at Hub International Ltd. in Chicago, said the brokerage is introducing a new directors and officers product for the cannabis sector.

To address what it sees as the “dearth of directors and officers coverage, particularly for publicly traded companies,” Hub has created an indemnity vehicle that “uses company-issued stock as collateral to provide for an increased limit structure.”

Moving to a list of questions from listeners pertaining to captives, Mr. Grimes said, “Captives are a good idea, sometimes. If you are spending over $1 million in premium, it is worth having a captive feasibility study conducted.”

The webinar began with an overall look at the market for D&O coverage, which has undergone “a period of sustained hardening over the past two years,” said Ben Sibthorpe, Denver-based vice president in the management liability division of CannGen Insurance Services LLC. “On the private company side, we’ve seen rates go up 15% to 30% year over year, and it’s a significant multiple of that with public company D&O.”

The best way to describe cannabis D&O is “a hard market within a hard market — very firm and difficult to operate in. It’s very difficult to buy limits up to and above $10 million,” Mr. Sibthorpe said, adding that fewer than 10 insurers currently write such coverage.

Sebastian Alia, deputy general counsel at Hudson Insurance Group, described the cannabis D&O market as “a hard market on steroids.”

Mr. Alia said cannabis “adds so many additional uncertainties” as a new industry with little available data and regulation that offers “so much gray area.”

Information on other sessions in the series is available here.