Imagine the following scenario:
You’re an emerging cannabis company and have gotten plenty of public attention for your new business, including multiple investor opportunities. You begin sorting through your potential investor partners and settle on the best company that you believe will take your business to the next level. You begin preparing your deck and pitch until you have it nailed down. You are ready to present and head to your meeting.
Your confidence is through the roof and as you present, you can tell from the investor’s body language that they are engaged and very intrigued in what you have to say. You reach the end of your presentation and your confidence couldn’t be higher until one of the investors asks “can you tell us a little bit about the insurance protection that is in place?” You freeze. You look around and your whole team has the same blank look on their face like they just saw a ghost. What are you going to say to try and save this investment?
You may think that the scenario above doesn’t happen but believe me when I say that the above scenario is a true story and the company above isn’t alone. Most cannabis startups aren’t considering their insurance needs and either have no insurance or the wrong insurance implemented, which is an instant turn-off to investors who are contemplating investing their own hard-earned money. They want to make sure that their investment is protected and the best way to keep their minds at ease is by having a Directors & Officers policy in place.
Directors & Officers protects the investors from a financial loss due to mismanagement of the company’s funds or the business implementing operations that are detrimental to the bottom-line. With investments being negotiated every day in the cannabis industry, having this policy implemented or at the very least started, will give the investors some peace of mind knowing that you put thought into not only how you will use their investment, but also how you are going to protect it.
Directors & Officers doesn’t only come into play for securing investments for new businesses, but having this in place for an established business can provide the added protection for risky business decisions that have the potential of inadvertently hurting the company’s financials. For example, imagine that you have a way to increase profits and you take all of the correct steps in order to do so, however, by some means, it ends up not working out and produces a loss for the company.
Due to this loss, your shareholders or investors sue for negligence in handling the business and their funds. Without coverage in place, not only have you now angered the individuals who have invested and believe in your business but you are also dealing with the financial ramifications of the litigation.
Be proactive when it comes to your business and inquiring about Directors & Officers Coverage before your pitch is a great way to do just that. This way when you give your presentation you can end it with a Risk Management and Insurance slide to really impress your potential investors. Don’t think that just because you have an established business that has been operating that you don’t need this coverage. If you have any investors, shareholders, or a board of directors, you could be exposed and may need to get this coverage implemented sooner rather than later.
Remember, it’s never too early to begin inquiring about insurance but it can be too late.