Insurance for Cannabis VC Investors, Private Equity, and Lenders

This article explores the evolving landscape of the cannabis industry as it attracts venture capital, private equity, and lenders. It highlights the significant financial opportunities while also addressing the unique risks associated with investing in cannabis. Key areas of concern include cybersecurity threats, liability issues, banking challenges, and operational inconsistencies. The article emphasizes the importance of appropriate insurance policies to safeguard investments and ensure proper coverage in this dynamic market.

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Aug 03, 2022
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Investment Funds
cannabis-investors
Key Takeaways

It was only a matter of time before the cannabis vertical turned to capitalism. By following the yellow brick road to pot, venture capital (VC) investors, private equity, and lenders try to cash in. Sales have surged to new all-time highs, spiking nearly 160% in the pre-pandemic weeks leading up to potential lockdowns and quarantines across legalized states before reaching normalized levels.

As more states legalize and come online for medical use, the cannabis industry will have a more capitalizing influence on the future economy. Let’s discuss how cannabis investors, private equity, and lenders can stay protected.

Risks for Cannabis VC Investors, Private Equity, & Lenders

Weighing the pros and cons of the cannabis industry is essential before investing. Unsurprisingly, the most significant players have even looked into the cannabis space. CNBC’s show The Profit, Marcus Lemonis traveled to California to see the hype about the industry’s high increase in the market over the years. By 2025, the legal cannabis market could be worth $146.4 billion.

Before diving in, let’s review some critical risks investors, private equities, and lenders face in the cannabis industry. Remember, taking chances means ensuring you are investing and insuring yourself properly.

Cybersecurity

Data breaches cost US companies an average of more than $4 million per incident. Unsurprisingly, company leaders keep data protection top of mind. And cyber threats come from all angles nowadays, from ransomware to phishing to DDoS attacks. Players involved in cannabis must traverse this tough terrain savvily.

Liability

Backing companies that perform a professional service for another party means risking that the other party will claim they suffered financial loss due to a failure in the service. Plus, cannabis companies offering tangible products or services risk third-party lawsuits claiming bodily injury or property damage.

Banking

Although the SAFE Banking Act is an ongoing waiting game for the industry, the hope of its passing keeps investors and lenders jumping through hoops for cannabis. For starters, the SAFE Act wouldn’t allow financial institutions such as banks and credit card companies to refuse to do business with cannabis companies. For now, cannabis must deal with a cash-only environment, making it challenging for investors, private equity, and lenders to go “all-in.”

Operational Issues

Besides banking issues, cannabis companies face multiple regulatory inconsistencies at the local, state, and federal level. Yet again, investors and lenders must tiptoe through challenging terrain, walking on eggshells, per se.

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