#Management liability/D&O

[cannabisbusinessexecutive]

Insuring cannabis businesses: Risk and opportunity in an emerging market

Insuring cannabis businesses: Risk and opportunity in an emerging market

By James Whitcomb and Mark Goldburd The recent trend toward cannabis legalization in many U.S. states has propelled the U.S. legal cannabis industry to $27 billion in retail sales in 2021 and growing rapidly, with an ecosystem that encompasses a diverse range of businesses. Cannabis remains illegal at the federal level, though, and this creates complications for the industry, particularly in the…

[golicit]

Guest Post: Canadian Cannabis Companies’ Directors and Officers Face Unique Exposures

Samantha Wu

In prior posts, I have noted the series of U.S. securities class action lawsuits that have been filed recently against publicly traded companies in the cannabis business, including several Canadian companies. In the following guest post, Samantha Wu of the Bersenas Jacobsen Chouest Thomson Blackburn law firm in Toronto provides an overview of the unique exposures that directors and officers of Canadian cannabis companies face. A version of this article previously was published on the law firm’s website (here). I would like to thank Sam for allowing me to publish her article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Sam’s article.

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The Federal Cannabis Act and Cannabis Regulations, which regulate production, distribution, and sale of cannabis in Canada, have created unique risks for directors and officers of cannabis companies. In the event of non-compliance, they may face significant criminal fines or administrative monetary penalties (“AMPs”) in addition to civil liability. Health Canada’s suspension of licences of CannTrust Holdings Inc. (“CannTrust”) to produce and sell cannabis and severe consequences for its management and board exemplify these unique exposures. D&O liability insurers should know about these risks when underwriting or excluding them from coverage.

The Federal Cannabis Act and Regulations: a broad and strict regulatory framework

The Cannabis Act and Cannabis Regulations, the purpose of which are to protect public health and safety, have strict requirements regarding promotion, packaging and labeling, production, sale and distribution, and licensing. Set out below are requirements relevant to the CannTrust matter, as well as exposures faced by directors and officers.

Licences must be obtained from the federal government minister responsible for the Cannabis Act (“Minister”) for production, cultivation, processing, and sale of cannabis.

Licences must set out the following:

sites where activities are authorized;

buildings within the sites; and

the authorized activities.

Licence holders must do the following:

only conduct authorized activities at the sites and buildings within the sites set out in the licences;

apply to amend their licences if they propose to change authorized activities at licenced sites or buildings within the sites;

if proposing to change site plans requiring physical security measures (ie. storage and operations areas), obtain the Minister’s approval beforehand; and

retain documents demonstrating that cannabis and other ingredients were produced, packaged, labelled, distributed, stored, sampled and tested in accordance with good production practices to permit timely audit.

Holders of licences for processing have to ensure that cannabis and other ingredients are produced, packaged, labelled, distributed, stored, sampled and tested using procedures approved by trained, experienced, and knowledgeable quality assurance persons.

The Minister has powers to do the following:

suspend and revoke licences – the Minister may suspend licences if it has reasonable grounds to believe suspension is necessary to protect public health or safety;

require disclosure of information necessary to address public health or safety issues or verify compliance;

designate inspectors who may enter places where regulated activities occur to verify compliance or prevent non-compliance; and

take measures necessary to address public health or safety issues or prevent non-compliance.

Offences and violations include:

contravening provisions requiring compliance with license conditions;

making false or misleading statements to inspectors; and

making, or participating in, assenting to, or acquiescing in, the making of false or misleading statements in any record.

Directors and officers who direct, authorize, assent to, acquiesce or participate in the commission of offences or violations are deemed parties to them and are liable for violations.

Punishment for an indictable offence is a fine of up to $5,000,000, or imprisonment, or both. Punishment for a summary conviction offence is a fine of up to $250,000, or imprisonment, or both, for the first offence and a fine of up to $500,000, or imprisonment, or both, for any subsequent offence.

An AMP for a violation is up to $1,000,000 or a maximum amount fixed by the regulations.

CannTrust: severe consequences for management and board following non-compliance

This year, CannTrust, based in Ontario, disclosed Health Canada determined non-compliance. More specifically:

CannTrust had grown cannabis in unlicensed rooms in a greenhouse facility and CannTrust employees had provided inaccurate information;

CannTrust had converted rooms in a manufacturing facility from operational to storage and constructed new areas, including one to store cannabis, without prior approval; and

at the manufacturing facility, there were

insufficient security controls,

inadequate quality assurance investigations and controls,

standard operating procedures that did not meet regulatory requirements, and

documents that were not retained in a manner to enable completion of an audit in a timely manner.

Health Canada’s actions were as follows:

it suspended CannTrust’s licences to produce, process, and sell cannabis, without affecting its ability to continue cultivating and harvesting cannabis;

it placed a hold on impacted inventory;

it identified the following remedial measures to be taken:

measures to ensure cannabis would be produced and distributed only as authorized,

measures to recover cannabis that was not authorized by CannTrust’s licence,

measures to improve key personnel’s knowledge of and compliance with federal legislation; and

measures for improving record-keeping.

CannTrust did not challenge the suspension. It placed a hold on the sale of cannabis products. CannTrust also destroyed biological assets and inventory that was not authorized by its licence, worth about $77,000,000 in total.

Other consequences for CannTrust and its board and management included:

the CEO was terminated and the board chair resigned following media reports indicating they knew about non-compliance;

the Ontario Securities Commission is investigating matters and parties related to CannTrust; and

proposed class actions were filed alleging that CannTrust and certain of its officers and directors made misrepresentations that CannTrust was in compliance and failed to make timely disclosure of non-compliance, as a result of which the price of CannTrust securities dropped significantly.

Conclusion

Under a broad and strict federal regulatory framework, directors and officers of cannabis companies face a range of exposures in the event of non-compliance, including significant criminal fines or AMPs, potential sanctions by securities regulators if their companies are public, and civil liability.

D&O liability insurers should consider these unique risks when underwriting D&O coverage. Insurers would be well advised to examine what procedures are in place to ensure compliance, directors and officers’ level of experience, and their training in and knowledge of compliance requirements and risks arising from this regulatory framework.

The post Guest Post: Canadian Cannabis Companies’ Directors and Officers Face Unique Exposures appeared first on The D&O Diary.

Guest Post: Canadian Cannabis Companies’ Directors and Officers Face Unique Exposures published first on

[primeatanthes]

Husch Blackwell Announces Major Expansion in Texas; Adds 14 Lawyers to Offices in Austin, Dallas and Houston

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Kansas City, Mo., April 02, 2018 (GLOBE NEWSWIRE) — Husch Blackwell is pleased to announce the firm has added 14 Texas-based lawyers�including eight partners�to its offices in Austin, Dallas and Houston. The group represents a major expansion of the firm�s capabilities in the Texas legal market, particularly in the areas of insurance, banking and finance, eminent domain, government affairs, and governmental disputes.

Husch Blackwell�s national�insurance�coverage and litigation team is now expanded to include partners�Scott L. Davis,�David H. Timmins�and�Jason Heep, as well as�Eric Levy, who joins the firm as senior counsel. All four lawyers will practice in the firm�s�Financial Services & Capital Markets�industry group and reside in the firm�s Dallas office.

The firm�s�banking & finance group�now includes partners�Steven S. Camp,�W. Brian Memory�and�Reuben D. Rosof, as well as�Matt Crockett�and�Caleb Rush. All five lawyers will practice in the firm�s�Financial Services & Capital Markets�industry group and reside in the firm�s Dallas and Houston offices.

Additionally,�Kate David�and�Mike Stafford�join the firm�s�Public Law�team as partners based in the Houston office and will assist private companies, governments, and elected and appointed officials with complex public-law matters. They will be accompanied by associate�Phil Morgan; associate Ben Stephens will join the firm later in April. All four lawyers are members of the firm�s�Real Estate, Development & Construction�industry group.

Mark Vane�joins the firm�s Austin office and its�government affairs�team. Both Stafford and Vane will work closely with the firm�s lobbying and government-affairs consulting affiliate, Husch Blackwell Strategies.

All attorneys join Husch Blackwell from Gardere Wynne Sewell LLP, where Camp served as Chair of its Banking and Finance practice and Davis was the Head of its Insurer Representation Group and the former Co-Chair of its Litigation Department.

�We are very pleased to be joined by this outstanding group of lawyers,� said Husch Blackwell Chairman Greg Smith. �Our firm remains alert to opportunities in the marketplace to grow strategically important industry groups, and we feel that each of these lawyers brings valuable experience and insight to our clients on both the local and national levels.�

�The addition of this high-profile group signals to our clients the depth of our commitment to Texas,� said Paul Eberle, Husch Blackwell�s Chief Executive. �Additionally, our new colleagues represent a major investment by the firm in the industries we serve. Our enhanced capabilities in banking, insurance, and real estate provide a compelling service enhancement for our clients.�

�The banking-side transactional experience we have is a great fit with Husch Blackwell�s existing platform and client base,� said Camp. �The firm�s geographic footprint and client-centered culture also align with the way our team operates and are important to our existing clients.�

�We are very excited about Husch Blackwell�s industry-first approach to client service, as well as its geographic reach," said Davis. �By combining forces with the other lawyers at Husch Blackwell who already service the industry, our team is going to be able to provide end-to-end counsel to our insurance clients, including litigation, transactional and regulatory advice. We also will be able to use our experience in customized loss reserve and mitigation analysis to assist Husch Blackwell�s wide array of non-insurance clients.�

�The way public law and real estate development intersects is unique to each market, but Husch is among a handful of law firms to knit together a top-notch development practice on a regional�or even national�scale,� said Kate David. �I think their ability to build a platform with that kind of breadth speaks to the level of attention the firm places on each market. I�m excited to help the firm grow its presence in Houston and throughout the region.�

Partner Biography CapsulesInsurance TeamScott L. Davis.�Davis is a leading litigator and advisor to companies in the insurance industry. He utilizes cutting-edge analytics and decades of legal experience to develop customized strategies for clients to identify, assess, and mitigate risk. His broad litigation experience includes insurance coverage disputes, environmental disputes (including CERCLA recovery actions), aviation crashes, mass torts, professional malpractice, oil and gas, bankruptcy adversary proceedings, partnership disputes, securities fraud, D&O claims, commercial mortgage-backed securities litigation, and surety claims. He has a J.D., with high honors, from the University of Tennessee College of Law and holds a B.A. from Wright State University.

David H. Timmins.�Timmins represents global insurance carriers on a national basis in environmental and other commercial insurance and reinsurance disputes and is a recognized authority on insurance coverage litigation, including the expansion of bad faith liability, allocation of liabilities among multiple policies, and changes in the political and regulatory climate that impact litigation. He earned his J.D. from Washington and Lee University School of Law and holds a B.A. from the University of Texas.

Jason Heep.�Heep is a litigator focusing on environmental litigation, insurance coverage and bad faith disputes. He represents small companies to Fortune 50 corporations, routinely advising them on environmental regulatory compliance issues, reinsurance matters and risk management. He is a graduate of the University of Virginia School of Law and has a B.S. in Environmental Engineering from Northwestern University.

Banking & Finance TeamSteven S. Camp.�Camp is a long-time banking industry veteran who has closed thousands of loans across a variety of loan types. He was formerly senior corporate counsel at Bank One Corp. and has built a nationally recognized practice, integrating deep banking experience with an understanding of real estate lending, commercial loans, specialty loans, as well as bankruptcy financing and workouts. He is a graduate of Oklahoma City University School of Law and earned his B.A. at the University of Texas.

W. Brian Memory.�Memory is a veteran banking and finance lawyer. Prior to entering private practice, Memory served as assistant general counsel and senior vice president at PlainsCapital Bank, where he regularly provided advice to the bank�s executive team, managed the bank�s real estate portfolio, and handled much of the bank�s day-to-day legal affairs. He also has extensive experience in bank mergers and acquisitions. Memory has a J.D. from Emory University School of Law and holds a B.S. from the University of Utah.

Reuben D. Rosof.�Rosof maintains a broad finance practice representing both lenders and borrowers across an array of transactions, including workouts and restructurings, asset-based loans (involving varied types of collateral), unsecured loans, lot development loans, construction loans, permanent loans, syndicated loans, acquisition loans, letters of credit as credit enhancement for bonds and the purchase of bonds secured by real estate. He is a graduate of the Vanderbilt University Law School and holds a B.S. from Cornell University.

Public Law TeamKate David.�David is well-recognized throughout Texas as a leading litigator and condemnation attorney, advising both condemnors and property owners on high-stakes claims. She assists private companies, governments, and elected and appointed officials with difficult condemnation, election law, public contracting and constitutional tort disputes. She also has extensive experience handling sovereign, governmental, prosecutorial and qualified immunity issues. Additionally, serving as outside general counsel and special counsel, she advises governmental clients on issues relating to the Open Meetings Act, the Texas Public Information Act, contract negotiation, and general counseling. She graduated with honors from the University of Texas School of Law and holds a B.B.A. from the University of Texas.

Mike Stafford.�A former county attorney to Harris County, Texas, Stafford focuses his practice on resolving government-related disputes, including condemnations, regulatory compliance and administrative matters, earning a reputation for obtaining favorable results for both property owners and government condemnors. He also counsels clients in connection with election law disputes. He earned his J.D. from South Texas College of Law and has a B.A. in Chemistry from the University of Texas.

About Husch Blackwell Husch Blackwell is an industry-focused, full-service litigation and business law firm with locations in 18 U.S. cities. The firm represents national and global leaders in major industries including energy and natural resources; financial services and capital markets; food and agribusiness; healthcare, life sciences and education; real estate, development and construction; and technology, manufacturing and transportation. For more information, visit�huschblackwell.com.�

Attachment:

A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/8e87cc6a-64b4-43f8-b2f0-fffee7541ec9

CONTACT: Steve RenauHusch Blackwellsteve.renau@huschblackwell.com

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The post Husch Blackwell Announces Major Expansion in Texas; Adds 14 Lawyers to Offices in Austin, Dallas and Houston appeared first on PRIMEATANTHES.

Read full post at: http://www.primeatanthes.com/husch-blackwell-announces-major-expansion-in-texas-adds-14-lawyers-to-offices-in-austin-dallas-and-houston/

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[cannabisbusinessexecutive]

Cannabis Directors and Officers Liability: Cause for Optimism?

Cannabis Directors and Officers Liability: Cause for Optimism?

Cannabis companies are confronted by the twin challenge of warding off an increasing number of expensive lawsuits brought against their directors and officers armed with inadequate available insurance policies to respond to those suits. Securities litigation, shareholder and investor disputes, allegations of mismanagement and actions by regulators have proliferated in an environment of…