Cannabis business owners and managers wear multiple hats as they venture into the developing industry of cannabis. They have taken on the responsibility of growing their business which will not only impact them but anyone that has invested in their dream and shares in the successes and failures. Cannabis business owners have to make decisions that will increase revenue, market share, create exposure to new customers, improve customer service, and multiple other decisions that enhance the business. When decisions are made that harm the business, and therefore harm investors, someone must be held responsible for that harm. Those people who we hold responsible for making sound business decisions are the directors and officers of a company or corporation.
Elon Musk is an extreme example of how a CEO’s decision making can put him or her in the sites of disgruntled investors, or in the case of publicly traded companies, the SEC. The Securities and Exchange Commission protects investors and the markets which people invest their hard earned money into every day. Musk sent out at hasty tweet that millions of people saw (many of which who invest in his company’s stock) and it impacted the price of his stock. The problem with the tweet is that it was not true or completely accurate. It became public and again his company’s stock price was impacted in a negative way causing investors to lose money.
The Securities and Exchange Commission has sued Tesla CEO Elon Musk for securities fraud after his aborted attempt to take the company private earlier this summer. The complaint, filed in federal court in the Southern District of New York, shows that the SEC is seeking to ban Musk from being able to hold officer or director positions at publicly-traded companies, as well as any other damages the court feels are appropriate.
“Musk knew or was reckless in not knowing that each of these statements was false and/or misleading because he did not have an adequate basis in fact for his assertions,” they write. “Musk knew that he had never discussed a going-private transaction at $420 per share with any potential funding source, had done nothing to investigate whether it would be possible for all current investors to remain with Tesla as a private company via a “special purpose fund,” and had not confirmed support of Tesla’s investors for a potential going- private transaction.”
For cannabis business owners, Elon Musk’s situation is extreme but does show the impact directors and officers can have on a business. As your cannabis business grows and the value of your investors’ investments grow, each decision you make will be that much more scrutinized. Executives and higher level managers can protect the company and themselves by investing in Directors and Officers insurance. D&O insurance policies protect you as a director or officer of the company if your actions negatively affect the company’s profitability or if the company is sued because of your actions. The policy will pay for legal damages and fees. As always policy coverage limits do apply so talk with a cannabis insurance specialist like Eric Rahn of S2S Insurance today.