Some investors have soured over their cannabis investments in the U.S. and Canada and are filing lawsuits when businesses fail to meet expectations, which as a result is increasing the cost of insurance for the cannabis industry overall.

Touting allegations of fraud and misinformation, investors are hoping to recoup some of their investment while they still can as they sue the companies they helped create. Even some of the biggest cannabis companies are coming up against these issues, with allegations that they have not acted with the best interest of all shareholders.

Cannabis had high expectations as a newly regulated market that created many opportunities to start businesses and brands. A new, fresh industry was like so much unclaimed land. Investors could see boundless opportunities as cannabis legalization opened up in each and every new state. But they underestimated the costs of meeting state regulations, the limitations of being federally prohibited, and the complications of starting on the ground floor.

The rising cost of insurance premiums, particularly for directors and operators insurance, is a problem for an expensive industry to operate in like cannabis. Add to that the rising cost of everything else, from taxes to suppliers. Some companies are closing their doors altogether due to the slower growth than expected. Even as the coronavirus keeps cannabis businesses operating as “essential,” the slowdown in retail and in manufacturing has impacted the industry.

The rising amount of D&O lawsuits is new, as theft claims usually dominate cannabis insurance claims. And the thefts start early, as one Chicago dispensary found out one week into legalization. While some incidents are the casual smash and grab, many others appear professional and prepared. With D&O claims a growing problem, the entry-level premiums are now higher.

Which companies are the most likely targets for unhappy investors? Those that have made huge promises but have not delivered, which includes cannabis firms. Lawsuits will attempt to hold directors liable for these perceived failings, and some experts are predicting a 50% increase in the amount of these cases. Whether the defendant’s insurance will cover the claims made may not be certain, as there are unknown gaps in standard policies that leave cannabis businesses unprotected, but the rise in these cases in driving up premiums for everyone. D&O insurance premiums have doubled over the last 12 months.

The other element keeping these premiums up is the fact that many of these lawsuits have not yet been heard in court, so little precedent is set. That kind of uncertainty keeps insurance prices high, as well as high demand matched with limited suppliers. If there is determined to be fraud or wrongdoing within the company, an insurance exemption would trigger and the insurance coverage rejected. Several of these claims are waiting to be heard in court, though these proceedings can be long and have only been lengthened by coronavirus.

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Do you think the rise of insurance premiums has a major impact on the cannabis industry? Let us know your thoughts in the comments below and check out our predictions for 2020.