D&O Insurance For Psychedelics Companies In Canada

Need D&O insurance for a psychedelic company in Canada? Our experts can help.

Hindsight is 20/20. If the 2020 stock market is teaching investors investors anything, it’s that predictions are often just educated best guesses. And while investors may be weighing their options even more carefully, pyschedelics companies are looking to the future with foresight.

In a just-released publication, Aird & Berlis LLP notes, “Over the past few months, many of the most actively traded stocks on the Canadian Securities Exchange have been shares of companies involved in the psychedelics industry. Companies working in the psychedelics industry have also listed on the TSX Venture Exchange and the NEO Exchange in Canada”¹

In less than 24 months, legal recreational use of cannabis has transitioned from generating news headlines to business as usual. This is just one reason why psychedelics companies are looking towards the future. And when a company is planning ahead, more often than not, it’s board directors who are helping to chart the course.

If your psychedelics company wants to recruit and retain leaders, D&O insurance should be top of mind. We’ve prepared this brief directors insurance primer for psychedelics companies to shed some light on the nuances of this important coverage.

Why is directors insurance essential for all types of psychedelics companies?

Firstly, the psychedelics industry in Canada is varied. As a result, your company requires board members with specialized knowledge as well as leaders with broad understanding of current and/or future marketplaces. According to Aird & Berlis LLP, prime market segments for psychedelics companies include:

• “Pharmaceutical – the activities of these companies include research and development activities, clinical trials and other similar activities with both hallucinogenic and non-hallucinogenic compounds and their delivery systems;
• Clinic or treatment centres – the activities of these companies include the treatment of various conditions, including mental illness and addiction, in a clinical, treatment centre or wellness centre setting;
• Nutraceutical/wellness products – the activities of these companies include the development and formulation of various nutraceutical or wellness products using non-psychoactive substances; and 
• Medical tourism/recreational usage – the activities of these companies include medical tourism activities, such as microdosing psilocybin, and recreational usage, such as truffles, in jurisdictions where such activities are legal.”²

In addition, each of these markets is distinct. This is why it is essential to know that the insurance you secure for your directors will cover the specific risks they face. Because any Canadian board director can be sued for personal liability, their personal assets are also at risk.

As a result, securing D&O insurance that directly aligns with the risks your directors are facing isn’t optional in today’s increasingly litigious world.

Psychedelics companies are facing complex risks. Errors in board decisions can be costly.

The legal costs associated with any lawsuit can be crippling. As a result, it’s critically important to know that directors’ personal assets are covered if things should go wrong. In addition, you need to know that your company’s bottom line is also protected.

Certainly there are many potential risks that pyschedelics companies may be facing today or in the near future.

This is because “generally speaking, subject to certain exemptions, the CDSA (Canada’s Controlled Drugs and Substances Act) prohibits production, possession, trafficking (includes selling, administering and transporting), importing and exporting controlled substances.”³

To help clarify the legal and regulatory landscape for specific market segments, Aird & Berlis LLP is providing some guidance for companies considering going public. And because your industry is heavily regulated, each legal requirement is also exposing your company – and its directors – to risk.

For example,

• “…pharmaceutical psychedelics companies need to consider the CDSA, including Section 56 exemptions, and the Food and Drugs Act (Canada) with Health Canada being a key regulator for this market segment.”⁴
• “…clinic or treatment centre companies need to consider the CDSA and Health Canada since both apply to the substance of many treatments administered at such clinics.”⁵
• “..nutraceutical/wellness products companies need to consider the Food and Drugs Act (Canada) and its regulations related to, among other things, the production, advertising and labelling associated with their products”⁶
• “…medical tourism/recreational usage [companies] need to consider the legal and regulatory landscape in the local jurisdiction to confirm that the business as conducted is not illegal.”⁷

Given the complexities of guiding a company in the psychedelics industry, it’s a necessity that every board decision is made with care.

For instance, “…depending on the precise nature of the business, regulated and non-regulated activities could be identified by the psychedelics company, with the potential to conduct any regulated activities by entering into a contract with an appropriately licensed entity.”⁸

Making decisions with care and forethought is the precise reason why your company has aboard. Likewise, working with ALIGNED’s experienced brokers can help you make the best insurance decisions. In short, we can help you secure the best D&O insurance for your psychedelics company.

Your directors owe you company a duty of care. What it is and why it’s important.

Directors of public companies are subject to more than 100 provincial and federal statutes, securities laws and other regulations.

Above all, a breach of any of the following directors’ responsibilities can lead to corporate and/or personal liability.  

1. Fiduciary Duty – this is the director’s duty of loyalty to the company
2. Duty of Care – per the Canada Business Corporation Act, directors of private or public companies have specific responsibilities
3. Securities Law – directors of publicly traded companies may face liabilities related to securities law and stock exchange rules

Across the country, provincial and/or federal business corporation acts and other securities laws outline personal liabilities that board directors face. An alleged breach of duty could cause lasting damage to peoples’ lives as well as your brand.

For all of these reasons and more, securing the best D&O insurance for your psychedelics company is vitally important. You can get the best coverage and value for your D&O insurance by talking to one of our ALIGNED brokers today.

Alignment of coverage and risk is essential. Let us help you move forward with confidence.

To sum up, as your board looks to the future with foresight, they need to know they are protected. In short, having insurance that will respond if and when it’s needed is nothing short of essential. Talk to an ALIGNED Advocate today to get coverage options for today’s risks as well as those down the road.

Source:
^1-8 AirdBerlis.com: “Legal and Regulatory Landscape for Psychedelics Companies Considering “Going Public” in Canada;