Going Public With Your Cannabis Business: The Importance of Corporate Governance

Rapid growth in the cannabis industry is propelling many businesses to maturity at a faster-than-normal clip. As a result, more companies are considering going public. However, going public is a complex process that must be properly managed. If you’re looking to go public with your cannabis business, don’t ignore the importance of maintaining your company’s corporate governance controls.

What is Corporate Governance?
According to Investopedia.com, corporate governance is the structure of rules, practices and processes used to direct and manage a company. It involves a company’s board of directors who act as the primary force in influencing corporate governance, and includes areas such as environmental awareness, ethical behavior, corporate strategy, compensation, and risk management. The four basic principles of corporate governance are:

  1. Accountability
  2. Transparency
  3. Fairness
  4. Responsibility

The complex process of raising capital and gaining market share when going public has many companies falling behind on, or even overlooking, their corporate governance controls. The fact is, investors considering cannabis companies are looking for assurance that a company’s board members have the integrity, independence and ability to stand up and do what is right for shareholders. Having solid and well-thought-out corporate governance controls are critical in winning over cautious shareholders, as well as enticing potential institutional investors.

According to MJBiz Daily, for cannabis businesses to be successful in their corporate governance efforts, they should consider the following points:

  • Ensure that management and boards are independent.
  • Consider the option of creating an executive committee of the board.
  • Ensure that gender diversity is at the forefront.
  • Consider executive pay that is tied to performance.
  • Avoid all real or perceived conflicts of interest.

Corporate governance is important to investors because it demonstrates a company’s direction and integrity by building trust with investors. Investopedia notes that it can also help promote financial viability by creating a long-term investment opportunity for market participants.

Having D&O insurance has become a critical part of mitigating risks and safeguarding the financial well-being of a company executives and board members. If you are a business owner in the cannabis industry and want to know more about D&O insurance, I can help.

Contact me, Corey Tobin, at ctobin@boltonco.com or 626-703-1556.

About Corey Tobin

With close to a decade of industry experience, Corey has worked with a number of small and medium-sized businesses and is knowledgeable about property and casualty, life and health insurance. Corey specializes in working with elevator contractors, manufacturing, distributing, healthcare and construction. Additionally, he is focused on the unique needs and challenges facing cannabis related business, including dispensaries, cultivators, extractors, developers and much more.

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