The COVID-19 pandemic has accelerated various societal and business trends, and one of the most promising for the cannabis industry is the growing focus on environmental, social, and corporate governance (ESG). Businesses of all sizes are realizing that viewing their operations through an ESG lens is crucial for generating long-term value. This includes cannabis operators, from multi-state operators (MSOs) to smaller dispensaries. It’s encouraging to see the cannabis industry grapple with these weighty issues at an early stage in its development.
While the cannabis industry acknowledges its flaws, such as social injustices and greenhouse gas emissions from indoor growhouses, efforts are being made to address them. For instance, the Sustainable Cannabis Coalition (SCC) sponsored a groundbreaking study by researchers at Dartmouth College, with support from the Rocky Mountain Institute, which outlines a path to significantly improve the energy efficiency of cannabis cultivation.
I will be attending MJBizCon for the fifth time, where I will join a panel discussion on ESG and the importance of ESG policies for success in today’s market. The fact that this topic has become prominent at a leading industry trade show demonstrates how far the cannabis industry has come. The increasing focus, discussion, and investment in ESG indicate that cannabis is evolving into a mainstream consumer products industry.
As the cannabis market becomes mainstream, progress in the ESG realm becomes more crucial. While the industry acknowledges the importance of ESG, it can be interpreted in various ways. To make real progress, cannabis operators need to prioritize ESG and integrate it into their organization’s core principles. This involves understanding the specific issues and concerns represented by each letter of ESG and leveraging them to mitigate risk and enhance value. Additionally, ESG should be embedded within the organization to ensure buy-in and contribution at all levels.
From my perspective, ESG is the key to expanding the cannabis market. Stakeholders increasingly expect companies to take a long-term view and consider the broader impact of their operations. While navigating the complexities of state-by-state licensing, uncertain regulations, and capital-raising challenges, addressing long-term environmental, social, and governance concerns counters the short-sighted focus on maximizing shareholder value that once dominated corporate America.
Embracing ESG may expose cannabis operators to cultural and political divides, but it’s essential to stay steadfast in the face of opposition. The reward is a more resilient and sustainable organization that can weather the ups and downs of this unique industry. Larry Fink, CEO of BlackRock, stated in his 2022 letter to CEOs that stakeholder capitalism is ultimately driven by long-term profitability, which determines a company’s success.
Taking the long view, ESG plays a crucial role in the ongoing development and growth of the cannabis industry.
Personally, I am excited to attend MJBizCon in person this year, alongside over 35,000 cannabis executives from around the world. If you will be there, I invite you to join me and my fellow panelists for a discussion on the importance of ESG for thriving in today’s market.
