Environmental, Social, and Corporate Governance in Cannabis

As the cannabis industry matures, investors have more opportunities to support growers and processors. Profit isn’t the only metric that matters to these investors, however. A company’s environmental, social, and corporate governance principles (ESG) are also important.

Cannabis has long been intertwined with thorny social and environmental issues. The plant’s previously illicit status pitted consumers and growers against law enforcement, ruining lives and sending countless people to jail. Environmentally, cannabis farms can have a negative effect on the surroundings if growers don’t adhere to sustainable practices.

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Many cannabis investors are interested in companies focusing on their impact on the world. Assessing a cannabis company based on ESG criteria allows investors to better predict the company’s financial health and future.

What Exactly Is ESG And What Does It Include?

The cannabis industry is becoming an increasingly popular investment choice. This is unsurprising, considering the market is projected to reach about $444.34 billion by 2030, according to Fortune Business Insights. [1] When combined with social justice issues surrounding the criminalization and decriminalization of cannabis, the atmosphere is leaning toward more accountability and eco-friendly cannabis solutions in the industry.

Yet, what does this mean, and why is ESG involved? [2] Simply put, ESG refers to environmental, social, and (corporate) governance, which are the central factors that are important to a company’s sustainability and societal influence. These factors might not be financial in nature, but they help businesses qualify for investment and can act as predictors of how financially successful a cannabis business will be in the future.

With the call for large-scale change and better licensing, governance, and social and environmentally friendly solutions, businesses in the mainstream need to keep up with the times. This means that they need to be able to produce proof that they are running a cannabis business that is not only environmentally and socially conscious, but also compliant with state and federal law.

For example, a cannabis company that is keeping these three principles in mind is disclosing how they reduce packaging, eliminate waste, and address social pain points.

Social impacts typically revolve around organizational culture, so cannabis companies have to prove that they are taking pay equity into consideration and fostering social justice in the workplace.

These companies must do this while providing solutions to cannabis-related water shortages and energy efficiency problems and showcasing sustainable resource use and future goals to remain compliant.

On the governance side of things, cannabis businesses need to showcase that they are building diversity within their ranks and running their operations transparently.

If they address these elements and more, they will meet ESG expectations and strengthen their position in the cannabis industry for years to come.

Unfortunately, many companies make the mistake of not taking environmental, social, and corporate governance in cannabis seriously and are negatively affected by this choice. Investors don’t want to put money into a company that risks a failing future due to not considering ESG principles.

Why Cannabis Companies Need To Adopt An ECG Mindset

Now you know more about ESG, including what it is and what it includes. Cannabis companies, like any other businesses, must embrace an ECG (Environmental, Social, and Governance) mindset to thrive in today’s rapidly evolving landscape. [3]

Since it can be challenging to understand why, here are several compelling simplified reasons surrounding why this shift in perspective is essential for success:

Regulatory compliance: With changing cannabis regulations worldwide, ECG principles ensure companies stay compliant with evolving laws, reducing legal risks and potential fines.
Investor attraction: ECG-oriented companies are more attractive to socially conscious investors. These investors seek financial returns and want to align their investments with companies that uphold ethical standards.
Social responsibility: Cannabis companies often face stigmatization due to their products. Embracing an ECG mindset allows them to demonstrate their commitment to social responsibility by addressing community concerns, promoting responsible consumption, and supporting cannabis education.
Brand reputation: Building a positive cannabis brand reputation is crucial. ECG initiatives help create a favorable public image, which can lead to significantly increased consumer trust and loyalty.
Consumer demand: An increasing number of consumers seek products from socially responsible and ethical companies. Adopting an ECG mindset can help cannabis companies tap into this growing market.
Global expansion: As cannabis markets expand globally, companies with a strong ECG foundation are better positioned to navigate diverse regulatory environments, establish international partnerships, and gain market access.
Sustainability: Cannabis cultivation can have a significant environmental impact. An ECG mindset encourages sustainable practices, reducing energy consumption, water usage, and waste production, which is vital for long-term viability.
Employee engagement: Companies focusing on ECG principles tend to attract and retain top talent. Employees are more motivated when they work for a company with a strong commitment to ethics, social impact, and a positive workplace culture.

These are only a few of the most important reasons why cannabis companies need to consider ESG factors when running their businesses.

Wrap-Up On Environmental, Social, and Corporate Governance In Cannabis

Essentially, it’s evident that adopting an ECG mindset is imperative and a strategic necessity for cannabis companies who want to succeed. Embracing these principles can lead to greater financial success, enhanced brand reputation, and a positive impact on society and the environment, ensuring longevity in a competitive industry.

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