As the cannabis industry matures, investors have more opportunities to support growers, processors, etc. Profit isn’t the only metric that matters to these investors, however. A company’s environmental, social, and corporate governance principles (ESG) are important as well.
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.
Now, many cannabis investors are interested in companies that pay attention to 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. A company that ignores its social impact could potentially face repercussions with customers. Investopedia data shows that demand for ESG investments rose significantly in 2020.
ESG criteria that cannabis companies can try to meet include practicing sustainable farming methods and using less wasteful packaging. Regennabis, a coalition of cannabis companies that promote ESG values, has identified how the United Nation’s 16 Sustainable Development Goals (SDGs) can be adapted for the industry.
For example, UN SDG#12 is “responsible consumption and production.” The Regennabis equivalent is “almost all byproducts and wastes from the Cannabis plant are recycled or are biodegradable.” UN SDG#1 is “no poverty,” and Regennabis maps this to “eliminating criminal justice-related poverty.”
The corporate governance part of ESG relates to how companies manage themselves. Are their accounting practices clear and well-documented? How are members of the board chosen?
A changing political landscape means that the cannabis industry is constantly in flux. New markets continue to open as more states vote on legalization. New and existing cannabis companies must focus on ESG principles as well as traditional business concerns in they want to succeed.