How the new Sustainable Cannabis Coalition can Improve Sustainability and Social Responsibility
The need for sustainability in cannabis cultivation and manufacturing has gone mainstream. The issue was highlighted in recent articles by highly respected publications like the Sierra Club and the Harvard Business Review Magazine. These articles are significant because of their timely content as well as the credibility of the publications on the topic of sustainability.
They also demonstrate the need for an industry coalition to promote Environmental, Social, and Governance (ESG) practices. With a foundational mission to promote “proven sustainability best practices that can be implemented at scale across the cannabis market,” our firm, CohnReznick, and a diverse group of cannabis companies saw a need to do more than pay lip service to these initiatives and created the Sustainable Cannabis Coalition (SCC).
This isn’t the first initiative to champion sustainability in the cannabis industry, but it’s a uniquely collaborative effort that comes at a critical juncture in the maturity of the market for both growth and corporate social responsibility.
It’s difficult to succinctly define sustainability, a concept that is often broadly applied. I have found two definitions that provide a way to think about sustainability in the context of SCC.
The Dow Jones Sustainability Index defines corporate sustainability as “a business approach that creates long-term shareholder value by embracing opportunities and managing risk deriving from economic, environmental, and social developments.” The Merriam-Webster dictionary describes sustainability as “a method of harvesting or using a resource so that the resource is not depleted or permanently damaged.”
Combined, these definitions incorporate both the enterprise value implications of sustainability and the incremental efficiencies for marijuana-related business (MRBs). At CohnReznick, we believe that best practices for sustainability can contribute to both operational and financial advantages. What’s needed is a business strategy to directly support key pillars of sustainability, including disclosure, transparency, compliance, data analysis, performance improvement, and systems implementation.
ESG in the cannabis industry
The sustainability initiative is part of a larger corporate social responsibility movement known as Environmental, Social and Governance (ESG). Social responsibility is nothing new, of course. But it has become much more prominent in the last few years as many institutional investment platforms have adopted ESG policies.
While investors are critical stakeholders, customers should be the primary focus of ESG. Today’s consumers can research, compare and amplify their experience, for better or worse. They are discerning buyers who are looking to make a connection with the companies they support and expect those companies to give back while employing sustainable best practices.
Forbes recently reported, “96% of people feel their own actions, such as donating, recycling or buying ethically, can make a difference. And over half believe that they personally can make a big difference.” Likewise, consumers have placed "an overwhelming demand for brands to step up on sustainable lifestyles. If your brand isn’t helping your consumers improve their environmental and social footprint, then you’re in danger of disappointing 88% of them."
It is also becoming increasingly evident that suppliers want to be associated with a responsible chain of product development and governments want to provide a safer and healthier “environment” for industries and their consumers.
The impetus behind the SCC goes beyond a simple “do the right thing” stance. We anticipate that outcomes will run the gamut from enhanced brand perception to improved operational and financial performance. Adherence to ESG and sustainability-focused efforts can help create visibility into an industry or business and help foster the opportunity for standards, policies, procedures, and measurements.
Industry collaboration to develop best practices can lead to more sophisticated financing options, more transparent accounting considerations, and effective use of data analysis. Combined, these outcomes can contribute to double or triple bottom-line profitability.
At CohnReznick we have seen this progression first hand in several of our most prominent industry practices. Our community development practice was established over 40 years ago focusing on the important societal issue of affordable housing. While the progression may have been out of order, affordable housing was initially about the “S” in ESG.
Over time, all the burgeoning industry participants collaborated both formally and informally, leading to industry and organizational infrastructure, (the “G” in this progression). With the financial “flight to quality” that affordable housing became there was a focus on the “E” as construction and operating practices focused on how to make the built environment healthier and more sustainable. This industry continues to innovate, and all stakeholders are much better off.
We saw a similar progression across other community development programs 20 years ago with the resurgence of the rehabilitation tax credit and the advent of the New Market Tax Credit. Both started as economic development solutions and became a reliably governed industry with greater emphasis on collective environmental health – everybody wins.
Since establishing a Renewable Energy practice over 15 year ago, we have seen a similar trajectory. Both the “E” and “S” were at the root of what motivated launching the practice – a chance to support solutions for a societal issue that is embodied in the science. Governance developed over time and here again we have seen first-hand how building industry and organizational infrastructure and developing financing sophistication leads to enhanced bottom line. Once again, all stakeholders are much better off.
When CohnReznick launched our Cannabis practice four years ago, we were driven by the opportunity to participate in an entirely new industry and its economic opportunities. But we were also motivated by the opportunity to address ESG issues surrounding cannabis.
The environmental aspect of cannabis ESG is the primary focus of the SCC. It emphasizes the concept of sustainability as applied to cultivation and manufacturing practices. While the word “green” is often incorporated into the names of MRBs, the cannabis industry is far from being truly environmentally sustainable. The carbon footprint of cannabis manufacturing isn’t sustainable due to massive consumption of energy, reliance on huge quantities of water, and the challenges associated with waste disposal.
The social aspect of ESG prioritizes health and wellness needs, but just as importantly provides the opportunity and obligation to address social equity and justice issues. The progress has been too slow in improving social equity and justice. This will be a long and challenging journey, one that requires continuous incremental improvements and participation of all stakeholders for a meaningful difference to be made.
The governance aspect of cannabis ESG is also a work in progress. Today, the primary focus is at the organizational level and the need to invest in infrastructure that can help MRBs achieve aggregate growth in the market (and into new markets). Success comes with greater confidence in an industry “system” that benefits everyone.
It’s critical that the cannabis industry create a transparent supply chain that, with some creativity and innovation, can be a game-changer. But it’s a complex undertaking that is complicated by a host of external issues. These include climate changes that impact outdoor (and indoor) grows, resource-intensive indoor grows, illicit cultivation, regulatory rules that differ among states, and the lack of certifiable national standards due to federal illegality.
These are big challenges, and there’s no silver bullet to resolve them. But as a founding member of the SCC, we believe that the SCC and the cannabis industry is up to the challenge. We look forward to collaboration among SCC members to achieve a positive impact on the cannabis industry and become a knowledgeable resource that provides foundational best practices to further promote economic benefits of sustainability in a rapidly growing industry.
Stay tuned for our next blog post on the benefits of disclosure, transparency, performance improvement, and systems selection on sustainability. And for more information on CohnReznick’s cannabis industry services, please visit CohnReznick.com/Industries/Cannabis.
In the meantime, I leave you with this thought:
As we introduce the SCC to the greater cannabis community, we ask that everyone consider that a plant is at the root of this initiative and one that has been a source of health and wellness for literally thousands of years. We all have an obligation to sustain the use of the plant and to ensure the cultivation practices applied to the plant are sustainable.
