The Synergy Between the Cannabis Industry and ESG

Cannabis is an industry where water, power, and social equity factors are such prominent concepts. As I have written about previously, the cannabis industry has the opportunity at the micro-, meso- and macro-level to systemically set about creating shared value for all stakeholders through a focus on Economic, Environmental, Social and Governance (ESG) factors. While ESG is certainly a concept that has captivated the masses, and has established itself as a baseline for investor evaluation and company performance, it is difficult, but not impossible, for a nascent heavily stigmatized industry – with 280e tax challenges as well – to affect and adopt change in this regard. Doing so requires learned guidance. Fortunately, Clark Hill’s Environmental, Energy and Natural Resources (EENR) Business Unit/Practice has a depth of experience on these matters, and many more relevant matters. The EENR Business Unit has been recognized as a leading practice in this area for several years now, amongst AmLaw rated firms.   

The U.S. Securities and Exchange Commission (SEC) has been evaluating the ESG principles for some time. Recently, on March 21, 2022, the SEC introduced proposed rules to require public companies to disclose climate-related information. The proposal is currently open for public comment, and we encourage you to share your perspective on the rules. However, in effect, this is the first step toward federal agencies insisting, if not mandating, that companies necessarily incorporate ESG principles into their structure and foundation. Numerous questions remain about the SEC’s legal authority to mandate such requirements, but these challenges will take place in the courts for years to come and, presumably, this issue will become increasingly politicized as elections come and go. In any event, it is incumbent on any business in the cannabis industry to understand and evaluate potential compliance with these forthcoming rules and business practices as they evolve and grow. The EENR Business Unit has provided programming and content surrounding this topic. 
 
Furthermore, more specific environmental matters and energy-related issues are necessarily essential legal items for every cannabusiness to evaluate, understand and consider – no matter the age or size of such a business. As cannabusinesses evolve, and as this industry grows, companies will continue to attempt to distinguish themselves. As such, it is essential that they embrace the principles of ESG – for both survival and growth. It is further fundamental that these companies understand their rights and obligations surrounding water consumption, energy usage, and the like; and to evaluate varied opportunities to improve efficiency, decrease cost, and to fall in line with ESG objectives, globally. Commercial cannabis has a unique opportunity to make a substantial social impact, create good jobs, and be long-standing members of the business world. Don’t get caught in slow motion as others dash to the door of innovation.

Contributing Advisors