The Synergy Between the Cannabis Industry and ESG By Robert Hoban

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.

Last Month in the Cannabis Industry Group

This month, Co-Chair of the Cannabis Industry Group Sander Zagzebski sits down with the Chair of the Environmental, Energy, and Natural Resources Industry Group, Patrick Larkin to discuss environmental impacts and potential liabilities in the cannabis agricultural, extraction, and food manufacturing sectors, the importance of compliance management to limit operational liabilities, and why hemp and marijuana companies can emerge as ESG leaders, particularly with respect to carbon reduction.

ESG 101 (Environmental, Social, and Governance) as it relates to the cannabis industry. We will give a high level orientation, including key steps, challenges, and legal risks regarding developing and executing ESG reporting and sustainability commitments. Presenters include Patrick Larkin and Sheryl Sweeney of Clark Hill and Geoff Trotter of Regennabis.

By: Danielle M. Hazeltine, Patrick J. Larkin, Sheryl Sweeney

Cannabis cultivation and processing are rapidly-growing industries, as hemp and both recreational and medical marijuana products are being legalized across the country. With this rapid growth and legalization, however, comes added regulatory scrutiny, including in the environmental and sustainability spaces.

Upcoming Events

On May 5th, Clark Hill attorney and Cannabis Industry Group Co-Chair, Robert Hoban will be speaking on the “Normalization & Regulation of the Cannabis Industry driven by Education” at the Regenerative Cannabis Live Conference at the United Nations headquarters in New York City.

Next Month’s Focus

The Cutting Edge in Cannabis Law

The state’s Cannabis Control Board approved 52 conditional licenses for hemp farmers to grow cannabis for the forthcoming adult-use market.

Dispensary employees at a provisioning center that is set to open on 4/20 in the southwest part of the state authorized UFCW union representation.

The legislation, which would federally decriminalize cannabis by removing it from the Controlled Substances Act, was initially expected to be filed in April.