“As a member of the cannabis sector, we each have a unique opportunity as an emerging industry to demonstrate leadership to corporate America in defining environmental, social and governance priorities (ESG) and the associated data metrics for corporate reporting and compliance,” stated Hussein Anani, President of DrazCanna, Inc. “The need for meaningful industry benchmark data to drive decision making and measure individual ESG corporate successes is an opportunity for cannabis space leadership to join together in defining best practices for the rest of Corporate America to follow.”
ESG challenges for cannabis industry are:
E – Environmental concerns related to cultivation, processing, and packaging methods demonstrate the need to develop industry wide benchmark metrics for electrical consumption, wastewater generation, solid waste diversion, and emissions. The need for innovative cannabis cultivation approaches to mitigate climate risk while ensuring consumer product safety should be the objective for the industry as a whole.
S – Social inequities in the cannabis industry are unique from other industries when considering the impact on individuals from the legacy of prohibition. We believe that cannabis legalization alone cannot erase the legacy and that expungements for past convictions will help address the impact upon individuals. Legislating social equity measures from the outset within licensing programs is a start but fails to address the widespread impact from decades of arrests for minor possession(s). If measuring the environmental impact of investments is difficult without industry benchmark data, measuring the social impact initiatives is a challenge for industry leadership to overcome. Benchmark data, transparency in the licensing process, and financial accountability are critical to ensuring these measures are effective.
G – Governance is the structure, processes and procedures within a company, including its officers, employees, and board of directors in addressing issues related to diversity, pay equity for employees and executives, tax strategy, political lobbying, and supply chain policies.
DrazCanna’s Approach to ESG
“Employee ownership of cannabis companies for all its employees is the fast track to remediation of social inequity,” stated Gina Szpak, “Our goal in environmental responsibility is to strive to be the ‘Greenest of the Green’ in the cannabis industry through the continued evolution of our cultivation and processing approach developed over six years.”
Outdoor cultivation of cannabis presents unique challenges to product safety as well as environmental implications with land use. The phytoremediation potential of cannabis has an ability to absorb and store heavy metals which presents a conundrum for the industry on soil versus hydro and outdoor versus indoor cultivation approaches. Consumer safety is tantamount to determining acceptable cultivation strategies. Outdoor cultivation is environmentally superior from greenhouse gas emissions (savings from HVAC, Lighting, and Pumps) but presents problems with the environmental impact of nutrient runoff and potential consumer product safety issues.
The effect of indoor grow operations upon electrical distribution and capacity is a growing concern for national cannabis legalization. Regional areas have seen impact from cannabis related electrical consumption consuming as much as 4% of grid capacity. Hybrid greenhouses and technological improvements in lighting and HVAC represent opportunities for industry to minimize electrical consumption while maintaining product safety and quality.
“Our development efforts were focused first upon consumer safety while minimizing the environmental impact of cannabis cultivation upon water usage, waste streams, and air emissions,” added Gina,”Real progress on diversity inclusion or climate change requires us all to know better and do better to protect people and our environments.”
DrazCanna’s cultivation approach is upon minimizing wastewater and electrical consumption.
Whether grown indoors or outdoors, however, the cannabis plant requires water (about the same amount as tomatoes). Hydroponic cultivation aids in minimizing water consumption. Given that great portions of the contiguous United States faced severe to extreme drought conditions in 2021, water use could become problematic for certain regions as the cannabis industry grows and other agricultural sectors battle for this scarce resource.
State governments have included provisions within licensing for social equity programs to address the decades of prohibition. The legislative requirements of social equity have favorably positioned the industry as a leader in corporate social equity reform. The benefits for the industry include the distinction as an industry employer of choice in today’s staffing challenge. While most all industry suffered with employee retention and hiring, the cannabis industry employed over 300,000 people in 2020 alone, with 80,000 jobs added during the year.
Social Equity programs are meant to ensure that those individuals whose lives were negatively impacted by prohibition policy are afforded an opportunity to meaningfully participate, in this rapidly growing industry. DrazCanna’s approach to address social inequities are within hiring policies and employee ownership programs.
Success Metrics for ESG
Development of industry success metrics are crucial to ensure a unified strategy of reducing the environmental impact of cannabis cultivation, improving social equity within our employees and communities, and the effect of good corporate governance in ensuring compliance with the best industry practicesfor cannabis industry environmental, social and governance priorities.
For public companies in the cannabis sector, the challenges of ESG financial disclosures are compounded by lack of industry ESG benchmarking. In March of 2021, the Securities and Exchange Commission announced the creation of a Climate and ESG Task Force in the Division of Enforcement with a goal to develop initiatives to proactively identify ESG related misconduct in response to investor focus and reliance on climate and ESG related disclosures and investments.There are no SEC “ratings” or “scores” of E, S, and G that can be applied across a broad range of companies.
“Success metrics for DrazCanna’s environmental endeavors relate to measurements of water, electricity, waste generation, and BVOC’s relative to harvested weight,” added Hussein. “DrazCanna is seeking to be a leader in the cannabis industry’s environmental, social equity, and governance movement.”