A new report commissioned by the Cannabis Trade Alliance is a stark reminder of how much work is left to be done in order to make cannabis operations more sustainable.
The “flow kana” is a report that has been made by the United Nations Framework Convention on Climate Change. The report signals the need for greener operations in cannabis.
With the release of its sixth assessment report on August 9, 2021, the United Nations Intergovernmental Panel on Climate Change sent shockwaves across financial markets and the globe at large.
The IPCC report, which has been the most thorough of its kind since 2013, makes it clearly plain that most of the damage done to the global environment will be irreparable, and that the damage is increasing at an alarming pace.
This has prompted environmental, social, and governance (ESG)-focused investment funds and asset managers to reconsider their strategy. In a Bloomberg Law article, Chris Meyer of Praxis Mutual Funds, a well-known socially responsible investing business, noted that the findings “changes the calculus.” We’ll need to be more laser-focused. This research demonstrates that investors are not moving at a fast enough pace.”
Financial investment alone may not be enough to solve the situation. What is clear, however, is that fund managers focusing on ESG criteria will pay special attention to environmentally conscientious corporations, and large quantities of money will likely flow into those that commit to more aggressive ESG programs.
What is environmental, social, and governance (ESG) and why does it important to cannabis businesses?
ESG is a set of guidelines that certain companies use to evaluate possible investments and apply to a company’s operations. In recent years, an increasing number of investment companies have focused on environmental, social, and governance (ESG) as a strategy of recruiting investors. Companies that demonstrate a commitment to ESG principles, according to investment firms, will be better positioned to offer outsized returns in the future.
What impact will this have on the cannabis industry? To be honest, despite all of the lofty rhetoric, our sector lags behind on all ESG indicators.
Although the cannabis industry is a hot investment area right now, not all businesses are receiving the advantages. The gap between cannabis firms that can attract investment and those that can’t is widening, and if federal cannabis legislation (maybe) becomes a reality, this tendency will only worsen. Cannabis businesses that can show a commitment to ESG in their financials, contracts, corporate records, and company culture will be better positioned to attract smart investors and command higher values.
Some states have already signed on to it.
Some states’ regulators have already started drafting particular environmental and sustainability criteria for the business. Beginning January 1, 2022, the California Department of Food and Agriculture has mandated that all cultivation renewal applications include records of total electricity supplied by local utility providers, total electricity supplied by a zero net energy renewable source, onsite power generation, total electricity supplied from other sources, and greenhouse gas emission intensity from each source.
According to the California Renewables Portfolio Standard Program, starting January 1, 2023, all indoor, Tier 2 mixed-light license types and nurseries using indoor or Tier 2 mixed-light techniques will be required to ensure that electrical power used for commercial cannabis activity meets a standard for greenhouse gas intensity required by their local utility provider. Furthermore, the California Energy Commission’s proposed new efficiency criteria for indoor and greenhouse cannabis facilities would mandate the use of LEDs by all indoor production operators by January 2023.
In New York, on the other hand, environmental considerations are an important part of the rule-making process. The Marijuana Regulation and Taxation Act of 2021 established the Cannabis Control Board to develop regulations for the adult-use licensing program’s implementation, and it requires the Cannabis Control Board to collaborate with the New York State Departments of Agriculture and Markets and the Department of Environmental Conservation to develop regulations that address environmental and energy concerns.
Cannabis enterprises that take shortcuts on environmentally aware problems may face hefty fees in addition to legal responsibilities. A lawnmower used by a Flow Kana employee, for example, ignited the Broiler Fire in Mendocino County, California, in July 2021. The fire was started by Flow Kana, a cannabis startup that has received considerable venture capital funding and is recognized for its environmentally friendly methods.
According to the Mendocino Voice, which received a letter from a woman who had previously contracted with Flow Kana to allow her livestock to graze on its property — a sustainable practice in the area — prior to the company switching to machine lawnmowers, the goodwill enjoyed for the honesty may be short-lived.
“You sought to deal with the fuels issue rather than address the land as a complex sequence of interactions that produce life and death,” the letter says, accusing the corporation of failing to establish a proper fire safety strategy and fulfill its ethical responsibilities to the land. You turned your connection with the earth into a power struggle. I wish it didn’t have to be this way, but my intention is that this fire serves as a wake-up call for all of you, forcing you to evaluate your influence and delve deep for the fundamental reasons of the devastation you’ve created. With yet another chapter of bridges burnt in our community, this fire reveals deeper realities about your business.”
Cannabis firms are already subjected to more scrutiny than businesses in other industries, and consumers and investors are increasingly focused on ethical business practices. These corporations are increasingly being held accountable for their social and environmental consequences.
While there are major dangers for cannabis businesses that do not adopt sustainable practices, there are also big rewards for those that do. The financial markets’ reaction to the IPCC report is a good indicator of where investment funds will be directed. Adopting ESG principles is an excellent method for cannabis firms to not only build goodwill, but also to stimulate investment, in a field where money is scarce.
There are now studies analyzing water consumption and alternative lighting, but cannabis businesses might benefit from studying how other sectors, including as wine, have embraced sustainability. For decades, winemakers have used sustainable methods like regenerative growth to garner investment and customer support.
Consumer demand for sustainable goods continues to rise, as does investment in sustainable businesses. Companies like Fetzer have developed complex systems that use regeneration filtration, worms, and microorganisms to clean 100 percent of vineyard effluent. In 2016, Verizon teamed with a number of wineries in Monterey County and Napa Valley to use an analytics engine to improve every aspect of the vines’ growing stage.
Winemakers are always coming up with new strategies to help the environment. The cannabis sector should do the same.
- climate change 2021