Businesses are more invested than ever before in ESG practices in order to create sustainable companies both environmentally and socially. The criminalized history of the cannabis industry means that companies making profit from its legalization have an obvious connection to social responsibility.
New York has built social equity into cannabis regulations but there is still work to be done by individual companies as well as considering the environmental impact of cannabis cultivation and distribution.
Ahead of this year’s Business of Cannabis: New York on 3 November, we sat down with Marc Ross, Head of Impact at Vicente Sederberg and speaker at this year’s event, to discuss his thoughts on the upcoming New York market, how companies can remain socially responsible and the issues he foresees for the first year of sales.
New York regulators will have to walk a fine line to balance the unique needs of MSOs, small business owners, and consumers. During New York’s first year of recreational adult-use sales, what are the headaches that you’re anticipating?
I’m hopeful that the launch of the New York adult use market goes smoothly. That said, as we have seen when other recreational markets come online, there can be issues. My biggest concern would be to ensure that medical patients can still get the medicine they need and that the inventory and priorities don’t just shift to the adult use market. On the other side of the coin is ensuring that the supply chain holds.
It isn’t likely that adult use inventories will be a problem on day one, but unless the MSOs can reach a deal to also supply to non-MSO retail operators, that supply (largely coming from a converted hemp market) could be strained some months down the line. It is essential that supply is adequate for both the medical and recreational market in the short term until new cultivations get up and running. That will take the Office of Cannabis Management balancing the needs of the MSOs and the independent operators to meet consumer and patient demands.
As New York begins to issue the first licenses, we may expect some individuals to become small business owners and employers for the first time. What advice do you have for New York’s first licensees in establishing their ESG and JEDI practices?
Small businesses have the unique advantage of being able to build JEDI and ESG practices into the DNA of their companies during the early stages of establishing their brands, operations, and cultures. So as to prevent the need to address these critical stakeholder engagement and operational efficiency activities later, even small company executive leadership teams should set aside time to figure out what they are going to stand for and how their practices will match their company mission, vision, and values. This would apply when creating their marketing plan, brand, recruitment strategy and messaging, employee manual and employee benefits, customer conversion strategies, and general operations.
Rather than providing a recommended step-by-step plan (which would far exceed the space I have here in this interview), I would humbly suggest that the founders of the company take the time to think through these issues or bring in a consultant who can help guide them through the process. It’s hard to create that space to have these sometimes personal and emotional discussions when you’re building a business and there are so many wheels spinning. But the jury is out — there is an overwhelming business advantage for having strategic, integrated, and most importantly, authentic plans to address justice, equity, diversity, inclusion, environmental sustainability and compliance, social impact, and good governance policies. Do it early in the process so you don’t have to do it later when it becomes more challenging to do.
Why is recognition of social responsibility necessary to building a sustainable, and investable, cannabis business? And how can New York’s newly established small cannabis businesses follow suit to attract investment?
There are a multitude of business advantages to building a sustainable, and therefore investable, cannabis business. World renowned business consulting companies have studied this very issue ad nauseum. Ultimately, companies that authentically build socially responsible businesses are better run companies, and therefore garner bigger market share and higher valuations, attract and retain top talent, mitigate risk, differentiate their brand, reduce employee theft and absenteeism, and are better able to weather crisis events.
Both New York state and New York City are leaning in hard to support small cannabis businesses with grants, technical assistance for license applicants, real estate acquisition and build-outs, and other business services to take entrepreneurs beyond licensing to thriving operations. As a result, the financial and often costly technical groundwork is covered. Giving small businesses a financial “headstart” creates a lot of white space for additional investment to catapult what will be financially solid, relatively small operators (with limited to no debt) into thriving and successful cannabis businesses.
Companies who market their sustainability by publicly announcing company goals around energy efficiency, water reduction and use of sustainable resources can also risk regulatory scrutiny and litigation. What advice would you give to businesses wanting to market their ESG pledges?
Any company looking to market their ESG pledges (or publish formal ESG reports) needs to do so with the active consultation of legal counsel well-versed in these issues. The legal risk of greenwashing is real, both from a regulatory agency and from shareholders, as well as reputationally in the press and marketplace. Government enforcement actions and civil suits alleging greenwashing are increasing through a myriad of different laws, securities regulations and consumer protection legislation.
Greenwashing can take various forms, from intentional statements created to mislead or deceive consumers or other stakeholders to exaggeration or imprecise claims. Even funds created to invest in sustainable or social impact enterprises need to be mindful of the legal parameters to which fund managers are subject when making public statements about a particular investment vehicle. For this reason, always consult counsel before making any kind of ESG-oriented public statement or issuing a formal ESG report.
Business of Cannabis: New York will be held November 3rd at the New York Academy of Medicine, located at 1216 5th Ave, New York. Join us and leading speakers, including Marc Ross, as we deep dive into the New York opportunity.