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Sustainability Matters

Cannabis Faces Significant ESG Risks

Industry would be wise to adopt sustainable practices from the beginning.

It's not often that an entirely new legal industry springs up practically overnight after having been mostly illegal for decades, but that's what is happening with cannabis today. Unlike most emergent industries, for which long-term survival cannot be assured, cannabis already has a long-established consumer base for both recreational and medical uses, making the question not so much whether legal cannabis will catch on with consumers, but how fast and how big the industry will grow.

The developing cannabis industry, however, faces significant sustainability risks that could put a dent in growth and potentially threaten its still-tenuous social license to operate. Investors should consider these risks as they evaluate public companies that are exposed to cannabis as well as those that are pure plays. Cannabis companies should pay attention to their environmental, social, and governance risks and take steps to mitigate them early on. Doing so could result in operational and reputational benefits accruing to early adopters and improve public perceptions of the industry as a whole. Better for legal cannabis to be seen as sustainable than as just another "sin stock."

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