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by Martin Summers 1st July, 2019

What a sustainable cannabis sector should look like and how to get there

Cannabis continues to be legalised or decriminalised at a rapid rate. CBD (Cannabidiol) products are widely available on the UK high street and the medical and therapeutic benefits of cannabis are being increasingly recognised.

But although cannabis continues to be hotly debated, there is remarkably little discussion about what a responsible cannabis sector would look like and how to get there.

A lot of questions remain largely unanswered – and in many cases, not posed at all, including:

  • How should governments regulate the sector, to drive sustainability and responsible behaviour by businesses and consumers?
  • How should investors and companies ensure that they identify and implement best practice and which sectors and countries can they learn from?
  • How can consumers identify sustainable products and companies ?
  • And what should happen to consumers and producers who were incarcerated or otherwise marginalised?

A recent event I convened started to answer many of these questions. Below are some of the key points made by myself and my panellists, Gavin Sathianathan (CEO of Alta Flora) and Toby Shillito, a cannabis investor and entrepreneur, in terms of defining and working towards a sustainable cannabis sector.

GK can help investors and companies understand and act on these key considerations, namely:

  • Learning from ESG in other sectors
  • Ensuring a ‘just transition’ from illegal markets
  • Recognising where sustainability problems are largely a function of their historic illegality rather than an inevitability relating to intrinsic or unavoidable issues with the production and consumption of cannabis

How can Cannabis learn from other sectors?

While its legal status and physical/psychological impacts presents certain sector-specific sustainability or ESG (environment, social and governance) challenges, cannabis can otherwise be judged against the sustainability criteria used for many other sectors in which it falls (e.g. agriculture, retail, food and drink, pharmaceuticals and supplements).

It’s important to choose the right comparisons, depending on the consumer group and location.  For example, for new users of cannabis, it’s important to focus on the customer journey, helping to ensure that they understand how it might affect them and how they might best consume it and adjust dosage, etc. Simply providing consumer information on-line or on-label won’t be able to achieve this: properly trained retail or customer centre staff will. High quality retail vaping outlets offer more relevant lessons than wine or beer outlets.

Cannabis needs a ‘just transition’

Additional criteria and guidance needs to be drawn from other sectors that have had to deal with what are now called ‘just transition’ issues. While this concept arose from considerations about the transition to a low carbon economy – especially how to ensure that workers and communities focused on high carbon sectors are prepared for and affected by the phasing out of carbon – there are lots of similarities for cannabis.
For example, it’s important that producers who worked in the sector when it was illegal have a chance to utilise their experience and economically benefit from opportunities in the newly legalised sector.

The State of Massachusetts, for example, has a Social Equity Programme for potential applicants for cannabis business licenses, aimed at giving advantage to ‘certain geographic areas and demographic populations …that have been disproportionately impacted by high rates of arrest and incarceration for cannabis and other drug crimes as a result of state and federal drug policy.’… in order to ’redress the historic harm.

Lessons could also be learned from the extractives sector, where Local Content policies are designed to ensure that local people and communities can benefit from huge foreign investment projects (that might otherwise use only non-local or foreign contractors and companies).

Most of the current negative sustainability impacts are a function of historic illegality

  • Many of the sustainability problems affecting the sector right now are largely the function of its previous illegal status and the fact that legalisation progress to date has been piecemeal, deterring a lot of firms that have well-established sustainability credentials in other markets (though this is changing as the larger food and drink and pharmaceutical companies move into this space).
  • Compliance with legal requirements on workforce safety and welfare is, for example, a nonsensical aspiration in an illegal sector, where avoidance of legal detection is a minimal requirement to staying in business.
  • The current, quite negative environmental footprint for cannabis production (extensive use of greenhouses and electricity in the US, Switzerland and Canada) is largely the consequence of its previous illegality literally pushing it underground. Illegality meant that no illegal producer had any previous incentive to recycle or properly dispose of waste product, for example (as it could lead to detection.)
  • The environmental impacts of cannabis cultivation will become a lot better when legalisation and market maturity leads to production in more conducive natural environments near the equator (as cannabis needs a lot of sun.) It takes indoor cultivators over 18 times more electricity to produce a gram of cannabis than an outdoor cultivator (kWh/gram), according to The Cannabis Energy Report: Current and Evolving State of Cannabis Energy Consumption.

Colombia and many African countries will come to the fore, not least because their costs are a fraction of those in Canada, etc. Globalisation and consolidation and competitive pressure is already rapidly driving down margins to very low levels in these countries.

Developing a sustainable way forward

There are no intrinsic reasons why cannabis should not become a highly sustainable sector, bringing huge benefits to the environment, public health and individual users. But its journey to becoming a sustainable sector needs to be carefully mapped and navigated.

 

 

For more information on how GK can help you understand the ESG and political and regulatory issues relating to the cannabis sector, please take a look at our ESG services page or get in touch with us directly at GK Strategy. 

See more articles by Martin Summers