Best Practices for Corporate Governance in Cannabis Companies

Why ESG Matters for Cannabis Companies

ESG isn't just a buzzword anymore. It's a significant factor in how companies operate, attract investment, and ensure long-term success. Shareholders are demanding that companies take clear stances on environmental and social issues, and cannabis businesses are no exception.

In 2021 alone, there was a record number of shareholder resolutions addressing environmental and social concerns, including those related to climate change and diversity. 

Many cannabis companies, like Trulieve and HEXO Corp, have already made significant pledges to meet these goals, but with these promises come risks. Any missteps or overstatements can lead to litigation or reputational damage.

Corporate Governance 101: Building the Foundation

Strong corporate governance is the foundation for any successful cannabis company. It ensures that ethical practices are followed and that the company is compliant with all relevant regulations. But what exactly does good governance look like in a cannabis business?

Here are a few best practices to consider:

Establish Clear Leadership Roles

Every cannabis company should have a well-defined leadership structure, with clear roles and responsibilities for executives and board members.

Designating individuals to oversee areas such as compliance, diversity, and sustainability is key to meeting ESG targets and maintaining accountability.

Focus on Transparency

Transparency is critical in building trust with investors, customers, and the community.

Regular reporting on ESG goals and progress, including environmental impact and diversity initiatives, can help avoid accusations of "greenwashing" or making false claims. Honest communication about both successes and challenges is a must.

Promote Diversity and Inclusion

The cannabis industry has already made strides in promoting diversity and inclusion, but there's always room for improvement. Companies should continue to prioritise diverse hiring practices at all levels, including leadership, and create an inclusive work environment.

This not only supports ethical business practices but also aligns with investor and consumer expectations.

Implement Strong Compliance Programs

The cannabis industry is highly regulated, and staying compliant with local, state, and federal laws is non-negotiable. A strong compliance program ensures that your business operates within legal boundaries, reducing the risk of costly fines or legal battles.

Environmental Responsibility

Cannabis companies are under increased scrutiny for their environmental practices, especially given the industry's energy use and environmental impact.

Committing to sustainability, reducing energy consumption, and exploring eco-friendly packaging are just a few ways to align with ESG principles.

Managing Risks and Avoiding Pitfalls

Even with the best intentions, cannabis companies face risks when making ESG commitments. 

Publicly stating ambitious goals without having the systems in place to achieve them can open the door to legal liabilities. To avoid this, ensure that your company is prepared to back up its promises with action.

For example, some companies have faced litigation over misleading environmental claims. If a business promises carbon neutrality but fails to achieve it, it could be exposed to lawsuits and reputational damage.

It’s essential to be honest about your goals and to take a realistic approach to meeting them.

The Role of ESG in Attracting Investment

For cannabis companies, embracing ESG isn't just about compliance — it’s also a smart business strategy. Investors are increasingly favouring companies that prioritise ESG issues, and those with strong governance structures are better positioned to attract capital.

Cannabis companies that successfully integrate ESG into their operations may even see favourable treatment from insurers and financial institutions. However, companies that fail to live up to their ESG commitments can face higher costs or be denied coverage altogether.

Cybersecurity and Data Privacy: Protecting Your Business

With more cannabis companies operating online and handling sensitive customer data, cybersecurity has become a major concern. 

Data breaches can be devastating, both financially and reputationally, as seen in several recent cases where cannabis companies were sued following cyber-attacks.

Ensuring that your company has robust cybersecurity measures in place is a critical aspect of corporate governance. Executives must work closely with IT teams to protect customer data and mitigate the risk of breaches.

Embrace ESG as a Competitive Advantage

For cannabis companies, corporate governance is more than just ticking boxes — it's a key driver of success in today’s market. 

By prioritising ESG, promoting ethical business practices, and ensuring compliance, cannabis businesses can build long-term resilience and gain a competitive edge.

Now is the time to solidify your company’s governance structure, align your goals with ESG principles, and lead the industry by example. 

Not only will this help attract investors, but it will also protect your business from potential risks down the line. So, is your cannabis company ready to step up its corporate governance game?