ESG Risks In The Cannabis Industry

In addition to grappling with the challenge of marketing a substance that is still illegal at the federal level—but permitted for medical use in 37 states and the District of Columbia and for adult use in 19 states—cannabis companies are addressing the growing concern that they and their directors and officers (D&Os) have to be better corporate citizens. These challenges often result in cannabis companies making environmental, social, and corporate governance (ESG) pledges.

While such pledges often are received very favorably by investors and the public, these commitments can be ticking time bombs of future liability. D&Os of a cannabis company are fiduciaries of that organization who are required to discharge the duties of their respective positions in good faith and with diligence, care, and skill. As such, it is important for the D&Os of cannabis companies to understand the risks they take when making ESG pledges and trying to implement the accompanying goals.