Nestled between the Coastal Range mountains and the Mad and Eel rivers, about 150 miles north of San Francisco, lies some of the finest cannabis-growing conditions in the world.
Sheltered from the blustery Pacific winds but not its moist fogs and rich coastal plain and river terraces, Humboldt County is world-renowned as the site of the giant redwood tree (Sequoia sempervirens) belt. The area has even temperatures in the winter and moist, cool weather in summer. Its soil is leached of lime and consists of residual material from coastal plains, old valley and wind fillings, as well as recent alluvial soils.
For these natural reasons, as well as cultural factors, Humboldt County is recognized as the cannabis growing capital of the U.S. Now, as the area begins a branding campaign to make its quality cannabis products known nationally, some growers are also adopting a corporate structure that will reflect their values.
This is being done either as a public benefit corporation, which involves making a positive social impact along with profit as goals in the incorporation documents, or as a Certified B Corp, which is endorsed by the nonprofit B Lab. Certified B Corps must adhere to strict social and environmental performance, accountability and transparency standards that create a public benefit in terms of social responsibility to its employees, the environment and the community, accompanied by a monetary return to shareholders.
Though not well-known, benefit corporations are legal in 30 U.S. states and the District of Columbia, as well as in Italy and Australia.
The goals of a benefit corporation are very different than a traditionally organized corporation. In a traditional corporation, financial returns alone are the main concern. These returns accrue to the shareholders, investors and top management, but any negative impacts on the environment, the community or even employees as economic externalities are of little or no concern to the corporation, except in the impact of negative publicity.
Alternately, the directors and executives of a benefit corporation must operate for the combined benefits of shareholders, while also considering the impacts of their business and financial decisions on the community, employees, customers and the environment. This is a much higher operating standard than what is commonly found in large corporations (think Exxon, Monsanto and DuPont) in terms of measuring the impact of business ramifications on society and the environment.
Benefit corporations also must meet an elevated level in terms of making their business operations transparent to outsiders. This includes studies and plans on their environmental impact, employee practices, finances and community activities. It also involves publishing an annual benefit report on the company’s social and environmental activities according to a credible, independent and transparent third-party standard. Currently, 19 states require this report to be filed with the Secretary of State.
Socially Responsible Investing
While benefit corporations are relatively new to the emerging cannabis industry, they are an extension of socially responsible investing (SRI), a financial activist offshoot that began during the apartheid years in South Africa as an oppositional structure to the pure financial considerations that dominate major global corporations.
SRI is a distinct and proven sector that attracts individual and institutional investors worldwide who want their investment to generate positive social change. In return, SRI corporations that meet strict financial criteria and have a demonstrated commitment to the community make a more substantial case about how their financial performance and business models create a benefit for the greater community.
In order to gain the attention of major investors, SRI companies must have their guidelines in writing and comply with various environmental, social and governance (ESG) requirements. They also need evidence that they have achieved these social goals. When this is07 demonstrated, SRI corporations have a better story to tell investors than companies just present financial data.
Today, social investing is a $21 trillion sector of the global investment world, representing a 61% increase between 2012 and 2014. This impressive growth rate has increased 30% faster than professionally-managed, non-SRI assets, according to a detailed white paper produced by the Global Sustainable Investment Review.
In the U.S., mutual fund companies such as Calvert, Domini, Walden Equity, Parnassus and Appleseed have dedicated their businesses to investing in companies that combine exceptional financial performance with producing social good. They use this criteria when making decisions to include companies in their socially responsible portfolios.
While SRI was previously overshadowed by companies that were less concerned about the environment, social justice, labor conditions and racism as economic externalities, studies have shown that SRI companies now outperform the market, while also making good on delivering social change. A study by Allianz, a German insurance company, found that between 2006 and 2010, investors could have added an additional 1.6% a year to their investment returns by allocating to portfolios that invest in companies with above-average ESG ratings.
SRI can be defined as an investment process in which investors weigh expected social and financial returns differently. These investors will often accept lower financial returns in lieu of a greater social impact.
The first fund to adopt a socially responsible investment policy was the Chicago-based Jane Addams Hull House in the early 1980s. This alternative investment philosophy gained traction during the anti-apartheid movement in the late 1970s. About that time, a set of guidelines was created by Leon Sullivan, a Baptist minister, civil rights activist and board member of General Motors, who became a leading opponent of apartheid policies in P.W. Botha’s South Africa. Sullivan reasoned that GM’s pension money, then ranked as one of the nation’s largest pension funds in the U.S., would have political and economic clout if it took a social stand on racial policies, which were then attracting worldwide attention. This led to the development of the “Sullivan principles” in 1977.
In 1999, the Sullivan principles formally included racial non-segregation on the factory floor and in company eating and washing facilities; fair employment practices; equal pay for equal work; training for blacks and other nonwhites so they could advance to better jobs; promotion of more blacks and other nonwhites to supervisory positions; and improved housing, schooling, recreation and health facilities for workers, according to the New York Times 2001 obituary of Reverend Sullivan.
To Sullivan’s credit, his timing was excellent. He capitalized on the combination of assigning a new form of public political activism with investing. This set the stage for a much wider social investing movement that over the past 30-plus years has embraced such social issues as equal wages for women, environmentalism, anti-slave working environments, workplace safety, anti-child labor policies, anti-smoking, anti-defense weapons and the humane treatment of animals.
Cannabis as a Force for Good
Currently, the number of companies in the marijuana industry space is relatively small. However, it is not too early to start considering some of these companies for either a benefit corporation or an SRI portfolio due to their beneficial impact on society. It would be up to each firm to position itself as a transformational force.
For multiple reasons, now is the time to advance social investments into the marijuana industry as a social justice issue.
Cannabis has the ability to be socially transformational. The industry is emerging with a new set of independent entrepreneurs who come from a variety of backgrounds and have been well-exposed to America’s counterculture for years. While it may be an exaggeration, it’s safe to say the cannabis industry today is not Brooks Brothers, wing-tip corporate America.
But the cannabis industry does have the ability to change a dominant American business model into one that is pro-community, pro-employee and pro-environment, while also delivering profits to investors and shareholders through a cooperative business structure model.
This can be done while the industry works to promote pharmaceutical research, environmentalism and the entertainment, music and food industries. In the process, the industry will rely on grass roots social participation to reshape the nation’s antiquated anti-marijuana laws at all jurisdictional levels. This alone represents a major business and political disruption, while the adoption of the benefit corporation as a new business model for socially responsible investing can ensure this positive disruption continues.
Chuck Epstein is the chief content officer at Salar Communications Group. He has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He holds a master’s degree in communications and a bachelor’s degree in journalism from the University of Illinois, Urbana.
Cynthia Salarizadeh is the founder and CEO of Salar Communications Group. Her area of expertise centers on public relations and strategic communications. She holds a bachelor’s degree from the University of Pennsylvania in international relations with a minor in modern Middle Eastern studies and a focus on strategic communications. She also holds a certificate in political journalism from a program at Georgetown University.