Pot Firms Seek to Transition From Sin Stocks to Ethical Darlings

(Bloomberg) -- A group of 45 companies operating in the cannabis industry has crafted a set of standards that they hope could one day transform them from sin stocks into ESG darlings.

Currently, pot stocks are mostly held by retail investors but the industry is realizing that it needs to have an Environmental, Social and governance framework in place to attract wary institutional investors like pension funds. A group called the Global Cannabis Partnership announced Tuesday that it’s created an ESG framework that will look at issues ranging from greenhouse gas emissions to product safety to ethical conduct.

“The hope is that this will be to cannabis what Fair Trade is to coffee,” Lara Wood, chair of the Global Cannabis Partnership advisory board, told the World Cannabis Congress in New Brunswick.

Members range from pot firms like Canopy Growth Corp. and Aphria Inc. to government agencies and law firms, and represent countries ranging from Canada to Australia, the U.K. and Israel. The certification process is being developed with help from global accounting firm EY. Certification will be granted by an independent evaluation panel.

The goal was to be proactive in creating standards for the industry rather than waiting until it’s facing some scandal, said Rick Petersen, who authored the standards and previously developed the World Lottery Association’s Responsible Gaming Framework.

“All it takes is one bad actor to bring a whole industry down,” he said.

The hope is that setting higher goalposts for industry behavior will help attract more global institutional investors, the majority of which are now including ESG criteria in their investment decisions, according to EY.

Another benefit may be getting regulators to trust the industry more and take a lighter touch in the future, said Terry Lake, vice president of corporate and social responsibility at Hexo Corp., which is a member of the Global Cannabis Partnership.

“We’re in a highly regulated environment and we’d like our regulator to have a more liberal approach to the industry, and the only way they’re going to do that is if we demonstrate this very high standard,” he said.

To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net;Jacqueline Thorpe at jthorpe23@bloomberg.net

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