The Incompatibility of Cannabis Factory Farming with the Principles of ESG Risk Management and Impact Investment

Abstract

Despite massive market growth, the congruence of cannabis industry practices with sustainability goals and minimizing firms’ internal environmental, social, and governance (ESG) risks has not been well assessed. Limited independent evaluations frequently benchmark cannabis companies as having “high” and “severe” ESG risk. Cultivation in Walmart-sized windowless factory farms contributes to particularly intractable environmental impacts, including greenhouse-gas emissions equivalent to three million cars in the US, high indirect water use, significant solid waste production, understudied workplace health risks, and even pressure to extend nuclear power plant lifetimes. Achieving alignment with broader policy goals of net-zero carbon emissions requires that indoor cultivators significantly increase capital expenditures and land use, no examples of which exist at scale. Poor sustainability practices are linked with market frictions and failures, regulatory distortions, lack of transparency, greenwashing, and inaccurate consumer information. Improved practices reduce business risk. Sustainable outdoor cultivation is the only practical way to achieve good environmental ESG metrics and have appeal to impact investors.