Just as fast as new cannabis strains pop up, unique investment philosophies and strategies emerge every day. One such emerging system has investors weighing the financial returns an investment produces against a company’s consciousness about sustainability.
It’s called sustainable investing. And investors everywhere have their eye on the cannabis industry to be a significant player in this movement.
What is Sustainable Investing?
The strategy aims to encourage, support, and create momentum for companies who exhibit responsible environmental behaviors. Another part of the strategy, naturally, is profiting from these forward-looking, innovative behaviors.
But the most serious sustainable investors will accept lower financial returns in return for the peace of mind that comes from supporting companies with a moral compass aimed at environmental sustainability.
Why Sustainable Investing?
You may be wondering why an investor would do such a thing. Investors invest their hard-earned money, and most companies are founded in hopes of generating profits — not to save the world — right?
You might assume the answer is “yes.” But the answer is actually “not necessarily.” According to the Circularity Gap Report 2020, only 8.6% of the global economy is currently circular.
Today’s investors and corporations are becoming more and more environmentally conscious and are finding new strategies that can be profitable and environmentally sound at the same time.
Environmentally concerned investors are looking at the status quo of the global economy and its traditional investment strategies. As a result, they’re feeling uncomfortable about putting their money behind businesses that — they believe — are damaging the earth.
Here’s what has sustainable investors concerned:
According to Accenture, by 2050, maintaining the current global economic structure, which is almost entirely linear and focused primarily on production, could result in overusing the earth’s capacity by more than 400%.
Although the world has operated with a “linear economy” focused only on production for centuries, this linear model produces incredible amounts of waste. Consider this information from the Ellen MacArthur Foundation:
•Every second, the textile industry produces the equivalent of a garbage truck full of waste that ends up incinerated or in a landfill.
•The food industry throws away enough perfectly edible food to fill six garbage trucks in that exact second.
Investors who feel outraged by these statistics — and countless others — are taking action. They are reallocating their portfolios to invest in innovative companies focused on moving the needle toward a circular economy.
This circular approach eliminates waste by creating a closed-loop system. Such a system keeps the production loop “closed,” so all materials produced stay inside — rather than having some funneled off to a landfill. The materials remain within the loop because the system is engineered to reuse byproducts as future inputs.
The traditional linear business model is not sustainable, so sustainable investors are eager to invest in companies that adopt a more circular approach in their business models.
Are Sustainable Investors Really This Altruistic?
Not all investors putting their cash behind sustainability-focused companies are doing it for the “kumbaya” reasons you might think.
Sustainable investments can produce significant returns. The circular model ultimately minimizes labor and energy costs with strategies powered by renewable energy and innovatively recycled materials.
By reducing these costs, companies can see a significant boost in their bottom line by driving profitability.
The cost savings from reusing and recycling, when compared against sourcing virgin materials, can be surprising. New research from Closed Loop Partners indicates a shift toward circular manufacturing will generate $2 trillion in annual U.S. revenues and $7 billion in new revenue opportunities.
The Cannabis Industry: A Perfect Case Study
Cannabis companies, whether in the plant-touching segment of the industry or elsewhere, should be refocusing on reusing, repairing, and recycling materials rather than only making them.
Regennabis — an advisory, convening, and investment services company — is helping cannabis companies reimagine their approach to production. According to co-founder Geoff Trotter, by helping cannabis companies define and deliver a sustainability-focused continuous improvement plan, Regennabis accelerates existing relationships and opens doors for additional conversations with investors.
This production reimagination involves:
•Collaborating with suppliers, customers, and consumer-facing organizations
•Engaging these stakeholders in discussions that nurture sustainable behaviors
•Demonstrating that social due diligence also delivers economic success
Smart and Sustainable Cannabis Solutions
According to various sources, today’s average investor is increasingly utilizing non-financial factors as they identify opportunities. Leaders in the cannabis industry recognize the challenges likely to arise and are investing in practices that proactively reduce their carbon footprint by improving the way they use water, soil, and even building materials.
Take AltoVerde, for example. After moving growing practices indoors for efficiency purposes, they kept an eye on sustainability by designing those indoor operations to recycle close to 100% of the water they use by capturing the perspiration from the plants.
Other cannabis organizations are looking closely at regenerative farming practices. Innovative cultivation methods ensure that the soil is fully replenished and repaired after each use.
Another solution involves farmers using harvested hemp to create building materials like hempcrete. Just like it sounds, hempcrete is concrete made from hemp.
Hempcrete has a negative carbon footprint. The production of the hemp used in hempcrete removes more carbon from the atmosphere than it ultimately produces.
Companies like Hempitecture are dedicating their entire value proposition to plant-based building materials. And it’s not just hempcrete. The company found that fiber batt insulation products like hemp wool are sustainable, high-performing, and easy to install.
Balancing Risk, Return, and the Right Intentions With Sustainable Investing
Consumers and investors alike now expect — and demand — more from today’s businesses. They want to buy from and invest in companies focused on sustainability and creating meaningful change that’s good for society and the planet as a whole.
However, sustainable investing is still an emerging concept. And although emerging markets are filled with growth opportunities and massive amounts of potential, these opportunities also come with their fair share of risk, so proper due diligence is critical.
Making the shift toward a circular global economy won’t be easy, but it is vital for the planet’s health. Early adopters and their investors will ultimately see a moral and financial return on that investment by focusing on reusing, repairing, and recycling materials rather than only making them.
Which return is more important? We’ll leave that question up to you.
This article was originally featured in the fall 2021 issue of Cannabis & Tech Today. Join the newsletter and read the full issue for free.