How Environmental Benchmarking Can Help Your Cannabis Business

Columns - Guest Column

Tracking your energy, water, and emissions can lead to better sustainability performance, improved industry reputation, and increased access to capital.

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Sustainability is a trending topic in the cannabis industry that is increasingly important to some consumers. Cannabis brands are making sustainability commitments while a variety of actors, including the Resource Innovation Institute (RII), study the environmental performance of the industry, with the goal of supporting producers with data-driven knowledge and peer-reviewed best practices guidance. Influencers ranging from policymakers, utilities, academics, investors, media and consumers are in many ways defining the market alongside cannabis business operators as they establish codes and standards, determine incentives on technologies, perform research to develop usage baselines, and push companies to improve their individual environmental performance.

Cultivation operations interested in increasing sustainability efforts can take thoughtful first steps in reducing their environmental impact in an increasingly resource-constrained world and avoid common pitfalls along the way.

Benchmark Baseline Performance

The first step in improving your environmental performance is to understand your current environmental performance. As the saying goes, “If you can’t measure it, you can’t manage it.” Start with where you are so you can manage your way to where you want to go.

Resource benchmarking is the process of tracking an operation’s annual energy use, water use, waste and production output year-over-year in relation to itself and/or other similar operations. Like stepping on a scale, benchmarking is a critical step in a brand’s sustainability journey. If a business is not measuring performance, it cannot continuously improve. Assessing your performance baseline must be your starting point.

Establishing your baseline enables you to use data to inform your path to a more efficient, productive and profitable operation. From your baseline, you can set goals and establish plans for improvement. Without a baseline, you will be flying blind – and you may be flying in the wrong direction.

A good baseline is standardized and representative of your environmental footprint. That way it can ultimately be comparable to other companies and enable you to track your competitiveness.

RII’s PowerScore resource benchmarking platform is a secure and vetted tool for this purpose. The not-for-profit PowerScore tools provide cultivation operations a free and confidential competitive ranking of cultivation efficiency performance along industry-standard key performance indicators (KPIs). PowerScore generates KPIs for energy, water and emissions, including solid waste and CO2e (measuring carbon associated with energy use). Soon, the platform will conduct performance verification to certify records for investors and other auditors.

Performance benchmarks are stored in RII's database of benchmarking records. Information from individual records belongs to the user who created the record, and portfolios of records can be analyzed on RII’s dashboard reporting platform. Records with data that pass quality tests are added to the Cannabis Ranked Data Set and outlier KPIs are removed. RII analyzes the aggregate performance of the ranked data set to generate insights on the performance of indoor, greenhouse, and outdoor grow operations. PowerScore Pro users can see how they compare to the average performance of their peers using the same growing style (indoor/greenhouse/outdoor).

Key Performance Indicators calculated by PowerScore for cannabis cultivation efficiency and productivity include resource efficiency (resource use per unit of canopy area—for example, kBtu per square foot of flowering canopy) and resource productivity (units of biomass produced per unit of resource—e.g., grams of dry cannabis flower per gallon of water).

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Prepare for ESG Reporting Requirements on the Horizon

Tracking your progress is not only good for your sustainability planning, but it can help you solidify your Environmental, Social & Governance (ESG) reporting. Companies are required by governments around the world to track and improve their environmental performance as part of ESG reporting. ESG reporting, which includes metrics such as carbon emissions, water and waste management, diversity, equity and inclusion efforts and intellectual property protection, is valued by investors and can help you access new sources of capital.

While specific ESG reporting requirements may vary around the world, companies generally are expected to provide information that is material to their business, consistent, accurate and complete. Adopting and integrating industry-standard KPIs into your operational planning sets you up for success.

Investors see businesses that track performance as lower risk. Metrics to quantify sustainability for ESG reporting are quickly becoming business imperatives for fund managers across multiple sectors, adding significant value to investors’ due-diligence team’s research, risk and portfolio management. Companies demonstrating a genuine effort to incorporate sustainability into investment decision-making reduces risk and adds extraordinary value to investors. A 2020 report from global communications firm Edelman found that “88% of [U.S.] investors believe companies that prioritize ESG initiatives represent better opportunities for long-term returns than companies that do not.”

Increasingly, more and more companies in the cannabis industry (specifically in the cultivation and controlled environment agriculture sector) are integrating values, goals and ESG metrics into their business strategies to mitigate risk, innovate, increase efficiency and quality, and even reduce cost. Purpose-driven companies witness higher market share gains and grow three times faster on average than their competitors, according to data from cannabis investment firm TRESS Capital, all while achieving higher workforce and customer satisfaction. S&P Global also reported that ESG-focused funds were better shielded and beat the overall market amid COVID-19 shutdowns. According to the TRESS report, of the ESG exchange-traded funds and mutual funds with more than $250 million in assets under management, “19 of those funds performed better than the S&P 500. Those outperformers rose between 27.3% and 55% over [the period of March 5, 2020, and March 5, 2021]. In comparison, the S&P 500 increased 27.1%.”

Benchmarking Data: Setting Standards

In addition to company-level benefits, benchmarking data helps establish standards for the cannabis industry at large.

Individual company benchmarking and ongoing analysis of aggregate data ultimately support the development of standards against which the industry and stakeholders, including governments and media, can assess operational and environmental performance. Standards can be formed voluntarily or can be forced upon sectors via regulations, as seen in states such as Massachusetts, Illinois, and California. Other jurisdictions have established requirements on lighting and other equipment, and more are likely on the horizon.

Voluntary actions, such as the development of leadership recognition systems like the LEED green building rating system, can be initiated by industry, ideally with transparency and in collaboration with non-governmental organizations and/or the public sector. Regulations, on the other hand, generally arise because of perceptions or concerns about an industry’s environmental impact.

In either case, a trusted dataset containing aggregate facility performance data gathered via individual facility benchmarking can shape a reliable framework that drives efficiency improvements in a functional manner for operators.

The cannabis industry has been hit with a number of sensational stories about energy and water use, and in many cases the media outlets generating these stories have relied on unsubstantiated data that are unrepresentative of today’s dynamic, innovative, and increasingly efficient production market.

The more the industry shares aggregate data about actual impacts, the more it can be on its front foot rather than on its heels, and the more its reputation can improve.

Authors’ Note: This article is the fifth of six guest columns by Resource Innovation Institute (RII) in 2021. Check out RII’s past guest columns on their author page. Key terms introduced below are italicized and described in more detail in the guides at ResourceInnovation.org/Resources. In this article, RII’s technical director and executive director discuss the benefits of sustainable cannabis with members of their Strategic Advisory Council.