3 Cannabis Companies' Corporate Social Responsibility Lessons They've Learned From Crisis
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The coronavirus pandemic is like a hurricane that’s upended the cannabis world. It’s changing the way the industry operates, as owners are forced to optimize all aspects of their business.
In many cases, marketing campaigns dreamed up before the pandemic are now totally irrelevant. And companies — large and small — have been rolling out donation programs or using social media to highlight charities on the front lines of fighting COVID-19.
Corporate social responsibility (CSR) has taken center stage. The crisis has shone a spotlight on how the marijuana industry is in a unique position to be of service. But it’s also highlighted unexpected challenges that come with trying to expand a brand’s social mission.
What the big companies are doing
At Harvest Health & Recreation, Inc., there’s an entire department devoted to CSR. Marc Ross, the multi-state operator’s director of community outreach at the time, says efforts to make a social impact need to be born out of a common set of principals held by the entrepreneurs behind the business.
“You don’t want customers wondering, ‘Why is this charity or volunteer effort relevant to this company?’” Ross says. “Simply ‘giving back to the community,’ while admirable and needed, doesn’t result in the return on investment that most executives are looking to see.”
He points to Bloom Farms in California as a business he’s picked up a few pointers from. “Their whole company is oriented toward helping food-insecure people,” he says. “They not only have a one-for-one model (like the Tom’s Shoes model of making a donation for every product sold), but their employees are also paid to work in food banks.”
Developing a strategic partnership with a charity might have to wait until the coronavirus pandemic subsides, Ross says, explaining he’s found many are too busy right now responding to the pandemic. But, he notes, it is possible to collect and distribute money to nonprofits in the meantime.
However, cannabis entrepreneurs shouldn’t have any illusions about the hurdles involved in getting CSR right, he stresses. “There are three main obstacles that make the cannabis/CBD industries unique when it comes to CSR and often causes companies to forego establishing full-blown strategic programs— marketing restrictions (which vary from state to state and often require regulator approval); identification of charities willing to partner with a cannabis or CBD company; and IRS Code Section 280(e), which prevents any tax deductions for charitable donations.”
KushCo Holdings, Inc. is a Californian packaging company that’s enacted CSR at scale during the COVID-19 pandemic, donating 700,000 gloves to the state government to distribute to front line workers, and setting up a program for employees to request emergency financial support anonymously. But, the coronavirus put the kibosh on another of the company's CSR ideas. Its CEO, Nicholas Kovacevich, was just one of the people slated to participate in a charity sports tournament (meant to promote a healthy work environment) before it was canceled by the stay-at-home order.
CSR at KushCo didn’t start with the pandemic. Carmen Lam is the Senior Vice President of the publicly traded company, based in Garden Grove, that produces water pipes, glass jars, pre-roll tubes, and bubblers, among other items for the cannabis and CBD industries. Lam says KushCo has been trying to figure out how it can mitigate its environmental impact for a while. After all, for big packaging companies, packaging waste is an inescapable reality. “I mean, we’ve produced so many pre-roll tubes, and we understand that that’s going somewhere, you know?” she says. “And being that we’re a brand-new industry, we obviously don’t want to contribute to the already out-of-control problem of plastics.”
Lam says KushCo has been trying to identify vendors and manufacturers that want to take sustainability seriously. Their experiments in looking for eco-friendly solutions reveal the opportunities — and also the difficulties — of implementing a CSR mission. For example, while examining packaging options that are less harmful to the environment, they’ve found post-consumer resin — plastic that’s been sorted and recycled — is pretty easy to source.
But some of their customers are looking to use bioplastics, which is a product made from biological materials like vegetable fats, corn starch, or sugarcane. And that means a lot more uncertainty around pricing. “Businesses, in general, don’t like that there’s a sliding scale of what their costs are going to be,” Lam says. “They typically like to lock-in one cost and at least be that way for a year, and that’s not always the case with something that’s so high in demand.”
Internally, the company has thrown its weight behind wellness initiatives, such as subsidizing employee lunches and stockpiling protective gear. Externally, the company has focused on social efforts, including working with cities to offer affordable packaging and favorable credit terms to communities hit hardest by the War on Drugs. They’ve even designed a separate product menu for social equity businesses.
What the smaller companies are doing
Degi Simmons is the co-founder of Cloud9 Cannabis, a five-person marijuana cultivation and distribution operation based in Oakland, California. It is one of the few businesses under a social equity license, a program that allows entrepreneurs from communities hardest hit by unjust policies to get no-interest loans and skip permit fees. It’s part of an effort by the local government to share the benefits of marijuana revenue beyond the pool of wealthy angel investors. In a way, CSR is baked into their DNA.
“It’s more about the kind of integrity that we bring to the commodity and to the process, because of our experience in the market from before all of these laws took place,” Simmons says. “You don’t bring all of these disconnected finance-driven tactics to the process of trying to hire people and make transactions with people that are not just based on profit, but are more based on community.”
Simmons draws inspiration from industry legends like Swami Chaitanya, Ed Rosenthal, and Frenchy Cannoli. “I don’t think it really costs any money to set up your decisions in a way that are going to allow you to take into consideration your impact on your environment, and the local economy, and the people who you deal with — and who you actually are sustaining,” he says. “We gathered that opportunity—the license that is — to get an opportunity to give everyone space to do what they do, to be artistic and creative, and still have a sustainable commodity that they could fall back on.”
For Cloud9, that means swapping access to their large warehouse for skills others can bring to the table, or traveling with their mobile platform to various artistic productions. Last year they supplied a sound system to a recyclables-based art and crafts fair at a nearby sawmill, and in another effort, worked the VIP area at a concert headlined by Busta Rhymes. “Our corporate responsibility is to be available for the other teams that need the resources that we have to offer,” he says. “In this way, we grow.”
Of course, their event participation has come to a screeching halt during the coronavirus pandemic. Instead, in the lead up to the yearly 4/20 celebrations, it was all they could do to keep up with retail demand. “The COVID-19 crisis is kind of crazy, but at the same time, we’re working really, really hard, because cannabis has been identified as an essential business,” he says. “That’s one of the things that’s really galvanized our conviction to do it right with this team.”
He’s been using the unprecedented situation to consider how to improve every little detail of the company’s operations.
"It's giving us the opportunity to sit back and be like, ‘Maybe we can do this, and this, and that more efficiently,’” Simmons says. But even dreaming big has its own challenges during lockdown life. “I don’t know if you have children, but the fact that they’re not going to school now has made this little break not seem all that break-y.”
Meanwhile, back at Harvest, structural change has upended its CSR strategy. The company just sold off 13 of its dispensaries to Hightimes Holding Corp for $5 million in cash, a $7.5 million promissory note, and $67.5 million worth of preferred shares. On May 15, Ross was laid off, as the company – like many others dealing with marijuana industry headwinds – attempts to climb back to profitability.
Harvest says the move had nothing to do with the coronavirus pandemic. The company asserts that their social mission remains a key component of their turnaround plan with several employees still focused specifically on CSR. “Harvest remains very committed to serving the communities in which we operate and maintaining great relationships with all of our stakeholders,” said Christine Hersey, the company’s director of investor relations. “Corporate social responsibility is very essential to how we operate and a critical element of how we engage with other groups.”