Cannabis boards have a fiduciary duty to advocate for criminal justice reform

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Some cannabis stakeholders suggest that licensed operators should advocate for criminal justice reform because it is the “right” thing to do.

Legal interpretations of a director’s fiduciary duty, too, could require cannabis companies to fight for true criminal justice reform.

According to a 2022 article from the Harvard Law School Forum on Corporate Governance, corporate directors could fail to perform their fiduciary duties if they don’t maximize profits or comply with environmental, social and governance (ESG) requirements.

Cannabis consumers care about reform

Image of Amber Lengacher is an attorney and the founder and CEO of Purple Circle LLC.
Amber Lengacher (Contributed photo)

Cannabis consumers care about criminal justice reform and spend their money with companies that have good reputations in supporting those efforts.

According to a 2024 study published by the Parabola Center, 68% of those surveyed cared about social equity and ending marijuana arrests, and more than 60% believed that cannabis legalization should benefit people who have been harmed by enforcement of marijuana laws.

Cannabis companies can increase customer and brand loyalty – and, in turn, profits – by actively supporting criminal justice reform.

Cannabis legislative reform

Some companies in the space have spent millions of dollars backing criminal justice reform efforts by supporting organizations focused on the release of nonviolent cannabis prisoners, such as the Last Prisoner Project.

But to truly demonstrate their commitment to criminal justice reform and fulfill fiduciary duties in maximizing profits, cannabis directors should require their companies to advocate legislatively for criminal justice reform in the form of cannabis legalization.

Cannabis customers and shareholders are watching, and to operate without legislatively addressing true social harms could put directors at risk of failing to comply with their fiduciary duties.

ESG reporting requirements

Misrepresentations in ESG reporting can lead to U.S. Securities and Exchange Commission (SEC) sanctions, which can negatively impact shareholders’ interests.

The SEC’s Enforcement Division has a task force in place to root out ESG-related misconduct and initiate enforcement when, for example, a firm fails to follow policies and procedures involving ESG investments or misstates ESG considerations.

In 2022, the SEC charged Goldman Sachs Asset Management (GSAM) for ESG policies and procedures failures, ultimately resulting in a $4 million penalty.

Reporting to the SEC

The SEC finalized rules in March 2024 for required reporting of climate-related ESG disclosures, while social reporting remains done on a voluntary basis.

In other parts of the world, laws such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) have been enacted to require large and publicly listed companies to publish regular reports about the social and environmental risks they face as well as how their activities impact people and the environment.

This law and others could apply to U.S. businesses that operate abroad, and the SEC could begin requiring similar reporting of social metrics as well.

Pledge to support reform

Many cannabis companies are publicly traded in Canada or on domestic over-the-counter (OTC) markets, which require some of the highest reporting compliance and correspond with some of the strictest SEC oversight.

Additionally, most cannabis business operators are required to make attestations in their licensing applications or elsewhere indicating they would support criminal justice reform in various tangible ways.

Due to this oversight and these representations, cannabis directors could be at risk of failing to fulfill their fiduciary duties if they have represented that the business is advocating legislatively for criminal justice reform while in reality it only is advocating for its own business interests.

Cannabis industry priorities

By advocating legislatively for true criminal justice reform, cannabis companies can fulfil the ESG principles of their fiduciary duties.

These principles include but are not limited to reducing inequalities and promoting justice through:

  • The release of non-violent cannabis prisoners who were wrongly incarcerated.
  • The end of ongoing cannabis arrests.
  • Pardoning of previous offenders.

Cannabis businesses also can advocate legislatively for lower barriers to entry for owners and employees of cannabis businesses, simultaneously increasing their connection to the cannabis community and hiring pool.

As someone who was previously arrested for cannabis possession, I can tell you that we have a lot to offer.

Popular with investors

To bring it full circle, ESG compliance also can lead to increased profits.

According to the SEC, “mutual funds and ETFs that focus on ESG principles have gained popularity with investors.”

A Morgan Stanley study from 2024 indicates that 80% of companies see sustainability as a potential revenue and profitability driver.

Others suggest that businesses that have shown an “express commitment to ESG compliance” saw a 9.1% increase in profits.

In most traditional industries, a clear commitment to ESG principles has been shown to increase profits (and help directors fulfill their fiduciary obligations).

Corporate values

The impacts of ESG compliance in cannabis – including fighting for criminal justice reform – could be even larger than in traditional industries.

By aligning corporate values with those of conscious consumers, cannabis boards can fulfill their fiduciary obligations by advocating legislatively for criminal justice reform through cannabis legalization and shaping this industry so that it represents the community from which it came.

Amber Lengacher is an attorney and the founder and CEO of Purple Circle LLC. She started her legal career at Vicente LLP before moving in-house to work as licensing manager and then corporate counsel for multistate cannabis operator Trulieve. You can reach her at Amber@PurpleCircleServices.com.