A Business Case for Diversity in Cannabis

According to a Marijuana Business Daily report, retail sales of medical and adult-use cannabis in the US could rise as high as $30 billion by 2023. Without access to traditional capital resources for company growth to meet opportunity and demand because of US federal prohibition of cannabis, US cannabis companies are looking to Canada for funding and getting listed on Canadian stock exchanges. US companies should be aware that Canadian regulators are making a conscious effort to have more women on boards than currently exists. The best ideas are generated and executed through diverse teams. These teams are highly successful because they include individuals with various backgrounds working together pursuing a common objective.  Similarly, some of the best, well vetted, and most profitable strategies are born from diverse boards.

Different people experience the same situation in different ways depending on their background, culture, environment, etc.  To gain and sustain a competitive advantage in today’s business environment, organizations must make meaningful attempts to understand the specific needs of various demographics and make connections on multiple levels.  How better to hit these two birds than to include representatives from these demographics at the policy and strategy making level of the organization. 

“Disclosure of Corporate Governance Practices, issuers on Canadian exchanges are required to report the percentage of women that make up their boards.”

With the advent of social media platforms, information is now as easily uploaded as it is downloaded and consumers are voicing their dissatisfaction with the one size fits all approach that has been the norm for so long. Consumers are demanding products that are tailored to their individualistic needs therefore it is essential that organizations be nimble in their responsiveness to such demands.  To properly tailor products to a blended and diverse society, diverse thinking is needed at the ideas stage.  The person best positioned to advise on the needs of a particular demographic is someone from that demographic.  Ideas can be presented that wouldn’t have otherwise been thought of by those not familiar with a particular group’s experience.  There is growing evidence that shows significant financial benefits for companies that are diverse at the board level.  Critical thinking is improved at the decision making stage therefore minimizing the risk of groupthink and setting the stage for innovation.

Public companies listed on Canadian exchanges, except for venture issuers and funds, are subject to public reporting annually on diversity.  Under National Instrument 58-101, Disclosure of Corporate Governance Practices, issuers on Canadian exchanges are required to report the percentage of women that make up their boards.  They are also required to disclose whether they have a written policy relating to the identification and nomination of female directors.  If they have not adopted such a policy, they have to disclose the reason they have not done so.  If they have adopted such a policy they must provide a summary of the policy’s objectives and key provisions; measures taken to ensure that the policy has been effectively implemented; annual and cumulative progress in achieving the objectives of the policy; and, if so, how the board or its nominating committee measures the effectiveness of the policy.  The regulators also require listed companies to disclose their target percentage regarding their representation of women on their boards.  If they have not determined a target, they would have to provide an explanation why they haven’t done so.

As of January 2020, issuers under the Canada Business Corporations Act, including venture issuers, are obligated to inform shareholders on an annual basis how women, visible minorities, Indigenous peoples, and persons with disabilities are represented on their senior management teams and boards.  Corporations have to either disclose information about their policies and targets for the representation of the designated diversity groups, or explain why they do not have a policy and targets in place. 

Diversity at the board level means the inclusion of talent that is different yet complementary; talent that is packaged in various shades, shapes, and sizes, and that is present in all cultures, ethnicity, sexual orientation, and gender.  Diversity of thought, skills, backgrounds, and experiences at the highest level of decision making will help cannabis companies build and maintain a competitive advantage in this increasingly blended and diverse economy.  When people see themselves being represented at the highest level of decision making within an organization, they tend to trust the organization better understand their needs and therefore feel better connected to that organization.  People who trust and feel more connected to a company are more likely to support that company. 

Shelley Albert, Managing Director, AG Governance Consultants