Should Marijuana Companies Be Structured As Benefit Corporations?

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    The marijuana industry is projected to produce $35 billion in revenues by 2020, according to Greenwave Advisors. 

    The Benefits of Benefit CorporationsSo with this powerful revenue engine behind it, shouldn’t this transformational emerging marijuana industry structure itself differently than other traditional for-profit businesses?

    This is an important question since the evolution of the marijuana industry has some unique traits which make it a potent force for social and political change.

    Regaining this higher social and ethical ground from a business perspective will allow marijuana companies to become more profitable faster, while also aligning their social values with its founders, its suppliers and customers. Simply put, social investing via the Benefits Corporation aligns everyone so they know the company is working for their shared goals. This will foster product, community and company loyalty. This will also be a stark distinction against other corporations which put profits above the interests of employees, customers, the environment and the government.

    From a business-organizational perspective, this alignment can be done by structuring marijuana companies as Benefit Corporations and B Corps. Benefit Corporations are a legal structure which is intended to produce benefits that will help assure that the company makes the societal and environmental transformational changes, as opposed to some of the predatory capitalism practices evident today.

    Benefit Corporations are the latest evolutionary phase of social investing and its effort to curtail some of the anti-societal impacts of unrestrained capitalism.  Social investing gained momentum in the late-Seventies due to the anti-apartheid positions advanced by General Motors in its South Africa auto manufacturing operations. At the time, GM was the largest employer in South Africa.  Anti-apartheid policies were developed by a GM board member, the Reverend Leon Sullivan, and these became known as the Sullivan Principles.  In 1999, the Global Sullivan Principles  were developed beyond the anti-apartheid focus and expanded as an international code of conduct for corporations.

    The modern application of the Global Sullivan Principles have been expanded and implemented more widely by the Social Venture Network (SVN) which has three goals:

    • To build relations between entrepreneurs, investors and businesses which pursue the “triple bottom line,” consisting of people, planet and profit.
    • Promoting effective collaborations that build “a just, humane and sustainable world.”
    • Teaching leaders to become successful and more informed and educated at the personal and professional levels.

    The SVN helps promote socially-valuable business development to advance society for the good of all citizens and the environment.

    At the operational level, socially responsible companies today have two important avenues to pursue:

    The B Corporation is attained by getting a certification and is a voluntary application process. To get the certification, a company must pass a strict examination of their business policies.

    A Benefit Corporation is a recognized legal entity and is a new creation.  The first Benefit Corporation was created in Maryland in 2010. These entities are now officially recognized in 27 states and the District of Columbia, and legislation is pending in 13 other states, according to the Benefit Corp Information Center.

    Benefit Corporations, by definition, have adopted policies which include a company’s impact on the environment and society. But the Benefit Corporation still has a duty to show a profit, but making money is not the sole goal.  To maintain their legal classification, the company has to demonstrate what public benefit the company delivered. Becoming a Benefit Corporation does not carry any special tax treatments.

    Becoming a B Corporation is separate from becoming registered as a Benefits Corporation. Benefits Corporations are not necessarily non-profits, but non-profits can become Benefits Corporations.  For more about this relationship see the Benefit Corp Information Network.

    So here are the basics of Benefits Corporations, including what they are, what they can do, and why it is especially applicable for the emerging marijuana companies to adopt.

    What Are Benefits Corporations?

    B Corporations align shareholder value with social values in a single corporate structure.  B Corporations, such as Ben and Jerry’s and Patagonia, encourage social and technological innovation and are also attractive to investors who value social change on the same par as becoming profitable.

    Aside from having transparent social and business objectives, Benefit Corporations gain their status in two ways: they are registered as B Corporations with the Secretary of State where they are incorporated, and the can register as Benefit Corporations and their code of conduct with the B Lab, based in Wayne, Pennsylvania.

    Why the need to register?  According to the web site www.bcorporations.com, “B Corporation is to business what Fair Trade certification is to coffee or USDA Organic certification is to milk.”  That is, the certification assures customers, suppliers and investors that the business entity meets certain national business and social standards.

    “B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency,” according to www.bcorporation.net

    Benefits of Benefit Corporations

    B Corporations are distinct under corporate law, as well as in their business goals and purpose.  According to Governor Jack Markell of Delaware, B Corporations have three distinct characteristics which set them apart.

    First they have a specific corporate purpose “to operate in a responsible and sustainable manner.”   They are also required to identify in their certificate of incorporation “a specific public benefit purpose the corporation is obligated to pursue.”  This is important since this language gives the public confidence that the public benefit corporation is working in the “best long term interests of society while it creates value for its stockholders.”

    Markell also said B Corporations are accountable to the public.  This is very different from traditional corporations, whose directors have the sole fiduciary duty to maximize stockholder value.  The pursuit of shareholder value has been criticized as being short-sighted and misdirected since most Americans do not benefit from this misalignment of corporate goals with society. This helps account for the large wage disparities, wealth gaps, and damage being done to the environment and to extending affordable, quality health care coverage to citizens. Florida

    In contrast, directors of public benefit corporations are required to meet a tri-partite balancing requirement consistent with its public benefit purpose. According to Markell, B Corporation directors must balance “the pecuniary interest of stockholders, the best interests of those materially affected by the corporation’s conduct, and the identified specific public benefit purpose.”

    B Corporations are also public about their activities. In practice, B Corporations are required to report their overall social and environmental performance, giving stockholders important information that, particularly when reported against a third party standard, can mitigate risk and reduce transaction costs. “Given the trend in public equity markets toward integrated ESG (Environmental, Social and Governance) reporting and the growing private equity market for direct impact investing, this increased transparency can help investors to aggregate capital more easily as they are able to communicate more effectively the impact, and not just the return, of their investments,” Markell said.

     Why Marijuana Companies Should Organize As Benefit Corporations

    Based on their novel corporate structure which aligns the profit motive with social responsibility, companies in the marijuana industry can accomplish more of their goals for all concerned audiences—customers, employees, society—if they adopt the B organizational structure and adopt social responsibility standards.

    Since the emerging marijuana industry is inherently transformational, it should begin its growth pattern by making itself qualitatively different from the most-aligned capitalism which has produced some of the greatest wealth gaps in U.S. history, as well as an assortment of related social and environmental problems.  Adopting the Benefit Corporation structure is straightforward, something everyone can understand and it sends a message that this industry is pursuing responsible profits and a higher standard of doing responsible business for society and individuals alike.

    For more information on this topic, go to  www.bcorporation.net

     

     

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    Chuck Epstein has managed marketing communications and public relations departments for major global financial institutions and participated in the launch of industry-changing financial products. He also has written by-lined articles for over 50 publications, five books and served as editor and publisher of nation’s first newsletter on the topic of using the PC for personal investing and trading. (“Investing Online, 1994-1999). He also is a marketing consultant, writer and speaker on topics related to investor protection and opportunities in the very dynamic cannabis industry. He has held senior-level marketing, PR and communications positions at the New York Futures Exchange, Chicago Mercantile Exchange, Lind-Waldock, Zacks Investment Research, Russell Investments and Principal Financial. He has won national awards from the Mutual Fund Education Alliance (MFEA) and his web site, www.mutualfundreform.com, was named best small blog in 2009 by the Society of American Business Editors and Writers (SABEW).

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