April 14, 2022
Cannabis cultivation and processing are rapidly-growing industries, as hemp and both recreational and medical marijuana products are being legalized across the country. With this rapid growth and legalization, however, comes added regulatory scrutiny, including in the environmental and sustainability spaces. Cannabis businesses that are ill-prepared for these regulatory requirements risk facing litigation, enforcement actions, fines or penalties, and negative publicity, while those taking a proactive approach to compliance may find opportunities to mitigate and even monetize those risks. Read on to explore seven common environmental impacts affecting cannabis cultivators and processors, as well as opportunities to effectively manage those impacts, and join us for our upcoming webinar to learn more.
As with conventional agriculture, misuse of pesticides by cannabis growing operations poses a direct threat to wildlife, fish (really, any life in surrounding water bodies), consumers, and even employees. Although research is still underway, the effects of both short- and long-term exposure to pesticides by consuming (i.e., by eating or smoking cannabis) are unknown.
While pesticides are heavily regulated, including under the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), cannabis remains an illegal drug under federal law, and so, the United States Environmental Protection Agency (EPA) has not approved any pesticides for use on the plant. Accordingly, state pesticide programs have tried to provide some clarity to fill the gap left by EPA. For example, the Arizona Department of Agriculture (ADOA) has a document that sets forth the requirements that must be met for a registered pesticide product to be used on hemp. These requirements include, but are not limited to, that the active ingredients be exempt from the requirements of a tolerance under the FIFRA rules at 40 C.F.R. Part 180, Subparts D and E; that the pesticide be labeled as expressly for use on crops intended for human consumption; and that the pesticide’s active ingredients must be allowed by EPA for use on tobacco.
Similar issues arise under state and federal employee safety and worker Right-to-Know laws, as employees must be educated on the chemicals present and proper handling and risk management procedures. Since growing cannabis has not always been legal, growers did not always choose pesticides that were “approvable” by EPA. In the past, clandestine growers used banned pesticides and blood thinners/rat poisons against crop-eating mammals and did not properly dispose of wastes and/or pesticides. The EPA provides a Pesticide/Herbicide Fact Sheet for its site investigation teams on cannabis grow sites, which primarily focuses on improper pesticide application and/or disposal. This can become important if the land is sold as part of a corporate investment: it will be important for the buyer to perform its due diligence to identify any legacy waste and/or pesticide issues and cleanup liabilities.
Land Use and Habitat Impacts
As seen with pesticide misuse, large illicit grow operations have caused or exacerbated land use and habitat issues in the areas where they are located. Many have caused significant changes to the landscape, including ground cover and/or erosion impacts, newly cut roads, diversion of water courses, and drainage of wetlands. Because of this, some states, such as Colorado, have taken steps that favor indoor grow operations and discourage outdoor growing.
Where cannabis cultivation and processing operations may operate is also subject to local (i.e., city or county) regulations, including zoning laws. There may be specific procedures to obtain zoning approval, such as approval by a governing board or planning commission, and a public hearing with opportunity for public comment is often required. Local governments may also impose zoning conditions on cannabis facilities, including but not limited to buffer zones, density conditions, hours of operation, odor control requirements, necessary operating permits, and storefront characteristics. This means requirements may vary greatly from jurisdiction to jurisdiction or facility to facility, and as such, it is important for cannabis businesses to properly assess and understand them so that investments and resources are strategically and effectively used.
Waste Management Issues
Cannabis cultivators and processors generate a wide variety of waste streams and, therefore, are subject to a whole host of waste management regulations. Manufacturing operations generate waste similar to non-cannabis businesses that produce similar products, such as food and tinctures. Grow operations generate agricultural waste that must be managed and disposed of as a regulated or scheduled substance (e.g., pursuant to Drug Enforcement Agency (DEA) or state-level programs). They also generate hazardous mercury-containing waste due to the use of ultraviolet (UV) lights, requiring special handling and management. Cannabis processors ay also generate hazardous waste due to their use of THC extraction chemicals, which are often toxic or flammable. Additionally, many jurisdictions consider marijuana flowers, stalks, roots, trim, leaves, residue, and wastewater to require management as hazardous waste. Some of the most common cannabis-related EPA violations are due to improper or inadequate documentation of cannabis waste and/or its disposal.
As with conventional agriculture, cannabis growers and processors face two principal water problems: how to obtain a sufficient supply of water and what to do with process-water discharges. Water resource depletion has been a concern at both outdoor and indoor grow operations. Outdoor cannabis grow operations are estimated to consume approximately 6 gallons of water, per plant, per day. Before legalization, illicit grow sites did not have access to water utilities and were typically grown in arid/remote areas, often depleting local surface water and shallow aquifers not suited to intensive use. Indoor grow operations also can create a significant new demand on utility water supply infrastructure. These facilities can also take a toll on water treatment facilities that were not designed for (and do not monitor for) cannabis waste products, fertilizers, and pesticides. Additionally, municipal wastewater treatment facilities normally treat large cannabis grow operations as industrial dischargers, requiring them to pay surcharges related to increased costs from treatment volumes or monitoring costs arising from waste streams. For these reasons, it is important that a cannabis grow operation plan for both obtaining water rights and how wastewater will be disposed of to ensure their plans are logistically feasible and affordable for the business.
Indoor cannabis cultivation operations often require high-level electricity service and infrastructure. Indoor grow uses a variety of heavy-load electric devices, such as UV lights that can be on upwards of 16 hours per day, irrigation systems, HVAC systems, and air filtering to manage humidity and plant organic odors. In Denver, for example, the portion of electricity use attributable to cannabis grow operations doubled in the first 3 years after legalization, approaching 5% of total electricity use for a city with 2.8 million residents. In addition to high electricity demand, the range of estimates for carbon dioxide (CO2) footprint from cannabis grow operations is especially concerning and significant. It is estimated that cannabis indoor grow CO2 emissions could range from 0.5 to 15 million metric tons per year, which is roughly equivalent to an additional 3.3 million cars on the road. The significant electricity demand and potentially high CO2 footprint will likely be subject to reduction programs already in place for other industries or cause an indirect cost impact to already highly-regulated electricity providers.
Air Quality Impacts
Cannabis grow and manufacturing operations can create both air quality impacts on local communities surrounding their facilities, as well as employees working inside the facilities. Outside the facilities, volatile organic compounds (VOCs) are emitted during plant growth or during the processing of cannabis plants due to evaporation of solvents used during the THC extraction process. VOCs are commonly known as an ozone precursor, as they have the potential to react with nitrogen oxides (NOx) to form ground-level ozone, which is a regulated pollutant under the Clean Air Act’s National Ambient Air Quality Standards (NAAQS). The processing of cannabis can also produce hazardous air pollutants (HAPs). Inside the facilities, cannabis plants produce vapors that include substances called terpenes, which are responsible for the different aroma, flavors, and even colors in cannabis plants; however, terpenes may also be harmful to employees when they react with ozone (O3), commonly causing irritation or inflammation to eyes and airways.
These air quality issues mean that cannabis operations may need one or more air permits at different stages, such as construction of the facility, operation of the facility, or installation and operation of equipment. Each type of air permit will require certain types of monitoring, recordkeeping, and other conditions that the facility must ensure compliance with, as well as manage changes that may necessitate permit revisions. As a relatively new industry with an evolving regulatory framework, cannabis businesses must ensure they adequately review and stay up-to-date on changing rules and guidance—both related to air quality issues and others.
All the above points highlight the environmental challenges faced by the cannabis industry, which can often lead to public backlash from an increasingly environmentally- and sustainability-minded public. Cannabis customers, employees, investors, and the public are increasingly driving operators to think about their environmental, social, and governance (ESG) risks and opportunities. And while it may be easy to focus on the ‘E’ in ESG, there is also an emphasis on achieving social justice in the cannabis industry through corporate responsibility and service-based measures, particularly in order to remedy the racial injustices associated with cannabis’ history so far. ESG provides an opportunity for cannabis companies to identify and mitigate the range of evolving issues they face, including environmental; diversity, equity, and inclusion; and cybersecurity, which may otherwise pose risks to the sustainability of their businesses.
The ESG regulatory framework in the United States is still evolving, however, including the proposed rulemaking recently announced by the Securities and Exchange Commission (SEC) and the anticipated 2022 update to the Federal Trade Commission’s (FTC) Green Guides. As such, companies that wish to embrace and leverage ESG principles in order to enhance their goodwill, collect financial incentives, or achieve other goals should also ensure they remain aware of how such ESG programs are evaluated and regulated. False or misleading statements, whether to customers, investors, or other stakeholders, can quickly become the basis of litigation when they are not backed by adequate data and actions.
As the cannabis industry matures, more regulation is sure to follow and, with that, additional risks and opportunities. These can be managed, mitigated, and monetized if cannabis businesses take some simple steps:
- Take stock of environmental and sustainability impacts – Conduct a risk assessment to identify the elements of your business that interact with the environment (or ESG), as well as the associated impacts and liabilities.
- Develop an internal compliance management system – Prioritizing the risks faced by your business allows you to tackle challenges based on their materiality to your business, while continuing to grow and expand your business.
- Identify opportunities, not just risks – Compliance does not have to be a cost center; it can be an opportunity driver as well. Experienced environmental and ESG professionals can help you identify opportunities, such as renewable energy tax incentives, that help further both your short-term and long-term goals.
For more specific questions regarding legal strategies for addressing regulatory, legislative, or litigation concerns, please contact a member of Clark Hill’s Environment, Energy, and Natural Resources team.
The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.