Colorado Prop 122's Historic Environmental, Social & Governance (ESG) Requirements

By Marc Ross

Oct 11, 2022

This fall, the historic Natural Medicine Health Act of 2022 (NMHA) is on the ballot in Colorado. This citizen-driven ballot initiative will: 

  • Define certain psychedelic plants and fungi as natural medicine, including dimethyltryptamine (DMT), ibogaine, mescaline (excluding peyote), psilocybin, and psilocyn

  • Decriminalize the personal use, possession, growth, and transport of natural medicines for persons 21 years old and older

  • Create the Regulated Natural Medicine Access Program for licensed healing centers to administer natural medicine services

Specifically, NMHA would create paths for the sealing of criminal records related to the personal use or possession of these psychedelic plants and fungi, would set up a natural medicine services program for the supervised administration of these substances and establish a Natural Medicine Advisory Board to promulgate rules and implement the regulated access program. The act would also remove criminal penalties for personal and communal use.

Remarkably, among the standards suggested for all licensed entities under the new natural medicine access program is the requirement that licensed entities meet specific environmental, social and governance (ESG) criteria (12-170-104(6)(b)(XI)). 

The provision mandates that all licensed entities (cultivators, manufacturers, testing, storage, transfer, transport, delivery, sale and purchasing activities by healing centers, trained operators, and other permitted natural medicine service providers) consider and commit to addressing environmental and social impacts from their operations and employ good governance practices. 

Under this requirement, all operators in the licensed ecosystem must ensure that their social license to operate in a community is documented and that externalities (environmental and social) are mitigated. 

But what might an ESG screen look like for a psychedelic industry licensee? Screening questions might include the following: 

  • Do you pay your employees a living wage? 

  • Do you provide health benefits? If so, what percentage is covered by the company? 

  • Do you engage in sustainable agricultural practices? If so, what are they? 

  • Do you have a corporate social responsibility plan that includes indigenous reciprocity, proactive community engagement, and a formal response plan to address community concerns? 

  • Do you have a Diversity Equity and Inclusion plan? Does it require an annual report about its efficacy?

  • Do you have a sliding scale fee model to provide access to low-income participants? 

  • Does your company have business partnerships with research institutions to further advance the efficacy of these botanical medicines? 

The ESG requirement aims to create minimum business standards for companies that wish to participate in the Natural Medicine Regulated Access Program. Thus, the Colorado Department of Regulatory Agencies (DORA) will be tasked with creating (or finding a third party to create) a screen around ESG standards (after recommendations from the Advisory Board) that relate to the purpose of the Natural Medicine Health Act and set a minimum score for participation. Each question would be scored, and the total sum would determine if the company met a minimum threshold score. If a company meets the minimum threshold score, the company can obtain a license. If the company doesn't meet the minimum, it must change its current or proposed business plans. The goal is to prohibit profit-only companies from participating in the space while setting a new floor around socially and environmentally responsible business practices. 

The strength of the ESG screen, creating exemptions for small businesses, and providing an annual review process to make sure companies are following their ESG commitment will all be decided in rulemaking.

It is vital to create a legal psychedelic industry in Colorado that is responsible, safe and provides access to natural plants and fungi medicines to those who need them. But creating an ethical, environmentally and socially responsible industry and considering the impact on multiple stakeholders is essential to the industry's success.

Read a detailed analysis of Prop 122

Marc Ross is counsel and head of impact & ESG at Vicente Sederberg LLP.

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