Few industries are as misunderstood, or as complimentary, as cannabis and blockchain. Both niches are young and exist in highly speculative markets with foggy regulatory conditions, but have also received an influx of highly talented entrepreneurs and programmers looking to solve some of their respective industry’s largest problems.
In order to truly understand the synergy of cannabis and blockchain, we must look beyond the hype and speculation and understand how and why the cannabis industry needs blockchain technology, and how both industries may inevitably depend on each other.
Cannabis and Blockchain at a Glimpse
The North American cannabis industry has seen a major spike in growth and attention from entrepreneurs seeking to create value and strike it big, investors looking for a piece of the pie, activists fighting for what they believe to be a truly beneficial product, and politicians on both sides of the heated legalization debate.
The major strides in the cannabis industry were not without their pain points. Transparency, payment solutions, quality assurance and maintenance, and general regulatory uncertainty have plagued cannabis entrepreneurs for years.
The blockchain is essentially an immutable distributed database that is at the heart of what many people are calling a cryptocurrency revolution. Everything from popular cryptocurrencies such as Bitcoin and Ethereum to publicly traded companies such as IBM have utilized blockchain to solve countless issues for thousands of businesses.
Combined with sister technologies like cryptocurrency (digital cryptographic currency) and smart contracts (programming-based contracts), blockchain can help the cannabis industry solve its current issues and navigate the uncertain path ahead.
Setting a Standard of Transparency
In an interview with Rolling Stone, Jessica VerSteeg, the CEO of a cannabis startup called Paragon that utilizing its own blockchain-based cryptocurrency, noted that “Blockchain is about [transparency]. And that’s what we need in the cannabis space.”
Since the blockchain ledger is unchanging, it significantly reduces or eliminates any potential human-based obfuscation or deceptive practices. This would make it extremely easy for financial institutions and governments to audit cannabis companies and keep track of taxes owed.
This is particularly important in the cannabis space where businesses must face fragmented regulations across borders. Blockchain would empower these businesses with tangible proof of the point of origin and whether any products moved across national or state lines potentially incurring more taxes or violating federal law. This is one of the reasons VerSteeg and other entrepreneurs cite blockchain as being “one catalyst that could help legalize cannabis.”
Although Paragon would later become embroiled in a lawsuit due to its failure to register its Initial Coin Offering (ICO) with the SEC, their fundamental business plan to add transparency to the cannabis space hasn’t changed.
Quality Assurance and Maintenance
Blockchain enables businesses to manage their supply chains in real-time, eliminating paper trails and their inescapable lag. Since the cannabis space is relatively new, few companies have been able to create an effective vertical integration in their supply chain free from any lag or loss of product.
It’s likely that cannabis will touch many different businesses from when it is farmed to when it gets to an authorized dispensary, creating multiple potential costly points of failure. Cannabis businesses utilizing blockchain will be able to precisely pinpoint any inefficiencies in the process and, well, nip them in the bud.
Additionally, by utilizing blockchain in their supply-chain, cannabis businesses will be able to provide customers with the complete picture of their purchase’s journey from when it was just a seed and how many different parties it touched before ending up in their shopping cart.
Dispensaries will also be able to fully guarantee their products contain exactly the amount of THC, CBD and whether it is sativa or indica dominant as what they’re advertised. Many first-timers walking through legal dispensary doors tend to be concerned about their sensitivities to the products, and a supply chain supported by flawless math caters to a better overall customer experience.
Payment Processing and Storage
Payments are perhaps one of the largest blights for the cannabis industry.
Although the vast majority of states in the US have legalized marijuana in some capacity, whether medicinal or recreational, federal law poses cumbersome restrictions for how cannabis-based companies can accept and store payments. According to the Credit Union Times, out of the 11,000 banks in the United States, only 300 of them allowed cannabis business owners to create accounts.
This has led many business owners to operate as a sole cash-only business. With hundreds of thousands and sometimes millions of dollars of revenue, business owners are faced with a near-Wild West high stakes risky scenario. Additionally, accounting at high volumes tends to become a nightmare for cash-only businesses and regulators end up having to sift through nebulous financials and end up with an unclear view of tax liabilities, contributing to hesitations for more lenient regulatory policies.
Since cryptocurrencies are decentralized and unregulated for the most part, they enable cannabis businesses to accept secure, cashless, and fast payments that can be converted into greenbacks or sent anywhere around the world at competitive speeds.
The North American cannabis industry is expected to count $20.2 billion in sales by 2021. While traditional payment solutions companies are bound by federal restrictions, cryptocurrency entrepreneurs are positioning themselves to not only change how the cannabis industry accepts payments, but how global commerce operates.
From payment processing and identity confirmation to tracking the entire supply chain from seed to end-product, the cannabis industry has plenty of entry points for blockchain technology.
As the cannabis and blockchain industries evolve together, there will be an even deeper mingling and collaboration between the respective entrepreneurial talents, technological advantages, and political activism of each die-hard community.
About the Author
Alex is the Editor-in-Chief of