by Alex Moskov
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 RollingStone, 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 300of 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 $20.2billion 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.
Final Thoughts
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.
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