Cryptocurrency and Cannabis: A Match Made In Heaven?
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What happens when you combine two of the world’s most exciting emerging industries? Opportunities for explosive growth and massive disruption.
Ambitious entrepreneurs are already competing to create synergies in the fertile overlap of the blockchain and cannabis sectors. There are approximately a dozen cannabis-focused blockchain coins or tokens that are competing to provide infrastructure for the fragmented industry.
For the cannabis business, blockchain technology can be a gateway to safety, transparency, and greater operational efficiency. For blockchain, cannabis presents an opportunity to solve real business problems in a nascent, multi-billion dollar industry with unusually complex logistics and demanding compliance requirements. If cross-pollinated successfully, these two booming sectors could legitimize each other and force a policy conversation too big for the federal government to ignore.
Solving the Cash Problem
In 2017, approximately $10 billion worth of cannabis was sold legally in North America. But in the U.S. practically all of these transactions had to be completed in cash. Why? Although the plant is legally available in 30 states, it is still considered a schedule 1 narcotic by the federal government. Thus, businesses that produce, retail, or touch the plant in any way still lack access to traditional banking and payment processing resources. This results in significant operational challenges, including the inconvenience of paying salaries, utilities, taxes, etc. with cash.
The bigger issue with the all-cash environment is that it creates a risk of violent crime and armed robbery. Although this is good for private security entrepreneurs, creating a need for armored trucks and ex-military to protect stacks of cash, it’s dangerous, impractical, and unsustainable for an industry experiencing a CAGR north of 30 percent.
Due to the lack of traditional banking resources for cannabis businesses, blockchain entrepreneurs have a unique opportunity to build a cryptocurrency that actually transacts millions --if not billions-- of dollars of commerce. According to Internet gambling pioneer turned cannabis blockchain entrepreneur President of Alternate Health Inc, Howard Mann, "If the only way to do a legal transaction was in one specific blockchain currency, then all transactions in that currency are immediately trackable, traceable, and verifiable to the stakeholder in the State compliant cannabis transaction.”
Mann explained to me that, “by publishing every cannabis transaction in a given state to an open ledger, we can create a central registry for all transactions, and can therefore ensure that proper taxes are administered and delivered to the appropriate parties, and that the entities involved in the supply chain are duly registered, and that all products are tested to ensure state compliance. This completes the circle of information necessary for this industry.”
In addition to facilitating transactions, blockchain technology offers unrivaled accountability and transparency, significantly limiting opportunities for human error and manipulation. Mann’s company recently signed a deal with MedMen, one of the largest cannabis companies in the U.S., to provide e-commerce and digital payment services for MedMen’s New York medical Cannabis dispensary.
Adding Security and Safety
Cannabis businesses are extremely tightly regulated. Each state has its own set of rules for tracking the plant from seed to sale. Although these stringent traceability requirements are designed to prevent diversion of product into the illicit market, there have been instances of hacking, outages, and other technical issues that have put entire state markets in jeopardy.
According to Jessica VerSteeg, former Miss Iowa and now founder of cannabis blockchain company, Paragon, “While traditional databases work, they are still very prone to attack, data manipulation, and corruption, blockchain-based data cannot be corrupted or changed--ever.”\
In addition to data security, blockchain infrastructure can help ensure consumer and product safety. Explains VerSteeg, “By adding that same data into smart-contracts, companies will no longer have to question the source of their products or supplies, the issue of trust evaporates and the customers are guaranteed to get what they paid for in the end.” This alleviates one of the cannabis industry’s greatest challenges, the need for quality and consistency. This is especially important for medical patients who need to know they’re getting safe, tested products at accurate doses.
Bumpy Road Ahead
While there are many sound reasons for embedding cannabis commerce onto blockchain infrastructure, the biggest roadblock will be industry adoption of the still relatively new and untested technology. For any cannabis-focused coin or crypto token to succeed and achieve massive disruption, it will need to be embraced by a variety of stakeholders across the industry, including government regulators.
At both the state and federal levels, the question of how to regulate cannabis is increasingly top of mind as more and more municipalities legalize Cannabis commerce. A blockchain cryptocurrency can reduce regulatory complexity for the government by ensuring tax remittance and limiting foul play. Cannabis industry utilization of blockchain infrastructure can help settle the inherent volatility of the crypto sector and open the door for the U.S. government to begin considering how it will regulate cryptocurrencies broadly. A cryptocurrency tied to a renewable commodity with multi-billion dollar demand will be too big for the federal government to ignore.
If implemented successfully for the cannabis industry, blockchain technology can demonstrate its effectiveness and give other industries the green light to explore transitions away from the status quo, testing the world order of finance, banking, and commerce as we know it. In other words, the cannabis industry use case can legitimize cryptocurrency as a new paradigm for conducting business, opening the door for future adoption and breakthroughs in the fintech arena.
Meanwhile, blockchain technology can help Cannabis businesses manage and verify transactions, document chains of custody, and provide a transparent and efficient infrastructure for financing the industry’s growth. This can help the industry take a quantum leap forward in terms of productivity and scale.
The marriage of blockchain technology and Cannabis has the potential to massively disrupt business as we know it. However, actualizing that potential will depend on the ability of entrepreneurs in both sectors to innovate and execute.