By Yury Parsamov (@parsamov)
November 16th, 2018

From weed to sale

From weed to sale

By Yury Parsamov (@parsamov)
November 16th, 2018

What blockchain can offer to cannabis market?

During the last couple of years, blockchain and cannabis were the two industries attracting a lot of attention, mainly because both of them ballooned from being something backstreet and underground to the most emerging and promising businesses.

Even in their darkest period both went hand in hand. For example, “Silk Road”, a dark web marketplace, used bitcoin as their main payment method to buy and sell drugs, including weed. Though its founder Ross Ulbricht has been sentenced to life, “Silk Road” became a benchmark for international dark web marketplaces, where cannabis products are sold for crypto.

According to recent predictions, cannabis mass legalization for recreational use in 2017-2018 opens up new possibilities for blockchain technologies to disrupt one of the most growing and promising industries with expected growth of approx $146.4 Bn by 2025.


How can blockchain help the Cannabis industry?

Cannabis faces a lot of challenges in terms of regulation. On one hand, it is somehow limited in terms of cash flow, on another hand, it’s production required to be a lot more transparent than any other industry. This makes it perfect for blockchain technologies. There are two main areas where it could be used:

  • First:

Crypto as a payment method. Although weed consumption is legalized in many US states, it is still illegal on a federal level, keeping many cannabis companies out of the banking system. Dispensaries are forced to deal in cash because they have limited access to banking or merchant services such as credit card payments. This unique challenge affects the industry on all levels: not just the point of sale, but the entire supply chain and handling payroll.

  • Second:

Provenance. Being a new industry with both extreme regulations and lack of societal trust, cannabis requires traceability like no other. That is why special Cannabis Compliance software is being built to track every product item from seed to sale. Cannabis products should have special RFID tags that contain all seed-to-sale data.

However, solutions provided by Metrc are insufficient in terms of compliance, as admitted by the California government: “The CCTT-Metrc system and UID tagging requirements alone are not expected to eliminate illegal inversion or diversion of cannabis throughout California’s commercial cannabis supply chain”. And this is the exactly where blockchain solutions could come to the rescue preventing hacker attacks on centralized servers as well as the distribution of illegal cannabis products marked with fake RFID tags.

In a nutshell, blockchain solutions could be an efficient way to reduce the value of the black market and ensure the integrity of the supply chain by bringing transparency in.

Who is on the radar?

According to Coincheckup, there are 13 cryptocurrencies with the “marijuana” tag, however, only 4 of them have market capitalization over 1 mln USD.

Hempcoin

Founded in 2014, it aims to “revolutionize the Cannabis, Hemp, Agricultural, and Tobacco industries through decentralized, convenient and safe THC payment system”.

Hempcoin positions itself as a payment method and plans to scale into a payment system named HempPay, offering 3 type of payments: online, mobile, and card as an attempt to address Cannabis industry payment limitations.

Although this solution is designed specifically for the cannabis industry, it is not clear how it differs from other crypto payment solutions and what makes it. The number of daily transactions on Hempcoin’s own blockchain is close to zero. The core team does not reply to inquiry emails, and the project seems to be half-abandoned.

Potcoin

Potcoin is another project with its own blockchain, shortly put, self-proclaimed “banking for the cannabis industry”. Potcoin claims 2 000 merchants accepting the coin with high transaction volume for some of them.

Looks like Potcoin endeavors to not just build a payment system, but also work closely with cannabis merchants. However, just like Hempcoin, the only thing it offers is the coin itself and not the payment infrastructure to enable blockchain adoption in the Cannabis industry.

Paragon

Paragon’s ICO took place 1 year ago and it was probably the first case showcasing business celebrities including Jessica Veersteg, their CEO/ a scandalous model and the Game, the rapper who advertised ICO, getting involved in token sales. Paragon has successfully raised 70 M USD, however, things went sideways quite quickly: in February 2018 Jessica got hit with a lawsuit and just in one year, Paragon’s token lost 95% of initial price ($2,7 M market cap in October 2018 vs $70 M during the ICO in October 2017).

In September 2018 Paragon opened their first coworking space in Los Angeles giving a new home to startups working in the cannabis industry. That being said, making this progressive move the company significantly pivoted from their initial goal to create a blockchain-based solution in hopes to help eliminate some of the industry’s pain points.

Blockchain non-crypto projects

Apart from the “tokenized” projects, there are not many startups building blockchain solutions for the cannabis industry. Greenstream Technologies is one of the few. This Montreal based company claims to provide “a unified and secure solution for licensed cannabis producers, online cannabis merchants, customers, and government entities helping them transact, track, access, share, and authenticate the legal cannabis movement through all levels of the supply chain”.

The project utilizes Hyperledger platform and promises to deliver beta by the end of 2018. Greenstream was featured in Stanford University Technology Venture’s report as one of the most promising projects within the industry.

Talking about cannabis producers, there are not a lot of companies that have already announced or made certain steps towards blockchain adoption. At the beginning of 2018 a Canadian marijuana grower, Emerald Health, has announced a joint venture project, CannaChain Technologies, “to provide blockchain-based supply chain and e-commerce marketplace for the marijuana industry”. There were no more announcements on the progress of the company and there is still no website.


What should we expect?

There is still a lot of talks around cannabis and blockchain. Making crypto a mainstream payment method for the weed industry sounds like a good idea, especially if one focuses on the infrastructure for the merchants, including invoices (services like Bitpay), documentation storage, fiat-crypto getaways, and overall legal framework to ensure crypto payments rather than creating another “cannabis-specific” coin.

Merging blockchain and Cannabis supply chain looks more promising since the number of players in this new area is still small, however, one should keep in mind that a startup, who wants to build provenance solutions, will have to compete with non-blockchain supply chain software solutions. At the same time, non-crypto companies focused on Cannabis and Supply Chain software, like Metrc or Franwell, might start developing their own blockchain-based solutions either within public or private chain protocols.

Anyway, both industries are very young and emerging and can contribute to each other’s development. The main question is who will be the gamechanger.