How Blockchain Might Change the Marijuana Industry

Blockchain technology is disrupting finance in much the same way as legalization and regulation are disrupting cannabis. Both are booming and bringing with them some major technological and financial innovations. 

Cryptocurrency investments remain the hottest offering in finance, even though many cryptocurrency investments have lost nearly half their value in a January swoon. Despite the recent crypto mini-crash. Motley Fool estimates that cryptocurrencies’ market capitalization “is still more than 2,200% higher from when 2017 began. That's a return that would have taken traditional equities (e.g. stocks) decades to deliver.”

However, it has not been all fun and games. There is cryptocurrency's notorious volatility, and then there are the energy consumption concerns, and of course numerous mining malware incidents. There have even been some major cryptocurrency heists

Much like cryptocurrency, the cannabis industry faces uncertainty and challenges, with hurdles in regulatory tracking requirements, taxation, and the inability to use centralized banks. And blockchain enthusiasts see the technology as the ideal solution to multiple cannabis industry’s concerns.

“Blockchain ledger records are immutable, or unchanging,” Motley Fool’s Sean Williams writes. “Their transparency would therefore be perfect for financial institutions looking to audit cannabis companies, as well as government institutions looking to properly tax marijuana businesses and regulate the industry.”

He also notes that “blockchain allows businesses to manage their supply chains by being able to better pinpoint where inefficiencies are occurring, relative to paper-based trails.”

Blockchain In The Cannabiz

This is not just some blogger’s idea. Canadian cannabis manufacturer Emerald Health Therapeutics, which just scooped up an $18 million investment, has also formed a new marijuana blockchain entity called CannaChain Technologies “to develop a foundational blockchain-based supply chain management system and e-commerce marketplace for the legal cannabis industry.”

“There are notable new applications of blockchain technology to validate and assure the source, quality, and integrity of products such as diamonds, wine, and art, along with coffee and other food products,” Emerald Health Therapeutics executive chairman Dr. Avtar Dhillon said in a release. “Cannabis is also a prime industry in which to apply blockchain supply management based on the broad spectrum of plant and growing attributes, as well as product innovation potential, the growing trend of medical and in some cases recreational legalization, with the need for licensing as well as high security and confidence, and the possibility to start off such an initiative with relatively small groups of pertinent stakeholders. Canada’s established experience with medical cannabis regulations also lends it to new innovation in areas such as supply chain operations.”

Stateside here in the U.S., some budding entrepreneurs are also creating blockchain systems for marijuana inventory. Uproxx has a profile of Jessica VerSteeg, founder of Paragon, a digital ledger for cannabis sales that consumers, farmers, and government entities can all use.

“If you give them this blockchain and this data that they have access to 24/7 that’s immutable, and the government can say, ‘Okay farmer, you grew 100 pounds of weed, and you’re telling us that 50 percent of this crop tested positive for mold and you had to throw it away,’” VerSteeg tells Uproxx. “Right now, they’re just gonna say, ‘How do we know that? Maybe it’s on the black market. Maybe you paid this lab off. I don’t know, so… sorry, but you’re gonna have to pay taxes for 100 pounds, because we don’t trust you, and we can’t log into your track and trace protocol right now.’”

“But with Paragon, they’ll be able to use this constantly,” she argues. “It’s not glitchy, it’s not hard to get integrated, it’s not hard to access. They’ll be able to get on and say, ‘Okay farmer, you grew 100 pounds of weed. I see on the blockchain this lab that uploaded their lab results, and it did say that you tested 50% of your crop positive for mold and you really had to throw it away.’”

Those Not In Favor, Say 'Nay'

VerSteeg's idea is still fairly aspirational. But in the early-adopting adult-use state of Colorado, Vice reports that the state is considering a mandatory cannabis blockchain system for track-and-trace purposes. And dispensaries are not wild about the idea.

That bill is called Colorado Senate Bill 18-029 and has sponsors in both the state senate and state house of representatives.

The bill proposes to “Insert unique and traceable identifiers into legal medical and retail marijuana and industrial hemp that can be detected,” and “Code identifiers into secure records using distributed ledger technology that, in compliance with federal guidelines and industry best practices, will be accessible by law enforcement agencies or the department of revenue.”

Senate Bill 18-029 also hopes to “provide scanning technology to law enforcement and the department of revenue that detects these identifiers that distinguish legal medical and retail marijuana and industrial hemp from illegal marijuana and hemp so that it can be used by law enforcement to seize illegal marijuana and start appropriate enforcement actions.”

Suppliers and dispensaries, though, would love to see this blockchain idea blocked entirely. “What a great way to increase black-market sales, because I can tell you now that most cannabis consumers aren't going to like the thought of something being sprayed on their weed," Cannabis Consumer Coalition executive director Larisa Bolivar told the Denver publication Westword. "This is going after individual rights, consumer rights and rights to even grow cannabis.”

Westword asked three dispensaries for comment on the matter, and they called it "f*cking crazy" and "ludicrous."

One of the bill’s authors, Colorado state senator Kent Lambert (R-9th District) argues that many constituents are opposed because they do not understand the technology.

“There’s a lot of misunderstandings about what the bill does and what it doesn’t do,” Lambert tells Vice. “[It’s not] intended to have some sort of tainting of the plant… the intent is to it go through the same kind of stringent screening from the Health Department before any [cannabis] sees the light of day.”

Keeping Cannabis Honest

Lambert also argues that many Colorado suppliers and retailers are skirting current regulations. “When people just go around the system and don't follow the law, then the state doesn't get the revenue, and there is no guarantee that this stuff isn't tainted,” he tells Vice.

The broad lack of understanding about blockchain technologies, along with cryptocurrency's volatility, energy consumption concerns, and a recent spate of crypto mining malware incidents are all certain to hamper adoption of this technology. If the blockchain crowd wants the technology to catch on, they’ll have to make this stuff all a little less cryptic for regular folks and a lot more secure.

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