Cannabis on the Blockchain

With the recent acceptance of not just CBD oil but the acceptance of cannabis for both medical and recreational use around the globe, the cannabis ecosystem is uniquely well suited to benefit from systems based on blockchain and distributed ledger technology.

Before diving into the applications of blockchain, a quick primer:

  • Blockchain and distributed ledger technology provide multiple parties with the ability to share access to a single version of information stored in a shared ledger or database in a method which is secure, private and trusted by all parties.
  • Blockchain technology does not work for single companies or enterprises. A single company should just use a database. Multiple companies must come together to work in a consortium, foundation or other structure where they reach agreement on how the information will be created, accessed and categorized.
  • Blockchain is not Bitcoin (or any other cryptocurrency). Cryptocurrencies are one application built on top of blockchain technology.

Cannabis on the Blockchain

Blockchain is well known for its impact on the world of finance. The second major area where blockchain is having an impact is in the area of supply chains. In the US blockchain is being used to provide transparency across the fresh food supply chain as part of a multi-national focus on food safety. The biggest players in maritime shipping are working together on a project to reduce shipping times with the opportunity to track over 90% of all containers shipped by sea around the world. With so many eyes on the cannabis industry today, providing a secure and audible record across the cannabis supply chain has the potential to add real business value from both a cost-saving perspective as well as from the prospect of providing a platform to allow growth within the industry.

The cannabis ecosystem includes growers – and their ecosystem of suppliers, both wholesale and retail distributors, regulators and some consumers. The traditional method of solving this problem is to either shuffle tonnes of paper – or to create multiple databases across multiple companies and then to work to reconcile information between different entities. This data exchange and information reconciliation process are slow, costly and prone to both errors and fraud. If the necessary data were stored in a common system shared across all parties the reconciliation process could be eliminated – and with it the associated time and cost.

So what could be included in this cannabis blockchain platform?

Growers can provide evidence of their license to operate and regulators could audit information related to the origin of the product, distributors, and buyers. Lab results reflecting variety, purity, and quality can be recorded and made available to relevant parties for audit at any time. Quantities of raw materials, refined materials, and waste materials can also be recorded to help reduce fraud related to dilution of the original product or due to the theft of raw or manufactured materials.

By using a blockchain platform all growers would register the same information in a single place thus eliminating the need for a single grower to register their data with multiple regulators, distributors or manufacturers. The idea for blockchain to add value is that it provides information for an entire industry, not for the supply chain of just a single grower or retailer.

You may have read that one of the advantages of blockchain is that it makes everything transparent. Transparency is not always commercially viable (and sometimes transparency isn’t profitable). Blockchain technology comes is not a single solution, but a family of solutions. There are numerous options to allow for enterprise information to be restricted to specifically approved counterparties whilst ensuring confidentiality between the rest of the members of the blockchain. Blockchain is really nothing more than a database with multiple copies where each transaction is approved by consensus and each of the distributed copies are kept in synch. The answer to questions about enterprise privacy is resolved with good blockchain architecture and design.

Retail distributors connecting to the cannabis blockchain can provide their end consumer with the ability to see the entire history of the product they are about to purchase including where it is grown, from what variety of plant, in compliance with which licenses, manufactured by which company, shipped via what means and even the lab test results for a specific batch. Retail distributors benefit from increased consumer trust in providing the transparency of this information to end-users. But consumer trust isn’t the only benefit.

Retailers of cannabis and CBD related products in the US may still face issues relating to banking. Some retailers are forced to deal in cash as they cannot deposit funds into banks which hold federal banking licenses. Federal law still prohibits the sale of cannabis and thus banks in the US often deny cannabis-based businesses – operating legally within state laws – the ability to take advantage of banking services.

The same supply chain which tracks licenses, manufacturing lab tests and shipping information can be used as a means of transferring associated value along the supply chain. As products are shipped, payments can be made and in some cases, trade finance can even be accelerated adding more cash liquidity to the supply chain. Consumers can convert their fiat (local government-backed) currency into a cannabis currency and use this to purchase their end product. The cannabis currency can be used to pay for products and services throughout the supply chain. In a well-structured ecosystem, the operation can be compliant with state and federal laws including laws relating to KYC (know-your-customer) AML (Anti-Money-Laundering), etc. A supply chain which supports the flow of goods, services and value can benefit the entire ecosystem – but only if all of the stakeholders see the benefit and agree to participate.

Blockchain isn’t going to bring world peace and end hunger. Blockchain isn’t going to cure cancer. Bitcoin and cryptocurrency aren’t going to revolutionize income inequality – nor cause a financial collapse. Blockchain, as a shared database tracking goods and services within a motivated ecosystem, like the cannabis industry, can add substantial value in both cost and efficiency savings and in overall market growth.

To learn more about how Blockchain can add value to your business, visit our website www.blockchainrookies.com


 

Blockchain Rookies provides corporate strategy and education related to implementing blockchain technology into existing and future business models.

Troy Norcross, Co-Founder Blockchain Rookies

T: @troy_norcross

T: @igetblockchain

Cannabis on the Blockchain

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