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Blockchain for Cannabis: 6 Practical Use Cases

  • 7 November 2018
  • Sam Mire

The times they are a-changin’, and nothing evidences that truism more than the fact that recreational marijuana is now legal in 9 states, while 21 additional states have legalized it on a medical basis. And the legal pot business is booming, with legal marijuana sales outpacing projections to the tune of $6.7 billion in 2016. That was an unprecedented 30% uptick in sales growth from the previous year. The new pace has charted a new course for projections, which now peg sales to be as high (pun intended) as $20.2 billion by 2021, a truly astounding figure. That sort of growth outpaces even the blistering industry pace set by tech companies during the dot-com bubble.

Unlike most industries, recreational and medical cannabis faces greater legislative and regulatory scrutiny than average, which always creates a certain level of uncertainty around the marketplace. And while most marijuana enthusiasts will roll their eyes at the notion of safety measures and requirements in terms of product provenance, this is one area of the industry that could use some shoring up. Businesses, regulators, and entrepreneurs would be wise to seriously consider the ways in which blockchain could help establish and advance the cannabis industry.

From tracking consumption to creating cheaper, more effective regulatory oversight of businesses, providing greater provenance for customers concerned with growing methods, establishing novel means of payment, and even creating better, pot-centric social networks, blockchain tech has the potential to better serve everyone from first-time experimenters to the most enlightened partakers.

Blockchain for Cannabis - Practical Use Cases


Provenance and Preventing Illegal Manufacture

Blockchain use cases in the cannabis industry - Preventing Illegal Manufacture - Provenance

According to the UN, more than 158.8 million people around the globe use marijuana. On top of that, domestic cannabis production has produced by a factor of ten in the past quarter century. Though the trend toward legalization, both for recreational and medicinal purposes, is undeniably growing, the black market for marijuana remains massive. The illegal marijuana market globally is estimated to be worth $141.8 billion, with a single weed plant garnering roughly $2,200 on the black market.

More than 1,000 tons of marijuana are seized along the U.S.–Mexico border each year; say what you will about the relatively harmless nature of the drug, but there’s no denying that it helps contribute to the coffers of heinous criminal elements. This is especially true when considering that much of the marijuana in the world is not properly traced from source to customer — that is simply not feasible when it’s peddled along the black market supply chain.

Like all supply chains, legal marijuana industries can benefit from the enhanced systems of provenance that the blockchain can provide if all participants buy in. This can provide suppliers and customers the peace of mind that comes from knowing how the cannabis was grown, by whom, and that no nefarious elements were involved in any link along the supply chain. 

Companies Trying to Solve This Problem

  • Greenstream – Improving Provenance for Cannabis using blockchain.
  • Budbo – Known as the “Tinder” of cannabis, Budbo is now using blockchain to increase supply chain transparency for its users.
  • BLOCKStrain  Blockchain powered quality assurance for cannabis. 

Tracking Individual Use, Limiting Over-Consumption

Blockchain use cases in the cannabis industry - Limiting Over-Consumption

Even in states where cannabis has been legalized, there are clear-cut parameters governing its purchase, use, and sale. There isn’t a ton of variation in certain cases; in most states, users are allowed to possess 1–2 ounces of marijuana, and anywhere from zero to six marijuana plants. Oregon allows partakers to possess up to eight ounces, but in general, the guidelines are more restrictive. In addition, there is a 5 ng/ml blood limit for those who are suspected of being impaired while driving in most states.

However, these laws are difficult to enforce. Even with many stores scanning IDs to ensure that fakes aren’t being used to cop some ganja, states like California have admitted that they aren’t utilizing pot tracking systems. This not only opens up the door for ounces upon ounces to fall back into illicit criminal networks where marijuana is just one of many harder drugs being pushed; it also makes it difficult to trace who is abiding by the personal consumption levels without, say, kicking their door in. Needless to say, door-kicking tactics aren’t in the spirit of legalized cannabis, and a simple introduction of blockchain technology to trace personal sales would represent a healthy middle ground between the current dearth of oversight and more heavy-handed tactics. 

Companies Trying to Solve This Problem

  • IBM – Proposed blockchain based solutions for increased transparency on legal cannabis sales.
  • BlockMedX – While not directly tied to the cannabis industry, BlockMedX is working to help track pharmaceutical use with the blockchain to help combat opioid abuse, and could be applied to cannabis use as well. Check out episode 38 of Blockchain Disruption to hear our interview with their CEO. 

Cannabis-Centered Social Networks

Blockchain use cases in the cannabis industry - Cannabis-Centered Social Networks

These days, there’s a forum for practically anything. There are already cannabis dating sites such as 420 Singles. In fact, there are also entire social networks aimed at the pot-friendly, from Duby to Massroots, Grasscity, and more. However, members of these networks cannot be completely confident that their profiles won’t show up in expansive social media searches by employers and be held against them.

There are more than 1,700 dispensaries in the United States, and while they collectively took in more than $9 billion in 2017, it’s not easy to differentiate one’s business. Advertising avenues can be expensive, and most social media networks still prohibit advertising by cannabis-centric businesses. Though there are audiences near and far that would like to learn more about the industry’s offerings, this is not always possible due to the legal gray areas still surrounding the industry, especially when it comes to the internet.

Businesses and individuals alike can use blockchain-enabled cannabis forums and networks to meet like-minded individuals, gain access to special deals, and connect with dispensaries and cannabis-related businesses near and far. These businesses are currently prohibited from advertising on most social networks because they’re still painted with the broad “illegal” brush. By establishing a forum built for a 420-friendly audience who is receptive to their message on a platform that falls outside of strict social media prohibitions, users and businesses can feel free to interact securely, without fear that simple searches will turn up their identity; this kind of anonymity is one of the many benefits of blockchain tech, after all. 

Companies Trying to Solve This Problem

  • Smoke.network – Blockchain powered social network for the cannabis community.
  • CannaSOS Cannabis social network that provides wallets and other blockchain solutions.

Facilitating Taxation

Blockchain use cases in the cannabis industry - Facilitating Taxation

No matter how much you buy, or where you buy it, you’re going to face a hefty tax when purchasing cannabis legally — that was the major part of the legalization pitch, after all. In Massachusetts, those who purchase marijuana face an additional 10.75% sales tax. In Nevada, they are charged a 15% excise tax on top of a 10% sales tax. In Colorado, purchasers could face as many as five different taxes: a 15% excise tax, an 8% retail tax on recreational marijuana sales, a 2.9% state sales tax, an average local sales tax of 4.9%, and local excise taxes, for which Denver charges 3.5%.

All of these taxes have added up to increasing revenue on a quarter-by-quarter basis. Colorado brought in over $1.1 billion in cannabis-derived tax revenue in 2017; California, over $2.7 billion; Washington state, just shy of $1 billion. So, the revenues are there, but a critical question remains: could they be even higher?

If blockchain ledger technology were mandated for dispensaries, sales figures would become immutable and certain. By extension, taxation could become more precise, audits simpler for all parties, and revenues passed back in greater amounts to the citizens of the states who have legalized marijuana.

Companies Trying to Solve This Problem

  • IBM – Proposed to Canadian Government a blockchain solution for tracking the sale of cannabis which would lead to easier taxation. 

Banking/Payments for the Cannabis Industry

Blockchain use cases in the cannabis industry - Banking and Payments

The legal marijuana industry is undeniably on an uptick, spreading from state to state with each passing year. Yet those who make their money selling legal marijuana and related wares still have little recourse in terms of banking, particularly when it comes to banks whose reach extends to the national level. Don’t try to go to Bank of America, Chase, or any other name brand banking institution with your legally-earned cannabis revenues — most of them will simply say no if and when you are asked to prove where the funds originated.

One cannabis entrepreneur, Babak Behzadzadeh of Denver, CO, was generating $250,000 to $350,000 monthly after only 18 months in business, and was using a satchel to keep cash on hand while being barred from the benefits of deposits and withdrawals that traditional banks provide. Behzadzadeh is far from the only one with these sort of stories, as federal and state law still have not reached a logical middle ground for those making a living in the legal cannabis sector.

To remedy this, several marijuana-linked digital currencies have marketed themselves as a viable alternative for cannabis entrepreneurs seeking a place to store their money safely. These coins can be traded on certain exchanges, used to pay for goods and services, and liquefied when necessary. Better yet, their value increases the more participants purchase the coin, and its value is also tied indirectly to the industry’s success. Until traditional banks become more accepting of cannabis revenues, these sort of coins may appeal to entrepreneurs who don’t see the space under their mattress as a viable alternative. 

Companies Trying to Solve This Problem

  • PotCoin – Providing financial solutions for cannabis companies.
  • Paragon – Providing office space for legal cannabis companies that would otherwise struggle to rent space. 
  • WebJoint – Software platforms for cannabis retailers.

Increasing Transparency into Cannabis Data

Blockchain use cases in the cannabis industry - Transparency for Cannabis Data

The fragmentation between state and federal policy regarding medical and recreational marijuana has posed a barrier to the integration of data on an industry-wide basis. The many examples of regulatory opacity and differences in state versus federal policy serve as micro examples of the discord that has prevented the creation of a unified database containing all sorts of necessary cannabis-related data.

It’s not just consumers or dispensary owners who are caught in the legal tug-of-war — it’s also the lawyers themselves. According to the American Bar Association’s Model Rule of Professional Conduct 1.2(d), a lawyer “shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent.” This has created a grey area with regard to both lawyers’ ability to use marijuana in states where it has been legalized, as well as counsel clients with respect to activities that may have been deemed legal by a state legislature, but remain illegal according to federal law. Lawyers have settled on differing approaches to this issue, with some completely abstaining and some entering solely into the realm of cannabis law. Still, the issue is lacking significantly in clarity, and it’s holding back potential gains in terms of cannabis-related data sharing.

Whether it is with regard to product provenance, weed-related criminal activity, amount-based sales restrictions, personal consumption data, or otherwise, a single database containing the trove of data that will be necessary to integrate state and federal information blocs secured on the blockchain could be of great value. This database would provide interoperability between industries that require access, replete with passkeys for differing avenues of intel.

About Sam Mire

Data journalist and market research analyst focused on emerging technology, trends, and ideas.

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