Blockchain and the Cannabis Industry

History of Cannabis

Humans have been using cannabis for thousands of years. Researchers have discovered the remains of burned cannabis seeds in the graves of shamans in China and Siberia from as early as 500 B.C. Fast forwarding to the early 20th century, the use of cannabis took a drastic turn as it started to become regulated and eventually banned by governments around the world. In the United States, California was the first state to prohibit cannabis in 1913 and other states – including Arizona, Oregon, and Colorado – followed suit shortly after. Cannabis was illegal in every state until California legalized the plant for medicinal purposes in 1996 and other states eventually followed in California’s footsteps yet again. Globally, cannabis has been legalized for medicinal purposes by countries such as Australia, Brazil, Greece and South Korea, and for recreational use by countries such as Canada and Uruguay. Due to the increasing legalization of cannabis around the world, the global cannabis industry grew to $9.1 billion USD in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 26.7% from 2021 to 2028. 

History of Blockchain Technology 

Blockchains are widely known for being the underlying technology behind cryptocurrencies. Blockchain technology only goes as far back as 1991 when research scientists, Stuart Haber and W. Scott Stornetta, introduced the idea of a system where document timestamps could not be tampered with. Their idea turned into reality almost a couple of decades later in 2009 when Satoshi Nakamoto launched the first blockchain – being the Bitcoin blockchain. Ever since Bitcoin’s inception, the blockchain industry has grown rapidly in both popularity and market value. The global blockchain industry was valued at $2.01 billion USD in 2019 and is expected to reach a value of $69.04 billion USD by 2027. For more background information, check out our article: Blockchain 101.

The Application of Blockchain Technology

While blockchains are primarily known for their affiliation with crypto, they have the ability to impact any industry. Blockchain technology can provide businesses and consumers with greater transparency, security, and efficiency over traditional business models and systems. It is these advantages that have led large corporations – like Walmart, De Beers, Ford and Visa – to incorporate blockchains into their operations. With the widespread adoption of blockchain technology, cannabis and hemp businesses are also beginning to explore the application of these digital ledgers. 

The Cannabis Supply Chain

A majority of businesses today use intermediaries to facilitate transactions throughout their supply chains. They are prone to human error and are only as efficient as the person(s) facilitating the transaction. The same problems are not shared with blockchain technology where the entire process is automated. Blockchains use smart contracts – which are programs that are activated when predetermined conditions are met – to facilitate a transaction. These contracts replace intermediaries with computer programming, making blockchain technology both a quicker and cheaper alternative. Every player in the cannabis supply chain can therefore benefit off of blockchain technology from increased transaction speed and lower transaction fees.    

Many cannabis consumers seek more information about the product they have purchased to ensure that it is safe to consume. Blockchains create an indisputable audit trail of digital data which can be transparently viewed. Thus, a potential benefit of blockchains for cannabis consumers is provenance: they can utilize blockchain technology to access a product’s full history. Blockchains give consumers the ability to track products from origination, mitigating concerns about where they came from and increasing trust in both the grower and retailer. 

Compliance 

The cannabis industry lacks a level of credibility because of retailers and growers who inaccurately display the contents of their products. The procedure for cannabis potency testing is not closely supervised by a regulatory body, allowing for misleading products to hit the shelves. Reports from the FDA over random consumer product testing prove that several products do not have the THC and CBD levels as marketed. Of course, blockchain technology provides a solution to this problem due to its transparent and immutable nature; information recorded on the ledger can be openly viewed and cannot be manipulated once input. Cannabis testing services could upload their results to a blockchain, allowing consumers to verify if a product is holding true to its claims on their own. The result? Misleading products are eventually weeded out of the market and the cannabis industry becomes more credible.  

In regions where cannabis is legal, there are daily limits for the amount of cannabis that can be bought. Smurfing and looping practices threaten the compliance of these daily limits. Smurfing is when a customer purchases the legal limit from one dispensary and then travels to another dispensary to continue making purchases. Looping has to do with a customer repeatedly purchasing from the same dispensary in a day. Both of these can be prevented with blockchain technology. A country’s government could require dispensaries to join a private blockchain in order to operate. A private blockchain protects the privacy of individuals who do not want their purchasing history shared with the public. Purchases would be synced to customer profiles and recorded on the network. The system could be modified to flag a customer who has already purchased the daily limit and notify the dispensary to reject the sale. 

Real Use Cases

Many cannabis and hemp businesses have not yet realized the value that blockchain technology can create for their business. Quite-a-few players in the cannabis industry have taken notice of blockchain’s advantages and are utilizing the technology today. 

PotCoin (POT): PotCoin is one of the earliest cryptocurrencies in the cannabis industry. The company provides the cannabis market with a decentralized banking infrastructure. 

CannabisCoin (CANN): CannabisCoin was built off the goal of easing transactions for medical cannabis dispensaries. The company promises to convert cryptocurrency into cannabis.  

HempCoin (THC): HempCoin facilitates transactions between cannabis farmers and dispensaries.  

Blockchains are still an upcoming technology with a ton of untapped potential. In time, it will be interesting to see how blockchain technology will impact a number of businesses, industries and economies in years to come.