A number of sectors are poised to benefit from the emergence of blockchain technology and a few such as supply chain management, real estate, and finance are already looking to seamlessly integrate with the blockchain. One of the more overlooked industries that can also benefit from these technological advances is the medical marijuana market.
The provision of marijuana for health purposes is a burgeoning market in North America, with both Canada and the USA allowing for cannabis to be used legally in order to help treat certain health conditions.
A Growing Industry
In Canada, cannabis is currently only legal for medicinal purposes and under conditions outlined by Health Canada in their Access to Cannabis for Medical Purposes Regulations (ACMPR) publication. In the USA, the use of both recreational and medicinal marijuana has been legalized in west coast states such as California, Nevada, Oregon, and Washington, in addition to the states of Alaska, Colorado, Maine, and Massachusetts. A number of other states allow for the use of cannabis on medical grounds only.
In 2016, marijuana sales in North America were worth approximately $6.7 billion, which was an increase of around 30% on the previous year’s total. Sales in the region are also projected to reach over $20 billion by 2021 with Canada pushing forward with plans to implement the legal adult use of marijuana. These figures put the medical marijuana industry on par with the National Football League (NFL), which generates roughly $12 billion in revenue a year and is forecast to reach around $25 billion by 2027.
Clearly, the cannabis industry is one of the fasting growing sectors in the economy and runs parallel to another industry quietly taking the economy by storm. Cryptocurrencies are growing at a rapid rate with the sector currently worth a combined market cap of $204 billion. The two industries are on track to continue their rapid growth over the next few years. However, there are a few significant bumps in the road.
Despite this rapid growth, the medical marijuana industry is not without its problems and currently, vendors are most in need of a reliable banking system. The medical marijuana industry is spread across 23 US states and cannabis vendors around the country are sharing the same experience. Businesses are struggling to obtain the most basic banking facilities and as a result, are choosing to rely solely on cash in order to run their operations.
A lack of structured banking has led to businesses in the sector experiencing cash flow problems and they often struggle to keep up with payments to both suppliers and employees. In addition, the reliance on cash often leads to a lack of transparency in accounting and auditing processes.
This in turn stops businesses from efficiently filing for and paying the industry specific taxes that each state imposes. An obvious abundance of cash also turns retailers into a honey pot for criminals with marijuana shops and medical dispensaries increasingly becoming targets for burglars and robbers.
Despite this, aspiring businesses are being denied fundamental banking processes such as checking and credit card services from local banks and this is due to a disparity in legislation across the country. Banks are choosing not to deal with legal marijuana businesses due to the difference in interpretation between State Law and Federal Law.
The two currently conflict and Federal Law refers to marijuana as a Schedule I drug, placing it in the same category as heroin. As a result, banks are simply choosing to avoid dealing with medical marijuana businesses in order to escape any association with dealing in Schedule I drugs, whether it be legally or illegally. On top of this, tough Federal Laws related to drug money laundering, can lead to suspensions, heavy fines and even prison sentences, which make the entire industry not worth dealing with.
Interestingly, the cryptocurrency payments solution BitPay has also declined to offer services to marijuana businesses.
Cryptocurrencies Provide Alternatives
A number of projects have popped up that aim to tap into the growing legal marijuana industry and help provide much needed solutions. We take a look at some of the most promising blockchain startups in the space.
Potcoin markets itself as being the first digital currency created to facilitate transactions within the legalized cannabis industry. PotCoin aims to provide an ultra-secure digital cryptocurrency, network and banking solution for the legal marijuana industry. The team suggest that vendors and dispensaries will be able to conduct all of their business banking via the PotCoin platform.
In keeping with the eccentric practices of “weed coins”, Pot Coin also claims that its supporters were behind Dennis Rodman’s trip to North Korea, after raising the finances for his trip via a crowd fund. POT currently trades at a price of around $0.13 and holds a market cap of over $29m.
Paragon held a widely publicised ICO earlier this year that had rapper the Game extolling the virtues of the project. Despite the media attention, Paragon has employed a scatter gun approach that sees the company offer a blockchain database to track information such as the chain of custody, doctor’s prescriptions, and lab tests for marijuana strains.
In addition to this, the Paragon team also aim to run a network of co-working spaces and foster a large online community. The PRG coin currently trades at around $0.20 and has a market cap of over $18m.
The Smoke Exchange
The Smoke Exchange claims to be the world’s first self-serve advertising platform for the marijuana industry. The platform acts as a digital marketplace that enables advertisers and publishers to trade advertising space on a real-time auction based bidding platform.
The team behind Smoke Exchange aim to solve the problem of the large display advertising networks not accepting ads for businesses involved in the marijuana industry. Similar to the banking industry, advertisers choose to avoid dealing with companies engaged in cannabis related activities, even if they are completely legal. An industry specific ad network allows all involved to buy and sell advertising without the need for a middleman.
DopeCoin simply aims to provide a payment alternative for any involved in the buying or selling of marijuana. Adam Howell, Dope Coin’s founder has stated
The marijuana industry does not necessarily ‘need its own coin’ but there is certainly a place for it to be used by enthusiasts or retailers that might want to offer a unique kind of themed reward system or industry specific payment option for their customers
DOPE currently trades at around $0.02 and holds a market cap of just over $2m.
Source: The Chex
The CHEX (Cannabis Hemp Exchange) provides a blockchain based platform to track cannabis as it moves along the supply chain and accounts for the validity of the entire process from the field to dispensary. The site also acts as an exchange for all cannabis commodity products and allows for the creation of private-label wholesale exchange platforms, which will facilitate online trading carried out by distributors and wholesalers.
The project also provides storefronts suppliers of cannabis products and aims to provide the entire range of solutions required by cultivators, manufacturers, and retailers. In the future, the team behind the CHEX also plan to use their platform to build other exchanges, and use their digital coin as the standard method of payment between all the interlinked buyers and sellers.
The CHEX project seems to pre-empt an idea put forward by IBM that advocates using digital ledger technology in order to track marijuana sales. With Canada planning to legalize cannabis sales IBM put forward the idea to track pot supplies as they move up the supply chain from farm to distributor to retailer to consumers in a brief four-page submission to the government of British Columbia.
IBM felt that blockchain technology could help the government ensure that cannabis crops are legally grown, with the appropriate taxes collected, whilst allowing consumers to know the exact origin of any products they purchased. In their submission IBM wrote Blockchain’s
relevance to regulating cannabis is similar to its many chain of custody applications in areas such as pharmaceutical distribution and food chains. The core to those supply chains is the same, assuring health and safety of consumers, preventing fraud and counterfeiting while creating a foundation of transparency upon which to base regulation.
The legal marijuana industry is still treated as being an activity that should take place on the fringes of society, however, via IBM and the blockchain the industry has received a level of validation crucial to its survival.
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