Why Cannabis Needs the Blockchain’s Auditability the Most

cannabis blockchain

The cannabis market (and agriculture in general) goes through multiple processes before the product hits users’ hands. Because of this, it isn’t always easy to trace where cannabis products come from, or if it was tampered with down the line. The demand for a transparent solution was already there, but traditional technologies couldn’t provide anything like blockchain’s auditability. Because of the recent blockchain-based projects like Hempcoin, Potcoin, and Nuvus.io, we can finally meet innovation and bring cannabis cultivation with its feet on the ground!

Delicate Agriculture

The cannabis industry is making its way towards becoming the fastest growing agricultural product in the world, and the recent legalization of it in the United States is leading the charge.

Cannabis’ Place in the Agriculture Industry

cannabis united states of americaAs of this writing, marijuana is one of the fastest growing industries in the world, with BDS Analytics reporting $9 billion in sales in 2017 and a projected $40 billion by 2021. Also, it is one of the fastest growing industries in the history of the United States. This explosion of growth means that it can be hard to pinpoint what is going on and where. Plus, with each country having its own regulations around marijuana growth, anyone who isn’t following the industry closely may get lost in the chaos.

Marijuana is used both medically and recreationally. Purchasing marijuana only requires a driver’s license to obtain it recreationally. Both must be purchased from an established dispensary. According to drugabuse.gov, marijuana is the most commonly used drug in the United States.

From Seed to Shelf

Marijuana, like most agricultural crops, goes through multiple hands before it makes its way to you. Any number of things could happen to it along the way, which can even put your health in danger, even in a regulated world.

cannabis market

Growers

This is where it all starts. Growers have studied the proper lighting, temperatures, and soils that lead to the healthiest marijuana plants. Growers tend to the plants from birth to harvest, making them ready for both recreational and medicinal use.

Processors

Processors are licensed experts tasked with drying, curing, packaging, and labeling the marijuana once receiving it from the grower. They also tend to marijuana’s other forms such as concentrates, edibles, and oils before handing it off to retailers and distributors. This is usually done on a larger scale.

Distributors

A distributor is usually associated with medical marijuana. They take the plant from a processor and bring it over to the retailer. Depending on the area, distributors may deliver to dozens of different retailers in any given month.

Retailers

Also known as dispensaries, retailers are where marijuana is placed on the shelves and users come in to purchase it. Customers will need a driver’s license or a medical card to come into the store to buy any marijuana product or paraphernalia.

Growing Economy

In 2015, the legal marijuana industry was named the second largest taxable revenue source in Colorado. In one year, marijuana brought in a combined $121 million in sales and tax revenue – three times larger than alcohol and 14% more than casino earnings in that same time frame.

In one year, marijuana brought in a combined $121 million in sales and tax revenue (more than alcohol or casino earnings in that same time frame!) Click To Tweet

Since then, marijuana usage has been legalized to various degrees in multiple places throughout the United States. In April 2017, GreenWave Advisors predicted the industry would reach $30.3 billion in yearly revenue by 2021, with $27 billion of that in federal tax revenue over the next five years. With the growth rate quadrupling in size in 2017, it is expected to grow even faster in 2018.

According to California state economists, around 13.5 million pounds of marijuana is cultivated yearly, with California residents using about 2.5 million of that. The other 11 million pounds are shipped elsewhere. Production is broken down into the following areas of California:

cannabis distribution

Depending on the license, growers may only be allowed to ship to specific processors and distributors. However, cultivators usually don’t do this themselves, rather they contract the work out.

Not All is Perfect

Even with the current successes and unprecedented growth, not all is perfect in the world of marijuana distribution.

cannabis shortcoming

Communication Issues

In the state of Washington, it is required that marijuana products are tracked every step of the way, from grower to retailer. Through their traceability system, the state can monitor any and all movements to point out any suspicious activity. That said, this system has caused more issues than it solves.

Growers have reported that the system has scrambled orders, while managers have said they haven’t received any shipping documents. Retailers are beginning to run out of product and sales have slowed down for as long as this system has been active.

Broken Custody

Adding on to the lost paperwork, these issues make it so that no one can officially account for ownership of the marijuana. Shipments get lost in the system, and somewhere in between processors, distributors, and retailers the original owner becomes unknown.

Market Monopoly

Marijuana is one of the most significant agricultural products in the United States. At the turn of legalization, there are already companies looking to industrialize the industry by mass-producing marijuana. These companies are patenting usage of the plant, meaning that growers, retailers, anyone who handles marijuana will have to pay royalties on them.

Lack of Auditability

Essentially, the lack of auditability in the marijuana industry is strong. There is almost no way to officially inspect each step of the marijuana handling process. From the grower to the processor to the distributor to the retailer, it is near impossible to tell who did what whenever an issue occurs.

QR Coding the Product

cannabis QR codeTracking seed to sale proves to be the marijuana industry’s biggest issue. Fortunately, WeedTraQR offers a solution. Their system is a simple application that allows every person in the process to simply scan in and update inventory with a simple QR code scanner on their phone or computer. The application offers valuable sorting options, quick scanning, and useful statistics post inventory.

It is used by over 100 growers in the United States, including Empire, Jetcity Gardens, and Dogtown Pioneers. While this is an incredibly useful application, it doesn’t fix everything:

  • Growers and processors must ensure QR codes are placed on every shipment.
  • Participants at every step must always have their devices on them.
  • Extra manual steps are added. These can be easily missed.

Even with these bottlenecks, QR technology is still a brilliant step in the right direction.

Blockchain Verification at Every Step

Blockchain technology exists as a ledger for tracking anything the developers wish. It is quick to work, and entirely secure due to decentralization. Adding the blockchain would allow there to be a clear chain of custody. Each step of the seed-to-shelf process would be validated by tamper-free smart contracts (essentially if-then statements) which no one user has control over. Because the blockchain is immutable, transactions are there for good. No bad actor can come in and mess with completed transactions. Anyone can participate in a blockchain – no third-party has the power to block an entity from making a transaction with this technology.

cannabis blockchain

Blockchain technology is accessible to everyone. It allows farmers to take advantage of the tech without needing a formal education. Governments could easily monitor the seed-to-shelf process without becoming too involved, and managing multiple supply chains becomes autonomous. The blockchain increases tracking speed from hours to seconds, instantly updating and paying the necessary recipient – removing the need for invoices entirely. The blockchain provides an entirely transparent way to maintain the whole process.

The New Economy

blockchain cannabis

Companies like FedEx, for example, do not use smart contracts. Because the system is relying solely on user input, there is a lot of room for error. Missed scans, system failures, and late payments are all too common in the standard delivery process.

It is predicted that by 2022, more than 25% of corporations will be using smart contracts to do business. With how many exchanges are required in the seed-to-shelf process, these automated if-then statements would eliminate the need for multiple authorizations and signatures, saving companies both time and money.

With how quickly the marijuana industry is growing (again, a projected $30.3 billion by 2021), removing the most arduous steps in the process would allow the market to flourish even more. Banks refuse to open accounts for marijuana companies due to the risk of money laundering and federal regulations. Being on the blockchain would allow these companies to ignore banks completely while providing a safe way to make transactions and store profits.

Being on the blockchain would allow marijuana companies to ignore banks completely while providing a safe way to make transactions and store profits Click To Tweet

Employees would have a hard time stealing anywhere in this process. Security costs would go down, more deliveries would be completed, and the money would stay in the industry, not in banks

The New Bottlenecks

The blockchain is still a new form of technology. While the benefits are apparent to those who study it, there are skeptics out there. Farmers are known for sticking to traditional ways. Also, the initial implementation of the blockchain takes a lot of work, and while the government may not be able to do much from the blockchain, they would have open access to all of the information on the network. Some farmers may not be comfortable with this fact.

Privacy is essential, and the improved speed and transparency may not be enough for users to jump into the blockchain process. Only until the blockchain outweighs the current issues will we see the widespread acceptance and implementation of it.

The Bets Are Set

There are already multiple blockchain projects set on innovating the cannabis industry.

Nuvus.io

nuvus.ioNuvus is calling itself the “Global Exchange Platform” for data, specifically focusing on the cannabis industry. It wants to ensure complete transparency in all aspects of the seed-to-shelf process by basing payments on a trustless verification system.

The platform will run with the Global Exchange Token (GETX) on the Ethereum network (ERC20) that will be used for collecting and storing data including patient happiness, farmer input, transaction information, and more.

Data collection is the key to developing a workable distributed ledger since the blockchain cannot differentiate between good data or bad data when recording the transactions which could mean “garbage in, garbage out.” The solution to proper data collection that is auditable, traceable, and clean is what Nuvus calls CognetiX. CognetiX has been used in the cannabis industry by major growers to track and audit their grow data for almost four years. Nuvus will utilize CognetiX as nodes to ensure proper data collection and recording onto the blockchain. This is the biggest differentiation factor when it comes to transforming the cannabis industry using the blockchain.

Nuvus has paired up with the Linux Foundation’s Hyperledger. Hyperledger is an open-source collaboration project that isn’t a blockchain or a cryptocurrency. Rather, it serves as a space for commercial blockchain development. The Hyperledger idea is designed around introducing good ideas to the power of the blockchain and allowing them to build it up properly.

Hempcoin

hempcoinCreated in 2014 off of Bitcoin’s original code, Hempcoin (THC) is a coin with the intention of regulating transactions between growers, distributors, and retailers around the world. The website offers its own wallet, and its coin, THC.

THC offers a lower transaction fee, and growers would be paid in the digital token instead of the standard dollar. The worldwide agricultural market is a trillion dollar industry, and if HempCoin manages to get at least 2-3% share of it the price can easily rise by over 500%.

The most significant issue here, however, is that farmers are paid in THC. They may not want their payments to be based on such an unpredictable way, and they might prefer standard currency.

Hempcoin will be making a hard fork on February 23rd. The team wrote up a brand new whitepaper detailing the project, which intends to fix the liquidity issues that the original Hempcoin faced. This new fork will have a Masternode system, a physical card, mobile pay, and more.  

Potcoin

potcoinPotcoin wants to be the banking solution for the marijuana industry. Unlike Hempcoin, Potcoin wants to handle the transactions between users and the retailers with a peer-to-peer network. It wants to remove the need for cash entirely and focus solely on creating a cryptocurrency around the legal cannabis community.

Potcoin features a reward system that comes free to all associated marijuana organizations. It features multiple easy ways to buy into the currency, with the option to give back to all marijuana-related corporations and charities.

Potcoin certainly has potential but, until the coin stabilizes, users may be unwilling to make this currency the primary form of purchasing marijuana due to its volatility. Fortunately, Potcoin has established nearly 1,300 ATMs across the world, with predictions of the coin rising from a $0.394 average to a $0.449 average by the end of 2018.

Conclusion

cannabis blockchainRight now, blockchain integration into the cannabis industry is facing a lot of the same problems that most blockchain techs are up against. That issue is convincing the public that adoption is necessary. Right now, the volatility of blockchain technology and cryptocurrencies, in general, is preventing users from wanting to get involved. On top of that, banks are targeting cryptocurrencies, touting that they are a scam to scare the general public away from them. Governments are banning exchanges and ICOs and retailers are dropping Bitcoin support. As with any groundbreaking technology, people are scared. It will take time before cryptocurrencies are ready for mass adoption.

Hempcoin and Potcoin are set to tackle cannabis specific issues, but who will come out on top is hard to say. Both projects have a similar goal – replacing fiat currency as the main form of purchasing marijuana. However, all three projects would ensure greater clarity in seed-to-shelf marijuana movements. Nuvus.io has the same goal as the previous two projects, but it provides more benefits and takes many steps further, like the collection of data around each transaction which is only possible through its tried and true data analytics software, CognetiX. Also, it is backed by Linux’s Hyperledger, which gives it both publicity and credibility.

Blockchain will make the seed-to-shelf process of cannabis industry quicker, easier, cheaper, and more transparent Click To Tweet

While the blockchain will make the seed-to-shelf process quicker, easier, cheaper, and more transparent, the initial costs and time of implementation may not outweigh the benefits just yet. The potential for innovation is there, and it will likely be adopted in small circles at first. As the industry grows and awareness of the blockchain deepens, we may see this decentralized tech take over traditional auditing.

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