Cryptocurrencies have taken the world by storm, with several cryptocurrencies breaking into the cannabis space to take advantage of what has largely become a cash industry.
Cryptocurrency caught mainstream attention when the industry’s total market cap hit $600 billion at the end of last year. The highly anticipated cannabis industry in the United States is similarly being pushed into the spotlight by a “green rush” of investors flooding Wall Street, who expect the industry to be worth $75 billion by 2030.
"It is predicted that by 2020 the industry will grow to be over $40 billion dollars. It also means a lot more competition," Bannink (or "Super Joint" as he's affectionately called by the Grasscity community) told me via email. "There are thousands of brands competing to try and do what we're doing. Grasscity is extremely lucky to have a 16 year head start on building customers, users, and industry partners."
Aside from attracting high volumes of bold new investors, the cannabis and cryptocurrency industries in the U.S. also share some major issues: Both are high-risk, legally uncertain and have government regulators breathing down their neck. The potential uses of cryptocurrency and blockchain align with the demands of the developing cannabis market, and through a coordinated effort, the unexpected pair can propel themselves to legitimacy in the dynamic modern economy.
Cannabis businesses in the U.S. operate on a cash-only basis because banks, which all operate under federal regulation, are prohibited to service an industry that is still deemed illegal under federal law. Cannabis dispensaries can hold up to $100,000 in cash at any given time, and if a business's finances are not carefully reported to state regulators, their cash is extremely vulnerable to seizure by police using broad asset-forfeiture laws.
On the flipside, state treasuries don’t collect their fair share of taxes on marijuana sales. The inconvenient and unsecure tax collection processes, whereby dispensary owners may have to cross the state with armed guards to deliver hundred of thousands of dollars in cash to the state's IRS offices, leads many businesses to cut corners while reporting sales.
An unfinished ICO
Another major issue facing pot businesses are the high costs of opening a cannabis dispensary, which are much higher than those of a typical small business. The sum total of licensing and permit fees, finding pot-friendly retail space, investing in POS and security systems, and having enough capital to demonstrate business viability can all cost between $250,000 and $750,000.
Small businesses in the cannabis sector can take advantage of a provision in the Jumpstart Our Business Startups (JOBS) Act that expands entrepreneurs’ access to capital by allowing them to engage in crowdfunding initiatives like ICOs. Title IV, or Regulation A+, allows private businesses to raise up to $50 million from public investors, which is particularly beneficial for small dispensaries aiming to tap into a larger pool of online investors.
High Times Holding Corp. first announced it would accept Bitcoin and Ethereum in its IPO in August, making it the first ever traditional stock offering to accept cryptocurrency investments by taking advantage of Regulation A+. However, the company apparently backtracked on its promise to accept BTC and ETH in its IPO just two weeks later when it filed regulatory paperwork with the Securities and Exchange Commission (SEC) excluding the cryptocurrencies.
Despite the confusion, Bitcoin remains as a payment option on the company’s investment portal. A representative from High Times clarified that a third-party will convert Bitcoin to fiat currency for the company to avoid holding any investments as cryptocurrency and any controversy with the SEC. The CEO of the marijuana media organization, Adam Levin, said while he “didn’t believe that the ICO process was the right move for [the] brand, it would’ve been foolish to leave this emerging investor base out.”
The Tokens: An Overview
You’re probably asking yourself how on earth can a big business flourish without access to banking.
Picture gas stations, fast food chains or pharmacies working on cash only.
Sadly the federal ban on cannabis prevents banks from servicing cannabis dispensaries and related businesses.
That’s why many cannabis tokens are basically payment solutions like bitcoin is.
This means they’re straightforward ways to facilitate payments between industry players like dispensaries, clients and growers. In a way, then, most cannabis tokens are basically cannabis-related money.
Thanks to a reliable, secure, digital tradable value coin, the logistics nightmare of cash-only dealing may be over.
We can call these tokens cannabis-money.
But there are others which aim even higher.
Projects like Paragon, Hemp Coin, Smoke Exchange and Budbo are trying to not just solve major hurdles in logistics and management. They want to tangibly improve the infrastructure of the whole cannabis industry.
-Making supply chains more efficient and manageable,
-Allowing payments between different parties
-Increasing transparency when it comes to the origin of seeds and produces
And of course, there’s the odd one out. There’s one blockchain project from AgroTechFarm, that is about cannabis production.
That’s how we will divide the guide: production, cannabis-money, and infrastructure
You’re probably wondering how can a token affect cannabis production. Although it’s not so straightforward, you’ll see that blockchain can be used in many ways.
The cool part: changing how cannabis is produced will transform the industry. Especially if it can disrupt the distinction between industrial producers and individual users.
AgroTechFarm occupies a blue ocean in the cannabis industry. The aim of the project is to provide a zero-chemical, zero-environmental impact way to grow cannabis and other crops.
Their product uses aeroponics in their smart appliance for organically growing cannabis, tomatoes, peppers and other large crops at home. The appliance allows people to become self-sufficient and produce their own fruits and vegetables. Everything is automated, the yield is optimized and less resources are used.
Since everything grows in the user’s kitchen there is no need for transportation neither for farming land. Considering that these two are among the biggest contributors to global warming.
We could not find any other cannabis token that was dealing with production. And it’s a nice combination of the cannabis industry with organic farming. In one sense, it implies diversification (the art of not putting all your eggs in one basket).
This means that in case the cannabis industry goes down, their other clients will be intact.(More about it in their whitepaper)
Infrastructure is the backbone of all industries.
A market’s growth potential is worthless without proper infrastructure. Without it, nothing can happen. Think about it this way: even if you have the fastest car in the world, it would be good for nothing if there were no roads.
That’s why some visionary projects want to create a stronger base for all cannabis-related businesses to flourish.
The boost can come in many ways, as we’ve seen. And some projects focus one some over others, but each has something to contribute. This showcases blockchain’s capability to change our markets.
Budbo has created a global cannabis blockchain, on which any ancillary service or cannabis related business can utilize and harness its immutable ledger.
Budbo has been an operating company since 2015, offering an enterprise level suite of business products. Budbo has a consumer mobile application that focuses primarily on product discovery, a dispensary and product manufacturer dashboard that breaks down predictive AI consumer analytics, and a GPS enabled program it calls Budbo Trax that monitors commercial cannabis shipments through geofencing technologies and electronic documentation.
Their app already has 75,000 individual active users and 2,000 dispensaries within their network. Their application has an interface similar to “Tinder”, in the way it allows users to quickly swipe through 100s of locally available strains and products. Allowing for online ordering, or getting directions to the dispensary that has the desired product.
Budbo wants to integrate all players in the industry, with a stated mission of bringing together a solid global community.
Their platform currently involves seed suppliers, growers, dispensaries, users, and patients.
The platform will provide not just information, but tracking as well to help with complex local, state, and federal compliance regulations, which will benefit all recreational and medical cannabis users and patients.
Budbo is currently closing out their token sale, having sold more than 130,000,000 utility tokens. The tokens act as the API key for access to the transactions stored on the ledger. (Learn more about them from their whitepaper)
The Hemp Coin project is a bit of a hybrid. It combines a payment solution with a mission to rebrand the industries they serve. In contrast with Dope Coin and Smoke Exchange, this project is one whole thing.
Their eight-page whitepaper does not shed much light on what they mean by this rebranding. The only explanation we get in their roadmap is that implies: “Connecting with agriculture industry to accept HempCoin’’.
A user on Reddit defended the team saying that the information was not made public due to pressure from competitors.
So, what we can make out of this is that they seek to develop a community of people who will be actively pushing pro-cannabis materials like artwork, blog posts and articles. This would, in turn, improve the image of cannabis and its industry.
Paragon intends to put the cannabis industry on blockchain through its extensive suite of solutions
Paragon successfully launched its initial platform and functionality in late 2017 and is now progressing towards a fully-fledged release in mid 2018.
Importantly, Paragon aims to do a lot more than just solve part of the cash problem that the cannabis industry currently faces. Paragon is developing a seed-to-sale tracking solution for cannabis products. All users and governments will be able to verify the entire life cycle of a product for free and be certain that no data was manipulated or deleted. These solutions are all made possible by smart-contracts and fueled by PRG to incorporate all elements of the supply chain.
On top of the extensive blockchain-based solutions that Paragon is creating, the company is also launching Paragon Spaces – these are co-working spaces that serve the cannabis industry with flex desks and office space – all paid for in PRG.(Learn more about them from their whitepaper)
[PotCoin][Cannabis Coin][Canna Coin][Dope Coin]
All of these tokens are peer-to-peer cash systems devoted to payment within the cannabis industry. The -coin in their names says it all.
But do we really need a cannabis-bitcoin?
As we explained earlier, the industry is handicapped without access to banks. Security becomes a headache, logistics are nightmarish and your consumer base is hindered. This is all because of bad policy.
Crypto has always been praised as a way to go around governments and banking institutions. It’s even how most illegal trading is paid for, sadly.
So it’s inevitable that this new tech can now serve as the safe, easy to use money this industry so desperately needs.
As a bonus, a specialized payments solution allows for reward programs and community building and integration. So, if they become widely used, they do offer some benefits over money.
We bundled these two together since we found them to be quite similar in terms of what they do, when were they launched and how they perform.
Both projects market themselves as the peer-2-peer cash systems for cannabis and aim to facilitate payments to cannabis businesses in a secure way. Similar to a cannabis bitcoin.
Yet, their websites do not offer enough information about the projects or the teams. Information is good, always.
I could not find a dedicated whitepaper for either of them. Whitepapers have become the bread and butter of tokens market for a reason: they’re professional tools that explain all aspects of any token-venture.
The main issue is that dispensaries may not benefit from a dedicated token only for them. They have to pay for for most of their supplies and logistics in cash. It is possible that they will need something more widely used or more liquid.
If you are interested in the code, you can take a look over at Github, where you’ll find both.
Pot Coin stands out among other tokens in this section. Their website looks professionally made and contains all the information you’ll need.
Also, its whitepaper is well laid out and there is a thorough explanation of how the company aims to reach every milestone on their roadmap.
PotCoin offers some key bonuses: it aims to tokenize seeds and strains through a reward program. People will be able to convert their PotCoins into real cannabis seeds. Also, those who develop a new strain will have the opportunity to sell it on their platform and earn tokens.
These two reward options sound like good incentives to prefer Potcoins over bitcoin or fiat money.
So, what can we make out of them? It seems Pot Coin’s success or failure will largely depend on their skill and effort at creating and maintaining an engaged community.
Just as the name suggests, Dope Coin is made to serve the underground world.
Their mission is to provide a payment solution for both the legal cannabis market and the illicit one like the darknet silk road.
Since last year, when governments around the world announced they could now track bitcoin, privacy coins have been big. For example, the price of Monero (a secrecy-oriented cryptocurrency) skyrocketed from around $50 to around $300. This came about because the darknet was switching from bitcoin to Monero, to avoid wary eyes.
Just recently the Dope Coin team announced that they are starting a new project called Smoke Exchange that aims to be a marketing and advertising platform specifically for cannabis businesses. They will integrate dope coin and bitcoin as payments on this platform.
Smoke Exchange is to release a working demo in Q1/2018.
Get more information about Smoke Exchange from their whitepaper. Sadly, Dope Coin does not have one.
Logistics and supply chain management are the strongest cases for blockchain adoption. The efforts to add transparency and accountability to the supply chain management of cannabis businesses yields positive effects to the social stigma surrounding marijuana use. Medical marijuana dispensaries are successfully rebranding the drug by providing detailed information about the medicinal properties of particular strains, but communities moving to legalize pot still see pushback over concern that the legal cannabis will inevitably fall into the wrong hands.
Blockchain solutions like Paragon’s ‘seed-to-sale,’ CannaSOS’s ‘social marijuana network,’ or dispensaries using cryptocurrencies as a secure and accountable mechanism for sale are the key to ensuring accountability in the pot industry and to facilitating a positive ecosystem for buyers and sellers.
The growing cannabis industry in the U.S. has proved its profitability (national marijuana sales in the U.S. are estimated to hit $11 billion this year), but in terms of commoditization, pot still faces many hurdles.