Legal ambiguity surrounding the cannabis industry has slowed the marijuana business in the US. Stakeholders are uncertain of the potential legal ramifications that currently threaten the business environment. Despite ongoing setbacks, the legalized marijuana industry remains valued at over $7 billion in the US, which means high value transactions are occurring. Yet, for profits to continue, the industry must find a way to overcome hurdles at the federal level. Possible solutions for navigating the shifting legal landscape involve methods that provide greater transparency and assured accountability. With the explosion of millennial-led investments in cannabis stocks and cryptocurrencies, it comes as no surprise why stakeholders are looking to blockchain technology to help settle these legal debates.
In November 2017, IBM proposed a blockchain solution to Canada as a way to regulate and authenticate transactions of legalized marijuana. Further fueling this movement toward a blockchain-backed cannabis industry, California-based analytics company, Budbo, recently made headlines after selling out its token presale 10 days before its official release date. The sale represents a common fundraising strategy in the world of blockchain, where companies sell virtual coins that represent hard currency. Selling a whopping 20 million tokens at presale is a big deal, especially for a startup involved in such a nascent industry. This instance shows that regulators are not the only ones calling for greater transparency for the cannabis industry, consumers want it too.
From Seed to Sale
Coined the Tinder of weed, Budbo’s software utilizes a GPS-enabled tracking system. The app provides real-time data by tracking the total lifecycle of the product from seed to sale. Yet the real value lies in the technology’s cooperative-like design, which requires inputs from stakeholders along the entire value chain. In this way, users can stay up to date with the latest information concerning the marijuana marketplace, an important feature that would prove useful for cannabis traceability.
My colleague, Johnathon de Villier, explains that blockchain technology does not operate under a central authority, which makes transactions arguably more secure and easier to validate. In addition to its decentralized architecture, blockchain provides full and permanent disclosure of all data entries, meaning market participants are equally informed. This would allow for government officials to track the supply and demand side of things, creating an appropriate regulatory space for a market plagued with inconsistencies. Cannabis businesses and consumers both stand to gain from a more defined policy space. Setting standards would push for higher value products and encourage companies to compete on a quality basis rather than quantity alone. However, the worth of any information system lies in the quality of its data. Cryptocurrency for the cannabis industry is particularly susceptible to the pitfalls of poor data as the network effect relies heavily on input from the cannabis community—blockchain in and of itself does not ensure reliability. While blockchain’s immutable ledger could provide some much-needed clarity for the businesses’ grayer areas, the novelty of blockchain continues to represent significant barriers to technological and institutional change.