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Blockchain and Cannabis: Two Possible Use Cases

From first impressions, cannabis and the blockchain don’t seem to have much in common. While the cannabis industry cultivates a plant dating back to ancient times, the blockchain was invented in the past decade. For many people cannabis represents an almost spiritual achievement of pure nature, while the blockchain is a digital concept that only exists in ones and zeroes.

Despite these differences, in and around the cannabis industry there has always seemed to be quite a bit of interest in blockchain technology. Maybe this is merely a coincidence of timing – the invention of the blockchain and the subsequent rise of Bitcoin tracked closely with the rise of legal cannabis from 2009 onward. But it’s also easy to see many cultural overlaps between the two industries: both are rebelling against established norms and laws, both seek to empower normal people to control their own bodies or money, and both seem to offer exciting financial rewards to risk-takers willing to build a new industry from the ground up. Once you add in the headaches of banking and cash management in cannabis, it’s not surprising to find blockchain enthusiasts throughout our industry.

Cannabis banking with blockchain currencies

Of course the most common use case we hear for blockchain technology in cannabis is to solve the banking problem – since cannabis businesses can’t use traditional banking services, many blockchain entrepreneurs see an industry ripe for disruption. From their point of view, this is a perfect opportunity to demonstrate this new model of decentralized digital banking – an entire industry that is locked out of mainstream banking by the centralized systems that they want to overturn!

From the perspective of a technologist, this makes perfect sense; from the perspective of the cannabis industry, this can sound like a nightmare. Cannabis businesses already operate on a razor’s edge of legal compliance and do everything they possibly can to avoid more regulatory scrutiny. Adding in an experimental, quasi-regulated, still-unproven payment solution doesn’t cancel out their cash problem as much as it multiplies the precarious legal position they already find themselves in. Examining how the blockchain could enable cannabis payments will require an entire dedicated post, but I have to admit I’m a skeptic that we’ll see this any time soon.

Seed-to-sale traceability with a blockchain database

While the banking use case gets most of the attention from blockchain enthusiasts, there is another opportunity for blockchain to play a fundamental role in the cannabis industry: as the backbone of seed-to-sale traceability systems. This use case is particularly interesting because it leverages several fundamental advantages of the blockchain: decentralized databases, trust-free reliability, and immutable record-keeping.

Currently, state seed-to-sale tracking systems are built by private companies who have won contracts with the government; licensees are required to input their inventory and transaction data into these private databases. This is how most databases in the world work, and we trust the database administrator to ensure that the records are accurate. But the blockchain offers an alternative approach in the form of a tracking database that is: 1) hosted by the licensees themselves 2) doesn’t rely on any third party and 3) is impervious to fraud.

This is possible due to the fundamental nature of the blockchain. To briefly cover the basics, blockchain technology flips data storage on its head – instead of having a central repository of data, the blockchain has many distributed “nodes” that all keep their own records. In order for a new data point to be permanently stored in the blockchain, all (or at least most) of the nodes have to agree. This removes the need for a central authority because the data is copied and stored in each individual node and it creates trust-free reliability because bad actors would have to control an impossible number of nodes to store fraudulent data.

Imagine a traceability system built on the blockchain, with each licensee as one of the nodes; the number of nodes would be relatively low (hundreds versus Bitcoin’s millions) but the verification threshold could be set very high, near 100%. When a new transaction takes place, the licensees involved would log it in their own blockchain nodes using a frontend client, and the backend technology would proliferate that data across the entire traceability system; once it reaches the blockchain threshold, it would be permanently and immutably stored.

Like many uses of the blockchain, this wouldn’t necessarily upend the system as much as it could replace the backbone technology. There would still need to be a private company responsible for the setup and maintenance, but it could reduce their overhead to build on top of the established database technology. The major advantage would be the trust-free reliability of the data, but we do already generally trust the companies involved to keep the data safe and accurate. Perhaps the most attractive element of this plan would just be bringing together these two exciting industry’s and demonstrating how well they can work together.

What do you think? Do you know anyone building a cannatech tool using the blockchain? Do you see opportunities or drawbacks that I’m overlooking? There is definitely a lot more to say about this topic, and I wonder if we’ll see any cannatech companies pursuing it.