Updated: Jul 16, 2020
The Synergy of Cannabis, Cryptocurrencies and Blockchain Could Bring Welcome Changes
The cannabis industry is facing various challenges and one of the biggest issues is the lack of consistency between federal and state laws. With a lack of access to traditional banking, cryptocurrencies could be of great benefit to sellers and buyers of cannabis.
Blockchain also has many benefits to offer the cannabis industry that would directly address some current challenges, such as transparency. With these industries working together, solutions for many of the current challenges may be found.
Challenges facing the cannabis industry
The conflict between federal and state laws is one of the main issues faced by the industry. This leads to a disjointed approach and creates many difficulties
Access to banking
As a result of its illegal status on a federal level, many banks in the U.S won’t deal with cannabis companies. Companies are forced to handle large quantities of cash. They can’t get bank accounts or take tax deductions and have to worry about criminal activity. Tax deductions are a big issue and the discrepancy between federal and state law means that cannabis companies face double taxation.
A combination of high taxes and other issues means there are still many illegal companies. The fact that legal companies pay high taxes and they don’t is more reason for them to continue to operate illegally and makes it hard for legitimate companies to compete.
As cannabis is illegal federally, research isn’t easy. There are thousands of studies that confirm its therapeutic benefits but lack of long term data is a hindrance and more double-blind clinical studies need to be done.
Lack of transparency
More transparency is needed in the cannabis supply chain to satisfy customer demand for information about industry practices. For instance, customers want to know that products are free from contaminants and contain the ingredients in the strengths stated on labels.
Disjointed purchase funnel
A report by the Brightfield Group shows that the purchase funnel for recreational brands is very disjointed. Success in one metric does not necessarily translate into success in others and brands need to be more aware of the total package, from brand positioning and price to availability and quality.
Companies don’t live up to investor expectations
When products increase and awareness is low, consumers get confused. A cluttered market with a lack of differentiation leads to decision fatigue. Canopy Growth is being forced to revise its strategies to become more consumer-centric and being best in areas of consumer demand with high growth potential.
Aurora’s stock has been falling over the past 12 months and CEO, Terry Booth, stepped aside recently after seven years of building the company.
Many celebrities who put their names on cannabis brands have found the challenges more than they bargained for. Whoopi Goldberg (Maya Brand) recently left her namesake firm after a dispute. Snoop Dogg’s “Leafs by Snoop” is embroiled in a legal battle.
Cannabis and cryptocurrencies complement each other
The cannabis and crypto industries both face political, financial and regulatory challenges and can complement each other as adoption grows.
A viable alternative
Cryptocurrencies offer a viable alternative to cannabis sellers and buyers. They can use cryptocurrencies to handle transactions as they are more secure and easier to handle than physical cash.
The value of crypto in the cannabis industry lies in the fact that they can be transferred without the involvement of government of financial entities. Value is stored in a distributed and open way on the blockchain. The potential for the crypto and cannabis industries to come together is seen in many ventures such as PotCoin, CannaCoin, DopeCoin and CannabisCoin.
The user bases overlap
The cannabis and cryptocurrency industries are both attracting young investors and user bases overlap. Crypto is disrupting finance and cannabis is rapidly becoming legal all over the world.
These industries provide the type of risk young investors look for. They usually have some more traditional investments and want to balance these out with some more risky investments with the potential for a big return.
Ways blockchain could change the cannabis industry
Blockchain does not have regulatory issues and risks of cryptocurrencies. There is a common misconception that using decentralized blockchain solutions means the intellectual property is at risk.
However, it is possible to control access to information. It is also possible to share certain information and protect other information. When it comes to the cannabis supply chain, blockchain offers an opportunity to bring the integrity that’s sorely needed.
A permanent secure record
The cannabis industry has been slow to embrace blockchain but as it matures, this is likely to change. Large companies will drive adoption because they want to know that the products they receive are safe before they put them in the hands of consumers.
Blockchain can ensure that original information remains intact and offers a permanent, secure record from the time seeds are sown to the time products reach customers.
One of the main benefits of blockchain could be in the area of genetics. A permanent, secure infrastructure would enable the collection, registering, testing and publishing of genetic cultivar information.
Growers could protect their IP and researchers could identify genetic and chemical profiles. Medical providers and retailers would be able to trust in the consistency of the products they receive.
Not only does blockchain offer a permanent, accurate record but it is possible to get fast access to specific details within all the stored information.
The introduction of scannable codes and other technologies powered by blockchain are likely to increase consumer confidence and loyalty to brands. Consumers will know what they are getting and how they are getting it with full, transparent traceability.
Less labor costs
One of the largest expenses in the cannabis industry is labor. Blockchain could reduce the need for labor in cultivation facilities and retail shops as it helps to streamline various activities like tracking and reporting. Adopting it will involve some upfront costs but is likely to save on labor costs over the long term.
Many states already have track-and-trace requirements. Blockchain could help to improve compliance by supporting the systems already in place and helping to bridge any gaps.
A final word
The cannabis and crypto industries have much to prove to the public and investors and face many challenges. However, it is possible that they can work beneficially together with one providing a secure medium for transactions other than cash and the other offering a valuable customer base in addition to an injection of capital.
With blockchain technology offering the transparency and accountability the cannabis industry so badly needs, the synergistic results could bring a new era of growth and stability.
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