By Sherree DeCovny, Co-Founder and Research Principal
If ever there was an application for blockchain, it’s in the U.S. cannabis market. Some states have legalized it for medical use, some have legalized it for medical and recreational use, and others have not legalized it at all. Where it’s legal, the market is heavily regulated, but the regulations aren’t uniform across states.
The market’s inefficient because cannabis isn’t legal on a federal level, and there’s no interstate commerce. That means there’s an imbalance in supply and demand. Pricing varies significantly, and it isn’t necessarily transparent. There are major transportation and distribution challenges. The industry lacks standards. And since businesses have limited access to traditional banking services, they’re forced to rely on cash.
California was the first state to legalize medical marijuana in 1996, and recreational marijuana became legal in 2018. Jess Jessop, CEO of California Cannabis Market, explains the seed-to-sale supply chain in that state.
It starts with a group of clones or seedlings. The relevant strain information is entered into the , the state’s track and trace system, and the group is assigned a state-issued tag. Once the grower determines that the clones or seedlings are viable, they’re individually tagged and inherit the group.
When plants are harvested, individual plants become part of a bag. The bag inherits the information from all the individual clones or seedlings, and it’s given another tag. These details, along with the wet and dry weight, are recorded in the Metrc system.
When the bag is ready, a licensed distributor picks it up at the grower’s facility. The bag is logged into the state Metrc system with details such as when and where it’s picked up, as well as by whom and how much.
The distributor then takes the bag to a secure facility for testing. The testing company sends a representative to take the sample, and if the test results are good, the distributor moves the product to a manufacturer. If not, the distributor takes it to a state burn facility. These details are also logged in the Metrc system.
All cannabis must be manufactured – even flowers need to be packaged – and it’s the manufacturer’s job to make the raw flowers into safe, properly-packaged consumables. A manufacturer that makes a batch of brownies, for example, must provide the specific bag numbers in that specific batch. Further, the batch of brownies inherits the data of all the bags and all the plants in the bag.
Next, the licensed distributor picks up the product and either inventories it, or delivers it to retailers. The distributor logs the date, time and who picked it up. Finally, it is checked into the inventory of a retailer. This handoff is again tracked, and each individual brownie is accounted for. When the retailer sells the brownie to the consumer, the transaction is logged, and the process is complete.
Tagging is extremely valuable in the seed-to-sale process. In most industries barcode tags have to suffice because RFID tags are cost prohibitive. California supplies RFID tags to licensees for free, and the state covers the cost through the license fees.
California Cannabis Market will soon launch its AI Vision Grow Monitorproduct. This hooks into any standard video surveillance system, and adds facial recognition and logging. That way, it is possible to know who moved what plant and when – and get immediate alerts when someone does not belong in an area. In addition, growers have access to an array of new IoT products for monitoring, control and risk management.
Jessop says the advantage of using blockchain over traditional solutions is the smart contract. Using Hyperledger Fabric, California Cannabis Market can create smart contracts that can let a retailer buy directly from the grower and arrange all the steps in between. At each point along the chain, the smart contract monitors for verification that a step has been completed. It then initiates the correct next action, whether that is to email a bill of lading and pickup instructions, or immediately pay for the service performed. A huge amount of friction is removed from the supply chain, which accelerates the entire process significantly.
A network of regional credit unions and savings and loans in California accept cash from the California Cannabis Market. It arranges pickup and transportation of the cash, and the amount is applied to the retailer’s purchase account on the marketplace’s blockchain. From there, retailers can make purchases on the marketplace or access its payment gateway to pay anyone else for anything, anytime. Since California Cannabis Market accepts cash, it has know-your-customer and anti-money laundering functionality built into its systems, and it reports daily to the Federal authorities.
Jessop believes that growth in the cannabis market is set to explode, and “normalization” will occur in the U.S. within 18 months. Once the federal government lets the states regulate the market, we can look forward to interstate B2B commerce and greater market efficiency – including more consistency in manufacturing grade cannabis.
California Cannabis Market is already being approached by international organizations. For example, an NGO in Kenya wants to grow flowers for the American market and use the profits to fight deforestation. With full normalization on the international level, cannabis will become mainstream, the market leaders will emerge, the rest will move to the sidelines, and the industry will mature.
Chain Business Insights believes that blockchain can be transformative for the cannabis industry. We look forward to monitoring innovations in the space and keeping our clients abreast of the latest developments, especially as cannabis becomes fully legal in Canada in October. Right now, you can hear more about the industry from Jessop and Jeanine “Nini” Martin, a nurse advocate, clinical informaticist and global health strategist, in a new episode of our Chain Reactions podcast Episode 3: How Blockchain is Cultivating Growth in the Cannabis Business.