Blockchain and Cannabis: A Perfect Marriage of Emerging Trends

Cannabis, bitcoin and blockchain
Blockchain is coming to cannabis

IBM is getting into the cannabis business. On November 1, the US computer manufacturer submitted a proposal to the Government of British Columbia touting the benefits of its blockchain technology for supply chain management in Canada’s nascent cannabis industry. According to IBM, blockchain will allow B.C. to “transparently capture the history of cannabis through the entire supply chain, ultimately ensuring consumer safety while exerting regulatory control from seed to sale.”

What is blockchain, you ask?

Blockchain mania is taking over Silicon Valley — it’s the latest tech buzzword, described as world-changing technology. Essentially, blockchain is a shared, tamper-free public ledger that can be used for pretty much any kind of data organization that everyone can inspect, but which no single user controls. The participants in a blockchain system collectively update the ledger, and it can be amended only according to strict rules and by general agreement between the parties to the ledger.

The most famous applications of blockchain are bitcoin and Ethereum, cryptocurrencies built on blockchain technology. But blockchain is not limited to cryptocurrency — there are innumerable potential applications of this technology that industry leaders believe will revolutionize the way we do business. Namely, blockchain technology can help assure data integrity, maintain auditable records, render contracts into programmable software, and create self-executing agreements like “smart contracts.” Smart contracts and supply chain management are among the revolutionary applications of blockchain technology. For example, in the context of a supply chain, the secure records in a blockchain system help prevent fraud and provide a simple interface that enables businesses and regulators to inspect data regarding the flow of goods within a matter of seconds.

Blockchain technology can also minimize the sometimes nightmarish logistics of inventory management and tracking. IBM has been testing blockchain technology with various major corporations, including Walmart. Utilizing blockchain technology to manage the supply chain of mangoes, Walmart was able to reduce the time required to trace a mango’s journey from tree to consumer from six days to two seconds.

With the banking epidemic and the need for transparency in the robustly regulated (but mostly volatile) cannabis industry, blockchain can serve a number of functions; from assisting with track and trace systems for inventory, to mechanizing quality assurance reviews and data, to assisting licensees with their day-to-day sales and money transactions and transmissions.

Indeed, in its pitch to the B.C. government on integrating commercial cannabis activity with blockchain technology, IBM contends that the use of blockchain technology will enhance visibility of activities and identification of where an asset or product is at any point in time, who owns it, and what condition or state it’s in. According to IBM, this will bring “a new level of visibility and control to regulators and provides assurance to the multitude of cautious stakeholders regarding the way the management of a cannabis supply chain is rolled out.”

Specifically, IBM claims blockchain can help governments take control of sourcing, selling and pricing of cannabis products, thereby reducing or eliminating illegal sales, assist cannabis producers with real-time inventory management, improve projections of supply and demand, and elicit trends of consumption through data analytics. And that, for retailers of cannabis, an interconnected blockchain network can assist them to identify supply and demand gaps and ways to mitigate those gaps, provide feedback mechanisms to cannabis producers, and use data to create predictive insights.

So far, proposals to implement blockchain in the US cannabis market all appear intertwined with cryptocurrency, which resides in a questionable legal space and has attracted the scrutiny of federal regulators (see here). As demonstrated by IBM, cryptocurrency is not necessary to harness the underlying blockchain technology; one does not need to transact in cryptocurrency or purchase tokens to utilize blockchain. See also The Hazy Future of BitCoin and Marijuana.

We predict that blockchain systems untethered to cryptocurrency will begin to emerge in regulated cannabis markets in the US, especially if the benefits described by IBM come to fruition. For now, we will wait and see whether B.C. takes IBM’s advice.

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