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Wednesday, June 12, 2024

Why does the cannabis industry need blockchain?

There is a huge demand but a lack of compliant transaction channels, which have certain medicinal/cosmetic or other economic value but lack relatively clear laws and regulations. To what extent has the cannabis industry been opened up? It is difficult for the government to ensure that compliant cannabis will not be abused in Contradictions such as the illegal market and the difficulty in taxing cannabis transactions are the main problems facing the cannabis industry in major countries around the world. In a 2017 report for British Columbia (BC), IBM stated that “blockchain [technology] is an ideal mechanism for BC to transparently capture the history of cannabis through the entire supply chain, ultimately ensuring consumer’s safety while exercising regulatory control from seed to sale.”

“They will find the marijuana grown in the fields of our fellow villagers, and they will go to pick flowers and bring them back to the hotel to dry and smoke it.”

Yang Ming, a researcher at the Yunnan Academy of Agricultural Sciences and a well-known cannabis expert, said this when talking about the scene when foreigners came to Yunnan to illegally seek and smoke cannabis at the beginning of China’s reform in the last century.

There are many “addicts” looking for this kind of hallucinogenic “forbidden fruit” like the above. According to the “World Drug Report” released by the United Nations in 2017, at least 238 million people around the world smoke marijuana. Considering the report was published 2 years ago, today’s cannabis addicts are a much larger audience.

There is a huge demand but a lack of compliant transaction channels, which have certain medicinal/cosmetic or other economic value but lack relatively clear laws and regulations. To what extent has the cannabis industry been opened up? It is difficult for the government to ensure that compliant cannabis will not be abused in Contradictions such as the illegal market and the difficulty in taxing cannabis transactions are the main problems facing the cannabis industry in major countries around the world.

Accompanying this is the status quo of the gradual legalization of the cannabis industry represented by North America and Europe. Even in China, the cultivation of certain types of cannabis has loosened its policies. At the same time, IBM is represented by many Enterprises that are eager to try and try to help the compliance and scale of the cannabis industry with the open and traceable technical characteristics of the blockchain.

Summary of main concepts

Marijuana is a concept that has long been “stigmatized” and is largely misunderstood and dissatisfied by the public. Hemp (Cannabis) is a family of plants, just as there are many classifications of cats, tigers, and leopards under the feline family, the former contains Hemp (usually referred to as industrial hemp, used for textiles or other industrial products) and Marijuana (usually refers to smokable marijuana, generally divided into medical (medical) and recreational (recreational) two purposes), they can further produce 80 kinds of biologically active compounds [1], Hemp has been removed from the United States as a controlled substance (controlled substances) substance) list.

Two concepts common to many extracts/compounds are Cannabidiol (CBD) and Tetrahydrocannabinol (THC). There is no scientific conclusion about the impact of the former on the human body, but it is often used as an oil, spray and balm to treat insomnia, acne, and even diseases such as diabetes and multiple sclerosis;

The latter is a substance in cannabis that can change a person’s mental state. Generally speaking, if the THC concentration is less than 0.3%, the related cannabis will be considered compliant (for example, the US Farm Bill 2018 (Farm Bill 2018) Cannabis with a THC concentration of less than 0.3% is no longer listed as a controlled substance).

A more friendly compliance environment

Currently, cannabis is in a certain state in most parts of the world due to the control of the United Nations Single Convention. Although it is illegal to a certain extent, dozens of countries have given a green light to cannabis to some extent. Compared with the period when the above-mentioned convention was concluded, the current situation of cannabis supervision has been greatly slowed down and become more loose.

Uruguay and Canada are currently the only sovereign countries in the world that have fully legalized the trading of recreational marijuana nationwide. For medical marijuana, Argentina, Australia, Canada, Chile, Germany, Greece, Italy, New Zealand, Switzerland, etc. Twenty-two countries allow it to be legalized; in terms of recreational marijuana, Spain and the Netherlands have legalized its consumption to some extent; while some countries allow the legal use of cannabis derivatives such as Sative, Marinol, and Epidiolex.

In the United States, the “consumption beacon” of global marijuana, including Washington, D.C., 11 states and 2 overseas territories have given recreational marijuana legalization status, and 15 states and 1 overseas territory have given recreational marijuana decriminalization status 33 states, 4 overseas territories, and Washington, D.C. have legalized medical marijuana, but no matter what purpose marijuana is used for, it remains illegal at the federal level. As of July, 98.6 percent of the U.S. population lived in states that have legalized marijuana to some extent, according to New Frontier.

In terms of industrial hemp, after the “Farm Bill” passed in the United States in 2018 removed Hemp from the list of controlled substances, the demand for related licenses has grown very strongly:

The regulation of cannabis is a complex act, which usually involves joint enforcement by multiple departments. Taking the regulation of marijuana at the federal level in the United States as an example, it usually involves the following three departments: the Federal Drug Enforcement Administration (DEA), the Department of Agriculture (DoA) and the US Food and Drug Administration. 

The DEA, which issues registrations for the cultivation and processing of marijuana for medical research purposes, is working on a plan to regulate marijuana, according to the New York Times, while the FDA. Responsible for regulating derivative medicines from Marijuana, it also has the power to take enforcement action against companies that sell food or dietary supplements containing CBD or THC. However, the current FDA. Such enforcement activities have been rare, unless some companies exaggerate their products, claiming, for example, that they can cure conditions such as cancer and Alzheimer’s.

The regional friendly regulatory environment of the cannabis industry is inseparable from the promotion of relevant companies and associations. Just like other companies in the firearms, pharmaceuticals, and IT industries, companies in the cannabis industry also vigorously form their lobbying groups. The most well-known is the National Cannabis Roundtable, which conducts cannabis-related projects in 23 states and Washington, D.C., including growers, processors, retailers, health centres, investors, and businesses It is the leader of the organization, John. Boehner, a former speaker of the U.S. House of Representatives, clearly knows the Washington process.

Pivot into the booming cannabis industry

With the continuous enhancement of compliance in the cannabis industry driven by various forces, it is the rapid expansion of its scale. According to estimates by AheadIntel, a research think tank on data and patents, the global market for cannabis in 2018 is estimated to be $14.5 billion, and by 2025, this value will reach $107.67 billion, with a compound annual growth rate of 33.17%.

The North American market is the absolute hegemon in this field. In 2018, its market size was 13.3 billion US dollars. The second place is the European market, whose market size is 600 million US dollars, followed by the South American market. The market size of US$530 million was the third-largest in the world in the same year. During the same period, the market size of the rest of the world totalled USD 240 million. With a seven-year CAGR of 26.92%, the North American market is expected to continue to dominate the global market and reach a size of US$69.68 billion in 2025.

From the perspective of research activities, the academic community has also made great progress in cannabis technology in recent years. Cannabis patent activity grew at a CAGR of 21.8% between 2010 and 2016. From a regional perspective, China leads the world with a share of about 44%, and the United States ranks second with a share of 33%. Japan and Canada have become potential major markets in this field, with the former with 1,791 patent applications and the latter with 1,434 patent applications. South Korea, India, Mexico and other places are also expected to perform well in the future.

The Dilemma of the Cannabis Industry and the Magical Uses of Blockchain

Although the situation is good, it needs to be pointed out that there are still many problems in the cannabis industry, mainly in the lack of transparency and the difficulty in controlling the flow of legal cannabis, the difficulty of collecting taxes in full, and the lack of bank support. This is exactly what blockchain can do. place.

Although the governments of many countries are currently working to promote the legalization of marijuana, several problems that are even troublesome for the government are:

Personal overconsumption, overuse. Even in states that have legalized marijuana, there are clear limits on how much can be purchased. In most states, customers can purchase 1-2 ounces of marijuana, and 0-6 cannabis plants and Oregon allows customers to purchase up to 8 ounces of marijuana. Also, in the vast majority of states, those with a driving ability or certain problems cannot have a blood level of marijuana higher than 5ng/ml.

The rules are clear and the quantification is clear, but the reality is that most customers cannot be effectively limited in their purchases – either because people are reluctant to use their ID information to buy cannabis, or because governments (like Canada) don’t use ID tracking at all system. This can easily make all kinds of regulations useless.

Cannabis flows illegally across borders and is difficult to be sufficiently transparent. Theoretically speaking, marijuana can only be sold in compliant areas, and the current state of the United States’ existing federally illegal and partially legal marijuana industry at the local level has resulted in a large number of illegal “cross-border flows” of marijuana.

POLITO Magzine pointed out that Oregon, where marijuana is already completely legal, has a marijuana production capacity that exceeds its own state’s consumption capacity by 3 times. During the same period, in’s neighbour state Idaho (Idaho), when marijuana is completely illegal, the consumption of the state’s residents A sharp increase by 665%;

At the same time, according to statistics from Havocscope, a global black market information media, the size of the illegal cannabis market is as high as $141.8 billion, and a single cannabis plant circulating on the black market can generate $2,200 in revenue.

Taxation is not precise enough. As long as marijuana is purchased in a legal area, the customer or merchant must pay certain taxes. In Massachusetts, cannabis buyers face an additional 10.75% sales tax; in Nevada, a total of 25% sales and excise tax on a single cannabis transaction; in Colorado, cannabis transactions involve a wide variety of taxes, up to five.

These taxes will increase local revenue, such as Colorado’s 2017 marijuana tax revenue of more than $1.1 billion, California’s more than $2.7 billion, and Washington state’s nearly $1 billion. However, the collection of these taxes is difficult to be precise, which often leads to a loss of both government tax revenue and tax rebates. For example, the California Department of Food and Agriculture estimates that only 2.5 million pounds of the 13.5 million pounds of hemp produced in 2016 were legally consumed in California. Tax rebates due have also fallen sharply.

Faced with these headaches for the government, many blockchain companies have tried to use their powers. For example, a company called Greenstream Technologies, which focuses on improving transparency in the cannabis supply chain, launched a blockchain-based platform for the Canadian cannabis industry last year.

Greenstream said its cannabis platform “seamlessly ensures the integrity of supply chain data, includes a cost-effective legal payment gateway for value exchange and includes an identity verification system.”

Ideally, Canada and other marijuana regulators would be able to observe marijuana transactions as events occurred. It “will enable real-time oversight of the entire cannabis supply chain – capturing the full history of permanent transactions on the platform of anyone with the right to see it.”

Since blockchain is a trust-based system and cannot change entries in a distributed database, it can provide a more reliable and transparent method of tracking the production and distribution of jars. It can also help governments maintain and improve quality control. 

In a 2017 report for British Columbia (BC), IBM stated that “blockchain [technology] is an ideal mechanism for BC to transparently capture the history of cannabis through the entire supply chain, ultimately ensuring consumer’s safety while exercising regulatory control from seed to sale.”

Companies like Greenstream include Budbo, known as the “Tinder” of the cannabis world, which is also working to use blockchain to increase supply chain transparency for its users; BlockMedx, which is working to track drug use via blockchain, to avoid opioid abuse, and the same functionality is expected to extend to the cannabis industry.

If it is said that for the government, building a transparent and verifiable supply chain system through blockchain is the greatest value, then for upstream and downstream merchants and capital in the cannabis industry, issuing digital currency through the blockchain can obtain financial Support addresses the imperatives of these subjects.

Still taking the United States as an example, although marijuana has been legalized to some extent in most regions, the industry is still unavoidable due to the regulation of federal laws. This makes it impossible for marijuana businesses to start a 401(k) and get insurance for their employees; it is also difficult for marijuana businesses to obtain federal bankruptcy protection; marijuana businesses may need to bank with a lot of cash – Because they have difficulty getting bank support, the Boston Globe pointed out that opening a cannabis-related bank account in Massachusetts requires a monthly fee of up to $5,500, and the annual fee for a general bank account is only $20-30. Although Congress is currently committed to establishing a “safe harbour” for federal banking regulators in states that legalize marijuana, making it easier for marijuana businesses in compliant areas to obtain bank support, the proposal has also been approved by the House Financial Services Committee. Passed, but there are still fewer cannabis businesses that can get bank backing.

In this situation, some cryptocurrencies came into being, such as Potcoin. These cryptocurrencies can help cannabis companies complete various business capital needs without opening a bank account with a handling fee of less than 1%, and also support pledge profits. Similar concepts include Paragon, HempCoin, Dogecoin, Tokes and other cryptocurrencies, but they all have the problems of low overall market value and weak irreplaceability.

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