Crypto and Weed: How is the legislation of Cannabis world wide having an effect on Marijuana Based Crypto Assets. What’s Nouvive’s and Nouvive Intelligence’s favourite picks of Weed Coins?
It is no secret that the legalisation of cannabis, particularly in North America, has had wide-reaching implications on the substance’s production, sale and consumption. What many may not have concluded is that cannabis legalisation has created an environment where adoption of blockchain technology is becoming increasingly necessary with each passing day.
In a joint review of the cannabis industry, Arcview Market Research and BDS Analytics found that 2017 saw the first 5B USD cannabis company. This was the Canadian-licensed Canopy Growth, which posted a 54M USD cannabis revenue that year. Given the recent boom in the cannabis industry, it is no surprise that one of the earliest and largest investors in Canopy Growth was the alcohol giant Constellation Brands, which invested 190M USD in the company for a 10% stake.
During 2013 in the USA, cannabis was a medical-only industry and as such remained under a 3B USD market capitalisation. Today, the situation is much different, with over 59M US adults having improved access either through voter initiative or legislative action. The USA remains the epicentre of the legal cannabis industry. Globally, in 2017, the legal cannabis industry grew by 37% and was worth more than 9.5B USD. Of this figure, the US accounted for more than 90% of the market; generating a revenue of 8.5B USD. It is projected that by 2022, the USA’s legal revenue will reach 23.4B. This would amount to 73% of the global market. As such, the USA remains at the forefront and the prime focus of analysis on the legal cannabis industry.
Divergence between State and Federal Policy
The USA is an interesting case-study as they operate a dualistic system of governance. States within the country have their own legislature and as such enact their own laws, however they remain accountable and inter-linked with a wider, centralised federal system of governance. While many states have gone on to legalise cannabis, either medically or increasingly recreationally, appallingly, cannabis remains a Schedule 1 drug under federal law. The Schedule 1 classification of a drug is the most serious there is in the US and relates to those drugs which present no medical value and a high potential for use. As a result, many cannabis businesses which are legal on a state-level have to deal with the implications of being illegal on the federal level.
The divergence between state and federal legality of cannabis businesses has created some unfortunate externalities. The prime issue is that banks refuse access to cannabis businesses. Even in Colorado, once of the first state’s to fully legalise cannabis, the Colorado Banking Association reports that there are no banks it is aware of that deal with cannabis businesses. This creates an environment where cannabis businesses must act as cash-only enterprises. This is problematic because large transactions, such as bill and tax payments and investments, require the transportation of large amounts of cash. Additionally, retail units become targets of robberies as it becomes common knowledge that they are cash-heavy. Mike Elliot, the executive director of the Marijuana Industry Group, highlighted this in 2017, sharing that the exclusion of cannabis businesses from the banking system creates an environment for armed robberies and endangers public safety. Another issue arising from a lack of banking, in addition to endangering public safety and inefficient transactions, includes a lack of access to financing. This can make the cannabis industry highly exclusionary and prevents entrepreneurial diversity.
The second primary issue created by the illegality of cannabis on the federal level is that state-legal cannabis businesses have to pay an extraordinarily high rate of taxation, sometimes up to 90%. This is because of the historic Section 280E of the US tax code; created to tackle illegal drug dealers claiming tax deductions for business expenses. In an unfair interpretation, state-legal cannabis businesses are taxed on their basic expenses, including rent, employee salaries and utility bills. Other businesses are allowed to deduct these expenses. The issue here is that these costs are then transferred on to consumers. In an environment where efforts are being made to curb illegal drug trade, soaring prices from unfairly applied federal tax laws may push consumers back to the black market. It seems that federal policy seeks to invalidate many of the state-level initiatives taken either by voters or the legislature.
Finally, an underlying issue within the cannabis industry is quality control. While many states have enacted enhanced supply chain tracking mechanisms and strict quality standards to prevent the sale of low-quality product, some have not. California remains a prime example where there exists no state-mandated quality control of cannabis produce. As cannabis businesses make efforts to produce higher-quality and ethical produce, there is a growing need for trustworthy tracking and quality control mechanisms.
Cryptocurrencies are seeking to alleviate the issues facing the cannabis industry today – particularly transactional transparency, safety and efficiency, and reliable quality control and tracking mechanisms.
Launched in 2014, POT is one of the earliest cannabis coins, and sought to capitalise on Colorado’s cannabis legalisation, going on to install a PotCoin ATM as a dispensary in the state. POT remained an underdog until June 2017, when the NBA star Dennis Rodman sported one of the project’s shirts while in North Korea. By funding Rodman’s trip, POT re-entered the spotlight and shot up 76% in just one day. Its current market cap is 4.7M USD from its 81K USD in February 2014 and is currently trading at just 0.02 USD. With a limited supply of 420M coins and its transition to Proof of Stake, investors can earn up to 5% annual returns on their staked POT. PotCoin focuses primarily on transactional efficiency, with reports of 40 second transaction speeds, and provides a banking alternative to legal cannabis businesses.
While many projects have focused on the transactional element of the legal cannabis industry, PRG takes this a step further. Successfully launching its initial platform and functionality in late 2017, Paragon is progressing towards a full-release in 2018. Significantly, Paragon is developing a seed-to-sale tracking mechanism for cannabis products. This data will allow users and government agencies to verify the life cycle of a product at no cost, with Paragon’s blockchain ensuring the immutability of these records. Paragon’s solutions are based out of Smart Contracts, and PRG is also launching Paragon Spaces – co-working office solutions where cannabis industry members can purchase office space through PRG. With a market cap of 4.4M USD and trading at 0.06 USD, Paragon may grow to be one of the most widely used cannabis coins should industry adoption follow.
Having raised over 6M USD in its 2018 ICO, ATF is a Russian blockchain project developing a product utilising aeroponics in a smart appliance for organically growing cannabis. The aim is to provide a chemical-free, environment-friendly, industrial-scale cannabis grow set-up. The smart appliance is completely automated in order to minimise resources used whilst maximising yield. ATF is the only cannabis coin dealing with production and may be a worthy option for anyone wishing to diversify their cannabis coin holdings. The project helps eliminate the need for transporting and farming produce, the two main contributors to global warming, and has tested growth of a variety of fruits and vegetables. The ATF industrial can house up to 100 plants and may prove to be an industry-level solution as the token begins to be listed on cryptocurrency exchanges.
View to the Future
As the legal cannabis industry continues to grow, there is an emerging need for reliable transactional, banking and tracking mechanisms. Blockchain technology is poised for adoption and could help alleviate many of the issues plaguing the cannabis industry. Ultimately, industry adoption remains essential and projects working with dispensaries to garner this adoption may prove most lucrative. For now, POT, PRG and ATF remain worthy contenders for anyone looking to create a diversified cannabis coin investment portfolio.
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