Economics

4 Challenges Crypto Solves For Cannabis

4 Challenges Crypto Solves for Cannabis Feature Image

Despite all its hoops and hurdles, cannabis has an advantage over other established industries: it can more easily adopt the most cutting-edge technology to position itself for the future. Cryptocurrency, or digital currencies like Bitcoin, are one of these tools.

What makes cryptocurrencies valuable is the underlying framework that supports them: blockchain. Blockchain is an algorithmic system of recording information. It is a digital ledger of transactions that is duplicated and distributed across an entire network. 

Big financial institutions and traditional supply chain companies already recognize the added efficiency and affordability blockchain offers. However, they cannot easily transition because of their archaic, monolithic, and centralized model. 

Cannabis is so nascent that it can implement blockchain and cryptocurrency to solve the industry's biggest financial and compliance challenges. 

Trust Issues Blockchain Solves

To understand how blockchain works, we need to look at the issues that exist in traditional banking.

Traditional banking is a paradox. We trust it and distrust it for the same reason: it is managed by a centralized institution entirely in charge of maintaining the system and protecting our money. That's a lot to ask of any central body, since whenever anything is centralized, corruption can occur. And since the 2008 financial crisis, there has been increasing distrust in banking institutions. 

Blockchain was designed out of this crisis. It solves the issue of centralization by decentralizing all transactions and making them accessible, transparent, and traceable. For example, the recent Colonial Pipeline ransom was partially recovered because the hackers demanded payment in cryptocurrency. 

While we could say blockchain eliminates the need for trust, a more positive way to phrase it is that blockchain increases confidence

Trust implies risk and vulnerability, whereas confidence rests on assurance from predictability. And while it is exceedingly difficult to ensure transparency in social or political institutions, this is easily accomplished in open-source software.

Blockchain increases confidence because it’s not about trust, it’s about verifying. It is the technology itself that is inherently "trustworthy," not those taking part in it. The algorithm is mathematically verified, and its integrity is maintained through the socioeconomics of game-theoretical mechanisms: it cannot be corrupted because that would ruin it for the corruptor. 

It's also important to note that Bitcoin is not the only cryptocurrency. There are thousands of coins, or tokens, many of which are more stable than Bitcoin. There are coins backed by the US dollar, gold, silver – even the arts, or cannabis. 

The Challenges Crypto Solves for Cannabis

Some of the most significant challenges facing the cannabis industry can be solved through blockchain technology, cryptocurrency, and software platforms like Ciclo. 

1. Banking  

Because cannabis companies cannot get traditional bank accounts, they must either deal in cash or find a Californian credit union that will work with them. Securing an account with a credit is time-consuming, expensive, and intrusive. Overall, the company will overpay for a poor-quality service.  

With blockchain, there is no need for a credit union. Companies can trade in the coin of their choice and enjoy significantly cheaper fees, faster transactions, and peace of mind knowing there is no central authority monitoring their every move. 

2. Fair Competition

Blockchain transactions allow companies to see true market prices. 

California is dealing with a major oversupply and price instability that has put many farmers out of business. It's difficult for them to compete because they can't see what their products or their competitors’ products sold for, or when they get paid. Blockchain technology can help solve this by showing all transactions that occur.

This transparency is available on software platforms like Ciclo. When all cultivators, distributors, and retailers participate, everyone can see when everyone has been paid and how much which products sold for, allowing prices to be adjusted accordingly. 

3. Paying Taxes

The government collects tax revenue from cannabis in two ways: cultivation taxes and excise (sales) taxes. All excise transactions are reported to the state from the retailer, but there is confusion around who is liable to pay the cultivation tax: cultivators or distributors? 

Legally, distributors are required to pay and report all cultivation taxes, but the cultivator needs to know the rate to calculate the expense out of their cut of the sale. 

With the Ciclo platform, we can calculate the cultivation tax based on weight and category and give the cultivators a breakdown. We then can track when all taxes have been paid. Cryptocurrency makes this all easier because of its digital traceability that everyone can see.

4. Proving Compliance 

Cannabis companies are required to report all their taxes to the government to stay in compliance. This can be accomplished much quicker and painlessly in cryptocurrency. Since it is already digital and in a convenient ledger, all transactions can be reported seamlessly, regardless of the coin.

The Future of Cannabis and Crypto

Technology solves problems creatively, giving companies more transparency, control, and ease while maintaining –and improving – compliance. 

There have been coins designed specifically for cannabis before, but they never took off because the concept was never proved to the market. Before the industry can make the switch, there must be real data and education around blockchain's design pattern to prove how cannabis companies can operate with more transparency and confidence through decentralization.