Speakers: Cannabis and Blockchain Can Work Together

Chris Gaetano
Published Date:
Dec 11, 2018

The cannabis industry is subject to many more regulations than others, all of which require monitoring and disclosures. Compliance can be a difficult and time-consuming task, but a pair of speakers at the Foundation for Accounting Education's Cannabis Industry Conference on Dec. 11 said that blockchain—the technology undergirding digital currencies such as bitcoin—can make the process much easier for these businesses. 

Derek Abdekalimi and Nicholas Shook, the founders of the firm Cannaledger, said that as more states adopt legal cannabis, their governments have been eager to track and regulate the products to ensure that they cannot be used for criminal purposes or sold to minors. This, said Abdekalimi, has been a mixed blessing. On the one hand, he's happy that states are coming around to recognize the need to legalize and regulate cannabis. On the other, he's wary of states collecting data from cannabis businesses in one centralized location. He said this is where blockchain can help. 

Blockchain is a technology that enables the creation of distributed databases that are very difficult to tamper with or alter. Shook compared it to getting a document notarized. While typically associated with digital currencies such as bitcoin, Shook said that it could do so much more. 

"We want to use blockchain to decentralize the information. We don't want the state to store it all but, collectively, we can store it all," he said. Why? "First, state systems in the past have been hacked before... Second, [there are concerns about the] interoperability between various government frameworks." 

Shook said that, with blockchain, the industry could demonstrate that it's capable of self-regulation. The speakers' firm, Cannaledger, is meant to demonstrate how exactly this can happen. Abdekalimi said that the company, which currently counts three dispensaries and one grow operation among its clients, does seed-to-pipe tracking. 

"We're covering everything, and you'll know as a consumer, or as the government, or as a dispensary, where that plant came from, the quality of it, everything like that. You'll know you're getting something really good and know it will be 25 percent THC and 15 percent CBD because of the software," he said. 

Shook said that a lot of these steps are already required by law, but the software makes it easier because it can automate the tracking process. 

However the pair predicted an even wider application as the industry matures. Shook said, for example, that marijuana needs to be stored at a certain temperature and, indeed, certain states mandate certain storage temperatures. A program linked to a sensor on one end and a blockchain on the other could read the temperature in a room and record it on the blockchain each day automatically. Through doing this, the entity would have direct documentation that it has been complying with temperature control regulations. 

One area the pair do not see themselves expanding into, despite their involvement with blockchain, is cryptocurrency. Abdekalimi pointed to a cannabis crypticurrency called Paragon, which was believed to be exactly what the industry needed when it first came out. Since then, he said, it has gone from being worth $100 million to, now, almost nothing. Beyond the volatility, though, he also said that a cryptocurrency token just didn't fit into their business model. 

"Our system does not have a currency involved. A lot of enterprises will use tokens for use of that software. I think that adds too many steps, and I think it's not what we're trying to do," he said. 

Shook said that, right now, their company is focused mostly on compliance efforts. As time goes on and it adds more clients, however, he said they plan to build out data systems on blockchain. Abdekalimi also stressed, however, that the blockchain world needs to more fully disassociate from its more unsavory elements before businesses can fully support the technology. 

"[Blockchain] doesn't necessarily have to do with money. It's just a really cool system for storing and securing data... I think we need to move it from that money laundering drug trafficking stuff and, I also think, some of those scammy [initial coin offerings]. Many of those types of things need to be destroyed so the good products can be there," he said. 

Click here to see more of the latest news from the NYSSCPA.