We have previously discussed blockchain technology and the effect it can have on the cannabis industry here and here. This post serves as a more detailed analysis of how blockchain can and may disrupt the tracking of cannabis from seed to sale, specifically within the new California adult use market.
Currently, cannabis businesses are spending significant amounts of money to implement track and trace systems compatible with Franwell’s Metrc. Metrc is a government-designed software that many states have elected to use, including California, that allows regulators to ensure that cannabis products are not being diverted to illegal markets. Cannabis products are given a radio frequency identification (“RFID”) tag, which licensees along the supply chain must input into their systems. This allows regulators to track the chain of custody of marijuana products. Under this system, however, licensees and regulators spend significant time ensuring compliant transfers.
Enter blockchain. In its simplest form, blockchain is a dispersed ledger. Transactions, or “blocks,” are added in a linear fashion, or “chain”, after they have been verified by other members of the blockchain as valid. All transactions on the chain are trackable to the initial entry. A blockchain platform can have various levels of supply chain information gathering, such as record keeping, tracking, assigning verifications, linking products together and sharing information.
Using blockchain technology, cultivators can input details about each crop: e.g., the date the flower was harvested, pesticide levels throughout the growth cycle, and information about cross-pollinated plants. The data can be stored and verified via blockchain, and instantaneously shared with all parties on the blockchain platform. These parties can be other members of the cultivation team, cultivators in different facilities, potential retailers or producers, and even end-use consumers. This data will travel with the flower from seed to sale.
When the product is ready for pick-up from a grow site, the blockchain platform can verify that a distributor is licensed. Implementing blockchain can therefore prevent unlicensed distributors with fabricated paperwork from stealing goods. The platform will also maintain all records of a transaction or series of transactions: e.g. shipping manifests, receipts, purchase orders, lab results, etc. Blockchain can also help ensure that products are being properly labeled. When a label is created, a photograph or file of the label can be uploaded to the blockchain. Members of the blockchain can verify that the label is correct before it reaches the product.
Because all information recorded in blockchain is verifiable by other members on the platform, blockchain will remove the need for tedious paperwork at each step in the supply chain. Cannabis will be able to move freely from licensee to licensee without any added hassle. Regulators will gain a streamlined audit tool, and customers will be able to ensure that they are only getting the best and safest products. Ultimately, blockchain can improve the overall integrity of the track and trace system, and minimize the time it takes for the product to get from seed to sale.
The million dollar question with all of this is whether and when blockchain will burst through and finally become mainstream enough for adoption by a state regulatory body, like California in the case of cannabis. There are a range of opinions on the inevitability and timing of blockchain (for just a few of the many examples, see here, here and here). In our view, blockchain and cannabis are a perfect marriage of emerging trends. We will continue to partner with individuals and businesses interested in this technology, and we foresee a bright future for blockchain and cannabis once the implementation and educational hurdles are cleared. Hopefully, that happens in a few years at most. In the meantime, California businesses and regulators will have to muddle along with Franwell’s Metrc product.