‘Will That Be Cash or Cryptocurrency?’—the Marijuana Business on Blockchains

LAS VEGAS, NV - JULY 01: A customer pays for cannabis products at Essence Vegas Cannabis Dispensary after the start of recreational marijuana sales began on July 1, 2017 in Las Vegas, Nevada. Nevada joins seven other states allowing recreational marijuana use and becomes the first of four states that voted to legalize recreational sales in November's election to allow dispensaries to sell cannabis for recreational use to anyone over 21. (Photo by Ethan Miller/Getty Images)

Even as states legalize, cash remains the main payment optio for weed. At Essence Vegas Cannabis Dispensary, a customer makes a buy after the start of recreational marijuana sales began on July 1, 2017 in Las Vegas. Ethan Miller/Getty Images

Bitcoin was the original cryptocurrency, the first money native to the internet. It facilitated anonymous online transactions better than anything ever had before, and criminals were the first to appreciate its potential, especially drug dealers.

Nick Bilton’s American Kingpin removes most of whatever doubt anyone might still have over whether or not Ross Ulbricht was really the Dread Pirate Roberts, founder of The Silk Road, the drugs and guns marketplace that users could only visit using the TOR browser. The first thing Ulbricht did to get the marketplace going was grow a bunch of psychedelic mushrooms to sell on the site, so that when customers went they would find something to buy. Other products would show up on there eventually, but the business was really built around drugs.

Two technologies were really essential for Silk Road: the TOR network and Bitcoin. Without a way to pay for the drugs over the internet, illicit sales would have to remain a primarily face-to-face business, so it’s no surprise that entrepreneurs inspired by Bitcoin would try to build businesses specifically for weed as the market for marijuana becomes more legal.

We took a look around and found several cryptocurrency and blockchain-powered products for the hazy purple future. Here’s what we found:

PotCoin

Pot Coin has aimed itself at the legal pot market. If a state permits a business to operate but the Feds still prohibit it, that makes banking challenging. If a business can’t get a bank, processing credit cards is impossible. Potheads are used to paying in cash, but more options are better. Until banks join the party, some dispensaries might like a cryptocurrency option for their customers.

Pot Coin claims that its supporters crowdfunded Dennis Rodman’s trip to North Korea, according to Buzzfeed, so add celebrity cred to its assets. The company did not immediately return a request for comment.

Market capitalization: $15.5 million.

DopeCoin

Dope Coin was built as a fork of Blackcoin, a cryptocurrency some have credited with proving that a blockchain could be secured without Bitcoin’s energy-intensive proof-of-work where giant server farms “mine” the currency by cracking huge codes. “The marijuana industry does not necessarily ‘need its own coin’ but there is certainly a place for it to be used by enthusiasts or retailers that might want to offer a unique kind of themed reward system or industry specific payment option for their customers,” Adam Howell, Dope Coin’s founder, wrote the Observer in an email. The project has been underway for about three years now.

Market capitalization: $3.3 million

Growing weed. Drew Angerer/Getty Images

The CHEX

We last wrote about the company in 2015, when it was building a blockchain based platform to track cannabis as it moved from the field to dispensary, called The CHEX. The site aims to be an exchange of weed-products, one that gives buyers confidence that the product they are purchasing really is the strain they wanted.

The company is in the middle of a token sale now that will run through October. It plans to use the new token to build other exchanges, using the digital coin as the standard of payment between buyers and sellers. For an exchange, an ICO offers an early benefit. If users buy in and start using the coin for business-to-business trades, the very act of using the coin could increase its value as they trade. The more people on the platform use it, the more the coin is worth, making nearly every purchase one that comes with a discount.

Paragon

It seems like it was only last October that the Observer was talking to model and alum of CBS’s Amazing Race, Jessica VerSteeg, about her Birchbox-for-cannabis-products startup, AuBox, because it was. Now, VerSteeg’s pushing an initial-coin-offering. Paragon will launch its token sale soon (tomorrow, according to its countdown clock). It’s closing its pre-sale now, requiring potential buyers to register ahead of time (like Filecoin did). Paragon seems to be an everything-under-the-sun strategy (PDF summary). Paragon will offer an unchangeable blockchain database to track the chain of custody, doctor’s prescriptions, lab tests for strains and whatever else cannabis businesses might need to record. It plans a network of coworking spaces. It’s an online community that will be empowered to back projects (presumably with the coin). And it’s a digital coin.

The company did not immediately return a request for comment.

A man smoking licensed medical pot in Berlin. Sean Gallup/Getty Images

Smoke Exchange

Smoke Exchange is a project of the Dope Coin team. In 15 days, according to its present countdown, an ICO will take place for the company. This will enable it to raise funds to build an ad network specifically for marijuana products on the web. The big display advertising networks won’t accept ads for companies in the weed industry. In many cases, this is true even if the company is 100 percent legal. The project gets kicked out because software finds the words “cannabis” or “marijuana” and rejects it. By creating an ad network just for weed, people with products to sell can buy ads without a middleman, save money and know where their ads will go.

Howell told the Observer in an email that it would bring on legal consultation after the crowdsale to help potential customers navigate where they can and can’t advertise, based on their location.

Tokken

Tokken aims to be a secure and completely legal mobile payment system for above-board marijuana purchases. Founded by Lamine Zarrad, who formerly worked for the Comptroller of the Currency, the mobile app verifies that a user has the legal right to buy weed or weed-based products. It checks all kinds of data points, including watch lists, then turns credit card payments into a digital token that a dispensary can accept. The dispensary can then convert the token back into dollars and, in theory, banks will be fine with this because they know Tokken goes out of its way to verify the transaction was legal.

Zarrad told CNBC that it doesn’t hold onto records about actual purchases, which protects privacy, but all transactions are logged for good on Tokken’s blockchain.

A pothead eager to buy at Denver’s Discrete Dispensary. Theo Stroomer/Getty Images

There’s some other coins out there, but they are so miniscule on exchanges at this point that they aren’t worth mentioning. In fact, none of these coins are significant cryptocurrencies. CoinCap shows 49 cryptocurrencies with market capitalizations over $100 million, as of this writing.  PotCoin currently ranks 140th.

Buzzfeed cited a director at the National Cannabis Industry Association that didn’t know any growers or sellers using PotCoin, the most prominent cannabis cryptocurrency. In fact, scanning the coverage of these projects over the last year or so, lots of reports talk about how the blockchain could be used by participants in this industry, but we have not found any that cite dispensaries or growers that actually are. Those interested in speculating on any of the ICOs above should take note.

In 2014, Verdict wrote a piece analyzing the legality of DopeCoin and PotCoin, and it’s probably largely still relevant to all these projects. From a Federal perspective, not much has changed. The feds could probably make life difficult for anyone it wanted to in this industry, but that’s not a course D.C. has taken yet, as far as anyone knows.

NOTE: All valuations from CoinCap.io.

‘Will That Be Cash or Cryptocurrency?’—the Marijuana Business on Blockchains