From Soil to Oil — How Blockchain Brings Supply Chain to the Cannabis Industry Helene Servillon Follow Jul 27, 2018 · Unlisted

In 2017, a study by the Colorado Department of Revenue revealed that marijuana shops in Colorado brought in a record $1.51 billion from the sale of concentrates, edibles, and marijuana. It’s clear that the cannabis industry is booming, but it’s far from perfect. One of the most significant issues has been around supply chain management, however, with the introduction of blockchain technologies the supply chain issues may soon be problems of the past.

Understanding Supply-Chain Management

Supply chain management describes the sequences and processes involved in the production and distribution of a commodity; this includes the network of all the technologies, resources, assets, individuals, and organizations involved. In the cannabis industry, the supply-chain management process involves parties such as growers, processors, manufacturers, transporters, distributors, retail sellers, and end-user support.

The Problem

Managing supply-chains means building and monitoring relationships to distribute goods; the supply-chain process can have hundreds of participants, numerous geographic locations, multiple invoices, and can extend over long periods of time. To add insult to injury, the supply-chain practices deployed in the cannabis industry are inefficient compared to other sectors.

The inefficiencies in the cannabis industry are due to a combination of extreme growth, sector fragmentation, and licensing regulation; when a state legalizes cannabis, suppliers who previously sold cannabis are expected to meet new, rigorous testing standards; according to Evio Labs Exec William Waldrop, only 5–10% of cannabis was actually being lab-tested prior to January 1st, 2018. Due to the new regulations, companies that work with unlicensed vendors are at serious risk. But accessing licenses has proven to be extremely difficult. In states like California, there are only 20 testing facilities that are legally licensed. Limited access and increased demand have bottlenecked the industry. As you can see, these are some problems that plague the cannabis industry; however, there is a potential solution present: blockchain technology.

The Blockchain

The blockchain is an immutable ledger which stores information across a network of personal computers. The decentralized, distributed, and immutable nature of the blockchain ensures transactions occur automatically, quickly and securely. More importantly, the blockchain is built for transparency and allows individuals in each portion of the supply chain to access and view the transaction history; this is vital for consumer transparency regarding the solvents and pesticides used in their products.

The blockchain is also a record-keeping technology that enables businesses to work more efficiently and securely; for that reason, many have called the blockchain a universal supply chain operating system.

How Blockchain Works

The Application of Blockchain

There are multiple ways that blockchain technologies can improve cannabis supply-chain management, however; a blockchain is especially applicable in these two industry processes: first, cultivators are interested in developing pre-sales where they can earmark a percentage of their harvest, locking in a certain price before the point-of-sale. The second is the introduction of 3rd party arbiters who can protect the transfer of funds between buyers and sellers.

Both of these processes can be solved by using a smart contract; smart contracts are self-executing contracts that have the terms of an agreement between a buyer and a seller coded into them. But it doesn’t end there. The blockchain has many use-cases; a blockchain can record the transfer of assets, track orders, assign verification of specific properties (this is critical when determining the quality of cannabis plants), link physical goods to serial numbers, and easily share information across a distribution network.

Some have said that blockchain and cannabis are a match made in heaven. Both industries are incredibly innovative, hold economic promise, and can impact the world. But when it comes to supply-chain management, the value blockchain provides to the cannabis supply chain is clear; improved scalability, security, transparency, and efficiency — what business wouldn’t want that?