On a crisp September day in 2016 I was seated at a restaurant bar in downtown Denver enjoying lunch. Two men were having beers and barbeque chicken next to me, sauce oozing from the sides of their mouth with each bite.

Long story short, they passed along business cards while inviting me to come visit the marijuana dispensary they owned a few blocks over sometime.

“Just mention that you work at a business in the area and our staff will give you 20% off of your first purchase,”the one blurted out in earshot of the bartender.

Funny thing is, I’ve never tried pot in my life. The smell of it, in fact, is a bit offensive to me. Nevertheless, as a staunch Libertarian I ascribe to the view that people should be free to do what they want as long as they are not harming or impeding on the rights of others.

I also happen to be a journalist always in search of hooks for my next news story. Frankly it’s no secret that random encounters with strangers at bars are always potential fodder for feature pieces.

So one afternoon a few weeks later I meandered into the dispensary to see what all of the fuss was about. This was at a time when the state was already in full bloom amid Colorado’s newly minted status as the marijuana hub of the U.S.

While touring the space, the owner kept harping about the biggest challenge facing his business, namely, that the federal prohibition on marijuana makes it illegal for his business to use a banking institution. “We are strictly as cash-only business,” he lamented while opening a door to one of the rooms at his location.

And that is when the magic began. Door ajar, the owner reaches to flick on the light switch. And to my amazement, I witnessed something that I’d never encountered before…

….a room full of cash from floor to ceiling.

“Yep,” said the owner, with a wry chuckle. “Cold, hard cash.”

He shared stories of how his business had spent tens of thousands of dollars for private security tasked with preventing robberies. And then there was the topper:

“Believe it or not, we’re having to make cash payments to the IRS because there’s no way to send them our money through the banking system,” he howled out in an exasperated manner while rolling his eyes.

A Movement In Full Acceleration

Groundbreaking marijuana legalization has now spread like wildfire to nearly a quarter of U.S. states. Yet bankers continue to defer to federal law when it comes to accounts for marijuana businesses.

In Colorado’s booming marijuana industry, stories abound of cash-only operations. Staff are often paid in cash. And even tax bills are handled by armored-car companies that carries greenbacks from dispensaries to the nearest Federal Reserve locale.

Recently, a bipartisan effort in Congress has sought to ease federal restrictions on cannabis, which President Trump is reportedly set to support. Among other proposed provisions are those which would give states greater latitude in creating their own marijuana laws, including those involving banking.

A Payment Solution for the Cannabis Industry?

At the epicenter of solutions in this space is Tokes Platform, a digital token and blockchain development project promising to deliver legally compliant supply chain and payment solutions for the cannabis industry. Based in Las Vegas, Tokes’ innovative advancement comes on the heels of the State of Nevada’s move to legalize recreational marijuana use in January 1, 2017.

Taxes for the first nine months of licensed dispensary, recreational weed sales generated $48.97 million worth of revenue, outpacing predictions for the state and placing it on a path capture the $50.32 million projected for this fiscal year ending June 30th.

I recently had a chance to interview Tokes CEO Michael Wagner along with his Co-Founder Gabriel Allred, PhD about their rapidly advancing solutions for the cannabis industry. What was so cool about our conversation was their ability to articulate a real world solution to a real world problem. This was a refreshing break from the many blockchain project founders I interview whose projects are based on nothing more than a slick website and esoteric white paper.

Here’s is what they had to share:

Let’s start with how the two of you met and came to collaborate on this project?

GA: Michael and I have actually known each other since high school. After having not talked for many years, we reconnected on a bicycle ride a few years back. He was a triathlete and I was a distance road biker. At the time, I had just started mining crypto and told Mike about it. So, here we are on this bike ride and the next day he shows up at my house with a six-pack of beer and asks me to explain [bitcoin] to him. From there we went head-first into this project.

How did you find this problem to solve?

GA: It all started with the two of us assessing some real world use cases where cryptocurrency and blockchain in general could actually cause some disruption or gain a foothold. That’s where the main problem facing the cannabis money, its un-bankability, came to light for us. We found that most of these dispensaries were dealing with massive cash reserves. Consumers that visit are generally buying with cash, either through money they brought with them or that was dispensed through an onsite ATM.

So the federal regulations around banking are the problem?

GA: Actually, we found that the problem is not the federal regulation, but rather the fact that there are compliance protocols at the banks that essentially prohibit them from issuing accounts. Of course, a few dispensaries find ways to get accounts under false pretenses and when they get shut down they’re forced to give up all of their money. So, transactions have to primarily occur in cash, on both the business and consumer end.

How did this inform your thinking?

GA: Believing that this whole thing can be tokenized, we set out to provide some software solutions where tokens can be utilized throughout this industry vertical — from the dispensary, to the cultivator, to the consumers. Through the use of a mobile application,consumers can obtain tokens with little friction via an exchange or through, say, a kiosk. That’s the progeny of Tokes and the solution we are trying to solve.

The fact that it’s a token, does that make it a bit easier for you in terms of the regulatory piece? In other words, it is technically it’s a token meant that it’s not technically cash money?

GA: We are still subject to some of the same regulatory requirement that any of these other payment processors and businesses are subject to. The underlying token itself is a form of transferring value. So we do benefit from the decentralized nature of blockchain and cryptocurrency in general in that the payment processors are the ones validating transactions on the Waves Platform where our blockchain, or rather, where our asset is listed.. All we’re doing is providing the underlying mechanisms that allows people to transact more seamlessly than had we otherwise not existed.

So are there KYC or AML requirements on your end?

GA: Intrinsically, no. However, we are making earnest efforts to comply anyway. We’ve had legal reviews, [and] we’ve had people say, well, you don’t really have to do this. However, part of our model is transparency, particularly within the regulatory environment. That is not to say we want to identify every consumer that is going into a dispensary and making a purchase. However, for dispensaries that’s utilizing our software within their vertical, we are going to have a compliance program in place that runs them through standard KYC & AML protocol.

MW: It’s also important to note that we are not looking to subvert any of the regulatory framework that exists today. We are just leveraging blockchain within that framework to provide a means for making payments. Our core philosophy, to Gabriel’s point, is transparency, and in being in good stead with general compliance requirements. Because we are procuring money transmitter licenses in the states where we operate, we require a certain degree of AML/KYC from the businesses we work with. But not at the consumer level.

And will you have an app for the actual consumer to use?

GA: Yes, it’s very close to release. One of the benefits of building and developing on top of the Waves blockchain is that we have access to all of the native applications and immediate functionality developed by their core team. So along with the Waves mobile app allows you to transact with folks, we decided to redevelop our own application with some unique features behind it.

Give me a hypothetical use case involving a consumer that goes into a dispensary and uses the app — a real layman’s description of what that experience will be like.

GA: I’ll give you two alternative experiences. The first is where a user through their mobile app loaded with Tokes, selects a product they’d like to purchase. The dispensary will use a specific piece of merchant software that’s essentially a point-of-sale system that natively accepts Tokes as the primary form of payment. So once the consumer makes their selection, the QR code can be scanned with the app finishing the transaction. Because our confirmation times on the Waves blockchain are typically less than a minute, they show up on the network instantaneously. It’s a very fast payment remittances.

And the second scenario?

GA: This involves a partnership in the works with a company called VaultLogic. What they do is provide bitcoin/crypto kiosk systems that are a bit more robust than your typical Bitcoin ATM device. Through this we will be building a frictionless point of sale software directly into the kiosk.That way the consumer to go and purchase Tokes with a debit or credit card through the kiosk, and then select their products on the screen.

So how are things progressing for Tokes in Nevada as the new marijuana legislation takes hold? And what about efforts in other states?

GA: First and foremost, we are largely focusing our efforts here on Las Vegas and broader Nevada. One of the reasons we haven’t branched out into these alternative opportunities are limitations in two regards. One is in manpower personnel. We are still a very small team so it is difficult to stretch ourselves into other different geographic locations.

Second is our commitment to ensuring that we’re working within the legal framework in these two emerging industries [Cryptocurrencies and Cannabis], both of which are evolving very rapidly. We are having to navigate the regulatory waters around cryptocurrencies — the utility token versus the security token versus what’s the use of it — alongside the regulatory requirements of the cannabis space. Because of this it’s often difficult to get all the appropriate licenses in each of the independent regions we want to operate in. With each state having different requirement to work with them, we simply don’t have the manpower as of yet to navigate it all.

Plus you probably have enough going on building a track record in Nevada before branching out?

GA: Exactly. We’ve got to be effective where we’re currently located and be able to demonstrate our success before building on top of that in these other areas.

And what sort of feedback are you hearing from the industry in terms of your proposed solution?

GA: Admittedly, there has been a bit of skepticism. Not towards us, but just towards cryptocurrency in general with it being so new out there. I think that while there is certainly positive press, there has been a lot of negative press around hacks, confiscation, and the general volatility of crypto as well. That ties back to one of our aims which is to eliminate all the underlying volatility risks of holding an asset like Tokes while at the same time boosting it accessibility for each of the merchants that partners with us.

MW: Generally, these guys [Dispensaries]are getting bombarded. It is no secret that the cannabis industry is trapped in this “cash only’ scenario, and it seems that everybody these days is coming out with some sort of proposed solution. So, you can tell that there is a little bit of wear and tear, general skepticism around cryptocurrency, but also some excitement. These dispensaries just want to know that it can be done right. That’s what we are driving towards.

Where do you hope to be with Tokes in the next twelve to eighteen months?

MW: We are progressing along two core business lines. With the point of sale software, certainly we would like to see and implement a few additional digital currencies. We think we could probably add something like one new currency per month, starting with Bitcoin before moving on to something like Ethereum, Litecoin, Ripple, or Dash. We want to target the mainstream digital currencies.

Also I would certainly like to see us with another five to ten dispensaries here in Las Vegas within the next eighteen months. I do think that the adoption curve is going to accelerate in a parabolic fashion. In other words once we can get a couple, that will allow for recommendations into other industries, allowing more and more to adopt us much quicker.