In the past, the cannabis industry was forced to operate underground. Based on back-alley deals and burner-phone hook-ups, the industry

In the past, the cannabis industry was forced to operate underground. Based on back-alley deals and burner-phone hook-ups, the industry was portrayed by governments as disreputable or shady.

With the advent of legalization, those stereotypes are beginning to be dispelled—but there’s still some way to go.

Vancouver-based company Cannabium believes that cannabis transactions should be made more transparent. To do that, it’s aiming to be the first to use blockchain technology to buy, trade, and own cannabidiol (CBD).

Cannabium has created its own cryptocurrency or token, named after the company. The token allows users to purchase CBD extracts produced by its partner, ONE Columbia, a licenced grower located in South America. Currently, Cannabium is selling those tokens to investors and the public in an event called an ICO, or Initial Coin Offering.

According to the company, buyers can use the tokens to redeem their products at below-market value. In its whitepaper—the document that sets out the objectives of the ICO—Cannabium suggests the face price of a token will be US$0.08 or less for 10 milligrams of 99 percent pure CBD, which amounts to a discount of over 50 percent from the current European wholesale price.

The company argues that its prices are lower because it can drop its overhead costs. Rather than having humans deal with orders, Cannabium will use “smart contracts” for its transactions: a way to exchange money and goods without a middleman.

Smart contracts cannot be tampered with. Written onto the blockchain (a database copied onto multiple computers), they exist in many different places all over the world and require a consensus to execute—meaning that if the terms of the contract look different on one machine, it won’t impact the veracity of the agreement. Because the blockchain database is transparent, anybody can view the smart contract, and everyone can be sure that it is correct. As a result, the contract can execute itself automatically, without requiring a central party to validate it. Cannabium hopes this will make the process of buying CBD more visible and legitimate.

The company’s largest selling point is that the value of its token is tied to the price of CBD. Cryptocurrencies like Bitcoin have come under fire for their wild volatility. By correlating the value of their token with a physical product, the company hopes its currency will be more stable.

‘In Cannabium one of our goals is to demonstrate how ICOs can aid in creating win-win-win situations where investors, entrepreneurs, farmers, and consumers can benefit,” says Nachshol Cohen, co-founder of the company. “Cannabium is one of those unique cases where the blockchain community has a chance to explore and demonstrate how it can fuel change in real life in a very short time and in a very clear way.’

While Cannabium lets cannabis and cryptocurrency enthusiasts support the purchase of CBD on the blockchain—an important landmark for both industries—the whitepaper flags some potential risks.

The facility in Colombia, for instance, has not yet been completed, with construction scheduled to finish in September 2018. The document notes that there is a chance that the building could be delayed, and CBD orders could not be fulfilled.

Despite being tied to the value of CBD, the cannabis extract, too, has a volatile value. The price fluctuates according to demand, which is dependent on legalization. If the global trend of legalizing CBD is reversed, it would negatively impact the value and marketability of the Cannabium token.

Lawmakers are currently scrambling to regulate ICOs, and there has been past controversy over the legalities of cyptocurrencies. Tokens typically fall into two categories: a utility, or a security. Utility tokens represent future access to a company’s product or service. They are not designed as investments, but rather as digital coupons. Security tokens take their value from being an external, tradable asset. The Cannabium whitepaper notes that no regulating authority has examined or approved the information set out in the document, and that that there are no guarantees that such action has been or will be taken. The B.C. Securities Commission last month warned investors to exercise caution with regard to cryptocurrency offerings.

Follow Kate Wilson on Twitter @KateWilsonSays