Blockchain's Ability to Take Cannabis to New Highs
Navigating Regulatory Challenges and Unlocking New Economic Potential
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Topics Covered
Intertwined growth trajectories of the crypto and cannabis industries
Difficulties in acquiring financial services for cannabis businesses
Enhancing product trust with blockchain technology
Leveraging blockchain technology to create new customer experiences
Quick Notes✍️
Both cannabis and crypto industries are expanding quickly and facing regulatory challenges in the U.S.
With this in mind, the industries that are emerging but show much promise have the opportunity to build together.
The cannabis sector in particular is also primed for massive growth, just like crypto.
Thus, it should be beneficial for owners in the cannabis space to leverage blockchain technologies.
Cryptocurrencies are not only a way to reduce operational friction and enhance user experiences in the cannabis industry.
But they present opportunities for secure capital, community incentives, and maintaining product quality.
This benefits cannabis brands in a multitude of ways.
The potential for unique brand engagements is enabled which creates customer loyalty.
Trustless capital acquisition enables necessary capital to scale while not being solely reliant on cash payments.
Thus, cannabis companies can explore this route instead of being handcuffed by traditional means.
If adopted, this is revolutionary use for business owners in the cannabis industry.
Full Analysis📝
Unlikely Allies Fueling a High-Growth Future Economy
One of the most interesting things that CryptoJeter has been following is real-world use cases.
The crypto and cannabis industries are two of the fastest-growing economic spaces.
They are both fighting regulatory issues, which makes it very difficult to operate in the US.
While they may seem like an unlikely pairing,
Crypto and cannabis have a future for the economy together.
The cannabis industry in particular is expected to have rapid growth.
In 2021, the sector reported $25 billion in sales and 428,000 jobs supported.
Additionally, by 2028, specialists predict this industry to reach $102.90 billion.
For cannabis business owners and users, crypto may be a solution to not only reduce friction,
But also create amazing user experiences that cater to a budding audience.
Embracing crypto technologies presents an opportunity for cannabis companies to establish safe capital, incentivize communities, and ensure high product quality.
US Cannabis Businesses Face Payment Challenges and Regulatory Hurdles
Managing payments for US cannabis businesses is challenging.
US cannabis businesses struggle to acquire financial services because of regulations.
Earlier this year, Mastercard advised payment processors to not accept debit payments.
The hesitancy of financial institutions to service cannabis brands drives industry cash reliance.
Thus, it’s difficult for cannabis brands to acquire capital that could scale the business.
Cannabis entrepreneurs looking for capital generally need to look in the private markets.
But, these types of transactions may involve giving up equity in businesses.
Decentralized Finance (DeFi) presents the opportunity to these businesses to receive loans.
By embracing this type of technology, cannabis companies can not only acquire the capital needed to scale
But also receive it in a trustless environment without intermediaries.
Thus, cannabis businesses educate themselves on these options for fundraising.
CryptoJeter caught up with Xavier Spencer, a cannabis industry consultant and operator about this.
He said,
“In my experience, the concept of raising capital through cryptocurrency in the Cannabis industry is not a common route to go. Usually, we see more traditional funding products through private capital. As a huge proponent of decentralized finance, I would love to see this route become more common. As the technology is still new, many start-ups focused on cannabis/blockchain have struggled to scale among operators. I think this could potentially be attributed to the continuous headwinds cannabis operators face in the pursuit of being cash flow positive and operators focusing their efforts on doubling down on operations rather than investing in new technology.”
It seems like Xavier has conviction in streamlining the funding process to scale cannabis businesses through DeFi.
From a product quality standpoint, traceability ensures that products are consistent.
Additionally, many states require cannabis track and trace systems.
These systems are mandatory for cannabis brands to fulfill their compliance requirements.
One track and trace system that most states require vendors to use is METRC.
But a blockchain solution may be better for cannabis companies long term.
Thus, cannabis companies have to ensure they use the right tools to comply.
As far as rewards programs go, certain dispensaries are not only offering discounted products
But also free merchandise.
However, what’s important is that the rewards programs that have frictionless sign-ups.
Thus, loyalty programs that are conducted well drive customer retention and appreciation.
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Smart Contracts Enhance Product Trust, Streamline Compliance, and Seamlessly Connect Brands with Consumers
Smart contracts automate workflow and verification processes.
This is enabled by verifying the entire supply chain of cannabis products on-chain.
By leveraging blockchain technology, customers can see the quality of the product.
Customer ability to understand the product they are getting builds consumer trust
Thus, it is a tool to build loyalty with consumers and build credibility in a market with a stigma.
Cannabis brands also need to develop trust with regulators.
By implementing blockchain technology, compliance rules can be automated in smart contracts.
The cannabis industry struggles with varying regulations across jurisdictions.
Thus, smart contracts will allow cannabis brands to easily address these regulatory discrepancies.
Additionally, cannabis brands will also leverage web3 to create loyalty rewards programs.
In Polygon - Shaping the Future of Web3, we dove into brands like Starbucks merging into web3 for these types of experiences.
Like Starbucks, cannabis brands have communities.
But these communities are unique as they represent a culture.
Thus, Cannabis brands’ unique audience can be enriched through new experiences.
Cannabis consumers can benefit from tokenization and NFTs which bring them rewards.
But brands benefit from this as they can gain individualized consumer insights.
Thus, consumers and cannabis brands are better linked in the purchase journey.
Builders are Focusing on Smart Contracts for Authenticity and Community Assembly
With regard to product trust, we are starting to see the use of smart contracts for authenticity.
Mendocino Clone Company, Global Compliance, and the EMTRI project are three companies leveraging this technology.
These entities are leveraging smart contracts to not only authenticate cannabis plants,
But streamline the supply chain and ensure product authenticity.
That isn’t all.
Cultivators who purchase Mendocino clones gain EMT tokens which can be traded on Uniswap.
Holders of these tokens gain better rates and rewards for participating in the project.
Being an early adopter of the technology sets the precedent for business model innovation.
Regarding community assembly, there was a pro-cannabis period during the NFT boom.
One of the many projects targeting the cannabis community was the Crypto Cannabis Club.
Crypto Cannabis Club released 10,000 NFTs which gave holders real-world utility.
The brand has already done metaverse activations and secured partnerships with premium cannabis companies.
While the NFT had a moment, it is hard to say where the project’s future lies.
It will be important for future NFT projects to provide branded products.
An example that is working well outside of the cannabis space is Pudgy Penguins.
While plush toys may not be the play for cannabis brands, it may make sense to connect physical and digital worlds.
Thus, cannabis brands have an opportunity to create products that drive community in the metaverse.
Blockchain Empowers Cannabis Brands with Enhanced Customer Engagement, Financial Innovation, and Market Expansion.
Cannabis brand owners should consider exploring how crypto can benefit their businesses.
Using blockchain technologies presents an opportunity to be closer to customers.
Customers will trust cannabis brands more due to the level of transparency blockchain provides.
With brands authenticating their products, customer loyalty could improve.
This ultimately can expand market share and drive community.
Once brands have generated trust and community, cannabis brand owners can innovate new experiences.
Creating member-only events with NFTs or driving commerce with tokenized loyalty points can boost community engagement.
Additionally, they can serve as strong marketing material as they offer consumers value.
Cannabis brand owners also need to understand the world of DeFi.
DeFi has the opportunity to provide cannabis businesses the capital to scale the business.
Being able to acquire capital quickly and transparently can be a major advantage in the current regulatory environment.
Additionally, leveraging DeFi lending enables non-dilutive capital for businesses.
Moreover, cannabis businesses should consider taking crypto for payments.
Many cannabis businesses are cash reliant without proper financial services.
Thus, dispensaries become targets of crime and there is mass financial risk.
For example, cash is sitting in a safe, the money is not combating inflation.
However, without access to financial services, it is a challenge to combat these financial challenges.
Cryptocurrency payments can be more safe for cannabis businesses to custody their profits.
Additionally, taking stablecoins or other cryptocurrencies allows businesses to earn yield.
Yield enables businesses to grow their cash flow and make investments that scale the business.
But it is important to properly manage risk, and have the right financial advisors to optimize this option.
Ultimately, these businesses can incentivize buyers with rewards to pay in crypto.
There are many applications in the cannabis arena that blockchain can contribute to.
The cannabis industry builders should look to integrate this technology to scale and fight the current challenges of the industry.