Blockchain has the potential to simplify the track-and-trace boondoggle that currently plagues the cannabis industry.
State governments were swift to impose track-and-trace regulations on cannabis, but how exactly these businesses would comply became more of an afterthought for the legislators who drafted the laws.
As a result, licensed operators are struggling to remain compliant in the most regulated industry on earth. Thoses who can’t keep up either get pushed out of business or go back to operating in the black market. By some estimates, the black market in California represents up to 90 percent of the total market.
This is an enormous loss, not only for the tax-hungry bureaucrats, but more importantly for the cannabis operators who want to be legit, but lack the resources to get there.
Track-and-trace is a complex problem that extends into numerous parts of the business: seed-to-sale plant tracking, plant testing for pesticides and THC/CBD, point-of-sale (POS) systems, Enterprise Resource Planning (ERP) systems, accounting and more.
Cannabis businesses have to cobble together countless solutions in order to remain compliant and operate efficiently. Most of these businesses also lack access to traditional banking and financial services, forcing them to operate in cash and multiplying the complexity of their compliance efforts.
With all of these disparate systems, state regulators suffer most from the situation they created, as now they’re trying to track moving parts inside of an opaque black box.
Blockchain offers promise for both regulators and cannabis operators, as this technology has several uses for cannabis including: ERPs, POS systems, payment processors and seed-to-sale systems.
Blockchain works best for these systems because it’s a “distributed immutable” ledger that stores data about the supply chain, ultimately simplifying compliance and providing transparency into operations.
To better understand what “distributed immutable” ledger means and how it’s good for cannabis, here’s a closer examination of these terms:
Blockchain systems use distributed computer networks to host ledgers, and no single entity can unduly influence the rest of the network. Because these networks are distributed worldwide, blockchain systems are resistant to local outages, ensuring preservation of the data contained therein.
Distributed hosting also makes blockchain impervious to hacking which makes the data more secure. For cannabis businesses, this means your confidential data will remain secure from cyber-attacks and stay preserved indefinitely.
Every time a data block gets added to a blockchain, that data goes through a hashing algorithm, which produces a hash key that gets stored into the blockchain.
Hashing algorithms enable network participants to independently authenticate data in a chain, at the same time making it easier for them to identify if data has been altered.
This gives canna-businesses the ability to easily prove compliance to regulators.
Blockchain systems use “asymmetric encryption” to simultaneously provide transparency and privacy to its users. Asymmetric encryption functions by using two seperate keys that become paired to encrypt and decrypt data.
The process begins with a public key that’s used to encrypt and add data to the blockchain. All participants in the network can see the addition of the data and can confirm the authenticity of the data, which validates the security of the data.
Next, a separate private key is needed to decrypt the data and render it usable. This is where compliance gets easier for cannabis operators. By providing their private keys to regulators, canna-businesses can offer indisputable, public records of their activities, while protecting the security and privacy of their data.
The cannabis “cash-only” problem has become an infamous one. While many so-called solutions have emerged, most remain in-compliant with federal banking regulations.
Blockchain offers to increase in-store security while reducing cash-handling costs. At the end of the day, digital transactions are much easier and less expensive to track than their cash counterparts.
By aggregating seed-to-sale and POS data into the blockchain, Alt Thirty Six provides simple, cost-effective compliance solutions to the cannabis industry, while offering unparalleled transparency to regulators.