At LevelBlox, we believe we are developing a different kind of solution for a different kind of industry. An industry that up until 2014, when Colorado made it legal, was kept in the shadows. Fast forward to 2019 and there are now 23 states that have legalized medicinal and/or recreational cannabis.

With 23 states legalizing cannabis and the Federal Government slow to adapt to public norms that view cannabis use in a more positive light, we have seen first-hand the complexities and fragmentation of the cannabis supply chain.

Fragmentation has been the greatest challenge to the growing cannabis industry here in the US. The main reason is that it is not legal on a federal level, and therefore, cross-state commerce is prohibited and as a result supply and demand is imbalanced.

Everything from pricing to distribution varies significantly from state to state not to mention the differences in state compliance and local laws.

• Pricing – Variances in prices are attributed to the inability to accurately connect growers with distributors from a national level. Limitations in licensed growers and land to grow crops varies from state to state and as such prices will be impacted.
• Logistics and Distribution – Because cannabis has to be consumed in the same state it was grown, industry players can’t have a supply chain that uses any federal agency oversight such as airplanes or trains. The state road system is the only distribution method. This doesn’t work very well for a large state that California or Florida.
• Financial – Although a bill was introduced on the federal level that would allow cannabis businesses access to the banking system, it’s not going to make an impact right away. In the long run, it will be beneficial but, today’s cannabis business are having difficulty paying employees along with other financial bottlenecks that affect employees.
• Consumer Safety – Without federal oversite, consumers can’t be confident in universal labeling or disclosing of drug information. Without industry oversight and labeling requirements and manufacturing visibility, consumers can be at risk.

So how can you manage such a complex supply-chain with numerous parties involved on top of all the state requirements of traceability?

Blockchain.

What is blockchain anyway?

Blockchain has been hot “buzz” word since the popularity of Bitcoin has grown in recent years. So, what does Bitcoin have to do with managing supply chains? How can a “coin” create an efficient and transparent cannabis industry?

More than crypto-currency

Blockchain is a type of distributed ledger. These specialized databases leverage cryptography (that’s really secure code that uses complex math to encrypt information), data synchronization and peer-to-peer network communications to provide an extremely, tamper proof and immutable storage of data.

What?

Yea, we know it it's confusing.

Basically, data can be created, encrypted, permissioned and linked together across a network of participants. Once the data is added to the ledger it is extremely resilient and nearly impossible to hack. Anyone that has permissions, can view or update information. Because the data is linked, any changes or manipulation of data can be instantly detected, delivering a chain of trust across all participants.

Some ledgers can execute computer code that processes the data. These are called Smart Contracts.

Here is an example.

Let’s say you are a retailer that wants to purchase a product from a local grower, want it tested and labeled and finally processed into oil and packaged for retail.

That’s a lot of processes across multiple players in the supply chain.

But...

What if there was a central “marketplace” where all of the participants in this example were part of a shared “chain” of individual “blocks” or ledgers, that are all linked together as smart contracts to execute those processes and make payments each step.

At each part of the chain, the smart contact monitors for verification that a particular step has been completed. The smart contract then initiates the next action, which could be issuing an invoice, checking inventory levels or submitting payment.

The grower and the lab are paid when the testing clears. Distributors are paid upon delivery to the manufacturer and when it’s been processed and packaged and sent to the retailer, the rest of the entities get paid automatically.

A huge amount of friction is removed from the supply chain, which accelerates the process.

Make sense? If it doesn’t, not to worry. In the next few posts we will take a look at how blockchain technology works and how it can be applied to the cannabis supply chain.