The cannabis industry, one of the fastest growing sectors in the economy today, also has some of the toughest banking problems. Put simply, it is buried in cash, thanks to the illegality of the drug, the crush of laws and banks shying away from any and all weed proceeds. Blockchain and cannabis industry watchers believe that cryptocurrencies could be a game changer for the marijuana sector. In recent years, a number of weed coins have proliferated, including HempCoin, CannabisCoin, DopeCoin, and PotCoin, each taking a slightly different approach to solving the cash dilemma. “Once, virtual currencies and weed belonged together on the dark web;” said Lionel Laurent in a recent Bloomberg Businessweek article, “Now, they’re being pitched as asset classes on track for mega-growth.”
Today, Paragon, a company formed by model and Iowa beauty queen Jessica VerSteeg and backed by her millionaire Russian technocrat husband, Egor Lavrov, will launch an ambitious but controversial Initial Coin Offering (ICO) for a new cryptocurrency, ParagonCoin (PRG) to facilitate cannabis related transactions on the company’s soon to launch blockchain platform. Both cannabis and blockchain industry experts say that if successful, the platform could create transparency in the cannabis supply chain and create much-needed standards in this shady, largely illicit sector. “There’s definitely a need for the platform that they’re proposing in the cannabis industry,” says Teemu Paivinen, an entrepreneur and investor at Zeppelin Solutions, a blockchain consulting and security audits firm. “And I think there’s a big opportunity there.”
But although backed by some veteran cryptocurrency advisors and partners, the ParagonCoin ICO has generated considerable controversy as well. Critics on social media forums have said the token is overhyped and overvalued. One Redditor described the token launch as nothing but a “blatant cash grab.” Critics also say the company lacks transparency and accountability. “And this might be the reason some people have been slugging them up pretty substantially in the social media,” says Simone Giacomelli, CEO and founder of Vulpem Ventures, “Because whenever there’s not enough detail or clarity, some of the more detail oriented auditors might flag this as a lack of credibility.” VerSteeg and Lavrov say their motives are transparent and above board. “We don’t need money in our own lives. We don’t need fame,” says VerSteeg. “Out of our own desire to help, we decided to make it for the community.”
[Ed note: Investing in cryptocoins or tokens is highly speculative, and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Currently, because use, sale and possession of cannabis are illegal under federal law, every aspect of the industry is cash-based because, by law, the proceeds can’t be put in a bank. That means cash payments for growers, buyers, sellers, PR firms, lawyers, accountants, real estate agents, landlords and delivery people. Even taxes are paid in cash. VerSteeg’s and Lavrov’s goal is to sop up cash from cannabis related services. “If we move just 1% of the industry’s cash into PRG,” says Lavrov quietly, “You can imagine the value. It’s a $100 billion industry.”
In addition to the cash problem, lack of regulation has led to inconsistencies in lab purity results, difficulties in patient verifications, and numerous data integrity problems. “You have no way of trusting the information that you are being fed, so to speak,” says David Sonstebo, a futurist and founder of IOTA. The non-profit foundation has built a next-gen distributed ledger technology called Tangle, which Paragon will eventually be using.
A blockchain platform could solve these problems. A blockchain is a distributed ledger that creates immutable, tamper-proof records of transactions, and smart contracts to enable logic and automation. “With the sequences in place, you can prove the provenance from seed to weed to however you ingest it,” Sonstebo says, “And I think that is very important in order for cannabis to be accepted as a legitimate crop instead of just being like this drug for stoners.”