Blockchain technology has been expanding its reach across multiple industries since its inception. 

As the cannabis market transitions into its legal framework, using blockchain for crime prevention in this space is a concept that is becoming more and more viable.


In Canada, we are witnessing something that has only happened a few other times throughout history. A previously underground, criminal black market is being replaced by a legitimate, tax paying, regulation-following industry. The legalization of cannabis represents an opportunity to take money out of the hands of criminals and put it into industry, the economy and the tax treasury.

 

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Of course, organized crime is not known for giving up revenue streams easily, and given the opportunity criminal activity will find multiple ways to find profit in the legal cannabis industry. It will be the responsibility of both government and the emerging cannabis industry to ensure that criminals find as few of these opportunities as possible as the industry establishes itself.

When Prime Minister Justin Trudeau announced his government’s plans to legalize cannabis he made it very clear that the intended result of the legislation would be to disrupt and displace the illegal market. This government has a lot riding on the success of cannabis legalization, and they will be looking to licenced producers to keep criminality out of their operations. The penalties faced by licensed producers for negligence on this front are nothing to ignore. Cannabis companies that are found to be ignoring their responsibilities to keep criminal activity out risk having their licences pulled.

In order to fulfill these responsibilities, the legal industry is going to need tight control over every aspect of their supply chain including comprehensive records of each step in the growing and production process and every transaction. In August 2018, the Canadian government emphasized the importance of recordkeeping and reporting as a necessity for keeping crime out of the industry with the introduction of the Cannabis Tracking System, a reporting portal with which cannabis companies are mandated to provide data on their operations on a monthly basis.

By keeping these close tabs, regulatory bodies and cannabis producers will be able to identify weaknesses where criminal activity can seep into their legitimate operations. Otherwise, it will be impossible to keep crime out of the industry entirely.

Crime finds a way

The legal cannabis industry in Canada is a high value, cash transactional business, which means that there is potential for fraud and theft to occur. Workers in large-scale growing facilities regularly handle massive bulk amounts of raw product, and in the absence of proper oversight and recordkeeping there’s opportunity for some of that product to be funnelled “out the back door” where it then enters the black market. Both product and cash can be purposefully miscounted or misappropriated by unscrupulous employees at production facilities, in dispensaries, along distribution channels or in transit. The cash transactional nature of the business also presents opportunity for money laundering if records are not thoroughly overseen by multiple parties.

Licensed cannabis producers are expected to adhere to rigorous standards to ensure that crimes like these don’t become part of their businesses. Health Canada’s security conditions for licensing require on-site security at grow facilities to be Fort Knox-esque. All entrances need to be alarmed and constantly monitored to prevent intrusion. Surveillances systems are needed to monitor and record the site perimeter as well as all locations where cannabis product is handled and stored. Inventory needs to be rigorously tracked and traced at all steps along the supply line as it makes its way from seed to sale. All waste product and by-product must must be destroyed and records of the disposal must be properly reported to Health Canada. Access logs must be kept recording who enters and leaves areas where cannabis is stored and handled. Finally, any security breach that occurs must be documented and immediately reported to the authorities.

A common theme for all of these security measures is an emphasis on record keeping. To keep themselves protected from potential liability, cannabis companies need to to be meticulous in their documentation and be able to produce that documentation for law enforcement and regulators should the need arise. This is why cannabis companies need tools at their disposal to ensure that records are accurate and secure from potantal mishandeling or manipulation. This is where tools like blockchain come in.

Blockchain for crime prevention in cannabis

In 2017, the British Columbia provincial government consulted American tech giant IBM (NYSE:IBM) for advice on how to curb black market cannabis sales post legalization. IBM’s recommended solution was blockchain technology. According to the three-page report, the technology could be highly effective at limiting or even eliminating black market sales in the province by tracking specimen from seed to sale and keeping records on the date, time and location of cannabis sales while identifying potential red flags for criminality. All this info would be kept on an immutable, decentralized record that would be virtually impossible to alter or otherwise manipulate for unethical or illegal purposes.

“This type of transparency would bring a new level of visibility and control to the provincial regulators and provide assurance to the multitude of cautious stakeholders regarding the way the management of a cannabis supply chain is rolled out within British Columbia,” the report reads.

In addition to helping government bodies track the flow of cannabis within their jurisdictions, blockchain is a powerful tool for cannabis companies looking to maintain the level of oversight and documentation mandated by Health Canada. The immutable nature of the technology allows cannabis companies to track and itemize the various steps and transactions along their seed-to-sale supply chains. Blockchain recordkeeping can also be used to quickly identify errors and omissions and suspected illegal activity, and help cannabis companies pin down weak points in their supply chain oversight.

As the legal cannabis industry develops in Canada, blockchain will be an important asset to help cannabis companies show regulators and citizens that they’re helping to build the responsible, law abiding industry that Canadians expect.

This article was written according to INN editorial standards to educate investors.

Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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All interested parties can join the conference call by dialing 1-888-231-8191 or 1-647-427-7450, conference ID: 4880609. Please dial in 15 minutes prior to the call to secure a line. The conference call will be archived for replay until May 20, 2021 . To access the archived conference call, please dial 1-855-859-2056 and enter the encore code 4880609.

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Appointment of Dr. Kelmendi, Assistant Professor of Psychiatry at Yale University and co-founder of the Yale Psychedelic Science Group, brings another experienced medical professional to Lobe’s advisory team.

 Lobe Sciences Ltd. (CSE: LOBE) (OTC Pink: GTSIF) (“Lobe” or the “Company”) is pleased to announce the appointment of Benjamin Kelmendi, MD, Assistant Professor of Psychiatry at Yale University School of Medicine, to its Scientific Advisory Board.

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Ayurcann Holdings Corp. ( CSE: AYUR ) (the “ Company ” or ” Ayurcann “), a Canadian extraction company specializing in the processing of cannabis and hemp for the production of oils and various derivative products, is pleased to unveil further details of its Phase 2 expansion plans.

Ayurcann has commenced trading on the Canadian Securities Exchange (” CSE “) on April 8, 2021 and subsequently announced a private placement of up to $500,000 (” Financing “), as per the Company’s press release dated April 12, 2021. The proceeds of the Financing are intended to be used to further pursue Phase 2 of the expansion of the production capacity of the Company’s Pickering facility.

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