Blockchain for Crime Prevention in the Legal Cannabis Space

- September 9th, 2018

As part of crime prevention, blockchain offers solutions to prevent money laundering, theft and more for cannabis businesses.

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.

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