Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Creating Trust in Cannabis
CannaProve | Paul Brousseau | Aug 9, 2019
Globally, cannabis is only legal for consumption in Canada, Uruguay and some states in the USA. However, after the legalization of both recreational and medical marijuana with edibles, cosmetics and beverages on the near-term horizon in Canada, it is expected that many other countries will follow to increase their tax base while attempting to reduce the impact of cannabis as a gateway drug. For example, countries, like Jamaica, have reduced the penalties on possession to minimal levels with the expectation it could be legalized at some future point. The global cannabis market is estimated to approach $250B by 2025.
While the legal changes to cannabis in Canada and parts of the US has created a vibrant legal market, there is still a substantial black market which can provide very good product at 33–50% cheaper. Much of this is attributed to the black market ignoring the ban of the use of pesticides during cultivation. As their product is not inspected nor under the same rules for accurate packaging, the cultivators use this advantage at the expense of consumers health. It is for this reason that there is a trust issue with cannabis — both for recreational and medical purposes.
See: Cannabis & blockchain: Bad romance or a perfect match?
A critical turning point in this market will take place when a regulator finds a serious flaw in a supply chain. As we have seen with foods like lettuce and alfalfa sprouts, a single recall or non-compliance issue has huge impacts on the entire market as the perception of users is the entire supply chain system for all users is compromised.
An insurance policy for participants in the market is severely needed.
How do we solve the trust problem?
The first building block is having shared data between the stakeholders in a supply chain. Blockchain is the logical technology as it enables a single source of truth between all the stakeholders. We don’t believe that it is necessary or really possible to replace all the existing systems already in place in the supply chain. Rather, we suggest integrating existing systems through standardized APIs including seed-to-sale tracking and ERP software, logistics systems, lab testing applications, pharmaceutical systems and retail.
See: Walmart China Takes on Food Safety with VeChainThor Blockchain Technology
Data quality needs to be ensured. For example, data from ERP systems may each be okay, but they might not match between two stakeholders. This is especially true with demand/forecasts. But what if the source data entered is bad? One can overcome this data reliance in a couple of ways:
- The first is to get data from trusted machines — IoT sensor data — instead of relying on humans entering data. This assumes that one can authenticate the devices — a feature of smart contracts on blockchains. An alternative approach is to closely link people to transactions, in which stakeholders in the supply chain will be required to sign-in with a Digital ID — this could be augmented with biometric data — and this data can be stored with each transaction. In this way, if there is any fraud, there is a person responsible for oversight.
- Another method is to validate the data versus prior data sets. For example, we could know how much longer/shorter this shipment took than history average. Although this helps, unless there is data about the fraud or data that points to the fraud, the systems cannot detect fraud. So what has to happen is that when a fraudulent activity is uncovered, the supply chain oversight group needs to uncover data that can identify this type of action. This new data, if historically available, should be used to identify past fraudulent activities.
Business opportunities made possible by a trusted network
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Decreasing Compliance Risks and Costs
Using the provenance data, compliance solutions can be delivered in four steps of incremental value: data completeness, regulatory oversight, electronic codification of the compliance rules and automated compliance reporting.
By gathering the chain of custody validation in one source, it helps compliance officers and regulators alike prove in a timely and cost-effective manner that product batches/lots were managed appropriately with full traceability.
See: A Digitized Staff Compliance Platform is a Must-Have
By working with leading legal and compliance firms, knowledge and operating guidelines can be streamlined and automated through code in smart contracts. Once in place and validated by regulators, automated reporting for each participant in the supply chain can be created for regulators.
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Leveraging Accurate, Shared Data for Revenue Increase
In a blockchain enabled environment actual demand orders is possible with the demand signal shared with all participants in real time. Also, with better and more timely demand signals, product mixes can be better optimized for greater profits, especially as user tastes become better understood and new products, branding and sales strategies and the like need to be introduced.
As demand is better fulfilled through more consistent and effective cultivation processes, brand management will be the next key battle ground for cultivators. With the full provenance data about their products, cultivators can utilize this same data augmented with social media data to provide metrics around competitive pricing and customer sentiment. In a market where the current range of prices from Good to Best is approximately 2x, there should be a potential increase of 70–80% in margins, if we compare cannabis to other consumable goods such as wine and cosmetics, which have a range of 10x.
For retailers, there is currently only relatively sparse provenance data on product packaging. Providing multiple views of the provenance will be a key element to drive up brand value through detailed information about the chain of custody. This is especially true for pharmaceutical companies and medical users, as well as recreational consumers looking to get organic or at least non-hazardous products.
See: 5 Missing Necessities to Move Blockchain from 0.2% Global Penetration to the Remaining 99.8%
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Fine Tuning Supply Chains for Profit Optimization
We are at the infancy of the global legal cannabis market with barely 1–2% adoption. We believe that, even as a highly restricted/controlled product, the market will mature into a global market whereby supply is no longer locally produced, as is the case with food and pharmaceuticals. On the face of it this is cost driven.
As a result of this coming globalization, there will be a great need to provide detailed, verifiable and immutable chain of custody information to regulators. However, once proven, we believe that the market will move towards a global supply chain. What this means is that supply chains will have more and longer planning cycles and complexity. It also means that they will have more options to optimize their profits if they can utilize data. We believe that organizations will be able to shift production from one facility to others to optimize profits affecting time to market, price and cultivation risks.
Paul Brousseau, President & CEO of CannaProve (www.cannaprove.com)
CannaProve is the recognized leader in solutions that empowers trust and knowledge across the global cannabis industry. CannaProve was founded on principles of improving life quality through the adoption of cannabis and all its derived health and wellness benefits. CannaProve proprietary software platforms offer a user-rich, simple to implement experience that enables cannabis supply chain participants to be agile and responsive to turbulent markets, while capturing maximum value.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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