Market Overview

Payments In The Marijuana Industry: How Blockchain Can Increase Profit And Security

Payments In The Marijuana Industry: How Blockchain Can Increase Profit And Security
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Blockchain was born with the bitcoin, conceived as a way to make databases secure but not managed by one single person. This allows “people who do not know or trust each other [to] build a dependable ledger,” an article from The Economist explained.

As the technology evolved and became more programmable, other applications like tracing a product’s identity/authenticity were found for it. In some cases, blockchain technologies have even managed to replace banks and services like those offered by Paypal Holdings Inc (NASDAQ: PYPL), Moneygram International Inc (NASDAQ: MGI) or The Western Union Company (NYSE: WU), making transactions faster, cheaper and more secure.

Related Link: You're So Money: NY Judge Rules Bitcoin Qualify As "Funds"

“While software reduces global inequalities through intellectual capital, the blockchain today is helping to reduce global inequalities through financial capital,” Forbes contributor Jonathan Chester explained in a recent piece.

The Marijuana Industry

The legal marijuana industry often finds big hurdles in the banking system; afraid of federal regulators and the money laundering risk derived from such a cash intensive space, most banks don’t want to open accounts for these companies. In this vacuum, a few companies have come up with creative solutions.

For instance, Tokken, provides online banking services to companies in the emerging marijuana industry. As per their site, they offer “safe payment methods to consumers, and a robust compliance platform to partner banks… [eliminating] the risk of money laundering by creating a virtual barrier to cash transactions.”

“Using an indelible Blockchain ledger to ensure data integrity and a proprietary compliance program based on structured analytic techniques, Tokken is designed to comply with every relevant regulatory requirement and provide a sustainable banking solution for the cannabis,” the site added.

CEO Lamine Zarrad recently sat down with Chester and explained that operating in cash costs the marijuana industry between 20 and 25 percent of its revenue. “This is typically lost through the costs of security, storage and shrinkage, a euphemism for employee theft,” he stated. “In order to get cash back into the banking systems, Marijuana companies will work with holding companies that will hold funds on behalf of the dispensary, which the dispensary can then access. In order to get funds into the accounts, these dispensaries need to hire groups of runners who take the cash to ATMs throughout the city to deposit cash in small batches.”

But, how can the company achieve this without recurring to a bank?

Related Link: Reads For The Weed-Kend: Franchising, Canada And Snoop Dogg, Damian Marley's Cannabis Prison Venture

As Chester expounded, blockchains were created specifically to avoid banks while still meeting most audit requirements — as each transaction is both public and protected from “book-cooks.” Tokken, for example, notarizes its transactions via Tierion, a platform that “puts an immutably cryptographic summary of business records on the blockchain, which permits verification while maintaining customer privacy,” Chester concluded.

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Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.

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