Blockchain technology may be able to help weed out black-market marijuana sales.

Nine states and Washington, D.C., have already legalized marijuana for recreational use for adults 21 and over, according to Business Insider, with medical marijuana legal in another 29 states.

That’s a huge potential market. However, sales of illegal pot remain an issue.

The issue is just as important in Canada. That’s why three Canadian companies have teamed to use blockchain technology to greatly increase the transparency of the legal marijuana supply chain.

“One of our objectives is to stamp out the black market” in Marijuana, says Avtar Dhillon.

Earlier this year, Emerald Health Therapeutics, Emerald Health Sciences and DMG Blockchain Solutions announced a letter of intent to form a joint venture, called CannaChain Technologies, to develop what it calls a “blockchain-based supply chain management system and e-commerce marketplace for the legal cannabis industry.”

Emerald, one of Canada’s earliest licensed pot sellers, would provide its expertise and relationships while DMG Blockchain Solutions would build and deploy the blockchain supply chain management system tailored to opportunities in the cannabis industry.

Blockchain technology has the potential to help ensure that black-market marijuana doesn’t make it into the regulated market, Avtar Dhillon, executive chairman of Emerald Health Therapeutics, told ThirtyK.

The supply chain management system is launching in Canada, but the joint venture plans for it to be available in countries where marijuana is legal on the federal level, he said. That would not include the United States, where the federal government position is that pot is illegal, even though it is legal in many states.

Right now under the Canadian system, licensed producers sell medical marijuana directly to patients. But if recreational marijuana legislation is finalized this year, dispensaries that are currently operating illegally could get the official green light to sell the drug. Blockchain would make it easier for those retailers to know exactly what they’re selling, Dhillon said.

“One of our objectives is to stamp out the black market,” he said.

Customer Confidence

A blockchain-backed supply chain management system will ensure customers are confident in their product by including trustworthy information tracing all parts of the supply chain from seed to sale, Dhillon explained. The system will provide data on plants, growing, third-party testing and handling. 

Tracking the product with the immutable and distributed digital ledger technology that blockchain offers could give Emerald, and any other companies that end up using the platform on a fee basis, a competitive edge, he said.

“Supply chain management for cannabis is an ideal use case for blockchain’s tamper-proof ledger technology,” Adrian Glover, DMG’s director of software engineering, said in the release announcing the letter of intent.

A Business Advantage

In the marijuana industry, there are many different strains. Giving customers assurance they’re getting the strain they’re paying for could help companies command a premium for their productDhillon said.

The sophisticated consumer will want that traceability, Dhillon said, adding, “The more information you can have, the better.” It will also be much less expensive than having to hire third parties to physically audit the process, he said.

Dhillon said he is expecting CannaChain to have the basics for traceability and transparency in place by the end of the summer.