Non-fungible tokens, or NFTs, are riding the media hype-wave as digital art experiments for the wealthy. But NFTs have a lot more potential, especially in the cannabis sector. Bullish spoke with some weed experts about the future intersections of NFTs and THC.
Weed’s an exciting commodity. It’s fun. It’s useful. It’s worth a buttload of money. And it straddles the illicit and regulated markets, legal in some places, outlawed in others.
Which makes weed a lot like crypto.
Lately, crypto and cannabis have overlapped through non-fungible tokens, or NFTs. If you’ve been out of the loop, no, NFTs are not drug-resistant foot infections. Broadly speaking, they’re components of blockchain tech that certify unique sets of data — usually for a price — and establish proof of ownership over them.
Right now, NFTs are generating a lot of money and media hype. Twitter’s Jack Dorsey sold a tweet as an NFT for nearly $3 million. Pieces of NFT digital art have also sold for millions. Videos, music, video games, and trading cards have all been bought and sold as NFTs. Like crypto — and cannabis — NFTs are likely here to stay.
How might NFTs benefit cannabis entrepreneurs, though? And, more importantly, how could the cannabis community use NFTs in the future in nuanced or industry-specific ways?
WTF Is an NFT?
Let’s first review what, exactly, an NFT is and how it works. If you already know about NFTs, you can skip to the next section.
NFTs are basically digital certificates traded across blockchains. (If you don’t know what a blockchain is, read this first.) Anything that can be digitized — whether it’s a grocery list, a photo, or a bad freestyle shot on your iPhone — can be minted as an NFT. The blockchain encrypts the NFT’s data as a token, then attaches a digital certificate of authenticity to it.
If the NFT is sold, traded, or transferred, the blockchain verifies the certificate’s ownership each step of the way. Typically, NFTs are unique. No two are alike in theory. (However, this isn’t always the case. For instance, CannaCards, which is explained below, uses some duplicate NFTs, though they’re limited by count.) If someone copies the NFT, the copy will lack the certificate, marking it as an ingenuine duplicate, a digital knock-off.
NFTs currently demonstrate some limited utility. They’re mainly used for branding, promotions, and games, but they’re also creating new revenue streams for artists. With COVID-19 canceling concerts, Grimes, Mike Shinoda of Linkin Park, Kings of Leon, and Snoop Dogg have all sold NFTs, some for millions of dollars. Chris Torres, the creator of the world’s most famous rainbow-trailing flying feline, sold a Nyan Cat animation for 300 ether, or about $650,000 (depending on when you read this). Grimes sold a video NFT for $11 million. And, in a fine art milestone, Beeple sold a JPG image NFT — a digital composite titled “Everydays: The First 5000 Days” — through Christie’s for $69 million, making it the third most expensive work ever sold at auction by a living artist.
That’s a lot of dinero for digital art. What’s the point of buying an NFT, especially for millions, if it can be copied? “You’re buying a feeling,” Ben Horowitz, a venture capitalist who’s been trading NFTs, told the New York Times. Buying a “feeling” for $69 million could be justified by a billionaire. What about the little guys? Fortunately, NFTs can go for any price. The ones above were just a few big success stories that occurred when the topic started trending across mainstream America.
At the moment, most NFTs are processed on Ethereum, but other blockchains handle NFTs, too. The NFT market may also be a bubble. The bubble may be starting to burst… or maybe not. It’s hard to tell with blockchains.
Regardless, how are NFTs used in the cannabis scene today? And how can they be used in the future?
Blockchain and crypto have been part of the weed scene for years.
Long before Bitcoin became a cash asset for blue-chip corporations, tech savvy potheads used it to buy black market bud from the dark web. Crypto’s (supposed) anonymity and (supposed) untraceability made it ideal for trafficking drugs. Today, Monero is often the traffickers’ crypto of choice, and Hydra is one of the more popular dark web marketplaces to buy illegal substances. Some altcoins like Potcoin and DopeCoin were even designed to purchase legal, state-regulated weed at participating pot shops.
Today, non-crypto blockchains track legal weed shipments and inventory, from seed to sale. A digital chain-of-custody system ensures licensed pot companies are complying with the law (if they can’t provide proof of compliance, they risk losing their licenses). After all, diverting legal weed to the black market is an ongoing issue. Blockchain tracking for weed is typically seen in Canada (on IBM’s suggestion), though some licensed operators employ blockchain tracking in the US, as well. At the retail level, blockchain could help prevent looping, the practice of selling a customer more than the legally allotted amount.
So, where do NFTs come into all this? Are they blockchain gimmicks for rich people, or do they have true utility for the average toker?
“Cannabis people tend to be at the forefront of whatever’s innovative, interesting, and subversive in society, so it doesn’t surprise me to see this intersection,” David Bienenstock, author of How to Smoke Pot (Properly) and co-host of the Great Moments in Weed History podcast, wrote to Bullish in an email. “But if I’m about to drop $50 on weed, it’s still gonna be analog. That said, if someone wants to buy an episode of our podcast, the bidding starts at $420.”
In 2015, the other half of Great Moments in Weed History, Abdullah Saeed, made a documentary about Bitcoin. Yet he wrote, “I only procured enough to buy a weekend’s worth of drugs on the deep web. If there’s value in weed NFTs, I’m the last guy who can accurately predict it.”
“Can I change $420 to $420,000?” Bienenstock added. “Don’t want to undervalue ourselves in a market frenzy.”
A podcast could be converted into and sold as an NFT. But podcasts about pot aren’t pot. It’s not like anyone can convert a dank nug into 1s and 0s then stash it on a blockchain. Or can they?
In February, The Peakz Co., a California cannabis company, offered the world’s first digital weed strain as an NFT. The strain, dubbed Lava Coin, was auctioned on OpenSea.io, a blockchain platform for NFTs and other crypto assets. On April 19 (an auspicious date), Lava Coin’s highest bid was around $4500. (It has since sold, with no info listed for the winning bid.) What can someone do with a digital weed strain, though?
Besides bragging rights, Lava Coin’s owner can claim the real-world Lava Coin strain at a Peakz dispensary in California or Oregon. This strain was specially bred for the NFT. So, hey, maybe that’s an expensive bag of weed, but remember: The auction winner bought a feeling, too, in the Walter Benjamin “aura” sense. Also, perhaps a moment of history. However, there’s more to weed NFTs besides emotions.
“The reason why someone would want digital weed is the uniqueness,” Jesse Grundy, the owner of Peakz and creator of Lava Coin, told Forbes. “I think we will continue seeing these things in the future.”
He went on to explain NFTs could protect proprietary genetics and other weed-based IPs. Let’s dive in.
If you, dear reader, bought Blueberry weed at a pot shop, how would you truly know it was Blueberry? The short answer is: You don’t. There’s no way to verify it’s the real deal. Sure, you can smell it, inspect it under a magnifying glass, and smoke it — but you’re just making an educated guess.
Any pot shop can slap any name they want on any strain and sell it as that strain, regardless of the strain’s actual identity. The worst part? There are no regulations banning pot companies from this practice.
Right now, cannabis is often branded by strain. Just as wines and cigars are branded, cannabis breeders brand their weed. Some strains, like the iconic Blueberry, are used to breed other blockbuster strains. (If the weed’s got “blue” in its name, it likely came from Blueberry.) DJ Short, the man credited with creating Blueberry, is a legend in the cannabis scene. If you want true Blueberry, you buy Blueberry from his company.
However, DJ Short is an exception when it comes to proprietary genetics. No one knows who created many other iconic strains, though lots of folks claim they’re the originators.
How could someone guarantee credit for their efforts? Or some sort of botanical IP. For one, anyone can patent their own weed strain if they can prove its novel, unique, and took a lot of work. One mysterious company may be cornering the entire cannabis market with utility patents. But for the small farmer, filing a patent can cost a shit ton of money, on top waiting years for patent approval.
What if a breeder could encode their strain’s genome in an NFT? There are benefits to this blockchain method. The breeder would have a timestamped certificate of authenticity forever attached to their weed’s genetics. Making the NFT would take a fraction of the time compared to receiving a government patent approval, and an NFT would cost much, much less, too.
Grundy’s Forbes interview touched on one future potential for NFTs in cannabis. Yet NFTs could provide even more value regarding genetics alone.
NFTs, Smart Contracts, and the Business of Owning Genes
There’s a problem with turning a weed strain’s genome into an NFT: The breeder needs to sequence its genes first.
What are the problems, exactly? Some biotech companies claim ownership over the DNA sequences they crack (think: 23andMe or Ancestry.com). Take the case of Phylos Bioscience, which created a public cannabis genomics database using plant samples donated by small weed farmers, then turned around and used those genetics to position the company for a big buyout from Big Agriculture — with no kickbacks to the small farmers who helped build that database. Additionally, hackers can steal gene data. Over the years, hackers have broken into several biotech firms and stole DNA databases.
There’s a solution with blockchain, though no one’s done it yet.
In 2020, this solution was described in a paper published by the Journal of the British Blockchain Association. The paper, titled “Privacy Laws, Genomic Data and Non-Fungible Tokens,” describes how smart contracts and NFTs could protect genetic data from sequencing to sale.
It works like this: The biotech company and the weed breeder would agree to do business through an NFT. The biotech company sequences the weed strain’s genome on the NFT’s blockchain. Once the sequence is complete, it’s sent back to the breeder. The terms of the NFT’s smart contract automatically deletes all sequence data on the biotech’s end. Now, only the breeder has the sequence — and a certificate proving it’s their sequence, to boot.
The breeder could share their strain’s genetics with other breeders, companies, or governments while maintaining their trade secrets. Since they can specify any terms within the NFT’s smart contract, the original breeder controls who can access the genetics and when.
Essentially, NFTs could usher in an era where small weed farmers can preserve their legacy cannabis and establish agricultural heritage through technology. In a nascent industry where everyone is rushing to be “the first” at this or that, NFTs could be more valuable now than ever before. So maybe, in the future, that Red Velvet Haze or Alien Cookies you buy from the dispensary will actually be the real deal…
Putting the “Fun” Back in Fundraising
Unfortunately, the 2020 elections didn’t bring the immediate end of pot prohibition. Despite the Democrats controlling Congress and the White House, President Biden is taking his sweet time with nationwide weed reform. He’s too busy doing more important stuff, supposedly.
For now, THC-rich cannabis remains outlawed at the federal level. That means fundraising through traditional channels is a pain in the ass. Bank loans ain’t happening; same goes for most insurance and mortgages, for that matter. Listing on public exchanges requires setting up shop in Canada first. And the list of hurdles goes on.
“In an industry that is quickly changing from the regulatory side, the peer-to-peer possibilities [of NFTs] are intriguing,” Braden Perry, an attorney who specializes in new technologies for the cannabis industry, wrote to Bullish in an email. He added that NFTs could make things easier for licensed operators who “may not want to deal with the regulatory headaches within the cannabis industry.”
Remember Twitter’s Jack Dorsey and his $2 million NFT? Dorsey donated the money to a children’s charity. You can see where this is going.
Perry believes decentralized financing, or DeFi, on platforms like Ethereum or OpenSea, is the future of financing, both broadly and for cannabis companies. “Banking in the cannabis industry is particularly tricky,” he wrote, “Obviously, there are additional regulatory concerns regarding [NFT] fundraising from the public, but it allows alternatives to traditional financial products.”
On average, it costs about $184,000 to start a new business in the US (one with rented space and five employees, that is). However, the minimum cost to start a pot business is at least $2 million (in Colorado) to over $5 million (in Florida). The costs are high due to special licensing fees, regulatory inspections, meeting compliance, as well as space and technology to grow the weed. Oh, and retainer fees for attorneys like Braden is a good idea, too. And that’s just the tip of the iceberg, since the financial barriers-to-entry are high in an industry without easy access to banking.
It’s not impossible to raise that kind of cash with an NFT. It’s not easy, either. Not everyone has a Grimes or a Beeple on staff. Entrepreneurs tend to be creative folks, though. One day, a pot company could be borne from the sale(s) of ingenious NFTs.
How NFTs Could Be Misused by Illicit Marketeers
Just as NFTs could benefit the licensed weed industry, NFTs could be abused by bad actors, as well.
Money launderers have found a new financial instrument in blockchain. The US government has fined money launderers millions of dollars who exploited Bitcoin to hide illicit cash. Some have even gone to prison.
Another new financial instrument for money laundering: Fine art.
Last year, a US Senate investigation discovered, from art purchases, that Russian oligarchs got around American financial sanctions. The oligarchs used anonymous shell companies to purchase $18 million worth of art from the US market. In fact, laundering money through high-priced fine art has gotten so bad that a new federal law was passed to extend the Secret Banking Act to the largely unregulated art world. Although the Senate report never mentions NFTs, the oligarch case illustrates how NFTs could be used to launder money. Purchasers can remain somewhat anonymous on blockchains.
For instance, let’s say Tony Bongtana is a cannabis drug lord. He’s hiding out somewhere in the mean streets of Idaho, which hasn’t even legalized medical weed yet.
Bongtana’s sitting on $1 million he needs to clean. He could, in theory, create an NFT from one account, sell it to himself through a shell company attached to a separate crypto account, and voila! He’s suddenly got $1 million of “legit” NFT money.
(Please don’t actually do this. It’s illegal as fuck.)
Of course, Tony Bongtana isn’t the only one who could launder money this way. Licensed pot companies have (ahem, allegedly) run illicit operations on the side. These supposedly legal operators could possibly divert product to the black market — maybe that bad batch of edibles that didn’t pass testing and can’t be sold via state-compliant retailers — run the dirty money through an NFT, and end up with clean, taxable income.
Recall that blockchains are used to track inventory from seed to sale. Running all production and inventory through networks of digital ledgers could cut down on money laundering.
Trading Weed NFTs for Fun, Education, and Profit
Right now, smaller NFTs are active among a growing segment of the cannabis community.
Jason Wilson has worked as an analytical chemist, and he’s the creator of the Curious About Cannabis podcast. He also created an NFT trading card game on OpenSea called CannaCards. His knowledge of cannabis chemistry has translated to the cards — sort of like Pokemon, except with pot.
“What we’ll see in the cannabis industry is creative projects, artists that try to increase brand recognition or market differentiation by highlighting certain products, certain strains, that sort of thing,” he said to Bullish during a phone call. “I view NFTs as a way of gamifying education and continuing education, specifically for adults.”
Each CannaCard contains some tidbit of information related to cannabis, its chemistry, or its medicinal properties. As card owners collect cards, they’re learning about weed while unlocking new cards and achievements. Achievements can include discounts to educational products, such as books sold by Curious About Cannabis, or other, rarer cards that can be sold or traded.
There’s a financial incentive to trading, as well: Original card owners receive commissions each time the card is sold.
“I caution people against getting too excited about the investability of NFTs,” Wilson said. “A lot of excitement we’re seeing right now is based on hype. Once the hype dies down, the market will correct itself and the prices will come down.”
CannaCards launched recently, and for now, it’s mainly an experiment for Wilson. If CannaCards proves successful, he plans to create another educational NFT card game to raise environmental awareness.
As for art and branding, that’s already happening. Canada’s Fire & Flower is auctioning an NFT art piece with a starting bid of $4.20. The cannabis equity firm Merida Capital Holdings and the artist network Califari are rolling out NFT weed art with caricatures of famous weed strains.
“NFTs are here to stay,” Wilson said. “We’ll see what comes of it. It’ll be interesting regardless.”