The launch of recreational cannabis legalization in Canada on October 17 is going to bring a lot of change to the cannabis business landscape.

As the “grey market” that has existed in cities like Vancouver and Toronto gives way to a fully regulated and tightly controlled industry, the laws and expectations for licensed cannabis producers, regulators and distributors will be clearer, more stringent and more tightly enforced than ever before.


This means that it will be imperative to the survival of cannabis companies of all types to maintain strong control of the quality, consistency, sanitation and overall safety of their products. The federal government laid out the final version of its regulations for licenced producers on July 11. The penalties for getting caught skirting these laws either intentionally or through inadequate oversight of the supply chain can be catastrophic for a cannabis company.

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Unfortunately, cannabis supply chains are complex. Often, the process will involve the product being handled by dozens of hands from multiple companies as it makes its way from a seedling in a grow house to an oil in an extraction lab to a storefront. This makes overseeing each step in the process to ensure proper handling difficult.

Fortunately, the legalization of cannabis in Canada is happening concurrently with innovations that will help cannabis companies maintain that level of oversight. Blockchain could be just the tool the cannabis industry needs.

Supply chain challenges for cannabis legalization in Canada

In the absence of a comprehensive regulatory structure, the last decade was something of a wild west for grey market cannabis storefronts in Canada. While the not-quite-legal dispensaries that have operated in various municipalities in recent years are a far cry from the largely organized crime-run black market, these operations are subject to little oversight in regards to where their product is sourced from.

While municipal police forces have been known to raid and shut down grey market dispensaries that flagrantly violated the rules, these shops have been largely self-regulated. The best of them have taken steps to ensure quality and safety, but a 2018 Globe and Mail report found that a third of dried cannabis purchased from nine dispensaries in Toronto failed to meet Health Canada’s standards for medicinal cannabis. The failing cannabis tested positive for molds, bacteria and pesticides over the levels deemed acceptable by the regulatory body.

With Health Canada’s regulations fully in place, cannabis businesses will be subject to much stricter enforcement. Licensed producers are required to conduct tests on their products to screen for microbial and chemical contaminants in fresh or dried bud and oil, disintegration in capsules and more. Producers are also mandated to effectively track the THC and CBD content of their products and to make sure this information is clearly and accurately labeled. Health Canada will be conducting routine and random inspections of licensed producers to verify compliance with these standards and licence holders that are found to be in violation will risk losing their licences. Enforcement isn’t limited to the federal government. As of April, the Saskatchewan government was hiring cannabis inspectors to enforce health and safety regulations at the province’s dispensaries.

Health Canada is taking a zero-tolerance approach to molds and dangerous pesticides. It’s clear that quality control needs to be a priority for any cannabis company that wants to stick around under this regulatory framework. Unfortunately, maintaining these standards across a complex supply chain is no simple task. Not all cannabis companies are fully vertically integrated, meaning that many of them have to rely on other entities to supply or otherwise handle their product at some point in the supply line. Even for companies that are fully vertically integrated and control their entire supply chains, maintaining the level of oversight required to rule out error can be very difficult across large, multi-site operations. Last year, there was a rash of product recalls in the medical cannabis industry.

Enter blockchain

Cannabis companies are going to need all the help they can get to ensure that their products are consistent and meet all federal and local regulations. Not only that, when a contamination or mislabeled product is found, companies need to be able to identify the source of the problem and make corrections as quickly and efficiently as possible. In a 2017 report for the British Columbia government, IBM (NYSE:IBM) recommended blockchain as the ideal tool for this job.

IBM’s recommendation was for the government to use this immutable record-keeping tech to help eliminate black market product from seeping into the legal market, but the same idea could be used to great effect to help cannabis companies keep track of their stock across the supply chain. Blockchain can be used to create a permanent, traceable record of a cannabis specimen as it makes its way from seed to sale along with details such as its genetics, who it’s handled by, what chemicals were used on it and more. The specimen’s entire history is recorded and can be viewed by overseers from producers, regulatory inspectors and consumers.

Blockchain applications for this purpose are already being developed. TruTrace Technologies Inc. (TSXV:TTT, OTC PINK: BKKSF), formerly known as BLOCKstrain Technology, is launching a platform that will give products QR-barcode identifiers to be scanned at every stage in the supply chain, recording all relevant information along the way. This allows producers, regulators and customers to verify the genetics, handling, purity and legality of the product. BLOCKstrain’s integrated blockchain platform registers and tracks intellectual property for the cannabis industry, making it safe and conformable for breeders and growers, large and small, to protect and release their genetics and strain varieties into the public domain.

Takeaway

Cannabis is no different from the pharmaceutical, food or any other industry in that the consumer needs to be reasonably assured that the product they are buying and consuming is safe. Cannabis companies that are unable to reliably provide that assurance have no business in the legal marketplace and will be shut down by Canada’s regulatory bodies. Blockchain will give cannabis companies across the board the ability to provide that assurance.

This article was written according to INN editorial standards to educate investors.

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