For cannabis industry entrepreneurs, basic business needs, like renting office space, opening bank accounts, and monitoring supply chains, can present major obstacles. The intricacies of legal status at the state level versus the federal level can create a regulatory environment that encourages off-book dealings–or keeps people from entering the industry at all. After working through those challenges herself, Jessica VerSteeg, CEO of L.A.-based Paragon, thinks she might have some solutions. She’s launched a seed-to-sale blockchain verification system for cannabis products and, this week, opens the first coworking space dedicated to cannabis startups.
VerSteeg entered the industry with a subscription box service called AuBox, curating monthly collections of high-end cannabis products and accessories for members. Not long after launching, she discovered the difficulty of verifying what, exactly, was in those third-party products she was sending out to her subscribers.
“I realized that some cannabis suppliers were being disingenuous about their product information,” VerSteeg says. “They were submitting Photoshopped lab results that claimed their products were 100 percent organic or that they were 90 percent CBD, clearly lacking any verifiable results. Lying about this information was not only irresponsible, but potentially dangerous to consumers. I knew there had to be a better way to move forward with verifying the history and lifecycle of all the products AuBox was buying and selling.”
She started developing her own internal supply-chain monitoring system, in which information could move from farmer to lab to retailer without the risk of anyone faking the results. The system worked so well that she realized she could expand it into a data-powered blockchain for the entire cannabis industry. She launched a new company for the blockchain, Paragon.
“What we are building at Paragon is a compliant supply-chain tracking tool that encompasses everything the industry direly needs,” she says. “Users will finally be able to review the source of their product from seed-to-sale–and governments can review any segment of the lifecycle at any time. On top of all that, each element of the supply-chain–including cloning, harvesting batches, delivery, and point of sale–will all be registered in smart-contracts on the blockchain. To make things even better, every batch gets lab tested to verify if the input harvest data matches the lab results.”
Issuing blockchain-backed ParagonCoins also offers a way for Paragon to help cannabis brands complete financial transactions, something which has been a considerable hurdle for many.
“Most federally chartered banks and financial services companies will not open accounts for, or process transactions with, businesses operating in the cannabis industry,” she says. “Proceeds from the production and sale of cannabis products are currently considered ‘drug proceeds’ under our federal law. As a result, banks that deal with cannabis companies risk potential seizures.”
This means many operate primarily as cash businesses, outside the traditional banking system–taking on the attendant risks of robbery and income verification that go along with that. One place the challenges posed by this become particularly obvious is when a cannabis company tries to rent office space, something other startups might take for granted.
“Many commercial leases contain provisions that prohibit the use of a leased property for activities that are illegal under federal law,” she notes. “As a result, cannabis companies generally pay a significantly higher rent to landlords that are willing to lease to cannabis businesses.”
Seeing a hole in the market, VerSteeg began working on a way to create a cannabis-centric coworking space. She already had a solution for paying rent–they could pay her in ParagonCoin–but she felt the company would need to own the entire building that would house the space, so they would never be beholden to the rent gouging that the project was created to avoid. Eventually, the company purchased a complex of four buildings in Hollywood, and converted them into modern coworking suites with open desks and private offices–all catering specifically to cannabis entrepreneurs.
“I have always loved working out of WeWork, but I realized working from there I was not able to turn to my neighbor and ask what they thought about some new regulations, and I could not bring a sample of pre-rolls to get feedback from others on the product and packaging,” she says.
She hopes that ParagonSpace will encourage the startups that rent space to collaborate on innovative products for the industry, powered by the seed-to-sale transparency blockchain, in which the tenants will be participating.
“Trust and transparency could help get cannabis on a faster path to becoming federally legal,” she says. “And it could change the old ‘reefer madness’ image that so many have not been able to move away from.”
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