How Tokes targets the regulatory thicket of legal cannabis

Register now

Because the legal cannabis industry is typically considered too high-risk for most banks and payment processors to work with, most technology solutions are designed to duplicate the familiar process of paying by card.

The Tokes Platform is taking a different approach, attempting to build a payment option that even most mainstream merchants don't support. Tokes provides payments solutions and blockchain infrastructure for data provenance geared for the cannabis industry.

Michael Wagner, founder and CEO, and Gabriel Allred, co-founder and COO, launched the company in 2016. It aims to provide not only a cannabis cryptocurrency called Tokes, but also POS software for dispensaries to convert cryptocurrencies. It also offers a blockchain supply solution to manage the entire life cycle of cannabis from “seeds to sale," also known as “seeds to smoke.”

“We saw cannabis needed a cashless solution,” said Wagner, as he and Allred evaluated a market opportunity that Frontier Financial Group estimated to reach $11 billion in 2018.

They also concluded that supply chain management was not being aggressively addressed by competitors. Wagner used the term “blockchain-based data provenance” to emphasize physical chain of custody requirements placed on cannabis to highlight the legality of the situation.

Since the laws vary by state, with some such as Nevada's being very rigorous, the need to keep legal cannabis from leaking into the black market puts the compliance responsibility on the entire supply chain from growers to distributors to merchants. Each of these entities must be able to track cannabis from the seed to the plant to the final consumer sale. Law enforcement agencies and regulators want to be able to track where, when, and how much cannabis leaves the system at any point in time.

According to the National Conference of State Legislatures, 31 states, the District of Columbia, Guam and Puerto Rico now allow medical marijuana use. An additional 15 states allow “low THC, CBD oil” for sale. Lacking a single federal oversight governing how these products are produced, sold and tracked, it means that there are 49 individual state, district and territory governing bodies creating their own laws and regulations for the cannabis industry.

“This is a perfect use case for blockchain-based provenance. It shows farm-to-table tracking and is applicable to other industries such as organic farming,” said Allred. It is likely that once Wagner and Allred have proven their solutions for the cannabis industry that they will apply their blockchain-based data provenance solutions to other industries that have similar needs to establish data provenance, including organic farming and seafood.

The Tokes Platform is not alone in addressing the needs of the legal cannabis industry, as there are competitive solutions providing cash alternatives including a cannabis dedicated payment network called CanPay , cashless ATMs, and cryptocurrencies such as Dash and Bitcoin, digital currency gateways such as Alt Thirty Six, and more.

The Tokes Platform first launched its initial coin offering of the Tokes cryptocurrency (TKS) between Dec. 2, 2016, and Jan. 15, 2017. There are approximately 3.4 million Tokes in supply out of a total of 50 million according to CoinMarketCap, a cryptocurrency market capitalization tracking website.

The founders state that the Tokes currency is primarily intended to be used for purchases at cannabis dispensaries, but can be used elsewhere. It is a revenue stream that allows the company to develop its products in three distinct categories.

The first is a crypto-based POS merchant gateway that provides conversions of Tokes into stable assets such U.S. dollars or assets tethered to U.S. dollars. Once the solution has been deployed it will not be limited to converting just Tokes but will also accept other cryptocurrency, including bitcoin. Currently the POS system has been in beta testing at the Pisos Dispensary in Las Vegas, where the company, also named Tokes Platform, is based. This has allowed it to refine its merchant gateway software for launch. Its first market launch is expected within the next few weeks, interestingly enough, at the Las Vegas location of the Donut Bar.

The second product and primary focus of the company is its blockchain-as-a-service for data provenance. Allred reported that the best practices are being deployed within this blockchain to mirror other regulatory bodies and agencies that track physical and digital goods and services such as the Electronic Product Code Information Services.

The third and final product of the Tokes Platform is the Platform-as-a-Service offering. This is aimed to provide developers with a hosted solution so they can quickly create applications for deployment. While the initial foray is into the cannabis industry, Wagner and Allred noted that these products are industry agnostic.

For reprint and licensing requests for this article, click here.
Marijuana banking Blockchain Payment processing
MORE FROM PAYMENTSSOURCE