The Threshold of Tomorrow: NFTs, Crypto, and the Metaverse

Should cannabis industry leaders embrace any of the hottest new technologies?

New-Technologies-in-Cannabis-2
Photo: Mykhaylo_Kozelko / Shutterstock

Early in the pandemic, Lincoln Barnett III began dabbling in cryptocurrency and got some exposure to early-stage non-fungible tokens (NFTs). “I went down the wormhole,” said Barnett, a cannabis industry veteran. “I was buying NFTs, being super-active on Discord channels, learning absolutely everything I could about Web 3.” Web 3—or, among the cognoscenti, web3—is a conceptualized third-generation internet predicated on a decentralized network using blockchain technologies and token economies.

Barnett began his cannabis career as a teenager, cultivating with his father and moving weight around Southern California in the pre-recreational era. More recently, he played a foundational role in getting the trade show Hall of Flowers off the ground. While he was well-versed in face-to-face gatherings, chat rooms on the platform Discord—once the exclusive stomping ground of gamers—introduced Barnett to a global community of web3 enthusiasts who displayed the same camaraderie and thirst for knowledge that continue to define the cannabis community today.

Advertisement

“I knew there was huge crossover potential,” he said. “Cannabis brands and consumers have a difficult job connecting with one another, and with this emerging technology, I could see a clear path starting to form.” He quickly came to believe forging the connection between the burgeoning industries was his next calling, and he wasn’t alone in awakening to the opportunity.

The world of cryptocurrencies (crypto), NFTs, the metaverse, and blockchain—which, for the sake of brevity, we will describe with the catchall term web3—has had a major breakout moment in the cultural consciousness. Tales of fortunes won and lost to be won and lost again on the complex and speculative rollercoaster to the digital future have spurred a curious public interest in the technologies some believe soon will play a fundamental role in our lives.

The cannabis industry and the early adopters who populate it have been flirting with all things web3, trying to discern where the turbulent new spaces intersect to increase access, foster stronger communities, and address structural problems across the supply chain.

“Cannabis, crypto, and web3 have a lot of the same barriers and challenges, like finance, marketing, and operations,” said Jaqueline Rosales, president of consumer insights firm ISA Group and longtime cryptocurrency enthusiast. “When you combine these industries together, they have the potential to solve one another’s problems.”

Important disclaimer: Crypto is a broad, fast-evolving subject, and we tackle it ifully aware that much of what is speculated may age like ditch weed in a sock drawer. Over the course of a few days in June, Bitcoin shed a third of its value; Coinbase, a popular crypto exchange, laid off 18 percent of its workforce; and crypto lending firm Celcius abruptly froze all withdrawals to stop a run on its reserves. The effect on the mood across the web3 community was sobering, and veterans and n00bs alike woke up with a searing hangover from huffing the noxious gas that filled the latest and greatest bubble.

And yet, even in the face of this spectacular market correction, seemingly rational people remain as bullish as ever about web3’s long-term prospects, certain a path toward the future they envision is inevitable even if the perils along the way remain unknown.

NFTs and community-building

“NFT” was Collins English Dictionary’s 2021 word of the year, an undeniable indication of a subject’s salience in the public discourse. NFTs are simply smart contracts, though they have become much better known on the blockchain as digital art. While they have been around since 2014, the acronym began brainworming into the global consciousness in March of last year, when artist Beeple sold Everydays: The First 5000 Days at Christie’s for more than $69 million. News of the sale sent shockwaves through the art world and fired the starting pistol on a “pixel rush” of sorts that has completely upended all perceptions of value in the digital economy.

Crypto-Cannabis-Club-NFTs TokinDreadAlien
Crypto Cannabis Club Tokin Dread Alien

Today, a handful of so-called blue-chip NFT projects command huge prices, the most notable being CryptoPunks and Bored Ape Yacht Club. While skeptics are vocal about the value of digital art—“Can’t I just screenshot it?” is a common refrain—believers like Hall of Flowers and Green Street agency cofounder Rama Mayo see this as a generational divide.
“This is just an old-fashioned way of thinking people need to get over,” said Mayo, who has been immersed in digital art and crypto for four years. “Digital assets are important to a new generation of consumers in the same way physical assets are to a previous generation.”

Mayo is a perpetual futurist and avid first-mover. He entered the industry in 2012 and has found success building bridges between things: celebrities and brands, brands and buyers, and now art and community in the physical and digital worlds. Green Street, which boasts serial early-stage tech investor Gary Vaynerchuck on its capital table, has launched a joint venture with Barnett called Guided Green Labs to help cannabis companies start transitioning to web3. Five projects are in the pipeline.

The venture arose in a roundabout way from Green Street’s bi-monthly Donuts & Pizza industry meetup. After learning more than 50 percent of regular attendees own an NFT, Mayo and Barnett invited interested parties to join a Discord channel that formed the basis of FLWRS, which Barnett describes as an “art-forward, utility-centered brand dedicated to educating and connecting the global cannabis community.”

“I was attracted to the ability to develop what I call ‘community architecture,’” said Barnett. “The FLWRS Discord has server channels dedicated to specific topics of conversation, with moderators to give the discussions structure.”

While much of the media coverage has focused on the art component of NFTs, more and more have what’s known as “utility,” meaning a use or purpose beyond simply existing. For cannabis projects, that might mean owning an NFT provides discounts for a particular brand or service, VIP access to specific events, or myriad other perks imparted to build exclusivity around the digital asset.

Barnett believes “99 percent of crypto projects will fail” if they don’t provide some kind of utility to their buyers, who should be thought of as community members. But for the ones that do, utility can be an excellent means of getting people to buy into a community. “NFTs have the capacity to usher in a new era of membership,” he said.

Among the most notable cannabis-based NFT projects so far is the Crypto Cannabis Club (CCC), founded by brothers Jimmy and Kevin Fitzpatrick and their friend Ryan Hunter at the height of NFT mania in mid-2021. “We wanted to create something that really resonated with cannabis consumers,” said Jimmy Fitzpatrick, an industry veteran. “We created human avatars and based their traits on famous stoners and activists like Steve D’Angelo and Ricky Williams.”

Crypto-Cannabis-Club-NFTs TokinKev
Crypto Cannabis Club Tokin Kev

CCC minted (NFT-speak for created) 10,000 NFTs—dubbed Tokers—and sold out in just seven days, with the proceeds giving the group significant start-up capital to run a Discord channel (which now boasts 32,000 members), organize in-person meetups across the country, and develop a unique play-to-earn Cannabis Cup-style digital growing game. While Toker NFTs are popularly used as profile pictures—or PFPs—they also have a utility component. Holders get access to deals and various perks through CCC’s network of partnerships, which includes brands like Dr. Dabber, Vibes, and Old Pal.

CCC even launched a flower brand in collaboration with Camp Nova, a celebrity- and NFT-based online marketplace serving California. NFT holders receive a 30-percent discount on the flower, and each eighth has a radio-frequency identification chip embedded in the bag that offers the bearer a free NFT of the package design.

“We’ve been trying to figure out cool ways to tie the NFT and crypto space into real life,” said Fitzpatrick. “We saw an avenue where there weren’t a lot of people doing that.”
The projects undoubtedly are correct about the pressing need for companies to start migrating their audiences to friendlier platforms. Most of the subjects quoted herein spoke about the vulnerability brands endure when building audiences on platforms owned by Google and particularly Facebook, which owns Instagram.

“The industry is hooked on Instagram for some reason, and this really needs to change,” said Mayo. “They don’t want us on there.”

Rosales said, “Facebook and Instagram will shut you down, and Google doesn’t want cannabis to be advertised. By skipping those [platforms] and doing, say, a coupon drop through an NFT, brands can find opportunities to reach a huge audience and have a community-based gathering without those media gatekeepers that are stopping them now.”

For her, the idea represents a monumental shift in the relationship between brands and their audiences, something she has dubbed C2B, or customer-to-business. “I think this is a new phase of marketing and branding where it’s not just about brands talking at consumers to sell the product and the product stands in between them,” she said. “The audience now wants to be part of a community, because they believe in the philosophical meaning behind it. This new relationship is about membership, access, education, and experience.”

crypto Mykhaylo Kozelko 1943469076
Photo: Mykhaylo Kozelko / Shutterstock

Cryptocurrencies and fundraising

At a glance, the opportunity for cryptocurrencies appears to be a layup for a physically vulnerable cash business largely exiled from the traditional finance sector, with significant crossover appeal to first-adopters.

Yet, when it comes to simply accepting cryptocurrencies as payment at dispensaries, the technology underpinning the tokens—blockchain—is too sluggish, cumbersome, and energy-intensive to be a viable point-of-sale solution. The nature of a distributed ledger system means retailers would find themselves responsible for hosting and peer-reviewing other companies’ data, which is unlikely even in the most generous assessment of the industry’s sense of community. And that says nothing of the relatively low rates of adoption, not to mention the fact many people buy crypto as an investment to hold rather than a currency to spend on consumer goods.

Despite the challenges, some dispensaries are experimenting with accepting crypto as payment. Popular California chain People’s Remedy began accepting Bitcoin, Bitcoin SV, Bitcoin cash, Dash, and Litecoin across its entire footprint in the fall of 2021. Chief Executive Officer Mark Ponticelli had been holding some currency for a while and felt the moment was an opportune time to experiment. “We wanted to get in and offer this because no one else was doing it, and we were definitely drawn to being the first,” he said.

Ponticelli said his customers appreciate the alternative to cash, and although People’s Remedy hasn’t marketed crypto as a service yet, the stores nevertheless see regular customer use. Does he view crypto muscling in as a widespread alternative to cash and credit at the point of sale? “In the beginning I did, but as I’ve seen it shake out, I’m less certain of that than I once was,” he said.

While accepting crypto as a form of in-store payment could be some ways off, fundraising within the crypto ecosystem is gaining traction as a viable alternative to seeking venture capital, which slowed to a drip after a lively first quarter in 2022.

One of the most interesting projects is the Global Cannabis Capital fund (GCC), which was launched by a Uruguayan group by way of Luxembourg. The fund sold tokens to investors around the world on the Ethereum blockchain in order to raise money to buy equity positions in companies that align with GCC’s investment thesis.

“It was extremely important to us that everything be 100-percent legal and transparent,” said Andrés Israel, the fund’s CEO and cofounder. “Luxembourg has positive regulation for cannabis and blockchain as digital assets, meaning our equity tokens have legal backup.”

Israel explained GCC accepts stablecoins and fiat currency in exchange for its equity tokens—which can be thought of more simply as shares—but the fund doesn’t issue investments via crypto or hold crypto as a currency, thus protecting the fund against overall market volatility.

“I believe we have found a good equilibrium between entrepreneurs and investors, and we are solving a real problem for many entrepreneurs who have a distinct lack of funding options,” he explained.

At present, GCC holds positions in thirty companies, most of which are in Latin America, and counts Papa & Barkley founder Adam Grossman among its board members. The fund completed an initial sale of just 1 percent of its total tokens to demonstrate the viability of the “purchase circle” and plans to open a second, larger tranche of tokens to investors in the coming months. Israel hopes to use the proceeds to diversify the fund beyond Latin America.

Israel is skeptical about the efficiency of decentralized autonomous organizations—the typical crypto model, ruled by a pure democracy instead of a central authority—so GCC is managed and allocated in a traditional way. But the organization’s early success represents an exciting development for retail investors keen to get in on early-stage companies instead of multistate operators, which primarily trade on the heavily regulated Canadian and Toronto stock exchanges.

Companies also may work with brokers to undertake a roadshow of sorts in the crypto ecosystem, drumming up interest and soliciting feedback before crowdsourcing capital that may or may not involve an NFT acting as the smart contract.

But given the persistent, well-documented instances of fraud—or “rug pulls,” as they are dubbed—Rosales of ISA Group recommends companies seeking funding in the crypto space embrace transparency to build trust with prospective investors. “There has been a lot of fraud,” she said. “This typically looks like groups raising money for a project that isn’t real and then the people taking off with it.”

Projects often are created without the owners being “doxxed,” meaning their identities are unknown. This creates a situation where investors don’t know who they are investing with and have no opportunity for recourse if the deal goes pear-shaped.

“If they aren’t doxxed, there’s no way to trace them,” Rosales said. “That’s when all the people who are new to [decentralized finance] get freaked out, because they’re like, ‘Well, who do I call to help me?’ Sadly, no one. You’re in decentralized finance. No one’s in control, and there’s no customer service. You can’t have it both ways.”

Pegging crypto projects to real human beings and visibly legitimate businesses is one way of establishing trust. However, if companies and individuals aren’t prepared to put in the effort to meet the community where it is—Discord, Twitter Spaces, Reddit—then half-baked appeals likely will backfire.

“If you want to ask the community to support your project financially, you have to get out there and be available all the time,” said Rosales. “I don’t give a shit if you’re the president and the CEO of the world. You have to show up to Twitter Spaces with your community. You have to be involved and engaged. That’s the difficult part about this. You’re always on. I do this all day long.”

Another important consideration is the significant environmental impact of cryptocurrencies. Central to the technology’s security is something called the Proof of Work protocol, described by Investopedia as “a decentralized consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system.” Herein lies the source of crypto’s problematic environmental impact, which the grimmest estimates suggest consumes more energy annually than the entire nation of Portugal.

The cannabis industry has yet to seriously confront its own environmental impact. According to a study published last year in Nature Sustainability, growing a kilogram of dried indoor cannabis could produce a carbon dioxide equivalent (CO2e) of as much as 5,184kg. For context, beef production, often held up as an example of emissions excess, produces just 22kg CO2e per kg. Before the industry can weigh the opportunities presented by widespread blockchain and cryptocurrency integration, both sectors must work harder to become carbon-neutral.

Metaverse
The Higher Life CBD Dispensary on Voxels

The metaverse

In October 2021, something called the “metaverse” muscled its way into mainstream public discourse after Facebook unexpectedly announced a reorganization that moved the social media network under a parent company known as Meta. While cynics might question the timing of the announcement—that month, former employee Frances Haugen testified before Congress about Instagram’s devastating impact on teenage girls, and Facebook reported its first-ever quarter with zero user growth—Meta execs insisted the name change was intended to demonstrate the company’s commitment to building what founder Mark Zuckerberg believes is the future of the digital world.

Simply put, the metaverse is a 3D version of the internet where digital technologies like virtual reality (VR) and augmented reality (AR) aren’t just utilities or entertainment—they’re a way of life. The virtual universe is under construction largely in anticipation of a world in which people routinely use VR and AR devices. As it stands now, the metaverse is largely devoid of users (one report estimates just 60,000 globally), although proponents argue mass adoption is just around the corner. Bloomberg believes the market opportunity could be worth $800 billion by 2024.

So, what does this mean for the cannabis industry? Well, probably not a lot, at least in the short term, although the space might be useful as a branding tool. Although avatars conceivably can interact in many of the same ways their human counterparts do in the real world—including purchasing and consuming cannabis products—flesh-and-blood people can’t get lit in the metaverse. Someday, consumers may be able to order weed in the virtual world and have it delivered to their real-world door, but that reality remains a long way off.

That said, just because something has very little business relevance at the moment doesn’t mean some company won’t spend money trying to be the first to prove a concept. That honor goes to Saucey Farms & Extracts, which claims to be the first THC brand for sale in the metaverse. Saucey’s collaboration with Higher Life CBD Dispensary, which is on the metaverse-like Voxels platform (one of the few that allows cannabis-related content), encourages virtual customers to shop for Saucey products by clicking on a virtual cash register. The action whisks them out of Voxels and onto Saucey’s homepage, where humans who live in states where Saucey is sold may order products (via another click leading to Caliva’s website) or find a local dispensary on a handy map.

The company managed to bag itself some media attention, including a piece in The Wall Street Journal in which cofounder Alex Todd admitted sales have been virtually nonexistent. He predicted the industry may be able to sell cannabis in the metaverse within five years, assuming the feds renounce prohibition and millions of people embrace the virtual world.

Of all the web3 opportunities open to the industry, the metaverse seems like the least useful. Are there marketing opportunities on the horizon? Probably, but marketers shouldn’t bet their budgets on success just yet.

Into the Unknown

Just about every sector across the economy is under eager examination to see if it’s ripe for web3 disruption, and cannabis is no different. However, undeniable parallels between the technologies and the industry may make both wins and losses particularly likely.

Lincoln-III 1
Lincoln Barnett III (Photo: FLWRS)

Cannabis consumers and crypto users are, by their nature, anti-establishment. Each sector is considered by its proponents to be a disruptive, once-in-a-generation opportunity, and each lures the kind of zealots and boosters necessary to “hold the line” during difficult times. There’s no ignoring the fact crypto and NFTs attracted the same vein of get-rich-quick green-rushers who plowed into the cannabis and CBD space in 2018, when unrealistic expectations were based on presumptive economic data and hopeful regulatory assumptions.

But opportunities for cannabis companies definitely exist in web3. NFTs show potential as drivers of membership, community engagement, and brand loyalty, as long as the creators honor the utility aspect and don’t abandon them in down times. Funds like Global Cannabis Capital present a novel way for retail investors to get a taste of early-stage companies without the risk of intense volatility or so-called “rug pulls.” As for the metaverse, that one is a wildcard dependent on levels of adoption. If we’re all going to be wandering around a digital universe with the ability to order cannabis virtually, it’s not hard to envision opportunities to generate some kind of return.

Despite the considerable challenges facing cannabis and web3 at the moment, insiders in both spheres struck a defiant tone, highlighting how times of great turmoil bring great opportunities for those with the stomach for risk.

“This is the opportunity for new people to come in and dominate,” said ISA Group’s Rosales. “That’s what I’m most excited about. The dominant players are not going to be the companies we think. I think it’s going to come from nowhere.”

For Green Street’s Mayo, the volatility of nascent markets is simply part of being at the forefront. As his colleague Vaynerchuck has said, “pressure creates diamonds.”
“This speed and forward motion is exciting,” Mayo said. “If you want to be a pioneer in anything, you have to be comfortable with the fact that risk is baked in. There will be failure along the way. But failure’s good if you learn from it.”

Barnett also is undeterred by the headwinds, steadfastly continuing to believe the transition to web3 is inevitable—and a pivotal opportunity for brands that can seize it. He sees in the FLWRS Discord and Twitter Spaces a vibrant, impassioned community with an insatiable thirst for knowledge and a commitment to supporting those who support them.

“I think all cannabis companies should be looking into web3 to lay a foundation for a new digital era,” he said. “Communities are going to be central to this, and the sooner brands start to invest in building them through web3, the better chance they have of thriving in this next generation.”

Advertisement