The NFT boom is coming for THC and CBD.
Marijuana companies are rolling out nonfungible tokens (NFTs) to build hype around new products, verify testing results and sell consumers on exclusive deals.
Proponents of NFTs – defined as digital art tied to cryptocurrency and blockchain technology – say they’re the future of the next iteration of the internet, often called the metaverse.
But skeptics say the tokens – which swept through the art market and are now being deployed by mainstream businesses – have minimal value.
Critics also view the cryptocurrency sector, in general, as a pyramid scheme rife with scams.
Nevertheless, more than a few marijuana and hemp companies are curious enough to explore the space with an open mind.
“From a business perspective, you can’t ignore the NFT market,” said Sammy Dorf, co-founder and chief growth officer of Chicago-based cannabis company Verano Holdings.
“Cannabis is evolving so rapidly from so many angles that we think this could be an opportunity to engage different customers.”
Blockchain data company Chainalysis estimates the market for NFTs reached a $41 billion value in 2021, according to Markets Insider.
Here’s a look at how mainstream businesses are dabbling in the tokens:
- Under Armour released a collection of NFTs based on the shoes Golden State Warriors point guard Stephen Curry wore when he broke the all-time NBA record for career three-pointers.
- Adidas partnered with the Bored Ape Yacht Club to offer NFTs that give buyers exclusive access to purchase real-world products, among other perks.
- Nike bought RTFKT, which makes NFTs and shoes only for the metaverse.
- Entrepreneur Gary Vaynerchuk announced he will open a restaurant where patrons must purchase NFTs to gain membership.
Jeffrey Welsh, an intellectual and entertainment lawyer for Denver-based law firm Vicente Sederberg, said the “low-hanging fruit” for marijuana businesses is to build memberships around NFTs that are associated with cool or unique digital assets that, in turn, are connected to products such as popular or exotic strains.
“We haven’t yet seen the power for NFTs in cannabis,” he added.
In November, Boca Raton, Florida-based ACS Laboratory, which tests both marijuana and hemp, launched a certificate of analysis (COA) as an NFT during the Art Basel Miami Beach art fair.
The company partnered with Blockticity, which bills itself as a “leader in guaranteed certificates of authenticity for the most valuable of possessions,” to offer the testing COA on the blockchain.
Roger Brown, president of ACS Laboratory, said he was skeptical initially.
“I absolutely thought, ‘Who is going to buy a digital picture?’” he said.
Brown came around once he understood that offering COAs as NFTs on the blockchain could help authenticate testing results.
His lab gets calls every week with questions about the validity of test results. The COAs often have been altered after they’ve left his lab.
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With this new technology, a business or a consumer can scan a QR code and pull up an NFT of the COA, which is date-stamped and certified.
For the initial drop at Art Basel, ACS Laboratory sold about 100 NFTs at $100 each, according to Brown.
He doesn’t think of the NFT play as a revenue-generator but, rather, sees it as a way to bolster consumer confidence and strengthen brand reputations.
In an unexpected turn, ACS Laboratory is now fielding calls from consumers wanting the company to produce NFTs of COAs for a particular strain just because that consumer might like that strain.
He now has a whole team working to get COAs onto the blockchain.
“It’s coming around full circle,” Brown said.
How to avoid getting scammed
While scammers exist in the NFT space, that’s no different than the business world, Vicente Sederberg’s Welsh said.
To avoid operating in a questionable space, he recommends that companies do as much research as possible before listing or “minting” NFTs.
He also recommends that companies buy and sell the tokens on OpenSea, the most established marketplace.
In addition, Welsh advises staying away from any pump-and-dump scams.
The unregulated cryptocurrency market provides an opportunity for these types of schemes, where an individual or group purchases large quantities of “coins” to pump up demand and price.
Those same operators hype the merit of the particular cryptocurrency, often using social media platforms or influencers.
Once investors rush to buy the coin, the same group dumps its holdings, causing a price crash.
The most well-known pump-and-dump in cryptocurrency to date happened with a coin called EthereumMax.
Kim Kardashian and boxer Floyd Mayweather promoted the coin via social media.
EthereumMax has lost as much as 97% of its value since June and prompted the filing of a class action lawsuit.
Cannabis companies looking to mint NFTs, or to create originals, should also be aware of the potential for infringing on preexisting intellectual property.
For example, a series of NFTs is created to look similar to a famous fashion logo, say Louis Vuitton.
The high-end luxury company owns many trademarks, and if an NFT is released to intentionally look similar to something that is famous or well-known, expect a trademark suit from the famous brand.
“Just because it’s an NFT doesn’t mean IP considerations are out the window,” Welsh said. “A lot of times, people aren’t actually paying attention to who owns the IP.
“There’s a wave of litigation coming at some point.”
One major gray area: The NFT marketplace is not part of the real-world legal system, and so far, there’s no metaverse judge or courtroom.
Kicking the metaverse tires
At the moment, Verano’s Dorf is still in the exploratory stage when it comes to incorporating NFTs into the company’s business.
“It’s still early, but that doesn’t mean you can’t get involved and educate yourself and your company,” he added.
Dorf sees the parallel and rapid growth of both the cannabis industry and the cryptocurrency world as ripe with “synergies to explore.”
“Even if you don’t understand it, there’s no arguing that it’s here to stay,” he added.
Despite the early-stage nature of the technology, Dorf envisions NFTs helping to prevent counterfeit products via QR codes or certificates of analysis.
They would, in effect, function as a marketing tool and build exclusivity and hype around merchandise that’s for sale.
Thomas Winstanley, vice president of marketing for cannabis company Theory Wellness in Stoneham, Massachusetts, has been watching the NFT market “quite closely” and following its evolution.
He’s watched brands such as Nike and Under Armour use NFT drops successfully and is thinking of adding something similar in Theory Wellness’ product marketing.
“A lot of people have cryptocurrency that can finally spend it,” Winstanley said, adding that he expects the market for NFTs to grow “as we start to see new generations come forward and spend a lot of time online and ascribe value to things digitally.”
At MJBizCon 2021, David Hernandez, chief operating officer of New York City-based cannabis lifestyle brand Happy Munkey, created a free proof of attendance protocol NFT as a type of digital souvenir for show attendees.
Hernandez thinks of NFTs as a marketing tool to bind a moment in time to a person and create an avenue for further promotions.
“NFTs are keys to communities,” he said. “They get people to market creatively.”
For Anthony Alegrete, chief operating officer of 40 Tons, a cannabis clothing and accessories brand based in Los Angeles, NFTs are a tool for promoting social justice in the industry.
The company has used NFTs as a marketing vehicle that also raise awareness for people still incarcerated from marijuana convictions.
According to Alegrete, a large percentage of the secondary-market sale of these NFTs goes to social equity efforts such as helping prisoners convicted of marijuana charges while they’re incarcerated as well as when they come home.
“NFTs are a great way to build community and rally people behind you,” he said.
Bart Schaneman can be reached at firstname.lastname@example.org.