by Gai Scher and Fabian Limon, Attorneys at Greenspoon Marder
Blockchain technology is disrupting virtually every industry and new use cases for the technology are emerging daily. Non-Fungible Tokens, otherwise known as NFTs, are one of the fastest-growing of such uses, generating a media storm and fair speculation in the process.
Yet, many remain largely oblivious of NFTs past their existence, and of those who are clued up, the majority is dumbfounded that a digital version of a painting would generate an “inflated” level of excitement and perceived value; “I’ll just download a picture of the painting online”, they suggest. We won’t mention any names, but this commentary sounds awfully similar to that of Internet nay-sayers back in the 90s, who questioned why anyone would care to listen to sporting events online when they already do so on the radio, or why they need to search for information on the web, when they have a library of books at home. Well, here we are. Some of the largest companies in the world are launching NFT collections, with Nike and Hermès taking a stand and initiating legal actions to protect their IP from being used in others’ NFT collections.
There are no apparent boundaries for how companies can, for example, use NFTs to launch new verticals, enhance their marketing, build loyal communities around their products, or offer fans ownership in their products. So, it should come as no surprise that the cannabis industry, an industry not foreign to high regulation and much speculation itself, is also jumping to participate in the booming NFT market. The cannabis community has always been tight-knit and cutting edge with respect to art and technology, and it’s only sensible that forward-looking cannabis companies are now introducing NFT collections to promote new products, verify testing results, and offer consumers a new level of exclusivity and community around their brands.
Before we discuss a few examples of cannabis companies trailblazing in this space, let’s begin with a primer on NFTs and the industry specific nomenclature.
What is an NFT?
A Non-Fungible Token (“NFT”) is a sequence of unique code on a decentralized digital ledger called a blockchain (explained below). The unique code can be used as a digital certificate of ownership of digital or physical assets including for example: real estate, artwork, videos, songs, or documents.
What Does Non-Fungible Mean?
Assets, physical or digital, can be fungible or non-fungible. When an asset is fungible, it is divisible and interchangeable with assets of the same class. For example, one U.S. dollar or in the case of cryptocurrency, one bitcoin. A dollar can be interchangeable with any other dollar and can be divisible so as to be made up of four-quarters or ten dimes, and its value will remain equal to any other dollar.
On the other hand, a non-fungible token is unique in value and non-interchangeable with any other asset. For example, though any U.S. dollar can be interchanged with another U.S. dollar, a diamond is unique in value, each diamond having a distinct size, cut, color, grade and origin so that one diamond is not interchangeable with any other diamond. Similarly, NFTs are non-fungible making each unique, immutable, and non-interchangeable.
What is a Blockchain?
A blockchain is a digital, shared, immutable ledger that facilitates the process of recording transactions. Each transaction is recorded as a “block” which can include any information, terms, or instructions regarding the recorded transaction or asset including for example: deal terms, automatic future royalty or revenue shares from secondary market sales, names, or timestamps. The blockchain software records each transaction and as the block’s ownership is traded from one wallet to another, the blocks form a chronologically ordered chain of data and sequence of transactions linked together by cryptography that is public, permanent, unchangeable and verifiable. There are various blockchains, each suited for different purposes.
What is Cryptocurrency?
Cryptocurrency is decentralized digital money that is secured by cryptography and transacted on the blockchain, making it not reliant on any central authority like a bank or government to uphold or maintain it. The term cryptocurrency stems from the word “cryptography” meaning the encryption of messages in secret code, a process typically used to safeguard from fraud.
What is Mining?
Mining refers to the process by which new units of cryptocurrency are released into the blockchain when transactions are validated, similarly in concept to when the government prints new money.
What is Minting?
When you create a new NFT, you must “mint” the underlying asset and upload it to a blockchain. Minting refers to the process of verifying the asset, creating a new “block” of data that corresponds with that asset, and recording that data on a blockchain.
What Are NFT Marketplaces?
NFT marketplaces, much like Amazon and eBay for consumer goods, allow digital asset consumers to buy, sell, store, display, and in certain instances mint (create) NFTs. Some popular NFT marketplaces today include: OpenSea, Rarible, SuperRare, and Nifty Gateway. Marketplaces can range in digital asset offerings, exclusivity, and security. While some NFT sellers opt to build their own NFT marketplaces specialized for their buyers and NFT holders, the majority have found working with third-party platforms to be more efficient as they offer access to built-in marketing, legal, or technical support and an existing revenue stream and customer base.
Cannabis and NFTs
Despite how nascent NFTs appear to those on the outside, cannabis companies are already taking significant steps in getting involved, even collaborating with already existing cannabis focused NFT projects.
Crypto Cannabis Club
The Crypto Cannabis Club (“CCC”) has become one of the most popular cannabis NFT collections with 10,000 weed themed avatars called NFTokers. Anyone who holds an NFToker automatically becomes a member of the Crypto Cannabis Club. Membership in the CCC allows you to participate in the Crypto Cannabis Cup, which is a digital cannabis growing competition on the blockchain. Winners receive real-world cannabis-related rewards and can attend events that are exclusive to the holders of the CCC NFT.
Most recently, CCC formed a partnership with CampNova, a cannabis direct to consumer e-commerce platform. This partnership has been crafted in order to facilitate the project’s launching of the first ever NFT powered cannabis brand. The brand, which is expected to debut in March 2022, will initially launch a product line which entails 1/8th ounce (around 3.5 grams) packages of premium cannabis flower, and include custom artwork from CCC. Three packages from the production line will also include an NFToker NFT.
CCC has also established partnerships with Ricky Williams’ Highsman cannabis brand, Old Pal, Dr. Dabber, King Palm, Vibes Papers, Smokus Focus, Vitality Farms, Marleys Natural, Higher Standards, Fenders Blue Hemp, Official Dab Tray, Phoenician Grinders, and High Class Glass Gallery to offer real-world discounts to CCC NFT owners.
Cannasaurs NFT: Cannabis-Friendly Dinosaurs
Cannasaurs are hand-drawn cannabis-friendly dinosaur NFTs with randomly generated features. There are 4,420 Cannasaurs in total and they dropped on December 5, 2021 at 4:20pm. What makes the Cannasaurs project unique, is that membership perks depend on the number of NFTs sold. For instance, when the first 60% sell, ten of the rarest forms of Cannasaurs will be randomly distributed to Cannasaur holders. When the entire Cannasaurs collection sells out, 4.2% of total royalties earned in the first two years following the initial sale will be donated to The Last Prisoner Project and The Redemption Foundation. In addition, Cannasaur NFT holders will receive regular updates from the Last Prisoner Project and The Redemption Foundation about their work to support the release of non-violent cannabis offenders.
Digi Strains by Peakz
Green Peakz, LLC (“Peakz”), an upscale cannabis brand based in Oakland, CA made headlines last year when it sold its first bag of digital cannabis as an NFT. The Digi Strains NFT collection by Peakz offers legal digital weed as an NFT on OpenSea. The first drop sold out quickly and the collection displays colorful nugs of cannabis in different ways. Each drop has a different color pallet and an old video game style and spin so you can see every side of the digital masterpiece. They have since released other NFTs under the collection featuring other displays like the Golden Gate Bridge, Lambo cars, the Statue of Liberty, and more.
Starting in 2022, certain strains released by Peakz will come with a bar code that allows you to claim a free Peakz NFT with the purchase of real life products. Furthermore, Peakz is even taking it a step further and has purchased digital land, with plans to open the first ever virtual dispensary, making it one of the first cannabis companies with a presence in the metaverse.
Conclusion
With all the hype, it’s hard to believe we are still at the nascent stages of an emerging industry. And while we’re still in the exploration phase, it’s difficult to predict which NFT projects will prevail and what strategies and use cases will provide the most value to brands and consumers alike. In the meantime, it’s the companies with a willingness to explore, take a risk, and recognize that NFTs have the potential to push the cannabis industry to global acceptance, that have the greatest potential to shape how we do it.
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About The Co-Author
Gai Sher is an attorney in the Innovation and Technology practice group, as well as the Corporate and Business and Sports and Entertainment practice groups at Greenspoon Marder LLP. Ms. Sher concentrates her practice on representing and advising startups, emerging growth companies, brands, creators, and executives in media, technology, and consumer products in all aspects of commercial transactions. Ms. Sher has experience in deal-making and structuring rights, talent, and production agreements in the podcasting industry and other new media spaces.
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