Why ICOs Are a Bad Idea For The Regulated European Medical Cannabis Industry

Demonstrators in Germany create street art during legalization march

There are a few firms right now in Europe considering mixing blockchain technology and cannabis. Some have interesting models (read compliant with banking and medical privacy law across the continent) while most do not. In the latter category place every start-up with an .io suffix and/or a plan for an ICO.

Want examples? See Bitcanna (now lining up for its sale). See also Jibbit (now in the midst of its ICO).

For the most part, especially in Europe, and even more especially in Germany, this is a very bad idea.

Note to investors, keep your money in your pocket.

Here are the top reasons why.

The “Online” Industry Is Doomed To Insignificance In Europe

While it might sound cool that Doc Morris (the largest online pharmacy on the continent and based in Holland) is now selling non-medical CBD products online — direct to consumers — it is not a big breakthrough for the industry. All you need is a regular bank account to purchase these products. You can do it with your regular banking debit card via the SEPA network. You can also, by the way, use the same banking debit cards at most coffee shops in Holland.

So why mess with cryptocurrency in the first place?

The biggest customers for online sales that cannot be sold through a mainstream website like Doc Morris to begin with are cannabis seed companies scattered throughout the continent. Most of these firms have issues with payment through other sources (i.e. PayPal, regular credit cards), but this is actually a very small part of the overall market here. Plus of course, “home grow” is actually illegal in most of Europe for right now. This model also does not help regular (poor, sick, impoverished, chronically ill) patients.

There is ZERO chance that the German government (for example) will allow patients to buy their medical cannabis products through any kind of online portal that they do not approve. Which means none at the moment. Why? Cannabis is classified as a prescription narcotic, which must be dispensed via a doctor and picked up, in person, at an apotheke. Even licensed pharmacies cannot distribute pharmaceuticals through this method.

Add cryptocurrency, of any stripe to the equation, and it will never pass muster.

Europe Is Developing A Regulated, Regular Medical Cannabis Industry

Online pharmacies are slowly establishing themselves across many countries in Europe. Germany is not one of those countries, although insurance companies are looking at the model for very sick patients only — with emphasis on the looking part. However, this is also a very strange market, and one that ICO blockchain companies (with their own coin) will always be excluded from — for both banking and medical privacy compliance reasons.

If you are in the market, in other words, for cannabis seeds, be aware that when you grow them into plants in most jurisdictions, you are facing at minimum, a lot of unpleasantness from the “law.”

If all you want to buy is gear, there are many alternative options already available. You certainly do not need cryptocurrency. Storz and Bickel, perhaps the best known vape company in Europe and certified for medical use beyond their internationally seminal “Volcano”, distributes through many online venues — as well as regular brick and mortars. You can also buy direct, from their website, with your regular debit SEPA card. Again no cyber currency required.

What Are The Banking Issues?

In an environment where the Deutsche Börse is restricting the kinds of public cannabis companies who can list and clear their stocks on German exchanges to “medical only,” and the German regulatory authorities are refusing to accept funds from any ICO anywhere — and certainly not without a fuss — understand that this is already dangerous territory. Double that risk (at minimum) when it comes to cannabis related ICOs.

For that reason, it should not be surprising that an ICO for the medical space is going to be looked at (at minimum) with scepticism.

Why? Cannabis is seen as a medical product here by the powers that be. That is the law (where medical regulation has recently changed). Further it is also a crop, according to regulators here, that should not be speculated upon (like food). The moment a cryptocoin carries any kind of value that can be earned, swapped, bought and sold independently, that is what is happening.

On top of that, there is a pesky banking issue that goes further than even this problem — known as KYC (know your customer). The reason German bankers do not like this space in general, is even if they know the identities of all of your investors, they still do not know the “identity” if not source of the coin. That is why, when push comes to shove, every start up in this space is already risking banking regulatory attention that is unlikely to be positive.

Add cannabis to the mix, and the process is even thornier.

What Are The Privacy Issues?

In the medical space, there is also the matter of new privacy regulation across Europe (that is even thornier in Germany). This is usually referred to by its acronym — GDPR — or General Data Privacy Regulation.

What does that mean in the broadest terms? Patient medical data must sit on country-specific servers. A globally distributed blockchain system automatically violates this concept.

On top of this, patients must be able to control their medical information. Put any medical records on a blockchain and it stays there forever. The antithesis of GDPR in other words.

So Why Are There “Cannabis Blockchain ICOs” in Europe?

Good question. For the most part, it is because mostly Dutch-based seed companies are still fighting with mostly American connected credit card and payment networks which are refusing to process their customers’ orders. Seed shops are legal in some European countries. Cannabis however has not gone through federal reform in the U.S. That is the issue. Blame that on the international banking system. Read U.S. banks. U.S. based cannabis companies, even in states like California face the same problem.

And for the most part, the start up ICOs now moving into this space are targeted at recreational customers who are frustrated with a lack of access if not full cannabis reform.

Medical customers desperate enough to try to buy seeds and grow in secret should be aware that their rights are not being protected to the fullest extent of the law. And non-medical customers should also be aware that this is not an avenue without its risks. While the sale of seeds is not illegal, growing your own cannabis, for the most part, still is.

And for all the hype about “anonymous” coins — they can still be tracked and traced by authorities — not only from company records, but at point of sale. See Silk Road, episodes 1–3.

Investors, in other words, looking for participation in the legitimate international cannabis industry, would be better off investing in regular old stocks, bought and sold with regular old cash. No cryptocurrency required. Or even accepted.

Disclaimer: Marguerite Arnold is the founder of a blockchain-based, medically focussed smart prescription start-up called MedPayRx.de. It is the first medical blockchain startup that touches the cannabis space to have been accepted in a German government and insurance sponsored incubator (via Werk1, summer 2018 in Munich). The company is creating a platform that can be used for all prescription drugs and medical equipment, will not issue cryptocurrency nor engage in an ICO, and is designing its system to be compliant with both medical privacy and banking law both in Germany and across Europe.

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Marguerite Arnold

Marguerite Arnold

Marguerite has covered the legal cannabis industry internationally from Germany for over six years and is the author of several books plus a Cannatech geek