This is a case study on the disruption that is coming with the collision of our legal system, the stranglehold of the payment gateways, the demands of the health, wellness, CBD and Cannabis markets, and crypto-powered digital cash.
And a significant Trojan horse, gateway-market opportunity to capitalize on an underserved market as a leg in to what I think could signal a possible eroding of power in the credit card and payment infrastructures in the U.S.
Here’s the storyboard of market forces as I see it.
Crypto payment/digital cash blockchain projects talk about the unbanked in vertical industries like Cannabis ($10B/Y) as the low hanging fruit for a first in, underserved market segment.
It is both much larger than they talk about, broader in scope, in its very early infancy and highly strategic in the long game.
Today there are eight states that have legalized recreational use of Cannabis and some thirty that allow it in some fashion. This number will most likely triple within a decade as a legal business today operating outside of the banking system.
But Cannabis is only part of this puzzle and while the largest now, I think simply a leg into something even larger in the future.
My interest and work in the wellness and nutrition world has drawn me into the benefits of CBD or Cannabidiol which is different than Cannabis/THC. Both can be derived from Cannabis but medicinal supplements that use CBD are primarily derived from Hemp.
CBD is not psychoactive (doesn’t get you stoned), is legal, for sale most everywhere and has a host of attributes for disease treatment from depression to arthritis, and is an ingredient in many beauty and sports medicine supplements, sprays and topicals.
While numbers are hard to come by, I’ve heard from multiple sources that within the last 3-5 years it has grown from almost nothing, hitting the $5-600M number last year selling into the $6-7T wellness, health and beauty market and the $100+B supplement segment.
The reason you are most likely using this ingredient and don’t know about it is the legal murkiness that is well outlined in this excellent post on CBD in the beauty industry by Claire Mccormick.
In 2016, the federal government classified CBD that comes from marijuana as a Schedule I narcotic, lumped in with heroin. And with Jeff Session ramping up his war on Cannabis, by association CBD from Hemp is now complicit.
Not technically illegal but the payment gateways—credit cards, authorize.net, Stripe, Square—if they know you are selling CBD-based products are refusing to service your transactions, or sporadically charge crippling fees and have seized funds with little or no recourse, including bonds posted to guarantee payment.
This rolls downhill by association that if you are selling beauty creams with CBD not only can’t you process online with credit cards but many other services including your insurance and credit ratings will be impacted directly as you go on published lists of so called illicit companies selling questionable products.
So CBD, a scientifically proven (and yes I use it) beneficial ingredient is now lumped in with THC, porn and firearms. Consequently the majority of companies simply don’t list that it is a component of what you buy except by innuendo. Still, the segment is creeping up with an expectation to top a $1B/Y biz in a few years.
This story and opportunity is not just about the unbanked buying pot-laced cookies or chewing gum before you jump on the lift at Vail to ski the back bowls stoned. Not just about the breadth of the supply chain of the Cannabis industry.
It is also about CBD as an ingredient that in spite of everything, is turning into a crossover market to the wellness, supplement and genomics food businesses. How the larger mainstream adjacent markets will swallow this segment and won’t turn their backs on the opportunity, equally won’t tolerate the large payment processing hiccups.
How does this pertain to crypto?
A stable coin cyrpto gateway platform solution that can span this broad opportunity is invariably going to to happen in some fashion.
A number are targeting it from a point solution perspective, seeing the vertical market niche of Cannabis as the unbanked low hanging fruit. As they should.
But, as is often the case, when you do the hard work to build the backend in blockchain, you have the opportunity to target the broader possibilities if you are thinking out-of-the-box. Reimagining an industry not plugging in a tokenized point solution as a fix.
So with the Crypto, CBD and Cannabis opportunity.
I’ve spoken with people in the crypto payments space and most acknowledge the Cannabis market as a low-hanging fruit for a stable coin transaction system.
I also know that adjacent industries like supplements and wellness through the CBD scenario foreshadows that this is not just about recreational pot, it is a Trojan horse for an unbanked, unbranded, unacknowledged need for a new payment system cross these multi-Trillion dollar adjacent markets.
When the large companies start gobbling up the small CBD-based supplement and beauty companies, which they most asuridly will, one transaction system will be needed cross all the lines.
It may start today with a way to transact at the pot shop in Aspen but has legs into a possible competitor to authorize.net and Stripe, Shopify and PayPal. Or the leverage to make the big players change their tune.
And while I presume that the digital cash players are talking to alternative platforms providers in the Cannabis niche, I am quite certain that they are not talking to the CBD entrepreneurs who have one foot in the greater wellness and supplement industries.
That’s the story and the opportunity in a snapshot. An interesting one.
If you are an expert in the niche pieces of this murky puzzle, I’m interested in connecting.
I am as well currently accepting clients at the intersection of these areas.
