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How blockchain could fix a major problem weed companies face


Initial coin offerings (ICOs), a new way for startups to get funded by selling digital tokens in lieu of shares, have exploded. ICOs have raised $2.4 billion in 2017, according to a report from ICOBox and Coinspeaker—more than the amount raised by early-stage venture capital funding. Half of that amount, $1.2 billion, came this summer alone. There have been ICOs for sports gambling; ICOs for chat apps; ICOs for predicting the outcomes of sports events.

And now there’s an ICO for weed.

Paragon aims to build a blockchain for recording transactions in the legal marijuana industry, “seed to stem,” as Paragon founder Jessica VerSteeg puts it. She calls the company a “social network for cannabis companies,” which have struggled to get business bank accounts, because marijuana is still illegal at the federal level and banks fear the risk.

VerSteeg (pronounced “VIR-steg”), a model and former Miss Iowa, is the founder of a different cannabis startup, AuBox (taking its name from Au, the symbol for gold), a subscription service for marijuana-infused items. (VerSteeg is “pausing” AuBox for now.) She got the idea for Paragon when she noticed how many of the small businesses she worked with struggled to do their banking and record-keeping. Hence: blockchain.

For the unfamiliar: a blockchain is a decentralized, peer-to-peer, immutable ledger that originated with the digital currency bitcoin in 2009. (For more, watch this video.) On the bitcoin blockchain, “miners” upload bundles of transaction data in “blocks” and receive a small award in bitcoin for their work. But many financial businesses are now eyeing blockchain technology without bitcoin or any cryptocurrency to mine — closed, permission systems that can improve the speed of accounting, or transaction-settling.

VerSteeg believes in the future success of both blockchain and bitcoin. “I think, by now, everyone knows about bitcoin and everyone kind of knows the word cryptocurrency,” she says. “But, like me, and I’m sure many others, you first learn about the crypto and then you learn about blockchain.”

That’s why Paragon is raising money using an ICO, in which it is selling its own token, PRG, in exchange for either bitcoin, ether, or litecoin.

Paragon’s token sale

Paragon aims to create a total of 200 million PRG tokens: it says it already sold 70 million in a presale (mostly for founders, employees, investors, and “friends and family”) and is selling 30 million in a crowdsale that began on Sept. 15 and will run until Oct. 15 or until it sells all 30 million. (Any of the 30 million tokens unsold in the crowdsale will be destroyed.) Paragon is holding on to another 100 million tokens for later.

In addition to a blockchain for the legal weed business, Paragon plans to open physical co-working spaces, and holders of PRG will have voting rights on where the spaces are located. At those spaces, or online, customers will be able to buy products and pay for them in PRG: anything from soil to lights, but not marijuana itself.

California rapper The Game, who owns a marijuana dispensary, is an adviser to the startup.

Rapper The Game, in Paragon hat, with Paragon CEO Jessica VerSteeg. (Instagram: JessVerSteeg)
Rapper The Game, in Paragon hat, with Paragon CEO Jessica VerSteeg. (Instagram: JessVerSteeg)

Doubts about Paragon’s legitimacy

Unsurprisingly, Paragon has faced a healthy dose of skepticism online. In the comments on the company’s Facebook posts, and in posts on Reddit, many have accused Paragon of being a scam.

“The epitome of why ICOs are going to become regulated,” said one person. Another asked, “Where’s the tech? I just see people with money who smoke telling people to buy it.”

VerSteeg is aware of the accusations, and believes people are dubious because it’s a cryptocurrency project and because her cofounder is her husband, Russian millionaire Egor Lavrov.

“Imagine, we’re cannabis and blockchain,” VerSteeg says. “So we first have to explain, we do not facilitate the actual payment of the plant itself… Yeah, of course this has funded some bad projects, blockchain and cryptocurrency, but in the end, everything about it is good.”

And the risks of an ICO remain: companies that, in many cases, have demonstrated nothing more than a white paper detailing what they intend to do are raising hundreds of millions of dollars in ICOs. Paragon is one of them. For now, it hasn’t yet created anything, only described what it plans to create.

Many believe the ICO bubble is set to burst imminently. (China has banned ICOs for the same reasons.) But for now, it keeps ballooning.

Disclosure: The author owns less than 1 bitcoin, purchased in 2015 for reporting purposes.

Daniel Roberts closely covers bitcoin and blockchain at Yahoo Finance. Follow him on Twitter at @readDanwrite.

Read more:

Everything you need to know about initial coin offerings

Why Ethereum is the hottest new thing in digital currency

More than 75 banks are now on Ripple’s blockchain network

Expect more blockchain hype in 2017