Looping and Smurfing
There was a time when Smurfing was a 1980’s dance move requiring fancy footwork and high tops, and looping was an approach to repetitive music production. Today’s cannabis industry Smurfing and looping are the practices of evading top-down buyer restrictions designed with no forethought on how to enforce them.
Legal cannabis states often set daily limits on how much marijuana a customer can buy. In Washington, for example, retailers can only sell recreational users one ounce of flower, 16 ounces in solid form, 72 ounces in liquid form, and seven grams of concentrate. In Massachusetts, recreational marijuana consumers are able to purchase up to one ounce of flowers or five grams of concentrates.
For consumers, the workaround to this can take form in looping or Smurfing practices. Surfing isn’t really all that creative, a customer simply purchases the maximum daily allowable marijuana products (one ounce of flower in Colorado, for example) in one dispensary, then heads on over to another and buys more. Looping is even easier and doesn’t necessarily require driving. Simply purchase the maximum allowed amount of product, depart the store, return, and make another transaction (sometimes with a different budtender).
High profile crackdown
The issue was brought to light last summer when the City of Denver revoked all of Colorado dispensary chain Sweet Leaf’s 26 municipal licenses, alleging the company had engaged in an illegal multimillion-dollar “looping” scheme. In Colorado, the marijuana regulation laws state, “A Retail Marijuana Store and its employees are prohibited from Transferring more than one ounce of [marijuana] . . . in a single transaction to a consumer.” (1 Colo. Code Reg. 212-2.402).
State legislators introduced the idea to accomplish two things. First, to stop buyers from possessing more than the legal limit at any given time. Second, the sales limits are also used to discourage the resale of marijuana on the black market by making it more costly to acquire marijuana in bulk. For example, last August, the Oregon Liquor Control Commission (OLCC) reduced purchasing limits for Medical Marijuana Program cardholders from a generous 24 ounces a day to a single ounce in an attempt to curb black market trade.
Think of it this way. Imagine you wanted to curb obesity in your state so you made a new rule: No more than one pint of ice cream can be purchased in a given day (and no, it doesn’t matter what flavor). This is a brilliant idea! Maybe it will get people to lose weight by forcibly changing their behavior, as well as help discourage the resale of rocky road to others through the black market. Right?
The problem is, some people really like ice cream…and a lot of it. And laws with no real way to enforce them cannot stand in the way of an unencumbered mint chip craving.
Laws only work when you have a cost-effective way to prove they’ve been violated. Setting up a massive sting operation works if you’re breaking a crime ring, but posting up a police officer to watch people walk in and out of a dispensary isn’t a good use of time and has some privacy problems attached to it.
Incidentally, things went downhill for Sweet Leaf last month when three founders pleaded guilty to violating the state’s Organized Crime Control Act and were sentenced to prison and probation.
But, the purpose of this article isn’t to debate the justification for a prison sentence for breaking a difficult-to-enforce marijuana law, for that you follow this conversation. Instead, we’ll focus on the technological solution to make it possible to accurately prevent law-breaking, to begin with, as well as enforce it.
Tracking purchases with technology
Unlike Smurfing, which is more complicated to try and prevent, looping behavior can be mitigated through point-of-sale systems, but only within the same dispensary network. In which case, a consumer daily limit compliance can be tracked along each part of the customer journey at each shop.
Customer profiles can be created to track purchases and link them to the appropriate profiles. If a consumer bought a daily-limit ounce of OG Kush marijuana flower at 10 am, the system will flag an attempt by that same buyer to purchase again later that evening. In this way, a cannabis dispensary system can regulate sales by a consumer, making it virtually impossible for staff to violate local laws.
Cannabis retail dispensary business management platform WebJoint, for example, features like point-of-sale, inventory management, and consumer ID verification, effectively prevents retail operators from acting in non-compliance. Delivery drivers on their platform have the ability to communicate and verify the consumer’s identity from their mobile phones, which is then tracked through their inventory management system to ensure the retailer isn’t selling more than the legal daily purchasing limit for a consumer.
But this solution only works if each of the dispensaries is on the same point-of-sale solution. It doesn’t work to prevent or enforce laws against Smurfing or going between different retail outlets that don’t communicate with one another. To do that effectively we need blockchain.
Blocking out Smurfing with blockchain
Blockchain technology gives the cannabis industry an opportunity to record all verified, trusted records on a universal ledger that cannot be changed and can be universally accessed by authorized entities. For the purposes of looping and Smurfing prevention, all networked retail dispensaries.
I wrote this blog post as a primer to why blockchain is a good fit to help navigate through and potentially solve a variety of struggles within the cannabis industry. Have a look at that for a deeper understanding of blockchain technology prior to reading further if you’re new to the subject.
Cannabis looping and Smurfing schemes can be solved by leveraging a blockchain based system for state reporting within a given market. Using blockchain to document transactions would eliminate the possibility of cheating the system.
Without the blockchain, however, there are insufficient protocols and infrastructure in place for real-time purchase tracking of individual customers within a given cannabis market.
I spoke with Gabriel Allred, Ph.D., co-founder of Tokes Platform, a cannabis blockchain solution for banking, supply chain, and enterprise management, about how his platform is evolving to address this. “The system we are producing leverages a secure pseudo-anonymous distributed database of customers and allows the governing body (usually a state) to set time-based rules or parameters of how much cannabis a consumer can purchase in a given day,” he said.
In his solution, the customer will have a public/private key pair (a standard protocol for blockchains) used to verify their identity with dispensaries, after their initial verification with the governing body. The process is simplified for the consumer, as they will verify themselves via a mobile application that exposes a photo of themselves and their public key with the dispensary.
“As with many banking and financial protocols, a series of basic KYC (know your customer) steps would be put in place to verify the user and his or her credentials, first” Allred added.
Lynked.World offers a straightforward illustration of this process.
The key is to enable data sharing between organizations that could essentially be competing for the same consumer, while at the same time protecting the buyer’s personal data. In the Tokes solution, the assigned public key only validates with the dispensary that yes, this individual is of legal age to purchase cannabis, and that no, they have not exceeded their daily purchase limit – all while still maintaining a layer of personal privacy for the consumer.
Doing this type of blockchain regulating wouldn’t set precedent, either. Just last November, the government of New South Wales in Australia launched a blockchain-based digital driver license system giving 140,000 license holders an official blockchain-based smartphone-rendered ID card. The platform was developed with the aim of making government forms, registrations, and paperwork easier for residents to conduct through recorded, trusted agreements.
Go ahead and dance
While all this is possible to manage through blockchain technology, it needs to be top-down cannabis industry-mandated and universally accepted to take form. Because the blockchain is a network of peers, both the sender and the receiver need to exist on the same blockchain. Fortunately, the cannabis industry is still in its formative stages, and within its reach is the possibility of building something more efficient, democratic, distributed, and sustainable than mainstream business has established.
Meanwhile, and until a blockchain solution to regulate Smurfing and looping is universally adopted, we have an instructional version of the dance move to learn, compliments of a guy who likely never imagined it’d be mentioned in Forbes.
Nice footwork, fella.