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  • Writer's picturechadwalkaden

Cannabis and Web3 Crossover: Tokenization

What Does Tokenization Mean?

In the web3 world, tokenization refers to breaking the ownership, control, or some other rights associated with an asset into small pieces (tokens) that can be traded, held, bought, sold, and exchanged. This process is also referred to as fractionalization.

Before the advent of the internet, we generally referred to this tokenization as stock in a corporation or general contractual rights. Now that we are deep into web3 territory, the industry is developing new terminology built on the back of the distributed ledger technology that makes up web3.

What is a Cannabis Tokenized Security?

“Tokenized securities” are the simplest to explain because they have an analog in today’s common business world. You can think of cannabis tokenized securities as stock in corporations or ownership in LLCs, along with their myriad equity- and debt-based variants like convertible notes, preferred ownership interests, and SAFEs (simple agreements for future equity).

But in web3, cannabis tokenized securities can be much more than simple ownership rights and profit-sharing rights in licensed or affiliated cannabis entities. These securities can carry additional characteristics beyond voting rights like access to certain markets utilizing an issuer’s token or preemptive rights beyond normal preferred stock. Because tokenized securities are embedded in web3 technology, those rights will proliferate as quickly as the underlying technology does.

What is a Cannabis Utility Token?

Cannabis “utility tokens” offer something of practical value that is different from traditional ownership in companies found in security tokens and tokenized securities.

Web3 utility tokens contain only the non-ownership components of tokenized securities and security tokens that can be stripped away from the economic benefits of ownership. These include voting rights, access to people, places, specialized products in the metaverse and the real world, and digital-only assets like NFTs.

These also can include preferential purchasing rights for future merchandise or free swag like those found from companies raising early-stage capital on traditional crowdfunding platforms without giving any ownership interests in the company to those “investors” providing capital.

What is a Cannabis NFT Token?

NFTs (non-fungible tokens) are utility tokens. They are digital assets that may have tie-ins to the physical world (see here). At this stage in web3 development, NFTs are generally digital goods (artwork, videos, or GIFs) or rights (concert access, etc.).

Ownership of NFTs can be fractionalized (tokenized) the same way ownership in any asset or business venture can be divided among owners. Sometimes people say, “Let’s NFT this X,” which can mean either creating digital goods as NFTs or creating a tokenized security.

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