I have long been a fan of the legal weed industry, largely because I love investing in vice.
Few investment themes are as compelling to me as cigarettes, beer…and weed. From a financial perspective, those industries are just good business for investors because no matter what’s going on in the world or with the economy, people do not easily forsake their vices.
That means vice companies have a customer base that returns over and over again, and will, out of necessity, forsake various discretionary expenses to feed that monkey on their back.
Profit by way of addiction: It’s a very effective business model.
Which leads me to today’s dispatch and what is a unique take on weed investing that uses a non-fungible token, or NFT.
NFTs are one-off, one-of-a-kind cryptocurrencies that represent ownership of a digital asset. (Before reading this alert, I’d advise that you check out the two NFT reports I’ve prepared as part of Frontier Fortunes, if you haven’t already done so. These are: How to Invest in NFTs and The Frontier Fortunes Guide to NFT Wallets.)
I am going to assume you currently have, or have used in the past, a retail loyalty card like, say, the Starbucks Rewards card. Well, apply that same concept to legal weed dispensaries and you have Tokem, an app-based loyalty-rewards program that awards $TOKM crypto coins for purchases at participating dispensaries.
Accumulated $TOKM can be converted into other cryptocurrencies such as bitcoin, Ethereum, or Solana…or used to gain discounts on buying weed, which is why I see big demand for the Tokem NFT collection, called the High Rollers Club.
Consumers will join the loyalty program for free and do not necessarily need an NFT to benefit—though owning one, as I will explain momentarily, is definitely beneficial.
Dispensaries, meanwhile, will pay to Tokem an onboarding fee and a monthly fee to remain in the program (that’s paid in fiat currency, such as U.S. or Canadian dollars, to Tokem). Tokem, in turn, will be in charge of distributing $TOKM to users.
As such, Tokem’s income as a company doesn’t come from selling NFTs or pushing any kind of product through the app. It comes instead from dispensaries signing up for the program, and the ongoing monthly fees for remaining in the program.
The Free Weed NFT
Tokem’s first phase will see it launch in Canada, where the company is already generating interest from dispensaries. Phase two will have Tokem expanding into the U.S. market, while phase 3 is global expansion into various countries where cannabis is legal.
For phase 1, Tokem already has a waiting list of some 500 dispensaries through a Canadian collective. There’s another list of 750 from two partners. To protect its base of dispensaries, Tokem will only ever be in 30% of the outlets in a given area, thereby helping dispensaries differentiate themselves locally.
Looking ahead, Tokem has a strategic partnership in Europe that could see the loyalty-card program roll out to 800-plus dispensaries across the continent.
To be sure, Tokem isn’t rushing to land in all of those dispensaries immediately. It wants to make sure the program is functioning perfectly before it scales. Which is why Tokem in October will begin testing in 40 or so dispensaries across certain regions of Canada.
Question is: Why would dispensaries care about a loyalty-card program anyway?
I mean, dispensaries have a built-in and almost-captive consumer base, given that only a relatively limited number of licensed shops can sell weed legally.
Even at that, though, competition is intense and dispensaries are forever looking for ways to differentiate themselves. A loyalty card program is a unique approach inside the legal weed industry. Better yet, it’s a concept with which consumers have abundant experience and are generally eager to use because of the benefits.
With Tokem, those benefits accrue a couple of different ways.
First, customers “check in” with a bud-tender when they arrive at a participating dispensary. The bud-tender will scan the customer’s app and even if a purchase isn’t made, the customer earns a bit of $TOKM. (And, yes, Tokem realizes people might try to game the system by checking in multiple times per day across multiple stores, so it will place limits on the amount of check-ins.)
If a customer goes on to purchase, they’ll earn more $TOKM based on the purchase amount.
What they can do with that $TOKM is where I think value will likely accrue to the NFT.
Early on, Tokem will allow app users to spend accrued $TOKM to buy discounts. So, for instance, a user accumulates X amount of $TOKM and can convert that into a, say, a 15% discount at their dispensary.
In a later phase coming next year, Tokem’s app will allow the purchase of cannabis products by way of various cryptocurrencies. The upshot there is that users would be able to spend $TOKM directly on purchases, which means a customer could use, say, $100 worth of accumulated $TOKM to buy $100 worth of cannabis products. Basically…free weed.
It’s no different really than earning enough credits to grab a free latte at Starbucks. There are some legal matters to work through first, but tell me the possibility of earning free weed is not going to see Tokem gain a huge following.
I’m not being overly optimistic when I say that this ability to buy cannabis-based products with crypto rewards instead of cash is going to drive demand for the free app and the NFTs.
Why the NFTs, in particular?
Because Tokem’s High Rollers Club NFTs can be staked to earn $TOKM. Better yet, staked NFTs will earn a cannabis consumer a 500% $TOKM bonus per store visit. Own an NFT—or several—and a cannabis user can far more quickly earn enough $TOKM to basically buy product for free.
Tokem, then, is building a true utility project that has a direct-to-consumer benefit that consumers are going to want to use because it means free weed. Moreover, Tokem is building natural demand for the NFT through a staking process that generates a payout that consumers can actually use in the real world.
Limited Supply, High Potential Demand
Tokem is only going to mint 10,000 NFTs.
Let’s assume Tokem only manages to go into those 1,250 stores currently on the waiting list in Canada. That’s an average eight NFTs per dispensary. I feel confident in saying there are more than eight customers per dispensary who would want an NFT for the staking benefits.
Now, let’s assume Tokem succeeds in Canada and spreads into the U.S. and Europe, as it plans to do in phases two and three. We’re talking about very small numbers of NFTs available on a per-store basis—probably in the range of three per store, possibly less. That’s a supply-demand issue that should be quite beneficial to the NFT’s floor price.
To be clear, this isn’t an issue that crops up immediately. As I noted, Tokem will take its time scaling to make sure everything works as intended, and that the company stays within the bookends of all the relevant laws in each country.
For those who don’t buy weed, but who understand why Tokem’s benefits are likely to drive demand for the NFT, earning $TOKM is just as financially rewarding. A secondary market for the token will emerge. As such, I expect that $TOKM will be traded on various exchanges, meaning NFT owners will be able to convert $TOKM into various crypto that can then be transferred back into fiat currency, if that’s your desire.
I talked to one of the founders, and he sees “a pretty healthy [token] cycle honestly. As more customers download Tokem and begin using it, retail partners will see more advantage in in-app advertising/boosting. As more retailers begin being active throughout our ecosystem, users will want to top up $TOKM so they can reap from the offerings of our partners.”
Before I move into the wrap up, let me offer a little bit on the team: It includes federal cannabis lobbyists in Canada and the U.S., so they’re well plugged into the industry and the legislative actions that impact legalized marijuana. Strict laws on everything in this industry from marketing to advertising to packaging make this a big selling point for me. This team is not a bunch of weed novices trying to feel their way through a challenging legal environment. They can pick up the phone and talk to whoever the need to.
The Wrap Up
In an NFT space where so many projects are launching, or have launched various X-to-earn schemes, Tokem’s shop-to-earn approach is one of the more unique takes on this larger trend. Moreover, its shop-to-earn is useful in the real world and with tens of millions of global consumers who demand a very real product.
It seems to me that Tokem is likely to find a broad fanbase among consumers who will be eager to turn their spending into $TOKM they can use for free weed…and among dispensaries. This is a commodity business and right now the only way dispensaries compete is on price. An app-based loyalty rewards program is a new step in helping dispensaries differentiate themselves.
As for the NFTs, I see elevated demand for them because of the staking function that will allow consumers to earn that 500% bonus and, thus, collect rewards even faster that they can then turn around and convert into free weed. And while 10,000 NFTs sounds like a lot, the reality is that once Tokem begins expanding, that supply is going to prove exceedingly thin for the real-world base of cannabis users in the markets Tokem is targeting.
Competition, of course, is bound to crop up. Loyalty programs are easily duplicated. But first-mover status will mean something. Plus, plenty of dispensaries exist for Tokem to find and maintain its business model.
At the moment, Tokem has not set a date for the NFT launch. It looks like it could happen later in October, so that gives you some time to get involved in the Discord community in terms of trying to land a whitelist opportunity to mint an NFT when they’re launched.
Also, you should follow Tokem’s Twitter account. All followers will get airdropped some $TOKM at some point.
