Chitra Ragavan

The Iowa Beauty Queen, The Russian Technocrat And Their Cannabis Crypto Launch

The cannabis industry, one of the fastest growing sectors in the economy today, also has some of the toughest banking problems. Put simply, it is buried in cash, thanks to the illegality of the drug, the crush of laws and banks shying away from any and all weed proceeds. Blockchain and cannabis industry watchers believe that cryptocurrencies could be a game changer for the marijuana sector. In recent years, a number of weed coins have proliferated, including HempCoin, CannabisCoin, DopeCoin, and PotCoin, each taking a slightly different approach to solving the cash dilemma. “Once, virtual currencies and weed belonged together on the dark web;” said Lionel Laurent in a recentBloomberg Businessweek article, “Now, they’re being pitched as asset classes on track for mega-growth.”

Today, Paragon, a company formed by model and Iowa beauty queen Jessica VerSteeg and backed by her millionaire Russian technocrat husband, Egor Lavrov, will launch an ambitious but controversial Initial Coin Offering (ICO) for a new cryptocurrency, ParagonCoin (PRG) to facilitate cannabis related transactions on the company’s soon to launch blockchain platform. Both cannabis and blockchain industry experts say that if successful, the platform could create transparency in the cannabis supply chain and create much-needed standards in this shady, largely illicit sector. “There’s definitely a need for the platform that they’re proposing in the cannabis industry,” says Teemu Paivinen, an entrepreneur and investor at Zeppelin Solutions, a blockchain consulting and security audits firm. “And I think there’s a big opportunity there.”

But although backed by some veteran cryptocurrency advisors and partners, the ParagonCoin ICO has generated considerable controversy as well. Critics on social media forums have said the token is overhyped and overvalued. One Redditor described the token launch as nothing but a “blatant cash grab.” Critics also say the company lacks transparency and accountability. “And this might be the reason some people have been slugging them up pretty substantially in the social media,” says Simone Giacomelli, CEO and founder of Vulpem Ventures, “Because whenever there’s not enough detail or clarity, some of the more detail oriented auditors might flag this as a lack of credibility.” VerSteeg and Lavrov say their motives are transparent and above board. “We don’t need money in our own lives. We don’t need fame,” says VerSteeg. “Out of our own desire to help, we decided to make it for the community.” 

[Ed note: Investing in cryptocoins or tokens is highly speculative, and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Cash Crop

Currently, because use, sale and possession of cannabis are illegal under federal lawevery aspect of the industry is cash-based because, by law, the proceeds can’t be put in a bank. That means cash payments for growers, buyers, sellers, PR firms, lawyers, accountants, real estate agents, landlords and delivery people. Even taxes are paid in cash.  VerSteeg’s and Lavrov’s goal is to sop up cash from cannabis related services. “If we move just 1% of the industry’s cash into PRG,” says Lavrov quietly, “You can imagine the value. It’s a $100 billion industry.”

In addition to the cash problem, lack of regulation has led to inconsistencies in lab purity results, difficulties in patient verifications, and numerous data integrity problems. “You have no way of trusting the information that you are being fed, so to speak,” says David Sonstebo, a futurist and founder of IOTA. The non-profit foundation has built a next-gen distributed ledger technology called Tangle, which Paragon will eventually be using.

A blockchain platform could solve these problems. A blockchain is a  distributed ledger that creates immutable, tamper-proof records of transactions, and smart contracts to enable logic and automation. “With the sequences in place, you can prove the provenance from seed to weed to however you ingest it,” Sonstebo says, “And I think that is very important in order for cannabis to be accepted as a legitimate crop instead of just being like this drug for stoners.”

A New Ecosystem

The Paragon blockchain platform is designed to connect cannabis players through an open-source blockchain network with different data access permissions for different participants. Because of federal patient privacy rules, patient data would be stored off the blockchain. But verification of their data would take place on the distributed ledger. “You cannot see my medical history,” says VerSteeg. “But what you can see is my doctor’s name, my expiration date, and like a blue check thing saying this is a valid ID saying I can buy medical marijuana.”

Paragon members could use the PRG tokens to pay for all cannabis services and benefits except buying or selling of the drug, which would be illegal, says Lavrov. In fact, Lavrov says, if anyone attempts to use PRG to buy or sell cannabis, Paragon will report them to the authorities. “Our business is not touching the substance itself in any way,” Lavrov says, “So even though we are a cannabis-related startup, we’re not buying, not selling, not creating a market for cannabis itself.”

Members could also use PRG for casting votes on the locations of Paragon shared office spaces and priorities for spending community reserve funds. “They are not doing this ad hoc, hey, let’s get a quick money grab,” says IOTA’s Sonstebo. “By doing it the way they are doing it, at least as defined in the white paper, they are creating a very collective community effort around it, and I believe that’s a very good approach.”

Terrible Tragedy

The Paragon blockchain evolved from a personal tragedy that touched VerSteeg deeply. In 2015, VerSteeg lost her boyfriend, Tyler Sash to an overdose of painkillers.  

Sash was a former standout safety for the University of Iowa who won a Super Bowl during his rookie season with the New York Giants. He was always playing in pain from injuries, concussions and chronic shoulder problems and asked VerSteeg if he could smoke weed to prevent addiction to painkillers, she recalls. “And I said, ‘No, Ty, you have to trust these NFL doctors; you’ll never get addicted,” says VerSteeg. 

But after suffering five concussions and being cut from the Giants roster before the 2013 opener, Sash returned home to Iowa where he began to show bizarre symptoms and erratic behavior, which VerSteeg discovered stemmed from prescription opioids. “And I had this exact flashback to that moment in New Jersey,” recalls VerSteeg, “when he asked if he could smoke weed instead of becoming addicted.”

The Drug Enforcement Administration says the current weight of evidence shows that smoked marijuana has a “high potential for abuse, and has no accepted medical value” and that there is a “general lack of accepted safety for its use even under medical supervision.” But despite the lack of rigorous testing marijuana is believed by advocates to have potential benefits for conditions including chemotherapy, chronic pain and muscle spasms. 

Sash’s addiction broke up their relationship and VerSteeg moved to San Francisco. On Sept. 8, 2015, Sash, then 27, was found dead at his home in Oskaloosa, Iowa. “I never made it to see him,” VerSteeg says. According to news reports, the medical examiner ruled an accidental overdose of a mix of two highly addictive painkillers, hydrocodone and methadone. His family later released results of tests performed on his brain confirming that Sash had advanced Chronic Traumatic Encephalopathy, (C.T.E.) — a degenerative brain disease that affects many football players. 

Sash died unaware that VerSteeg herself had begun to both experiment with and sell cannabis. After his death, she launched her company, AUBox nationwide, and became a proponent of standardizing the medicinal marijuana supply chain. “Right now, regulations are different from county to county, state to state, let alone country to country,” VerSteeg says. “So once you can prove that it’s the same all around and it all meets up to be the exact same standard, people will start to feel comfortable with it and it takes away this bad dark image that it has.”

VerSteeg has the backing of her husband Lavrov, who became a tech millionaire in Moscow at age 16 and is now a serial entrepreneur and venture capitalist. Lavrov says Paragon’s value lies in building a blockchain cannabis ecosystem that fills key gaps, including the dearth of shared office spaces. Currently, cannabis workspaces are prohibitively expensive and often tough, if not impossible to find, given the federal law and so-called Green Zone local zoning restrictions. “So what we are planning to do is not an existing business model,” says Lavrov, “But we are very innovative space and we are innovating the business model as well.”

A Real Kerfuffle 

But not everyone is a fan of the Paragon paradigm. VerSteeg and Lavrov have been excoriated on Reddit and other social media forums, largely anonymously, for what critics describe as an overvalued token used to fund pricey real estate projects. Paragon plans to issue a total of 200 million tokens, but 100 million will be held in reserve for various purposes including a future round and the remaining 100 million tokens are being sold in the current round at $1 per token. Critics on Reddit have complained that the token price is “10x” over inflated compared to other tokens. But Lavrov says these naysayers are making “baseless” accusations because they don’t know how to evaluate market capitalization of cryptocurrency. “They are just comparing a one dollar token to a token that is just 0.26 cents that is Ripple,” Lavrov says. “But they don’t understand that we only have 200 million tokens total and Ripple has over a billion.”

In the lead up to the launch, Paragon also has gotten into a real kerfuffle with Redditors who allege the company used fake online users to build support and bots for “brigading,” or manipulating group votes to censor critics and even delete negative posts during online forums. VerSteeg and Lavrov deny the broader allegations. Lavrov admits that a Paragon employee deleted one post and that he admonished his team over the incident. 

Lavrov says he and VerSteeg are also battling 24/7 DDOS attempts on Paragon’s network and that they have been the victims of a number of attempted scams and cryptocurrency extortion attempts. They believe the negative publicity on Reddit and related incidents can be traced back to those alleged attempts. “They are professional criminals, they are manipulating facts,” says Lavrov. “None of the accusations are real.”

This week, after receiving a second alleged ransom demand which Lavrov defiantly posted on Medium, he and VerSteeg reported the incident to the San Francisco police department’s Financial Crimes Unit and they’ve also contacted the FBI, according to Paragon’s attorney, Julian Zegelman. 

Crypto Conundrum

Cryptocurrency veterans Paivinen and Giacomelli say that it’s surprising and puzzling that Paragon has gotten into so much hot water, given the company’s impressive roster of advisory board members and partners, including IOTA and ICOPromo. Dylan Dewdney, Co-founder and Principal at Harbour, a Canadian blockchain governance protocol company says that Paragon’s core business proposition is also sound. “Having supply chain verification is definitely the way to go,” Dewdney says. But he believes that some of the add ons in the proposal, such as the Starbucks-style shared office spaces, may have exposed Paragon to the intense criticism. “It sounds nice, but it’s not necessarily needed,” he says. “And I think it devalues your business proposition from the standpoint of doing this on a blockchain.” 

All these controversies have detracted from the fact that VerSteeg’s blockchain epiphany could have implications for the entire $2.4 trillion agricultural sectors. “Proving that someone has abused the amount of pesticides and herbicides is very important,” says IOTA’s Sonstebo, “and also being able to prove that something is grown with a certain soil, with a certain amount of pH value, that you can optimize the crop itself.” 

And Sonstebo notes that though Paragon’s immediate focus is the cannabis crop itself, the true value of the platform could eventually be all the underlying data. “We’re living in the era of big data. And data is the new oil, so to speak,” says Sonstebo. “So indeed, I do believe that’s a completely new revenue stream that people haven’t even thought of.”

Given the controversies and daunting legal, technical and community hurdles, it’s anyone’s guess whether VerSteeg and Lavrov can generate enough support and ICO horsepower to fulfill their stated vision of a transparent cannabis supply chain built entirely on a blockchain. Alternately, there’s also the possibility that ParagonCoin could become just another weed coin in an already over proliferated field.