Update: It’s come to my attention that some of the investors who took part in the token sale are raising a class action lawsuit against Paragon for improper sale of securities. I’m not going to comment on the case before its settled in or out of court. Like everything in crypto world, always do your research. Invest in teams, not ideas. More so, as it says in the About Me section, you’re an idiot if you take my writing as recommendations or gospel.
Before I start my review of ParagonCoin I want to get a few things out of the way. Yes, they have the Game on their advisory board and Founder Jessica Versteeg is former Miss Iowa. But, if you just read the headline, you’ll miss all the interesting bits about this soon to be $100 million ICO. I had a chance to speak with Jessica and her husband Egor Lavrov at length with a friend of mine, Shaun Gindi, who owns the Ajoya chain of dispensaries in Colorado and brought almost a decade’s worth of experience to the table.
It took me a while to figure out what Paragon’s plan was. Its actually very similar to Ambrosus. The very foundation of project will be their open-source blockchain ParagonChain, a transparent immutable ledger which will record everything from from seed to dispensary. The data put on the blockchain will include patient information, plant registration ID’s, lab results, THC and CBD concentration and many other individual data points. Their blockchain will cover the entire supply chain, growers, laboratories, manufactures, logistics and finally dispensaries, but only for the sale of non-cannabis items. Retail shops will be able to use the blockchain, but will only be able to pay bud tenders, drivers, security, rent, and basically everything except the actual plant.
So one thing I probably should have known going into the call was that Colorado already has a tracking system called METRC, using RFID tags produced by Franwell, its parent company. I had Shaun on the call because he has been in the industry since 2008 and was the first ever customer for BioTrackTHC in 2011. Neither METRC or BioTrackTHC share data with each other, so Shaun has to keep account of his inventory on both systems, which he said is a “real pain in his ass.” METRC doesn’t have a PoS system, but it allows the state to see where every plant is in the system. Both systems are centralized and owned by private companies who won state contracts for the exclusive rights.
It’s not that Paragon won’t have cash to lobby, Egor told me that “We’ve raised $25 out of the $100 million already. Of that $22 million is friends and family and only $3 million is outsiders, we just announced a few days ago.” While most of their raise will go towards real estate purchases, the remaining cash will allow them to lobby for either exclusive or alternative use as California’s tracking system. In my view it’s extremely important that they get the sole rights to California’s system, as it will allow them to set precedent for other states who are thinking about implementing similar systems.
The future legalization of marijuana will be advanced through greater regulation, activism and most importantly, open, transparent businesses that pay taxes and adhere to local laws. The growing tide of support for the medicinal plant is turning America red, white and “green,” and according to the latest reports “Twenty-six states and the District of Columbia currently have laws broadly legalizing marijuana in some form. Three other states will soon join them after recently passing measures permitting use of medical marijuana.” As more states turn Green, they will need a proven regulatory solution modeled after other states’ experiences and this is where Paragon might step in.
In my view, Paragon must step in and become the primary tracking system across the United States. But Jessica told me that “It’s going to be a question for the community. I want to share and if no one else wants it, I built it for myself and I’ll use it for myself. The community will decide if they like Paragon or not.” While I agree with her moral beliefs about the matter, government sides with large donors who can hire lobbyists to further their cause. If Paragon wants to really become successful, they will need to use their crowdsale raise to win these large state contracts to be the exclusive tracking system. Egor said though that “If the government will choose one provider, which is a privately held for-profit solution, I think we will have a lot of leverage pitching a free alternative, it will be hard not to let us in.”
The success of their coin though is not completely in the hands of governments. Instead, they are going to use a large portion of their crowdsale raise to purchase commercial property in San Francisco and other cities such as Chicago, LA, and Madrid. Commercial space is hard to find and acquire in San Fran. Startups first have to prove they have money to pay for the commercial space, as a lot of them fail in the first few years. Even if a cannabis company meets these standards, a lot of landlords do not want their business due to Federal laws.
Paragon hopes to purchase and develop several spaces, depending on the total crowdsale raise, where “green” businesses can operate without attached stigmas. The spaces will also have a testing laboratory and legal teams working out of them. Yegor said this is why he believes the value of PRG “will grow is because we are building this ecosystem around it and for it. If our co-working spaces are successful, the only way to pay for it will be PRG and if the blockchain is successful, then there will be more adoption and more use and we are burning 50% of the transaction fee on the blockchain. This is how we are adding value for our early adopters.”
The co-working spaces are a novel idea, and will take some of the revenue burden off of the company. Plus it will allow for community meetings, shared ideas and other benefits coworking spaces provide.
In their whitepaper, Paragon describes how their co-working spaces will work:
To get a reserved space at our center, applicants will need to pitch their legalization ideas or cannabis startup ideas to our community. All applications will be upvoted and/or downvoted by the community members with our tokens. Only applicants with the most upvotes will secure a reserved space at our centers; other token holders will still have access and use the common floor for workspace.”
They also list the following ways in which PRG will be used in each space:
- Opening doors by scanning a QR code of an active wallet with at least 1 PRG
- Paying for your own and/or guest access. Renting floating or fixed desk space or private office with PRG
- Printing/scanning/faxing services at ParagonCoin Centers can be paid automatically with PRG
- Paying for food, drinks, events, and merchandise with simple PRG checkout
- Securing conferences, events, research, and educational space for the legalized cannabis industry
- Buying time for photo/audio/video studio for product shootings, interviews, pod- casts, etc.
- Joining a social club and/or café for ParagonCoin Club members
- Participating in web and in-app coworking, events, and a conference-reservation system with instant PRG payment
- Specialized retail services and SPAs with cannabis products at a flagship location with PRG payment and tipping (retail of cannabis products at spas limited to jurisdictions where such cannabis products are legal)
With this level of transactions with the coin, the value of the coin will increase naturally as its supply decreases, rewarding long term holders of PRG. Their projections for the first year will be “10 spaces, with 200 members each, and each of those spending 30-50 PRG per day for office space and other amenities. This equates to an annual run rate of close to 25M PRG.”
The profitability of the real estate along is second in importance to the appreciation of PRG. “We will try to let people rent spaces at our co-working spaces below cost, but because they are paying in PRG and because of the mechanism of decreasing supply, we are hoping to profit on the value of PRG and not on the rent,” Egor said. If they fail to achieve the numbers above, this could create a significant cash burn problem, but they already have enough from their pre-sale to purchase their first property.
The extent of their real estate purchases and their final budget depends on the total raise from their crowdsale. Egor told in our interview that “A lot will depend on the success on how the crowdsale goes. If it’s a lower amount we will most likely be California focused, however, if we hit the hard cap, then we will be a global real estate project. We are planning to go to Spain and Paraguay.”
Blockchain and Beyond
Once the blockchain and realestate parts of the business are setup, the next step will be to establish Paragon Accelerator, a fund for helping and encouraging green businesses working out of the ParagonSpaces. These startups will be given technical and legal support and even assistance in their own token creation and crowdsales. Paragon will bring established business partners with young companies to act as mentors and finance the projects. Furthermore, they will provide development support for companies who want to integrate Paragon’s Coin and blockchain into their operations.
For example, a large chain of dispensaries could have their own store app where customers can purchase everything but the plant with ParagonCoins, more so, to entice people to use the Coins the store could offer a 10% discount on all non-cannabis related purchases. All of this inventory could be tracked and allow for easier accounting. The dispensaries could even set up an agreement with the suppliers in the form of a smart contract to issue more inventory automatically when the stock went under a certain point.
Grow ops could hire Paragon to create an interface which connects to their existing systems that register their plants, trim and other components into the system as they get passed along to manufacturers and laboratories. Every step of the way would be tracked and registered on the blockchain.
Once the product gets to the lab for testing, information such as mold, mildew, pesticides and THC/CBD levels could all be recorded with the help of a Paragon designed app.
The core of development though will be tied into the work done at ParagonSpaces and through their ParagonOnline app.
The story of Paragon can’t be told without telling Jessica’s story.
I grew up with a guy in Iowa and he went on to play in the NFL. During his time in the NFL he always asked me if he could smoke weed for his pain. He didn’t want to take the painkillers because he thought he would get addicted and wanted to smoke weed. I didn’t know that addiction was real at the time and during school the D.A.R.E. program taught that weed is bad and it will make you burn in hell and join a gang. So I told him “no” you need to trust these NFL doctors and you’ll never get addicted. Then we let go from the NFL after his fifth concussion. He was then vomiting every day, he was depressed, he was sleeping when we wasn’t vomiting, he was forgetting things, he was hearing voices, having mood swings. I kept telling everyone that he had dementia and he needed help. The people that I did tell, including the NFL, all said that these were signs of concussions and to let him sleep and throw up. These are just signs and he will get over it.
After a year, he didn’t start getting better, he actually got worse, he became a different person. No one was listening to me and so I became depressed and hid at home with this person who was losing their mind. One day I was cleaning and I found a bunch of hard things in his vomit, I thought that he was eating rocks, but when I cleaned them it was really a bunch of undissolved pills and I knew something then was wrong. I found out that he had an addiction to pain killers. This thing that I had been blaming on concussions is actually an addiction, he once told me he was scared to get addicted, and for some reason I didn’t believe him. I talked with his doctors and they said that this depression and aggression could come with taking too many pain killers. I looked around our house and found tons of bottles, of all different pain killers. I knew he was in a lot of pain, he had 8 pins in each of his shoulders, ankle surgeries, hip problems, he could barely walk from the NFL. I confronted him about it and I told him I couldn’t put up with all of this abuse and crazy behavior because of the pills. I told him ‘you’re hurting me because of these pills.” He didn’t stop and I didn’t know how hard it was to stop. It made the relationship worse and I ended up in the hospital. My family found out and like any loving family they make you break up. Him and I came to an agreement that we would reconnect in a year when he was clean and maybe things would be different. Because when you are in love you can forgive anything and I had already forgiven him.
One year came, and we talked to each other and he said he needed me to come. I said “no, you have a girlfriend now, I see you are clean, things are good, I’ll see you in a few months. Bye.” Now I wish I would have asked him how he was doing, but I didn’t, I just trusted social media. A few weeks later he overdosed from painkillers. He was used to taking a lot and knew what he could and could not mix, but somehow he took a deadly combination of painkillers that night and passed away in his sleep.
After our initial breakup, I spiraled into depression. I started looking into cannabis and seeing how everyone was talking about it as a form of pain relief. I wished then that I had told him that I had found out he was right, but I had an ego, I was Miss Iowa and I didn’t want to tell anyone because I did not want to be judged and I didn’t want him to tell me if I had just let him smoke vs taking pills we would still be together. My ego got the best of me. After he died though I said “fuck it, everyone who is going to judge me, I don’t care, I feel dead myself. Nothing can be worse than this feeling, no amount of judgment can be worse than this feeling.” So, I just came out and started AUBox. I just wanted to make people feel comfortable and make someone like me, who was just so ignorant about it feel like its approachable. To help me help others. A long story, but that’s how I got into cannabis. It was a long, painful, depressing road with a lot of therapy and I’m lucky to still be here, but that’s why I’m so passionate about this now.
Yegor described himself as the “guy who brought the internet to Russia.” He told me that Russians are now on the back end of every major blockchain project and that “we (Russians) missed the DotCom bubble, the social times of the Internet, but now they are leading the blockchain, they are very proud of it.” When he and Jessica started up their project, he was able to draw from his long history connections to create a deep, experienced team, which he said he was “very lucky to have.”
Egor himself started the first internet magazine in Russia Planeta Interneta and sold it for 2 million dollars when he was 16. He was in charge of the presidential campaign of Umar Dzhabrailov who ran for russian presidency and later supported several projects for Putin’s next candidacy. Lavrov previously operated several businesses out of the Dominican Republic centered around luxury goods. Business Wire described him as follows in 2008:
“Lavrov is a new generation Russian millionaire. He made his fortune with various Internet companies and through political PR. Now residing in the Dominican Republic, his Grupo Lavroff is involved in such wide ranging areas as construction, financial advising, advertising and PR. His company is also the authorized Latin American distributor for luxury brands like Apple and Bang and Olufsen. He owns one of the hottest restaurants in Santo Domingo, Pravda Sushi Bar and Lounge.”
Later he launched Zila Ventures, which launched the app Friends Around.
Strengths and Weaknesses
Paragon has huge advantages in terms of funding and tech knowledge on their team. With a quarter of their final $100 million already raised, they are well on their way to having a successful launch. From my conversation though, their knowledge is limited to California and primarily the SF Bay area. The regulatory landscape is completely different in every state and what works in SF, may not work in smaller, more rural areas like Colorado. More so, Paragon is a newcomer to a business sector already a decade old. Tracking services and databases already exist and are run by for-profit private companies who keep their data guarded.
What I worry about is that while Paragon wants to grow through community building and openness, they may be excluded and shut out in various states if they don’t join politics. They need to fight for their adoption, even if done by force through law. If they reach their hard cap of $100 million, Paragon will be uniquely set up to do exactly this. While Jessica may not have the political aspirations to lead a movement towards implementation of the blockchain in the cannabis industry, her story and background resonates deeply and would give her a strong platform to voice her calls for legalization and adoption of Paragon. Until cannabis is fully legalized in the United States, her position as leader and CEO should drive her further and further into the political machine.
These lofty goals though have to be grounded though in their business. The heart of what they are trying to do is set up green co-working spaces, using the crowdsale raise to purchase commercial space starting in SF and then elsewhere. Eventually they want to have 20 centers around the world setup using their blockchain. Paragon’s roadmap has them purchasing their first property in the SF Bay area in February 2018 and then opening it up in November 2018.
Neither Jessica or Egor have been in the cannabis industry for very long. Speaking with them, they were open about their lack of full knowledge about the industry in the States and abroad, but they were clear and truthful about this. They said they needed help from industry leaders, retail store owners, growers and others connected to help develop their project and allow it to succeed.
During the token sale, Paragon will issue a total of 200 million coins, with a 100 million being distributed during the first offering. 50 million will be reserved for a later sale and the other 50 million will be held in reserve for both Paragon and the community.
The token sale will be conducted in three phases. Currently, the pre-sale is ongoing and follows the below timeline
The actual crowdsale will launch on September 15, with the initial price per coin set at $1. For the first 5 hours of the sale, a 5% discount will be available. Then after 24 hours, the price of the coin will rise $0.05 every day for 30 days.
It’s hard not to like Paragon. CEO Jessica Versteeg is extremely charismatic and she comes from a very loving place and wants to embrace, involve and support the cannabis community. I haven’t mentioned the celebrity endorsements from the Game in the article because I wanted to look through the hype and narratives built around Paragon right now. At its core, the team have some interesting ideas for their blockchain, they believe that “they are just another crop” which needs the blockchain to disrupt the current centralized supply chains. However, these aspirations will come behind the company’s primary goal of setting up and operating ParagonSpace around the country. Both Shaun and I were impressed after our two and a half hour call with Jessica and Egor. Shaun especially was deeply interested in the project as someone with years in the industry and hearing his stamp of approval calmed a lot of doubts I had. If they are willing to work with the industry and fight for their incorporation, I don’t see why they can’t become the global cannabis blockchain in the future.