CannaDAO —Bridging Crypto and Cannabis under a DAO (Part 1)
CannaDAO — The Legalities of Bridging Crypto and Cannabis under a DAO (Part 1)
By Oliver Smith, Chief Legal Advisor to CannaDAO.
Individually, dealing with Crypto and Cannabis in their own regulated markets is challenging enough. Joining them together in a legally compliant manner that incentivizes $Canna token holders is — a verifiable quagmire. Throw in a mission statement to create a truly decentralized community within the form of a DAO structure, and I can assure you that I am getting very little sleep at night. Thankfully, we have engaged the legal services of Venables in the USA and CuatreCasas in Portugal to assist and inform in the build of CannaDAO.
In this Part 1, I will provide community members with an overview of the legalities of forming the basis for the CannaDAO. This will include an overview of the DAO structure, token utility, and the basic governance of the DAO.
Broadly, the core mission of CannaDAO is to democratize and tokenize Cannabis by building a self-sustaining community representing individual and collective interests in the Cannabis world.
Democratize means opening access to the Cannabis industry to $Canna token holders. Tokenize means on-boarding cannabis to blockchain. Self-sustaining means ensuring that community funds raised in the $Canna token sale are put to work to maintain CannaDAO members’ activities, as well as to advance the community´s objectives.
Here is a list of headline matters that I have considered during the CannaDAO building process (broken down between Crypto and Cannabis):
CannaDAO as a Crypto project:
- The legality of forming a DAO, and the differences between a decentralized organization and a decentralized autonomous organization;
- The features of the CannaDAO platform, including governance function and tooling, the CannaPAD, staking, and the Canna.Farm play2earn game;
- $Canna token utility;
- Token Sale structuring, including the jurisdiction of establishment and consideration of securities´ regimes;
- DAO structuring, including examination of appropriate legal wrappers and taxation; and
- Anti-money laundering, including new FATF and VASP analysis.
CannaDAO as a Cannabis project:
- Where is Cannabis legal?
- In what form is it legal (medical, recreational, or both)?
- If illegal, what about cannabis is prohibited: Use? Production? Distribution? Importation?
- What are the investment rules? Can you invest outside of your jurisdiction if prohibited in it?
Structure of the CannaDAO
For those who are new to the concept of a DAO, a DAO is a smart contract with governance and treasury functions. The governing smart contract automates actions such as the DAO making payments. The general consensus is that a DAO acts as a decentralized organization meaning that there is no central authority (shareholders, directors, CEOs, etc.) making decisions. The organizational behavior of a DAO may be compared to an association or society that is governed by all of its members via democratic voting mechanisms.
There is a growing body of opinion that a DAO does not need to be a corporation, or have a legal wrapper (LLC, foundation, etc.), to operate. In some cases, DAOs have been established without any legal wrapper. If you consider the transnational nature of a DAO, formed solely online, and powered by a smart contract, there is an argument for this philosophy.
However, until jurisdictions develop a legal and regulatory framework which recognizes a DAO as a type of corporation, “a DAO cannot be a natural person…because it does not fulfill the conventional notions of what a legal entity is” (Dean Armstrong QC, “Blockchain and Cryptocurrency: International and Regulatory Challenges”). Identified risks a DAO may be exposed to without a legal wrapper include, unlimited liability for members of the DAO, and the inability to enter into legal agreements hindering real-world connectivity.
Given that the CannaDAO is bridging the real cannabis world with the crypto world, the requirement for an appropriate legal wrapper was raised early on in the build process. The CannaDAO will need to enter into properly formed legal agreements that dictate terms for cannabis growing opportunities.
Having established that the CannaDAO will need a legal wrapper, the next question was what legal wrapper and where to establish it. The issue of being a cannabis-related community means that our jurisdictional options are somewhat limited. The jurisdiction of the DAO´s establishment has to be selected considering whether it´s friendly for both crypto and cannabis operations. Bearing those factors in mind, Portugal is currently the community´s preference. Cannabis is decriminalised in Portugal and authorizations are only required for the extraction and manufacturing of Cannabis. We are working closely with the CuatreCasas law firm in Portugal to establish a foundation. The foundation’s purpose will be to advance the development of the $Canna token protocol and its beneficiaries (members of the CannaDAO community).
In an exciting development, the CannaDAO is also exploring the option to establish a Wyoming DAO LLC that will be formed by the CannaDAO community to operate the CannaCouncil (https://www.cannadao.org/council). In a remarkably forward-thinking move by the Wyoming state legislature in the USA, it introduced a new law in 2021 “providing for the formation and management of decentralized autonomous organizations”. Long story short, a DAO can be established and recognized as an LLC under Wyoming law. While it is not appropriate, for various reasons, to use this corporate structure as the main wrapper for the DAO, there is in my opinion, a benefit for the CannaDAO to explore its utility in order to connect the CannaDAO with real-world operations. We will update the community on this development once we receive further legal opinion on its establishment.
$Canna Token Utility
Key to any legal advisor’s role within a crypto project is to advise on the classification of the project token and develop its utility on the platform.
$Canna is developed as a multi-chain utility token with liquidity on ETH, NEAR and Aurora. $Canna has been built for governance and gaming utility, while being available for purchase by new community members to fund the CannaDAO members’ activities and ecosystem.
Governance utility. CannaDAO members will require $Canna to qualify in-DAO governance functions. This will include setting up a guild, making proposals, and voting on proposals. All of the functions mentioned will require $Canna to complete. Members will also be required to stake their $Canna to participate in any distributed grow yield.
Gaming utility. CannaDAO members require $Canna to purchase land in Canna.Farm. Owning land is in turn required to earn DAO reputation and qualification for real-world rewards paid for governance participation in CannaDAO.
The very nature of a DAO being governed by its members means that governance protocols established by initial founding members can change over time. The initial members are putting in place a governance framework that we think will facilitate the workings of the DAO as we have studied it. There are various functions that need to be managed and reviewed to ensure that the CannaDAO platform is stable. That is not to say that it cannot be better or improved with further community input and contributions.
The governance structure of CannaDAO has been structured to facilitate community and funding features.
CannaDAO promotes the forming of Guilds by community members to represent their or their communities´ interests within the CannaDAO. Guilds will be empowered to discuss, vote and submit proposals for Guild projects to the CannaCouncil. The CannaCouncil is made up $Canna holding expert community members. The CannaCouncil will be responsible for reviewing all Guild proposals. If approved, proposals will be executed, whether by releasing required funds from the CannaDAO treasury or by implementing the actions proposed. There will be a council for each of the fundamental governance tracks for CannaDAO, including investment proposals, development proposals, and governance proposals.
Part 2 will follow shortly and we will do a deeper dive on CannaDAO governance. In the meantime, I welcome all thoughts and comments from the community. Drop me a message or post a comment here.
CannaDAO is the forefront of a new area in the cannabis industry, aiming to push the boundaries of traditional finance. Following long struggles for cannabis rights, both in recreational and medical use, significant legal breakthroughs in the past decades have led to increased tolerance, decriminalization and legalization around the world.
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