Prospects of Blockchain Technology in China’s Industrial Hemp Industry

ABSTRACT Industrial hemp is an important cash crop in China and has a very important role to play in increasing farmers’ income and eliminating poverty. However, drug loss risks, policy risks and regulatory challenges in the industrial hemp supply chain plague the healthy development of the industrial hemp industry. In order to address the problems in the industrial hemp industry, this paper described the problems in financing, traceability, and regulation, which are typical supply chain problems, by analyzing the industry of industrial hemp in China. Through a literature review, this paper reviewed the research results of blockchain technology in the agricultural supply chain, and analyzed the feasibility of blockchain technology to solve the financing problem of industrial hemp industry in combination with Chinese agricultural production and management modes, and analyzed the feasibility of blockchain technology to solve the traceability and supervision problems of industrial hemp industry in combination with Chinese anti-drug policies. Finally, based on the feasibility analysis, the idea of building a consortium blockchain consisting of market entities, financial institutions and drug-fighting agencies in the industrial hemp industry was proposed to solve the problems existing in the industrial hemp industry.


Introduction
Industrial hemp is defined as tetrahydrocannabinol (THC) content of less than 0.3% for fibrous, medicinal or oil use (Xia et al. 2016). In 1988, the United Nations promulgated the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, which clearly defines industrial hemp: Cannabis plants containing less than 0.3% THC do not have the value of extracting THC toxic components value, no direct use as a drug smoking and industrial use. China is one of the countries with the largest area of industrial hemp cultivation in the world, which is widely

Industrial hemp: application, policy and industry development
Hemp (Cannabis sativa L.) is one of the oldest cultivated crops in the world, and is a traditional cash crop in China (Fathordoobady et al. 2019). Because hemp contains THC, an addictive and hallucinogenic substance, the cultivation and application of hemp is strictly restricted, and in China, only industrial hemp with a THC content of less than 0.3% is allowed to be cultivated and applied. In recent years, there has been a relaxation of policy in Europe and the United States (Malone and Gomez 2019), and the global industrial hemp market has a positive outlook. However, due to anti-drug policy, the development of industrial hemp industry still has a large market and policy risks, and faces challenges in financing, traceability and regulatory. Cannabis sativa L. -Kohler Medicinal Plants (Year 1897) as shown in the Figure 1.

Application of industrial hemp
For a long time, hemp is grown to obtain seeds, medicine or fiber (Schluttenhofer and Yuan 2017). At present, China's industrial hemp through the registration of industrial hemp varieties are mainly fibrous varieties, accounting for more than half of all industrial hemp varieties, different varieties have different suitable planting areas, can be widely planted in China's southwest mountains and northeast plains and other areas.
The textile industry is an important application area for industrial hemp (Zhao et al. 2021), hemp is known as the "king of natural fibers" reputation. As industrial hemp fiber has excellent characteristics such as comfort, moisture absorption, antibacterial, heat resistance and anti-static (Shah, Fehrenbach, and Ulven 2019), its textiles are increasingly welcomed and valued by people at home and abroad, industrial hemp textile industry has now become a pillar industry in Heilongjiang Province (Zhang et al. 2019). The building materials industry is an important area for industrial hemp fiber applications, which can be used to improve the performance parameters of building materials. The by-products in industrial hemp also have many uses. Cannabidiol(CBD), a nontoxic component of industrial hemp, can be used in pharmaceuticals and has essential improvements for diseases such as anorexia, epilepsy, Parkinson's, and brain tumors (Capano, Weaver, and Burkman 2020), and there are already related end products (drugs, health products, cosmetics) on the market in developed countries in Europe and the United States. In addition, CBD oil is a natural ingredient extracted from industrial hemp (Potin et al. 2019) and is now legal in all 50 states and can be exported to 40 countries, including China. CBD oil is used in nutritional products (Fiorini et al. 2019) and functional drinks (Bartkiene et al. 2020). Figure  2 shows hemp flowers and leaves.

Industrial hemp and policy analysis
Due to the special nature of industrial hemp, industrial policies have a greater impact on the development of the industrial hemp industry. Agriculture Improvement Act of 2018 was enacted in the United States in December 2018, legalizing industrial hemp across the United States. In December 2020, the United Nations' Commission for Narcotic Drugs decided to remove medicinal cannabis from the category of dangerous drugs (Schedule IV of the Single Convention on Narcotic Drugs, 1961).
In China, industrial hemp is grown in more than a dozen provinces, but currently only two provinces, Yunnan and Heilongjiang, have legislation allowing industrial hemp cultivation. In January 2010, Yunnan province eases restrictions on industrial hemp cultivation and processing in the form of local regulations, followed by Heilongjiang Province. China has formed a production layout with Yunnan Province for foliage, Heilongjiang Province for fiber, and Shanxi Province for seed. Although restrictions on industrial hemp cultivation are being liberalized in an orderly manner, restrictions on the use of industrial hemp still exist. In March 2019, China National Narcotic Control Commission issued a "Notice on Strengthening the Control of Industrial Hemp," which clarifies that industrial hemp is limited to the use of its fibers and seeds, and stating China has not approved the use of industrial hemp for medical use and food addition. Figure 3 shows the map of industrial hemp cultivation in China.

Industrial hemp industry development difficulties analysis
Industrial hemp is a kind of specialty cash crop with typical supply chain issues in financing, traceability and regulatory. Financing difficulty has been a constraint on the development of China's planting industry (Ye et al. 2020). Unlike Western countries, the Chinese planting industry is dominated by many small-scale farmers, and industrial hemp cultivation is no exception. Smallscale farmers in China often lack sufficient capital, which prevents them from cultivating properly (Ye et al. 2017). With a shortage of capital, farmers need short-term financing to carry out their business (Borodin et al. 2014). However, farmers often have difficulty in obtaining loans from banks due to lack of collateral (Kouvelis and Zhao 2012), and coupled with policy risks, it is difficult for small-scale farmers and farmers professional cooperatives that grow industrial hemp to access credit funds. The financing difficulties encountered by upstream market players in the supply chain have seriously affected the stability of the industrial hemp industry supply chain.
In addition to financing difficulties, the industrial hemp industry also has regulatory issues. Although China's Criminal Law classifies marijuana as a drug, it does not distinguish between drug marijuana and industrial hemp, and there is a lack of regulation of industrial hemp in the legislative link, resulting in many industrial hemp industry practitioners wandering in the gray area, and some even escape regulation and participate in drug manufacturing and trafficking. There is a high risk of drug loss in the industrial hemp sector (Marinotti and Sarill 2020), and the possibility of extracting high-purity THC exists in multiple stages of cultivation, extraction and transportation, posing a greater difficulty for regulatory and anti-drug work (Finley, Javan, and Green 2022). If regulatory measures are not in place, it will not only affect the development of industrial hemp industry, but also adversely affect the anti-drug work and cause social problems. For the sake of anti-drug work, China National Narcotic Control Commission has strict restrictions on the use of industrial hemp, which is limited to the use of its fibers and seeds, which means that the industrial hemp industry in China is unable to enter the rapidly developing downstream markets of pharmaceuticals, food and cosmetics with high added value (Hanapi et al. 2021). If the risk of drug loss in the industrial hemp industry supply chain cannot be effectively addressed, the extension of the industrial hemp industry chain to the downstream will face greater policy risks, which will affect the enhancement of the added value of the industrial hemp industry.

Blockchain: One technical approach to solve difficulties in industrial hemp industry
The financing and regulatory issues that hinder the growth of the industrial hemp industry can be improved by increasing the transparency and traceability of the supply chain. The key elements of any supply chain organization are transparency and traceability (Shankar, Gupta, and Pathak 2018). The main challenge of traditional supply chains is the lack of an open and trustworthy information resource throughout the supply chain (Wang, Han, and Beynon-Davies 2019). Blockchain technology promises to create such an information resource that will bring substantial improvements in the level of transparency and traceability by maintaining information power symmetry among all supply chain partners (Posadas and Gilbert 2020). Therefore, blockchain technology is expected to solve the industrial hemp supply chain problem. The need for blockchain in industrial hemp as shown in the Table 1.

Blockchain technology
The concept of blockchain, proposed by Satoshi Nakamoto in his article "Bitcoin: A Peer-to-Peer Electronic Cash System," is a decentralized, distributed shared data ledger technology. The extensive use of cryptography in blockchain networks gives reliable guarantees for network interactions. Blockchain technology is decentralized, tamper-proof, and time-sensitive (Li et al. 2019). The application area of blockchain technology has evolved from the initial virtual currency to the financial sector (Guo and Liang 2016) and the social sector (Liu, Zhang, and Yang 2018). At present, there have been many studies to solve the problems of information scarcity and information distortion in supply chain operations through blockchain technology (Park and Li 2021). These studies provide ideas and insights to solve the financial and social problems in industrial hemp industry.

Blockchain in financing
Supply Chain Finance (SCF) achieves lower financing costs, more efficient and effective financing by integrating capital flows into the physical supply chain, and it has gained research momentum in recent years. Gelsomino et al. (2016) argue that SCF can enable new opportunities for vulnerable supply chain players to access credit more easily. Financing is important for capital-starved farmers and new types of agricultural businesses who grow industrial hemp. Therefore, blockchain technology combined with SCF is an effective way to solve the financing challenges of the industrial hemp industry.

Agricultural supply chain finance
With the continuous development of agricultural production, the traditional small-scale operation gradually transforms to centralized operation, and farmers' willingness to take out loans is strengthened (Lin and Gu 2017). The lack of rural credit system, the lack of understanding of the credit status of farmers by financial institutions, and the existence of information asymmetry and other problems have led to the low willingness of financial institutions to lend to farmers (Yeung, He, and Zhang 2017), and most farmers are unable to raise sufficient funds in financial institutions, which limits their own development (Lin et al. 2019).
With the credit guarantee of core enterprises in real trade, SCF provides financial products and services to upstream and downstream market players in the supply chain. SCF closely combines

Difficulties in industrial hemp industry
The need for blockchain Smallholder farmers are the main operators of industrial hemp cultivation in China, and their lack of collateral makes financing difficult. Supply chain finance can solve the financing difficulties of smallholder farmers, but it is necessary to ensure the authenticity of transactions in the supply chain.
Blockchain technology is a distributed ledger that can guarantee the authenticity of transactions and improve the security of supply chain finance.
Industrial hemp is at risk of drug loss in its cultivation, transportation, processing and operation, and requires effective regulatory tools.
Blockchain technology enhances data security through multiencryption methods such as Node Access System to make data tamper-proof and to achieve information traceability. Therefore, blockchain technology can effectively regulate the logistics of industrial hemp.
industry and finance, and is an important way to realize financial services for the real economy. Agricultural supply chain finance is an important way of financial services for agriculture and an effective way to meet the demand for agricultural financing (Chung 2020), which can effectively solve the financing difficulties of farmers (Leng, Huang, and Shen 2016). SCF has been used in many applications in agricultural industry financing. Belhadi et al. (2021) proposed a new hybrid machine learning approach to predict the credit risk associated with agriculture 4.0 investments of small and medium-size enterprise (SMEs) in SCF, the results of this study supported the widespread use of SCF in agricultural financing. Traditional agricultural SCF framework diagram as shown in the Figure 4.

Blockchain in agricultural supply chain finance
Although there have been many applications of SCF in the agricultural industry, the traditional SCF model has many drawbacks. The special nature of agricultural products makes the whole supply chain unstable and high risk (Xu 2016), and the problems of business security also limit the applicable objects of SCF (Chu and Gao 2018). In the industrial hemp industry supply chain, in addition to financial risks, many policy and social risks are mixed, and these risks hinder the supply chain financial services to industrial hemp growers.
In traditional SCF, suppliers use the accounts receivable of core enterprises as the basis for pledge financing or factoring financing. In this process, suppliers, core enterprises and financiers need to confirm and check each other, and information asymmetry is common (Du et al. 2020). Since there is no direct paper between farmers and core enterprises, it is difficult to extend the credit of core enterprises to farmers and new types of agricultural businesses. Therefore, the traditional SCF is difficult to solve the financing problems, which restricts the transformation and upgrading of agricultural industry (Huang, Dai, and Xu 2022). For core enterprises, due to the cumbersome and complicated work of confirming rights and the lack of significant direct benefits for themselves, their participation is not very active; for financial institutions, they have to conduct transaction authenticity audit, which is inefficient and costly, and face high default risk; for supply chain service platforms, they face difficulties in information sources, data validity and data security, etc. In addition, enterprises artificially create information barriers and form information isolated island for the consideration of protecting commercial secrets, so it is obviously unrealistic to build a centralized data management platform. SCF Factoring Business Process as shown in the Figure 5.
There have been many studies on the application of blockchain in the agricultural supply chain (Guan 2021;Mukherjee et al. 2021). In response to the problems in SCF, many studies have argued that blockchain can improve many drawbacks of traditional SCF and make SCF more inclusive for SMEs (Wang and Wang 2022). In China, SCF has become the main way of financing for SMEs, and the amount of financing under this model depends on the credit status of the core enterprises, and blockchain technology can effectively solve the problems of SCF and make financial credit effectively extend to upstream of supply chain. Cai and Guo (2019) argue that blockchain and big data can correspond to support the two basic aspects of transaction and risk control in SCF, respectively, and the two technologies have strong complementarity, and the combination of blockchain and big data can reshape the framework of SCF. Wang (2021) studied the application of blockchain technology in SCF in Beibu Gulf region, and built a SCF alliance architecture based on blockchain technology. Javid Moosavi et al. (2021) studied the application of blockchain in supply chain management with bibliometric analysis. According to their research, traceability and transparency are the main contributions of blockchain to the supply chain. Saberi et al. (2019) provide an overview of blockchain technology and its applicability in the supply chain and summarize the barriers faced by organizations in adopting blockchain technology. Kamble, Gunasekaran, and Gawankar (2020) identify internet of things, blockchain and big data technologies as potential enablers of sustainable agri-supply chains and propose an application framework for practitioners involved in agri-food supply chains.

Blockchain financing model for Chinese industrial hemp industry
The problem of difficult financing in the industrial hemp cultivation industry is widespread, which restricts the expansion of cultivation scale and technology improvement and affects the supply chain stability. Smallholder farmers have a small production scale, subject to financial and technical problems, and basically do not have the ability of primary processing, so it is difficult to become the first-tier supplier of the core enterprise, while in the traditional SCF model, subject to technical problems, banks' credit identification of core enterprises basically stops at first-tier suppliers, making it difficult to reach smallholder farmers.
For a long time, smallholder farmers have been the main form of agricultural operation in China (Zheng, Zhu, and Jia 2022). In order to achieve an organic connection between smallholder farmers and modern agricultural development, the Chinese government attaches great importance to the development of new types of agricultural businesses such as family farms and farmers' professional cooperative (Dong, Mu, and Abler 2019). An important document from the Chinese central government stated that the focus should be on fostering new types of agricultural businesses such as farmers' professional cooperatives and family farms, fostering agricultural industrialized consortia, and integrating small farmers into the agricultural industry chain. Farmers' professional cooperative is an effective organizational form for developing moderate scale operation and modern agriculture under the conditions of market economy, and as an important part of new types of agricultural businesses, they also undertake the important task of connecting farmers with large markets and leading farmers to share the fruits of agricultural modernization (Li, Zhao, and Yeh 2022).
Through the introduction of blockchain technology, smallholder farmers, farmers' professional cooperatives, multi-level suppliers, core enterprises and financial institutions together form a blockchain, and trade information at all levels is recorded on this blockchain, thus realizing the credit extension of core enterprises in the supply chain and solving the financing difficulties of small farmers and farmers' professional cooperatives. Smallholder farmers and family farms can use their land to take shares in industrial hemp farmers' professional cooperatives, and the cooperatives can apply for bank loans with pledges of land operation rights, and banks can issue loans by combining the transaction block information already available in the blockchain, and finance can effectively benefit the upstream of the supply chain. Blockchain financing model for the industrial hemp industry as shown in the Figure 6.

Blockchain in traceability and regulatory
At present, the cultivation, processing, transportation and operation of industrial hemp mainly rely on the public security organs for management. With the continuous expansion of the various markets of industrial hemp, especially the medical market, regulation will face greater difficulties. In addition to the supervision of public security organs, enterprises themselves should strengthen self-regulation. Blockchain technology enhances data security through multi-encryption methods such as Node Access System to make data tamper-proof and to achieve information traceability, one study showed that traceability was the most significant reason for blockchain technology implementation in agriculture supply chains followed by auditability, immutability, and provenance (Kamble, Gunasekaran, and Sharma 2020). Based on such characteristics, enterprises can chain all data related to industrial hemp cultivation to production to sales, to achieve transparent supervision of the entire chain of industrial hemp.
For food safety reasons, building a reliable food traceability system has been the focus of research in countries around the world (Wang, Rao, and Ying 2014). In recent years, due to the characteristics of blockchain technology data immutability and traceability, which can guarantee the authenticity of traceability data , it has made more application research in the field of food and agricultural products traceability (Leng et al. 2018), which is worthy of reference for industrial hemp industry. Kohler and Pizzol (2020) applied the technology assessment framework to analyze six case studies of blockchain-based technologies in the food supply chain, and the resulting study concluded that while blockchain-based technologies are expected to have a variety of impacts, only some are directly attributable to blockchain elements: increased transparency, traceability and trust. The findings of Vinay et al. (Yadav et al. 2020) suggested that the lack of government regulation and the lack of trust in the use of blockchain by agricultural stakeholders are important reasons that hinder the adoption of blockchain technology in the Indian agricultural supply chain. Kamble, Gunasekaran, and Sharma (2020) argue that blockchain technology can improve the sustainable performance of agricultural supply chains. Yan et al. (2021) proposed a blockchain-based HACCP quality traceability model, which extracts the key control points in the HACCP specification for raw oyster processing as the monitoring data points of the traceability system, and realizes the automatic judgment of quality by designing smart contracts. Ren Shouzang et al. (Ren et al. 2020) proposed a Byzantine fault-tolerant algorithm CSBFT based on reputation supervision mechanism, built an improved Ethernet federation chain, and realized key information on the chain by analyzing the crop whole industry chain architecture to build a crop whole industry chain information traceability platform. Xu et al. (2020) analyzed the operation process of the whole supply chain of cereals, oils and foods, and designed a prototype system of information security management of the whole supply chain of cereals, oils and foods based on Hyperledger Fabric, which can realize the collection, query and traceability of information of the whole supply chain of cereals, oils and foods. Yang et al. (2019) proposed a dual storage design of "database + blockchain" for on-chain and off-chain traceability information, and designed a Hyperledger Fabric-based storage model and query method for agricultural traceability information, taking fruit and vegetable agricultural products as an example. Tse et al. (2017) argued that blockchain technology can help the government track and regulate the food supply chain while protecting information security.
With the continuous maturity of blockchain technology and increasingly rich application scenarios, the commercial application of blockchain traceability has been promoted (Kamilaris, Fonts, and Prenafeta-Boldu 2019). Qian, Wu, and Yang (2020) summarized examples of blockchain traceability commercialization applications. It can be seen that building a blockchain for the industrial hemp industry with the participation of public security organs under the premise of securing information security and improving efficiency can help solve the risk of drug loss in the industrial hemp. Blockchain traceability commercialization application in agriculture as shown in the Table 2.
Blockchain can be divided into public blockchain, private blockchain and consortium blockchain. The public blockchain has the advantages of non-tamperability, anonymity and openness, and low technical threshold, but affects the traceability efficiency due to the large number of nodes, long consensus time and slow transaction speed, which is unacceptable for the huge market in China. The private blockchain has the advantages of fast traceability, low cost and high security, but it is managed by a central institution, and transactions do not need to be confirmed by all nodes, this means that the decentralization advantage is not obvious, and there is a risk that the data on the chain will be modified privately, which makes it difficult to reduce the risk of drug loss in the process of industrial hemp cultivation and processing (Dong et al. 2020). The consortium blockchain is jointly managed by multiple organizations, and adopts Fabric ca identity authentication service, and the access is safe and reliable, the adoption of smart contract customization mechanism can meet the complex business needs of different organizations in the blockchain, the adoption of multiple consensus mechanisms can improve the traceability efficiency (Jin et al. 2021). In other words, the consortium blockchain can better coordinate the relationship between decentralization, security and high performance, and can adjust the design of blockchain according to the actual situation to better balance security and high performance. Therefore, the industry of industrial hemp can build a consortium blockchain involving core enterprises, suppliers, farmer professional cooperative, farmer households and other market entities, financial institutions such as banks and public security organs, which can comprehensively solve the widespread issues of financing, traceability and supervision. Consortium blockchain framework of industrial hemp industry as shown in the Figure 7.

Conclusion and outlook
In recent years, blockchain technology has been widely used to solve the problems of financing, traceability and supervision in the traditional supply chain. As a special cash crop, industrial hemp industry has difficulties in financing, traceability and supervision due to drug control policies and other factors. Blockchain technology is widely used to solve the problems of financing, traceability and supervision in the supply chain due to its decentralization, non-tamperability and time-series, and has a wide application prospect in the industrial hemp industry. The main contribution of this study is to focus on the risks of the industrial hemp industry under China's strict anti-drug policies, and the financing and regulation challenges of the industry caused by such policy risks, and to find a possible technological solution to these difficulties -blockchain technology. This study reviews recent research on blockchain technology to solve supply chain problems, especially in agriculture, and analyzes the possibility of blockchain technology to solve the financing, traceability, and regulation difficulties of the industrial hemp industry in the context of China's agricultural production and management modes and anti-drug policies. Based on the feasibility analysis, this study proposes the idea of building a consortium blockchain consisting of market entities, financial institutions and drug-fighting agencies in the industrial hemp industry. It is foreseeable that blockchain technology can effectively solve the financing problem in the upstream of the supply chain, reduce the risk of drug loss, and extend the industry chain in the industrial hemp industry. The findings from this study may help the industry development of the industrial hemp and achieve the effect of promoting farmers' income and rural revitalization. This study also has some limitations. While the WOS database was utilized to search for relevant literature, it is possible that some relevant literature was missed. Additionally, this study does not analyze the technical difficulties that may exist in the process of applying blockchain technology to the industrial hemp industry. In the future, we will carry out more practices of applying blockchain technology to the industrial cannabis industry in order to identify and solve any technical or other difficulties that may exist in this practice.

Highlights
• The risk of drug loss during the processing of hemp, policy risks and regulatory challenges plague the healthy development of the industrial hemp industry. The industrial hemp industry has typical supply chain problems, and the issues of financing, traceability and regulation have been a difficult constraint to the development of the industrial hemp industry. • Blockchain technology has the characteristics of tamper-proof and traceability, making its application to supply chain financing, traceability and security a better result. Blockchain technology is an option for solving the financing, traceability and regulation problems of the industrial hemp industry and has good prospects for development. • This paper argue that a consortium blockchain consisting of smallholder farmers, family farms, farmers' professional cooperatives, suppliers, core enterprises, banks and public security authorities can be used to solve the financing and regulatory difficulties existing in the industrial hemp industry.