Microsoft Sees Fertile Ground in Cannabis Compliance

Microsoft has entered a partnership with Kind Financial to create an entity that will obtain government contracts to track seed-to-sale compliance in the legalized marijuana business, Kind announced last week.

The new entity, Kind Government Solutions, will provide state, county and local municipalities with tracking information on marijuana sales to keep them in compliance with government regulations, said Kind Financial CEO David Dinenberg.

Microsoft selected Kind to be a part of its newly created Microsoft Health and Human Services Pod for Managed Service Providers.

“We support government customers and partners to help them meet their missions,” Microsoft said in a statement provided to the E-Commerce Times by spokesperson Brooke Randell. “Kind Financial is building solutions on our government cloud to help these agencies regulate and monitor controlled substances and items, and manage compliance with jurisdictional laws and regulations.”

Cannabis Compliance

Kind’s main compliance product is Agrisoft Seed to Sale, a software program designed to help government agencies ensure compliance with cannabis sale regulations.

“No one can predict the future of cannabis legalization,” Dinenberg said. “However, it is clear that legalized cannabis will always be subject to strict oversight and regulations similar to alcohol and tobacco.”

Matt Cook, former senior leader of Colorado’s Medical Marijuana Enforcement Division and the author of the state’s medical marijuana regulations, will act as a special advisor to the partnership on government matters.

Microsoft is taking advantage of a huge market opportunity, while perhaps taking a substantial risk. Due to the uncertain nature of state-by-state marijuana legalization, there are few companies willing to invest millions of dollars into a long-term commitment.

Untapped Potential

“Regulation and compliance from one state to the next is still a huge challenge,” noted Taylor West, deputy director of the National Cannabis Industry Association.

“There is very little in the way of consistency or reciprocity between states’ regulatory programs, so a company that wants to operate in more than one state really does have to approach each one almost from scratch,” she told the E-Commerce Times.

Twenty-five states have legalized marijuana either for full or medicinal use, West said.

The legal marijuana industry is estimated at about US$5.4 billion, according to a report from ArcView Market Research and New Frontier.

“I think Microsoft sees a unique opportunity to grow this market, and realizes that by supporting at the ground floor, they will be in an incredibly powerful position once the market fully matures to be a dominant solution provider for it,” observed Rob Enderle, principal analyst at the Enderle Group.

A number of technology industry figures are finding a home in the legalized marijuana business because the industry has a large amount of available money to spend — yet there is still a problem getting into traditional banking relationships, he told the E-Commerce Times.

Cash Crop

Indeed, the legalized marijuana industry still faces a large number of hurdles to operate like a traditional business, in part because federal law still prohibits the sale of marijuana. The Senate Appropriations Committee last week voted 16-14 to approve a measure that would allow banks to provide services to marijuana businesses.

“The federal government should not be forcing Oregon’s legal marijuana business to carry gym bags full of cash to pay their taxes, employees and bills,” said Sen. Jeff Merkely, D-Ore., who coauthored the amendment. “This is an invitation to robberies, money laundering and organized crime.”

Marijuana would bring in about half a billion dollars in the first 14 months of legal sales — just in the state of Oregon — he pointed out.

“Think about the marijuana business in now-legal states,” suggested Paul Teich, principal analyst at Tirias Research.

“It has been an underground business where no one wanted any record of transactions,” he told the E-Commerce Times. “Entrepreneurs just starting up in the business are starting with a good knowledge of their domain — growing weed — but no real knowledge of modern business practices and legal supply chain economics.”

David Jones is a freelance writer based in Essex County, New Jersey. He has written for Reuters, Bloomberg, Crain's New York Business and The New York Times.

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