It's a big week for the legal cannabis industry. Hundreds of marijuana business, manufacturing, media, technology, and product companies descended upon the Javits Center in New York City this week for Cannabis World Congress. At the same time, Microsoft is entering the space, partnering with seed-to-sale software company Kind Financial on compliance solutions for state and local governments.
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The big news out of this is not that Kind Financial is hosting its Agrisoft seed-to-sale platform on the Microsoft Azure Government cloud. The far more significant implication of this announcement is a tech giant like Microsoft openly supporting the growth of the legal cannabis industry, and how the industry will respond to an enterprise player the size of Microsoft doing so.
"We support government customers and partners to help them meet their missions," Microsoft told PCMag today. "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."
The Cannabis Industry Reacts
The Microsoft news circulated as I walked the show floor at Cannabis World Congress, so I asked companies and organizations from all different corners of the industry what they thought about about the news. Some were skeptical, others were excited, but overall the cannabis industry is simply trying to make sense of it all.
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Founded in 2010, MJ Freeway is one of the most established seed-to-sale compliance software companies in the space, and thus in theory they'd have the most to lose from Microsoft encroaching upon their turf. MJ Freeway Marketing Manager Heather Smyth doesn't see it that way, though. The company recently won the government medical contract for seed-to-sale compliance in Nevada, and isn't scared of Microsoft.
"It's not going to affect us getting more government contracts. We're confident in our abilities and the fact that we've been here since 2010 and we have the seed-to-sale patents and experience. It's not going to knock us necessarily as far as contracts, because it seems like more of a brand push," said Smyth. "When [our solution] Leaf Data Systems is being considered by regulators, they want something that's effective and makes their lives easier."
Marijuana Business Association
The Marijuana Business Association (MJBA) provides training and best practices for legal cannabis businesses and entrepreneurs across the country and internationally. Dave Rheins, MJBA co-founder and executive director, worked for Bill Gates back in the day at digital image and content company Corbis. He stressed that Microsoft is not in the "cannabis business," though Rheins does believe the seed-to-sale market will start to consolidate.
"Microsoft is in the service business. They are servicing Kind Financial through cloud technology. It's an arm's length relationship with the cannabis industry. That in and of itself is not particularly newsworthy. There are many, many companies that are an arm's length from the cannabis industry, including some of our largest banks, but we wouldn't say Bank of America is involved in cannabis just because it's doing business with a technology company that's doing business with a cannabis company," said Rheins.
"What this does show is part of the continuum of acceptance. Microsoft didn't say 'no we're not involved,'" added Rheins. "I liken it to the political arena: when Bill Clinton was asked if he smoked pot, he said he smoked but didn't inhale. It was politically inexpedient to say he did. Obama said yes I was a huge pot smoker, but I don't do it anymore. Now we have Gary Johnson, the Libertarian candidate for president, who said not only that he did smoke pot but that he still does! It's a signal that maybe Microsoft does want to get into the industry."
As a venture capital firm actively investing in legal cannabis start-ups, Tuatara Capital evaluates business models all over the space. Founding partner Robert Hunt, a former cannabis entrepreneur who owned a chain of hydroponics supply stores before his investment career, said the biggest takeaway from the news is that a company the size of Microsoft is willing to attach its name to anything related to the cannabis industry.
"While it's not necessarily news that a company is hosting their platform on Microsoft's cloud, it is significant that the company admitted they're for it and are allowing it," said Hunt. "Cannabis brands and companies have a history of being shut down by Facebook, Google, and larger tech companies, so this is the first time you've seen a company of this size come out and say 'we're for this.'"
Tesser, Ryan, and Rochman, LLP
New York-based legal firm Tesser, Ryan and Rochman, LLP counts cannabis business and medical compliance as one of its major practice areas. Partner Gregory J. Ryan, Counsellor at Law, offered a legal and larger industry perspective on what Microsoft entering the market could mean for legal cannabis.
"This confirms what everyone believes: this is the future. This industry is going to take off," said Ryan. "In 10 years, this is going to be a multi-billion dollar industry, and Microsoft has the foresight to get involved at the ground floor. The referendum in November to legalize recreational use in California would start a groundswell, and that may have impacted Microsoft's decision as well."
Ryan said Microsoft and the other seed-to-sale players are almost like QuickBooks for the legal cannabis industry. Though unlike the MJBA, he doesn't believe those companies have anything to worry about.
"I don't think it hurts [them]. I think it gives the industry the legitimacy it needs to take off," said Ryan. "Some companies might feel threatened by Microsoft getting involved, but I think it only helps make the industry bigger. The more Microsoft-level companies that get involved in this industry, the better. Eventually I believe the tobacco companies will get involved, too."
As one the fast-growing seed-to-sale start-ups in the space, Flowhub's Metrc-compliant technology is live in Colorado and rolling out in Oregon and Alaska. Flowhub CEO Kyle Sherman said he thinks the news is a very smart marketing play on Microsoft's part to drive adoption of its Azure Government service, but also said it's a huge boon for seed-to-sale companies like Flowhub and for the industry's legitimacy as a whole.
"This announcement starts to legitimize the legal cannabis industry among mainstream companies who were afraid to participate in the past. It opens up the gates for more opportunities," said Sherman. "Microsoft wants to get into the space and use its cloud servies and infrastructure to move things along faster; they see a huge market opportunity. But at the end of the day, Microsoft is marketing their cloud services and allowing cannabis tech companies to use their cloud for compliance tracking purposes. That's huge. It makes companies like ours 100 times more valuable. But let's be clear, it's not like they're producing some kind of Windows 11 for cannabis operations."
Celebrating 4/20 with Flowhub
Posted by PCMag on Wednesday, April 20, 2016