It has been a busy week for Microsoft. Fresh off Monday’s announcement that it is acquiring LinkedIn for $26.2 billion, the company yesterday unveiled its first foray into the cannabis industry. Microsoft, through its newly-created Microsoft Human Services Pod for Managed Service Providers arm, will begin marketing software designed to help states administer recreational and medical cannabis programs through seed-to-sale tracking that ensures no cannabis is lost or stolen along the supply chain. The move comes in the form of a partnership with KIND Financial, a financial services company that serves the cannabis industry. Microsoft and KIND plan to integrate KIND’s Agrisoft Seed to Sale for Government software into Microsoft’s Azure cloud computing platform.
This is big news for the cannabis industry for a few reasons. First, though there exist a number of software companies that provide software to governments that administer cannabis programs, most are relatively small start-ups that lack the depth of experience and sophistication of Microsoft. Second, and perhaps more importantly, Microsoft’s willingness to enter the space – even in this limited capacity – marks a significant milestone for an industry working to professionalize and gain legitimacy. Given that many of our clients struggle to open even a simple bank account, the prospect of being able to link a grow operation’s compliance software to Microsoft Office is an encouraging sign that cannabis businesses will increasingly be able to operate just like any other business. Microsoft’s decision to be an early mover into this space could help break a taboo among large companies that can significantly constrain business opportunities available to cannabis businesses.
It bears mentioning that nearly every month a large banking, tobacco, pharmaceutical, construction, or agricultural related company retains one of our cannabis business lawyers for legal assistance regarding the cannabis industry. These mega companies hire us to learn more about the legal parameters of the cannnabis industry not so much to enter it today, but to be able to quickly enter it when the time is right. Most of these companies are waiting for federal legalization because they are federally regulated (the banks) or publicly traded. It also bears mentioning that — unlike Microsoft — most of these companies are looking at having a direct connection with the plant.
At this point, Microsoft and KIND’s software will only be government-facing. There are several companies that market software directly to the industry that plugs into the government system’s API, such as Greenbits, Flow Hub, and Odova. Some, such as Odova, offer software solutions for retailers, processors, and growers, while others are specialized to one application. Though Microsoft and KIND’s announcement did not indicate plans for expanding into business-facing cannabis tracking software, it could be a logical step if they gain a foothold in the industry. That would make them the first to offer fully comprehensive software for all aspects of compliance, and they have the resources to do it. If things go well, do not be surprised if this is not Microsoft’s last joint venture or acquisition in the cannabis software industry.
For now, Microsoft and KIND’s primary competitors in government-facing seed-to-sale tracking software are METRC (Marijuana Enforcement Tracking Reporting Compliance) and BioTrackTHC, both based in Florida. Between the two of them, METRC and BioTrackTHC provide the plant-tracking backbone of the recreational cannabis programs in Washington State, Oregon, and Colorado, and medical cannabis programs in New Mexico, Illinois, New York, and Hawaii. Microsoft and KIND have not yet been awarded any government contracts. It is unclear how they will approach finding their first clients, but the press release suggested they may pitch directly to regulators at conferences and other industry events. And when existing state contracts expire, expect Microsoft and KIND to have a seat at the table. It is hard to imagine the state offices trying to wrangle and keep up with these markets refusing a meeting with one of the world’s most respected software providers.
Microsoft’s announcement to get involved in the cannabis industry (if only indirectly) is a concrete indicator of its economic importance and an important step towards normalization. Since we took on our first cannabis client way back in 2010, we have been urging cannabis companies to consider themselves just like any other legal business and to operate accordingly. The day when everyone in all states view cannabis businesses in that same light has just gotten closer.