By John Schroyer
As the marijuana trade has matured and moved into the limelight, one of the more pressing questions states and legitimate businesses are grappling with is how to track inventory.
Keeping close tabs on marijuana and infused products decreases the opportunities for shady companies to skirt the law by diverting cannabis to the black market and padding their bottom lines. That, in turn, creates a more reputable industry and an even playing field for everyone involved.
Enter cannabis technology firms.
Companies that provide inventory tracking software, point-of-sale systems and related technology have seen a particularly big spike in business over the past few years, as an increasing number of states are requiring cannabis companies to closely monitor marijuana plants from seed to sale.
But that’s only one log on the fire for these types of tech firms. Here’s a look at some of the aspects that are contributing to their growth.
In mid-2013, Washington State issued a request for proposals from tech companies interested in building a statewide marijuana monitoring system.
Out of 22 proposals submitted (from a wide-ranging field that included Xerox), the winner was Florida-based BioTrackTHC. The firm received a $750,000 contract along with a two-year agreement for maintenance fees to keep the system running smoothly.
The contract was a game-changer for the company.
“That will be an integral part of the continued growth of our industry,” said Patrick Vo, chief operations officer of BioTrackTHC. “Moving forward, the states that do not implement monitoring systems are going to be the odd men out.”
Companies that win these contracts stand to benefit financially, though they often get a big boost in credibility as well that often leads to even more business.
Another Florida-based firm – Franwell, which also competed for the Washington contract – previously won a bid to design the cannabis inventory tracking system used by Colorado’s marijuana enforcement agency. The deal was worth at least $1.2 million to the firm.
Scott Denholm, executive director of Franwell’s inventory tracking program, said government contracts will likely be an ongoing part of the industry for a simple reason: The feds have indicated that they will back off of states that regulate legal marijuana effectively.
Inventory tracking therefore presents a key buffer from the federal government.
“They were very specific about what the Justice Department expected from states, and seed-to-sale tracking and good management of the programs were key aspects”of the government’s guidance, Denholm said.
More states are moving in this direction.
Oregon, for instance, is seeking input from tech companies on what kind of software systems are available for helping it monitor grow operations and financial data for its new rec market. Observers expect the state to eventually seek a partner to develop a system.
Illinois is looking to the private sector to develop a technology backbone for monitoring its new medical marijuana industry as well.
Inventory tracking companies are also branching out into new areas in a bid to become indispensable to cannabis companies.
Take Agrisoft Development Group, a Missouri firm that recently began rolling out a line of kiosks offering a doorway to banking services.
Agrisoft has tracking and point-of-sale systems that it also markets to cannabis companies and states. It competed for the Washington State contract and has submitted a proposal for the Illinois contract.
But the kiosks could prove to be even bigger for the company.
The machines essentially allow dispensaries and retail stores to accept cash payments for cannabis, without having to actually touch the money. An armored car service picks up the cash from the kiosk and transports it to a bank for deposit.
The kiosks come automatically with a bank account, which is a “huge selling point,” said Agrisoft Chief Executive Officer Charles Ramsey.
Add Agrisoft’s cannabis tracking system into the mix, and Ramsey predicted rapid growth in coming years.
The company – founded in 2013 – has more than tripled its customer base in the past year, Ramsey said, and has a backlog of more than 100 orders for kiosks and inventory tracking software.
Regulatory Differences, Rule Changes & International Growth
Another driving force behind the growth of tech companies in this space is the increased demand for regional software and programs.
Government regulations differ greatly by state, so cannabis businesses need inventory tracking programs that adhere to their regulatory structure. They can’t use a one-size-fits-all product, creating a need for customization.
“We’re in a situation where we have many different models across the country,” said Jessica Billingsley, the chief operating officer of Denver-based MJ Freeway, one of the oldest companies in the space. “We’re anticipating, like everybody else in the coming few years, to see even more models.”
Minnesota and New York are two good examples, as they prohibit smokeable forms of cannabis for MMJ patients and will require unique tracking software.
At the same time, states are constantly tweaking – and in some cases completely overhauling – their requirements and regulations.
“Arizona has changed its labels on patients’ medicine… it feels like 25 times,” Billingsley said. “And every time they decide they want something different on their labels, we have to code that in our software.”
That ability to adapt has kept MJ Freeway not just alive, but allowed it to thrive, Billingsley said. The company, which will celebrate its five-year anniversary in January, now has roughly 1,000 clients in 18 states, Canada and even a few European countries that allow medical marijuana.
Other companies are eyeing opportunities abroad as countries increasingly enact favorable marijuana laws.
Agrisoft, for instance, is trying to work with the Uruguayan government to help the country roll out the first-ever national recreational marijuana industry.
“I feel confident that when the time comes [to bid on a contract] we will definitely be a major contender,” Ramsey said.
John Schroyer can be reached at [email protected]