When the medical marijuana industry started gaining traction in 2009, state officials and the industry itself gave little thought to the idea of monitoring cannabis as it moved along the supply chain.
Now inventory tracking is big business in the cannabis space, with companies generating tens of millions of dollars in revenues through the sale of software and related services and technology.
There are two main drivers behind that growth:
- States are increasingly requiring marijuana cultivators, infused products companies and retailers to keep close tabs on cannabis from the time it’s planted until the time it’s sold to a patient or customer (from seed to sale). This involves monitoring it every step of the way, including when it’s harvested and cured, processed and packaged and transported to different facilities. In some cases, states are even awarding large contracts to companies that can help them build or manage an inventory tracking infrastructure for regulating the cannabis industry.
- Marijuana companies are increasingly looking for efficiencies in the supply chain and seeking more data to help them make wise business decisions. Inventory tracking software and point-of-sale systems are helping them do just that. These technologies are now used throughout the industry to help with everything from record-keeping to lining up banking services to minimizing costs
Here’s a closer look at this fast-growing segment of the marijuana industry.
There are no hard numbers on the size of the market, but it’s likely at least in the low tens of millions of dollars and possibly much larger. A handful of companies dominate the market, with more established firms like MJ Freeway and BioTrackTHC serving more than 1,000 clients each. MJ Freeway has customers in 18 states, Canada and even a few European countries; BioTrackTHC has clients in 14 states and Canada.
Other companies have started up more recently but are also growing. Agrisoft Development Group was founded roughly two years ago and has several hundred clients in at least eight states as well as Canada. In January, noted cultivation equipment and technology firm Surna Inc. acquired a majority interest in Agrisoft. The price for the 66% stake in the company? A cool $4 million – which is a fairly high sum for an ancillary company in the cannabis industry. That shows just how valued this type of software has become.
Another newer entrant is Viridian Sciences, which has clients in three states and is actively working to expand throughout the West.
Much like the rest of the cannabis industry, difficulties and barriers for these companies – and their customers – vary from state to state. There are differing regulations to adhere to, including what information needs to be tracked, how and when it needs to be reported, and more. That means flexibility is key.
“Arizona has changed its labels on patients’ medicine… it feels like 25 times,” said MJ Freeway co-founder Jessica Billingsley. “And every time they decide they want something different on their labels, we have to code that in our software.”
That also means cannabis-specific software companies have to provide a wide range of models to fit in different markets that have varying requirements. That’s by no means easy, said Patrick Vo, the chief operating officer of BioTrackTHC.
“There have been a few companies that take in generic agriculture software and try to just dress it up differently,” Vo said. “That has proven time and again to be inadequate to the challenge of tracking cannabis.”
This will likely continue to be the case as more states come online with medical marijuana programs in 2015. Minnesota and New York, for example, prohibit smokable medical cannabis, and dispensaries there will likely require custom tracking software. The same may prove true in other states, such as Florida and Alabama, that have only legalized high-CBD, low-THC medicines.
Trends to Watch
- More State Contracts: State government contracts are so lucrative that they even attract software companies that don’t have any background in cannabis. Franwell, a Florida-based company that designed Colorado’s marijuana tracking system for $1.2 million, doesn’t offer services to individual companies. It only delves into cannabis when there are state contracts to be won. Other than that, Franwell sticks to deals with the pharmaceutical, air cargo and agricultural industries.
- But companies that mainly focus on the marijuana space can have an edge in winning government contracts. BioTrackTHC, for instance, beat out 21 other companies (including Xerox) for a Washington State contract worth $750,000. The deal includes a two-year agreement for maintenance fees as well.
- There will likely be plenty of state contracts in the future, as seed-to-sale tracking is quickly becoming the norm in cannabis markets across the country. Oregon is already looking into possible solutions for its recreational marijuana market, while Illinois issued a request for proposals last October for its MMJ infrastructure.
- Diversification of Services: Many cannabis software companies have been branching out into new areas, including payment services and security. For example, Agrisoft has a new line of kiosks that let cannabis shops accept cash payments from customers. The kiosks are directly tied to a bank account, and an armored truck picks up the deposits straight from the kiosks.That means marijuana shop employees never even touch the cash. And the kiosks also provide a record of what was purchased and for how much, which helps both the shops and the banks track transactions.
- Growing Competition: As the marijuana industry expands, expect to see more mainstream tech companies (like Franwell) jump into the cannabis arena. BioTrackTHC’s Vo said he doesn’t expect enormous firms like Oracle and SAP to “sit on the sidelines, waiting and watching.” That means things could become more difficult even for companies that already have an established reputation. Or, those companies may be simply bought out by the bigger players.But the competition is heavy even now from companies already involved. Viridian Sciences, a competitor of BioTrackTHC’s that lost a bid for the Washington contract, accused the company in January of willfully ignoring a “major cyber-security flaw” in the program it built for the state. In addition, Franwell filed a formal protest with the Washington State Liquor Control Board in 2013 after it lost out on the contract. (The LCB dismissed Franwell’s protest, and a spokesman said the cyber-security flaw alleged by Viridian was overblown.)
- International Expansion: Cannabis tracking software, like marijuana itself, is not exclusive to the United States. Agrisoft, for instance, has connections in Uruguay, which CEO Charles Ramsey says could make the company a “major contender” when for landing contracts when the nation gets its recreational market up and running. And as previously noted, several U.S. companies have clients in Canada and Europe, and it’s likely the number of firms with international clients will continue to rise as well as marijuana becomes more mainstream across the globe.