Puerto Rico inventory tracking system deal embroiled in dispute

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By John Schroyer

Three U.S. cannabis inventory software firms are involved in a legal tussle centered over whether Puerto Rico may have violated its own laws when awarding a government contract.

BioTrackTHC, which beat at least five other competitors to win the Puerto Rico contract, is the target of the dispute. 

Rivals MJ Freeway and Agrisoft are challenging the Florida-based company over the seed-to-sale medical marijuana tracking contract, which was tentatively awarded in August.

The two rivals have asked the Puerto Rico Department of Health to reconsider its decision, contending that BioTrackTHC is ineligible under the U.S. territory’s law in part because the company’s founder was sentenced on charges related to fraud and money laundering. An administrative judge in Puerto Rico is reviewing the matter.

BioTrackTHC disputes the pair’s assertions. BioTrackTHC CEO Patrick Vo said in an interview the company is “confident in our win” and had “submitted an honest proposal.”

The wrangling underscores the increasingly competitive nature of the seed-to-sale software industry, with each of the three parties fighting tooth and nail for as much market share as possible – even in what could be a relatively small MMJ industry in Puerto Rico.

Nationwide, seed-to-sale tracking companies are waging battles to win government contracts to build systems that allow regulators to keep tabs on the cannabis industry. The Puerto Rico case takes the competition to a new level.

MJ Freeway Complaints

Colorado-based MJ Freeway alleged multiple times between June and August in complaints to the Puerto Rican Department of Health that BioTrackTHC was ineligible because the company’s founder, Steven Siegel, has a criminal record, according to documents obtained by Marijuana Business Daily.

In 1997, a U.S. district court judge in Florida sentenced Siegel to a 30 months in jail and three years of court supervision for conspiracy to commit mail fraud and money laundering, court documents show. Siegel could not be reached for comment.

“Siegel … is a convicted felon who served time in federal prisons on charges of conspiracy to commit mail fraud, wire fraud, bank fraud, and to launder monetary instruments,” Amy Poinsett, the CEO of MJ Freeway, wrote on June 9 to an administrator at the Puerto Rico General Services Administration.

In the letter and at least two subsequent communications, representatives of MJ Freeway argued that BioTrackTHC was ineligible because Puerto Rican law prohibits the territory’s government from awarding contracts to companies where executives have broken specific laws related to fraud and corruption.

In addition, Poinsett wrote, a BioTrackTHC subsidiary based in San Juan swore an oath to the Puerto Rican government that “none of its corporate officers” had pleaded guilty to “crimes consisting of fraud, embezzlement or misappropriation of public funds.” Poinsett contended that assertion made BioTrackTHC ineligible.

BioTrackTHC’s Position

In an email, BioTrackTHC’s Vo declined to discuss Siegel’s criminal history, saying it’s against company policy to discuss personnel issues.

However, Vo added that Siegel is not the CEO of BioTrackTHC – as MJ Freeway has argued to Puerto Rican officials – and had not been a company officer or had any day-to-day managerial responsibilities since November 2015. Siegel’s title is “founder and chairman emeritus,” Vo wrote.

According to Florida Secretary of State records, Vo is the CEO of Bio-Tech Medical Software – the parent company of BioTrackTHC – and Terrance Ferraro is board chairman.

In August, BioTrackTHC announced it had received the top score in the bidding for the Puerto Rican deal tied to the territory’s emerging MMJ industry. Runner-up MJ Freeway immediately filed a request for reconsideration with the territory’s health department. That was followed by a similar request from Agrisoft, which is owned by California-based Kind Financial and came in fourth in the scoring process.

Other bidders included Franwell, which landed in third place, Amercanex, and E3 Consulting. None have filed a request for reconsideration.

Puerto Rico Health Department

Mayra Maldonado, the director of the controlled substances and medical cannabis office within the Puerto Rico health department, said in an interview that MJ Freeway and Agrisoft’s requests both cited Siegel’s criminal history as a reason for the department to revisit its decision.

“It’s almost the same issues as raised by MJ Freeway,” Maldonado said of Agrisoft’s complaint.

Maldonado said the matter has been forwarded to an administrative judge, who is reviewing the requests, and that the contract dispute may be resolved in another few weeks. While BioTrackTHC was the top scorer, a formal contract has not yet been signed between the company and the Puerto Rican government, Maldonado said.

Maldonado also said she could not comment on further specifics of MJ Freeway and Agrisoft’s requests. She did say the health department had asked its legal division whether BioTrackTHC was eligible following MJ Freeway’s June complaint. Maldonado added that the legal division has provided an opinion, but she has not seen it.

MJ Freeway executives declined to comment for this story, aside from issuing a brief statement: “We have every confidence that the Puerto Rican authorities will judge this protest on its merits and make the best decision.”

BioTrackTHC’s Vo said in an email that all bidders are “prohibited from disclosing anything regarding the (invitation for bid) that is not publicly disclosed by the Department of Health.”

“We wholeheartedly trust in the integrity of the Puerto Rico Department of Health’s evaluation process, and we look forward to its fact-based outcome,” Vo wrote.

An issue that may come into play in the judge’s decision is that Siegel was not sentenced for any of the specific crimes outlined in the Puerto Rican law cited by MJ Freeway. The law specifies 15 different crimes that can disqualify a company from receiving a Puerto Rico government contract, none of which correspond specifically to the crimes that MJ Freeway alleged Siegel pleaded guilty to.

For instance, “construction fraud” and “fraud in the delivery of goods” are disqualifying convictions, but conspiracy to commit mail fraud, wire fraud, and bank fraud are not listed.

Agrisoft’s Position

California-based Kind Financial, Agrisoft’s parent, also took issue with the Puerto Rico Department of Health’s scoring process, according to Kind CEO David Dinenberg.

“We were not scored fairly,” Dinenberg said in an interview. But he declined to elaborate.

Dinenberg did say Agrisoft was the only bidder to offer revenue-sharing with the Puerto Rican government, and argued that should have resulted in a better score. Additionally, he said, Agrisoft already has 40 clients in Puerto Rico that have applied for MMJ business licenses, meaning the company is already well-positioned to coordinate inventory tracking with the government.

“This is really the first Caribbean island or country or territory to have a (request for proposal), and possibly people are looking at this as the stepping off point for the rest of the Caribbean,” Dinenberg said when asked why the competition was so fierce for the Puerto Rico contract. “Paramount is Puerto Rico. The ancillary benefits are getting the first Caribbean island and moving on from there.”

Kind and Agrisoft have yet to win a government seed-to-sale software contract, while BioTrackTHC has won contracts in Hawaii, Illinois, New York, New Mexico, and Washington State. MJ Freeway won the Nevada seed-to-sale contract, as well as some smaller municipal government contracts, and Franwell has won contracts in Alaska, Colorado and Oregon.

John Schroyer can be reached at johns@mjbizdaily.com