Pubdate: Fri, 17 Jun 2016
Source: New York Times (NY)
Copyright: 2016 The New York Times Company
Contact: http://www.nytimes.com/ref/membercenter/help/lettertoeditor.html
Website: http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Nathaniel Popper

MICROSOFT DIPS TOE INTO TRADE ON MARIJUANA

As state after state has legalized marijuana in one way or another, 
big names in corporate America have stayed away entirely. Marijuana, 
after all, is still illegal, according to the federal government.

But Microsoft is breaking the corporate taboo on pot this week by 
announcing a partnership to begin offering software that tracks 
marijuana plants from "seed to sale," as the pot industry puts it.

The software - a new product in Microsoft's cloud computing business 
- - is meant to help states that have legalized the medical or 
recreational use of marijuana keep tabs on sales and commerce, 
ensuring that they remain in the daylight of legality.

But until now, even that boring part of the pot world was too 
controversial for mainstream companies. It is apparent now, though, 
that the legalization train is not slowing down: This fall, at least 
five states, including the biggest of them all - California - will 
vote on whether to legalize marijuana for recreational use.

So far, only a handful of smaller banks are willing to offer accounts 
to companies that grow or sell marijuana, and Microsoft will not be 
touching that part of the business. But the company's entry into the 
government compliance side of the business suggests the beginning of 
a legitimate infrastructure for an industry that has been growing 
fast and attracting lots of attention, both good and bad.

"We do think there will be significant growth," said Kimberly Nelson, 
the executive director of state and local government solutions at 
Microsoft. "As the industry is regulated, there will be more 
transactions, and we believe there will be more sophisticated 
requirements and tools down the road."

Microsoft's baby step into the business came through an announcement 
on Thursday that it was teaming up with a Los Angeles start-up, Kind, 
that built the software the tech giant will begin marketing. Kind - 
one of many small companies trying to take the marijuana business 
mainstream - offers a range of products, including A.T.M.-style 
kiosks that facilitate marijuana sales, working through some of the 
state-chartered banks that are comfortable with such customers.

Microsoft will not be getting anywhere near these kiosks or the 
actual plants. Rather, it will be working with Kind's "government 
solutions" division, offering software only to state and local 
governments that are trying to build compliance systems.

But for the young and eager legalized weed industry, Microsoft's 
willingness to attach its name to any part of the business is a big 
step forward.

"Nobody has really come out of the closet, if you will," said Matthew 
A. Karnes, the founder of Green Wave Advisors, which provides data 
and analysis of the marijuana business. "It's very telling that a 
company of this caliber is taking the risk of coming out and engaging 
with a company that is focused on the cannabis business."

David Dinenberg, the founder and chief executive of Kind, said it had 
taken a long time - and a lot of courting of big-name companies - to 
persuade the first one to get on board.

"Every business that works in the cannabis space, we all clamor for 
legitimacy," said Mr. Dinenberg, a former real estate developer in 
Philadelphia who moved to California to start Kind. "I would like to 
think that this is the first of many dominoes to fall."

It's hard to know if other corporate giants have provided their 
services in more quiet ways to cannabis purveyors. New York State, 
for instance, has said it is working with Oracle to track medicinal 
marijuana patients. But there appears to be little precedent for a 
big company advertising its work in the space. It is still possible - 
though considered unlikely - that the federal government could decide 
to crack down on the legalization movement in the states.

The partnership with Kind is yet another bold step for Microsoft as 
its looks to replace the revenue from its fading desktop software 
business. On Monday, it announced that it was buying LinkedIn.

Microsoft has put a lot of emphasis on its cloud business, Azure. The 
Kind software will be one of eight pieces of preferred software that 
Microsoft will offer to users of Azure Government - and the only one 
related to marijuana.

The conflict between state and federal laws on marijuana has given a 
somewhat improvisational nature to the cannabis industry.

Stores that sell pot have been particularly hobbled by the 
unwillingness of banks to deal with the money flowing through the 
industry. Many dispensaries have been forced to rely on cash for all 
transactions, or looked to start-ups like Kind, with its kiosks that 
take payments inside dispensaries.

Governments, too, have generally been relying on smaller start-ups to 
help develop technology that can track marijuana plants and sales. A 
Florida software company, BioTrackTHC, is helping Washington State, 
New Mexico and Illinois monitor the marijuana trade inside their states.

Kind has no state contracts. But it has already applied, with 
Microsoft, to provide its software to Puerto Rico, which legalized 
marijuana for medical purposes earlier this year.

Twenty-five states have now legalized marijuana in some form or 
another, with Pennsylvania and Ohio the most recent. The biggest 
business opportunity, though, will come from states that allow 
recreational use of the drug, as Colorado, Oregon and Washington already do.

This fall, five states - including, most significantly, California - 
will vote on whether to join that club.

Mr. Karnes, the analyst, said he expected legal marijuana sales to 
jump to $6.5 billion this year, from $4.8 billion last year. He says 
that number could climb to $25 billion by the year 2020 if California 
voters approve the recreational measure this year, as is widely expected.

The opening up of the market in California is already leading to a 
scramble for the big money that is likely to follow, and Microsoft 
will now be well placed to get in on the action.

Ms. Nelson of Microsoft said that initially her company would be 
marketing the Kind software at conferences for government employees, 
but it could eventually also be attending the cannabis events where 
Kind is already a regular presence.

"This is an entirely new field for us," she said. "We would have to 
figure out which conference might be the premier conference in this 
space. That's not outside the realm of possibility."
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MAP posted-by: Jay Bergstrom