Pubdate: Thu, 23 Jun 2016
Source: Los Angeles Times (CA)
Copyright: 2016 Los Angeles Times
Contact:  http://www.latimes.com/
Details: http://www.mapinc.org/media/248
Author: James Rufus Koren

POT START-UP HOOKS A GIANT

When David Dinenberg decided to get into the marijuana industry, his 
business plan was based on fear.

In 2014, he founded Kind Financial with the aim of making loans and 
providing other services to marijuana growers and sellers - customers 
banks were scared to work with.

Just two years later, though, the company's main business is about 
helping navigate bureaucracy, specifically the red tape that comes 
with legalization. Its marquee product is software that helps 
government agencies track pot production and sales.

The start-up drew headlines last week after Microsoft Corp. announced 
it would make Kind's Agrisoft Seed to Sale software available for 
sale on its cloud computing platform that services government clients 
- - a move that marks Microsoft's foray into the marijuana business.

Dinenberg, a 44-year-old Philadelphia native, is an unlikely software 
entrepreneur. He has no tech background and was formerly chief 
operating officer of Philadelphia developer Grasso Holdings.

But after taking huge real estate losses in the recession, he decided 
to try something new. With the help of venture capitalist and friend 
Wayne Kimmel, he started Kind in 2014 and persuaded other angel 
investors - including Lindy Snider, daughter of late Philadelphia 
Flyers owner Ed Snider - to back the company.

He spoke with The Times about his company's evolution and its 
breakthrough deal with Microsoft. Here is an excerpt of that conversation.

Tell me about Agrisoft. What does it do?

It's software that enables regulators, in real time, to know where 
and how much marijuana is being grown, sold or produced. We're 
providing real-time inventory all over their state and information on 
how much sales tax or other tax they should be collecting. Police or 
a regulatory agency can look and see that company XYZ says they have 
1,000 plants, and then an inspector can go walk into that business 
and validate that.

How big a business is compliance software for the marijuana industry?

As the industry grows and matures, it's going to become more 
compliant and more regulated. It is going to happen. We should 
embrace that happening. It makes the industry stronger and larger for 
everyone in it. The backbone of that is the track-and-trace software 
at the state level and, eventually, the federal level.

How did you connect with Microsoft?

I was introduced by one of my board members, Wayne Kimmel, to a 
relationship he had inside of Microsoft. We spent several months 
discussing the idea with Microsoft, and they were very warm to the idea.

What does having Agrisoft available on Azure Government, Microsoft's 
cloud-computing platform for government clients, mean for you?

It puts our company in pole position to garner government contracts. 
Microsoft has relationships with states. We get the ability for 
Microsoft to support us with their sales staff. We get to use their 
lobbyists in those states.

Any takers so far?

We've already received phone calls from five states. Word is already 
getting out.

Does Microsoft get a cut of your sales?

We get to keep the revenue from all the contracts. In turn, we use 
more cloud storage and pay Microsoft for that.

Do you see governments, rather than marijuana businesses, becoming 
your biggest clients?

As the CEO of a company, government contracts are usually multiple 
years in length. That brings a layer of stability to the company. But 
I've learned that the companies that win these government contracts 
end up capturing no less than 60% of the market in a state on the 
commercial side.

Have you taken any investments from venture capital firms?

So far, just high-networth individuals who share my vision. We 
haven't taken investment from any institutions yet, but probably at 
this point we're ready for that.

How did you get involved in the marijuana business?

In fall 2012, my wife and I watched a "60 Minutes" episode about the 
emergence of the medical marijuana industry. For a split second - if 
you coughed you would have missed it - they talked about the lack of 
banking, how it was all cash, how there was no financial backbone. It 
seemed like a oncein-a-lifetime opportunity to get into an emerging industry.

What made you think you could jump from real estate to the marijuana business?

I'm a typical entrepreneur. If given the opportunity, I fundamentally 
believe I can do anything. I read a lot. I research a lot. I talk to 
a lot of smart people. And part of being a real estate developer is 
being a promoter. When you're a developer, you're used to speaking at 
township meetings to get approval for a project, or lobbying 
officials for a zoning change. That's helped me very much.

Why did you get out of real estate?

My personal net worth went from being positive to negative. I was 
truly starting my life over, professional and personally. I asked, 
'Is what I'm doing what I want to do for the rest of my life?' The 
answer was no. So I left, and my wife and I tried to figure out what 
we were going to do next.

What happened to your original idea to provide financing to marijuana 
businesses?

That never happened, for no reason other than that it made more sense 
to go in a different direction. What I've learned is that any heavily 
regulated industry is going to rely on compliance. Alcohol, tobacco, 
pharmaceuticals - they're all highly compliant industries, and 
technology plays a large role in that. So we shifted gears, and we're 
a cannabis compliance technology company now.

It sounds like the things you wanted to do at first, such as lending 
to marijuana businesses, were based on the notion that it would 
remain a murky industry that banks would stay away from  a notion 
that might not hold if pot becomes more broadly legal.

I would say 18 months ago I wasn't sure, as a business owner, how I 
felt about mass legalization. Today, as a business owner, I welcome 
it. I'm not afraid of it. I believe we'll be a catalyst for it. Some 
businesses are set up for pre-legalization, and some are set up for 
post-legalization. I want to be in the business for the long term.
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MAP posted-by: Jay Bergstrom