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.
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