Microsoft announced earlier this month that they are working with KIND to provide cloud hosting for the cannabis-focused tech company’s seed to sale software. This is the first time a company anywhere near the size and stature of Microsoft has publicly stated their involvement in the lucrative, but often still taboo, marijuana industry.
To understand the greater significance behind this news and what it might portend, we spoke with Michael Bologna, the CEO and founder of Green Lion Partners. Denver-based Green Lion is a business strategy firm that primarily invests in companies that are developing software for this burgeoning industry. For the particular seed to sale niche, they are currently backing Flowhub. Here, Bologna explained what Microsoft’s participation may bring to the cannabis industry and what may be lost as other massive corporations become involved.
Can you give some background on seed to sale software’s role in the cannabis industry?
Seed to sale software is primarily for tracking and reporting along the cannabis supply chain. It’s really important in any industry, just for basic business reporting, to understand what’s manufactured, what raw materials went into it, where it was shipped, and where it was sold. But in cannabis, it’s extremely important as we move from a deregulated market to a regulated market that we maintain transparency of the entire market chain. These seed to sale software programs are an integral part of that.
When was this software first developed?
I think the oldest of the software in this space is between two and four years old. Their importance is growing every day, so we’re seeing more and more competition, as well as more and more mature solutions from a software development standpoint come out. As the industry continues to grow, this software become more and more important, so we’re seeing a lot of advancement.
How many different companies are there that have developed their own version of the software?
I’d say no less than five or six major competitors, and probably about 10 that have a significant amount of momentum and market share. I think we’re gonna see a lot of shifting within that framework and landscape over the next few years.
So at this moment there’s no industry standard?
Yeah, it’s too early of an industry and a vertical, so it’s going to continue to change. Nobody has a stranglehold on the market by any stretch.
Were you surprised to hear about Kind’s partnership with Microsoft?
Everybody in the industry, especially myself with a software background, is really excited to see that Microsoft is willing to be public with their affiliation and association with KIND. It shows a turning of ideals. The risk profile is changing for these large companies and they’re starting to realize the long term opportunities that cannabis offers. It was inevitable. There’s a lot of good software solutions being developed in this space and there’s a lot of financial incentive for these larger, more established mainstream companies to come in. This being the first one yet certainly caught us off guard, but I’m not surprised at all that companies are aware and realizing more and more that this is a space that they need to respect and get into.
I picked up that you said that Microsoft is publicly partnering with Kind. Are there behind the scenes dealings between larger corporations and in the cannabis industry that aren’t made public? Or does everything have to be pretty transparent with cannabis?
To dig into that a bit further, at its base, this partnership is truly Microsoft allowing to be put out in a press release that they’re using their cloud hosting to allow Kind to run their business. A lot of these cloud hosting platforms have already associated with a cannabis software system. For example, Flowhub uses Amazon Web Services for their cloud hosting. This is more of a marketing play where they’re realizing the legitimacy of the industry and the reach that it has. Microsoft being public about using their cloud hosting to allow Kind to run their business in a technical sense is not a massive breakthrough. It’s something that has existed and that will continue to exist, but the press release is really the big news, that they were willing to be publicly aligned.
Do you think by the end of the year we’ll be seeing a lot more companies, maybe not as big as Microsoft, being more upfront about their partnering and working with the cannabis industry?
I believe that with the rapid growth of this industry and the proven maturity of our industry, we will definitely start to see more and more established names either showing affiliations or potentially considering acquisitions as well. There’s always the opportunity for one of these companies to develop a solution directly for cannabis. I don’t know necessarily their timeline, but in terms of press releases like this, I think Microsoft sort of paved the way that there isn’t going to be a negative backlash, and quite the opposite. The general tech world will see that there really is opportunity here.
After becoming more open about their partnerships, I’d imagine the next step for corporations is possibly developing their own software or making acquisitions. Is that where you’re looking to as the next developments between cannabis startups and these larger companies?
I do think that we’re gonna see some major acquisitions, I don’t think that will be in the short term. It’s prudent for these large companies to allow the market to stabilize a bit more. Obviously the regulations are very dynamic in this industry. There will more likely be a “wait and see” approach where they’re gonna continue to observe and learn as much as they can about the current offerings and watch market shares change a bit before they choose to make a splash in this industry. They’re going to allow the people who are on the ground floor, who understand this industry and the regulations, to make those first mistakes, if you will, but more importantly, to work through that and allow it to stabilize before they come in with their considerable resources.
One of the fears among many growers, especially long time growers, is that as things become more legalized and regulated, larger corporate interests are gonna get involved. You and I are discussing the software side, but do you anticipate seeing larger companies coming in on the actual growing and cultivating side? And if so, how do you feel about that?
I do think that there’s a dual-edged sword. There’s quite a bit of benefit and quite a bit of risk that is involved with someone like big agriculture on the cultivation side or big pharma from a medical synthesis and product creation side. I do expect that it is very much inevitable, and that it comes along with the commoditization of this product. As cannabis becomes more like coffee, tea, cotton, and soybeans, it’s looked at as an agricultural product, so there’s an inevitable entrance from big agriculture.
The positives would be the business maturity and the understanding of the need for repeatable processes that can be measured and analyzed. There’s a significant lack of business regimen and data analysis. There’s a lot of positives of improving the environmental impact cannabis cultivation has right now—it can be a drain on the infrastructure. The negatives will certainly be on the cultural impact this movement has had from the beginning: the goal for social entrepreneurism, the goal to make sure that this plant is grown in a sustainable way, hoping to make a positive impact on the world through our industry. Big agriculture may treat it no different than the coffee and the soy beans, like I just mentioned. As a result, we lose some of the character that has exemplified cannabis and the cannabis industry for so long. The hope is that for the people who are here now and who fight the fight, and the people who came before us that sacrificed quite a bit, we can do our best to maintain the infrastructure of this industry as it scales up in a responsible way.