High tech: How software firms are benefiting from legalized marijuana industry

Medical Marijuana is on display during the opening Eurphoria Wellness, the first marijuana dispensary in Las Vegas, Monday Aug. 24, 2015.

Leaders of Nevada’s emerging marijuana industry say there are few consumable substances watched more closely than the vegetation that goes into cannabis products.

Over the last decade, as nearly 25 states have authorized the use of marijuana in some form, several jurisdictions have imposed rules that require the substance be tracked from seed to sale. For regulators and sellers, it's a daunting process for a plant that often changes hands and takes on many forms before it becomes a final product — a joint, an edible, a topical cream, etc.

To ease data collection, states and marijuana establishments have turned to niche software providers who have made a business out of organizing data from harvest site to dispensary. Generally, the software works with a system of serial numbers, starting with each plant in a harvest getting one of its own. When the harvest batch is sent for extraction or made into an edible product, each byproduct gets another serial number — known as the child batch. As the plant goes through each stage of production — testing, cooking — it gets new serial numbers to track its process while retaining the old serial numbers to show where it’s been. That data can be translated to a barcode on the product.

Nevada joined the list of legal marijuana states in 2013 when lawmakers approved a bill to allow the sale of marijuana for medical use. With it, the Legislature required that all marijuana establishments — cultivation sites, production facilities, testing laboratories and dispensaries — track every gram of substance so it could be easily audited and sourced back to its harvest.

Dispensaries also must keep track of the weed they sell to each patient, including information about what was purchased, measured by potency and weight, and from where it originated.

It’s a lot of data to compile and one of the several regulatory hurdles establishments must clear to operate here, says Will Adler, a lobbyist with the Nevada Medical Marijuana Association.

“If you were in California or Colorado during their medical marijuana dispensary days, you could open the day after (getting) approval.” he said. “There was no need to say where it came from.”

And most establishments have neither the resources nor the time to code their own software systems for tracking. That’s why most establishments opt to purchase a license from an emerging group of software providers specializing in seed-to-sale marijuana tracking.

For these developers, it can be a complex business because the software must be tailored to meet the patchwork of state requirements that govern marijuana. In Nevada, for instance, software developers said they had to tailor their systems to meet a label size requirement.

“It’s difficult to do it all at the same time,” said David Dinenberg, chief executive of Kind Financial, one of the companies that offers tracking. “Everyone is writing their own road maps.”

But the diverse seed-to-sale requirements have also been lucrative for entrepreneurs eager to capitalize on the emerging marijuana industry. Kind Financial and two other companies, MJ Freeway and BioTrackTHC, all reported entities in Nevada using their software products.

According to Patrick Vo, BioTrackTHC’s chief executive, about 45 authorized medical marijuana entities in the state have licensed the software. BioTrackTHC offers its software for a $1,500 setup fee and a monthly charge that ranges from $300 to $400, depending on the type of establishment. The company, Vo said, started out with software to track pharmaceuticals, but it pivoted when it saw the demand for tracking marijuana.

“There are many things that are unique to cannabis that a generic system cannot handle,” Vo said.

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Marijuana is unique, he said, in part because the entire plant must be accounted for even as it is altered, often several times by several different groups, before it is turned into a final product.

A co-founder of MJ Freeway, Jessica Billingsley, added that the degree of tracking required for marijuana, to date, has not been used for any other agricultural products. She argues that suppliers or distributors might know the source of a product — what farm it came from — but might not be able to track the source to the seed. MJ Freeway’s tracking, which she said is accurate to the hundredth of a gram, must also consider the weight of byproduct and waste.

Some weight, for instance, gets lost to evaporation.

“All those numbers should equal in weight (to) 100 percent,” she said.

Steve Gilbert, one of the top regulators for the state's medical marijuana industry, said the state expects record providers to be able to fully account for each product.

“If something is out of inventory from harvest to sale, it needs to be investigated," said Gilbert, whose work is overseen by the Division of Public and Behavioral Health.

From a regulator’s perspective, this is the primary rationale behind tracking. It’s there to prevent the diversion of marijuana, which the federal government still lists as a Schedule I substance, the most dangerous class of drugs. Tracking also ensures product safety, assists with audits and helps facilitate recalls.

For audits, the state requires marijuana establishments to make tracking records available on request. By July, regulators expect to install seed-to-sale tracking software that will link with the establishments’ seed-to-sale systems, a move that will allow the state to access data in real time.

In Southern Nevada, the medical marijuana industry has been slow to take hold. It took months for a dispensary to open, and cultivators have been slowed down by failing to meet state-required laboratory testing for pesticides, mycotoxins and heavy metals.

Adler sees potential for technology in other areas, saying dozens of companies are working on products. As an example, he highlighted an application that lets users treat cannabis like wine, organizing strains by a variety of properties, including medical benefits and potency.

“We have apps taking off every day,” he said.