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KC company makes a run at the marijuana trade with seed-to-sale software

Updated: 2014-02-11T03:16:02Z

By MARK DAVIS

The Kansas City Star

Pot is hot, and a Kansas City company wants in on the action.

Agrisoft Development Group LLC is aiming for clients in the 20 states where medical marijuana is legal, including Colorado and Washington, where recreational use is, too.

The company developed software to help marijuana growers, processors and retailers comply with regulations, keep their operations secure and run their businesses better.

Keeping up can be a daunting task. As marijuana’s legal use spreads, states increasingly expect growers to track every plant, from seed to weed.

The monitoring can cover every marketable flower bud and marijuana-infused product — sodas, candy, cookies, breath mints — until the moment a budtender (a play on bartender) rings up a sale. Rules cover labeling, laboratory testing, patient registration, security, advertising and product names.

Agrisoft, with offices at 2300 Main St. near Crown Center, began installing its first clients’ systems this year, hoping to capture a place in a growing market.

The company faces established competition, principally industry leader MJ Freeway, a Denver-based software company. MJ Freeway has the advantage of being based in legal pot’s backyard and a more than three-year head start. Shops also already use systems from BioTrackTHC, Adilas, Quantum 9 and others.

“Right now is when the dominant players of the future are being determined, and we want to be one of those,” said Josh Wood, Agrisoft’s chief technology officer.

Embraceable

Tracking marijuana from “seed to sale” is the biggest regulatory challenge.

Marijuana producers typically don’t use seeds but take starts off established plants for each crop. Colorado’s law, for example, then requires each new plant to be tagged with RFID technology, short for radio frequency identification.

These high-tech bar codes send out unique radio signals. A state inspector armed with a sensor can grab an instant inventory to verify the business has met its charge to follow the whereabouts of every plant and product.

Chiefly, it ensures that nothing disappears into the black market or falls into the hands of children or illegal users. It also means every product sold is part of an identifiable batch that can be traced to the plant from which it came.

The industry has embraced this over-the-top approach as the means to legitimacy, even survival.

“It is very, very much to deal with,” said Hilary Hayne, manager of the Green Man Cannabis store on Hampden Avenue in Denver. “If we do it right and play the game correctly, we’re just going to win the game in the end.”

That’s because federal law still bans pot, everywhere. Uncle Sam has stood back but is watching to see that the industry runs safely, openly and legitimately.

“Otherwise the Department of Justice would step in and end it right there,” said Brian Smith, spokesman for the Washington State Liquor Control Board, which enforces its new recreational marijuana law.

Trimming weed

Charles Ramsey, Agrisoft’s chief executive, has a background in medical software. He admits the company sat as others jumped into the marijuana software fray.

The idea for its software came up three years ago, he said, but fewer states were legal, the federal government’s stance was unclear and potential clients had little money.

A “60 Minutes” broadcast sparked action. Actually, it was the show’s rebroadcast of a piece that featured Matt Cook, who was instrumental in writing Colorado’s law.

Ramsey said he had Cook on the phone the next day and, after much wooing, brought him into Agrisoft as chief operating officer. All told, the company has 10 employees, mostly in Kansas City, and has used software code writers in India.

Agrisoft’s software effort began in the spring of 2013, when Wood started working at a pot shop.

The idea was to embed Wood, who had designed inventory systems, and a few others in the business. Let them see firsthand how the world of commercial weed worked and then design a software system from the ground up.

“I’ve harvested weed, planted weed, trimmed weed, packaged weed, sold weed over the counter — almost,” Wood said of his stint in Denver area shops.

Lacking a license, Wood could only “stand very close” to the budtenders as they dispensed the product.

And Wood did compliance reports in a world that has a rule for seemingly every turn.

For example, Washington’s recreational law not only requires shops to maintain a video surveillance system but also dictates the number of pixels the cameras must have.

Massachusetts requires marijuana to be tested so labels can show its level of tetrahydrocannabinol, or THC, the stuff that makes users high.

Jessica Billingsley, a co-founder of MJ Freeway, said the state goes further to require that the lab results be preserved in a form that can’t be edited.

States also regulate users, nearly always requiring medical users to register.

Wood said Arizona allows medical marijuana users to grow their own supply, unless they live within 25 miles of a licensed grower. If so, they have to buy there.

States regulate the size of their industries. Washington allows 2 million square feet for production statewide. Connecticut awarded its first and only four licenses to growers last month.

Willy Wonka-like

Although recreational marijuana is gaining a foothold, it owes its existence to the medical side.

Medical marijuana has pushed its way into widespread recognition for its benefits in dealing with pain, seizures, glaucoma, multiple sclerosis, cancer and other conditions.

Many of these applications draw on the other noteworthy chemical in pot called cannabidiol, or CBD, though some work best with a combination of CBD and THC.

Marijuana-infused products, called MIPs, serve medical users who don’t want to smoke, and they’re popular in recreational use.

Processors extract a golden liquid from leftover plant parts and add it to everything from topical creams to ice cream.

“Honestly, it looks like something out of ‘Willy Wonka & the Chocolate Factory,’ ” said Agrisoft’s Ramsey.

For governments, the marijuana payoff is taxes, another area where software systems can help.

The size of the payoff is open to debate partly because estimates of the industry’s size vary widely. A CNBC.com report in 2010 found estimates between $10 billion and $120 billion.

“It’s the green rush, the gold rush of the 21st century, and everyone wants in on that money,” said Ramsey, who cites a $68 billion industry sales total.

Some states have levied taxes on the marijuana industry beyond regular business and sales taxes.

Washington state levies a 25 percent excise tax when a grower sells to a processor, another 25 percent when the processor sells to a retailer, and another 25 percent when the retailer rings up a customer’s purchase. Smith said that’s an effective 44 percent tax on each dollar at the register, exclusive of sales taxes.

Ramsey said Washington, as in Uncle Sam, expects to collect, too. He said calculating how much a business should pay in federal income tax can be especially difficult when it grows and sells marijuana, which is typical.

Federal tax law essentially allows a business to deduct its costs from producing marijuana but not its costs from selling it.

In addition to the 20 states with legal medical use of marijuana, six others have decriminalized its possession and more are working on new permissive laws.

Billingsley said Arkansas is “very likely” to pass a marijuana law, but not Missouri.

“You guys are in one red state. I think it’s going to be a while,” she said.

Ramsey agreed, saying Kansas likely would legalize before the Show Me State would.

Both also see the marijuana industry as growing, as long as it gains and keeps legitimacy.

Billingsley said potential users put off by the herb’s illicit history would go for legally sanctioned, lab-tested, THC-content disclosed marijuana-infused products.

“It would be totally different if they could do that on a Friday night instead of having a bottle of wine,” she said.

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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