June 19, 2016

Although lacking federal legalization, state level legalization of recreational and/or medical marijuana has now spread to 24 U.S. states. With five more states voting this fall on the matter, the sector is gaining greater recognition as a viable space for investment and growth. Despite this, the bulk of corporate America has steered clear of any involvement in the industry. Until now.

Tech giant Microsoft and cannabis industry-focused company, KIND Financial, have announced that they have entered into a partnership. KIND provides ‘seed to sale’ software services for legal cannabis growers that can track inventory, navigate laws, and manage transactions. KIND will use Microsoft’s cloud platform to build out its offerings, and a Microsoft team will assist clients with tracking transactions and navigating laws, while also ensuring that product does not end up on a black market, according to Market Watch.

“Nobody has really come out of the closet, if you will,” said Matthew A. Karnes, the founder of marijuana data company Green Wave Advisors, to The New York Times. “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.”

Although long taboo, the legal marijuana industry is expected to see sales of $6.7 billion this year compared to sales of $5.4 billion last year according to ArcView Market Research, reports Market Watch, and if key states such as California join in legalization, sales could top $25 billion.

Quentin Hardy with The New York Times makes an interesting point – there is a distinct pattern regarding the peaks and lows of the U.S. economy and the legalization of items or activities associated with ‘vice.’ At times of widespread recession, and therefore lower tax revenue, illicit practices and or items have a history of being legalized and subsequently heavily taxed. Prohibition was repealed and alcohol legalized during The Great Depression, state lotteries became extremely popular during the economic slowdowns of the 1970s, and it seems that the recession begun in 2008 has sparked a wave of legalization of marijuana.

Although corporate America has been reluctant to commit to the sector due to the inconsistent legal status of marijuana across the country, and only certain smaller banks are willing to finance companies within the space, this partnership forged by Microsoft is a telling sign that a bonafide infrastructure and framework for the industry is indeed taking shape.

“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 move to partner with KIND is also being seen as a development that could accelerate legalization of marijuana even further. Allen St. Pierre, executive director of National Organization for the Reform of Marijuana Laws (NORML) told the Washington Post, “Microsoft has a leviathan [lobbying] effort up here in Washington [D.C.],” he said. “One of the things that has been really interesting to see is how the focus is becoming not so much about legalization per say, that’s almost become a bugaboo word up on the Hill, but just focusing in on these commerce reforms, for example to allow banks to handle this trade … they lobby hard for that stuff on the Hill right now and to have a Microsoft weigh in saying, we want to be part of that commerce, can only buoy those efforts.”

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Lynda Kiernan