PP 23 | Cannabis Tracking And Tracing

 

As a cannabis business owner, it is very crucial to see the operation of your business, even from states away anywhere in the world. Today, Anthony Frischknecht interviews Dan Stofka, EVP of Engineering and Software for KIND Financial, about his track and trace technology and programs for cannabis compliance that bridges the gap between the government and commercial business. Dan further explains what tracking cannabis from seed to sale means and how his tracking and tracing business has helped many growers, regulators, and even the market for patients and caregivers. On the side, Dan also shares how the Internet of Things fit into his program, their system for tracking, using tags, and more.

Listen to the podcast here:

Cannabis Compliance: Tracking From Seed To Sale With Dan Stofka

I have Dan Stofka here with me from KIND Financial. How are you doing, Dan?

I’m good. How are you doing, Tony?

I’m doing well, thank you. How did you get involved in the cannabis industry? What was that turning point where you’re like, “I’m going to jump in. This is what I want to do?”

I was a little pushed into it through a mutual friend of ours. Ryan had a dispensary many years ago. At that time, he was having a hard time understanding what he needed for security and systems to be in place. We started Frankensteining QuickBooks and installing inexpensive cameras all over the spot before regulations took effect. He was buying product off of the street from people in backpacks and so forth. From the beginning, no one wanted to work with anyone in the business. I saw that as an opportunity to help people with electronics and it’s stemmed from that.

I’ve had Dan do some work for me on some of my grows several years ago. He has done some great work for me. There’s a lot of people out there that are looking to take advantage of people. The reason I brought Dan in is because he’s an honest guy. There’s a lot of shysters out there. He’s got several different companies. He’s a serial entrepreneur. He’s got some stuff that’s going on in Rhode Island. He’s also had stuff that he’s doing here in Colorado. Dan, when KIND Financial got going, how did you guys get started?

KIND Financial bought Agrisoft and I was a part of the Agrisoft’s development group. Agrisoft was building commercial software for growers and retailers to start to get around track and trace. They offer point of sale solutions and business solutions for this kind of business. It started in the commercial sector. KIND purchased Agrisoft in 2014, if I’m not mistaken. That was when I started with KIND. I’ve held the rank of technology supervisor, so to speak, on everything that they do, both hardware and software-related. I was originally brought in to Agrisoft to bring camera systems into the track and trace programs so that a remote owner could see their operation in effect from states away or from anywhere in the world.

What you mean by track and trace is from seed to sale, is that correct?

Yeah. You have to track everything from seed to sale as you may or may not know. The State of Colorado tried to contract someone to bring in video feeds from every single business into a central hub downtown where they could review all the businesses in real-time as they felt it needed. There are some technological hurdles that make it difficult for that to happen. The sheer amount of data and so forth is astronomical. That’s how we ended up with a metric that ends up winning that contract. As KIND progressed, we realized that we needed to become an opponent in that market as well in the government space. There were tools that were disjointed between the government and the commercial businesses. We tried to bridge that gap. That’s why I was brought in. My task has been that since that starting point.

It’s been fragmented for a long time, such as many things are in the industry. Do you see that there is better communication happening with the private along with the government? Is there some good movement happening?

You have some contention around home grows. Predominantly, a lot of regulators feel that they’re unnecessary and should probably be knocked off the plate. There are others that feel that that’s a part of patient rights. We have fourteen states that have home grows rules and the rest of them don’t. Those home grows are not tracked in any method other than the system that we’ve built for Rhode Island. In Rhode Island, when an officer goes to a house and they smell something coming from the house or they’ve gotten a complaint from a neighbor, there’s no way for them to know whether they’re above water or not without some type of tracking system in place. We’ve developed a system where that officer could walk in and they should see a certificate on the wall. They can scan a QR code on that certificate and find out if it’s legit or not, how many plants they should be growing and all of that. It takes all the ambiguity out of the process completely.

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Is this for home grows?

Correct.

I haven’t heard of anybody doing that quite yet. Is Rhode Island the only one that’s taking the lead on this?

I believe so and we’ve generated quite a bit of revenue through the program to help them manage that application process and that entire market for patients and caregivers. Not only do we track patients that are growing from themselves, but also caregivers that are growing into multiple people. In some cases, you could have 24 to 42 plants in a facility that’s designed to be accounted for 5 or 6 patients, five patients in Rhode Island specifically. That gets into quite a bit of weight and management that should have some type of oversight. We not only have brought in revenue through that program to help the state manage that but also helped with the inspections and the law enforcement aspect of that. They know what they’re walking into before they knock on the door.

How have you funded this system that you started over this business? How has that happened? How were you able to put together the money to produce it? It sounds expensive, that’s why I asked.

It is and before you have any proven results, it’s difficult. In most states, you can’t apply to do a state system unless you have a state system. It’s a chicken and egg scenario and we were lucky enough for Rhode Island to partner with us in trying to develop these systems that encompass a little bit more than what other systems out there are doing now. Funding-wise, we’ve started with mainly a lot of private investors, family, friends and so forth. My CEO is David Dinenberg. He was previously in commercial real estate and moved to California to start this business. Predominantly, a lot of friends and family got in with that. We’ve done a few funny rounds since, but it’s generally been friends of friends or no large organization institutional money.

I’ve seen that happen. The majority of people that have started a while ago or in the same situation as you are. How is it like to stretch a dollar? You must be having to do that.

It’s difficult as you can imagine. It helps to have an incredibly dedicated team. I honestly think that most of my team would be nearly homeless before they would give up on what we’re doing. Having that reassurance from your team, knowing that they’re going to be there when you go in the next day even if the pay has been tough. For whatever reason, we’re having difficulty getting checks out the door. That’s the family that you need with you in order to get through those tough times to make a dream come true.

I’ve experienced a lot of that in the past making paychecks and payroll. All of a sudden, I got to have $40,000 by the end of the week because every two weeks, it keeps turning over and over again. What gets you through those tough moments because it definitely tests you? How do you work through that part and those stresses?

Communication is probably the biggest deal. Everyone on my team knows exactly where we’re at and there’s nobody who is guessing as to what’s happening or what’s going to happen next. That’s the key to holding a team together when you have difficult times. Leadership is important as well. Those are the two things that drive that. Without being on calls every morning and talking to everybody every single day, I don’t think they’d still be on the phone.

PP 23 | Cannabis Tracking And Tracing

Cannabis Tracking And Tracing: Trade shows are a great way to meet some of the people that are not only focused on security or electronics but also know the ins and outs of the cannabis marketplace.

 

Are they locally here in Colorado, in Rhode Island or throughout the United States? Where is everybody at?

Our team is international at this point. We have people in California and Philadelphia. We have a few players in Boston, myself and a few players here in Colorado. We’re spread out all over the place. We also have a counterpart that’s working on our behalf in Mexico, Guam and some of those outside territories.

It sounds like you have a wide net you cast out everywhere. How was that to manage?

I can tell you as a startup, we’ve made at least half of all the mistakes possible at this point and we’re trying to extinguish every incorrect way to do something sometimes before we get to the right one. To be honest with you, I would say that we honestly spread our net too far. It was a mistake of being a startup and feeling like we had to accomplish everything at the same time. As you may or may not know, we’ve partnered with Microsoft in 2014 and that news reached the entire planet. It was a cool thing, but it’s also difficult to understand what that meant for us and how we needed to position ourselves. Trying to position ourselves as the leader, we felt we needed to take on all those things and it was a little too much.

You probably feel like you had to bring a lot to the table and Microsoft came on.

That ended up not being first to market. We have always tried to take the slow and calculated approach to everything that we’ve done. For better or for worse, at the end of the day, the results will improve themselves. It’s difficult in the interim trying to get to that point. There’s still a long road ahead. We’re still not out of the woods, so to speak. We do have some successes with the Microsoft partnership and with Rhode Island joining our team. We’re starting to see some proven results from the home grow tracking stuff. We also have an additional track and trace programs in place for Rhode Island that will outshine some of the competitors in that government space, too, predominantly around, how we track the plants and the identifier that we use.

I know you’re knowledgeable in electronic securities. How does this fit into that program?

We have a specific IoT play.

What’s IoT?

It’s Internet of Things. When we partnered with Microsoft, Microsoft came out to Colorado and toured growers and dispensaries with me. They introduced me to their other teams internally and one of those teams was the Microsoft IoT team. They went out to look at ways that we could track those assets and track the people in those buildings with the RFID tags. You have to purchase it in most states. If you’re in a metric state, you have an RFID tag that’s applied to the plant. Most people use those tags just for the scanning barcode that’s on it and they don’t use the intelligence behind it.

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A lot of our commercial products are designed to start to harness that. In our track and trace program, we also require an RFID tag. On the commercial side, we partner with the state system and say, “Instead of requiring somebody at the grower to go into a computer and plugin where plant A is, why don’t we just have a reader that tells you that plant A is in room one. You don’t have to wait for Joe to go put that into the computer.” That’s going to give you more insight and more overview of what’s going on with those growers.

It was my understanding that that’s what the whole purpose of these RFID tags was when back in 2010 they wanted us to start using these in Colorado.

The disadvantage is that you’re in facilities that are historically difficult to control radio frequencies and an all-metal greenhouse is going to be difficult to control. The thought wasn’t finalized because the state system that sells the tag is interested in the revenue from the tag. They don’t have another system that harnesses the technology in that tag and then gives them usable information out of it. It stopped at the government side and that’s a decision for that company. They decided that they wanted to focus on government, which is fine, but you have gaps and this is one of those glaring gaps.

Those tags aren’t cheap and they’ve been implemented into the system for the last several years.

You have a pack of tags and plant tags. A plant tag has to be fairly able to handle water and environmental adversity as they would in the grower. Those tags can be as much as $0.40 to $0.50 per tag. That’s a huge line of revenue for the state track and trace company, but ultimately, those gaps are the issue and we plan to close those.

You see that these were going to be used in these RFID ID tags soon enough. It’s not just a fantasy anymore.

We’ve had a pilot program going in Colorado for roughly 2.5 years at this point where we are tracking all of the plants in the building using RFID readers at the doors. We also have a hybrid system that uses Bluetooth tracking beacons to track all the associates and when they interact with certain batches of plants. By doing a hybrid system, we’re able to get specific information on where the employees are and we still read the tag data and can tell you what rooms the tags are in. The hybrid is our best foot forward.

With tracking, systems and everything that of these new states are bringing on, California has finally got some time in the tracking. Are these systems getting better? Are we seeing a lot better transparency between these companies and the states? Are systems like yours coming out are going to hopefully revolutionize the way they’re tracking stuff? What is your feeling on the state of the industry now?

We’re definitely in a period of flux where we’re going to see a lot of changes. It’s still a new market and it ties to a lot more traditional markets like retail and agriculture, but there are specific things about this business that don’t resonate anywhere else and that holds true for the government side. You still have the players that were first to market that are still shining strongly but the best solution, I don’t think is going to be one of those. I feel like we will eventually deliver something revolutionary to plan track and trace for governments. It’s just a matter of realizing those results in Rhode Island and then presenting them to the rest of the world.

You’re talking about what goes into a lot of compliance for companies. They have to figure out and manage how are we going to afford that, and how much money it’s going to take to run their compliance area. What do you see on average? You deal with a lot of different states and you travel quite a bit. For the business owners out there that are thinking about, “How do I work this into my financials and my plan to make these solid so that I can still make money?” after taxes and everything else, it starts to get thin unless you’re on top of things, you’re tight and you understand your business.

PP 23 | Cannabis Tracking And Tracing

Cannabis Tracking And Tracing: Baseline communication between the black market and the government is necessary.

 

Honestly, for most business owners, I would recommend getting out and going to the trade shows. Trade shows are a great way to get started on that stuff and start to meet some of the people that are not only focused on security or electronics but specifically for the cannabis marketplace. There are dozens of pages of rules for security for almost every single state and also related to the systems and the tracking systems and all of that. You need people who know those in and out. You go to somebody and you ask them, “How many days of retention do I need on my DVR?” If they don’t know and they don’t know the law, you need to look for someone else.

There’s a lot of people that are jumping into the industry that are coming from other industries. They seem to know what they’re talking about. What you pointed out about regulations is something that many people miss, that part of this whole thing. That’s what this whole thing is built on. You’ve got to know what your rules are because there’s too much money to lose and it’s a risk. In your opinion, which state do you feel is most favorable to the business owner?

I feel definitely Oklahoma at the moment. There’s no state track and trace system in place or even expected in the near future. There’s honestly no cap on licenses either. There are people out there with many dozens of licenses trying to make a go at it out there. Easiest in terms of regulation, maybe not so much in terms of competition.

I know several people that have left here to go there because it’s more favorable. The competition is changing there too, so you have to be ready for that. As an entrepreneur, being able to get in the game for a reasonable cost, I would agree with you. Oklahoma’s a great place. That’s why you’re seeing people flock there. Especially, the black-market guys, they are going there because they know this could be our last opportunity.

They’ll start to realize when they have more of those black-market issues that need a tracking program in place. You need to have some baseline communication between those businesses and the government to make sure that your black-market isn’t driving like that.

Dan, I appreciate you. I look forward to seeing how your businesses flourish in the future. Thanks again for being on my show. Thanks for reading. I hope that I’ve brought some good information to you. Please like me on iTunes, give me a rating on iTunes and visit my website at BlackMarketBook.com.

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About Dan Stofka

PP 23 | Cannabis Tracking And TracingIn the last 20 years, Dan has worked in technology, manufacturing, and retail. He has been the founder or principal in several ventures. He is known for his extensive tech hardware and software knowledge, as well as his incredible people management and training capabilities.

Dan has worked with electronics his whole life and has always been passionate about them. As early as age six he was fixing AM/FM radio’s, and by age 12 he was wiring his parents’ house for voice and data connections. He was accepted and attended a computer science program in high school. Shortly after, his retail management performance at Best Buy was considered top 1% out of over 600 stores. Dan then ran his first business in home automation and high-end home theater. After a few years, he helped develop the tech repair program utilized at 1200+ Office Depot retail stores, and also trained hundreds of employees and managers.

He has worked with Dispensaries and Grows since their influx in 2009, and in 2011 he was I.T. Director for CO Dispensary Services with two grows and four retail stores. He helped develop company processes and managed all tech initiatives. In 2013 he founded ElecTech (now Safe and Sound) with a focus on cannabis security and technology. They supplied camera surveillance, security alarms, and tech services to dozens of businesses in many states.

As the EVP of Engineering and Software for Kind Financial, he is responsible for planning, designing, building, and implementing commercial and government software and hardware solutions. These projects include banking and police compliance portals, commercial seed to sale, government seed to sale tracking, government licensing solutions, IoT asset, and people tracking, and home cultivation controls and software. From retail to manufacturing, tech support to process management, every aspect of developing the world’s most extensive business solution has been covered thoroughly in his experience both inside and outside of the cannabis marketplace.

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