Developing the cannabis industry’s nervous system: An exclusive interview with cannabis ERP systems
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Like a growing baby, the cannabis industry is developing a complex nervous system and figuring out what it can do with it. In this metaphor, the nervous system is an interconnected network of ERP systems. ERP stands for enterprise resource planning. Included within the more robust of these systems are complete seed-to-sale tracking systems, point-of-sale systems, finance and accounting systems, and more. Cannabis-focused ERP’s are also an invaluable tool in maintaining compliance with state regulations.
Justin Dufour is the brainchild of one such system known as Viridian Sciences, a cannabis seed-to-sale solution and POS built on the global ERP giant, SAP.
"Viridian Sciences is the nervous system at the center of cannabis companies small and large including, Be Kind Production, a fresh start-up cultivator in the heart of California's Bay Area as well as 4 Front Holdings LLC, a large quickly expanding cannabis company with operations in four States, running eleven Dispensaries and three cultivation and processing facilities."
Dufour has a fascinating history that has lead directly to his success in the cannabis industry. He was born with severe dyslexia and didn’t learn how to read until the fifth grade. And, although he hadn’t even used a computer up until he took his first computer science course in college. “I was a stick and a rope kid, I never even played video games,” Dufour said. Today, Dufour is, as he puts it, “living the dream,” since becoming a Titan and thought leader in the cannabis space.
Dufour discovered his aptitude for coding in college. Plowing through the first year’s curriculum in a matter of weeks. “I came back to the professor and said, ‘That’s great, what’s next?’ And he was like, ‘That was the course,’ you know? So he just started feeding me books,” Dufour said. By the midway point in the semester, Dufour was told by his professor that he had completed the entire first year of computer science.
“So I went and talked to the Dean, and they gave me a scholarship,” Dufour said. Dufour was awarded a $60,000.00 Microsoft scholarship to continue his education. “I got my A+ certification, my DBA, my Network Admin, I got all of those Microsoft certs and I got recruited by MetLife out of college.”
The makings of an ERP titan
While working with MetLife, Dufour built an enterprise resource planning system, or ERP, which effectively combined the operations of six banks under MetLife’s umbrella. The consolidated operation was then sold to AIG. And for his next project, Dufour built an HR application for the Superior Court of California.
At that point, Dufour decided to go back to law school. “I wanted to do intellectual property law,” Dufour said. “The only thing I learned in law school was I didn’t want to be a lawyer.” After one year of law school, Dufour doubled up his workload and earned an MS in industrial science to complement his BS in computer science and BS in finance and accounting. He then went on to earn an MS in industrial engineering plus a law degree.
With all that experience and knowledge you would think a major corporation would have scooped Dufour, but, “when I graduated from law school,” Dufour said, “I could not find a job to save my life. 2008 was a bomb. I was making macaroni and cheese for my wife, and new neighbors were moving in. I brought them some mac and cheese.” That evening Dufour’s neighbor learned about his credentials and invited him to apply for a position with a software development startup. To say that the interview went well would be an understatement.
“I walked in and I handed him my resume, and I walked out with 20 percent of the company.” The company’s name was Orchestra Software. During his tenure there, Dufour built five micro-vertical industry solutions including a vast network for the distribution of oil and gas. His system was so effective that mom and pop operators who utilized the system were beating Chevron and Valero to the pumps. “We changed the way that industry worked. The mom and pops were getting booted out by Chevron, Valero, and Tesoro because they didn’t have the money and couldn’t compete. They got together and went out and got a $100-plus million line of credit, and asked us to build them a technology solution that would make them more efficient, and that is exactly what we delivered.”
He also built a restaurant solution to manage the food supply chain across multiple states. “It was actually a very complex solution. It’s similar to doing a retail POS for cannabis. It’s just a bunch of locations that you’re managing and doing EDI for.”
While there Dufour also developed the company’s bread and butter platform, an ERP for the craft beer industry known as Orchestrated Beer, and a sister system, Orchestrated Spirits.
You would think with all of this experience, you might be hard pressed to find someone more talented and qualified than Justin Dufour for developing an ERP for the cannabis industry. But wait. There’s more.
Growing up a grower
As we were discussing the craft beer ERP, Dufour said to me, “I now know more about brewing beer than I ever cared to know. I’m a weed person, not a booze person.” That led me to ask him about his experience with cannabis cultivation and the market at large. His answer surprised me.
“I’ve grown so much weed, man. We ran 10,000 square feet. We had a Tier-2 producer/processor license. So we did 10,000 square feet of cultivation and then we processed the cannabis into packaged goods as well as derivatives. So we did oils, hash, kief, that type of stuff.”
“I loved what I was doing,” Dufour said. “I’m passionate about it in every single way. I started growing when I was 15, in my mom’s closet at our house, and I just never stopped. And it just got bigger, and bigger, and bigger.
Partnering with SAP
Dufour’s cannabis enterprise solution has been developed in partnership with a company called SAP, a multinational software corporation based in Germany that offers ERP systems. The company has regional offices in 180 countries and over 335,000 customers and is a component of the Euro Stoxx 50 stock market index.
I asked Dufour about the partnership and how SAP fits into Viridian Sciences. He explained that most of the ERP solutions in the cannabis space are not offering products such as his. They’re offering services that have partnered with an ERP solutions provider to integrate that solution into their seed-to-sale and POS systems. Viridian, on the other hand, is a robust stand-alone solution which incorporates SAP’s powerful enterprise systems.
“We could take SAP completely off of this product, call it Viridian, and market it as such because we are an original equipment manufacturer. This separates us from just a partner providing a solution. We are a partner with SAP, but we are offering a product to a marketplace. We’re not a partner who has tailored a product or configured or customized a platform for the marketplace,” said Dufour. “Big distinction there,” he said.
“At the beginning, we took competing solutions and did a side-to-side fact sheet comparison against what SAP does,” said Dufour. “We had to stop because we had 14 pages of stuff and it just became obtuse. While the features of most solutions can barely fill one page, we have 14 pages of small print listing functionality that we offer that they [the competition] do not.”
“If you look at what a lot of these companies are spending their money on now,” Dufour continued, “They’re trying to build business process into their seed-to-sale solution. What a nightmare, right? We took the other approach. We went to the world’s leader in business management solutions. SAP has figured out all the financial stuff — taxation, making sure your inventory is auditable and every tracking and change is changed and, you know, that it works.”
ERP’s in regulatory compliance
The cannabis industry is one of the most highly regulated industries in existence — even more so than alcohol or tobacco. The complexity of all the industry’s moving parts is enormous. And being a relatively new industry that is still getting its legs, (Dufour refers to the industry as, “the nine-feet-tall, 500-pound baby”) cannabis regulations and tracking systems are in a constant state of flux.
Cannabis ERP systems don’t just need to be robust enough to run a vertically-integrated operation from seed to sale and to be able to accommodate multiple operations in multiple states, they also need to interface with government systems put in place to monitor regulatory compliance in each of those states. In some states that means a level of granularity that includes municipal-level regulations.
Not surprisingly, Dufour says that the biggest challenge for cannabis ERP systems is interfacing with state-run regulatory systems. Dufour asked and answered his own question. “What is the biggest challenge? Compliance is the biggest challenge, hands down.”
The reason for that, says Dufour, is that “compliance systems are put in by the states are not intended to keep you compliant. If you have a compliance system, should you be able to go out of compliance? No! The system should ensure that you remain in compliance. And if you go out of compliance it should tell you can’t do that. That’s what SAP does. It puts up a big old red bar that says you can’t deliver this without putting a delivery date in.”
This is a much bigger problem for cannabis operations than for state regulators. Dufour believes that regulators have no incentive to create actual compliance systems. “How is a state or regulatory agent supposed to pay for itself if they cannot fine cannabis companies? The only way to fine them is if they’re out of compliance. Hence, the reason you can enter negative numbers into Metrc.” (Metrc is the solution used in California and some other states for compliance reporting.) But, says Dufour, “you can enter in negative numbers for plants. How do you grow a negative plant? It doesn’t happen.”
Referring to the fact that Viridian bid to be the vendor on the Washington regulatory system Dufour says, “That is why we lost the Washington bid. Viridian [software] automatically paid taxes for businesses at the point of sale, through an EFT. A guy in the back said, ‘How are we supposed to charge late fees for not filing your taxes?’ And I said, ‘Well, you could turn that feature off.’ But I figured I’d just automatically do it so that these people who are starting a new business have one less thing to worry about and we can ensure that everybody’s paying their taxes.’”
When Dufour asked why Viridian lost the contract, an unidentified source said, “The guy in the back is the guy in charge, and you cut off a revenue stream.” Dufour replied, “I told him you didn’t have to use that feature.” To which she replied, “Once you put it in the public record, it was there, and you can’t take it back.”
The convenience of having a single solution, one version of the truth that holds all of your data, and you don’t have to go to disparate systems to get all of this stuff put together for you, is a tremendous benefit. That is the giant value-add of using a unified system. — Justin Dufour
Staying on top of a sea of regulations
Regardless of the fact that state regulatory systems are not meant to assure compliance, companies that are producing and bringing cannabis products to market depend on systems that are capable of assuring compliance.
So, how do you assure compliance when the rules of the game change from state to state and even town to town? According to Dufour, it takes a small army to keep up on current regulations.
“From our standpoint, it takes a dedicated team who does nothing else but compliance and keeping abreast on compliance issues. Because every state is different, every state puts out emergency rules, everybody’s changing. And the only way to keep up with that is to have a dedicated team who does nothing else but manage and keep track of compliance. It’s the only way you can do it,” Dufour said. “And compliance is such a crazy thing in general. I came from the craft beer and spirits industry. They don’t put unique numbers on every single bottle. It’s done in giant batches.”
Way ahead of the curve
I asked Dufour if he believed that cannabis EPR development is ahead of the curve or behind the curve in keeping up with the fast pace in this constantly changing industry. Dufour said that he believes that the technology is far ahead of the adoption curve. In fact, Dufour says, “my job as a software architect in SAP, in terms of micro-verticals is to dumb SAP down to make it so easy that my 3rd grader could use it.”
Although Viridian Sciences cannabis ERP is utilized by some of the biggest, hairiest, most monstrous operations in the industry, Dufour says the product also needs to work for the little guy. “Typically for these companies that are just getting licensed, they’re a startup, they’re prospects potentially looking at a solution like ours. You’re not going to implement everything,” says Dufour. “So, we’ve really taken in the product, broken it down by functionality, broken it down by price to really allow a prospect who is coming in — in any space, producer, processor, cultivator, retail — in any form, big, small, multiple state, single state — to be able to offer them a solution that’s going to best fit their needs. Creep, crawl, walk, run, right?”
Getting into more detail on the adoption process, Dufour explains, “The crawl. That is starting to fully understand after a year of use what the data means. You’re starting to understand your reports. You’re starting to now implement features of the CRM that you weren’t using before. And you’re implementing another part of the solution that you weren’t working with. And then you’re implementing fixed assets. You’re doing cost accounting, you’re really tightening down those bolts to be competitive in a highly competitive ecosystem.
Dufour says a robust cannabis ERP needs to appeal to both the small operations and the large. “There is no one type of person looking for this type of solution. We are really seeing the full gamut of people. We’ve got the high-end Canadian conglomerates who are coming in and have got operations all over the place. We’ve got Columbia Care who is a prospect who should potentially sign hopefully this quarter, they’re in nine different states. They’ll be at 100 retail locations by the mid-year, and they’re huge. So, you know, those types of clients are typically drawn to the SAP product. But that’s the beauty of this business.”
What I would say is don’t look at where you are now, look at where you want to be in three to five years because this type of a solution is the foundation and building blocks for your success.
“You get all kinds of people who are attracted to this,” says Dufour. “They’re all in search of one thing — making their life easier. A system that is easy to use has more value than a system that’s too complex for people to feel comfortable using it. It’s a competitive business and the simpler we can make it for them the better. Growers have moved from hand trimming to twisters. Why? Because it’s easier. I just throw the stuff in the twister and it trims it all up, and it just comes out the end. I don’t have to worry about people cutting fingers off, I don’t have to hire 10 people to do it, I can hire one person to do it.”
As companies get bigger and more sophisticated, so do their problems. “The smaller guys are more concerned about, ‘hey, I just want to make sure my inventory is right. I want to be able to determine my cost per gram,’” says Dufour. “As you get more sophisticated in businesses it starts becoming more of, ‘I need tighter control on my workflows. I need tighter control over my accounting.’ Forecasting, MRP, there are just more traditional business scenarios that come about as the company gets bigger. So it really just depends on the size of the company as to what their issues are going to be.”
“If you’re piloting a bigger ship and need more power, it’s coming,” says Dufour. “There are a lot of headaches in distribution right now for our industry in terms of retailers finding out what suppliers have and suppliers knowing what retailers need, and it’s a big headache. With intercompany transactions you want them communicating with each other automatically so you don’t have to incur that manual cost. And we’ve got a solution coming down the pipe to be able to address that specifically. As a company gets bigger, and multiple companies get underneath their enterprise, they need consolidated systems and consolidated reporting.”
In his closing comments, Dufour said, “We started in 2012 building this product. I couldn’t be happier with what we have accomplished, because we are adding the true legitimacy to the industry. We’re taking a world-class leading platform and we’re showing that this industry has the support behind it with this product. Not just from compliance and inventory tracking but you have a global brand [SAP] who is willing to support this industry, openly.”
Speaking of his role in the development of the cannabis industry at large, Dufour says he is “living the dream.” “Being able to not only actively participate in the development of this industry but also being a thought leader and somebody who’s actually forming the industry as it moves is living the dream, you know?” He continues, “I mean, if you just look at, collectively, our clients, we’re in tonnage. Hundreds of millions of dollars of processed marijuana, and our systems are the ones that are behind the security of that happening correctly and legitimately.”