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Product billed as niche tool for pot trade

Regulatory compliance aim of software, executive says by John Magsam | February 2, 2020 at 1:47 a.m.

FAYETTEVILLE -- Zenwork Inc., a company that made its bones in tax compliance software over the past decade, is offering a new product called ZenCanna, software designed to help cannabis companies manage their complex compliance issues.

The software acts as a "one stop shop" to streamline sales, marketing and operations for cannabis dispensaries, distributors, wholesalers, processors and cultivators, according to the company. The product also automates tax calculations and provides automated e-filing and remittance.

Sanjeev Singh, founder, and chief executive officer of Zenwork said that across all the players in the emerging cannabis industry, the common denominator is a requirement for rigorous regulatory compliance that calls for meticulous record-keeping while facing a landscape of rapidly changing rules. The ZenCanna product, he said, solves that problem for the high-risk industry through its software and applications.

"It's a huge challenge for the businesses and nobody had a solution," Singh said of cannabis industry compliance during an interview at the company's office in Fayetteville.

"Medical and Recreational Marijuana Stores in the U.S.," a report by research company IBIS World, indicates operations that sell prescription medical marijuana and recreational marijuana had revenue of $13.6 billion and profits of nearly $3 billion in 2019. The segment experienced sales growth of nearly 29% annually since 2014. Growth over the next five years is predicted to be nearly 14% annually to $25.9 billion.

According to the report, medical and recreational marijuana stores have flourished over the past five years because of increasing consumer acceptance of alternative treatment through marijuana products along with "sweeping legislative victories across the United States legalizing marijuana in some form." The report notes that 33 states, including Arkansas, have legalized medical marijuana while recreational use of marijuana is currently limited to 11 states.

The Ibis World Industry report, "Medical and Recreational Marijuana Growing in the U.S.," projects that over the next five years, revenue for the segment will increase by nearly 13% annually to $14.7 billion but uncertainty will remain until the federal government decriminalizes marijuana. According to the report, the marijuana-growing industry includes both nonprofit and for-profit operations.

Both reports note that the segment has been "significantly restricted" by increasing amounts of proposed regulation on medical marijuana since it remains a Schedule I drug. The federal government defines Schedule I drugs as drugs with no currently accepted medical use and a high potential for abuse.

Richard Blau, chairman of the regulated product department of GrayRobinson said the ZenCanna product seems to fill a void in the emerging cannabis marketplace, which he notes is heavily regulated with "pretty burdensome" rules. He added that those requirements often differ from state to state. GrayRobinson is a full-service law and lobbying firm in Florida.

Blau said small cannabis shops with one location, those with operations in several states, along with distribution and growing operations must track information like sales data, prescriptions and other medical information, testing as well as account for the product itself. Meeting those requirements, he said, calls for extensive and detailed record-keeping throughout the production, logistics, storage and retail process.

"It could be indispensable," Blau said of a product like ZenCanna.

In December, ZenCanna attended MJBizCon in Las Vegas, an event dubbed the preeminent marijuana business conference by its organizers. The company got its first real industrywide exposure at the conference and generated interest from companies in 25 states and the District of Columbia, April Rae Mallord, business development director at Zenwork, said in a recent interview. She noted that ZenCanna already has customers in Oregon, Oklahoma and Arkansas.

Sam Clay, owner of Arkansas-based Buffalo Bros and Dank Delicacies in Oklahoma, was the first cannabis distribution customer for ZenCanna's public beta release. Clay's Buffalo Bros operation is a hemp and CBD producer while Dank Delicacies is a cannabis processor and distributor.

Clay said the ZenCanna product worked well for both companies and added that the software was easy to integrate into his operations. He said the price point and the support he received from ZenCanna make the product especially attractive.

ZenCanna uses payment and banking technologies such as Hypur, that lets cannabis operators accept and transfer payment as an alternative to cash, Singh said. The software gives operators the transparency needed to comply with government regulations whether dealing with cash or electronic alternative transactions.

That's particularly important to cannabis operations, Blau at GrayRobinson said, since banks shy away from the businesses. Because cannabis is illegal in the eyes of the federal government, banks are at risk of running afoul of the law if they work with cannabis businesses.

"Most businesses in the industry have no access to banks or similar institutions," Blau said. "Banks are scared."

Zenwork is privately owned, has been in operation for more than 10 years and was ranked the sixth-fastest growing company in Arkansas by Inc. magazine in 2018. It employees about 120 people across its operations in the U.S. and India and offers seven compliance platforms including its flagship product Tax1099, which has 150,000 users, according to the company.

"Compliance is something that will never go away," Singh said.

SundayMonday Business on 02/02/2020

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