By Eric Peterson | Feb 27, 2019
Cannabis compliance software
Like it or not (and unlike the black market), legal cannabis is all about compliance.
"Compliance is not sexy, but it's one of the necessities you can't get away from," says Mariathasan. "We want to be the central hub for operational and regulatory compliance."
Mariathasan co-founded Simplifya after helming a number of tech startups, as well as Demetrio Tequila, which sold to private equity in 2015. "After that, I got into cannabis because of the law firm Vicente Sederberg," says Mariathasan. "They said, 'We've got an idea for a tech company but we don't know anything about tech.'"
The idea: an auditing platform for the cannabis sector. Vicente Sederberg's cannabis audit practice was booming, but demand overwhelmed the firm's capacity and its ability to take on new clients. Leaders felt they could not "scale this unit of our business in a global of national manner, so we need to look at technology," says Mariathasan.
Simplifya launched in late 2016 with seven employees and $1 million in funding from the founders. "None of us came from cannabis," says Mariathasan. "We had Vicente Sederberg to lean on."
After a year developing the platform, Simplifya hit the market in 2018 after a $3 million Series B round in January. By the end of the year, the platform was being used at 155 locations in Colorado and California. It's also live in Nevada, Oregon, Massachusetts, Pennsylvania, and Oklahoma.
Simplifya's platform is unique in that lawyers and policy professionals effectively translate a litany of state and local regulations "down to a fifth-grade reading level," Mariathasan says. "At the end of it, the system spits out a report: 'Here are your areas of compliance and your areas of non-compliance.'" When areas of non-compliance are corrected, the cloud-based system time-stamps it for posterity.
He adds, "Our IP is really around the content of the technology. We've got so much data." The Simplifya platform encompasses cannabis regulations from more than 100 different jurisdictions, about 2.5 million words in all.
Clients are manufacturers, dispensaries, and cultivators, includign Jetty Extracts in California and GroundSwell Cannabis Boutique in Denver. Mariathasan calls it a "very good mix” of mom-and-pop businesses and "massive" companies with multiple locations. "Simplifya was designed for anyone with a license," he says. "It's all about streamlining and managing their compliance."
"When you look at the spread of our clients, the largest group we service is manufacturers," says Simplifya VP of Business Development Brooke Butler. There's a reason for that: "In most states, manufacturers are up against the most tedious regulations."
"We really do help them track and keep historical records of their day-to-day operations. They can tie an SOP [standard operating procedure] to a batch number," says Butler, noting that the platform allows for a deep dive into the data behind every last product. "They can use it as a backup for quality assurance."
Simplifya acts as not only a compliance tool, but a document management and HR tool, she adds. The platform's Smart Cabinet helps cannabis manufacturers keep track "of an insane amount of paperwork," says Butler. "We give them a cheat sheet and a smart document management system for every document the state requires. In the end, compliance is document management."
An East Coast manufacturing client once was able to short-circuit a frivolous lawsuit from a terminated employee thanks to the platform's reporting. "They were actually able to use our software to prove this person wasn't doing their job," says Butlem.
One Simplifya customer in Oakland, California, used the platform to educate regulators that their signage was in fact compliant. "In California, which is very much the wild west of the wild west, the regulators at this point don't understand the rules at all," says Butler. The customer pushed back and the regulators relented when they realized it was their error.
"It is so important for business owners to understand the rules," ehe adds. "That could have been a fine that was totally unnecessary."
Mariathasan notes that there are about 8,000 licenses in California, versus 2,800 in Colorado. Subscriptions run $189 per month per location per license.
Initially, Simplifya users had file cabinets full of compliance paperwork, he says, but little in the way of accountability. "Now we're talking about hundreds of thousands of dollars in fines, or you might get your license revoked," says Mariathasan. "California is an absolute shitshow," he adds. "Now everybody's scrambling to be compliant."
Mariathasan sees potential sales not only from licensed cannabis companies, but also governments, banks, insurers, and law firms. He says banks can use the platform to mitigate risk in lending to cannabis clients, noting, "They'll actually mandate the use of Simplifya."
"Insurance also views Simplifya as a risk-mitigation tool," adds Mariathasan, noting that the average customer spends $20,000 to $30,000 a year on insurance. Insurers can offer a discount to Simplifya users of about 10 percent for a win-win.
Challenges: "The biggest challenge is scaling," says Mariathasan. "When you have a finite number of regulatory analysts and you have so much ground to cover, it becomes about prioritizing. . . . The way we prioritize markets is the number of licenses."
After a $3 million Series C round led by Merida Capital Partners closed in December 2018, the company is looking to extend its sales footprint beyond California and Colorado. He points to Oklahoma's 3,000 licenses as evidence of fertile markets beyond the usual list of cannabis hotspots, and also says he sees potential in Michigan and New Jersey.
Another challenge: "As a startup, we're constantly in reactive mode," says Mariathasan. "We've raised more than $7 million -- it's time to start acting like a grown-up."
Opportunities: Being first to market provides a leg up on the competition, says Mariathasan, as does the depth of experience on the Simplifya team. "Another competitor has a big hill to climb," he notes.
An international market offers numerous opportunities. "People laugh because we haven't even covered the U.S. yet," says Mariathasan, identifying Canada, Europe, and Latin America as target markets. "The world is our oyster right now."
Cannabis "is always going to be regulated," he adds. "Selling the picks and shovels oftentimes makes a lot of sense."
Needs: "Our real needs are talent," says Mariathasan. "As this industry starts to blossom, finding good people gets harder and harder. It's hard to find good people with cannabis experience."
Noting his experience in "tech and tequila," Mariathasan says, "There is a different mindset" in cannabis: "People are jumping in from other industries, but we try to find people with relevant experience in this space."
Simplifya also needs partners in banking and insurance, he adds. "We bring risk mitigation to them. They want their customers to be compliant, we want their customers to be compliant."
"There is still a bad stigma around cannabis, believe it or not," says Mariathasan. "As a company, we want to see this emerging industry advance."