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Changing the medical pot buy

An enterprising Birmingham, Mich., company hopes users of medical marijuana in the Detroit area may not want to leave home without them: digital identification cards that can be used at pay-as-you-go kiosks to pay for transactions at marijuana dispensaries.

If all goes according to plan, the MediPay kiosk and identification system tested in Detroit may be rolled out to California, Arizona, New Jersey and other states that have legalized the use of marijuana for medicinal purposes, said B. Michael Freidman, CEO of MediSwipe Inc. (OTCQB: MWIP) a small publicly traded company that recently moved to Birmingham from Florida.

The interest in the MediSwipe system stems from its ability to provide transaction options besides cash, and secure record-keeping systems.

"There were many questions why we chose Michigan as a home base rather than Colorado, Washington state or even California," Friedman said in a news release.

"Michigan was the perfect proving ground for our state-of-the-art product lines for this industry and provided all the right elements for success, including new and favorable laws as they relate to medicinal marijuana operations and urban atmosphere with high volume of patients seeking alternative cash solutions for payment of medications."

MediSwipe did not return voicemail and email messages from Crain's Detroit Business asking for further comment or details on the pilot sites in Michigan.

While he wouldn't comment on the effectiveness of MediSwipe's products and services specifically, the editor of trade publication Medical Marijuana Business Daily in Denver said MediSwipe certainly has taken aim at the challenges faced by dispensaries.

"These kinds of services are definitely needed," said Chris Walsh, who oversees content of the financial news site for the medical marijuana industry. "Dispensaries are really having a tough time right now handling customer transactions because banks pretty much won't deal with them and credit card companies have shut out the industry, so what you really have a lot of times is an all-cash business model."

The all-cash model, in turn, brings challenges with "security, taking cash and storing it, transporting it to the bank."

Walsh said the industry badly needs new methods and solutions to handle transactions. And services that aid with record-keeping also have a market, he said.

"If you can do it in a legal way, you are probably going to have a big market," he said. Other companies in the United States have begun to offer kiosk services, but it appears that MediSwipe's system is the first in Michigan for medical marijuana.

"The key will be whether patients will want all this information tracked. This system sounds like it has a lot of safeguards in place that will help ease a concern from patients about their privacy."

In a conference call with shareholders on Thursday, Friedman said his company expects two business opportunities that will be tested in the Detroit area to become primary revenue producers for MediSwipe: digital identification cards for medical marijuana users and kiosks made by Payteller LLC in Boca Raton, Fla., for transactions at dispensaries.

MediSwipe said in a news release that it reached agreement with the first of several medical marijuana dispensaries in the Detroit area to offer in March a system that stores medical records of patients on servers housed in U.S. data centers. The record-keeping is compliant with the Health Insurance Portability and Accountability Act, which protects confidential nature of medical information, the company said.

Patients have their medical records scanned and encrypted, then stored on cloud-based software for $20 annually. MediSwipe's system makes it convenient for existing and potential patients of medical marijuana to access the information for themselves or permit authorized entities to access the records. Friedman said the system also protects dispensaries from the threat of law enforcement agencies seizing hard drives or physical files containing patients' records if their operations were raided for violating the Michigan Medical Marihuana Act.

MediSwipe also intends to install Payteller-built kiosks modified specifically for dispensaries to greatly reduce the need for cash transactions when patients reimburse expenses of caregivers who provide medical marijuana.

Patients who use MediSwipe's MediPay kiosks will identify themselves with their digital cards, then insert cash or other form of payment into the machine to receive a coupon voucher or payment card that can then be used for reimbursing expenses.

MediSwipe intends to charge fees of $1.50 to $3 per transaction, similar to ATMs, Friedman said. Armored car services will collect the money, making it easier for merchants who have been hamstrung since July when payment associations and large credit card processors said they would not accept transactions regarding medical marijuana.

The system is designed to prevent fraudulent transactions, cut down on employee and potential theft, generate receipts for insurance companies and "begin to set up a proper infrastructure for the states to receive revenue from these operations," MediSwipe said.

The company said it expects several thousand patients in the Detroit area to sign up for its digital health management system by the end of June, considering it reached an agreement with a dispensary of at least a 1,000 patients and the prospect of "at least 20 more dispensaries in the general area each with 500 to several thousand patients each."

MediSwipe's annual report filed for fiscal year ended Dec. 31, 2011, indicated that the company provides merchant services to approximately 40 medical dispensaries and wellness centers throughout California and Colorado through its sponsor bank EMS. The company intends to grow "its merchant processing network of independent medical dispensaries and wellness centers by continuing to provide credit card and cash advance services" in 19 states that have existing or pending medical marijuana laws.

MediSwipe said in a news release that it provided more than $500,000 in "elective medical consumer financing" in December. It reported 2011 total revenue of $60,818 with a net loss of $896,510, compared with 2010 revenue of $31,717 with a net loss of $104,499.

At the end of 2011, the company reported approximately 375 million common shares outstanding. MediSwipe formerly was named Cannabis Medical Solutions Inc., a small publicly traded company based in Ashland, Ore.

The company news release stated that Friedman, key executives and major shareholders will be based in Michigan. The annual report said the company's management team has three employees: Friedman, President Erick Rodriquez and CFO Barry Hollander.

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