Basic Auth Disabled in Office 365

Looks like there’s no need to switch to OAuth2.

SMTP AUTH will still be available when Basic authentication is permanently disabled on October 1, 2022.

So, you should be able to change to SMTP Auth by adding an additional env variable to app.yml.

DISCOURSE_SMTP_AUTHENTICATION: cram_md5

In addition to that I think you will need to use the MD5 hash of the SMTP password as value of the DISCOURSE_SMTP_PASSWORD setting. Rebuild the Docker container after those changes and give it a try.

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