American Consequences - March 2019

INSIGHT FROM OUR COMMODITY MARKET SENIOR EXECUTIVE

order to maintain their positions in the cannabis “vertical.” Huh? What I mean is that there is a genuine concern among conference attendees that big tobacco/alcohol/pharma will eventually usurp the role of the farmer, the processor, and the testing facility. In order to keep the market from being dominated by large players, other customers will need the opportunity to hedge hemp prices and have access to hemp derivatives once they are introduced. The growers/farmers/distributors and the ancillary services supporting the hemp industry are no different from any other market participants. They have legitimate hedging concerns and market exposure risks. Other industries have tech exposure, so does the canna industry if you think of the seed-to- sale tracking that will be required using RFID technology. Other industries have energy positions or exposure. So does the canna crowd. An indoor cultivation facility has about ten times more energy cost per square foot than an office space of comparable size. The cannabis industry is, in many ways, cutting edge and innovative. But, in other ways, it remains unsophisticated. Cannabis needs a crash course in Futures/Options Hedging 101.

Nonetheless, this type of legislation will lead to rapid growth in the hemp industry. Unlike THC-based cannabis, all parts of the hemp plant are used. As with other crops, this will result in market price fluctuations. Whether the end-product use of hemp is in paper, clothing, skin care, super-capacitors, or biofuel, purchasers of bulk hemp will need to consider hedging with a listed futures product. Each of the businesses noted in the summary, either hemp or THC-based cannabis, have market risk, currency risk, and/or supply chain risk. SUMMARY There were more then 500 delegates at the ICBC conference. I spoke with farmers, distributors, and manufacturers. They all agree that it begins with hemp . And they agree that the THC variation between hemp strains will be a secondary consideration compared to the commodity status and market listing of hemp itself. Of interest to market makers is that during this period of market adjustment, these hemp purchasers will need market education in

Commodity Market Senior Executive X holds a top position in the capital market/exchange industry. He says, “I have embraced cannabis advocacy for purposes of affecting positive social change while weighing business and derivatives opportunities.”

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March 2019

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