Marijuana, the cultivation and sale of which is prohibited in the U.S. at the Federal level but legal in some States, can turn an illegal drug into a standard commodity. Chicago Commodities Exchange Seed (Seed CX) is poised to become a swap exchange for tied to the cannabis market financial instruments. The company sent a preliminary application to the Commission on commodity futures trading (CFTC), press-release Seed CX.
Swap exchange involves the trading of forward contracts, swaps and options. With this platform excludes the services of intermediaries, that is, market participants are working with the exchange directly.
Seed CX developed the first derivative financial instrument for trading industrial hemp, which can apply in the market when obtaining permission from the Supervisory authorities of the United States. “We are focused on building tools to reduce risks to the industry [of cannabis], including crop insurance or hedging derivatives. An important step in this direction is the creation of an active cash market transactions and stimulate economic research”, — stated in the press release. Contracts were developed with the assistance of the staff of the Harvard law school and the International business school, Sloan at mit.
President Seed CX Brian Liston hopes that the company will be able to help society get rid of prejudices about marijuana. “We will achieve success when this issue will be common”, — quotes its words FT. Seed CX was founded by Liston and his fellow Massachusetts Institute of technology Edward Woodford.
Project Seed swap exchange CX supports a consortium of agricultural groups and providers of market liquidity. “The cannabis industry beautiful from all sides, says Liston. Is undeveloped and difficult to reach market which needs various services, and big business is reluctant to enter this segment”.
But even if the us regulator will give the good Seed CX, the exchange will need traders. Futures and other derivatives contracts is impossible without a continuous flow of cash, this problem Liston also intends to work. Michael Hills, assistant Professor of Finance Illinois Institute of technology, is skeptical about plans Seed CX: “the Vast majority of futures contracts die within five years after the launch”.
Seed CX expects to offer to the market the three contracts will be tied to trade hemp seeds, hemp (plant) and hemp plant extract. From single family Konopleva, hemp seed, you get not only a drug, but also famous for its strength hemp. Industrial hemp is also used in the production of fabrics, shampoos, plastics, building materials and food industries.
Industrial hemp cultivation was given a boost in 2014, when agricultural legislation in the USA introduced the concept of “industrial hemp”, meaning the plants containing less than 0.3% of tetrahydrocannabinol (the active substance of marijuana).
Currently, according to the National conference of state legislatures, laws governing the use of industrial hemp, there are at least 27 US States. According to Liston, a large part of a crop of hemp last year occurred in the States of Kentucky, Tennessee and Colorado. During the Second world war, when hemp production has remained legal throughout the U.S., the harvest was of the order of 150 million pounds (68 tonnes).
In addition, in recent years a growing number of U.S. States legalized the use of narcotic cannabis. Most Americans (86%) live in States that allow medical or recreational marijuana consumption, according to research and investment group ArcView Group associated with the cannabis industry. The legal sale of marijuana has increased by 17.4% in 2015, to $5.4 billion, estimates ArcView. According to the company forecast, in 2016 the market will grow to $6.7 billion