Pot will soon join corn, wheat and hogs on the agricultural futures markets, an article on Bloomberg said.
New Leaf Data Services, a Stamford, Connecticut-based firm that tracks wholesale cannabis prices in Canada and the U.S. is in talks with a globally recognised exchange to start futures contracts, allowing traders to speculate on cannabis, its CEO Jonathan Rubin said.
The company wants to launch multiple contracts on multiple exchanges for both marijuana and hemp.
A futures contract is a standardised forward contract, a legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument.
In theory, marijuana makes for an excellent commodity for the futures market. It is predictable and could help investors make a lot of money. However, many experts have said it could prove to be a problematic commodity since it has many different types of ‘strains’ and different growers have different standards. The size of the contract could be another huge challenge.
There are plenty of challenges to turning pot into a tradeable commodity. They include standardising elements like quality and content of tetrahydrocannabinol, the primary psychoactive agent, and attracting enough trading volume; the article quoted Scott Irwin, an agricultural economist at the University of Illinois.
The cannabis industry is composed of legal cultivators and producers, consumers, independent industrial standards bodies, ancillary products and services, regulators and researchers concerning cannabis and its industrial derivative, hemp. The cannabis industry has been inhibited by regulatory restrictions for most of recent history, but the legal market has emerged rapidly as more governments legalise medical and adult use.
Some commodity exchanges contacted by media outlets said they were not yet ready to talk about listing marijuana.
New Leaf Data Services wants to start contracts this year, but some experts have said that attracting volume could be the main challenge the marijuana futures will face at the onset.
New Leaf set out to gather the data on its own, initially by hiring former cannabis cultivators, sellers and buyers to do field reporting — not an easy task in an industry that was emerging from the shadows of the black market, the Bloomberg article said. However, the cultivators remained very cautious and sceptical since they were still not yet used to a fully legal marijuana market and came from a place of secrecy.