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Commodities trading is nothing new. The first commodities markets are thought to date back to at least 4000 BC, when the ancient Sumerians would trade clay tokens for goats and other early necessities. Ever since, traders have worked hard to standardize and simplify the way contracts and payments occurred, and to limit volatility in the markets. Fast forward to today, and one of the newest commodities being traded is cannabis.
The Cannabis Commodities Exchange (CCX) operates an online trading platform for the cannabis industry. Their marketplace connects licensed cannabis growers with the manufacturers of cannabis edibles and retail dispensaries. In many cases, the raw materials that went into the items shoppers purchase off the shelf at their local dispensary were traded first through this marketplace.
“Dispensaries use our site to find products to put on their shelves,” Sohum Shah, co-founder and CEO at Cannabis Commodities Exchange said. “Cultivators and infused products manufacturers, meanwhile, use our service to move their products.”
The company is working hard to standardize the cannabis market. Much how the Chicago Board of Trade brought standardization to the wheat, corn, cattle, and pork markets in the 1860s, CCX wants to make cannabis trading a transparent process. Currently there is no standard guide for cannabis quality, making it nearly impossible for the market to correctly price the commodity. If you’re running a retail dispensary, you’re not going to lay down $2,500 a pound for cannabis of dubious quality. CCX is actively creating that standard.
“We’re creating a system that can reflect the quality of cannabis simply and quickly,” Shah said. “Right now there are just too many variables to know what you can realistically sell a product for in a store.”
Of course, as big of a problem as quality control is in the market, volatility also wreaks havoc on businesses.
“We’re helping set up forward contracts for people who are buying regular amounts of product,” Shah said. “Not quite futures, but that interim step between a spot market transaction and a futures contract.”
Basically, CCX will set up a contract between a buyer and a seller for a set price over a set amount of time. That way a business that requires a lot of input, say an edibles manufacturer that requires 100 pounds of cannabis every week, will know they can get the input they need to create their product for a standard price. Meanwhile, the cultivator knows they have a buyer locked in and won’t run into an oversupply.
It might not be the Chicago Mercantile Exchange yet, but it’s a long way from trading clay coins for bags of magic plants.
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