Legal marijuana is a $5 billion business in the U.S., and Steve Janjic
figured he’d get a piece of it. With a commodity exchange. For a product that
can’t be transported across state lines.
Not to worry. “It’s never easy to pioneer an industry,” says Janjic, a
former foreign-exchange executive at Tullett Prebon LLC who has put $1
million into Amercanex Corp., an electronic cannabis-trading platform that
handles sales of about 100 to 150 pounds of weed a week.
That’s not exactly blockbuster in a country with an estimated 20 million
marijuana consumers. It may not be too bad, though, in the case of a young
exchange for a psychoactive substance transitioning to legitimate, or sort of legitimate, considering it’s illegal under
federal law. Janjic and other Wall Street veterans backing Amercanex take the
very long view.
While only four states and the District of Columbia have sanctioned pot for
recreational use, Nevada may join them after a November vote. In 23 states, the
drug is allowed for medicinal purposes. Polls show a majority of Americans
believe it should be as licit as beer, giving Amercanex high hopes.
“I look at this as an early Nymex,” says Richard Schaeffer, a former
chairman of the New York Mercantile Exchange. “I look for this to become a very
substantial matching engine bringing buyers and sellers together.”
Schaeffer, 63,
is Amercanex’s chairman, and Janjic, 49, is chief executive officer and
co-founder. Others from the financial world involved include futures
trader Timothy Petrone, a member of Nymex and the Chicago Board of
Trade, former Nymex board member David Greenberg and James McNally, who’s
been a member of Nymex, the Commodities Exchange and the Hong Kong Futures
Exchange.
For
the record, none is a cannabis user, which is probably neither here nor there.
Even the gluten-intolerant can get rich in wheat futures.
But
is there serious money to be made trading the flowers and leaves of the
cannabis plant? Amercanex isn’t alone in betting there will be, someday. Sohum
Shah, a 26-year-old with a degree from the University of Arizona, started
the Cannabis
Commodities Exchange three months before Amercanex got
off the ground.
CCE
operates only in Colorado, which in 2012 became the first state to vote to make
recreational-pot legal. Amercanex is in Colorado and California, the first to
OK weed for medicinal use, and Janjic says there are expansion plans.
Same-State
Limitation
The
hurdles are sizable. For an exchange to fully function, a commodity has to have
standardized specifications and some regulatory oversight, as products from
corn to metals do, so everyone can be assured of exactly what they’re buying
and selling, says Dale Rosenthal, who teaches finance at the University of
Illinois at Chicago. “There’s not a clear reference price” for raw marijuana
either, he says, another sticking point.
Weed
comes in a very wide range of quality and potency and price; the legal stuff hasn’t
been around long enough for any national benchmarks. Traditional spot and
futures markets for commodities like wheat or crude oil are linked to a single,
widely accepted variety with a minimum quality standard.
Amercanex buyers
aren’t operating blind, Janjic says, because the exchange sends what’s sold on
its platform to a laboratory for evaluation and shares the results.
But
here’s the rub: Buyers and sellers have to be in the same state. The U.S.
government regulates interstate commerce, and selling or possessing marijuana
are federal crimes. So, then, is sending it across borders -- and Amercanex is
an exchange for spot trades of physical purchases, not paper-only futures or
options contracts. Right now, federal law is “the risk in this game,” Janjic
says.
‘Really Fun’
In
Colorado, purveyors were required until January 2015 to cultivate what they
sold, and most still do. “The only way that I think you can really be
successful is by growing your own,” says Bruce Nassau, the CEO of Tru Cannabis,
which has five stores. “If you’re buying from a wholesaler, you’re screwed.”
In
Oregon and Alaska, merchants
are allowed to use their own raw materials, but Washington legalized in 2014
with a law forbidding retailers from doing so. “In a system like that,
exchanges become more useful,” says Adam Orens, the founding partner of the
Marijuana Policy Group.
Amercanex
started in July 2014 with 20,000 seats, though it has retired about 8,000. The
seats began selling for $2,500 each and are now going for $10,000, Janjic says;
7,000 are are still up for grabs.
Dixie
Brands Inc., a Denver-based maker of tetrahydrocannabinol-infused products,
bought a seat last year, and has an equity stake. Amercanex will help
distribute its goods more efficiently, says CEO Tripp Keber. “You’re
starting to see some other players come into the market, which I think is a
strong endorsement.”
For
McNally, who’s on the three-member advisory board and owns a seat, being part
of a brand-new sector is exciting. “It reminds me of when I first started,” he
says, recalling his days as a Hang Seng Index options trader in Hong Kong in
the ’90s. “It’s really fun.”
Last
year, legal weed sales rose 17 percent to $5.4 billion, according to a report from
ArcView Market Research and New Frontier, and if every state had legitimatized
marijuana the sum could have been $36.8 billion. California, the most populous
state, might start boosting the numbers soon.
Campaigns
are collecting signatures for November ballot measures. “California is very
important,” Janjic says. “It’s shaping up to be the largest marketplace in the
world.”
Related post: Marijuanaand the Internet of Things, Part 2
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