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Cannabis Futures Contracts May Be Headed to an Exchange Near You

Pot will soon join corn, wheat and hogs on the agricultural futures markets — if New Leaf Data Services LLC has its way.

The Stamford, Connecticut-based firm that tracks wholesale cannabis prices in Canada and the U.S. is in talks with a “globally recognized exchange” to start futures contracts, giving traders an opportunity to speculate on cannabis, Chief Executive Officer Jonathan Rubin said.

“2019 is going to be a pivotal year for the industry in terms of the involvement of the financial community,” he said in a telephone interview. Eventually, New Leaf wants to launch multiple contracts on multiple exchanges for both marijuana and hemp.

There are plenty of challenges to turning pot into a tradeable commodity. They include standardizing elements like quality and content of tetrahydrocannabinol, the main psychoactive agent, and attracting enough trading volume, said Scott Irwin, an agricultural economist at the University of Illinois.

“It’s astonishing how few commodity futures contracts are successful,” Irwin said.

TMX Group Ltd., owner of the Montreal Exchange, said its business development teams are “regularly engaged in exploratory discussions with a range of entities” and will update the market when it has news to share. Intercontinental Exchange Inc. declined to comment and CME Group Inc. didn’t immediately respond to an emailed request for comment.

Rubin, who has tracked commodity prices for 30 years including at S&P Global Platts, started New Leaf in 2015 after realizing there was no reliable, independent source of wholesale pricing data for the legal pot industry.

“At the outset, we were under the misguided impression that we’d be able to turn to the states and surely they must be collecting prices and data just like they do in other commodity sectors,” he said. “We quickly realized there was nothing reliable.”

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 just emerging from the shadows of the black market.

“The cultivators were very cautious, very skeptical, there was a degree of paranoia for some,” he said. “They came from a place of secrecy and needed to warm up to open commercial markets.”

Today, New Leaf has reduced its reliance on field reporters and now has relationships with a variety of brokers, collectives and associations that provide pricing data in exchange for discounts on New Leaf’s subscription products or custom analytics. The firm recently signed a memorandum of understanding with CMTREX, an Israeli cannabis trading platform for legal wholesale buyers and sellers.

In December, it began a Canadian cannabis spot index and is now working on a hemp benchmark. All of these could eventually lead to futures contracts and other derivatives, Rubin said.

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