Next Big Corporate Step For Cannabis Biz: Weed Commodity Trading

By Joe Garofoli
San Francisco Chronicle.

For another sign that the multibillion-dollar cannabis industry is becoming more corporate as it surfaces from the underground, look no further than Eddie Miller’s plan to start a marijuana commodities exchange next year in Colorado.

If it goes well in one of four states with a legal adult recreational market, the 30-year-old New York entrepreneur will look to California — where medicinal marijuana is legal — because he thinks it is “absurd” that cannabis isn’t traded on an open, transparent exchange like other agricultural products. Miller feels it is time for the cannabis industry to move beyond its current quasi-legal state in which farmers toss their product in the back of their car and drive it to dispensaries where they sell it for cash.

“It should be like any other commodified good or product,” said Miller, who was in San Francisco this week to host his Cannabis Investor Summit for those looking to back tech-related marijuana ventures.

But Miller’s proposed exchange — one of several fledgling efforts nationally to make cannabis into a commodity — raises thorny questions for those in California’s cannabis industry who want to keep big business at arm’s length as the state weed sector moves out of the shadow of illegality.

Next year, California voters will probably be asked to legalize the adult recreational use of marijuana. California is one of 23 states to allow the medicinal use of weed and Gov. Jerry Brown is currently considering historic legislation that would regulate and structure the medical marijuana world for the first time.

This summer, California’s Blue Ribbon Commission on Marijuana Policy, a nonpartisan group charged with offering a policy road map for a legal recreational market, encouraged policymakers to not let Big Tobacco swoop in and dominate the fledgling legal industry.

“The goal should be to prevent the growth of a large, corporate marijuana industry dominated by a small number of players, as we see with Big Tobacco or the alcohol industry,” says the 93-page report of the commission, chaired by Lt. Gov. Gavin Newsom.

It suggested that the structure of the legal weed market resemble the craft beer market “where many small players (local microbreweries) exist at one end of the scale, and larger players (regional craft breweries) exist at the other end of the scale, with plenty of room in the market for a large spectrum of entities.”

The issue of corporate hegemony is of major importance to small, multigenerational growers in California’s Emerald Triangle of northern counties, where an estimated 60 percent of the nation’s herb is grown.

Creating a commodities market will make money for investors and potentially lower prices for consumers, said Keith Humphries, a former senior policy adviser at the White House Office of National Drug Control Policy and a member of California’s Blue Ribbon Commission.

“From a corporate point of view, it makes sense,” said Humphries, a professor of psychiatry and behavioral sciences at Stanford University. “But from a public health point of view, it doesn’t.”

Rock-bottom prices would probably encourage young people — for whom price usually matters more — to consume more of the drug, said Humphries.

If Colorado and other states embrace pot commodities markets with few controls, Humphries said, their cannabis industries “will likely be controlled more by corporate interests.” California “doesn’t have to be like that. We can create rules that will be different in our state.”

But Miller said that a pot exchange could provide more structure and certainty for both growers and retailers.

Miller plans to start testing his exchange, called Chex — short for cannabis/hemp exchange — next spring in Colorado, where he has signed up a dozen growers and 17 retailers for a market that he estimates could be trading $10 million in its first year. At first, producers and retailers will bid on, buy and sell marijuana online on the exchange. Later, he anticipates that they will be able to buy futures of a cannabis crop.

Glenn Bierman, executive vice president of corporate finance for Miller’s eCann Media company, said it is short-sighted to try to limit how big the cannabis market can grow in California.

“That’s like stopping capitalism. How do you stop it?” Bierman said. “This is a billion-dollar market and big money follows big money. I see it as irreversible.”

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