Denver-based PanXchange launched an industrial hemp trading exchange Aug. 1, building off the benchmark pricing platform the company unveiled to the newly legal industry in January. The main idea, as a nascent marketplace begins to gel in the U.S. is to allow “producers, processors, trade houses and end-users to participate in a transparent and efficient cash market for industrial hemp products.”
CEO Julie Lerner and the PanXchange team developed the commodities trading exchange eight years ago with a straightforward goal: to bring together disparate actors in a given market. The company has built and managed trading platforms for corn, grains, frac sand and other commodities markets.
“We wanted to address the lunacy of the opacity and fragmentation in every single commodity market, given the technology we have today,” Lerner tells Cannabis Business Times. “It's really a commodity trader’s job just to be on the phone all day long—trying to find out where the bids are, where the offers are, what the justification costs. Why can we not bring everybody into one unified place for instant market access and price discovery?”
With the hemp exchange launch, PanXchange plans to be that place. The tremendous market demand in the diverging cannabis and hemp markets in the U.S. got Lerner thinking about opportunities and gaps.
“We looked at cannabis before, and it just doesn’t work as a commodity,” she says. “Cannabis is going the way of branding and vineyards and so forth. We deal in the generic world of quality specifications.”
Then the 2018 Farm Bill came along.
By January, Lerner says, her team had worked quickly to set up a suite of benchmark prices for industrial hemp coming out of Colorado, Oregon and Kentucky in categories like biomass and isolate. (“Nationwide prices are irrelevant,” she says. “It doesn't help anybody.”)
But prices are only one component on the pathway to commerce.
The prevailing problem that needed a solution, Lerner says, is counterparty and credit risk management in an industry like newly legal hemp cultivation and processing. With licensed businesses coming out of illicit markets or, at best, state-sanctioned pilot programs under the 2014 Farm Bill, an institutional-grade third-party entity needs to facilitate derivative contracts. The trading platform debuted with 12 initial charter members—companies like EcoGen Laboratories, Mile High Labs, BlueCircle Farms and Halcyon.
Once a buyer or seller is on the PanXchange platform, he or she can leaf through the counterparties and check up on their creditworthiness. Limits can be set for the financial exposure of a particular deal. From there, the parties can offer and counteroffer terms on, say, 100 lbs. of hemp biomass within a specified shipment period. The exchange offers a place to negotiate and to communicate with all other parties—across state lines—who are participating in the industrial hemp market.
“Typically, when we look at a new market—the top two or three players in a mature market, they don't like what we do,” Lerner says. “We bring transparency and we level the playing field for all users, which makes prices not competitive. So, in old-school markets, they don't like it, they don't welcome it because the top three players … cornered the market, and they profit on the opacity and fragmentation and inefficiencies. These guys in hemp … they love what we do, they want us to succeed. They want this transparency, because they’re building their businesses for economies of scale. I mean, that is so smart. I'm really impressed.”