Centralized trading is usually U.S. regulators’ response when dealing with either a complex product that needs regulation (credit default swaps) or when trying to find a middle ground solution (cannabis). In the event of federal de-criminalization short of full legalization, states will likely be completely on their own to set their own rules which is immensely problematic for MSOs.
This is a solution with that regulatory state of the world in mind.
Why does centralized trading matter?
In the absence of federal guidance, it is likely states default to prior behavior by centrally regulating or centrally controlling the sale of previously prohibited products.
For example, think of state-owned liquor stores. This is commonly called the control model and 17 states in the U.S. operate like this. Of these 17 states, only 4 have recreational cannabis.
It is likely states new to adult use cannabis will adopt some method of central control and centralized trading meets that need.
Will my MSO be competing against other MSOs for product?
This will likely be the case. The composition of the market in every state who mandates central trading will be the independent farmers who produce and the MSOs who are the natural buyers.
In the case of vertical integration, it seems likely that MSOs can “buy” from themselves but from a regulatory perspective the requirement will transparency, not price discovery, so nothing will change other than the mandate to centrally trade.
What will change is if your sales team decides they need 300 kg of 23% THC Mango, grown under glass, organic, delivered at 57% humidity for Jan 2022, there are 30 Jan22 contracts with an exact pricing mechanism that can source that.
So, you are an exchange?
“Exchange” implies securities and trading with the public. This is a private, centrally traded platform (CTP) between state licensed parties who are trading in private transactions. If states require centralized trading, they will likely allow the industry to figure out a solution. This method of central pricing is the best solution.
Nothing here falls under the category of securities regulation; the market is totally private and free from speculation.
I’m a farmer, will this cost me money?
No. Large cannabis brands already have a good handle on price discovery and you already know what you can get from your product.
You aren’t selling to us, we just facilitate the mandate of centralized trading in the best way possible.
This is a unique process that can put a universally accepted price on any combination of cannabis in order to comply with the new normal just over the horizon.
If Congress passes full legalization, full bankability, and full cross border transport, it is less likely that centralized trading matters but that is very unlikely.