Ask Our Experts 09/23/2018

Q: How long until cannabis gets commoditized, and would that need federal legalization? Can it happen with only a limited number of legal states?

Cannabis commoditization is already occurring in pockets of legal U.S. states as adjacent legal cannabis states are experiencing price normalization due to shrinking market value between the legal and illegal markets.

However, establishing a commoditized cannabis trading platform (or commodities market), remains premature. It would in fact be dependent on federal legalization given that states would require legalized interstate commerce, currently illegal under federal regulation, and access to U.S. banking services, also prohibited under federal law.

However, there is indication that U.S. commoditization of prices may occur sooner for hemp, the non-psychotropic cannabis plant. Hemp production is already legal in over 30 countries, and is traded not only across nations, but now also across regions. One interesting driver behind this adoption wave is hemp’s diverse applications beyond cannabidiol (CBD) oils for medical use; for example, industrial hemp applications exist in mature industries such as automotive, construction, energy storage, fuel generation and even semiconducting.  Of note and relevance, the U.S. is the world’s largest importer of hemp while China is its largest producer.

Furthermore, the anticipated passage of the 2018 Farm Bill could grant full federal legalization to hemp and bring more actors into the national market. Increased supply would result in a decline in hemp prices. Consumers’ reaction to lower prices, product diversity, and ease of access could then further fuel the continued commoditization process, ultimately driving towards the faster establishment of a potential commodities hemp market.