Pubdate: Tue, 15 Mar 2016
Source: Orlando Sentinel (FL)
Copyright: 2016 Orlando Sentinel
Note: Rarely prints out-of-state LTEs.
Author: Brian Louis, Bloomberg News


Pot Exchanges Are Popping Up Despite Federal Roadblocks

Legal marijuana is a $5 billion business in the United States, and 
Steve Janjic figured he'd get a piece of it. With a commodity 
exchange. For a product that can't be transported across state lines.

Not to worry. "It's never easy to pioneer an industry," said Janjic, 
a former foreign exchange executive at Tullett Prebon who has put $1 
million into Amercanex, an electronic cannabis-trading platform that 
handles sales of about 100 to 150 pounds of weed a week.

That's not exactly blockbuster in a country with an estimated 20 
million marijuana consumers. It may not be too bad, though, in the 
case of a young exchange for a psychoactive substance transitioning 
to legitimate, or sort of legitimate, considering it 's illegal under 
federal law. Janjic and other Wall Street veterans backing Amercanex 
take the very long view.

While only four states and the District of Columbia have sanctioned 
pot for recreational use, Nevada may join them after a November vote. 
The drug is allowed for medicinal purposes in 23 states. Polls show a 
majority of Americans believe it should be as licit as beer, giving 
Amercanex high hopes.

"I look at this as an early Nymex," said Richard Schaeffer, a former 
chairman of the New York Mercantile Exchange. "I look for this to 
become a very substantial matching engine bringing buyers and sellers 

Schaeffer, 63, is Amercanex's chairman, and Janjic, 49, is CEO and 
co-founder. Others from the financial world involved include futures 
trader Timothy Petrone, a member of Nymex and the Chicago Board of 
Trade, former Nymex board member David Greenberg and James McNally, 
who's been a member of Nymex, the Commodities Exchange and the Hong 
Kong Futures Exchange.

For the record, not one of them is a cannabis user, which is probably 
neither here nor there. Even the gluten-intolerant can get rich in 
wheat futures.

But is there serious money to be made trading the flowers and leaves 
of the cannabis plant? Amercanex isn't alone in betting there will 
be, someday. Sohum Shah, a 26-year-old with a degree from the 
University of Arizona, started the Cannabis Commodities Exchange 
three months before Amercanex got off the ground.

CCE operates only in Colorado, which in 2012 became the first state 
to vote to make recreational pot legal. Amercanex is in Colorado and 
California, the first state to OK weed for medicinal use, and Janjic 
said there are expansion plans. The hurdles are sizable. For an 
exchange to fully function, a commodity has to have standardized 
specifications and some regulatory oversight, as products from corn 
to metals do, so everyone can be assured of exactly what they're 
buying and selling, said Dale Rosenthal, who teaches finance at the 
University of Illinois at Chicago. "There's not a clear reference 
price" for raw marijuana either, he said, which is another sticking point.

Weed comes in a very wide range of quality and potency and price; the 
legal stuff hasn't been around long enough for any national 
benchmarks. Traditional spot and futures markets for commodities like 
wheat or crude oil are linked to a single, widely accepted variety 
with a minimum quality standard.

Amercanex buyers aren't operating blind, Janjic said, because the 
exchange sends what's sold on its platform to a laboratory for 
evaluation and shares the results.

But here's the rub: Buyers and sellers have to be in the same state.

The U.S. government regulates interstate commerce, and both selling 
and possessing marijuana are federal crimes. So, then, is sending it 
across borders - and Amercanex is an exchange for spot trades of 
physical purchases, not paper-only futures or options contracts. 
Right now, federal law is "the risk in this game," Janjic said.

In Colorado, purveyors were required until January 2015 to cultivate 
what they sold, and most still do. "The only way that I think you can 
really be successful is by growing your own," said Bruce Nassau, the 
CEO of Tru Cannabis, which has five stores. "If you're buying from a 
wholesaler, you're screwed."

In Oregon and Alaska, merchants are allowed to use their own raw 
materials, but Washington, D.C., legalized in 2014 with a law 
forbidding retailers from doing so. "In a system like that, exchanges 
become more useful," said Adam Orens, the founding partner of the 
Marijuana Policy Group.

Amercanex started in July 2014 with 20,000 seats, though it has 
retired about 8,000. The seats began selling for $2,500 each and are 
now going for $10,000, Janjic said; 7,000 are still up for grabs.

Dixie Brands, a Denver-based maker of tetrahydrocannabinol-infused 
products, bought a seat last year and has an equity stake. Amercanex 
will help distribute its goods more efficiently, said CEO Tripp 
Keber. "You're starting to see some other players come into the 
market, which I think is a strong endorsement."

For McNally, who's on the three-member advisory board and owns a 
seat, being part of a brand-new sector is exciting. "It reminds me of 
when I first started," he said, recalling his days as a Hang Seng 
index options trader in Hong Kong in the 1990s. "It's really fun."

Last year, legal weed sales rose 17 percent to $5.4 billion, 
according to a report from ArcView Market Research and New Frontier, 
and if every state had legalized marijuana the sum could have been 
$36.8 billion. California, the most populous state, might start 
boosting the numbers soon.

Campaigns are collecting signatures for November ballot measures. 
"California is very important," Janjic said. "It's shaping up to be 
the largest marketplace in the world."
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MAP posted-by: Jay Bergstrom