Redondo Beach, California--(Newsfile Corp. - November 12, 2019) - SECFilings.com, a leading financial news and information portal offering free real time public company filing alerts, announces the publication of an article discussing the developing commoditization of cannabis. As global markets emerge, there is demand from product companies to access cannabis- and hemp-derived ingredients. One World Pharma (OTC: OWPC) has instituted a futures program that, like commodities futures, provides those companies with price and supply certainty.
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It has long been postulated that cannabis, following widespread legalization, will become a commodity and start acting like one. Though that hasn't exactly come to fruition as of yet, owing in large part to a regulatory environment that remains fractured, there are forces at work in the industry that are bringing the commoditization of cannabis nearer to reality. In this article, we'll take a look at those forces and how forward-looking companies might prepare for the emerging realities of a global cannabis market.
How Commodity Markets and Futures Work, Briefly
A commodity is a basic good or raw material, often used as an input in the production of other goods and services, that is widely traded. The most common commodities are food staples like meat, wheat, corn, and sugar; energy sources like oil; and metals like gold, silver, and copper. Commodities like these are defined by a general consistency of quality across the market, so that price and availability become the main factors in a purchase. For example, and allowing for some variance, sugar produced by one company isn't going to be all that different than sugar produced by another.
There are a lot of companies using sugar to make finished products, even in places that aren't suited to sugar production. So there is a global market for sugar, and that market employs futures contracts to help everyone involved reduce risk and achieve price certainty. Company X commits to buying Y amount of sugar at a particular time in the future from producer Z, at an agreed-upon price. This ensures company X's supply to create the end products with a guaranteed cost of goods. Sugar producer Z can then commit to production levels knowing they will sell their sugar at a certain price.
The futures system provides certainty on both ends of the deal, hedging against unforeseen price fluctuations. Without it, product companies could well end up losing money due to rising costs of materials, and raw material providers could end up with too much material unsold due to dropping demand. Futures are like an insurance policy, risk management tool, and production planning guide all rolled into one.
Cannabis as a Commodity
In order for cannabis to achieve true commodity status, near-global legalization would have to take place. That is not on the immediate horizon, but plenty of countries are legalizing cannabis in some form (mostly medical) and the emergence of hemp-derived CBD (the main non-psychoactive ingredients in cannabis) is creating its own international marketplace. What's more, many of the countries that have legalized cannabis are not necessarily suited to growing the plant, due to either climate or regulatory issues. For instance, Germany and Poland have legalized medical marijuana but have yet to implement a cultivation program.
Canadian companies are racing to fill the international demand for cannabis and hemp derivatives (the flower is not exportable, but extracts, seeds, and biomass are). Canada is home to probably the most advanced legal, regulated cannabis industry in the world. But the fact is that cannabis, hemp, and extract production are high cost endeavors in a) first world countries situated in b) cooler climates like Canada where snow typically begins in October/November and stays until March/April.
The Colombian government legalized medical marijuana in 2016, following earlier decisions to decriminalize possession of the plant. There is a bill making its way through the Legislature to legalize recreational use. Most importantly for this discussion, the Colombian government is committed to making the country a leading exporter of cannabis- and hemp-derived products.
Many companies have recognized the opportunity and established operations there, including Clever Leaves, Khiron Life Sciences, and Blueberries Medical. These companies are largely focused on creating their own branded products. But there is one company, One World Pharma (OTC: OWPC) that is seeing the bigger picture of the global market and acting on it in a unique way. One World sees the commoditization of cannabis as inevitable and has created a business model to become a major supplier of cannabis and hemp raw materials.
The company has instituted a futures program for its cannabis and hemp cultivation and production operations. In essence, companies looking to create or sell cannabis- and hemp-derived products like oils, tinctures, creams, sprays, infused beverages, edibles can contract with One World Pharma for a set amount of cultivation space. The plants will be grown and processed according to the customer's specifications, and the ingredients are sold at a fixed price decided at the time of the contract. These future contracts work on approximately four month intervals, the time it takes to grow and process one crop.
One World Pharma is leveraging a few built-in advantages. One, the government of Colombia is committed to actively increasing the country's cannabis exports. Two, the equatorial climate lends itself to efficient cultivation of the plant. Three, there is a long history of growing cannabis in Colombia, so the company has access to an experienced workforce. Four, One World Pharma is weaving its operations into the local indigenous cultures through exclusive partnerships, a strategy that should lead to local stability and economic prosperity.
The company estimates it can grow a pound of cannabis for under $100 in Colombia, compared to around $800 - $1200 in the United States and Canada. Anybody paying attention over the last 50+ years of globalization can see how that math will eventually affect the increasingly global cannabis market. With 18 countries currently allowing import of cannabis-derived products, and factoring in the much broader acceptance of hemp-derived CBD as an ingredient in all manner of products, One World Pharma seems to be onto something.
As One World Pharma CEO Craig Ellins put it, regarding the company's futures program, "It's the only way to scale in this industry. Coffee, soybeans, oil, gold, all have to be sold as commodities in order to become a true source in the supply chain. Cannabis and hemp are no different. Interstate laws are not sustainable in a global market. Cannabis as an ingredient is the future of this industry and Daddy always said 'you have to shoot where the duck is going, not where the duck is now.'"
Please follow the link to read the full article: http://www.secfilings.com/news/the-future-of-the-cannabis-industry-could-depend-upon-a-futures-market-38
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