July 23, 2024

Hemp part of new commodity exchange

CHICAGO — Global Smart Commodity Group announced the inaugural launch of its hemp spot market.

GSCG’s proprietary Salus platform offers an industry first seed-to-delivery growth and supply tracking capability built on GSCG’s blockchain technology, as well as a first-of-its-kind trading experience, seamlessly and securely combining supply chain management technology, price discovery and risk management tools on a single platform.

GSCG is focusing its first platform application on hemp and plans to expand it to multiple commodities globally in the future.

The Salus platform will make it nearly impossible to alter or forge documentation on lab results, quality, quantity or other characteristics and will improve supply trackability at every step.

By maintaining the captured data on the blockchain and holding the chain of custody, GSCG makes selling stolen property impossible.

Jack Bouroudjian, GSCG chairman, detailed the new platform at the Illinois Department of Agriculture’s Hemp Summit.

“At GSCG we have realized that there is a large void that needs to be filled in the cash commodities markets. More importantly as we fill that void in the cash markets we realize that secondary derivatives, futures and options, can eventually be launched once approved by the regulators,” Bouroudjian said.

“It’s nowhere more important than when you look at the hemp industry. Now all of us in the hemp industry and those that are very familiar with it understand there are a lot of choke points. We could see them in cultivation; we can see them in manufacturing, in transportation, in testing and, of course, in payments. It’s very important to have a platform that gives you the ability to be able to take care of all of those choke points simultaneously on one pane of glass using a single source of truth.

“That’s where we use blockchain technology with smart contracts to assure quality and delivery of the product. More importantly, with a tokenized settlement which is really set to a stable dollar, which we really want to do is give both buyer and seller pre-transactional verification, something that is sorely needed in the hemp industry.”

Managing Risk

GSCG has created a marketplace that gives those in the hemp supply chain the ability to not only manage risk, but also be specific about what is being sold or what may be purchased.

“Whether it’s a specific type of herd, a specific type of oil, a specific type of biomass, all of which can be brought to the marketplace, actually placed with the chain of custody and of course with all of the specs all the way through,” Bouroudjian continued.

“It’s very important as we look down the road because this is going to lead us to the next level of price discovery. We talk about the cash market and how important it is, but real risk management takes place in secondary derivatives, futures, options. These are the markets that allow you as a buyer and seller to be able to go out there and guarantee price in the future.

“It gives you the ability to lock in profit on your balance sheet. It gives you the ability to actually lock in prices that you might have to pay for certain products. Well, you might say, those products might go down in value. The reality is that you are locking in that price. It’s the exact same thing that Kellogg’s does, that McDonald’s does, that ADM does, that Cargill does.

“Every major player in the world uses derivatives to lock in their exposure and more importantly to take advantage of any price discrepancies that might take place — all of which really give you that ability to be able to profit off of these contracts.”

Q&A

A question-and-answer session was held following Bouroudjian’s presentation.

Can you provide further details of the blockchain technology?

“We’re using the technology to actually verify the data that’s coming in from the producers. That’s so important because we want to make sure that there’s a lot of provenance. We can prove it. What we’re talking about, especially in the hemp industry, is what you have, where it was grown, what kind of pesticides are used, what heavy metals are used are going to be so very important, especially when we’re talking about getting into the next level of hemp industry development which is where we’re really going over the course of the next two to five years.”

Do you anticipate seeing cannabis seeds in the exchange in the near future?

“I do. I think a lot of it will be a market-driven approach. We would want to see what kind of demand there is. A good example is what we’re seeing with herd and hemp fiber. As we see that market mature and grow, we’re launching products. In fact, we’ve got four products right now; there will probably be a half dozen. But, yes, every one of these markets in itself needs some kind of central price discovery.

“They might not be the biggest markets, but they still will be markets that will trade and then what we’ll find, and this is going to be very important, is the relationship between say seed and fiber or seed and oil and those things will track one another. Maybe they’ll be at a 95 correlation or a 90 correlation, all of which is important for traders as they go in trying to create strategies to actually manage and mitigate risk.”

This has been attempted in California and didn’t work. Can you weigh in as to why it will succeed in Illinois?

“It was attempted in California. I think it was attempted in Colorado. A lot of nuisances there, so let’s go through them. No. 1, Chicago is where people come to trade. That’s why the commodity markets took off here in Chicago. They didn’t take off in New York. They didn’t take off in Minneapolis. But it happened here in Chicago.

“There is a cultural difference here in the state of Illinois and primarily in Chicago when it comes taking risk. That is one of the reasons that this whole world that we’re talking about needs to be layered right here in Illinois. This is where you have the expertise in trading, in managing risk and more importantly in creating market structure because that’s what we’re doing.

“You’re creating a market from nothing, much like where the soybeans were in the 1920s and 1930s. People had no idea the use for soybeans, yet as they grew people realized there were so many different uses for them that they became mainstay and more importantly a staple. And I can see hemp and hemp distillates trading in much the same way as we’re seeing soybeans and corn trading today.”

How do you see the exchange as helping with price discovery?

“All exchanges are set up for one reason, either you’re a one-too-many exchange which is nothing more than an e-commerce marketplace or you really have two-sided price discovery. What we will do is we will manage that two-sided price discovery to make sure, No. 1, it does not get manipulated; No. 2, that we don’t have any corruption within in the matching engine. There’s a very delicate balance defining real price discover and it’s one of the reasons why nobody’s really done I before.

“Well, as market participants, and this is something that I’ve been doing for 30 years, it comes natural to me and my partners at GSCG, when we’re looking at this world it’s easy for us to understand where those chokepoints are and how to create contract around them. And that’s really where we come from when we’re talking about being able to create the viable trading markets.

“One of the things that is so very critical here is that we establish these central price discovery spot cash markets and make them very orderly. And that is essential because for us to be able to launch the secondary derivatives and the futures and the options that is absolutely necessary. I sat on the board of directors of CME Group and we’ve created many products at my time on the board of directors with the Russell 2000, the mid-cap, the whole e-mini concept was under my leadership.

“So, when I’m talking about market structure and we’re talking about liquidity, it’s so very important to understand those nuances and especially those of us that actually have been participating in market structure for the last two or three decades. It becomes even more important now that we’re talking about hemp.”

Tom Doran

Tom C. Doran

Field Editor