As hemp businesses throughout the US hold events to highlight the historical role hemp has played in American culture, Seed CX looks towards to the future. Seed CX has constructed the first industrial hemp derivative contracts, which will be traded on its platform, subject to regulatory approval by the CFTC. Mr. Woodford notes that “We are focused on risk mitigation tools for the industry including crop insurance and derivatives hedging capabilities. One of the key steps to this process is helping to create an active cash market and generate economic research.” The contracts were developed in conjunction with research conducted at Harvard Law School, assisted by faculty at MIT’s Sloan School of Management. Co-Founder and CEO, Edward Woodford commented, “We are excited to have developed the world’s first industrial hemp derivative. We have worked closely with hemp farmers and processors throughout the US, who want access to important hedging tools to protect this growing agricultural commodity.” Active on a number of international and national hemp business associations, the Seed CX founders have played an important role in the development of the national hemp industry.
Hemp was made legal to cultivate in the USA with the enactment of the 2014 Farm Bill Act. Mr Woodford notes that, “These are products that not only viscerally excite people, but serve a strong economic purpose for end users. This is a market with a total addressable production value, in its first year of legal cultivation, of over $1.5 billion annually.” According to the Congressional Research Services 2015 report on hemp, “the global market for hemp consists of more than 25,000 products.”*
There a number of key drivers for the growth of hemp. Mr Woodford comments further that “farmers are increasingly looking for security as they diversify into different and more profitable crops, and in particular former tobacco growers are transitioning towards hemp cultivation. It is salient to note that farm incomes fell over 30% from 2014 to 2015 - the largest drop since 1983.” The goal is to furnish industries with risk mitigation tools and to furnish liquidity providers with alternative tradable commodity derivative contracts. Subject to regulatory approval, Seed plans to launch with three initial industrial hemp contracts: hemp seed, whole hemp plant and whole hemp plant extract. Hemp seeds can be eaten whole, but are often hulled to expose the inner seed kernel. Hemp seeds can also be crushed to produce hempseed oil, which is mostly used in health and beauty products. The hemp meal resulting from crushing provides a high protein food or feed. Whole plant hemp extract is a mixture of fatty acids, plant sterols, Vitamin E and phyto-cannabinoids including CBD. Whole plant hemp oil is a consumable product, and it is also used as a nutraceutical in lotions, for example to ease swelling.
Mr Woodford notes that he is often initially asked “why does this opportunity exist? This is a unique opportunity where there is a multi-billion market with thousands of sophisticated market participants, but where there exists a misperception and an unwillingness to understand or engage in the nuances of this commodity.” Woodford explains that, “there are two key determinants of traded volumes. Firstly, the larger the underlying market, the higher the traded volume. Secondly, there is a derivatives multiplier which is the ratio of volume from the end-users or hedgers to the volume from liquidity providers. In most Agricultural commodities, this ratio or multiplier is 75x. In oil and gold, this multiplier is as high as 200x. In hemp, you have a rapidly growing underlying market and at the same time, liquidity providers are excited to trade an entirely new commodity, to capture spreads and take positions on unique idiosyncratic risks.”
The founding team of Seed CX analysed during their graduate research why certain derivative contracts were successful. Woodford notes, “During my grad studies, I analysed why certain contracts worked and others did not. In a sense, I wrote the epitaphs for many failed contracts. However, the hemp market has the right pillars for a successful hedging market: volatility, a lack of viable alternatives to hedge such as through a cross hedge, storability and an enthusiastic and deep network of hedgers.” Jamie Comer, who served as the Agriculture Commissioner of Kentucky from 2012 to 2016 and is one of the largest hemp growing states in the US noted that, "Having being involved in farming my entire life, I know the benefit that Seed CX will bring in creating the infrastructure for a growing viable and secure hemp market. This is exciting given that the US hemp industry has to date created over 500 jobs in Kentucky and countless more throughout the country."
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Seed SEF is a wholly-owned subsidiary of Seed CX Ltd., a Delaware corporation. Seed SEF will operate a trading platform for agricultural derivative contracts, providing risk mitigation tools to cultivate financial security in emerging markets.
SEFs are trading facilities that operate under the CFTC’s regulatory oversight for trading and processing swaps, including forwards and options. SEFs were authorized to be created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 to provide greater pre-trade and post-trade transparency to the swaps market. There are now 23 SEFs fully registered with the CFTC.
Edward Woodford and Brian Liston co-founded Seed, which is backed by a consortium of Fin-Tech focused venture capital firms and strategic partners including trading firms and farming groups.
For more information, visit www.seedcx.com or follow us on Twitter @SeedCX