Canadian Cannabis is One Step Closer to Becoming a Commodity

Cannabis Benchmarks®, a division of New Leaf Data Services, LLC, just recently announced the listing of three Canadian Cannabis Spot Indexes through Nasdaq’s Global Index Data Services, a.k.a. GIDS.

Traded under CBMKCCSI, CBMKCNLP, and CBMKETAX, the first cannabis pricing indexes benchmark the wholesale price of cannabis paid to Canadian Licensed Producers like Aurora Cannabis Inc. (NYSE:ACB) (TSX:ACB) and Canopy Growth Corp. (NYSE:CGC) (TSX:WEED), supporting price discovery and ultimately enabling the creation of tradable financial instruments.

This means that Canadian cannabis is one step closer to being a commodity that’s traded on a derivatives exchange like the CME Group Inc. (NASDAQ:CME).

The Canadian Cannabis Spot Index, a.k.a. the CBKCCSI was assessed at $6.28 CAD per gram the week of February 21st, 2020, down 0.5% from last week’s $6.31 CAD per gram, which equates to roughly $2,151 USD per pound at the current exchange rate.

After reading that, you may have a few questions…

How Are the Canadian Cannabis Indices Calculated?

The indexes are calculated weekly using a proprietary cannabis index methodology developed by Cannabis Benchmarks®.

First and foremost, value is determined by the simple average of assessed wholesale transactions for non-medical dry cannabis flower.

The indexes are a representation of the average wholesale price paid across all provinces, both including and excluding all excise taxes.

Cannabis Benchmarks’ methodology includes working directly with market participants from both the supply and demand sides, including analysis of public and private data, to assess the average wholesale price paid each week.

These reference price benchmarks provide critical pricing data that support decision making related to buying and selling at fair market price, asset and equity valuation, compliance with accounting standards, and commodity hedging and risk management.

Cannabis Benchmarks® is disseminating this index data through Nasdaq’s GIDS service to aid in providing maximum transparency to the marketplace. GIDS provides data recipients, either directly or through a third-party distributor, the opportunity to reduce network, administrative and data center costs by taking one data feed, rather than many.

Conclusion

This move by New Leaf Data Services brings cannabis swaps, futures, and other derivative contracts closer to becoming a reality.

“Since the Canadian adult use market opened in October 2018, industry participants – including cultivators, processors, retailers, investors and debt and equity analysts – have been seeking price transparency to analyze and navigate a dynamic market currently characterized by swiftly changing market fundamentals,” said Jonathan Rubin, CEO of New Leaf Data Services, LLC. “We are pleased to be using Nasdaq’s GIDS to offer the market an independent reference benchmark to support strategic, operational and investment related decisions.”

“The Cannabis Benchmarks® Indexes are a breakthrough for market participants in need of fair and transparent price benchmarks to better understand this emerging commodity” said Rubin. “These indexes will become increasingly important to physical and financial industry participants as legal cannabis markets expand the need for trading and risk management.”

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