Helix TCS, Inc. (OTCQB:HLIX) recently announced the acquisition of Amercanex International Exchange, marking a major step to position itself as a leader in the development of the modern cannabis market.
Amercanex was created by leaders from the investment and commodity markets to address the lack of an electronic market exchange for cannabis. The senior leadership team all have decades of experience in financial markets, including the Chairman Richard Schaeffer, who is the former Chairman of the New York Mercantile Exchange. They are the first to bring this level of market experience and expertise to the cannabis industry.
Through their market platform ACExchange, Amercanex (and soon Helix) has tremendous growth potential as they help the cannabis market mature. Buyers and sellers have had to deal with a fractured and decentralized marketplace with little transparency or consistency of prices. An electronic exchange makes it easier for market participants to transact and improves pricing. Much like the switch to electronic exchanges brought down transactions costs for stocks and other financial assets, participants in the cannabis industry could benefit from a platform that replaces the scattered existing framework.
Transparency and product verification are major hurdles in the early stages of a product’s growth. Cannabis retailers and other wholesale purchasers have largely been on their own to ensure that the product they purchase is what it claims to be, is compliant, and is fairly priced. ACExchange includes partnerships with testing labs to ensure product verification and remove some of the caveat emptor concerns that purchasers currently face. Even the introduction of new byproducts and processed goods is easier when marketplaces make it easy for new entrants to purchase their inputs without first having to build their own supply network. By integrating the seed-to-sale compliance capabilities of BioTrack into the ACExchange, the question of compliant product will be answered.
The life cycle of other commodities shows how the development of proper market exchanges leads to significant cost savings and growth for participants. Standardization of the buying process reduces risks and costs so that buyers and sellers can focus their energy and resources on their actual business processes. Mature commodity markets, such as corn and oil products, allow for easy transactions at very large scale.
A commodity platform like ACExchange will also be able to take advantage of expanded legalization in neighboring markets, unlike producers who often face regulatory and licensing hurdles that prevent them from gaining by selling to new markets. New cannabis markets are typically filled quickly by local producers. Strict regulatory limitations also place hurdles on companies expanding from one jurisdiction to another.
The complicated and changing legal status of cannabis makes its growth much more complex than other commodity goods. The ACExchange platform is designed around having to meet the needs of both market participants and regulators.
Cannabis can grow in a large variety of environments, from arid regions like Afghanistan, tropical climates including rainforests, and the temperate zones ranging from the US to the Mediterranean. The limitation on the cultivation of cannabis is legal rather than environmental, so the potential for expansion into many new areas is highly likely as recreational use becomes decriminalized in more areas.
Helix already acquired BioTrackTHC to become the leader in the seed-to-sale business. Similar to the way in which a market exchange scales in line with the industry it serves, seed-to-sale tracking is becoming a vital (and in many places, legally mandatory) approach to the growing cannabis industry. The same complex regulatory environment that makes an exchange marketplace difficult also impacts seed-to-sale tracking. The expertise Helix has developed up to this point is an asset to growing both business units.
Amercanex is also positioned to be a big player in the financial transactions space for the cannabis market. Since cannabis is still illegal at the federal level in the US, federally chartered banks cannot service accounts for businesses in the industry. The ACEpay system was designed to allow for cashless transactions without running afoul of regulatory restrictions that lead many banks to avoid getting involved with producers or retailers.
Helix is continuing its trend of building up a business model that will benefit from the overall growth of the cannabis market. Producers are always limited by output capacity and typically can only sell within one legal jurisdiction. This acquisition was clearly made with significant growth in mind. The deal was structured on all-equity terms at closing with several cash- and equity-based additional performance milestones that may be paid out in the future.
As cannabis moves toward federal legalization in the U.S., Helix may be one of the best-positioned companies to grow as rapidly as the entire market. The financialization of a commodity market has benefits to all market participants, but the biggest bottom line benefit typically goes to the market itself.
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