As the cannabis industry grows, they will suffer from many of the same pitfalls commodity-based businesses do. Do you see exchanges creating cannabis futures, or does the illegality in certain countries create too many conflicts? Are cannabis companies stuck with illiquid OTC products for hedging purposes until then, or is there a more innovative solution to this? With this said, cannabis isn’t exactly a commodity, as potency can vary widely from plant to plant. How can firms cope with these difficulties?
I think of cannabis in two dimensions:
- The first is along the same lines as tobacco and alcohol: a regularly used recreational drug. These are massive industries, and I see cannabis taking its place alongside those two.
- The second is in the pharmaceutical industry. It’s clear that cannabis has some medical applications, and it’s potential in these two spaces is just through the roof.
When it comes to globalizing a cannabis company, I would run both axises of the industry, recreational and medicinal. If a country legalizes some medical use of cannabis, you can gain a footing there and be established when they legalize recreational use down the road
It’s delivery mechanism is also so diverse. You see Coca-Cola’s talks with Aurora about a possible cannabis soft drink. With Canada’s legalization of cannabis, we may see the U.S. soon follow suit, as
President Trump has voiced possible support of legislation.
What are the implications of cannabis being on the same availability level as alcohol? We’ve heard critics talk of decreased productivity, while proponents cite decreased alcohol and antidepressant consumption.
I don’t see a big demand for cannabis-related futures contracts. The soft commodities contracts aren’t that popular, and further, I see cannabis being a high margin product. Usually hedging comes into play for lower margin commodities.
Cannabis offers unique differentiation opportunities like edibles, oils, drinks, etc. Do you see cannabis’ maturity as an industry looking more like alcohol or tobacco? In other words, in the long-term, do you see a large amount of price elasticity for a boutique product, like you see in alcohol? Or an across the board commoditization, like that of cigarettes?
From an economic standpoint, when there’s a lot of product differentiation, prices are generally more elastic.
Because of the diversity of cannabis, you have crops with certain smells, different effects on the brain or body, different ratios of the active chemicals within each plant, etc. I think the industry can look similar to wine, where you have certain crops that are twice the price of normal cannabis, and things like organically grown cannabis will demand a premium.
When you look at alcohol and tobacco and strip down the taxes, they’re not actually expensive products. But, with alcohol, there is massive effort to create these premium products. Cannabis seems to have more opportunities for this than alcohol.
Mike Bagguley grew from a derivatives trading desk to become the Chief Operations Officer of Barclays International. It’s no accident that Bagguley became noticed so quickly – his trading track record was exceptional, where he generated huge revenues regardless of the type of investment he was trading. Bagguley moved a number of Barclay’s trading desks to worldwide recognition while he held key positions such as Head of FX Trading and Commodities, Head of Macro Product Sales and Trading, and Head of Rates and Linear Options. However, Bagguley did not just demonstrate keen business acumen, but strong management skills where he oversaw numerous projects such as the execution of the first physical oil deals for Barclays and integration of Rates, FX, and Commodities businesses across G10 and EM.
He did not lose steam when he became Chief Operations Officer for Barclays International, where he shifted the company perspective towards embracing new technology – leading to more streamlined operations and a more data-driven approach business approach.
Mike Bagguley graduated from the University of Warwick in 1988, where he holds a Bachelor of Science degree in Mathematics. He is a Fellow of the Institute of Actuaries and former board director of the LCH.