1. LPs look to cannabis brokerages to buy and sell products
2. Cannabis brokering business is starting out small
3. At least two brokers are focusing on micro LPs
Canada’s newest industry is in the throes of a supply shortage, but a burgeoning generation of wholesale cannabis brokers is readying to capture business from the country’s growing number of licensed producers (LPs).
Though the number of cannabis brokerages is small, they offer new LPs that have yet to garner market access a place to buy and sell their products. Though cannabis is an agricultural commodity, it is not yet being traded as one, as it has neither an established benchmark price nor futures contract.
Ottawa-based Cannamerx went live in November, 2017, with its online platform, where LPs place bids and offers on products, then independently finalize their sales offsite.
“We are a price clearing mechanism. We broker in agreements. It fundamentally works like EBay,” said Dietwald Claus, founder and CEO of Cannamerx, which charges roughly 1 per cent on weekly transaction values.
Cannamerx does not handle the product, so it does not need to be regulated by the Cannabis Act, though any company that trades on its platform must be licensed and abide by the rules, Mr. Claus said.
“It’s a blind auction and this helps to get the price higher for the seller. On the platform, they set a minimum price so you never sell below the price you want,” Mr. Claus said, adding Cannamerx also helps facilitate long-term supply agreements.
The timing of the sale, however, varies widely and can take anywhere from two hours to four weeks as the number of participants is still small. Mr. Claus said there are around 40 LPs looking at the Cannamerx platform. The country’s pool of potential customers is just over 130, though this is on the rise as more producers obtain licenses from Health Canada, which has begun grandfathering ACMPR license holders into the Cannabis Act licensing regime. This means both standard and micro-cultivators will be permitted to sell a range a products, potentially developing B2B transactions.
“We’re now seeing a lot of small licensed producers, where now they can leverage these brokerages to get into that market,” said Deepak Anand, vice-president of business development and government relations for Cannabis Compliance Inc.
“It’s a very miniscule percentage of the market right now that is taking advantage of this, but it certainly has some legs.”
Earlier this month, a Toronto-based wholesale cannabis brokerage for LPs called Junction Capital was announced, with plans for its test trials to begin in late-November, chief executive Red Weiss said.
Brokerages for the budding craft cannabis industry have also started to pop up, with micro-cultivars seeking federal licenses as they move out of the illegal market.
Craft Depot, which is helping small cultivators go through the licensing process, plans to act as a brokerage for them starting next year and is currently stress testing its online brokerage platform.
“With the Craft Depot model the cultivator tells us the minimum they need and we go and find them more than that,” said Victoria, B.C.-based George Antsey, chief compliance officer for Craft Depot.
“We work with price floors instead of price ceilings.”
Already “dozens” across Canada have signed up with Craft Depot, which will charge service fees to the buyers such as processors that in turn sell branded products, for access to their group of “ultra premium craft growers,” Mr. Antsey said.
Ingersoll, Ont.-based Cannabis Scout has both micro and medical producers as clients. The company started as a licensing specialist but brokered some sales in October after “it came up as an unexpected byproduct.”
“We’re pretty much old school. Everything is on the phone,” said Mahad Ali, president and CEO of Cannabis Scout, which has clients in Canada, Israel, South Africa, Germany, the United States, as well as in South America.
The small company is now talking with software companies in order to expand its brokerage capabilities online.