A pair of twentysomethings made their way to Chicago this year to start a trading platform for industrial hemp, a market they say traditional exchanges have overlooked.
The two Massachusetts Institute of Technology (MIT) graduates, Edward Woodford and Brian Liston, have raised $4.5 million for their company, Seed CX Ltd., including from prominent Chicago trading veterans such as Thinkorswim founder Tom Sosnoff and Valkyrie Trading CEO Chris Lee.
Despite all the jokes and ribbing likely to go along with any business incorporating the same plant used in marijuana, they emphasize that their trading platform is related to a version of hemp unlikely to get anyone high. The seed and oil commodities that will be the basis for contracts traded on their platform are used in plastic, food and oil products. Industrial hemp fibers have long been used as a filler in biocomposites.
Hemp growing in the U.S. was illegal for decades, but allowed in research plots as part of the 2014 Farm Bill. Since 2004, however, the U.S. has been the biggest global importer of industrial hemp, according to Seed CX.
Under the current U.S. drug policy, all cannabis varieties, including industrial hemp, are considered Schedule I controlled substances. Bills pending in both the House and the Senate (HR 525 and S 134) that would change the status of industrial hemp, under the Controlled Substances Act, but both are caught up in committee and unlikely to move forward before Congress adjourns at the end of the year.
Woodford and Liston surmounted a meaningful hurdle Aug. 23 when the Commodity Futures and Trading Commission, which oversees futures trading, approved a unit of their company, Seed SEF, as a swap execution facility.
Their aim goes well beyond that, though. They're also seeking approval to be a designated contract market, or essentially a futures exchange, that trades in not only industrial hemp, but also other “unique, rapidly developing” agricultural markets, such as organic wheat, corn and soybeans. They're targeting markets where they expect growing demand and that have had “regulatory shifts or dramatic market restructurings.”
“The established exchanges aren't looking at these products,” Woodford said.
Their travels throughout the country talking to farmers, processors and traders in the agricultural industry convinced them there's a need for the price transparency and risk transfer of an exchange, said Liston, Seed CX's president and chief financial officer.
They established Seed CX, which now has 10 employees, in the West Loop because Chicago is the “global hub of derivatives trading,” with the talent and ecosystem to feed Seed CX, Woodford said.
Woodford, who grew up in England, and Liston, whose Irish parents raised him in Asia, met at MIT, where they were graduate students in the master's of finance program. They also played together on the soccer team.
They're in the final stages of picking a clearinghouse partner as part of their application with the CFTC to become a designated contract market, Woodford said. They expect to complete the application next month and hope to start trading on that exchange next year, assuming the CFTC provides its stamp of approval. Woodford declined to identify the clearing companies Seed CX is considering.