Notwithstanding the haziness of the CFTC's press release, the underlying commodity here involves industrial hemp, not recreational hemp. There is a distinction. As the National Hemp Association explains: "[t]he two plants are from the same species but are more like first cousins and NOT identical twins." If the commodity involved the latter plant, it arguably would be in conflict with CFTC Rule 40.11, which prohibits contracts referencing an activity that is unlawful under any State or Federal law. Thus, the CFTC's action will allow modern risk management to be available for the growers and buyers of the product who are located in twelve states where industrial hemp is legal (including the high-minded State of Colorado).
Fundamentally, this action is about making hedging more widely available to those who can use it in their business. As a policy matter, the CFTC and Congress should consider other areas where businesses would benefit from hedging opportunities. One such example would be approving the establishment of for-profit prediction markets, which would allow those trying to hedge for political outcomes. The outcomes of political events have real economic consequences (e.g., Brexit); it makes sense to allow market participants to hedge.
Commentary
Notwithstanding the haziness of the CFTC's press release, the underlying commodity here involves industrial hemp, not recreational hemp. There is a distinction. As the National Hemp Association explains: "[t]he two plants are from the same species but are more like first cousins and NOT identical twins." If the commodity involved the latter plant, it arguably would be in conflict with CFTC Rule 40.11, which prohibits contracts referencing an activity that is unlawful under any State or Federal law. Thus, the CFTC's action will allow modern risk management to be available for the growers and buyers of the product who are located in twelve states where industrial hemp is legal (including the high-minded State of Colorado).
Fundamentally, this action is about making hedging more widely available to those who can use it in their business. As a policy matter, the CFTC and Congress should consider other areas where businesses would benefit from hedging opportunities. One such example would be approving the establishment of for-profit prediction markets, which would allow those trying to hedge for political outcomes. The outcomes of political events have real economic consequences (e.g., Brexit); it makes sense to allow market participants to hedge.
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