INTERVIEW: Sigfried Legeay is CFO and co-founder at London-based Canxchange, the European commodities exchange for industrial hemp and cannabinoid products that provides access to the global cannabis market and helps buyers and sellers streamline their operations. He previously worked in trading strategies development, private equity and capital raising as co-founder of Piphunters, Ltd., and equity finance and foreign exchange at BNP Paribas.
HempToday: So far 2022 has been a very challenging year in general, and for the industry. What is your current analysis of the situation and what is your outlook for 2023?
Sigfried Legeay: We are unfortunately proud to have anticipated this downturn months in advance; the results of the data analysis we run in our quarterly Canxchange Benchmark Reports were leading us to anticipate a very grim outlook for 2022 as early as Q3 2021.
Obviously, we couldn’t forecast that geopolitical tensions would exacerbate the situation, but oversupply, producers’ declining confidence, inflation, financing conditions tightening, logistics costs and misallocation of capital across the industry were clear signs of a slowdown. I obviously see light at the end of the tunnel, but 2023 will probably remain challenging as long as global conditions remain the same.
Having said that, talking on a daily basis with different market actors gives me the confidence that the ones who manage to weather this storm will come out of it way stronger and as great innovators for the industry. I often compare our industry to the technology businesses of the early 00s. We had our emergence, parabolic growth and bubble-burst phases. The cannabis industry is now licking its wounds but already prepares for the next market leaders of the coming 10 years.
HT: Talk with us about cannabinoids. Have we reached the bottom of the market for extracts and isolates?
SL: The isolate market has indeed been extremely active over the last couple of months. This is the most in-demand product that we see for the moment at Canxchange. It is a bit early to say if we reached the bottom in terms of prices earlier this year but what we can see is a lot of price volatility week on week. At the moment in Europe it starts to be extremely difficult to source 99% CBD isolate on the wholesale market for less than €250/kg.
HT: What’s the status of the hemp seed supply from the EU countries this year? Is Europe still short and needing to import hemp seed for food?
SL: From what we have seen, the market is well supplied for standard seeds for food in Europe with prices printing around €1.40 – €1.45/kg. Supply is a bit more scarce for organic seeds with prices hovering around €2.60/kg. It is important to note that we saw purchase intentions being revised or postponed due to the current uncertainties the market conditions are creating.
HT: There’s a lot of noise about fiber, especially for construction. How do you see that market shaping up? What do supply/demand and pricing look like as the harvest season is upon us?
SL: We strongly believe in the industrial use of hemp. We were lucky enough to provide the raw materials for an important real estate project in South Africa and we tend to think that more such opportunities will arise. This material definitely goes very well with the sustainability giga trend that is taking shape at a global level. However, challenges still remain, for example, the capacity to produce at cheaper costs or closer to the final users. Indeed, current logistics costs are a barrier to making hemp for construction economically viable.
Also, there is a need for training individuals to properly use this material; and last but not least, the insurers to cover the use of hemp (some do, some don’t, yet). In terms of supply and demand, the market is structurally short as production capacities are limited but compared to the previous year, prices remain stable between €370 and €420/ton for good quality products.
HT: How do you see the industry emerging from the current downturn?
SL: Obviously I will not risk myself describing what will be the next cannabis product innovations as our clients are the ones better positioned to talk about that, but I can definitely share our vision about how the industry will operate. It will for sure continue to evolve towards professionalization, standardization and scalability. Many companies will be asked to exit the R&D phase and move toward profitability. This usually happens through rationalization of processes, resources and costs and I tend to think that Canxchange is well-positioned to assist companies in achieving these goals.
HT: What makes you think that Canxchange can assist companies on their path to profitability?
SL: First of all, let me clarify our positioning, Canxchange is a market infrastructure that serves companies involved in industrial hemp, wellness and medical cannabis. It currently offers exchange, data, due diligence, payment services and technology solutions. As far as we are concerned, we are not intermediaries, we are solutions providers in order for businesses to optimize and streamline their sourcing and distribution processes. Indeed we can assist companies to run their daily operations for a fraction of the costs they would normally have to bear on their own.
The big advantage we offer to our clients is that we bring together in one single access point many sourcing and distribution functions that might be costly and time-consuming to run internally for a company. As an example, one can, at a tip of a finger, analyze the current market conditions, source products with already vetted suppliers, manage logistics and payments, trace the status of transactions, have an audit of purchases and sales, and electronically interact with market participants. We want our clients to focus and invest in their core business whilst we remove from them the burden of dealing with negative added-value tasks.
HT: During our conversations, you have insisted that you are not intermediaries, why is that important for Canxchange?
SL: Actually we want our infrastructure to help to disintermediate the market as much as possible for various reasons, one being the different layers of fees that are not always legitimate and that inflate the prices for the final user. From our perspective, we are in favor of peer-to-peer sourcing and distribution channels and the only real added value created should be borne as a cost to market participants. At Canxchange, you do not get charged for being introduced to a buyer or a seller, the client pays for an overall service (online tool, logistic management, vetting, payment processing and safety, post trading management and data). Obviously the more we experiment with real market conditions with our customers, the more pertinent we are becoming to them.