Forward Purchase Agreements

by William Sumner, Hemp Content Manager, New Frontier Data

With a glut of biomass on the market facing a dearth of potential buyers, hemp farmers are looking for alternate ways to sell their crops and protect themselves from falling prices. One way for them to accomplish such is by setting up forward purchase agreements.

For the uninitiated, there are some things to keep in mind about the process.

What is a Forward Purchase Agreement?

Essentially, it is a customized contract between two parties to buy or sell a specific commodity or asset at a specified price, usually set against an industry benchmark. In the case of hemp, prices are often set against rates determined by a third party like the PanXchange hemp industry benchmark. Loosely regulated, forward purchasing agreements do not trade on centralized exchanges and are considered over-the-counter (OTC) transactions. While the agreement grants greater flexibility to buyers and sellers, a downside can be that the default risk is higher.

“This is something that mature markets do every day,” said PanXchange Founder and CEO Julie Lerner. “Trading at a fixed price is the sign of an immature market.”

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