the taxpayer conducts some lawful business transactions not involving cannabis, as was found by the
U.S. Court of Appeals for the Ninth Circuit in its 2017 decision in Canna Care, Inc. v. Commissioner.
Patent Act
Title 35 of the U.S. Code (Patent Act) is the federal statute that governs patents in the United States.
A patent issued under the Patent Act is the right to exclude others in the United States from making,
using, importing, offering for sale or selling an “invention or discovery” and, if the invention or
discovery is a process, products made by that process. U.S. patents are issued by the U.S. Patent and
Trademark Office (USPTO), a federal agency established by the Patent Act. A U.S. patent lasts from
the date of issuance until 20 years after the date on which the application for the patent was filed with
the USPTO. Patent Act remedies available to the holder of an infringed U.S. patent include damages,
recovery of lost profits and recovery of legal fees.
“Inventions and discoveries” eligible for a patent under the Patent Act generally include any
machine, manufacture, composition of matter, process, art or method, or any improvement thereto
that is novel, useful and non-obvious. Newly developed plants, plant varieties, seeds, plant parts, plant
genes or plant production processes are generally recognized as inventions or discoveries eligible for a
U.S. patent if they satisfy certain criteria. The Patent Act also provides specifically for a “plant patent”
that precludes others from asexually reproducing, selling or using a distinct and new variety of plant
(other than a tuber) that has been invented or discovered and asexually reproduced.
The Patent Act does not expressly prohibit the issuance of U.S. patents for inventions or discoveries
that are unlawful or designed to serve an unlawful purpose, and the USPTO has issued a range of
cannabis-related patents. Cannabis-related inventions or discoveries for which the USPTO has issued
a patent include a cannabis strain named “Ecuadorean Sativa” (U.S. Plant Patent 27,475), cannabis
cultivation and processing methods (U.S. Patent 9,095,554), a vaporizer (U.S. Patent 9,220,294),
THC-infused shea butter for topical application (U.S. Patent 8,425,954), a THC extraction method
(U.S. Patent 6,365,416) and equipment and methods for biosynthetic production of cannabinoids
(U.S. Patent 9,587,212). U.K.-based GW Pharmaceuticals holds multiple cannabis-related U.S. patents.
And despite the federal government’s position for purposes of the CSA that marijuana has no
currently accepted medical use in treatment in the United States, the U.S. federal government itself
holds a patent for methods of treating certain diseases with cannabinoids (U.S. Patent 6,630,507).
Plant Variety Protection Act
The Plant Variety Protection Act (PVPA) establishes certain legal protections (or “breeders’ rights”) for
the breeder of a sexually reproduced or tuber-propagated plant variety that is new, distinct, uniform
and stable within the meaning of the PVPA. A breeder who so develops such a plant variety and satis-
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fies other PVPA requirements may apply for and receive a certificate of plant variety protection issued
by the U.S. Department of Agriculture (USDA). Such a certificate establishes a breeder’s right, for a
period of time and subject to certain exceptions, to exclude others from selling the variety, offering it
for sale, reproducing it, importing or exporting it, or using it in producing a hybrid or different variety.
A breeder’s rights under the certificate last for 20 years (25 years in the case of a protected tree or vine)
from the certificate’s issue date.
It is not clear whether the USDA has issued any certificate of plant variety protection for a cannabis
variety. The USDA website provides a searchable database of certificates issued since February
2013, as well as a schedule of crop categories for which certificates have been issued. A search of these
USDA materials indicated that no certificates for varieties of cannabis, marijuana or hemp have been
issued. The PVPA defines “variety” as “a plant grouping within a single botanical taxon of the lowest
known rank” with certain defining and distinguishing features. Given the disagreement among botanists
regarding cannabis taxonomy noted in Chapter II, Cannabis Science 101, it may be challenging
to demonstrate that a cannabis variety satisfies PVPA criteria for protection.
Trademark Act
A trademark is a word, name, symbol or device used by a person to identify and distinguish the person’s
goods or services from the goods and services of others and to indicate the source of the goods or services.
Trademarks take many forms, including logos, slogans, symbols, colors and sounds. Under common
law and through registration under state and federal statutes, a trademark owner can be afforded
certain legal protections against unauthorized use of the trademark by others.
Trademark protection under federal law is provided primarily by the Trademark Act, also known
as the Lanham Act, which provides for registration of trademarks with the USPTO. The holder of a
federally registered trademark receives certain rights and protections under federal law, including the
right to use the “®” symbol, evidence and nationwide notice of a claim of ownership, access to federal
courts for dispute resolution, the ability to prevent importation of foreign goods that infringe on the
trademark, and the right to recover certain statutory damages and attorneys’ fees. Generally, federal
registration is the most comprehensive trademark protection available in the United States.
Federal trademark registration requires “lawful” use of the trademark in commerce. Thus, trademarks
used to identify, distinguish or indicate the source of cannabis or related products or services
that are illegal under federal law are not eligible for federal registration. However, federal registration is
available for trademarks used in connection with federally legal cannabis-related products or services,
such as a recipe for food intended to be infused with cannabis or a cannabis-related clothing line.
Alternatives to federal trademark registration include protections available under common law and
through registration under state trademark statutes. Common law protections vary across jurisdictions
and generally extend only to geographical regions where a trademark has first been used in commerce.
State trademark registration generally provides protection within the entire state but, like federal registration,
may not be available for trademarks used in connection with unlawful subject matter.
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U.S. Legal Landscape
n The Path to Federal Legalization
We believe that cannabis will eventually become federally legal for recreational enjoyment by adults
and for use in a broad range of safe drugs and therapeutic products. A wide gulf currently separates
federal policy from state legalization initiatives. Both federal and state regulators lack experience with
science-based regulation that allows cannabis access, but they approach this lack of experience differently.
Current federal policy is slow-turning and bureaucratic; it requires rigorous scientific evidence
that cannabis is safe and effective but largely prohibits the industry from developing that evidence.
State legalization initiatives are experimental: they start by legalizing the cannabis industry, then task
state regulators with implementing rules and safeguards as the industry builds its scientific foundation
and its markets.
We believe that federal policy will move (and may already be moving) in a new direction which
allows for federally approved cannabis-derived drugs. If that happens, and if several cannabis-derived
drugs are federally approved, we expect the FDA and the DEA will have developed data and protocols
that facilitate more rapid approval of medical cannabis products. And if that happens, these federal
agencies should be able to combine their science-based regulatory practices with the best practices of
state regulators to develop a comprehensive federal approach to medical and recreational cannabis.
DEA and FDA Policy Direction
The path to federal legalization begins with understanding that current federal law, in theory, allows for
the production, distribution and prescription of medical cannabis products in the United States. The
DEA can register manufacturers to produce medical cannabis products in accordance with the CSA.
The FDA can approve medical cannabis products for distribution in accordance with the FD&C Act.
The DEA (an agency of the DOJ) and the FDA (an agency of the DHHS) together can cause medical
cannabis products to be rescheduled under the CSA so that doctors legally can prescribe them. None
of these regulatory actions requires a change in law. Technically, cannabis is not entirely prohibited by
federal law.
But in any practical sense, cannabis is federally prohibited. For nearly 50 years, the DEA has registered
only one cannabis manufacturer. The FDA has never approved a cannabis-derived drug. Because
marijuana remains a Schedule I controlled substance, the lone DEA-registered cannabis manufacturer
can produce cannabis only for strictly controlled research, and doctors cannot prescribe any marijuana
compound or derivative as medicine. A duo of federal regulatory agencies—not federal law—prohibits
lawful access to medical cannabis products; this may be changing. The DEA and the FDA appear to be
exploring policies and practices that could result in the actual production, distribution and prescription
of cannabis-derived drugs.
In August 2016, the DEA announced a new policy designed to increase (beyond one) the number
of DEA-registered cannabis cultivators and permit-registered cultivators to grow cannabis for privately
funded commercial drug development projects. The DEA has since accepted at least 25 applications for
registration but has not issued any new registrations. Some observers believe the new policy initiative
has stalled under the leadership of the DOJ, currently run by U.S. Attorney General Sessions. How-
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ever, that the DEA recognized and responded to the demand for expanded registration is a significant
development on its own, and one that we believe may signal an important redirection of DEA policy.
In October 2017, the FDA accepted GW Pharmaceuticals’ New Drug Application (NDA) for the
cannabis-derived drug Epidiolex. The steps required to file an NDA for any drug involve extensive
coordination and data sharing between the FDA and the applicant; submission of the Epidiolex NDA
is an important milestone toward FDA approval. Many observers expect that Epidiolex will be the first
cannabis-derived drug approved by the FDA.
Additionally, the FDA published industry guidance on botanical drug development in December
2016, several months after the DEA announced its new registration policy. The FDA guidance discusses
challenges inherent to botanical drugs, including challenges related to ensuring therapeutic consistency,
and suggests certain steps to address those challenges. The FDA guidance updates and replaces
similar guidance last issued in June 2004, and we believe that the timing of this update may relate to
other cannabis-related developments at the FDA and the DEA.
Federal Legalization: Predicted Developments
We predict six developments on the path to federal legalization: (1) the FDA will begin approving individual
pharmaceutical-grade drugs derived from cannabis; (2) more states will adopt medical cannabis
laws; (3) more states will adopt recreational laws; (4) the FDA will adopt routine approval procedures
for drugs with extracts of low-THC/high-CBD cannabis varieties; (5) the FDA will adopt routine
approval procedures for drugs with extracts of high-THC cannabis varieties; and (6) cannabis parts
and derivatives will be removed from the CSA schedules (either incrementally, starting with CBD, or
all at once) and will be fully legal for medical and
Path to Federal Legalization recreational purposes.
1. The U.S. Food and Drug Administration will
begin approving individual pharmaceuticalgrade
drugs derived from cannabis.
2. More states will adopt medical cannabis
laws.
3. More states will adopt recreational laws.
4. The FDA will adopt routine approval
procedures for drugs with extracts of
low-THC/high-CBD cannabis varieties.
5. The FDA will adopt routine approval
procedures for drugs with extracts of
high-THC cannabis varieties.
6. Cannabis parts and derivatives will be
removed from the CSA schedules and will
be fully legal for medical and recreational
purposes.
We do not predict that these developments
necessarily will occur in the order presented. We
do expect some of them to develop in parallel, and
none of them depends fundamentally on any other.
The manner in which federal cannabis legalization
actually proceeds, and the timing of any related
developments, are not known to us or anyone else.
Almost certainly, our predictions will prove inaccurate
in some respects. States may reverse their legalization
efforts. The medical efficacy of cannabis
may not be proved to be significant. Cannabis may
never be legalized federally. However, we believe
these developments will likely be among others
that lead to the federal legalization of cannabis. We
expand on each of these developments in the following
discussion.
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U.S. Legal Landscape
(1) FDA Approves Cannabis-Derived Pharmaceuticals
The FDA will approve pharmaceutical-grade drugs derived from cannabis through the NDA process.
FDA approval will require manufacturers to use cannabis varieties with particular chemical profiles and
to demonstrate the ability to control the chemical consistency of those varieties during manufacturing.
The DEA will place a narrow characterization of each FDA-approved drug on CSA Schedule II, III, IV
or V, and will issue one or more registrations to manufacture the drug and the cannabis variety used to
produce the drug. The FDA will improve and refine its botanical-drug review process in general and,
in particular, as it relates to cannabis-derived drugs. The FDA, the DEA and DEA-registered cannabis
researchers and manufacturers will cooperate to create a federal database of (i) each cannabis variety
approved for use in producing an FDA-approved drug and (ii) the manufacturing controls required by
the DEA and the FDA to cultivate chemically consistent plants of the variety in accordance with the
CSA and the FDA’s drug approval. We refer to each cannabis variety in this database, together with
its required manufacturing controls, as an “FDA-registered chemovar” (a chemovar is a plant variety
characterized by its chemical content).
(2) More States Adopt Medical Cannabis Laws
More states will adopt medical cannabis laws, and the number and nature of qualifying medical conditions
included in such laws will expand. Scientific research will improve the ability of the state-legal
medical cannabis industry to develop products that target specific medical conditions. Companies will
increasingly seek to differentiate such medical product offerings from recreational cannabis products.
State regulators and industry leaders will seek to standardize testing, labeling and quality control procedures
particular to medical cannabis products and adopt cannabis-variety recognition and manufacturing
practices consistent with those for FDA-registered chemovars.
(3) More States Adopt Recreational Laws
More states will adopt recreational laws, typically after medical cannabis has been legalized for some
period of time. States will establish agencies to comprehensively regulate both recreational and medical
cannabis; some regulatory standards will apply across both categories but, increasingly, regulations will
develop specific to each category. State regulators will learn from the recreational cannabis experience
of other states and will seek to standardize regulations that allow adults to responsibly enjoy cannabis
while protecting the health and safety of the general public. Recreational cannabis regulations will
resemble federal and state alcohol and tobacco regulations, addressing issues such as product potency
and warning labels, and restrictions on advertising and packaging that appeal to minors.
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(4) FDA Routinely Approves CBD Drugs
The FDA will adopt procedures for the routine approval of drugs that contain extracts of certain
low-THC/high-CBD FDA-registered chemovars. The new procedures will involve development of
a low-THC cannabis drug monograph that resembles in some ways the FDA monographs for overthe-counter
drugs. The monograph will address formulation, dosing and labeling requirements. The
FDA-registered chemovars included in the monograph will be rescheduled by the DEA to Schedule II,
III, IV or V in order to relax DEA registration requirements for manufacturing; however, the chemovars
themselves (particularly their flowers) will not be approved for use by the FDA, and only drugs
produced from extracts in accordance with the monograph will receive routine FDA approval.
(5) FDA Routinely Approves THC Drugs
Relying on experience with the low-THC cannabis drug monograph and a growing database of FDAregistered
chemovars, the FDA will adopt procedures for the routine approval of drugs that contain
extracts of certain high-THC FDA-registered chemovars. The procedures will parallel in many ways
those used in the low-THC monograph procedure, and likely will incorporate additional safeguards
related to THC content. The FDA-registered chemovars included in the high-THC monograph will be
rescheduled by the DEA, but cannabis flower from those rescheduled chemovars will not be approved
for use by the FDA.
(6) Federal Government Legalizes Cannabis
Parts and derivatives of the cannabis plant will be removed from the CSA schedules. This could occur
incrementally, starting with CBD (which could be removed by amending the definition of marijuana
to exclude CBD) and followed later by the rest of the plant (including THC). Or all parts and derivatives
of the plant could be de-scheduled at the same time. There will be three general categories of
legal cannabis products: (i) FDA-approved drugs, which will continue to be developed and approved
through the NDA and other processes; (ii) “therapeutic” cannabis products, which may be limited
to CBD concentrates and infused products if CBD is de-scheduled first, but which eventually will
include smokable flower (including high-THC flower) and most forms of cannabis, and which will
be permitted to make limited health-related claims but will not be approved by the FDA as safe and
effective for treating any specified medical condition; and (iii) recreational products, which also may
be limited to CBD products initially, but which eventually will include a broad range of high-THC
flower, concentrates and infused products. The DEA will still require registration of cannabis and CBD
manufacturers if CBD is de-scheduled first, but once the entire cannabis plant is de-scheduled, a new
federal cannabis agency will be established to regulate medical and recreational cannabis in cooperation
with the FDA and state regulators. The new agency will adopt the DEA’s institutional framework
for controlling the manufacture of chemovars used in FDA-approved drugs and the most successful
state strategies for regulating recreational cannabis, such as potency limits, labeling requirements and
restrictions on marketing to minors.
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U.S. Legal Landscape
Outlook
Development (1) does not require any change in federal law or radical departure from prior federal
policy, but merely requires a redirection of FDA and DEA policies and practices. Developments (2)
and (3) also do not require a fundamental change in federal law. In this sense, developments (1)–(3)
largely reflect incremental developments within the existing legal environment. For example, eight
state legislatures are expected in 2018 to introduce ballot measures or explore regulatory frameworks
for recreational cannabis (Arizona, Delaware, Florida, Michigan, New Jersey, Ohio, Rhode Island and
Vermont). Three other states (Missouri, Oklahoma and Wyoming) are expected to enact medical cannabis
laws in 2018. And as discussed previously, many observers expect that in 2018, the FDA will
approve a cannabis-derived pharmaceutical for the first time.
Developments (4)–(6) require more fundamental changes in federal laws and policies. We do not
expect developments (4), (5) or (6) to occur during the current presidential term, but we believe that
there is a reasonable chance development (4) could begin within the next five years and development
(5) could occur within two years thereafter. In total, we believe it could take up to 10 years or more
before the federal legalization process reaches development (6) and cannabis becomes fully legal under
federal law.
We believe that cannabis will become federally legal when American voters demand it. Developments
(1)–(5) are not required precursors to federal legalization, and either the U.S. Congress or the
DEA could initiate development (6) at any time. We believe that either the Congress or the DEA is
more likely to take such a step in an environment where developments (1)–(5) have progressed, but
there are signs that pressure from American voters may be mounting for the federal government to act
more quickly.
According to Gallup, the percentage of Americans who support legalization of cannabis use has
increased significantly over the past two decades, and 64% of Americans today believe cannabis use
should be legal. We expect that, eventually, federal policy will align with the attitudes of a majority
of American voters. The following graph shows the percentage of Americans who answered “Yes” to
Gallup when asked whether use of marijuana should be made legal.
U.S. Public Support for Legalizing Cannabis Use
70%
60%
50%
40%
30%
20%
10%
1996 2000 2001 2003 2005 2009 2010 2011 2012 2013 2014 2015 2016 2017
Source: Gallup. Data is shown for each year that such data was provided by Gallup since 1995.
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CHAPTER V
Global Cannabis Regulation
n Global Cannabis Legalization Momentum
Cannabis legalization is gaining momentum around the world, offering global opportunities for cannabis
companies and related businesses. This momentum is driven primarily by the increasing recognition
that cannabis may have a range of legitimate medicinal benefits and therapeutic applications.
At least 20 countries now have medical laws that facilitate patient access to cannabis or concentrates
for treating specified medical conditions. Notable countries with such medical laws include Australia,
Canada, Colombia and Germany; countries without such laws include China, Japan, Russia and the
United States. (Contrary to U.S. federal law, 29 states, encompassing 62% of the U.S. population,
permit the production and possession of cannabis or concentrates for use in treating a broad range of
qualifying medical conditions.) While the merits of medical cannabis are currently driving legalization,
we believe that—like Uruguay and numerous U.S. states—other countries will ultimately enact legislation
permitting the production, sale and use of recreational cannabis. (Canada is widely expected to
do so in mid-2018.)
The following world map illustrates select countries that (i) have enacted medical laws that facilitate
patient access to cannabis or concentrates for treating specified medical conditions, (ii) have enacted
recreational laws that permit the commercial production and sale of cannabis to adults for recreational
and other uses, or (iii) include a state or province that has a cannabis law or policy in conflict with
federal law.
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Select Countries with Legalized Cannabis Access (January 2018)
Medical Law
Argentina
Australia
Brazil
Chile
Colombia
Croatia
Czech Republic
Germany
Greece
Israel
Italy
Jamaica
Lesotho
Macedonia
Mexico
Netherlands
Peru
Poland
Switzerland
Turkey
© 2017 Ackrell Capital, LLC
Recreational Law
Canada 1
Uruguay 2
State/Province Conflict with Federal Law
India
Spain
United States
1
Canada currently has a medical law. Assumes Canada enacts a proposed recreational law in mid-2018.
2
Uruguay has both a medical law and a recreational law.
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CHAPTER V
Global Cannabis Regulation
International partnerships and business plans are being formed as countries increasingly allow
importation and exportation of cannabis products and more companies recognize the global potential
of the cannabis industry. Canadian companies are cultivating cannabis in South America and supplying
markets in Europe, Australian companies are forming research partnerships with producers in
Israel, and European companies are securing cannabis-related patents in the United States. And, as
discussed in more detail in Chapter VII, Capital Markets for Cannabis Companies, more cross-border
investment activity is taking place as industry participants position for the expected further opening of
global cannabis markets.
Despite the growing recognition of the potential medical value of cannabis, the current legalization
momentum and the increasingly international scope of cannabis business, the movement of products
and flow of capital required for a truly global industry continue to be inhibited by incongruous laws,
regulations and international treaties. For example, concerns about violating U.S. federal banking and
anti–money laundering regulations have caused certain U.S. banks to refuse to be connected to the
cannabis industry, avoiding even indirect association with cannabis activity that is legal where conducted.
In one instance, a number of U.S. banks threatened to cease business with certain Uruguayan
banks that serviced pharmacies legally distributing recreational cannabis within Uruguay. In turn, those
Uruguayan banks effectively forced the pharmacies to stop participating in Uruguay’s cannabis market.
(In a similar way, lack of access to the U.S. federal banking system continues to inhibit growth of the
domestic cannabis industry.) Until the largest economies in the world more fully embrace cannabis, we
must stop short of calling cannabis a truly global industry. However, we believe that the legalization
momentum will continue worldwide.
n United Nations Conventions
International regulation of cannabis, cannabis derivatives and many other narcotic, psychotropic and
similar substances is addressed primarily by three international treaties (Conventions) adopted through
the United Nations (UN) between 1961 and 1988.
The Single Convention on Narcotic Drugs of 1961 (1961 Convention) addresses regulation of
the cannabis plant, the coca flower and the opium poppy; certain of their derivatives (such as hashish,
cocaine and heroin, respectively); and any other substance found in accordance with the 1961
Convention to be “liable to similar abuse and productive of similar ill effects.” The 1961 Convention
establishes four schedules of substances subject to increasingly strict controls in the following order:
Schedule III, Schedule II, Schedule I and Schedule IV. Schedule IV substances (the most strictly controlled)
are those Schedule I substances found to be particularly liable to abuse and to produce ill effects
and for which such liability is not offset by substantial therapeutic advantages. Cannabis, cannabis
resin, and extracts and tinctures of cannabis are included on Schedule I; cannabis and cannabis resin
are also included on Schedule IV.
The Convention on Psychotropic Substances of 1971 (1971 Convention) addresses regulation of
certain “psychotropic” substances, which the Convention recognizes generally as substances that may
stimulate or depress the central nervous system causing “hallucinations or disturbances in motor func-
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tion or thinking or behaviour [sic] or perception or mood,” that may produce “a state of dependence”
and that are subject to abuse “so as to constitute a public health and social problem warranting the
placing of the substance under international control.” Substances addressed by the 1971 Convention
include THC, barbiturates, amphetamines and psychedelics such as LSD. The 1971 Convention
establishes four schedules of substances subject to increasingly strict controls in the following
order: Schedule IV, Schedule III, Schedule II and Schedule I. Schedule I includes THC and certain
of its isomers and stereochemical variants. Schedule II includes dronabinol (a synthetic THC) and its
stereochemical variants.
The United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
of 1988 (Traffic Convention) establishes additional tools for enforcing provisions of the 1961
and 1971 Conventions. The Traffic Convention provides for international cooperation in arresting
and prosecuting illicit traffickers of substances scheduled under the 1961 and 1971 Conventions and
in disrupting their financial and distribution networks through extradition, anti–money laundering
practices, asset forfeiture and other methods.
Generally, the Conventions contemplate that the manufacture, export, import, distribution, use and
possession of scheduled substances should be allowed only for medical and scientific purposes under
legal authority and that penalties, including criminal penalties, should apply to those who engage in
such activities for other purposes or outside legal authority. Countries participating in the Conventions
are generally required to enact laws and regulations that carry out the provisions of the Conventions,
which may require them to establish dedicated regulatory agencies, track and report physical inventories
as well as production and revenue data, implement and enforce labeling requirements and quality
control procedures, restrict use of substances to those holding medical prescriptions and impose criminal
penalties for violations. Currently, more than 180 countries are party to each Convention.
Amending schedules under the 1961 and 1971 Conventions generally involves participation of
three UN-related bodies: (1) the Economic and Social Council (ECOSOC), one of the six main organs
of the UN established under the UN charter in 1945; (2) the Commission on Narcotic Drugs (CND),
itself a subsidiary body of the ECOSOC that assists the ECOSOC in supervising the application of
international drug control treaties; and (3) the World Health Organization (WHO), an autonomous
intergovernmental organization that collaborates with the UN and other organizations on global health
matters. A schedule amendment may be initiated by the WHO or by any country participating in the
applicable Convention, and generally requires approval of the CND, which approval may be subject
to further review and approval by the ECOSOC. Notably, because regulations applicable to cannabis
and certain derivatives are included in the body of the 1961 Convention (and not just in its schedules),
merely removing cannabis and its derivatives from the schedules under the 1961 Convention would
not entirely remove cannabis from that Convention’s regulatory framework.
Recent Developments Related to the UN Conventions
Global support for the prohibitionist policies of the Conventions is waning, and a growing chorus of
world leaders is calling for new policies for cannabis and other substances to be based on public health
concerns rather than criminalization.
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CHAPTER V
Global Cannabis Regulation
In 2012, the presidents of Colombia, Guatemala and Mexico requested the UN to focus its next
special session on drugs on policy reform rather than on a mere progress review and continuation
of the same policies. In 2014, the Global Commission on Drug Policy—represented by former UN
Secretary-General Kofi Annan and the former presidents of Brazil, Chile, Colombia, Mexico, Poland,
Portugal and Switzerland—called for an end to the criminalization of drug use and possession and for
the responsible legal regulation of psychoactive substances.
A UN General Assembly Special Session (UNGASS) on drugs was originally scheduled for 2019,
but was accelerated to April 2016 as a result of a proposal sponsored by Mexico and cosponsored by
95 other countries. The general assembly is the primary policy body of the United Nations, and one
in which all UN member states have equal representation. Given this broad representation and the
growing support for decriminalization, many expected the 2016 UNGASS on drugs to result in significant
changes in policy. In an open letter delivered to UN Secretary-General Ban Ki-moon on the eve
of the session, former presidents or prime ministers of Brazil, Cape Verde, Chile, Colombia, Greece,
Hungary, Mexico, the Netherlands, Nigeria, Poland and Switzerland joined with high-profile scholars,
celebrities, clergy, business leaders, elected officials and others in pressing the Secretary-General to call
for reform of prohibitionist drug control policies. Those supporting reform were disappointed when
the UN General Assembly adopted a resolution reaffirming its “commitment to the goals and objectives”
of the three Conventions.
Despite the lack of an immediate and fundamental shift away from the prohibitionist policies of
the Conventions, other steps are being taken that may result in relaxed cannabis controls within the
existing Conventions framework. A committee of the WHO tasked with making drug control recommendations
to the CND on behalf of the WHO—the Expert Committee on Drug Dependence
(ECDD)—recognized an increase in medical cannabis use and the emergence of cannabis-related pharmaceuticals,
and in November 2016 requested that the WHO prepare “pre-review” materials for cannabis,
for the specific cannabis derivatives scheduled under the 1961 and 1971 Conventions, and for
cannabidiol, or CBD. These pre-review materials are preliminary analyses considered by the ECDD to
determine if more in-depth “critical reviews” should be undertaken by the ECDD.
The WHO presented the requested CBD pre-review materials at a November 2017 ECDD meeting.
The CBD materials indicate that CBD exhibits no effects indicative of any abuse or dependence
potential in humans, and that there is no evidence of any public health–related problems associated
with the use of pure CBD. The outstanding pre-reviews related to cannabis and specific derivatives
are expected in early 2018. The ECDD recommended that the pre-review materials be evaluated at
a specific cannabis-focused ECDD meeting to be held no later than June 2018. The requested prereviews
represent the first ever scientific guidance on cannabis to be issued within the framework of
the Conventions. If the pre-reviews lead to critical reviews, such reviews could ultimately result in a
WHO-initiated rescheduling of substances under the 1961 and 1971 Conventions.
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n Global Legal Developments
Nations around the world have recently passed or are considering enacting an array of measures decriminalizing
cannabis, legalizing it for medical use or, in a few cases, legalizing it for recreational use in contravention
of the UN Conventions. The following discussion summarizes recent legal developments
related to cannabis across different regions.
United States
Despite marijuana and THC being Schedule I controlled substances under the CSA—which, practically
speaking, makes almost all manufacture, distribution, dispensing and possession of cannabis in
the United States a federal crime—29 U.S. states and the District of Columbia have enacted medical
cannabis laws that permit the production and possession of cannabis or concentrates for use in treating
a broad range of qualifying medical conditions, and 8 of those same states have enacted recreational
laws that permit the commercial production and sale of cannabis to adults for recreational and other
uses. And 19 U.S. states (including 2 with medical cannabis laws) have passed narrow CBD/limited
laws that permit possession of small amounts of low-THC/high-CBD cannabis concentrates for use in
treating a few serious medical conditions—in particular, severe forms of childhood epilepsy. A majority
of Americans now live in states that permit the production and possession of cannabis or concentrates
for use in treating a broad range of qualifying medical conditions, and polls show that a majority
of Americans believe cannabis use should be legal. For a more thorough discussion of U.S. state and
federal law, see Chapter IV, U.S. Legal Landscape.
Canada
Canada’s Controlled Drugs and Substances Act (CDSA) was enacted in 1996 and currently serves
as the country’s implementing legislation under the UN Conventions. The CDSA establishes eight
schedules of “controlled substances” and imposes civil and criminal penalties for production, trafficking,
importing, exporting and possession of those controlled substances in violation of the CDSA.
Cannabis, cannabis preparations and derivatives, and certain cannabinoids, including THC and CBD,
are Schedule II substances under the CDSA. Those who commit CDSA violations related to Schedule
II substances are subject to fines and imprisonment.
In a 2000 decision by the Court of Appeal for Ontario, the court held that certain criminal prohibitions
under the CDSA related to cannabis were unconstitutional because they did not include a constitutionally
acceptable medical exemption. Following this constitutional holding and acting within
the framework of the CDSA, which allows for the issuance of regulations and exemptions thereunder,
Canada issued a sequence of three medical marijuana regulations discussed below.
The Marihuana [sic] Medical Access Regulations (MMAR), issued in 2001, permitted individuals
with the authorization of their health care practitioners to grow their own cannabis plants for medical
purposes, to designate someone to grow cannabis for them or to purchase dry cannabis flower from
Health Canada (the government agency charged with administering Canada’s medical cannabis regulations).
The MMAR was successfully challenged on constitutional grounds and eventually replaced
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in 2013 by the Marihuana [sic] Medical Program Regulations (MMPR). The MMPR created a regulatory
framework under which individuals with a medical need could obtain dry cannabis flower from
licensed commercial producers. Like the MMAR before it, the MMPR was held unconstitutional and
was eventually replaced, this time in August 2016, by the currently effective Access to Cannabis for
Medical Purposes Regulations (ACMPR).
The ACMPR permits businesses licensed by Health Canada to commercially produce and distribute
cannabis flower, cannabis oil and cannabis starter materials, such as plants and seeds, to individuals
with a medical recommendation from an authorized health care practitioner. The ACMPR also allows
such individuals to produce a limited amount of cannabis for their own medical purposes, or to designate
another person (which may include Health Canada) to produce it for them. The ACMPR sets
forth a comprehensive licensing and regulatory regime that addresses security of licensed production
facilities, import and export permits, quality control measures and labeling requirements, and imposes
limits on the amount of cannabis that can be produced and possessed by an individual.
In April 2017, a proposed recreational law was introduced in the Canadian parliament; this legislation
would allow adults to purchase cannabis from federally licensed producers and to possess and
share cannabis with other adults. The proposed Cannabis Act would authorize the Canadian government
to issue regulations for the administration and enforcement of the act and to issue licenses and
permits authorizing the importation, exportation, production, testing, packaging, labeling, sending,
delivery, transportation, sale, possession or disposal of cannabis and cannabis products. The Cannabis
Act would authorize Canadian provinces and territories to regulate the distribution and retail sale of
cannabis within their jurisdictions, and all individuals and entities, including federally licensed businesses,
would be required to comply with those local regulations as well as federal laws.
Unlike the ACMPR, which is a set of medical cannabis regulations issued within the framework of
Canada’s CDSA, the Cannabis Act would amend the CDSA and related criminal and other statutes to
facilitate the recreational law in Canada. The proposed Cannabis Act is widely expected to be approved
in some form by the Canadian parliament by mid-2018. If approved, Canada would be the largest
country in the world to legalize recreational cannabis on a national level.
Latin America and the Caribbean
During the past five years, Latin American and Caribbean nations (and Puerto Rico, a U.S. territory)
have taken significant legal measures that increase access to cannabis for medical purposes, permit
recreational cannabis use and relax criminal prohibitions.
In 2013, Uruguay became the first nation in the world to legalize and regulate the commercial production
and sale of cannabis to adults for recreational and other uses. The Uruguayan law authorizes
licensed producers to grow cannabis for sale, through licensed pharmacies, to Uruguayan citizens and
permanent residents who have registered with the government; the law also permits individuals to
grow up to six cannabis plants per year and to form small clubs that may grow up to 99 plants per year.
Cannabis sales through licensed pharmacies commenced in 2017.
In 2015, Colombia approved a legal framework for the cultivation, processing and sale of cannabis
extracts and related products for scientific and medical purposes. The Colombian framework provides
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for the issuance of separate licenses for cultivation and processing. It also contemplates that permits will
be available under Colombia’s export laws for the export of lawful cannabis products to jurisdictions
where importation is legal. Colombia issued the first processing license in 2016 and the first cultivation
license in 2017.
In 2017, Argentina enacted regulations permitting the use of cannabis oil and other derivatives
either by qualifying patients or for scientific and medical research. Under the new legislation, the government
will oversee cultivation and production of cannabis and its derivatives for research purposes
and for patient consumption, establish a national registry of qualifying patients and make cannabis
products available to those patients, free of charge. The government expects to import cannabis supplies
until they can be produced domestically.
Other Latin American nations that have taken recent steps to increase medical cannabis access
include Chile, Brazil, Mexico and Peru. In 2015, Chile changed its laws to allow medical cannabis use
by patients and to authorize the sale of cannabis-based medicines through pharmacies. In 2016, Brazil
approved a resolution authorizing the prescription and importation of cannabis products, including
THC and CBD, for use in treating certain qualifying medical conditions. In June 2017, Mexico
enacted a law directing its Ministry of Health to prepare regulations for the research, production and
medicinal use of “pharmacological derivatives” of cannabis. In November 2017, Peru adopted a bill
legalizing the production, commercialization and importation of cannabis oil to be used for medical
purposes.
In the Caribbean region, Puerto Rico, the Cayman Islands and Jamaica have taken measures to
decriminalize cannabis or increase access for medical use. In 2015, the governor of Puerto Rico signed
an executive order that legalized use of cannabis derivatives (but not cannabis flower) for medical
purposes. Jamaica passed a law in 2015 that decriminalizes possession of small amounts of cannabis,
permits an individual to cultivate no more than five cannabis plants, establishes a medical cannabis
regulatory agency and allows tourists with foreign medical cannabis prescriptions to purchase small
amounts of cannabis. A 2016 law enacted in the Cayman Islands legalized the use of cannabis extracts
for medical purposes and authorized the creation of import regulations and the sale through licensed
pharmacies.
Australia and New Zealand
Australia amended its Narcotic Drugs Act in 2016 to authorize a regulated medical cannabis industry
in the country. The amendment establishes licenses to cultivate cannabis, produce cannabis resin and
other products for medicinal purposes, manufacture medicinal cannabis products and conduct cannabis
research. A license-holder is required to secure a permit that places conditions on the license and
identifies specific activities allowed within the scope of the license. Cannabis products for medicinal
use that are either legally manufactured in Australia or legally imported can be prescribed to qualifying
medical patients. The amendment defines medicinal cannabis products broadly as a product that
includes, or is produced from, any part of the cannabis plant and is intended for the purpose of “curing,
or alleviating the symptoms of a disease, ailment or injury.”
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New Zealand’s Misuse of Drugs Act generally makes the importation, cultivation, distribution, possession
and use of cannabis illegal. However, in September 2017, New Zealand’s Health Ministry lifted
certain restrictions so that doctors may now prescribe approved CBD products. (Previously, patients
in need of CBD products were required to apply directly to the Health Ministry, and approval was
granted on a case-by-case basis.) In December 2017, New Zealand introduced legislation for a medical
law that would amend the Misuse of Drugs Act to permit domestic production of medical cannabis
products and their use by people with terminal illness or chronic pain.
Europe
The European Union provides no coordinated legal framework for cannabis and, historically, European
countries generally have prohibited its production and sale, but have also decriminalized or tolerated
possession of small amounts.
In some European countries, personal use exceptions to criminal prosecution have been used to
carve out visible distribution models. In the Netherlands, for example, Amsterdam is famous for its
coffee-shop cannabis sales, even though the suppliers of cannabis to those coffee shops generally operate
illegally. And in Spain, despite a federal prohibition on the sale of cannabis, court decisions and
laws permitting cultivation for personal consumption have served to justify the country’s hundreds of
private cannabis clubs.
To date, no European country has implemented a recreational law comparable to those in Uruguay
and some U.S. states and expected in Canada. However, starting with the Netherlands in 2003, a
number of European countries have enacted medical laws that facilitate patient access to cannabis or
concentrates, through importation or domestic production, for treating specified medical conditions.
Italy has allowed medical cannabis use since 2013 under a law that requires cannabis to be sold
through authorized pharmacies to patients with a valid prescription.
Croatia legalized the limited use of medical cannabis products in 2015. Under the law, doctors may
prescribe cannabis ointments, teas and other extracts to patients with a qualifying health condition,
including tumors, AIDS, multiple sclerosis and child epilepsy. Smoking or vaporizing cannabis flower
is not allowed under the law. In 2016, Croatia received a shipment of medical cannabis products from
a Canadian producer, marking the first time a North American company legally shipped cannabis
products containing THC and CBD into the European Union.
A German law that took effect in 2017 legalizes the use of medical cannabis products prescribed for
patients with serious illnesses, including multiple sclerosis, chronic pain, epilepsy and chemotherapyinduced
nausea and lack of appetite. The law provides a framework for the regulation of suppliers
under which the government has already issued import licenses to Canadian and Dutch firms and is
finalizing an approval process for the issuance of domestic production licenses.
A 2017 Polish law permits patients to obtain medical cannabis products, including flower, extracts
and tinctures, through pharmacies if they have both a physician’s medical authorization and permission
from a regional pharmaceutical inspector. The qualifying conditions eligible for medical cannabis
include chronic pain, chemotherapy-induced nausea, multiple sclerosis, spasticity and treatmentresistant
epilepsy. Cannabis products must be imported into Poland because the law does not permit
cannabis cultivation within the country.
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Greece announced in 2017 that the use of cannabis extracts would be permitted for patients who
obtain a doctor’s recommendation and are diagnosed with chronic pain, neuropathic pain, chemotherapy-induced
nausea, certain eating disorders and cancer.
In the United Kingdom, the Misuse of Drugs Act 1971 (Drugs Act) generally prohibits the manufacture,
supply and possession of any “controlled drug,” including cannabis and cannabis resin, without
a license issued by the Home Office, a ministerial department of the U.K. government. There is
no exception to this general Drugs Act prohibition that would facilitate patient access to cannabis or
concentrates for treating specified medical conditions. However, within the Drugs Act framework, the
Home Office has issued to U.K.-based GW Pharmaceuticals licenses to cultivate, possess and supply
cannabis for medical research and for commercial purposes. GW Pharmaceuticals produces Sativex,
a mouth spray that contains cannabis-derived THC and CBD and is used for treatment of spasticity
caused by multiple sclerosis. Sativex is generally recognized as the first prescription drug in the world
to include plant-based cannabinoids. It was first approved for use in the U.K. in 2010 and has been
approved for use in at least 30 countries (but not in the United States).
Middle East, Asia and Africa
Throughout the Middle East, Asia and Africa, cannabis cultivation, sale and possession generally
remain prohibited and punishable as criminal offenses. Only a handful of countries from these regions
have enacted laws that decriminalize possession of small amounts of cannabis for personal use or facilitate
patient access to cannabis or concentrates for treating specified medical conditions.
In 2017, particular sections of South Africa’s Drugs and Drug Trafficking Act, which prohibit cultivation,
possession and personal use of cannabis on private property, were declared unconstitutional.
During the same year, Lesotho (an enclave surrounded entirely by South Africa) granted a license to
a pharmaceutical company to grow, process and sell cannabis for medicinal use or scientific purposes.
In Israel, the country’s Dangerous Drug Ordinance generally criminalizes the manufacture, possession
and use of cannabis. However, medical cannabis in smokable and other forms has been legal since
the 1990s for patients with a range of serious medical conditions, including multiple sclerosis, Crohn’s
disease, cancer and post-traumatic stress disorder, and the country is widely recognized as a global
leader in medical cannabis research and cultivation. Under Israel’s medical cannabis rules, the Ministry
of Health can issue permits for the production, distribution and use of medical cannabis products.
Patients must first obtain a doctor’s recommendation and submit it to the ministry in order to receive a
medical cannabis use permit. In August 2017, the Israeli Ministries of Health and Finance announced
that licensed producers and distributors of medical cannabis would become eligible, for the first time,
for permits to export medical cannabis to jurisdictions where it is legal to import.
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n Global Outlook
While the medical potential of cannabis is driving an initial wave of legalization, we believe countries
will eventually legalize the commercial production and sale of cannabis to adults for recreational use.
In this regard, 2018 will be an important year, with the expected approval of the recreational Cannabis
Act in Canada and the implementation of California’s new recreational law. In Canada, we may observe
for the first time the implementation of a large-scale national recreational law. Similarly, as the most
populous U.S. state and one of the world’s largest economies, California’s recreational cannabis rollout
will be a bellwether for the global cannabis industry. The successes, failures and lessons learned in Canada
and California will have significant impacts on the cannabis industry worldwide.
In our view, the course taken by the U.S. federal government will impact the global cannabis industry
more than any other factor. If the U.S. federal government were to change its current practice and
aggressively enforce existing federal cannabis laws, we would expect a corresponding dampening of
the industry worldwide. If the status quo were to continue in the United States, we would expect the
current global legalization trend to continue, particularly in Europe, South America and Africa. And
if federal prohibition in the United States ends, we expect a surge in cannabis legalization worldwide.
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CHAPTER VI
U.S. and International
Cannabis Market Estimates
n Global Market Overview
Cannabis is the most widely cultivated, produced, trafficked and consumed drug worldwide, according
to the United Nations Office on Drugs and Crime (UNODC). In 2003, the UNODC estimated
that the global illegal cannabis market was $113 billion, with 160 million consumers. The UNODC
continues to estimate the number of cannabis users worldwide and recently estimated that 183 million
people globally between the ages of 15 and 64, or more than 4% of this age group, consumed cannabis
in 2015.
In 2010, the RAND Corporation (RAND) estimated that the U.S. illegal cannabis market was
$40 billion. Adjusting this estimate solely for inflation and population growth, the U.S. illegal market
would now be approximately $48 billion.
Both the UNODC and RAND acknowledge the challenges inherent in studying an illegal consumer
market, and both allow significant room for error in their estimates. However approximate,
their estimates make clear that there is significant global demand for cannabis. Less clear is how quickly
illegal markets will transition to legal markets, as well as the extent to which legalization may increase
overall demand.
The Legal Cannabis Market: Key Growth Drivers
We believe that numerous factors will increase consumer penetration rates and the overall size of the
legal cannabis market. Such factors include the following.
U.S. Federal Legalization. We believe it is a question of when, not if, cannabis becomes federally
legal. We predict six developments on the path to federal legalization: (1) the FDA will begin approving
individual pharmaceutical-grade drugs derived from cannabis; (2) more states will adopt medical
cannabis laws; (3) more states will adopt recreational laws; (4) the FDA will adopt routine approval
procedures for drugs with extracts of low-THC/high-CBD cannabis varieties; (5) the FDA will adopt
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routine approval procedures for drugs with extracts of high-THC cannabis varieties; and (6) cannabis
parts and derivatives will be removed from the CSA schedules (either incrementally, starting with
CBD, or all at once) and will be fully legal for medical and recreational purposes. (We expand on these
predicted developments in Chapter IV, U.S. Legal Landscape.) We believe that federal legalization will
trigger rapid growth in the U.S. market, propelled by interstate commerce, access to the federal banking
system and acceleration of the cannabis-derived pharmaceuticals market. A change in the federal
status of cannabis in the United States will not only drive U.S. market growth, but should provide a
significant catalyst to the market worldwide.
Increasing Awareness of the Medical Efficacy of Cannabis. In aggregate, across all U.S. state laws,
cannabis is legally recognized as a form of therapy or medicine for more than 50 medical conditions.
In addition, at least 20 countries have medical laws that facilitate patient access to cannabis or concentrates
for treating specified medical conditions. We believe that countries and U.S. states will continue
to adopt and enhance legal frameworks for the medicinal use of cannabis products. In addition, we
believe that many more cannabis consumers will emerge as research on cannabis increasingly demonstrates
its medical efficacy and as more therapeutic products are developed and brought to market.
Increasing Recreational Legalization. Most laws facilitating access to cannabis, both in U.S. states
and abroad, are medical laws. However, Uruguay and eight U.S. states have enacted recreational laws
permitting the commercial production and sale of cannabis to adults for recreational and other uses
(and Canada is widely expected to do so in mid-2018). In the handful of jurisdictions that started
with medical laws and later adopted recreational laws—particularly in Colorado, Washington and
Oregon—adoption of recreational laws has led to significant growth in overall market size and a rapid
increase in the percentage of the market represented by recreational consumers. We expect 2018 will be
a watershed year for the recreational market, with the implementation of California’s new recreational
law and the expected approval and implementation of Canada’s recreational law. If these laws stimulate
demand, as expected, and are otherwise viewed as successful, we expect more U.S. states and additional
countries to follow suit with similar laws.
Broadening Range of Cannabis Consumer Products. Product innovation and advancements in cannabis
varieties, concentrates, infused products, vaporizing technology and cannabis-derived pharmaceutical
products will drive consumer adoption and spending. Cannabis consumer product companies
will seek to differentiate their products through marketing, distribution, packaging, selection, quality
and pricing. We believe that product differentiation and availability will be more prevalent in legal
cannabis markets and will drive consumer transition from illegal to legal markets.
Declining Prices in U.S. State-Legal Cannabis Markets. The supply of cannabis has increased considerably
with expanded state legalization in the United States. This increase has started to dampen
retail and wholesale prices in various markets. As prices decline, we are starting to see closer price parity
between state-legal and illegal markets (in the United States, cannabis is generally priced lower in
illegal markets than in state-legal markets). Lower retail prices in state-legal markets should accelerate
consumer transition from illegal to state-legal markets and drive increased overall penetration rates.
However, state and local taxes will continue to impact pricing for cannabis products in state-legal cannabis
markets.
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U.S. and International Cannabis Market Estimates
n U.S. State-Legal Cannabis Market
More than 97% of the U.S. population lives in a state or district (District of Columbia) with at least
one law that permits the manufacturing, distribution, dispensing or possession of cannabis or concentrates.
As described in more detail in Chapter IV, U.S. Legal Landscape, most of these laws are
medical laws, and only eight states have enacted recreational laws. While the overall state-legal market
has grown significantly, the addressable market has been constrained due to the lack of access to purely
recreational consumers and the sometimes-narrow scope of medical conditions that qualify a patient
to access medical cannabis.
We estimate that the 2017 U.S. state-legal cannabis market was $8.0 billion, with more than four
million consumers. The breakdown of this estimate by state is shown in the following chart.
2017 U.S. State-Legal Cannabis 4 Market Estimate
Other States
$1.9 B
$8.0B
California
$3.2 B
Colorado
$1.5 B
Oregon
$470 M
Washington
$929 M
Source: Ackrell Capital
Recreational Sales as a Key Market Driver
Of the eight states that have enacted recreational laws, all had previously implemented medical laws.
As shown in the following graphs for the three largest states to implement recreational laws, implementation
of a recreational law significantly expanded the overall size of the legalized cannabis market,
doubling the size of the market in each of these states in the first full calendar year after implementation.
In addition, the percentage of the total market attributable to recreational consumers increased
quickly. This indicates significant, pent-up consumer demand for legal cannabis in the United States,
and we expect a significant increase in the size of the overall state-legal market as more states implement
recreational laws.
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Colorado
Colorado implemented a medical law in 2000 and a recreational law in 2014. The following graph
shows the impact of Colorado’s recreational law on the overall market in the state.
State-Legal Cannabis Market: Colorado
$1,600
$1,511
$1,400
Medical
Recreational
$1,313
($ millions)
$1,200
$1,000
$800
$600
$400
$353
93%
$680
$963
$200
$0
2013 2014 2015 2016 2017E
Source: Ackrell Capital
Washington
Washington implemented a medical law in 1998 and a recreational law in July 2014, and folded its
medical law into its recreational law in 2017. The following graph shows the impact of these laws on
the overall market in the state.
State-Legal Cannabis Market: Washington
$1,000
$929
$900
$800
Medical
Recreational
$768
($ millions)
$700
$600
$500
$400
$300
$235
18%
$278
108%
$577
$200
$100
$0
2013 2014 2015 2016 2017E
Source: Ackrell Capital
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CHAPTER VI
U.S. and International Cannabis Market Estimates
Oregon
Oregon implemented a medical law in 1998 and a recreational law in 2015. The following graph shows
the impact of Oregon’s recreational law on the overall market in the state.
State-Legal Cannabis Market: Oregon
$500
$470
$450
$400
$350
Medical
Recreational
$365
($ millions)
$300
$250
$200
$150
$100
$75
$126
101%
$255
$50
$0
2013 2014 2015 2016 2017E
Source: Ackrell Capital
California
In 1996, California became the first U.S. state to implement a medical law. In November 2016, the
state enacted a recrea tional law, the implementation of which is scheduled to begin in January 2018.
The following graph shows the impact that California’s recreational law is expected to have on the
overall market in the state.
State-Legal Cannabis Market: California
$7,000
$6,491
$6,000
$5,000
Medical
Recreational
101%
($ millions)
$4,000
$3,000
$2,563
$3,227
$2,000
$1,000
$0
2016 2017E 2018E
Source: Ackrell Capital
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n U.S. Legalized Cannabis Market Forecast
Forecast Methodology
The cannabis industry is driven by consumers, similar to other highly regulated industries such as alcohol,
tobacco and pharmaceuticals. Consequently, our methodology for forecasting the U.S. legalized
cannabis market is based primarily on the following factors: (i) the number of eligible U.S. consumers,
grouped by age; (ii) the penetration rate for each consumer age group; and (iii) the average monthly
spending for each consumer age group.
We believe that the variable which will most impact the future size of the U.S. legalized cannabis
market is the federal legalization process. How and when federal legalization occurs will impact other
primary drivers of the market, including the number of eligible consumers, penetration rates and consumer
spending. We predict six developments relating to federal legalization: (1) the FDA will begin
approving individual pharmaceutical-grade drugs derived from cannabis; (2) more states will adopt
medical cannabis laws; (3) more states will adopt recreational laws; (4) the FDA will adopt routine
approval procedures for drugs with extracts of low-THC/high-CBD cannabis varieties; (5) the FDA
will adopt routine approval procedures for drugs with extracts of high-THC cannabis varieties; and
(6) cannabis parts and derivatives will be removed from the CSA schedules (either incrementally, starting
with CBD, or all at once) and will be fully legal for medical and recreational purposes. (We expand
on these predicted developments in Chapter IV, U.S. Legal Landscape.)
We do not predict that these developments necessarily will occur in the order presented. We do
expect some of them to develop in parallel, and none of them depends fundamentally on any other.
For example, Congress could cause development (6) at any time by passing legislation that removes
cannabis from the CSA schedules and establishes a national framework for recreational and medical
cannabis regulation. Developments (1) through (3) largely reflect incremental developments within the
existing legal environment. We do not expect developments (4), (5) or (6) to occur during the current
presidential term, but we believe that there is a reasonable chance development (4) could begin within
the next five years and development (5) could occur within two years thereafter. In total, we believe that
it could take up to 10 years or more before the federal legalization process reaches development (6) and
cannabis becomes fully legal under federal law. For our analysis, we assume (i) development (4) begins
in 2023, (ii) development (5) follows two years thereafter and (iii) development (6) occurs by 2027 and
cannabis becomes fully legal in the United States. (The reader is cautioned that cannabis may never be
legalized federally in the United States.)
Eligible U.S. Consumers
We used U.S. Census data to identify the number of people in the United States aged 21 years or
older. While some therapeutic applications of cannabis are targeted at people under 21 years of age, we
excluded this group of consumers from our estimates. We assumed a nominal annual growth rate for
the U.S. population. With more than 97% of the U.S. population currently living in a state or district
with at least one law that permits the manufacturing, distribution, dispensing or possession of cannabis
or concentrates, we view the potential pool of eligible consumers to be virtually the entire U.S. adult
population.
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U.S. and International Cannabis Market Estimates
Consumer Penetration Rates
We assigned current and prospective consumer penetration rates to each state based on our assessment
of whether legal consumer access to cannabis in the state should be characterized as “limited,” “moderate”
or “broad.” This assessment was based in part on (i) the nature of the cannabis laws in each state
and (ii) the extent of the cannabis dispensary network in each state. We assigned a specific penetration
rate to each age group, with the 21–29 age group having the highest and the 70+ age group having the
lowest.
Consumer penetration rates are significantly affected by the available channels for legal access to
cannabis. States that have only medical laws typically have lower penetration rates than states having
both medical and recreational laws because the qualifying-condition requirement of medical laws
precludes many potential consumers. Similarly, penetration rates are impacted by the widely varying
number and nature of qualifying medical conditions designated by medical laws. States that designate
many conditions or highly subjective conditions such as “chronic pain” tend to have higher penetration
rates than states that designate relatively few or highly specific conditions.
Penetration rates also are affected by the reach of a state’s cannabis dispensary network. Some states
have extensive dispensary networks that provide convenient access to cannabis for most consumers.
Other states have a limited number of dispensaries or networks that reach only urban areas; restricted
networks can be the result of factors such as the amount of time a state has permitted legal cannabis
access and the prevalence of county and municipal laws restricting (or in some cases, completely banning)
dispensary operations.
Prior to federal legalization, we expect U.S. penetration rates to increase as states implement new
medical and recreational laws and expand the scope of qualifying medical conditions under existing
medical laws, and as the FDA begins approving pharmaceutical-grade drugs derived from cannabis.
Although we believe penetration rates in states with recreational laws and robust dispensary networks
may fairly represent penetration rates after federal legalization, penetration rates may increase further
as the medical efficacy of cannabis becomes better understood and negative perceptions of cannabis
diminish. Following federal legalization, we believe penetration rates may ultimately be as high as (or
higher than) those in other consumer-driven industries, such as alcohol, tobacco and pharmaceuticals.
The consumer penetration rates used in our analysis are as follows.
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U.S. Legalized Cannabis Market: Consumer Penetration Rate
25%
Path to Federal Legalization
FDA Approves Cannabis-Derived Pharmaceuticals
20%
More States Adopt Medical Cannabis Laws
More States Adopt Recreational Laws
15%
FDA Routinely Approves CBD Drugs
FDA Routinely Approves THC Drugs
10%
Federal Government Legalizes Cannabis
5%
0%
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Ackrell Capital
Monthly Cannabis Spending
We estimated average monthly spending on cannabis using data provided by dispensaries in states with
recreational laws. We then assigned spending levels (low, moderate and heavy) to each age group of
eligible consumers by state. The resulting weighted averages of monthly consumer spending used in
our analysis are as follows.
$190
U.S. Legalized Cannabis Market: Weighted Average Monthly Consumer Spending
$170
$150
$130
$110
$90
$70
$50
Path to Federal Legalization
-
FDA Approves Cannabis-Derived Pharmaceuticals
More States Adopt Medical Cannabis Laws
More States Adopt Recreational Laws
FDA Routinely Approves CBD Drugs
FDA Routinely Approves THC Drugs
Federal Government Legalizes Cannabis
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Source: Ackrell Capital
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CHAPTER VI
U.S. and International Cannabis Market Estimates
U.S. Legalized Cannabis Market Estimates
Based on our assumptions and methodology, we believe that the U.S. legalized cannabis market will
ultimately exceed $100 billion annually, with more than 50 million consumers. As shown in the following
graph, we believe these levels will be reached after the federal government legalizes cannabis.
U.S. Legalized Cannabis Market
$140,000
Path to Federal Legalization
70 M
($ millions)
$120,000
$100,000
$80,000
$60,000
$40,000
FDA Approves Cannabis-Derived Pharmaceuticals
More States Adopt Medical Cannabis Laws
More States Adopt Recreational Laws
FDA Routinely Approves CBD Drugs
FDA Routinely Approves THC Drugs
Federal Government Legalizes Cannabis
60 M
50 M
40 M
30 M
20 M
Number of Consumers
$20,000
10 M
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
0 M
Legalized Cannabis Market Size
Consumers
Source: Ackrell Capital. Assumes cannabis will be legalized federally by 2027. Cannabis may never be legalized federally in the United States.
Because penetration rate and average monthly spending assumptions significantly affect our forecast,
we illustrate this impact with the following sensitivity analysis, which shows the estimated market
size in 2030 using a range of penetration rates and monthly spending averages.
2030 U.S. Legalized Cannabis Market Size: Sensitivity Analysis
($ millions)
Adult
Population
Penetration
Rate
Average Monthly Consumer Spending
- $100 $125 $150 $175 $200
5% $13,954 $17,442 $20,930 $24,419 $27,907
10% 27,907 34,884 41,861 48,838 55,814
15% 41,861 52,326 62,791 73,256 83,722
20% 55,814 69,768 83,722 97,675 111,629
25% 69,768 87,210 104,652 122,094 139,536
30% 83,722 104,652 125,582 146,513 167,443
35% 97,675 122,094 146,513 170,932 195,350
Source: Ackrell Capital
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Cannabis Investment Report | December 2017
Methodology and Estimates: Industry Comparisons
To evaluate our methodology and results, we compare estimated values from our model with values
for the same parameters in markets for certain other stimulants and pharmaceuticals. We believe that
this comparison is useful because cannabis is used recreationally in much the same way alcohol, coffee
and tobacco are used, and because cannabis may be an alternative to pharmaceuticals currently used
to treat a range of medical conditions. The following table compares the estimated penetration rate,
average monthly consumer spending and U.S. retail market size for a number of common stimulants
and pharmaceutical categories.
Comparison between Cannabis and Common Stimulants and Substances
Alcohol Coffee Tobacco Painkillers
Antidepressants
Cannabis
(Future)
Primary Usage Recreational Recreational Recreational Medicinal Medicinal
Recreational
/ Medicinal
Adult
Penetration %
Monthly
Consumer
Spending
U.S. Retail
Market Size
50% 50% 17% 40% 25% 20%
$45 to $200 $80 to $100 $40 to $80 $50 to $200 $50 to $100 $50 to $500
$200B $35B $100B $300B $60B $100B
Source: Ackrell Capital
This comparison demonstrates that our U.S. legalized cannabis market estimates are in line with
U.S. retail markets for alcohol, coffee, tobacco, and pharmaceutical painkillers and antidepressants.
112 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER VI
U.S. and International Cannabis Market Estimates
n International Legal Cannabis Market Forecast
As previously discussed, cannabis is the most widely consumed drug worldwide: an estimated 183 million
people between the ages of 15 and 64 consumed cannabis in 2017. Cannabis legalization is gaining
momentum around the world. At least 20 countries now have medical laws that facilitate patient
access to cannabis or concentrates for treating specified medical conditions. Select countries with such
laws include Australia, Canada, Colombia and Germany; countries without such laws include China,
Japan, Russia and the United States. While the merits of medical cannabis are currently driving legalization,
we believe that—like Uruguay and numerous U.S. states—other countries will ultimately
enact and implement recreational laws.
Canada’s legal cannabis market (presently limited to medical cannabis) is currently the largest federally
legal cannabis market in the world, estimated at $1.5 billion in 2017. We anticipate that Canada
will enact and implement its proposed recreational Cannabis Act in mid-2018 and that implementation
will significantly expand the size of Canada’s overall market.
International Market Size Estimate Methodology
Similar to the methodology for our U.S. estimates, the primary factors for our international legal cannabis
market estimates are the estimated number of eligible consumers, penetration rates and monthly
spending. Of course, these and other factors affecting market size vary considerably across continents
and regions because each country has its own unique market characteristics, including laws, culture,
religions, consumer preferences and disposable income.
We do not attempt to estimate the timing of legal changes that affect consumer penetration rates.
Rather, we estimate the size of potential international markets at maturity when penetration rates have
stabilized. The time required for markets in particular countries to reach maturity will vary widely and,
like the U.S. market, could be 10 years or more.
To estimate average monthly consumer spending, we analyzed a country’s per capita average
monthly income and assumed a certain percentage was spent on cannabis products. The resulting
estimates of monthly spending in developed countries differs vastly from that in developing countries.
International Market Size Estimates
Our estimates for the international legal cannabis market include estimates for select countries with
medical or recreational laws and certain countries we believe may develop into legal markets for cannabis
in the foreseeable future. The following table lists each identified country, ranked by Gross
Domestic Product (GDP), with its estimated adult population, monthly cannabis consumer spending
and potential market value.
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Cannabis Investment Report | December 2017
Emerging and Anticipated International Legal Cannabis Markets
Country
GDP Rank
2017 Estimated
Adult Population
(in millions)
Projected
Monthly Consumer
Spending ($)
Potential
Market Value
($ millions)
Select Countries with Medical or Recreational Laws
Germany 4 59.0 $78 – $155
$16,518
Brazil 8 150.5 16 – 31
8,524
Italy 9 42.5 56 – 112
8,599
Canada 10 26.6 78 – 155
7,453
Australia 13 12.2 97 – 194
4,268
Mexico 16 92.9 16 – 32
5,380
Turkey 17 58.3 20 – 40
4,178
Netherlands 18 12.2 82 – 165
3,632
Switzerland 20 5.8 145 – 289
2,999
Argentina 21 23.0 21 – 43
1,766
Poland 24 27.4 23 – 45
2,223
Israel 32 5.8 64 – 129
1,336
Colombia 37 35.3 11 – 22
1,429
Chile 44 13.0 24 – 48
1,124
Peru 48 23.0 11 – 21
878
Czech Republic 51 7.9 31 – 62
890
Greece 52 7.9 34 – 67
962
Uruguay 78 2.2 27 – 54
211
Croatia 84 2.9 22 – 43
223
Jamaica 120 2.2 8 – 17
65
Macedonia 132 1.4 9 – 18
46
Lesotho 163 1.4 2 – 4
11
Certain Additional Countries
United Kingdom 5 47.5 75 – 151
12,908
India 6 964.1 3 – 6
10,379
France
Spain
7
14
48.2
33.1
69 – 139
49 – 98
12,040
5,841
Sweden 23 7.2 97 – 194
2,520
South Africa 35 40.3 10 – 20
1,416
Portugal 49 7.2 35 – 71
916
Midpoint Weighted Average $28
Total $118,735
Source: Ackrell Capital
The projected market value for each country shown in the preceding table is calculated assuming a
20% penetration rate and the midpoint of the projected average monthly spending range. Because each
country’s penetration rate and monthly spending will vary considerably and are difficult to predict, we
114 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER VI
U.S. and International Cannabis Market Estimates
illustrate the impact of varying these factors with the following sensitivity analysis, which shows the
estimated market size at maturity using a range of penetration rates and monthly spending weighted
averages.
International Legal Cannabis Market Size: Sensitivity Analysis
($ millions)
Adult
Population
Penetration
Rate
5%
10%
15%
20%
25%
30%
35%
Weighted Average Monthly Consumer Spending
$10 $20 $30 $40 $50
$ 10,606 $ 21,211 $ 31,817 $ 42,422 $ 53,028
21,211 42,422 63,634 84,845 106,056
31,817 63,634 95,450 127,267 159,084
42,422 84,845 127,267 169,690 212,112
53,028 106,056 159,084 212,112 265,140
63,634 127,267 190,901 254,534 318,168
74,239 148,478 222,718 296,957 371,196
Source: Ackrell Capital
Based on the preceding assumptions and methodology, we believe that the international legal cannabis
market for select countries with medical or recreational laws and certain countries we believe
may develop into legal markets for cannabis has the potential to exceed $200 billion within the next
10 to 15 years. And as discussed earlier in this chapter, we forecast the U.S. legal cannabis market to
reach more than $100 billion in this same period. Together, these two forecasts indicate a global legal
cannabis market in the foreseeable future of more than $300 billion.
In our view, most countries located in Asia will take the longest to enact and implement cannabis
access laws; therefore, we have not included the markets in countries such as China, with a population
of 1.4 billion people, or Japan, with the third highest GDP in the world, in our global market estimate.
If cannabis legalization continues in the United States and the rest of the world as we anticipate, we
believe that many countries in Asia will ultimately follow suit. If and when that occurs, the size of the
global legal cannabis market will increase significantly and, we believe, may ultimately exceed $500
billion annually.
As discussed on page 175, readers are cautioned to not place undue reliance on our opinions, predictions
or estimates. Almost certainly, our opinions, predictions and estimates will prove inaccurate in
some respects. A number of factors could cause actual results or events to differ materially from those
indicated by our opinions, predictions and estimates. U.S. states and countries abroad may reverse
their cannabis legalization efforts. The medical efficacy of cannabis may not prove to be significant.
Cannabis may never be legalized federally in the United States. Certain factors affecting the cannabis
industry are discussed in more detail in Chapter IX, Cannabis Industry Risk Factors.
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC 115

CHAPTER VII
Capital Markets for
Cannabis Companies
n Capital Markets Overview
Hundreds, if not thousands, of cannabis-related companies are seeking to raise capital—thus presenting
investment opportunities for sophisticated investors who want to participate in the cannabis
industry. Investors have their choice of investing in the more than 300 publicly traded cannabis-related
companies, or in the significant number of private companies raising capital. Investors may also choose
among stock markets (both within the United States and internationally), type of security (equity
versus debt) and type of company (companies across all segments of the industry are raising capital).
It is important to note, however, that most of the cannabis-related companies that are raising capital—even
publicly traded companies—are in early stages of development, have de minimis revenue
and are not profitable. More than 85% of the publicly traded cannabis-related companies have annual
revenue of less than $5 million, and less than 5% have annual revenue greater than $25 million.
Most investors in the cannabis industry today are retail or individual investors. While an increasing
number of family office and strategic investors are now participating in the cannabis industry,
we believe that many institutional investors (most notably the traditional venture capital and private
equity communities) will not invest in the industry until more companies in the industry mature and
the legal environment becomes more favorable.
Cannabis-related companies raised more than $2.0 billion in the public and private markets in
2017; however, except for a few transactions of notable size, many of the financings were small (less
than $5 million), which provides further evidence that the capital markets are being driven primarily
by retail investors. Without traditional institutional investor support, a funding gap exists in the industry:
companies are seeking to raise more capital than investors are willing or able to provide. We believe
that this is especially true in the private markets, where many companies struggle to raise financing.
We share the belief held by many that, ultimately, established companies from analogous industries—alcohol,
pharmaceutical, tobacco and consumer products—will enter the cannabis industry
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC 117
Cannabis Investment Report | December 2017
through minority investment, by acquisition or otherwise. Examples of the emergence of such strategic
investors include Constellation Brands, Inc.’s (NYSE: STZ) approximately $190 million investment
in Canopy Growth Corporation (TSX: WEED) and the more than $400 million spent by The Scotts
Miracle-Gro Company (NYSE: SMG) to acquire soil, fertilizer, hydroponic equipment and lighting
companies that are supplying the cannabis industry. These types of transactions help support the valuation
levels in the industry and, to an extent, validate investors’ enthusiasm for the industry.
The stock price performance and valuations of cannabis-related companies continue to be robust,
irrespective of the aforementioned funding gap. In general, we believe that valuations in both the
public and private markets are being driven more by investors’ expectations for the future growth of
the cannabis industry than by individual company fundamentals. Similarly, especially in the over-thecounter
stock market in the United States—where most of the public cannabis-related companies are
traded—stock price fluctuations and valuations tend to be heavily influenced by the illiquidity in most
stocks and the trading strategies of those involved. Overall, we believe that the capital markets for the
cannabis industry will become more efficient and rational over time as we expect increased partici pation
from institutional and strategic investors.
n Public Capital Markets
More than 300 cannabis-related companies are traded on one or more stock markets in the United
States, Canada and other international locations. Although these companies are publicly traded, most
are in early stages of development, have de minimis revenue and are not profitable. We use the term
“cannabis-related” to include companies that participate solely in the cannabis industry and those that
participate in the cannabis industry in addition to other industries or markets.
The ability of companies to access capital markets is dependent largely on the legal landscape
for cannabis in a particular country. For example, the capital markets in countries such as Canada,
Australia, Germany and Israel (countries that have a more permissive legal framework for can nabis)
have been receptive to cannabis-related companies, while the reception by capital markets in the United
States has been more varied.
In evaluating publicly traded companies, an investor should be cognizant of where the company is
traded, as there are significant differences across the various exchanges and markets with respect to listing
requirements, liquidity, independent research and types of investors. Many cannabis-related companies
are traded on more than one market in order to attract additional investors and facilitate trading
in multiple jurisdictions. However, we believe that it is instructive to evaluate a company based on the
primary market on which it trades (We determine a company’s primary market based on a number of
factors, including stock price history, trading volume and availability of estimates.)
In the United States, a limited number of cannabis-related companies are traded on the Nasdaq
Stock Market (Nasdaq), the New York Stock Exchange (NYSE) and the NYSE American (NYSE
American), the NYSE’s market for small to mid-size capitalization companies. In addition, more than
200 cannabis-related companies are traded on the over-the-counter stock market (OTC). Nasdaq and
118 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER VII
Capital Markets for Cannabis Companies
the NYSE are two of the largest and most recognized stock exchanges in the world, with stringent
listing, trading and corporate governance requirements. Conversely, the OTC has much less stringent
requirements; as a result, most publicly traded cannabis-related companies are traded on the OTC.
In Canada, cannabis-related companies are traded on the Toronto Stock Exchange (TSX), the TSX
Venture Exchange (TSXV), which is an affiliate of the TSX, and the Canadian Securities Exchange
(CSE). The TSX is one of the world’s largest stock exchanges and, similar to Nasdaq and the NYSE,
has stringent listing, trading and corporate governance requirements. The TSXV focuses on companies
with small market capitalization and has less stringent listing requirements than the TSX. The CSE is
focused on micro capitalization and emerging growth companies, and it has the least stringent listing
requirements of the primary Canadian exchanges. In order to be listed on either the TSX or the TSXV,
a company is required to be in compliance with Canada’s Access to Cannabis for Medical Purposes
Regulations (ACMPR) and all applicable laws in jurisdictions within which it operates. (Operations
of listed companies are restricted in jurisdictions, such as the United States, where cannabis is federally
prohibited.) Unlike the TSX and TSXV, the CSE has allowed companies listed on its exchange to invest
in, acquire and otherwise operate cannabis-related businesses in the United States.
The following table provides a summary of the cannabis-related companies traded on U.S., Canadian
and Australian stock markets. As stated previously, many cannabis-related companies are traded
on more than one market to attract additional investors and facilitate trading in multiple jurisdictions.
For example, most companies traded on the Canadian markets are also traded on the OTC.
Summary of Publicly Traded Cannabis-Related Companies
(As of November 30, 2017)
Average ($U.S. millions)
Number of Market Enterprise LTM LTM
Companies Value Value Cash Debt Revenue EBITDA
Nasdaq 4 $1,033.6 $884.5 $153.6 $4.5 $44.0 –$81.1
NYSE 1 63.5 41.3 22.2 0.0 4.6 –1.2
NYSE American 2 152.1 145.7 7.8 1.4 7.3 –6.5
OTC 212 46.3 65.5 5.7 25.0 14.0 0.2
United States 219 $65.5 $81.2 $8.5 $24.3 $14.5 –$1.4
Toronto Stock Exchange (TSX) 6 $1,361.5 $1,311.4 $71.0 $20.8 $26.6 $0.8
TSX Venture Exchange (TSXV) 20 131.5 123.9 10.8 3.3 1.2 –3.5
Canadian Securities Exchange (CSE) 41 72.6 72.0 2.0 1.4 1.8 –2.8
Canada 67 $210.6 $203.3 $11.1 $3.8 $4.0 –$2.2
Australian Securities Exchange (ASX) 14 $85.3 $80.1 $5.9 $0.7 $0.9 –$2.1
Australia 14 $85.3 $80.1 $5.9 $0.7 $0.9 –$2.1
Source: S&P Global Market Intelligence. Companies that are traded on more than one market are included in their primary market as determined
by S&P Global Market Intelligence, based on stock price history, trading volume and availability of estimates. Enterprise Value is defined as
Market Value plus Debt minus Cash and Cash Equivalents. LTM is Last Twelve Months. EBITDA is defined as Earnings Before Interest, Taxes,
Depreciation and Amortization.
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Cannabis Investment Report | December 2017
Stock Price Performance of Publicly Traded Cannabis-Related Companies
The following chart shows the stock price performance of publicly traded cannabis-related companies
since September 30, 2016. As shown in the chart, the stock price performance of cannabisrelated
companies trading on Canadian markets received a boost from the announcement of the proposed
recreational cannabis legislation in Canada by Prime Minister Justin Trudeau and, more recently,
from Constellation Brands’ investment in Canopy Growth. Similarly, the continuing positive price performance
of cannabis-related companies trading on U.S. markets has not been slowed by the election of
Donald Trump as President and the selection of Jeff Sessions as Attorney General of the United States
(two events that were viewed by many as potentially having a negative impact on the U.S. cannabis
industry).
Global Cannabis Stock Price Performance
1500%
1300%
1100%
900%
700%
500%
Trump
elected as
U.S. President
Sessions confirmed
as U.S. Attorney
General
Canadian Prime Minister
announces plans to
legalize recreational
cannabis
Constellation Brands’
investment in
Canopy Growth
300%
100%
–100%
Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17
S&P 500
TSX/TSXV Cannabis Index
Nasdaq/NYSE Cannabis Index
CSE Cannabis Index
OTC Cannabis Index
ASX Cannabis Index
Source: S&P Global Market Intelligence
Capital Raised by Publicly Traded Cannabis-Related Companies
The following table shows the amount of capital (equity and debt) raised by cannabis-related companies
traded on the U.S., Canadian and Australian stock markets in the twelve months ended Septem -
ber 30, 2017. While more than $1.3 billion was raised, the data indicates that relatively few companies
were able to raise capital, given the aggregate number of publicly traded cannabis-related companies,
and the amount raised per transaction was small, supporting the assertion that the market is still driven
primarily by retail investors.
120 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER VII
Capital Markets for Cannabis Companies
Capital Raised by Publicly Traded Cannabis-Related Companies (LTM ended September 30, 2017)
$1600
$1400
$1200
($U.S. millions)
$1000
$800
$600
$400
$200
$0
Canada United States Australia Total
Amount Raised
$1056
$268
$26
$1350
Number of Deals
60
15
3
78
Average Deal Size
$18
$18
$9
$17
Source: S&P Global Market Intelligence. In December 2017, a $317 million financing was completed by GW Pharmaceuticals (Nasdaq: GWPH),
but the transaction occurred outside the date range of the analysis. Due to the size of the transaction, it is worth noting here.
n Public Capital Markets: United States
As of November 30, 2017, four cannabis-related companies were trading on Nasdaq (all in the pharmaceutical
industry and focused on receiving FDA approval for selected cannabinoid applications),
one was trading on the NYSE (a real estate investment trust, or REIT, focused on the acquisition and
management of properties leased to state-licensed operators for their regulated medical-use cannabis
facilities), two were trading on the NYSE American (both in the pharmaceutical industry) and more
than 200 cannabis-related companies were trading on the OTC.
Most of the companies trading on the OTC (i) are “penny” stocks that trade at less than $5.00 per
share, (ii) have limited trading volume and liquidity, (iii) have significant price volatility, and (iv) have
little or no institutional investor support. The U.S. Securities and Exchange Commission (SEC) and
the Financial Industry Regulatory Authority (FINRA) have historically expressed concerns regarding
the “penny” stock industry in general and both have issued alerts to warn investors about potential
scams associated with purported cannabis-related stocks. In addition, the SEC has initiated actions
against numerous purported cannabis-related companies and executives for fraud, insider trading,
stock manipulation and other activities.
The following table provides a summary of cannabis-related companies traded on the U.S. stock
markets.
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Cannabis Investment Report | December 2017
Summary of U.S. Publicly Traded Cannabis-Related Companies
(As of November 30, 2017)
Average ($U.S. millions)
Number of Market Enterprise LTM LTM
Companies Value Value Cash Debt Revenue EBITDA
Nasdaq 4 $1,033.6 $884.5 $153.6 $4.5 $44.0 –$81.1
NYSE 1 63.5 41.3 22.2 0.0 4.6 –1.2
NYSE American 2 152.1 145.7 7.8 1.4 7.3 –6.5
OTC 212 46.3 65.5 5.7 25.0 14.0 0.2
United States 219 $65.5 $81.2 $8.5 $24.3 $14.5 –$1.4
Source: S&P Global Market Intelligence. Companies that are traded on more than one market are included in their primary market as determined
by S&P Global Market Intelligence, based on stock price history, trading volume and availability of estimates. Enterprise Value is defined as
Market Value plus Debt minus Cash and Cash Equivalents. LTM is Last Twelve Months. EBITDA is defined as Earnings Before Interest, Taxes,
Depreciation and Amortization.
Stock Price Performance of U.S. Publicly Traded
Cannabis-Related Companies
The following chart shows the stock price performance of selected publicly traded cannabis-related
companies in the United States since September 30, 2016. As shown in this chart, the election of
Donald Trump as President and the selection of Jeff Sessions as Attorney General of the United States
have not slowed the continuing positive price performance of cannabis-related companies trading on
U.S. markets.
800%
U.S. Cannabis Stock Price Performance
700%
600%
500%
400%
300%
Trump
elected as
U.S. President
Sessions confirmed
as U.S. Attorney
General
200%
100%
0%
–100%
Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov 17
S&P 500 Nasdaq/NYSE Cannabis Index OTC Cannabis Index
Source: S&P Global Market Intelligence
122 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER VII
Capital Markets for Cannabis Companies
Capital Raised by U.S. Publicly Traded Cannabis-Related Companies
The following table shows the amount of capital (equity and debt) raised by cannabis-related companies
traded on U.S. stock markets in the twelve months ended September 30, 2017. Although more
than 200 cannabis-related companies were traded on the OTC during this period, the data indicates
that very few raised meaningful capital.
Capital Raised by U.S. Publicly Traded Cannabis-Related Companies (LTM ended September 30, 2017)
$300
$250
($U.S. millions)
$200
$150
$100
$50
$0
Nasdaq NYSE/NYSE American OTC Total
Amount Raised
$130
$82
$56
$268
Number of Deals
2
2
11
15
Average Deal Size
$65
$41
$5
$18
Source: S&P Global Market Intelligence. In December 2017, a $317 million financing was completed by GW Pharmaceuticals (Nasdaq: GWPH),
but the transaction occurred outside the date range of the analysis. Due to the size of the transaction, it is worth noting here.
Financial Data and Trading Multiples of
U.S. Publicly Traded Cannabis-Related Companies
The following tables show selected financial and trading information of cannabis-related companies
that are publicly traded on U.S. markets. As the tables indicate, with few exceptions, these companies
have little to no revenue and are not profitable. Consequently, most trading multiples are not meaningful
and the companies tend to trade more on expectations for the overall cannabis industry than on
specific company fundamentals (especially for those companies traded on the OTC).
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Cannabis Investment Report | December 2017
Nasdaq
($U.S. millions, except stock price)
LTM
Forward Forward
EV
Revenue EBITDA
Stock % Below
Multiples
Multiples Multiples
Price 52-Week Market Enterprise LTM LTM
Company Ticker 11/30/17 High Value Value (EV) Revenue EBITDA Revenue EBITDA 2018 2019 2018 2019
Cara Therapeutics, Inc. NasdaqGM:CARA $12.45 56.3% $406.0 $303.0 $0.9 –$65.8 NM NM NM 86.1x NM NM
GW Pharmaceuticals plc NasdaqGM:GWPH 124.49 9.1% 3,153.2 2,847.7 11.0 –191.6 NM NM NM 11.4 NM NM
INSYS Therapeutics, Inc. NasdaqGM:INSY 5.30 64.7% 388.6 266.9 164.1 –35.6 1.6x NM 1.7x 1.4 NM 6.4x