Cannabis Investment Report | December 2017

Cannabis Investment Report | December 2017 Depository Institutions Making Marijuana-Related SAR Filings 350 300 250 200 150 100 Q2 2014 Q4 2014 Q2 2015 Q4 2015 Q2 2016 Q4 2016 Q2 2017 M8 Banks M8 Credit Unions Source: Financial Crimes Enforcement Network FinCEN has published guidance outlining how financial institutions can, consistent with their BSA obligations, provide services to marijuana-related businesses. However, this guidance does not provide financial institutions with a legal defense for any violation of federal law. Consequently, financial insti- tutions willing to serve the cannabis industry tend to be smaller institutions, such as credit unions and state-chartered banks. “Big” banks generally do not serve, or are not willing to state publicly that they serve, the cannabis industry. For example, according to American Banker, a spokeswoman for Wells Fargo Bank recently said the bank’s policy worldwide is to not bank marijuana businesses. However, as cannabis-related companies increasingly participate in the formal U.S. economy, the notion of what constitutes a “marijuana-related business” is being blurred, and banks are finding it more difficult to institute and follow their own policies. For example, it may be straightforward for a bank to identify and refuse to transact with a cannabis cultivator, but the bank may be unsure whether it can provide services to (or whether it is providing services to) the cultivator’s accountant, landlord or investors. For example, Constellation Brands, Inc. (NYSE: STZ), a large beverage company, recently invested approximately $190 million in Canopy Growth Corporation (TSX: WEED), a Canadian cannabis company. According to public filings, Constellation Brands has credit agreements with a number of large financial institutions, including Bank of America, Bank of the West, Fifth Third Bank, Goldman Sachs Bank, JPMorgan Chase Bank, PNC Bank, SunTrust Bank and Wells Fargo Bank. How these institutions respond to the investment by Constellation Brands and other similar transactions may indicate how large financial institutions will interact with the industry in the foreseeable future. In the current environment, we believe more financial institutions will start to provide some level of service to the cannabis industry. We also agree with the view of the California State Treasurer's Office, as expressed in the working group’s report, that it is only a matter of time until cannabis businesses have normal access to banking services. However, if the U.S. federal government were to change its 12 © 2017 Ackrell Capital, LLC | Member FINRA/SIPC HOUSE_OVERSIGHT_024648