CHAPTER! Executive Summary

QO KRELL CAPITAL > CHAPTER! Executive Summary current practice and aggressively enforce existing federal cannabis laws, including penalizing financial institutions for serving the cannabis industry, it would have a dampening effect on the industry both in the United States and abroad. Increasing Strategic Investor Activity; Continuing Funding Gap We share the belief held by many that, ultimately, established companies from analogous indus- tries—alcohol, pharmaceutical, tobacco and consumer products—will enter the cannabis industry through minority investment, by acquisition or otherwise. We have already seen examples: Constella- tion Brands’ investment in Canopy Growth referenced above 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 supply the cannabis industry. These types of transactions help validate investor enthusiasm for and valuations in the cannabis industry, and we expect similar transactions to occur with increasing frequency during 2018 and beyond. Retail investors and an increasing number of family office and strategic investors are providing most of the investment capital to the cannabis industry. Cannabis-related companies raised more than $2.0 billion in the public and private markets in 2017, but many of the financings were small—less than $5 million. We expect that many institutional investors (most notably, the traditional venture capital and private equity communities) will not invest in the industry until it matures and the legal environment becomes more favorable. Without institutional support for the cannabis industry, a funding gap exists—companies are seek- ing 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 necessary financing. Although capital may be available for select issuers in both public and private markets, we believe that without participation from institutional investors, the cannabis industry will continue to face a significant funding gap for the foreseeable future. = Investment Outlook Hundreds, if not thousands, of cannabis-related companies are seeking to raise capital—thus pre- senting 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). Most of the cannabis-related companies raising capital—even publicly traded companies—are in early stages of development, have de minimis revenue and are not profitable. More than 85% of pub- licly traded cannabis-related companies have annual revenue less than $5 million, and less than 5% have annual revenue greater than $25 million. To help investors better evaluate investment opportunities in the cannabis industry, we currently define five primary segments: production, distribution, consumer products, business solutions and © 2017 Ackrell Capital, LLC | Member FINRA/SIPC 13 HOUSE_OVERSIGHT_024649