CA L CHAPTER VI U.S. and International Cannabis Market Estimates

AC CA L CHAPTER VI 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,” “moder- ate” 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 hav- ing 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 ban- ning) 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. © 2017 Ackrell Capital, LLC | Member FINRA/SIPC 109 HOUSE_OVERSIGHT_024745