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ACKRELL CAPITAL Cannabis Investment Report | December 2017 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 dis- cusses challenges inherent to botanical drugs, including challenges related to ensuring therapeutic con- sistency, 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 indi- vidual 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. . The U.S. Food and Drug Administration will We do not predict that these developments begin approving individual pharmaceutical- necessarily will occur in the order presented. We grade drugs derived from cannabis. do expect some of them to develop in parallel, and . More states will adopt medical cannabis none of them depends fundamentally on any other. laws. The manner in which federal cannabis legalization 3. More states will adopt recreational laws. actually proceeds, and the timing of any related . The FDA will adopt routine approval developments, are not known to us or anyone else. procedures for drugs with extracts of Almost certainly, our predictions will prove inaccu- bevel elnc eye cliecishe ilies rate in some respects. States may reverse their legal- - The FDA will adopt routine approval ization efforts. The medical efficacy of cannabis procedures for drugs with extracts of may not be proved to be significant. Cannabis may high-THC cannabis varieties. never be legalized federally. However, we believe . Cannabis parts and derivatives will be removed from the CSA schedules and will be fully legal for medical and recreational purposes. these developments will likely be among others that lead to the federal legalization of cannabis. We expand on each of these developments in the fol- lowing discussion. 86 © 2017 Ackrell Capital, LLC | Member FINRA/SIPC HOUSE_OVERSIGHT_024722