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COWEN COLLABORATIVE INSIGHTS February 25, 2019 Synthetic Biology Provides Alternative Cannabinoid Production Method; Life Science Tools Well Positioned To Benefit From QA/QC Testing Opportunity (Schenkel) As an alternative to cultivation-based methods, cannabinoids can be produced using either chemical or synthetic biology approaches. Synthetic biology methods, which harness fermentation to produce cannabinoids, are particularly attractive considering they can potentially produce a variety of cannabinoids while being highly scalable, efficient, and environmentally friendly. While QA/QC testing standards for CBD currently vary greatly by state (if any exist at all), we expect Life Science Tools companies to benefit from this nascent market opportunity as testing regulations are implemented and standardized. Similar to medical/ recreational cannabis testing, instruments such as mass spectrometers and liquid/gas chromatographs are utilized to analyze CBD samples. Key vendors for mass spectrometry and chromatography instruments include Agilent, Danaher (SCIEX), PerkinElmer, Shimadzu, Thermo Fisher, and Waters Corporation. CBD From a Retailer and Payor Perspective (Rhyee) Healthcare: Drug Retailer Perspective: CBD products appear to be gaining traction with independent pharmacies, many of whom are already selling or planning to sell CBD oils. Independent pharmacies likely find the high-margin profile of CBD oils attractive, which we suspect is similar to those of more traditional over-the-counter drugs, as well as the differentiation it affords independents relative to larger chain pharmacies. For those selling CBD oils today, the focus is on quality, particularly as it relates to bioavailability. Large pharmacy chains, such as CVS and Walgreens, don’t currently sell CBD oil, but WBA noted it is monitoring the CBD market. Healthcare: Payor Perspective: Generally speaking, managed care does not cover OTC products, with the same being true for Medicare and Medicaid. Based on our conversations with a number of payors, whether CBD oils will be covered as a medical benefit by government sponsored health programs is determined by the Center for Medicare and Medicaid Services (CMS) and state governments. Currently, CBD products are not a covered benefit, or an extra benefit, that has been approved by CMS or states, and it isn’t known at this time whether CMS or states governments are considering reimbursement for CBD products. Separately, Payors noted three factors complicating commercial coverage of CBD oils, including (1) legal issues, as CBD oils derived from THC (cannabis) isn’t legal if it contains equal to or more than 0.3% THC; (2) lack of regulation by the FDA; and (3) its availability as an OTC medication. 4 COWEN.COM HOUSE_OVERSIGHT_024820