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COWEN COLLABORATIVE INSIGHTS February 25, 2019 Wide Range Of Returns On CBD There is little data on economics for hemp CBD cultivation given wide range of outcomes that can result on the seed vs clone decision (CBD levels vary for each and will impact cost), as well as the type of production model used. The University of Kentucky (College of Agriculture) recently published six budget models for industrial hemp producers. Four of the six budgets address CBD hemp, with a separate budget for grain and another for fiber. We highlight the University of Kentucky’s CBD Plasticulture budget model below since it is the most profitable and will likely be the most commonly implemented. We note all four of the CBD hemp models indicate a positive return above variable costs per acre while hemp grain and hemp fiber do not reach breakeven due to low pricing for both harvestable components. University Of Kentucky’s Budget Assumptions For CBD Plasticulture: e Dry matter yield per acre: UK estimates 1,200 Ibs of dry matter yield produced per acre based on 1,500 plants per acre (recall 5 ft. 5ft. allows for up to 1,742 plant per acre) and 0.8 Ib of dry matter yield per plant (yield per plant can range from 0.5 Ib-1.5 Ibs). e Gross return per acre: CBD concentration and price per % are the factors that determine the price of dry matter yield/Ib. In the below example, 6% CBD% * $5.00 per % = $30/Ib. Gross return per acre is then calculated by multiplying dry matter yield/lb by dry matter yield/acre (1,200). e Variable cost per acre: 72% of variable cost per acre is for clone transplants for 1,500 plants at $5.00 each. Other notable costs include planting, plastic to protect against weeds, drip line for water, harvesting costs, cash rent and application/test fees. We note clones currently can range from $3.50-$5.50 per plant. Clones have become more common than seeds in Kentucky as they offer an easy way to produce female plants. A seed mix may be cheaper but would include male seeds than can potentially pollinate female seeds and negatively impact CBD concentration which influences pricing for dry matter yield. Feminized seeds are an option but will likely be the most expensive option. We note that the model assumes outdoor production rather than greenhouse production since a greenhouse is efficient for clone production (then transplanted to the field) but prohibitive for plant production. COWEN.COM 13 HOUSE_OVERSIGHT_024829