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G@i~— COWEN WASHINGTON ~——,-:« RESEARCH GROUP COLLABORATIVE INSIGHTS February 25, 2019 a Cannabis COWEN RESEARCH Cowen Research 646 562 1330 cowen.research@cowen.com Vivien Azer 646 562 1351 vivien.azer@cowen.com John Blackledge 646 562 1359 john.blackledge@cowen.com Andrew M. Charles, CFA 646 562 1332 andrew.charles@cowen.com Oliver Chen, CFA 646 562 1424 oliver.chen@cowen.com John Kernan, CFA 646 562 1324 john.kernan@cowen.com Phil Nadeau, Ph.D. 646 562 1336 phil.nadeau@cowen.com Charles Neivert 646 562 1370 charles.neivert@cowen.com Jeffrey Osborne 646 562 1391 jeffrey.osborne@cowen.com Charles Rhyee 646 562 1376 charles.rhyee@cowen.com Doug Schenkel 617 946 3918 doug.schenkel@cowen.com COWEN WASHINGTON RESEARCH GROUP Eric Assaraf 202 868 5304 COLLABORATIVE INSIGHTS COWEN'S COLLECTIVE VIEW OF CBD - AHEAD OF THE CURVE SERIES THE COWEN INSIGHT In a collaboration featuring 11 analysts spanning Cowen’'s consumer, health care, industrials and regulatory teams, we offer a deep dive on the global cannabis market, with a particular emphasis on the U.S. For consumer goods, we believe the U.S. CBD market could represent a $16 bn opportunity by 2025. $16 bn Consumer Opportunity (Azer, Blackledge, Charles, Chen & Kernan) In our monthly proprietary consumer survey (n = ~2,500) we were surprised to see that nearly 7% of respondents in January 2019 reported using CBD as a supplement. This strong consumer interest is validated by the growing number of brands and form factors that are now available through increasingly diverse retail channels, including Amazon, Sephora and Neiman Marcus. That said, consumption of CBD on-premise will likely take longer, given regulatory uncertainty. And, while our analysis primarily focuses on consumer staples applications for CBD, it is interesting to see a growing number of specialty apparel brands embrace hemp as a sustainable textile. Retail sales of CBD consumer products in 2018 have been estimated between ~S600 mm and $2 bn. By 2025, we believe CBD offerings could conservatively generate $16 bn in retail sales (assuming a ~40% increase in consumer incidence, to 10%, and spend of less than $2 / day). Our bottom-up analysis anticipates a diverse category, that is still led by traditional health & wellness form factors (e.g., $6.4 bn in nutraceuticals, and $4 bn in topicals). And, while likely smaller, we also expect categories like food, beverages, beauty and vapor to all generate sales between ~$1-2.5 bn by 2025. Herein, we offer a detailed look at category brand and pricing architecture in the U.S. CBD market today, as well as detailed discussions of 21 public and private operators that currently have exposure to the category, including Outperform rated Canopy Growth, Tilray and Turning Point Brands, which have all announced plans to enter the U.S. CBD market. The Science of CBD (Nadeau) Cannabis’s therapeutic potential is attributable to the valuable overlap between phytocannabinoids (i.e. plant-derived cannabinoids) and the endogenous cannabinoid system in humans, termed a “therapeutic handshake.” While THC’s activity in the body is fairly well elucidated, CBD’s pharmacokinetics are less well understood (no specific receptor for CBD has been identified). Clinical trial results to date demonstrate few adverse effects from oral CBD doses of up to 1500 mg/day or up to 30mg IV. The scientific understanding of CBD’s clinical effects is based mostly on studies in specific indications, like epilepsy. GW Pharma’s Epidiolex (highly potent, pure formulation of CBD) was approved by the FDA in 2018 for the treatment of seizures associated with Lennox-Gastaut syndrome and Dravet syndrome, and other companies (Tilray, MMJ Phytotech, Insys) have clinical trials underway in seizure disorders as well. CBD Hemp Cultivation (Neivert) ric.assaraf@cowen.com Any portion of this report prepared by a member of Cowen Washington Research Group is intended as commentary on political, economic or market conditions and is not intended as a research report as defined by applicable regulation. According to the National Conference of State Legislatures, 41 states have set up cultivation and production programs to regulate the production of hemp. There is little research on CBD hemp cultivation methods as hemp cultivation research historically has focused on fiber and grain/seed. This lack of research, combined with a number of variables that affect hemp for CBD yield, makes hemp for CBD cultivation much more art than science at this point. That said, no other crop in the U.S. offers the type of return of the CBD Plasticulture Model, and we would thus expect the country's two largest crops, corn and soybeans, to lose some acreage to CBD hemp. Please see pages 100 to 106 of this report for important disclosures. COWEN.COM HOUSE_OVERSIGHT_024819