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COWEN COLLABORATIVE INSIGHTS February 25, 2019 use as heating fuel, and also see potential to act as a cellulosic biofuel. The process of pelleting industrial hemp biomass would be a similar to that of pelleting wood waste, which gets converted into densified biomass products such as roundwood, pulpwood, sawmill residuals, and wood product manufacturing residues, which typically cost ~$30 per ton. Wood biomass fuel has an annual capacity of 12.6 million tons per year and produces ~675 GWh per year in energy. Access to local refineries is key to utilizing hemp biomass as a cellulosic biofuel. Through local access to refineries, the fuel can be refined while transportation costs, which can make the products uncompetitive, are minimized. Given the commoditized market for biodiesel however, where soybean oil has ~50% of the market input by weight and corn oil has ~15% of the market input by weight, we do not expect hemp to materialize as a meaningful player due to the competitive advantage of high production crops competing for low cost production. 2 Figure 135 - Biodiesel Production By Input (Millions Of Pounds) 1,600 1,400 1,200 1,000 800 600 400 200 SSS4SNSNSESER55S5S5SS55aaseeaegagaaas @ Canola oil Corn oil | Cottonseed oil = Palm oil @ Soybean oil m Other Vegetable Poultry Tallow White grease lm Other Animal Fats @ Yellow grease @ Other Recycled m Algae m Other Alcohol m Catalysts Source: Cowen and Company, EIA Biochemical CBD Production Methods CBD is most commonly produced by either CO2 or ethanol extraction from hemp plants. In CO2 extraction, plants are filtered through a series of chambers with temperature and pressures applied to the plants that isolate the cannabinoids. The CO2 method is able to isolate CBD at a 90% efficiency and is typically used when producing small quantities. Ethanol extraction introduces the hemp plant to solvent ethanol and enables higher volumes production. In addition to hemp-based production of CBD, we believe the opportunity exists for players within the biochemical space to produce CBD by utilizing a fermentation approach from other feedstocks. Amyris recently announced a $255 million cannabinoid development, licensing and commercialization agreement. Amyris plans to utilize the C5 molecule found in sugarcane in a fermentation process to produce CBD. The company believes that the fermentation process ensures a level of purity that is not possible through traditional plant-based production, where CBD levels can vary from plant to plant. In order to build out the industrial scale necessary for mass food market, CBD products will need to be produced at standardized levels. Given Amyris plans to produce CBD at its Brotas plant in Brazil, which is fueled by biomass co- product of the nearby sugarcane fields, we believe this will be an attractive option for companies looking to integrate CBD into their products sustainably assuming the company is able to produce cost competitively with hemp plants. COWEN.COM 95 HOUSE_OVERSIGHT_024911