Document Text Content
2018 CANNABIS
INVESTMENT REPORT
GLOBAL CANNABIS CONSUMERS
Contents
Foreword
I Executive Summary
II Cannabis Science 101
III Cannabis Industry Segmentation
IV U.S. Legal Landscape
V Global Cannabis Regulation
VI U.S. and International Cannabis Market Estimates
VII Capital Markets for Cannabis Companies
VIII Top 100 Private Cannabis Companies 2018
IX Cannabis Industry Risk Factors
X Glossary of Terms
Disclosures, Disclaimers, Sources and Use
Ackrell Capital Cannabis Team
Inside Back Cover: The Green Field 2018
About Ackrell Capital
Founded in 2003, Ackrell Capital is a leading
independent investment bank focused on
emerging growth companies. Ackrell Capital’s
expertise includes:
Private Equity
Mergers and Acquisitions
Private Placements
Corporate Development
Cannabis, Consumer, Technology, Digital
and Other Emerging Growth Industries
The United Nations recently estimated that more than 180 million people
globally between the ages of 15 and 64, or more than 4% of this age group,
consume cannabis annually.
At least 20 countries have implemented medical cannabis laws, including
Australia, Canada, Colombia and Germany; countries without such laws
include China, Japan, Russia and the United States.
Although federally illegal in the United States, 46 states and the District of
Columbia have passed at least one law that permits the manufacture,
distribution, dispensing or possession of cannabis. While most of these laws
are medical cannabis laws, 8 states have enacted recreational laws.
Across all medical cannabis laws in the United States, cannabis is legally
recognized as a form of therapy or medicine for more than 50 qualifying
conditions, including Alzheimer’s disease, anorexia, arthritis, cancer, chronic
pain, epilepsy and post-traumatic stress disorder.
California is poised to become the largest recreational cannabis market
in the world with the implementation of its recreational law in January
2018—a watershed moment for the industry.
The illegal cannabis market in the United States is estimated to be more
than $45 billion annually. (We estimate that the 2017 U.S. state-legal
cannabis market was $8.0 billion.) If federal legalization occurs, we believe
that the legal market could be more than two times the size of the current
illegal market, ultimately exceeding $100 billion annually.
The cannabis industry provides a broad range of investment opportunities
in both the public and private markets for sophisticated investors who are
willing to take significant risks.
Ackrell Capital is based in San Francisco, CA.
Ackrell Capital is a member of
FINRA and SIPC.
This report has been compiled for informational purposes only, and is not a research report. This report is not and should not
be construed as an offer to sell securities or a solicitation of an offer to buy securities. The information in this report is of a
general nature, and this report should not be construed, relied upon or acted upon as investment, legal, medical, health or
tax advice. Ackrell Capital has made investments in and conducted investment banking services for companies mentioned
in this report, and may do so in the future. Readers should be aware that Ackrell Capital may have a conflict of interest that
could affect the objectivity of this report. Ackrell Capital, LLC is a member of FINRA and SIPC. © 2017 Ackrell Capital, LLC.
REPORT HIGHLIGHTS
Select Countries with Legalized Cannabis Access (January 2018)
Recreational Law*
Medical Law
State/Province Conflict
with Federal Law
*Canada currently has a medical law. Assumes Canada enacts a proposed recreational law in mid-2018.
U.S. State Cannabis Laws (January 2018)
Recreational Law
Medical Law
CBD/Limited Law
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
Progression of U.S. State Cannabis Laws
1996
2004
2008
2012
2014
TODAY
Recreational Law Medical Law CBD/Limited Law
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
U.S. Legalized Cannabis Market
$140,000
Path to Federal Legalization
70 M
($ millions)
$120,000
$100,000
$80,000
$60,000
$40,000
FDA Approves Cannabis-Derived Pharmaceuticals
More States Adopt Medical Cannabis Laws
More States Adopt Recreational Laws
FDA Routinely Approves CBD Drugs
FDA Routinely Approves THC Drugs
Federal Government Legalizes Cannabis
60 M
50 M
40 M
30 M
20 M
Number of Consumers
$20,000
10 M
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
0 M
Legalized Cannabis Market Size
Consumers
Source:�Ackrell Capital. Assumes cannabis will be legalized federally by 2027. Cannabis may never be legalized federally in the United States.
Cannabis Industry Segments
Production
Business Solutions
Cultivation
Production
Equipment and
Supplies
Production and
Testing Services
Business
Software
Business
Services
Distribution
Digital Media
Dispensaries
E-Commerce
Distribution
Services
Online Content
and Networking
Online
Directories
Consumer Products
Vaporizers and
Flower Concentrates Infused Products Pharmaceuticals
Accessories
Involves “touching the plant”
Does not involve “touching the plant”
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
Cannabis Investment Report | December 28, 2017
Foreword
Ackrell Capital is pleased to present our 2018 Cannabis Investment Report. Much has happened in the
nearly two years since we published our inaugural report: the cannabis industry grew significantly, companies
in the industry raised large amounts of capital and their stock prices performed well, and the legalization
movement continued worldwide as more countries and U.S. states implemented a framework for
legal cannabis access. There was also a presidential election in the United States; its ultimate impact on
the cannabis industry remains uncertain. What did not happen since we launched our inaugural report?
Federal legali zation: “marijuana” continues to be classified as a Schedule I controlled substance under the
Controlled Substances Act in the United States.
In this new edition, we introduce an outlook on global cannabis markets, analyze capital markets for
cannabis companies and present updated market estimates. We also expand on the first edition by providing
more in-depth analyses of the various market segments within—and analyzing the legal issues pertinent
to—the cannabis industry. The Top 100 Private Cannabis Companies list has been updated and our industry
landscape, The Green Field, has been updated and expanded to include more than 500 companies.
Cannabis legalization has accelerated domestically and internationally. In the 2016 U.S. elections, four
states, including California, legalized recreational cannabis (bringing the total number of states with recreational
laws to eight) and an additional four states legalized medical cannabis. Cannabis use is now statelegal
in some form in 46 states.
In January 2018, California will implement its recreational law, making it the largest market globally
for the recreational use of cannabis. Similarly, Canada is expected to pass its recreational law in mid-2018.
And in 2017, Germany became the most populous country in the world to pass a medical cannabis law.
Cannabis has mass consumer appeal around the world. (According to the United Nations, more than
180 million people per year use cannabis and it is the most-consumed drug worldwide). While it is clear
that there is significant demand for cannabis, less clear is how quickly illegal markets will transition to
legal markets, as well as the extent to which legalization may increase overall demand.
We continue to believe that it is a question of when—not if—the U.S. federal prohibition on cannabis
will end. We believe that a path toward federal legalization exists and we believe this process has commenced.
According to Gallup, 64% of Americans today believe that cannabis use should be legal.
Who is the cannabis consumer? It is the 80-year-old cancer patient ingesting cannabis to treat side
effects of chemotherapy. It is the 12-year-old child using cannabis extracts on a doctor’s recommendation
to reduce epileptic seizures. It is the 30-something mother or father seeking to relax after a full day. It is
a group of 20-year-olds on a Friday night heading to a concert. It is the millions of people suffering from
anxiety and depression. It is the millions of people treating chronic pain and nausea. It is the millions of
people using cannabis recreationally.
Our team has met with more than 1,000 companies in the cannabis industry. We understand the opportunities
and challenges facing the industry, and we are happy to provide our insights.
Sincerely,
The Ackrell Capital Cannabis Team
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
Cannabis Investment Report | December 2017
n Table of Contents
CHAPTER I Executive Summary .......................................................... 1
n Global Cannabis Consumers n To Watch in 2018 n Investment Outlook
CHAPTER II Cannabis Science 101........................................................ 15
n The Cannabis Plant n The Human Endocannabinoid System
n Cannabinoids n Terpenes n Cannabis Formulations
CHAPTER III Cannabis Industry Segmentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
n Production n Distribution n Consumer Products
n Business Solutions n Digital Media
CHAPTER IV U.S. Legal Landscape ........................................................ 61
n U.S. State Law n U.S. Federal Law n The Path to Federal Legalization
CHAPTER V Global Cannabis Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
n Global Cannabis Legalization Momentum n United Nations Conventions
n Global Legal Developments n Global Outlook
CHAPTER VI U.S. and International Cannabis Market Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
n Global Market Overview n U.S. State-Legal Cannabis Market
n U.S. Legalized Cannabis Market Forecast
n International Legal Cannabis Market Forecast
CHAPTER VII Capital Markets for Cannabis Companies ....................................117
n Capital Markets Overview n Public Capital Markets
n Public Capital Markets: United States n Public Capital Markets: Canada
n Private Capital Markets n Final Thoughts
CHAPTER VIII Top 100 Private Cannabis Companies 2018 ..................................137
CHAPTER IX Cannabis Industry Risk Factors .............................................165
CHAPTER X Glossary of Terms ..........................................................169
Disclosures, Disclaimers, Sources and Use ...................................175
Ackrell Capital Cannabis Team ..............................................176
FRONT COVER
Report Highlights
BACK COVER The Green Field 2018
ii © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER I
Executive Summary
n Global Cannabis Consumers
Cannabis has mass consumer appeal around the world. Millions of people use cannabis recreationally.
Millions more use it medicinally. In aggregate, across all state medical cannabis laws in the United States,
cannabis is legally recognized as a form of therapy or medicine for more than 50 medical conditions,
including Alzheimer’s disease, anorexia, arthritis, cancer, chronic pain, epilepsy and post-traumatic
stress disorder. Similar to the alcohol and pharmaceutical markets, we believe that the total addressable
consumer market for cannabis consists of a significant portion of the global adult population.
Cannabis is the most widely cultivated, produced, trafficked and consumed drug worldwide,
according to the United Nations Office on Drugs and Crime (UNODC). In 2003, the UNODC
estimated that the global illegal cannabis market was $113 billion, with 160 million consumers. The
UNODC continues to estimate the number of cannabis users worldwide and recently estimated that
183 million people globally between the ages of 15 and 64, or more than 4% of this age group, consumed
cannabis in 2015.
In 2010, the RAND Corporation (RAND) estimated that the U.S. illegal cannabis market was
$40 billion. Adjusting this estimate solely for inflation and population growth, the U.S. illegal market
would now be approximately $48 billion.
Both the UNODC and RAND acknowledge the challenges inherent in studying an illegal consumer
market, and both allow significant room for error in their estimates. However approximate,
their estimates make clear that there is significant global demand for cannabis. Less clear is how quickly
illegal markets will transition to legal markets, as well as the extent to which legalization may increase
overall demand.
We believe that the growth of the global legal cannabis industry will be driven by increasing penetration
in largely untapped “mainstream” consumer markets, and that the legal industry could grow
to more than two times the estimated size of the current illegal market. We believe that cannabis will
eventually become federally legal in the United States, for recreational enjoyment by adults and for use
in a broad range of safe drugs and therapeutic products. After U.S. federal legalization, we believe that
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC 1
Cannabis Investment Report | December 2017
the U.S. market will exceed $100 billion annually, with more than 50 million consumers. Globally, we
estimate that the legal cannabis market has the potential to reach $500 billion annually, approaching
one billion consumers.
The Global Legal Cannabis Market
Cannabis legalization is gaining momentum around the world. This momentum is driven primarily by
the increasing recognition that cannabis may have a range of legitimate medicinal benefits and therapeutic
applications. At least 20 countries now have medical laws that facilitate patient access to cannabis
or cannabis concentrates for treating specified medical conditions. Notable countries with such
medical laws include Australia, Canada, Colombia and Germany; countries without such laws include
China, Japan, Russia and the United States. (Contrary to U.S. federal law, 29 states, encompassing
62% of the U.S. population, permit the production and possession of cannabis or concentrates for use
in treating a broad range of qualifying medical conditions.) While the merits of medical cannabis are
currently driving legalization, we believe that—like Uruguay and numerous U.S. states—other countries
will ultimately enact legislation permitting the production, sale and use of recreational cannabis.
(Canada is widely expected to do so in mid-2018.)
The following world map illustrates select countries that (i) have enacted medical laws that facilitate
patient access to cannabis or concentrates for treating specified medical conditions, (ii) have enacted
recreational laws that permit the commercial production and sale of cannabis to adults for recreational
and other uses, or (iii) include a state or province that has a cannabis law or policy in conflict with
federal law.
Select Countries with Legalized Cannabis Access (January 2018)
Recreational Law*
Medical Law
State/Province Conflict
with Federal Law
*Canada currently has a medical law. Assumes Canada enacts a proposed recreational law in mid-2018.
2 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER I
Executive Summary
The U.S. State-Legal Cannabis Market
The legal landscape for the cannabis industry in the United States continues to be characterized
by conflict between federal prohibition and the steady advance of state legalization. According
to federal policy, Americans can access tobacco, alcohol and prescription drug products that
kill thousands each year, but they cannot access cannabis because it is a dangerous drug with no
currently accepted medical application in the United States (notwithstanding the federal government
holds a U.S. patent for methods of treating diseases with cannabinoids). Meanwhile,
46 U.S. states have enacted at least one law that permits the manufacturing, distribution, dispensing or
possession of cannabis or concentrates. These laws fall into three general categories:
• 29 U.S. states (and the District of Columbia) have enacted medical cannabis laws that permit
the production and possession of cannabis or concentrates for use in treating a broad range of
qualifying medical conditions.
• 19 U.S. states have enacted narrow CBD/limited laws that permit possession of small amounts
of low-THC/high-CBD cannabis concentrates for use in treating a few serious medical conditions—in
particular, severe forms of childhood epilepsy.
• 8 U.S. states have enacted recreational laws that permit the commercial production and sale of
cannabis to adults for recreational and other uses.
The following map of the United States shows states with medical cannabis laws, CBD/limited laws
or recreational laws (a state with more than one of these laws is represented on the map by its most
permissive law).
U.S. State Cannabis Laws (January 2018)
Recreational Law
Medical Cannabis Law
CBD/Limited Law
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC 3
Cannabis Investment Report | December 2017
The U.S cannabis industry has proven adept at navigating this federal-state conflict, and is experiencing
rapid growth despite it. We estimate that the 2017 U.S. state-legal cannabis market was $8.0
billion, with more than four million consumers. While the overall state-legal market has grown significantly,
the addressable market has been constrained due to the lack of access to purely recreational
consumers and the sometimes-narrow scope of medical conditions that qualify a patient for access to
medical cannabis. The breakdown of this market estimate by state is shown in the following chart.
2017 U.S. State-Legal Cannabis Market Estimate
Other States
$1.9 B
$8.0B
California
$3.2 B
Colorado
$1.5 B
Oregon
$470 M
Washington
$929 M
Source: Ackrell Capital
U.S. Federal Law
Current federal law effectively prohibits all cannabis use and all commercial cannabis activity in the
United States. Producing, selling and possessing cannabis are federal crimes. No cannabis-derived drug
has ever been federally approved for use in treating any medical condition. Otherwise legitimate business
transactions conducted by cannabis companies —and their banks, for those who can access banking
services—are legally suspect. Certain intellectual property and bankruptcy protections critical to
many U.S. businesses are not available to cannabis companies. Cannabis companies pay federal income
tax at effective rates significantly higher than other businesses.
Despite official prohibition, however, federal policies and laws recently passed by Congress have
carved out a limited space in which the state-legal cannabis industry has managed to thrive. Enforcement
policies published by the U.S. Department of Justice have unofficially invited cannabis business
to proceed if certain conditions are respected. The U.S. Department of the Treasury established reporting
policies that create room for banks to service the cannabis industry. Federal budget legislation
4 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER I
Executive Summary
has prevented allocated funds from being used to prosecute conduct that complies with state medical
cannabis laws. And recent developments indicate the federal government may be pursuing policies and
practices that create space for cannabis research and approval of cannabis-derived drugs.
The following chart shows three general areas of federal law that impact the cannabis industry—food
and drug regulation, banking and finance, and intellectual property—as well as specific
laws and federal policies related to each area. (We expand on these laws, regulations and policies in
Chapter IV, U.S. Legal Landscape.)
Federal Laws and Policies Impacting the Cannabis Industry
Controlled
Substances
Act
Justice
Department
Cole Memo
Bank Secrecy Act
and Financial
Transaction
Laws
Rohrabacher-
Blumenauer
Amendment
Treasury
Department
FinCEN Memo
Agricultural
Act
of 2014
DRUG
AND FOOD
REGULATION
Federal Laws
and Policies
Impacting the
Cannabis
Industry
BANKING
AND
FINANCE
Securities
Law
Bankruptcy
Law
Food, Drug,
and
Cosmetic Act
INTELLECTUAL
PROPERTY
Internal
Revenue
Code
© 2017 Ackrell Capital, LLC
Patent
Act
Plant
Variety
Protection
Act
Trademark
Act
© 2017 Ackrell Capital, LLC | Member FINRA / SIPC 5
Cannabis Investment Report | December 2017
The Path to Federal Legalization
We believe that the variable which will most impact the future size of the U.S. legal cannabis market
is the federal legalization process. How and when federal legalization occurs will impact other
primary drivers of the market, including the number of eligible consumers, penetration rates and
consumer spending. We predict six developments relating to federal legalization: (1) the U.S. Food
and Drug Administration (FDA) will begin approving individual 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 recreational purposes. (We expand on these predicted developments in Chapter IV,
U.S. Legal Landscape.)
We do not predict that these developments necessarily will occur in the order presented. We do
expect some of them to develop in parallel, and none of them depends fundamentally on any other.
For example, Congress could cause development (6) at any time by passing legislation that removes
Path to Federal Legalization
1. The U.S. Food and Drug Administration will
begin approving individual pharmaceuticalgrade
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.
6. Cannabis parts and derivatives will be
removed from the CSA schedules and will
be fully legal for medical and recreational
purposes.
cannabis from the CSA schedules and establishes
a national framework for recreational and medical
cannabis regulation. Developments (1) through (3)
largely reflect incremental developments within
the existing legal environment. We do not expect
developments (4), (5) or (6) to occur during the
current presidential term, but we believe that there
is a reasonable chance development (4) could begin
within the next five years and development (5)
could occur within two years thereafter. In total, we
believe it could take up to 10 years or more before
the federal legalization process reaches development
(6) and can nabis becomes fully legal under federal
law. For our market estimates, we assume (i) development
(4) begins in 2023, (ii) development (5)
follows two years thereafter and (iii) development
(6) occurs by 2027 and cannabis becomes fully
legal in the United States.
We believe that federal legalization will trigger
rapid growth in the U.S. market, propelled by interstate commerce, access to the federal banking system
and acceleration of the cannabis-derived pharma ceuticals market. A change in the federal status of
cannabis in the United States will not only drive U.S. market growth, but should provide a significant
catalyst to the market worldwide.
The following graph illustrates the timeline of our predicted developments and the estimated
impact on the U.S. legalized cannabis market. As discussed on page 175, readers are cautioned to not
place undue reliance on our predictions or estimates. Almost certainly, our predictions and estimates
will prove inaccurate in some respects.
6 © 2017 Ackrell Capital, LLC | Member FINRA / SIPC
CHAPTER I
Executive Summary
U.S. Legalized Cannabis Market
$140,000
Path to Federal Legalization
70 M
($ millions)
$120,000
$100,000
$80,000
$60,000
$40,000
FDA Approves Cannabis-Derived Pharmaceuticals
More States Adopt Medical Cannabis Laws
More States Adopt Recreational Laws
FDA Routinely Approves CBD Drugs
FDA Routinely Approves THC Drugs
Federal Government Legalizes Cannabis
60 M
50 M
40 M
30 M
20 M
Number of Consumers
$20,000
10 M
$0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
0 M
Legalized Cannabis Market Size
Consumers
Source:�Ackrell Capital. Assumes cannabis will be legalized federally by 2027. Cannabis may never be legalized federally in the United States.
n To Watch in 2018
We believe that the following events will impact the legalized
cannabis industry in 2018.
Increasing Recreational Legalization
We expect 2018 will be a watershed year for recreational
markets, both in the United States and internationally. California
will begin implementing its new recreational law in
January 2018, and Canada’s proposed recreational law is
widely expected to be approved in some form by mid-2018.
California, which has a population of 38 million people