Cannabis Industry Segmentation Report Highlights Production Opportunities and Challenges

ACKR PI L - A L BL TA CHAPTER Ill Cannabis Industry Segmentation Production Opportunities We believe opportunities in this segment include: Specialized Production Services. Production services companies that invest in the necessary equip- ment and facilities should see strong demand for high-margin specialized services from cultivators and other production intermediaries. We expect opportunities will expand for companies that provide extraction services (particularly those who professionally manage hazardous processes such as hydro- carbon extraction) or develop proprietary infused-product manufacturing processes. Energy-efficient, Integrated Cultivation Components. We anticipate continued design and con- struction of sophisticated indoor cultivation facilities, which should present a significant opportunity for suppliers of advanced cultivation components that improve yield and reduce energy costs. We believe companies that provide all-in-one integrated systems for automation, monitoring and control of the production process are more likely to succeed than companies that merely offer a single-point solution. Branded Laboratory Test Certification. Given the importance of product testing, we believe that leading providers of high-quality testing services have an opportunity to establish an industry recog- nized “certification,” and that such a certification may become a key factor in influencing consumer confidence and demand. Efficiencies in Cannabis Cultivation. We believe that certain segments of the market will become increasingly commoditized and that cultivators with low production costs and high yields will have significant competitive advantage. Cultivators with operations in regions conducive to low-cost nat- ural production should benefit as laws are changed to facilitate interstate and international cannabis commerce. Production Challenges Challenges in this segment include: Scaling Cultivation Operations. Current laws typically force cultivators to build, and obtain licenses for, potentially redundant, capital-intensive cultivation facilities in each jurisdiction they serve. The capital requirements and uncertainty around licensing present serious challenges to cultivators seeking to scale their operations. Downward-pricing Pressure on Cannabis Flower. Cannabis wholesale prices are declining as large- scale cultivators begin to commoditize cannabis flower. Small and inefficient cultivators (including high-cost indoor producers) may struggle to produce cannabis at effective margins as cannabis cultiva- tion migrates to global regions with conditions that support low-cost, sustainable production. Lack of Standardized Testing. Currently, it may be difficult or impossible to reliably compare test results between providers of testing services because the cannabis industry has not yet developed uni- form testing standards. Until the industry adopts uniform standards that address testing procedures and. reporting for a broad variety of flower, concentrates and infused products, providers of testing services may struggle to develop an industry-wide brand and reputation for quality. Access to Capital. Participants in this segment generally engage in capital-intensive operations. In particular, cultivation, contract manufacturing and testing facilities require significant capital investment. Emerging companies in this segment may struggle to raise sufficient capital to compete effectively. © 2017 Ackrell Capital, LLC | Member FINRA/SIPC 39 HOUSE_OVERSIGHT_024675