Cowen Cannabis Valuation Methodology Highlights Federal Legal Risks

COWEN COLLABORATIVE INSIGHTS February 25, 2019 - VALUATION METHODOLOGY AND RISKS Valuation Methodology Cannabis: Our valuation methodology is primarily based on Relative EV-to-Sales (EV-to-Sales divided by Sales-Growth), followed by EV-to-Sales. Investment Risks Cannabis: Cannabis is an emerging industry and is subject to regulatory headwinds. While over 50% of the population is in favor of legalization, only a few states have thus far legalized cannabis for recreational use and the product remains illegal at the federal level. Looking forward, much work and change still needs to occur in order for this industry to realize its full potential. Risks Pertaining to U.S. Cannabis-Related Companies: If you are considering investing in a U.S. company that is connected to the cannabis industry, be aware that cannabis-related companies may be at risk of federal and/or state criminal prosecution. The Department of Treasury has issued guidance that The Controlled Substances Act (“CSA”) makes it illegal under U.S. federal law to manufacture, distribute, or dispense cannabis and cannabis-related products. Many states impose and enforce similar prohibitions. Notwithstanding the federal ban, however, many U.S. states and the District of Columbia have legalized certain cannabis- related activities. Risks Pertaining to Canadian Cannabis-Related Companies: |n Canada, cannabis is an emerging industry and is subject to regulatory headwinds. While medical cannabis is legal in Canada, legislation has also been introduced to legalize adult-use sales on October 17, 2018. An initial regulatory framework has been laid out for the adult-use market, looking ahead, the category will be subject a number of potential headwinds, including taxes and restrictions on from factors and packaging. 100 COWEN.COM HOUSE_OVERSIGHT_024916