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The Economics of Cannabis Markets

MICHIGANANDBEYOND

A NDR EW LIV INGS T O N | VICENTE S EDERBERG

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FulllegalizationandMedicalCannabis:8+DC

ComprehensiveMedicalOnly:21states

CBD/IneffectiveMedicalOnly:19

• DC– Noregulatedsystemforfulllegalization

Noprogress:2

States With Regulated Cannabis Laws

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Direct Cannabis Businesses

Cultivation

CommonLicenseTypes

Sales

Infusion

Testing

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Direct Cannabis Businesses

Transportation

Newandfuturelicensetypes

Research

Consumption

Manymore

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Ancillary Businesses

SmokingEquipment

BusinessServices

GrowEquipment

NewIdeas

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How large is the total market?

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National Market Research• In2016,nationalsaleswereabout$6.2billion with21statesandDCactivelycontributing tothemarket• By2018,over28statemarketsareforecastedtocontribute toa$10.6billionnationalmarket• Estimatedtoincreaseto$16.9billionbytheendof2020

$0$500,000,000

$1,000,000,000$1,500,000,000$2,000,000,000$2,500,000,000$3,000,000,000$3,500,000,000$4,000,000,000$4,500,000,000$5,000,000,000

California Colorado Washington Michigan Massachusetts

TopFiveStateCannabisMarketsin2020Combinedmedicalandadult-use

2015 2016 2017 2018 2019 2020

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Medical Potential• Medicalcannabisiseffectivefordozensofdifferentseriousconditions• Growingmedicalacceptancebythegeneralpopulation,politicians,andphysicians• Michigancouldeasilyhaveoneofthetopfivelargestmedicalcannabismarketsbytheendof2020

Currentlyabout1.7millionmedicalcannabispatientsin2017andwillgrowtoover2.2millionby2020

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Number of Cannabis Consumers• About8.4%ofadults,about20.4millionpeople,consumedcannabisinthepastmonth(2015)

• Thesefiguresareunadjustedforunderreporting• Peopleinstateswerecannabisislegalconsumeathigherratesbutarealsolikelytobemorehonestabouttheiruse

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Segmented “National Market”• Federalillegalityandpatientresidencyrestrictionspreventalmostallconsumersandproductsfromtravelingacrossstatelines• Residencyrequirementsinsomestatestoownoroperateacannabisbusinessfurthercomplicatematters• Todealwiththisrestrictionsomecompanieslicensetheirintellectualpropertytomarijuanabusinessesineachstate• Regulatorystructuresandrequirementsvarysignificantlybetweendifferentstates

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Short Term National Growth• Overthenextfewyearsnationalgrowthwillbeleadbynewstatesimplementinglargecommercialadult-useandmedicalmarketsoAdult-use– CA,NV,MA,MI,(DC?)oMedical– AR,FL,MD,MI,OH,PA•Medicalmarijuanaislegalinmanystatesthatcouldhaveseriousmarketsbutwillnotbecauseofoverlyrestrictivepolicy(IL,NY,TX)• Expandingthesemarketscanincreasenationalmarketpotentialjustasmuchifnotmorethanlegalizingmedicalmarijuanainnewstates

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Major Risks• Federallaw

• IRSProvision280E

• Politicalpowershifts

• Changingregulations

• Localopposition

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ChartfromMarch30,2015

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Michigan Cannabis Market Overview• Populationofabout9.93millionpeople(10th largest)• About995thousandadultpastmonthcannabisconsumers (6th largest)• Patientpopulationof218,556(December2016)• Patienttopopulationratioof2.06%• Likelythesecondlargestinthecountry• Estimated474thousand pounds ofconsumerdemandand124thousandpounds ofpatientdemandin2017• Couldbemuchlargerifexistingmarketcapturedentirepatientconsumption

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Michigan Past Month Consumers• Michigancurrentlyhasabout995thousandadultpastmonthcannabisconsumers

• In2016,about22%ofallpastmonthconsumers

registeredaspatients

• Basedonself-reporting,about31%ofMichigan’sadultpastmonthconsumersare18-25

• About35%ofMichiganpastmonthconsumersusedcannabis20ormoredaysinthelastmonth

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1-5days 6-10days 11-15days 16-20days 21-25days 26-30days

NumberofConsumers TotalPoundsperYear

Michigan Past Month Cannabis Consumers

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Identifying Areas of Growth• Withoutalimitonlicensesstatewide,Michiganwillhavemanymorecannabisbusinessesthanrecentmedicalstates• SignificantbenefitforthosetypesofdirectorancillarybusinessesthatrelyoncannabisbusinesscustomersoSecuretransportersoCannabistestinglaboratoriesoBusinessservices• Michiganhasahighpatienttopopulationratio- 2.06%(Dec2016)oRegionaldisparitiesoGrowthwillcomewithcapturingexistingpatientdemand

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Top Five Michigan Counties

County #OfPatients(Dec2016) Population(July2016)PatienttoPopulationRatio

Wayne 34,941 1,749,366 2.00%

Oakland 24,416 1,243,970 1.96%

Macomb 19,455 867,730 2.24%

Kent 8,754 642,173 1.36%

Genesee 14,802 408,615 3.62%

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Projected Michigan Regulated Market Growth• Michigan’smedicalmarketbeganin2008butwithoutstatelicensing

• Estimatesarebasedonprojectedpatientpopulations,patientdemand,andregulated

marketcaptureofmedicalconsumption

• Projectionassumesadult-uselegalizationin2018andadult-usesaleswillbeginin2020

• RegulatedMedicalSalesin2017- $536million

• RegulatedMedicalSalesin2018- $807million

• RegulatedMedicalandAdult-useSalesin2020- $1.42billion

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2015 2016 2017 2018 2019 2020

ProjectedMichiganRegulatedCannabisMarketGrowth

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Questions?Andrew Livingston | VicenteSederberg