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ACKRELL
CAPITAL
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 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.
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 cannabis 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 pharmaceuticals 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.

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© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
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