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COWEN
COLLABORATIVE INSIGHTS
February 25, 2019

Synthetic Biology Provides Alternative Cannabinoid Production Method; Life Science Tools
Well Positioned To Benefit From QA/QC Testing Opportunity (Schenkel)

As an alternative to cultivation-based methods, cannabinoids can be produced using either
chemical or synthetic biology approaches. Synthetic biology methods, which harness
fermentation to produce cannabinoids, are particularly attractive considering they can
potentially produce a variety of cannabinoids while being highly scalable, efficient, and
environmentally friendly.

While QA/QC testing standards for CBD currently vary greatly by state (if any exist
at all), we expect Life Science Tools companies to benefit from this nascent market
opportunity as testing regulations are implemented and standardized. Similar to medical/
recreational cannabis testing, instruments such as mass spectrometers and liquid/gas
chromatographs are utilized to analyze CBD samples. Key vendors for mass spectrometry
and chromatography instruments include Agilent, Danaher (SCIEX), PerkinElmer, Shimadzu,
Thermo Fisher, and Waters Corporation.

CBD From a Retailer and Payor Perspective (Rhyee)

Healthcare: Drug Retailer Perspective: CBD products appear to be gaining traction with
independent pharmacies, many of whom are already selling or planning to sell CBD oils.
Independent pharmacies likely find the high-margin profile of CBD oils attractive, which
we suspect is similar to those of more traditional over-the-counter drugs, as well as the
differentiation it affords independents relative to larger chain pharmacies. For those selling
CBD oils today, the focus is on quality, particularly as it relates to bioavailability. Large
pharmacy chains, such as CVS and Walgreens, don't currently sell CBD oil, but WBA noted it
is monitoring the CBD market.

Healthcare: Payor Perspective: Generally speaking, managed care does not cover OTC
products, with the same being true for Medicare and Medicaid. Based on our conversations
with a number of payors, whether CBD oils will be covered as a medical benefit by
government sponsored health programs is determined by the Center for Medicare and
Medicaid Services (CMS) and state governments. Currently, CBD products are not a covered
benefit, or an extra benefit, that has been approved by CMS or states, and it isn't known
at this time whether CMS or states governments are considering reimbursement for CBD
products. Separately, Payors noted three factors complicating commercial coverage of
CBD oils, including (1) legal issues, as CBD oils derived from THC (cannabis) isn't legal if
it contains equal to or more than 0.3% THC; (2) lack of regulation by the FDA; and (3) its
availability as an OTC medication.

This report is intended for michael.cella@cowen.com. Unauthorized redistribution of this report is prohibited.

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