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ACKRELL
CAPITAL
CHAPTER I Executive Summary

current practice and aggressively enforce existing federal cannabis laws, including penalizing financial
institutions for serving the cannabis industry, it would have a dampening effect on the industry both
in the United States and abroad.

Increasing Strategic Investor Activity; Continuing Funding Gap
We share the belief held by many that, ultimately, established companies from analogous indus-
tries—alcohol, pharmaceutical, tobacco and consumer products—will enter the cannabis industry
through minority investment, by acquisition or otherwise. We have already seen examples: Constella-
tion Brands’ investment in Canopy Growth referenced above and the more than $400 million spent by
The Scotts Miracle-Gro Company (NYSE: SMG) to acquire soil, fertilizer, hydroponic equipment and
lighting companies that supply the cannabis industry. These types of transactions help validate investor
enthusiasm for and valuations in the cannabis industry, and we expect similar transactions to occur
with increasing frequency during 2018 and beyond.

Retail investors and an increasing number of family office and strategic investors are providing most
of the investment capital to the cannabis industry. Cannabis-related companies raised more than $2.0
billion in the public and private markets in 2017, but many of the financings were small—less than $5
million. We expect that many institutional investors (most notably, the traditional venture capital and
private equity communities) will not invest in the industry until it matures and the legal environment
becomes more favorable.

Without institutional support for the cannabis industry, a funding gap exists—companies are seek-
ing more capital than investors are willing or able to provide. We believe that this is especially true in
the private markets, where many companies struggle to raise necessary financing. Although capital may
be available for select issuers in both public and private markets, we believe that without participation
from institutional investors, the cannabis industry will continue to face a significant funding gap for
the foreseeable future.

■ Investment Outlook
Hundreds, if not thousands, of cannabis-related companies are seeking to raise capital—thus pre-
senting investment opportunities for sophisticated investors who want to participate in the cannabis
industry. Investors have their choice of investing in the more than 300 publicly traded cannabis-related
companies, or in the significant number of private companies raising capital. Investors may also choose
among stock markets (both within the United States and internationally), type of security (equity
versus debt) and type of company (companies across all segments of the industry are raising capital).

Most of the cannabis-related companies raising capital—even publicly traded companies—are in
early stages of development, have de minimis revenue and are not profitable. More than 85% of pub-
licly traded cannabis-related companies have annual revenue less than $5 million, and less than 5%
have annual revenue greater than $25 million.

To help investors better evaluate investment opportunities in the cannabis industry, we currently
define five primary segments: production, distribution, consumer products, business solutions and

© 2017 Ackrell Capital, LLC | Member FINRA / SIPC
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