ACKRELL CAPITAL Cannabis Investment Report | December 2017 Production Outlook Due to U.S. federal and international legal restrictions on cannabis commerce, producers currently must invest significant capital in potentially redundant facilities located in separate jurisdictions, and many large agricultural producers and equipment suppliers that could effectively compete in the can- nabis industry are reluctant to enter the market. In the near term, we expect that cultivators will con- tinue to raise capital for facilities across multiple jurisdictions, and well-managed and well-financed cultivators will differentiate themselves by creating consistent, high-quality strains, developing strong distribution relationships, vertically integrating other supply-chain functions and offering branded products and competitive pricing. We also expect production services companies will benefit from increasing demand for specialized extraction and manufacturing services that cultivators and other production intermediaries cannot efficiently perform themselves, and providers of testing services will benefit from increasingly robust testing and safety regulations. In the long run, we expect more per- missive domestic and foreign laws will result in increased competition from large enterprises that are able to realize economies of scale or have operations in regions best suited for efficient, sustainable production. = Distribution We divide the distribution segment of the cannabis industry into three subsegments: dispensaries, e-commerce and distribution services. Dispensaries are retail outlets where consumers purchase can- nabis products for medical or recreational purposes. E-commerce includes digital applications used to enhance the cannabis shopping experience. Distribution services include wholesale and related trans- portation and logistics services. Participants in the distribution segment generally “touch the plant” and therefore must comply with state and local regulati