Your Guide to Understanding Cannabis DX CONSULTING PROPRIETARY AND CONFIDENTIAL Disclaimer: Please note that this presentation is for informational purposes only. Any comments or statements made herein do not necessarily reflect the views of DX Consulting or any sources cited. The information is intended for the recipient's use only and should not be cited, reproduced or distributed to any third party without the prior consent of the authors. Although great care is taken to ensure accuracy of information neither the author, nor DX Consulting can be held responsible for any decision made on the basis of the information cited. DX CONSULTING PROPRIETARY AND CONFIDENTIAL Deirdra O’Gorman has 25 years of experience as a senior financial services executive. She has held numerous leadership positions, including CEO of a de novo financial institution and Market President for a nationally chartered bank, with $17 billion in assets. With her extensive banking experience, Ms. O'Gorman founded a successful consulting firm, DX Consulting, in 2014. Since 2015, along with her consulting practice, Ms. O’Gorman has served as the CEO of The Fourth Corner Credit Union (4CCU). 4CCU is first credit union chartered in over 10 years in the state of Colorado. Most recently, Deirdra and her business partners founded Empyreal Logistics, a logistics company that provides transit, cash processing and onsite audit solutions for financial institutions and businesses. In 2016, Deirdra was named one of 20 “People to Watch” in the cannabis financial services industry and has been featured in articles by the New York Times, the Wall Street Journal, CNN and more. She is considered one of the foremost experts on banking and compliance for highly regulated industries. Through her work, she has become a nationally known speaker and can be found working with financial institutions, regulators, government agencies, entrepreneurs, and attorneys who are looking to gain a better understanding of emerging markets. DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview Photo credit: Chicago Tribune DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Types of Cannabis DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Cannabinoids What are Cannabinoids? Cannabinoids are chemical compounds that act on cannabinoid receptors in the body. https://potent.media/understanding-cannabinoids DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Plant Phases Mother Clone Vegetative Flower Harvest Dry Trim Cure Package Photo credits: Leaafly DX CONSULTING PROPRIETARY AND CONFIDENTIAL The Plant Overview – Types of Products Photo credits: Leafly DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview Graphic by: http://advisoranalyst.advisoranalystgr.netdna- cdn.com/wp-content/uploads/2015/06/bank-regulation.jpg DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – History Brief History: Cannabis was widely used as a medicine in the United States until the states and the federal government ended that practice with state-level bans and the Federal Marijuana Tax Act of 1937. DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Controlled Substances Act (CSA) In 1970, Cannabis was rendered federally illegal under the Controlled Substances Act and categorized as a Schedule I Drug. Since then the CSA has been amended numerous times: 1. 1976 Medical Device Regulation Act 2. 1978 Psychotropic Substances Act 3. 1984 Controlled Substances Penalties Amendments Act 4. 1986 Federal Analog Act 5. 1988 Chemical Diversion and Trafficking Act 6. 1990 Anabolic Steroids Act 7. 1993 Domestic Chemical Diversion and Control Act (methamphetamine trafficking) 8. 2008 Ryan Haight Online Pharmacy Consumer Protection Act 9. 2010 Electronic Prescriptions for Controlled Substances Act 10. 2010 Secure and Responsible Drug Disposal Act (in response to the US opioid epidemic) 11. 2017 Protecting Patient Access to Emergency Medications Act 12. 2018 Farm Bill, which descheduled Hemp, but not Marijuana Source: Drug Enforcement Administration DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – The Cannabis Experiment What started the recent cannabis revolution? Graphic by: http://www.rebrandingcannabis.com/wp-content/uploads/2015/02/state-flag-colorado-1.jpg 2012 - Colorado and Washington made history by legalizing recreational cannabis in their states. These states started the first FOR PROFIT model for cannabis distribution. - Coloradans passed Amendment 64 amending the state constitution by legalizing (medical and recreational/adult use) cannabis and mandating regulatory oversight in the state. In Washington, with the passage of Initiative 502, the state was tasked with creating a regulatory structure and oversight for the program. These states, as with most that have followed in their footsteps, require both state and local licensing for all stores, cultivations, infused manufacturers, and testing facilities. Information Provided by the Colorado Marijuana Enforcement Division (“MED”) DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – S2S, Closed Loop System Seed-to-Sale (S2S, A Closed-Loop System) - no plant can be added or subtracted from the system without documentation and oversight. DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – S2S, Closed Loop System BioTracTHC has deployed in the State of Massachusetts to provide bar tracking. Other S2S tracking solutions include bar codes, NFC, QR codes, and more. DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Tracking Tagged Seedlings In Propagation Room. Tags enable inspectors to quickly count plants in a room using a scanner. The scanned tabulation is expected to match the S2S system plant count. Plant tags inserted in growing medium Scanning a cultivation operation with a retail and medical scanners DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Cultivation DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Dispensary DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Manufacturing Facility (MIP, Processor) Extraction Kitchen DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Extraction Methods Extraction methods remove undesirable compounds, preserving the active terpenes and cannabinoids of the original plant. Solvent-Based Solventless • Alcohol • Water • CO2 • Heat • Butane (PHO) • Pressure • Propane (BHO) DX CONSULTING PROPRIETARY AND CONFIDENTIAL Regulatory Overview – Typical Testing Facility (Safety Compliance) THC Potency Cannabinoid Potency Microbials Chemical Residue - Pesticides - Fungicides - Insecticides Residual Solvent Levels Mycotoxin Moisture Content DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance Pic by: http://media.bizj.us/view/img/1668591/7abankingmarijuana*304.jpg DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Justice Pic and article by: http://www.weednews.co/jeff-sessions-provides-written-responses-to-marijuana-questions-from-senators William Barr, Pic by US DOJ In January 2018, former Attorney General Jeff Sessions rescinded the DOJ Cole Memorandum. Published on August 29, 2013, the memo provided guidance to federal prosecutors outlining marijuana enforcement as low priority in light of state laws legalizing marijuana. Session’s update left the discretion of marijuana prosecution priority to the AG’s in those states. In January of 2019, Attorney General William Barr testified before Congress that he does not plan to “go after” [marijuana] companies complying with state law. However, Barr is on record that he does not support changing the Controlled Substances Act. In April of 2019, Barr further clarified in a hearing before Congress, “Personally, I would still favor one uniform federal rule against marijuana.” “But if there’s not sufficient consensus to obtain that, then I think the way to go is to permit a more federal approach so states can make their own decisions within the framework of a federal law so we’re not just ignoring the enforcement of federal law.” Later, Barr said he would prefer that approach “than where we are now,” which he characterized as an “intolerable” situation because of the conflict between federal and state marijuana laws. https://www.forbes.com/sites/julieweed/2019/02/15/optimism-mixes-with-distrust-cannabis-industry-reacts-to-trumps-new-attorney-general/#269583442496 https://mjbizdaily.com/attorney-general-william-barr-federal-law-protecting-state-legal-marijuana-trumps-current-situation DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – The Drug Enforcement Administration (DEA) August 2019 - the DEA plans to unveil a proposed regulation to govern applications to grow cannabis for scientific and medical research. For half a century, only one grow was legally approved for such purposes — a University of Mississippi facility contracted by the National Institute on Drug Abuse (NIDA). This change could pave the way for the robust clinical trials cannabis experts believe could lead to the downgrade of Marijuana on the Controlled Substances Act. Critics say this is just another stall tactic by the DEA, who has not been friendly to legalization efforts. https://thinkprogress.org/dea-concedes-that-marijuana-research-monopoly-must-end-opening-door-to-sweeping-change-2d60015acd1d/ GETTY IMAGES DX CONSULTING PROPRIETARY AND CONFIDENTIAL Guidance – Department of Justice In reaction to Session’s actions, AG’s and Legislators responded in support of state legal marijuana