Let’s Toke Business by Ted Ohashi CFA, MBA

Since 2014 an Independent Weekly Investors’ Compendium of the Global Business of Marijuana. To have your free subscription added, removed or to contact us with feedback, industry and corporate news email letstoke-business@gmail.com with your name and country.

Special Annual Update: 2018 Outlook for the Cannabis Stocks Week Ended December 29, 2017

• Our 2018 outlook for cannabis stocks is warily optimistic………..………….…....…..….......…p1

• Update of recommended list………………………………………………………………….………..p6

• Top 5 cannabis stories of 2017…………………........…………………………………...…….……..p7

• Two new Licensed Producers brings yearend total to 84.…………….……….……………...….p8 See Ted Ohashi’s articles on Seeking Alpha

How to Make Money on Cannabis Stocks in the Next Three Months November 27, 2017 Canadian Cannabis Stocks: What to do Now November 17, 2017 If You Missed Some Of LXRP’s Gains, Don’t Miss Them All November 3, 2017 U.S. Patent...Lifts Lexaria To A Much Higher Valuation Level October 31, 2017 How to Get Rich Quick: Rise Early, Work Late, Discover (Cannabis) Oil October 18, 2017 September 18th Passed - Expect Canadian Cannabis Stocks to Rally Now October 2, 2017 Health Canada Provincial Data Generates Investment Ideas September 23, 2017 Namaste: Overweight Don't Over Wait September 20, 2017

Marijuana Stock Market Review & Outlook

LTB MJ INDEX: 1wk +13.1% 1 mo +24.8% 3 mo +44.6% 6 mo +45.0% 1 yr +27.8%

2018 Marijuana Stock Market Outlook

Summary: Last quarter we were in the process of reversing a downward trend in cannabis stock prices that had prevailed for several months and concluded: “After eight months of generally falling prices, we believe we are at a turning point. If you have been waiting for the marijuana group to turn up before buying, now is the time for action and not procrastination. If you have been holding off adding to existing positions or establishing new holdings, wait no longer.” As the market continued to rise we alerted you to the fact that there could be some tax loss selling between December 15th and Christmas (which didn’t materialize) but in any event we expected the markets to be very strong post-Christmas.

As has been our practice we will take this opportunity to look at the year ahead for cannabis stocks. Looking first at the Toronto Stock Exchange, it was a bumpy ride for investors. By the end of the summer, it appeared that concerns about our trading relationship with the Americans and wor-ries about the outook for resource companies would lead to a bear market. However, a strong recovery in the final months resulted in an overall 6% advance and the index closing at an all-time record high. This means the tailwinds for cannabis stocks was neutral to slightly positive last year. It also suggests we enter 2018 with a somewhat more optimistic mood on the part of investors.

The American stock markets surged ahead based on President Trump’s business oriented policies. Despite the objections of many market pundits, the Dow Jones Average posted another strong year with a gain of 25.1% on top of a 13.5% rise the year before. As we said last quarter, people may not like President Trump’s politics but they love his economics. With tax reform passed, it ap-pears the Trump administration will set its sights on infrastructure spending which is also good for the economy. The U.S. markets influence Cana-dian investors so hopefully, they will with be a pos-itive factor for us again in 2018.

The next chart shows the LTB Marijuana Compo-site Index in 2017. The strong closing days after Christmas were expected but the strength of the advance surprised even the most optimistic can-nabis advocates. For example, in the week after Christmas the index posted a gain of 13.1% and sent us scrambling for the record books. This was the ninth largest weekly advance on record and you have to go back to March 21, 2014 to find a better week. This performance also answered the question of whether the index would attain a new high during this rally. It certainly did!

A look at the longer term chart for the LTB Mariju-ana Composite Index is also revealing. First, the compound rate of return implied by this chart is 86.6% per annum over four years. By compari-son, the Toronto Stock Exchange Index produced a return of 4.4% per annum over the same time period. But we must also look back at the last time we saw an increase on a par with the 13.1% posted last week. This was the 12 week spike at the extreme left side of the chart. In 8 of those 12 weeks, the market advanced more than it did last week. But that was followed by a prolonged de-cline for the rest of 2014 and 2015.

The next chart plots the LTB Marijuana Compo-site compared to the Toronto Stock Exchange In-dex. As the chart rises to the right, it shows the cannabis stocks outperforming the average Cana-dian security. This superior performance is critical for portfolio performance. For example, a $5,000 investment in the TSX Index would have grown to $5,940 over this time period. The same invest-ment in the Marijuana Composite Index would now be worth $60,620! Some portfolio exposure to the cannabis stocks would have increased your retirement savings significantly.

We conclude the cannabis stocks will likely continue to rise strongly but volatility will probably increase as well. Moving forward we must be aware that somewhere in the future we will face an extended period of market weakness. This is necessary to reset the overly optimistic psychology that builds up in the markets after a prolonged advance. We have every reason to remain optimistic for now but we must also stay alert. The next chart shows the length of uptrends and downtrends in the LTB Marijuana Composite In-dex. It reveals the current rally stands at eight weeks in duration which is the third longest on record. As we have said over the previous couple of weeks, if the rally goes past 6 weeks it will prob-ably have the momentum to go on to 10 or 12 weeks. We still feel that way although last week was almost too strong. Looking ahead, the cur-rent rally seems a little long in the tooth but mo-mentum is also so strong we believe there are still higher levels to come.

The most significant change of late is the increase in market momentum. The final week of trading in 2017 produced a staggering ratio of over 28 stocks rising in price for every one declining. There has never been a spread like this in the four years we have been monitoring the cannabis stocks. Positive momentum is a good thing. It means a price advance is being shared by a broad list of stocks. But in the final week of trading, 85% of the stocks in our index rose in price. It leaves us wondering how much better this can get.

To avoid a misunderstanding, here is the long term momentum chart. Given that prices according to the LTB Marijuana Composite Index have reached all-time highs, we can see momentum still has some catching up to do. However our preference would be closing the gap over several months in-stead of one or two weeks. This chart shows that runaway positive momentum is not completely se-rious but again it is one of those indexes that is starting to push the envelope.

It is important for the Licensed Producers (LP) to lead the parade and they have been. The LTB Li-censed Producer Composite was the first of the indexes to reach a new record high in the current cycle. The LP Index posted an LTB leading 46.0% gain in 2017. The investment by Constel-lation Brands in Canopy Growth in late October 2017 triggered a strong rally in the group. In ad-dition, it set off a round of activity involving an LP acquiring or investing in another LP and/or other cannabis company. We anticipate this activity will continue into 2018.

Here is a look at the LP Composite Index over its 3+ year history. As can be seen, these stocks seem to surge and consolidate before repeating the process. We have referred to this pattern often in the past. The current rally was prompted by the Constellation Brands investment in Canopy as in-vestors woke up to the fact that other LPs might be targets as well. The previous rally started when in-vestors realized the Cannabis Task Force recom-mendations would favor the LPs. The rally before that happened as the Liberals surged ahead in the polls and investors concluded a party supporting cannabis legalization might form government. The first jump happened while Canopy Growth was the only public Licensed Producer and investors were excited by the prospect of Bedrocan and Organigram going

public. We think the current advance will continue and if another major investor comes in to take a position in one of the LPs, the response could be spectacular.

This is the longer term chart of the LTB Licensed Producer Index relative to the LTB Composite. By rising to the right, this graph illustrates how much better the LP stocks have performed even com-pared to the compound annual growth rate (CAGR) of 86.6% for the average cannabis stock. The LP average return has been nearly double at 169.1% relative to the average cannabis stock. This means your $5,000 portfolio that would have grown to $5,940 in the average Toronto listed stock and to $60,620 in the average cannabis stock would have been worth over $200,000 in the

average Licensed Producer in a slightly shorter time period. A typical equity portfolio with a 10% to 20% exposure to cannabis investments would have produced a much higher current value. The rewards from investing in cannabis stocks will likely continue to justify the higher risks necessary to get there. We are pleased to introduce the Canadian Can-nabis Composite Index that can be accessed at www.3cindex.ca This index is referred to as the Dow Jones of Canada’s cannabis stocks and is made up of the twenty largest cannabis stocks by market cap. The 3Ci is available in real time so by going to the chart on the Internet you can get a snapshot of what the market is doing intraday and back one year. As time goes on, a longer his-tory of the index will build up. As we mentioned last week, Ted Ohashi, publisher of the Let’s Toke Business newsletter will be a member of the committee that determines the additions and deletions to the list of component stocks. Go to www.3cin-dex.ca at your earliest convenience and give it a try. We think you will find this a useful tool for your investment program.

The next chart is the one year LTB Low-Priced Composite that we use as a mandate to measure investor psychology. If this group is performing well, we interpret that to mean investors are more willing to take chances buying stocks priced under $.10 per share and vice versa. When we called for the market to turn up in October 2017, we looked for this index to lag as a sign there wasn’t too much optimism in the market. We did note, how-ever, that the index was likely to catch and sur-pass the other indexes because this is a more vol-atile group. The chart shows the group did lag

coming off the bottom but in the past two weeks it has been charging to the forefront. Although it is still below its all-time high, that is changing and we expect new highs from this group momentarily.

A couple of things are evident from a look at the longer term Low-Priced stock chart. First, there is potential for the index to go much higher into new record territory. We expect this to happen in the early months of 2018. Second, we have warned on several occasions in this report that the various indexes are at or close to extreme levels which suggests risk is building. As a consequence, alt-hough this may sound counterintuitive, this is also the best time to speculate in higher risk stocks. Of course you must remember to take profits if you have the opportunity.

International market returns: the cannabis stocks recorded another positive year. The LTB Licensed Producers topped the list (+46.0%) and the LTB Marijuana Composite was mid-range (+21.7%). To illustrate the effect of these returns, consider the following effect on a $10,000 portfo-lio over five years: In Canadian stocks at 6% $13,382 In the LTB Composite at 21.7% $26,696 In U.S. stocks at 25.1% $30,640 In Cannabis LPs at 46.0% $66,338

Clearly, diversification into cannabis stocks has been positive for portfolio investors. We believe this will continue to be the case in 2018 and beyond. Conclusion: we continue to look for superior returns from the cannabis group. We are a little concerned that the post-Christmas rally that we thought would be strong was exceptionally strong. As a result we have noted a few reasons to be at least a little careful. Because of the dramatic price changes we have seen in recent weeks, here is a summary of our current thinking regarding our specific recommendations. Please remember our ongoing advice not to chase stocks that are rising or dump stocks that are falling. Aphria (TSX: APH): we continue to like APH as it continues its aggressive growth policies. The cloud is the status of their TSE listing. At the current time, APH is in conflict with TSE regulations regarding U.S. investments in businesses that are contrary to U.S. Federal regulations. The TSE indicated earlier that a decision would be made coincident with a yearend review. It is difficult to see how this can be resolved to the satisfaction of the three parties involved: the exchange, APH and the other TSX and TSXV listed companies that did not make such investments. An announcement is expected shortly. Aurora Cannabis (TSX: ACB): we also continue to favor ACB and think the company will benefit if the acquisition of CanniMed (CMED) is concluded successfully in 2018. However, we have watched the twists and turns other hostile takeovers have taken in the past. With Aurora, CanniMed and Newstrike Resources (TSXV: HIP) all having shareholder meetings in January 2018, this is when we will see the mud flying. The market in very recent trading reflects the belief that the chances of success are improving. We would maintain positions and hold off buying until the after the meetings are concluded. Canopy Growth (TSX: WEED): the only comment we can make about WEED is it continues to reward shareholders. Since we first recommended it, the stock is up over fivefold. We continue to believe WEED

should form a core holding in every portfolio and for those who can only own one stock in the industry, this would be our choice. Expect WEED to continue to lead the industry in almost every direction. Emerald Health (TSXV: EMH): recently SmallCapPower identified EMH as the leading cannabis stock in its Ubika Index. We called EMH’s joint venture with Village Farms (TSX: VFF) a “transformational trans-action” and the market is recognizing it as such. The move has also triggered a number of “copycat” transactions in the industry. We believe the market will continue to appraise the valuation of EMH to higher levels and management has positioned the company to have a strong role in post legalization Canada. We look for EMH to evolve as one of the larger, lower cost growers. Lexaria (OTCQB: LXRP): investors benefitted in 2017 as the market began to recognize the many pos-sible applications for its technology. When the U.S. patent announcement covered not only THC (US$8 billion market) but also fat soluble vitamins (US$31 billion market), non-steroidal anti-inflammatory pain medications (US$60 billion market) and nicotine (US$770 billion market) it was an eye opener for the investment community. Subsequently, LXRP applied for a patent in the delivery of phosphodiesterase type 5 (PDE5) inhibitors better known by the trade names ViagraTM (sildenafil) and CialisTM (tadalafil). As investors realized THC was by far the smallest of the potential markets and there are still applications that haven’t been considered, a reassessment of the value of the technology took place. Looking ahead 12 to 24 months, we can see the technology sold in whole or in part to one of the giants in pharmaceuticals, tobacco or even cannabis. Namaste Technologies (OTCUS: NXTTF): after many frustrating months, NXTTF was recognized by investors for the value it was building as an industry consolidator and potential licensed seller of cannabis in Canada. Unfortunately, the market was out of control and the stock spiked to a high of $3.47 before spiking back down to $2.35 per share. As is often the case, it seems many investors buy high. Hopefully our readers were able to avoid that trap by following the principal of not chasing stocks up. In the mean-time, NXTTF remains a dominant force in e-marketing vaporizers and other accessories, it is an industry consolidator and a leader in Europe, Australia and Brazil. In addition, the expected licensing of Cannmart in January/February will be a major development. In the meantime, it is difficult to pick a spot to buy because stocks that spike higher than anyone expected often correct back down much further than any-one expects. We continue to like NXTTF but the short-term market trend is a little murky right now. Organigram (TSXV OGI): this company continues to chug along getting ready for legalization. OGI had a major bump in the road in the form of product recall problems a year ago but that is behind them and we expect their organic certification to be restored before recreational cannabis is approved. OGI also signed an important sales contract with its native province of New Brunswick that positions it very strongly for near term revenue and income. OGI has been focused on building out its operations to satisfy upcom-ing product demands in the market. We also see OGI as an attractive asset for someone to own so we suspect some kind of transaction is in store for shareholders in the next 12 to 24 months. Radient Technologies (TSXV: RTI): has a unique technology called Microwave Assisted Processing, or M.A.P., for extracting THC and CBD from the cannabis plant. Initially, the technology was given credibility when Aurora Cannabis invested in RTI. More recently, ACB increased its holding in RTI from 8.8% to 19.18% on an undiluted basis. This provided capital to enable RTI to accelerate plant capacity expansion and increased throughput at its Edmonton facility. ACB increasing its holding of RTI to over 10% is im-portant because it makes it clear ACB intends to make RTI’s technology an important part of its strategic plans moving forward and makes ACB an insider of RTI. The reason it stopped at 19.18% is probably because if the holding exceeds 20%, any future offer must be made to all RTI shareholders. RTI lagged a bit in the latest market rally because its association with ACB is well known and diminishes the chances of an offer from anyone else. In the meantime, we are very satisfied with all developments to date.

Our top five marijuana related stories in 2017

1. The top story has to be the introduction of the Cannabis Act to the House of Commons on April 13, 2017. The bill was short of details that would be determined in the ensuing months but it was the first time we were set on the current path targeting legalization on or before July 1, 2018. It did establish the Cannabis Act as separate from the Access to Cannabis for Medical Purposes Regula-tions (ACMPR) that regulates medical marijuana. It stated that Licensed Producers under ACMPR become producers under the Cannabis Act. It also established that law enforcement was a priority.

2. On October 30, 2017, it was announced Constellation Brands (NYSE: STZ) would purchase 9.9% of Canopy Growth (TSX: WEED) for $245 million. Included is an option to increase its holding to 20%. STZ is a US$40 billion market cap company and a member of the Fortune 500. The company has a portfolio of wine, beer and spirits brands including including Corona, Clos du Bois, Charles Smith Wines, Robert Mondavi, Casa Noble Tequila and Svedka Imported Vodka. This was the first major cross-industry investment and triggered a major rally in the Canadian cannabis sector and a number of takeover transactions within the industry.

3. In December 2017 Health Canada disclosed there are 208 late stage applicants for licenses to grow cannabis. If all these applicants are approved, it represents 2.5 times the number of LPs ap-proved since licensing began in 2013. It means there will be over 3.5 times the number of LPs as there are now. This does not take into account the potential number of ‘micro-growers’ under consid-eration. HC says it will not cap the number of companies licensed to produce cannabis, hoping to foster a competitive market. These approvals will change the landscape of growing in Canada. At present there are 84 approved LPs. This accelerates the prospect of cannabis becoming a commod-itized crop like wheat or corn and is potentially negative for growers not yet licensed.

4. Cannabis became legal in California on January 1, 2018. Although we are justifiably proud of le-galization in Canada, California is a more significant development in the world of marijuana. California has a larger population and economy than Canada. In addition it has an established legal medical marijuana industry dating back to 1996 and probably a greater affinity to recreational marijuana. We reported San Francisco will likely have dispensaries open for business but Los Angeles may be sev-eral weeks away. So it’s legal but immediate access to approved product depends on where you live.

5. Our final story is a bit of a non-story. There was great uncertainty regarding the prospects for marijuana in the United States under a Trump administration. Republicans are far right of the Demo-crats when it comes to cannabis and President Trump quickly nominated Jeff Sessions for Attorney General. But little did we know there would be so much controversy surrounding the new President and his White House that cannabis was more or less lost in the commotion. In the meantime, on December 18, 2018, Senator Cory Booker (D-NJ) signed the Marijuana Justice Act of 2017 that would remove cannabis from the Controlled Substances Act in the U.S. The bill was co-sponsored by Sen-ator Ron Wyden (D-OR).

Applications Watch

Two additional Licensed Producers were approved last week. MEDIWANNA and PureSinse were both ap-proved for cultivation in Ontario. There are now 84 Licensed Producers approved. Eight producers were licensed in 2016 and forty-seven so far in 2017. Well over half of all Licensed Producers have been approved this year. In the past 33 weeks there have been 42 new Licensed Producer approvals. Of the 84 LPs: 32 are Cultivation & Sale, 47 are Cultivation and 5 are Sale Only. On the list of Fresh Marijuana & Oil producers, there are 30 LPs approved: 19 as Production & Sale, 7 approved for Production and 3 approved as Sale Only. In the category “Sale of Starting Materials,” 10 LPs are approved to sell starting materials: 8 approved to sell plants and 2 approved to sell seeds.

There are now 24 public companies that are LPs or own an interest in one or more LPs. That makes 14 added so far this year.

Licensed producers by province are Ontario (47 or 56%), British Columbia (18 or 21%), Alberta (4 or 5%), Saskatchewan (4 or 5%), Quebec (4 or 5%), Manitoba (2 or 2%), New Brunswick (2 or 2%), Nova Scotia (2 or 2%) and Prince Edward Island (1 or 1%). Percent totals may not add up to 100% due to rounding.

Producer Prov Dried Marijuana Fresh Mari & Oil Sale Start Materials 1. 7 Acres ON Cultivation & Sale 2. Abba Medix ON Cultivation 3. ABcann Medicinals ON Cultivation & Sale 4. A.B. Laboratories ON Cultivation 5. Acreage Pharms AB Cultivation 6. Aero Farms ON Cultivation 7. AgMedica Bioscience ON Cultivation 8. Agrima Botanicals BC Cultivation Production 9. Agri-Médic ASP. QC Cultivation 10. Agripharm Corp. ON Cultivation & Sale Production & Sale 11. Agro-Greens Natural Prod SK Cultivation Production 12. Aphria ON Cultivation & Sale Production & Sale 13. Aurora Cannabis AB Cultivation & Sale Production & Sale 14. Aurora 2nd site QC Cultivation 15. Bedrocan Canada ON Sale 16. Bedrocan Canada 2nd site ON Cultivation & Sale Production & Sale 17. Beleave Kannabis ON Cultivation Production 18. Bloomera ON Cultivation 19. Bonify MB Cultivation 20. Breathing Green Solutions NS Cultivation 21. Broken Coast Cannabis BC Cultivation & Sale Production & Sale 22. Canada’s Island Garden PEI Cultivation & Sale 23. Canna Farms Ltd BC Cultivation & Sale Production & Sale Plants 24. Cannatech Plant Systems BC Cultivation 25. CanniMed Ltd SK Sale Sale 26. CannTrust ON Cultivation & Sale Production & Sale Seeds 27. CannTrust 2nd site ON Cultivation Production 28. Canveda ON Cultivation 29. DelShen Therapeutics ON Cultivation 30. Delta 9 Bio-Tech MB Cultivation & Sale 31. Emblem Cannabis ON Cultivation & Sale Production & Sale 32. Emerald Health Botanicals BC Cultivation & Sale Production & Sale 33. Emerald Health 2nd site BC Sale Sale 34. Evergreen Medicinal BC Cultivation Production 35. Experion Biotechnologies BC Cultivation 36. FV Pharma ON Cultivation 37. Green Relief ON Cultivation & Sale 38. Greenseal Cannabis ON Cultivation 39. GrenEx Pharms AB Cultivation 40. Hydropothecary QC Cultivation & Sale Production & Sale 41. HydRx Farms ON Cultivation 42. Indiva ON Cultivation

43. International Herbs BC Cultivation 44. Int’l Herbs 2nd site NB Cultivation 45. James E. Wagner Cultivation ON Cultivation 46. Maricann ON Cultivation & Sale Production & Sale Plants 47. Maricann 2nd site ON Sale Sale Plants 48. Medical Marijuana Group ON Cultivation 49. Medical Saints ON Cultivation 50. MEDIWANNA ON Cultivation 51. MedReleaf ON Cultivation & Sale Production & Sale 52. MedReleaf 2nd site ON Cultivation & Sale 53. Mettrum Bennett North ON Cultivation & Sale Production & Sale 54. Natural Med ON Cultivation 55. Natura Naturals ON Cultivation 56. Northern Lights BC Cultivation 57. Original B.C. BC Cultivation & Sale 58. Organigram NB Cultivation & Sale Production & Sale 59. Peace Naturals Project ON Cultivation & Sale Production & Sale Plants 60. Potanicals Green Grow BC Cultivation 61. Prairie Plant Systems SK Cultivation Production 62. PureSinse ON Cultivation 63. Quality Green ON Cultivation 64. RedeCan Pharm ON Cultivation & Sale 65. RedeCan Pharm 2nd site ON Cultivation Production 66. Rock Garden Medicinals ON Cultivation 67. Solace Health ON Cultivation 68. Spectrum Cannabis ON Cultivation & Sale Cultivation & Sale 69. Sundial Growers AB Cultivation 70. Tantalus Labs BC Cultivation 71. THC Biomedical BC Cultivation & Sale Production & Sale Plants 72. THC Inc NS Cultivation & Sale Production & Sale 73. Green Organic Dutchman ON Cultivation & Sale 74. Tilray BC Cultivation & Sale Production & Sale 75. Tweed Grasslands ON Cultivation 76. Tweed Farms ON Cultivation & Sale 77. Tweed Inc. ON Cultivation & Sale Production & Sales Seeds 78. United Greeneries BC Cultivation & Sale 79. UP Cannabis ON Cultivation Production 80. Vert Cannabis QC Cultivation 81. We Grow B.C. BC Cultivation 82. WeedMD ON Cultivation & Sale Production & Sale Plants 83. Whistler Medical Marijuana BC Cultivation & Sale Production & Sale Plants 84. WILL Cannabis Group ON Cultivation To have your name removed from our distribution list, please send your request to letstokebusi-ness@gmail.com Your name will normally be removed within 24 hours of the receipt of your request.