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[Pages:12]Let's Toke Business

Week Ended April 13, 2017

Marijuana stocks choppy and trendless ahead of legalization news........................p1 Marijuana legalization: the process begins..........................................................p2 Special: a brief history of 420.............................................................................p6 Canopy and Aurora insider selling.......................................................................p9 Aphria reports strong third quarter financials........................................,............p10 Aurora tops up cash reserve to $150 million..........................................................p10 Alan Brochstein reports on Canadian Licensed Producers..................................p10 Bonify and MedReleaf raise LP total to 43..........................................................p10 See our recent articles on Seeking Alpha

Canadian Cannabis Companies Set to Advance on Legalization legislation April 3, 2017 Before You Can Sell LXRP High, You Must First Buy it Low March 17, 2017 Why Organigram Merits a 'Must Buy" Rating March 8, 2017 How Attorney General Sessions can Derail the Marijuana Gravy Train February 27, 2017 High Growth Cannabis Company Trading Less Than One Times Sales February 20, 2017 Reassessing the Ever Changing Outlook for Canadian Cannabis Stocks January 30, 2017 Update: My Confidence in Buying Organigram is Affirmed January 20, 2017

Marijuana Stock Market Review & Outlook

LTB MJ INDEX: 1wk +0.1% 1 mo -0.6% 3 mo -4.4% 6 mo +8.0% 1 yr +51.7%

The LTB Marijuana Composite limped to a third consecutive weekly gain as the Canadian government brought forward its bill to legalize marijuana. Although the week started strongly, it finished lacking strength in a holiday shortened week. Investors, it seems, did not see what they hoped for in the news from the government.

As Notre Dame football coach Lou Holtz said, "When all is said and done, more is said than

done." Although there were no unexpected surprises, the bill as presented lacked specifics. And we are sure investors were disappointed in the commitment to get Royal Assent for the bill by Canada Day next year.

The Licensed Producers gave back around half the gain it made in the week, posting a loss of 2.5% while the Low-Priced Index eked out a small gain of 0.6%. Below is a summary of the legislation followed by some market comments in the context of this information.

Marijuana Matters

Marijuana Legalization: the Process Begins

Summary and Conclusions (a) It is easy to forget this is a momentous occasion in history. Canada, a G7 country, has started the process of legalizing and regulating the use of cannabis. Given the Liberal majority, short of a force majeure type of event such as a world war, legalization in Canada is simply a matter of time. The government has promised the legalization steps will be concluded no later than Canada Day, July 1, 2018. That happens to be a Sunday so we can probably set the outside time limit at June 29, 2018. (b) This target is consistent with our long standing expectation that legalization is a 2018 event. We think it will happen several months earlier in the spring but it is unlikely to take place before then. This might be a negative surprise to existing dispensary operators and some investors who had been hoping/expecting it would happen sooner. (c) The major problem facing governments today with respect to cannabis is to keep a lid on costs resulting from regulation and taxation so that legal growers can sell their product profitably at reasonable prices. If black market prices substantially undercut legal suppliers, the goal of eliminating the criminal element will not be achieved. There is a limit that consumers will pay for assured quality from a legal source. (d) The legislation says the Cannabis Act is totally separate from the Access to Cannabis for Medical Purposes Regulations (ACMPR) that regulates medical marijuana already. The proposed legislation specifically states Licensed Producers under ACMPR become producers under this act. So again, the major winners are the Canadian LPs. (e) This legislation only applies to dried cannabis and oils. It does not apply to edibles. But it acknowledges edibles will be allowed in the future. It does not specify a possible timeline.

(f) Under Canada's three tiered system of government (Federal, Provincial/Territorial, Municipal), each level has certain governance responsibilities. It operates through the interaction of law and regulation. The Cannabis Act will be law that is put into effect by regulation. So the Cannabis Act says the minimum age is 18 and that is the law. The regulation, however, might say the minimum age is higher (not lower) and how much higher might differ from province to province.

(g) The Cannabis Act does not address some issues it must determine before legalization takes place. For example, it does not mention taxation of cannabis. This has a major impact on all levels of operations and governance except the criminal. Buyers, sellers, producers and governments must be able to determine the level of taxes that will be in effect.

(h) From an investment point of view, there may be some disappointment at the lack of detail provided. This information will be released over the next several months. Here are some thoughts: 1. The market hates uncertainty and it did not get the clarification it expected. So there could be a flat spot in prices. This might be true over the next couple of months as the political opposition voices its views against the legislation. But in the end there's nothing they can do to stop it. 2. Delay favors the Licensed Producers. Right now they have access to mountains of cash and each day that passes allows them to get farther ahead. So as I said before, we are likely to see more mergers and acquisitions, expansion into international markets and a buildup in revenue and EBITDA from medical marijuana sales. I like the group before and I like them even more now. My focus would be on Organigram, Aphria and Canopy Growth. 3. There were no large negative surprises in the material released by the government. So the smaller cap companies with the flexibility to adjust should be able to forge ahead in this climate. We like Lexaria, Namaste and Radient.

The Canadian marijuana legalization legislation was introduced as promised/expected on April 13, 2017 and there was a surprise from the outset. It came in the form of a second document. The first was a 143 page paper to be called the "Cannabis Act" that would probably qualify as a cure for insomnia. (The Cannabis Act bill) The second unexpected document was a 79 page paper described as "An Act to amend the Criminal Code (offences relating to conveyances) and to make consequential amendments to other Acts" that will be explained in more detail below. (read An Act to Amend the Criminal Code) Basically, the Federal Government is legalizing marijuana on the one hand and laying out the penalties for not obeying the law on the other. In a rather obvious political move, the amendments make it much easier for law enforcement to test for alcohol impaired driving. Upon reviewing this package, I was reminded of a quote by Notre Dame football coach Lou Holtz who said, "When all is said and done, more is said than done." This is the case with the Cannabis Act but we should not overlook the critical fact that the process to legalize marijuana in Canada has begun.

But the politics have also started so I want to explain a few things about Canadian government. If you hear a politician say the Federal Government has dumped all the heaving lifting in the Cannabis Act on the Provinces that is nonsense. Provinces have jurisdictional rights and the same politicians would have been saying the Federal government is riding roughshod over Provincial/Territorial rights had the Federal government tried to leave the Provinces and Territories out of it.

In Canada, we have three levels of Government with jurisdictions for the Federal and Provincial levels outlined starting in 1867.

1. Federal Government: the Fathers of Confederation decided the Federal Government should be responsible for matters that affect the whole country. This has come to include national defense, foreign affairs, banking, federal taxes, the post office, Aboriginal lands and criminal law

2. Provincial/Territorial Government: was given jurisdiction over matters of a particular interest to a province or territory including direct taxation, municipalities, school boards, hospitals (now includes regional heath care, property/civil rights and administration of civil and criminal justice.

3. Municipalities: over time, Provinces handed down authority to cities, towns and districts for local matters such as libraries, parks, water systems, local police, roadways and parking. Municipal governments will have a role in determining matters relating to marijuana dispensaries.

In Canadian government, a new bill such as the Cannabis Act, must first pass three readings in the House of Commons and three in the Senate before becoming law. To clarify, a bill is draft legislation that requires the assent of the House and Senate to become law. Legislation is written law in the form of Acts or statutes that are enacted by Parliament pursuant to a bill. Regulations are a form of law that defines the application and enforcement of legislation. Regulations are created under the authority of legislation and enacted by the party to whom this authority has been delegated in the legislation. It is also important to examine the process at work here. Here is a much abbreviated summary of the article that appeared in the Let's Toke Business newsletter for the week ended April 29, 2016. Here is a much abbreviated summary of an article that first appeared in the Let's Toke Business newsletter for the week ended April 29, 2016 that illustrates how the legislative process can function.

The purpose of First Reading in the House is to allow a bill to be printed and distributed to members of the House of Commons so it is automatic.

By Third Reading the haggling is over and Third Reading together with passage of the bill is almost always made as one motion.

This means all the debate occurs between First and Third Reading. The Liberals have a strong majority so the bills will pass but the Opposition can determine how loud and boisterous the process becomes.

Once adopted by the House, the bill goes to the Senate for consideration in a process similar to the House. The Senate usually makes amendments of an administrative nature but Senators have political affiliations and can delay the process.

When the House and Senate agree on the wording, the bill moves to receive a largely ceremonial Royal Assent and becomes law.

It is difficult to say how hard the Opposition Conservative Party will fight the bill. However we should not forget, anti-marijuana was a major plank in their last election campaign and in the current process of selecting a new leader, at least one candidate has vowed to reverse legalization. (read article here) Making a major battle less likely is the fact that recent polls show 68% of Canadians favor marijuana legalization. (read article here) In an argument you're going to lose anyway, it is more politically savvy to choose one where you are on the side of the majority.

From an investor point of view, the key question is timing. Fortunately, there is an excellent recent example that should provide some guidance and that is Bill C-14, a bill to allow medically assisted suicide. The bill was proposed by the Liberals, it was highly controversial and there was a disagreement between the House and the Senate. Bill C-14 had First Reading on April 14, 2016 and received Royal Assent on June 17, 2016. Given the House of Commons is scheduled to start its summer recess on June 24, 2017, the Marijuana Act will likely be approved before then.

Rather than force you to read all the details in the bill, here is a summary of what The Cannabis Act proposes that is important to us:

General:

1. The Access to Cannabis for Medical Purposes Regulations (ACMPR) remain in place and are separate from the Cannabis Act.

2. The Cannabis Act initially only allows dried marijuana and oils for consumption and seeds and plants for growing.

3. Approval of edibles is in the plans for the future. Persons of legal age can make edibles at home for personal use.

4. The taxation of recreational cannabis is not addressed at this time. 5. The government continues to stress that until the law is changed, the existing law remains in

effect. You ignore this fact at your own risk. Age/Possession:

1. The Federal minimum legal age for cannabis is 18 years. Provinces may set the minimum at a higher level if they so choose but they cannot set it lower.

2. In public, up to 30 grams (approximately one ounce) of cannabis or non-dried equivalent by persons 18 or older is allowed.

3. Four plants up to one meter in height can be grown in a residence of one adult 18 or older.

Dispensing: 1. Sales to be restricted to people age 18 and older but the age may vary by province. 2. If a regulated retail system is lacking, a person can mail/courier order from a Licensed Producer. 3. Products such as water pipes or accessories cannot be sold to people under 18. 4. Under no circumstances can cannabis be sold using vending machines. 5. The Task Force report recommended cannabis and alcohol not be sold at the same location. There is no prohibition against liquor stores selling marijuana.

Edibles: 1. Production and sale of edibles will be regulated by future legislation. 2. Adults 18 or older can produce edible cannabis food or drinks for personal use at home.

Penalties for marijuana offences: 1. A new offence will be created for selling cannabis to minors. 2. A new penalty for conviction of drug impaired driving will be imposed. 3. Persons under 18 will be fined up to $200 for possession of under 30 grams (approximately one ounce) of cannabis. 4. Exports of marijuana will remain a serious criminal offence. 5. Violations of the new regulations will be punishable by prison, and fines, as well as administrative fines up to $1,000,000. 6. Serious criminal penalties for selling to youth or advertising cannabis to youth: up to 3 years in prison, $5,000,000 in fines, or both. 7. Prison terms of up to 14 years for offences such as selling cannabis to minors, illegal distribution or sale of cannabis and for using a youth to commit a cannabis-related offence. 8. Allowable drug levels in drivers' blood tests are set at THC levels between 2 and 5 nanograms. If you exceed 5 nanograms, it is a $1,000 mandatory minimum fine on the first offence and up to 120 days in prison for a third offence. The penalty can range up to life in prison if you are driving impaired and are in an accident where there is loss of life.

Penalties outlined in the second document:

This document is "An Act to amend the Criminal Code (offences relating to conveyances) and to make consequential amendments to other Acts." What this means is the document is full of groups of words

with no context given that are to replace words in a certain section or subsection of a certain act. I have not gone through this myself. However, I did watch some of Ministers being interviewed and this material has been presented based on extensive discussion and legal advice. Of course, none of these changes have been enacted (although have no doubt, most will be) and none of the penalties have been tested in court.

Here are some of the interpretations from news reports: (a) There is an approach in this document that makes it easy for law enforcement to require people to provide bodily fluids and ultimately blood for testing. Some reports went so far as to say police don't even need any evidence to treat a person as if they are impaired. They don't have to smell alcohol or marijuana or see beer cans or a leftover joint. When various Ministers were asked about the Charter of Rights and Freedoms, their replies led me to conclude they had thought carefully about it before the fact. They said words to the effect that the imposition on an individual citizen's rights must be measured in the context of the public harm that might be avoided and there is serious property damage and loss of life due to impaired driving. (b) There is a concept inherent in this approach that the more serious the offence, the more serious the penalty. For example: 1. If you are impaired by drugs under their definition, you might be subject to a fine but if it's a third offence you might go to prison from 120 days. 2. If you are impaired by both drugs and alcohol, the penalty is more serious than if you are impaired by only one. 3. If you are impaired and are in an accident the penalty is more severe and if you kill someone, the penalty could be life in prison. (c) There is a clear effort to use penalties to discourage people from involving youth in crimes related to cannabis and other drugs. For example, if you involve someone who is over 12 and under 18 in a drug related crime, the penalty can be up to 14 years in prison. The same penalty can apply to someone who provides cannabis to a minor. (d) Some of this might be politically motivated, especially making it easier for law enforcement to gather evidence and increased penalties for alcohol related offences. Not everyone is in favor of marijuana and one outspoken group has been Mothers Against Drunk Driving (MADD). Some of these proposals might reduce their backlash.

Special: a Brief History of 420

April 20th ? a.k.a. 420 - is a day celebrating cannabis around the world, sometimes referred to as the "High Holidays." There are myths in the history of 420, pronounced `four twenty,' the most popular being 420 was a police code for suspected marijuana activity and stretching as far as Adolph Hitler's birthday. The former has turned out to be urban legend; the latter a historical fact. Hitler was born on April 20, 1889. It is now widely accepted 420 began 46 years ago in the Fall of 1971 with

the five students pictured to the left, at San Rafael High School (SRHS) in California. They called themselves the Waldos because they began meeting at a wall. The statue of Louis Pasteur at SRHS pictured to the right is said to be where the first 420 meetings took place. Members of the original group took on Waldo nicknames, for example, Dave Reddix is Waldo Dave and Steve Capper is Waldo Steve. They began to meet after school at 4:20 p.m. to try to use a "treasure map" to find a marijuana grow op rumored started and abandoned by a Coast Guard service member near

the Point Reyes Coast Guard station. The phrase began as `420 Louis' because the original five later began to meet at a statue of Louis Pasteur on the school campus. Eventually, the term was shortened to 420. The grow op was never found but the rest is history.

Some of the original Waldos, now in their 60's and living "normal" lives, have come forward as attitudes toward marijuana in California have eased. They kept original newspaper clippings and other memorabilia in a safety deposit box in the main office of the San Francisco Wells Fargo Bank. More examples can be found at their official website , To the left is the June 7, 1974 SRHS newspaper that references 420 and to the right is the original 420 flag documented in school records of the arts and crafts class where the flag was created. The Waldos have hard evidence dating back to 1971 and unless someone comes up with a reference pre-dating them, they are the official founders of 420.

The original Waldos are protecting and preserving their legacy as the only group with documented evidence supporting their version of history. A group calling themselves the Bebes have also laid claim to starting 420 but they have no documentation. There seem to have been two main forces behind the 420 popularity. First, when San Francisco became "less friendly," The Grateful Dead took up residence in Marin County. San Rafael became the home of Grateful Dead Productions. What better way for the Waldos to celebrate using cannabis than while listening to the Grateful Dead practice? Second, through this relationship, the counterculture term "420" entered the Grateful Dead subculture and moved around the country with the band.

But when High Times editor Steven Hager pictured left, sometimes referred to as the Grand Wizard of 420, began to actively promote 420 beyond Marin County, it reached a national and international audience. It was Hager who first promoted 4:20 p.m. as the socially correct time to toke up. In a time when attitudes toward marijuana were far more restrictive, 420 became a code. For example, if a handout promoting a social event ended with 420, it meant marijuana would be part of the festivities. Still 420 remained mostly underground and predominantly Californian until the early 1990's when a flyer promoting 420 began circulating at Grateful Dead concerts in Northern California. One of the flyers promoted a gathering on Mount Tamalpais, a.k.a. Mt. Tam that became a regular 420 meeting place until it was shut down by the police after a few years. Mount Tamalpais is located in and is a symbol of Marin County. This appears to be one of the earliest examples of a 420 event that did not involve the Waldos. This mysterious flyer, later republished by High Times, started the false rumor that 420 was a police code.

The term `420' is now well ensconced in our cultures. Not only has April 20th become an unofficial holiday for marijuana supporters, it has entered our lives in other ways. Because of the popularity of 420, road signs have had to be changed. In Colorado, the Mile Marker 420 sign on I-70 was stolen so often, the Colorado Department of Transportation displaying a sense of humor so often lacking with government officials and changed the sign to Mile Marker 419.99 while the Idaho Department of Transportation replaced their sign on Highway 95 to Mile Marker 419.9. When that sign was also stolen, they spray painted the point on the pavement. In Goodhue County, Minnesota, officials changed the "420 St" signs to "42X St."

There are other notable 420s as well. The California bill to regulate medical marijuana in 2003 was named California Senate Bill 420 in recognition of the growing importance of 420 in the cannabis culture. Some of the clocks in the film "Pulp Fiction" are set to 4:20. A contestant on the game show "The Price Is Right" became a YouTube celebrity by bidding $420 or $1,420 every time. Below is a copy of the original report we were able to find on the Internet provided to the Huffington Post for publication on April 20, 2015 by Steven Bloom. Bloom, pictured to the right, was the Publisher of , editor-in-chief of Freedom Leaf, co-author of Pot Culture and Reefer Movie Madness and the former editor of High Times. The text shown was first republished in the May 1991 High Times magazine.

This piece also promoted April 20th as a major marijuana holiday and time for celebration. By the early 1990's Debbie Goldsberry, founder of the medical marijuana dispensary, the Berkley Patients Group, began promoting professional events that brought 420 and marijuana together. In 1997, was created by High Times launching its entry into the digital world. In recent years, the centre of the 420 world has shifted from California to Colorado. Today Denver and Boulder have some of the largest 420 gatherings as does Vancouver, British Columbia, Canada. Of

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