Industry Update Health, Wellness and Lifestyle 22 July 2020 Tania Gonsalves, CFA | Analyst | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.687.6300 Scott McFarland | Associate | Canaccord Genuity Corp. (Canada) | [email protected] | 1.416.687.5437 Company Rating Price Target Health and wellness ESG themes Health, Wellness and Lifestyle BU-TSX Buy C$1.78 C$2.50 Key themes impacting the sector JWEL-TSX Hold C$37.03 C$30.00 Priced as of close of business 20 July 2020 Social factors play a major role for healthcare companies. This is understandable, given the high proportion of public funding and reimbursement they receive. Notable themes include accessibility and affordability of medical treatments, innovation and R&D (specifically within areas of high unmet need), and product liability. Over the past several years, drug prices and transparency have been heavily debated in the media and politics. Companies that charge exorbitant and unsubstantiated prices are cast as public villains. The primary argument used to defend high drug prices is the R&D expense required to discover novel treatments. Given the sector encompasses products that can quite literally mean life or death, product liability is another big theme. While healthcare companies address medical problems, wellness companies strive to prevent these problems in the first place by augmenting society’s nutrition, fitness, mental health, sleep and more. As a result, sustainable socially responsible investing goes hand-in-hand with the wellness industry. Key areas of focus are product liability, namely clean transparent ingredients, and “green” initiatives, such as limiting waste and natural resource consumption. Consumer education, and the resultant change in preferences, has been the biggest driver of the industry. How we measure company performance While none of the companies we cover explicitly publishes ESG targets or performance metrics, there are certain criteria we look at. For healthcare companies, this includes treatment prices versus standard of care, how accessible treatments are for lower- income populations (e.g., reimbursement, market penetration), investment in R&D as a percent of revenue, product efficacy (i.e., is it curative?) and safety (i.e., no recalls, major side effects, deaths). For wellness companies, we look at qualitative metrics such as initiatives that reduce waste and resource consumption. Which companies are doing it best? The companies that stand out within our universe are Burcon NutraScience and Jamieson Wellness. Burcon has invested millions into R&D to create innovative organic, non-GMO, plant- based proteins. These proteins are not only seen as significantly healthier than the animal counterparts, but their production results in multiple-fold lower greenhouse gas emissions and utilizes less freshwater and land than animal agriculture. The proteins will be manufactured and sold through JV partner Merit Functional Foods. Merit's production facility was designed to minimize energy consumption and recycle water, yielding carbon neutrality from day one. This is facilitated by its location in Manitoba, where it uses hydroelectricity, versus US plants that use coal fire. In fact, its location was one of the main reasons ESG-conscious Nestlé chose Merit as a supply partner. Jamieson has implemented formal environmental programs, such as Jamieson Forest, a 10-year partnership to restore over 120 acres of former Carolinian forest in the greater Windsor area in Ontario to offset its wood-fibre consumption. In 2011, the company installed solar panels at its Windsor plant. It is constantly looking for ways to reduce packaging and/or find more environmentally friendly alternatives. In terms of product liability, JWEL exceeds regulatory minimums via its rigorous “360 Pure” program and TRU-ID testing. The company is an active donor to several charities, including Vitamin Angels, the Canadian Cancer Society, and more recently, to COVID-19 frontline workers and their families. In response to COVID-19, JWEL also introduced a bonus program for staff required to be physically present and implemented stringent safety measures across its manufacturing and distribution facilities. Canaccord Genuity is the global capital markets group of Canaccord Genuity Group Inc. (CF : TSX) The recommendations and opinions expressed in this research report accurately reflect the research analyst's personal, independent and objective views about any and all the companies and securities that are the subject of this report discussed herein. 22 July 2020 7