gwph-10kt_20181231.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☑ NO ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☑ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☑ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 29, 2018, the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $3,793,000,000, based upon the closing price on the Nasdaq Global Market reported for such date. For purposes of this calculation only, this amount excludes ordinary shares and American Depositary Shares held by directors and executive officers and by each person who owns or may be deemed to own 10% or more of the registrant’s ordinary shares and American Depositary Shares at June 29, 2018.

As of February 20, 2019, 366,953,024 shares were outstanding including 351,116,424 shares held as American Depositary Shares, each representing twelve Ordinary Shares, par value £0.001 per share and 15,836,420 Ordinary Shares.

Portions of the registrant’s Definitive Proxy Statement with respect to its 2019 Annual Meeting of Shareholders are incorporated by reference into this transition report on Form 10-K in response to Part III.

We changed our fiscal year from a September 30 fiscal year to the calendar twelve months ending December 31. This transition report is for the three-month transition period of October 1, 2018 through December 31, 2018. References in this report to “fiscal year” refer to years ending September 30. References in this report to “transition period” refer to the three-month period ending December 31, 2018.

This transition report on Form 10-K (Transition Report) contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this Transition Report are forward-looking statements.

These forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors that could cause our actual results of operations, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results, as well as those of the markets we serve or intend to serve, to differ materially from those expressed in, or suggested by, these forward-looking statements. These forward-looking statements are based on assumptions regarding our present and future business strategies and the environment in which we expect to operate in the future. Important factors that could cause those differences include, but are not limited to:

Additional factors that could cause actual results, financial condition, liquidity, performance, prospects, opportunities, achievements or industry results to differ materially include, but are not limited to, those discussed under “Risk Factors” in Part I, Item 1A in this Transition Report and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”). Additional risks that we may currently deem immaterial or that are not presently known to us could also cause the forward-looking events discussed in this Transition Report not to occur. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify estimates and forward-looking statements. Estimates and forward-looking statements speak only at the date they were made, and we undertake no obligation to update or to review any estimate and/or forward-looking statement because of new information, future events or other factors. Estimates and forward-looking statements involve risks and uncertainties and are not guarantees of future performance. Our future results may differ materially from those expressed in these estimates and forward-looking statements. In light of the risks and uncertainties described above, the estimates and forward-looking statements discussed in this Transition Report might not occur, and our future results and our performance may differ materially from those expressed in these forward-looking statements due to, inclusive of, but not limited to, the factors mentioned above. Because of these uncertainties, you should not make any investment decision based on these estimates and forward-looking statements.

In this Transition Report, “GW Pharma,” the “Group,” the “Company,” “we,” “us” and “our” refer to GW Pharmaceuticals plc and its consolidated subsidiaries, except where the context otherwise requires.

We are a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from our proprietary cannabinoid product platform in a broad range of disease areas. In our 20 years of operations, we have established a world- leading position in the development of plant-derived cannabinoid therapeutics through our proven drug discovery and development processes, our intellectual property portfolio and regulatory and manufacturing expertise. Our lead cannabinoid product is Epidiolex oral solution CV, a pharmaceutical formulation of cannabidiol (CBD), for which we retain global commercial rights. Epidiolex was approved by the FDA on June 25, 2018 for the treatment of seizures associated with Lennox-Gastaut syndrome, or LGS, or Dravet syndrome, in patients two years of age and older. LGS and Dravet syndrome are severe childhood-onset, drug-resistant epilepsy syndromes. On September 28, 2018, the Drug Enforcement Agency (DEA) placed Epidiolex in Schedule V, the lowest restriction classification. Epidiolex became commercially available in the U.S. on November 1, 2018.

In Europe, we submitted an application for Epidiolex (which will be marketed under the brand name Epidyolex) to the European Medicines Agency’s, or EMA’s, Committee for Medical Products for Human Use (CHMP) in December 2017, and we expect an opinion from the CHMP on the application in the second quarter of 2019. We have received Orphan Drug Designation from the FDA for Epidiolex for LGS, Dravet syndrome and tuberous sclerosis complex, (TSC). We also received Orphan Designation from the EMA’s Committee for Orphan Medical Products (COMP) for Epidiolex for Dravet syndrome, LGS, and TSC. We continue to develop Epidiolex for additional indications, including the treatment of seizures associated with TSC and plan to commence a pivotal trial in the treatment of Rett syndrome.

Previously, we developed the world’s first plant-derived cannabinoid prescription drug, Sativex (nabiximols), which is approved for the treatment of spasticity due to multiple sclerosis in numerous countries outside the U.S. In the U.S., where we retain full rights, we met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval and are now in the process of planning a pivotal Phase 3 clinical trial, which we expect to start in the fourth quarter of 2019.

We have a deep pipeline of additional cannabinoid product candidates focusing primarily on orphan childhood-onset neurologic conditions and oncology. Our pipeline includes research in autism spectrum disorder (ASD) and Rett syndrome using both CBD and cannabidivarin (CBDV). We reported positive Phase 2 data for our CBD:THC product in the treatment of glioblastoma multiforme. We have also reported positive Phase 2 data for a CBD product in schizophrenia. In addition, we have received Orphan Drug Designation and Fast Track Designation from the FDA for intravenous CBD for the treatment of Neonatal Hypoxic Ischemic Encephalopathy (NHIE), for which a Phase 1 trial has been completed.

We launched Epidiolex on November 1, 2018 in the U.S. market after FDA approval for the treatment of seizures associated with LGS or Dravet syndrome in patients two years of age and older. The FDA confirmed orphan drug exclusivity for Epidiolex and granted us a rare pediatric disease voucher. Following the approval, DEA placed Epidiolex in Schedule V.

We have reported positive results from two LGS Phase 3 pivotal trials, both achieving the primary endpoint of a median reduction in monthly drop seizures compared with placebo. The first study compared a single Epidiolex 20 mg/kg dose arm to placebo in 171 patients (p=0.0135) and the second compared both a 20 mg/kg and 10 mg/kg Epidiolex dose arm to placebo in 225 patients (p=0.0047 and p=0.0016 respectively). In January 2018, the results of the single-dose LGS trial were published in The Lancet and in May 2018, the results of the second multi-dose trial were published in The New England Journal of Medicine.

We have also reported positive results from two Phase 3 pivotal trials in Dravet syndrome. The first study in 120 patients achieved the primary endpoint of a median reduction in monthly convulsive seizures of an Epidiolex 20 mg/kg dose arm compared with placebo (p=0.012). In May 2017, the results of this trial were published in The New England Journal of Medicine. In November 2018, the results of a second trial were announced which compared both a 20 mg/kg and 10 mg/kg Epidiolex dose arm to placebo in 199 patients. In this trial both doses achieved the primary endpoint of a median reduction in monthly convulsive seizures (p=0.0299 and p=0.0095, respectively).

Epidiolex demonstrated an acceptable safety profile in these Phase 3 pivotal trials. The most common adverse reactions that occurred in Epidiolex-treated patients were somnolence; decreased appetite; diarrhea; transaminase elevations; fatigue, malaise, and asthenia; rash; insomnia, sleep disorder and poor-quality sleep; and infections. The Company’s development program represents the only well-controlled clinical evaluation of a cannabinoid medication for patients with LGS and Dravet syndrome.

Our U.S. subsidiary, Greenwich Biosciences, markets Epidiolex through a commercial organization consisting of sales, medical affairs, marketing, and market access/payer teams. Our medical affairs organization has been in place for more than two years and includes 15 Medical Science Liaisons. Our U.S. marketing plan includes a combination of community neurology/epilepsy meetings, patient advocacy events, an extensive program for U.S. clinicians to share their Epidiolex experiences and a media-based awareness program.

The U.S. sales team includes two National Directors, eight Regional Managers and 66 Neurology Account Managers and is targeting approximately 5,000 physicians who treat patients with LGS or Dravet syndrome. To date, our sales team has interacted with approximately 70% of these target physicians, including all Level 3 and 4 epilepsy centers.

We set a list price for Epidiolex of $1,235 per 100mL bottle. Based on anticipated dosing and patient weight assumptions, we believe that this translates to a weighted average gross price of approximately $32,500 per patient per annum, which is in line with other branded anti-epileptic drugs used to treat these conditions. Our patient support programs provide patient and caregiver focused education and help provide resources that may lower patients’ out-of-pocket costs or provide product at no cost to eligible patients.

A number of national payers have now established favorable coverage policies for Epidiolex. Over 80% of all commercial lives (145 million) now have a coverage determination with 60% of these lives covered with either no prior authorization or prior authorization to label. In addition, 99% of state fee-for-service Medicaid have initiated Epidiolex coverage, with over 50% of them with either open access or simple prior authorization to label. With respect to managed Medicaid, approximately 90% of lives have a coverage determination with 30% of those lives requiring prior authorization to label and the balance in some cases requiring a second condition be met (e.g., as failure on another AED). We will continue to work toward ensuring that Epidiolex is reimbursed for appropriate use with minimal patient disruption.

We have begun transitioning the approximately 900 patients from our expanded access program (EAP) and open label extension (OLE) to commercial product and will work with physicians, likely through mid-2019, to gradually complete this process in a manner that ensures continuity of treatment.

According to the Epilepsy Foundation, approximately 3.4 million people in the U.S. live with epilepsy. According to Kwan and Brodie in the February 2000 edition of The New England Journal of Medicine, 36 percent of patients with epilepsy were pharmaco-resistant even after the use of three anti-epilepsy drugs (AEDs). Furthermore, it is recognized that some of those that do find relief often suffer side effects severe enough with their current medication that an alternative or adjunct treatment is often sought. The costs of uncontrolled epilepsy are significant, with direct and indirect costs associated with epilepsy totaling more than $15 billion per year. It is estimated that 50,000 epilepsy related deaths occur each year, more than breast cancer deaths annually.

According to Russ et al. in the February 2012 edition of Pediatrics, there are 466,000 childhood epilepsy patients in the U.S. and 765,000 patients in Europe, of which 30 percent, or about 140,000 patients in the U.S. and about 230,000 in Europe, are deemed medically intractable or pharmaco-resistant.

Dravet syndrome is a severe form of infantile-onset, genetic, drug-resistant epilepsy with a distinctive but complex electroclinical presentation. The clinical onset of Dravet syndrome occurs during the first year of life with clonic seizures (jerking) and tonic-clonic (convulsive) seizures in previously healthy and developmentally normal infants often associated with a high fever. Symptoms peak at about five months of age, and the latest onset beginning by 15 months of age. Other seizures develop between one and four years of age such as prolonged focal dyscognitive seizures and brief absence seizures. The duration of these seizures decreases during this period, while their frequency increases. Prognosis is poor, with death occurring in approximately 14 percent of children. Death can be caused by the seizures themselves, by infection due to prolonged periods of physical inactivity, or by the presence of advanced neurodegenerative disease or a compromised level of consciousness requiring a feeding tube. Death can also occur suddenly due to uncertain causes, often because of the relentless neurological decline or from Sudden Unexpected Death in Epilepsy. Patients develop intellectual disability and life-long ongoing seizures. Intellectual impairment varies from severe (50 percent of patients), to moderate (25 percent of patients), to mild (25 percent of patients). Patients rarely return to normal intellect.

According to Forsgren L. et al. in the 2004 edition of Epilepsy in Children, the incidence of epilepsy in the first year of life is 1.5 per 1,000 people, or, by our estimate, 6,450 new epilepsies per year worldwide. According to Dravet et al. in the 2012 edition of Epileptic Syndromes in Infancy, Childhood and Adolescence, up to 5 percent of epilepsies diagnosed in the first year of life are Dravet syndrome, equating to 320 new cases per year in the U.S. with a mortality rate that may be as high as 15 percent in the first 20 years of life. By our estimate, there are approximately 5,440 patients with Dravet syndrome in the U.S. under the age of 20 years. Applying the same assumptions in Europe, we believe there are an estimated 6,710 Dravet syndrome patients in the European Union under the age of 20 years.

A large percentage of cases of Dravet syndrome have a family history of epilepsy or convulsions. Heterozygous de novo mutations of the alpha 1 (α-1) subunit of the SCN1A gene, which encodes a voltage-gated sodium channel, are the cause of Dravet syndrome in 75 percent to 80 percent of patients and more than 500 SCN1A mutations have been reported to be associated with this disorder. The standard of care usually involves a combination of the following anticonvulsants: clobazam, clonazepam, leviteracetam, topirimate, valproic acid, ethosuximide or zonisamide. Stiripentol is approved for the treatment of Dravet syndrome in conjunction with clobazam and valproate and Epidiolex (CBD-OS) has been approved in the U.S. since June 2018. Several reports suggest that potent sodium channel blockers used to treat epilepsy actually increase seizure frequency in patients with Dravet syndrome. The most common of which are phenytoin, carbamazepine, lamotrigine and rufinamide. Management of this disease may also include a ketogenic diet, and physical and communication therapy. In addition to anti-convulsive drugs, many patients with Dravet syndrome are treated with anti-psychotic drugs, stimulants or drugs to treat insomnia.

LGS is a type of epilepsy with multiple types of seizures, particularly tonic (stiffening) and atonic (drop) seizures. According to Trevathan et al. in the December 1997 edition of Epilepsia, the estimated prevalence of LGS is between 3 percent and 4 percent of childhood epilepsy cases. LGS affects between 14,500 to 18,500 children under the age of 18 years in the U.S. and over 30,000 children and adults in the U.S. Eighty percent of children with LGS continue to experience seizures, psychiatric, intellectual and behavioral deficits in adulthood. Seizures due to LGS are hard to control and generally require life-long treatment.

Drug resistance is one of the main features of LGS. Generally, treatment requires broad spectrum AEDs and almost always polypharmacy. Treatment also depends on the seizure type as some treatments effective for one type of seizure may worsen another. The FDA approved treatments for LGS are: Epidiolex (cannabidiol-oral solution); Onfi (clobazam); Banzel (rufinamide); Lamictal (lamotrigine); Topamax (topirimate); and Felbatol (felbamate). These medicines are often used as adjunctive therapy with other AEDs and they show some efficacy, however, many also have severe undesirable side effects. Furthermore, several of these medicines are based on the same mechanism of action as traditional AEDs. As patients with LGS generally need to take several treatments to gain

any change to their seizure frequency, we believe that there remains a need for further pharmacological treatments, particularly those with a different mechanism of action, to give prescribers more options in treating this rare, pharmacoresistant syndrome.

We manufacture Epidiolex through utilization of in-house and external third-party facilities for various steps in the production process. We have expanded various parts of the production process both in-house and with external third parties in readiness for commercial launch. As part of the NDA review, the FDA pre-approval inspections of our manufacturing facilities did not result in any Form 483 observations. We are continuing to expand our Epidiolex manufacturing capacity in anticipation of post-U.S. launch and projected demand in Europe and elsewhere.

In Europe, we submitted a marketing authorization application in December 2017 for both the Dravet syndrome and LGS indications. In late November 2018, during the later stages of this review, the second successful Phase 3 pivotal study in Dravet syndrome was completed and the Company agreed with the regulatory authority to add this data to the application. Fully integrating this data, along with some necessary administrative Brexit-related changes, now results in an expected EMA/CHMP opinion in the second quarter of 2019. GW has recently initiated an Early Access Program in the five largest European countries in Europe, enabling patients with the most immediate need to gain access.

We continue to make good progress for the commercialization of Epidiolex in Europe and are planning launches in the five major European markets starting in 2019, with the exact timing dependent on securing the appropriate pricing reimbursement. Our commercial leadership team is fully recruited and in place. This experienced team, which includes several epilepsy disease experts, is focused on progressing the necessary pricing and reimbursement, medical and pre-commercial activities required to deliver a successful European launch. In particular, significant progress is being made on building the local country organizations in the five major European markets. This first wave of local recruitment, very much focused on leadership and medical staff, is now completed with the timing of the sales team recruitment wave linked to pricing and reimbursement process. Medical affairs activities are progressing well with national advisory boards now completed in all the major markets and significant presence and data exposure at key European and National Congresses.

TSC is a genetic disorder that causes non-malignant tumors to form in many different organs, primarily in the brain, eyes, heart, kidney, skin and lungs. The brain and skin are the most affected organs. TSC results from a mutation in tumor suppression genes TSC1 or TSC2. According to the Tuberous Sclerosis Alliance, TSC is estimated to affect approximately 50,000 patients in the U.S. The most common symptom of TSC is epilepsy, which occurs in 75 – 90 percent of patients, about 70 percent of whom experience seizure onset in their first year of life. Approximately 60 percent of these TSC patients (or approximately 25,000 patients in the U.S.) have treatment-resistant seizures. The seizures of TSC are typically focal in onset, meaning that they are localized to one region and hemisphere of the brain. There are significant co-morbidities associated with TSC including cognitive impairment in 50 percent, ASD in up to 40 percent and neurobehavioral disorders in over 60 percent of individuals with TSC.

Several patients with TSC have been treated with Epidiolex in the expanded access program. Treatment experience in 18 TSC patients with refractory epilepsy from the Massachusetts General Hospital for Children enrolled in the expanded access program has been published in Epilepsia (Hess et al. - 2016). The findings from this study suggest that cannabidiol may be an effective and well-tolerated treatment option for patients with refractory seizures in TSC, but the significance of such findings is limited without further study.

We are progressing a Phase 3 trial of Epidiolex in patients with TSC. This dose-ranging trial, which has been fully recruited (n=210), is a 16-week comparison of Epidiolex versus placebo to assess the safety and efficacy of Epidiolex as an adjunctive anti-epileptic treatment. The primary measure of this trial is the percentage change from baseline in seizure frequency during the treatment period. Primary endpoint seizure types include focal motor seizures with or without impairment of consciousness or awareness and generalized convulsive seizures. Data from this trial is expected in the first half of 2019. Subject to positive results, we expect to submit a supplemental NDA for Epidiolex in TSC in the fourth quarter of 2019.

Rett syndrome (RTT) is a rare, non-inherited, X-linked neurodevelopmental disorder affecting approximately 1 in 10,000 to 15,000 live female births. RTT is most commonly caused by heterozygous de-novo mutations in the gene encoding methyl-CpG-binding protein 2 (MeCP2) resulting in a loss of function of the MeCP2 protein. The condition affects predominantly females and it

results in abnormal neuronal development and function in affected children. The symptomatology of RTT is progressive, with early onset from about 6–18 months of life, followed by a rapid destructive phase at the age of 1 to 4 years. This stage is characterized by loss of purposeful hand skills, loss of spoken language, breathing and cardiac irregularities, microcephaly, and autistic-like behaviors. After the period of regression, patients enter a prolonged period of stabilization where most of the impairments associated with the destructive phase persist together with apraxia, motor problems, and seizures. Over time, the patient’s motor function continues to deteriorate, resulting in reduced mobility, scoliosis, rigidity, muscular weakness and spasticity.

There are no approved treatments for RTT. The management options target specific symptoms and are not without undesirable side effects. As such, there is currently a high unmet medical need. Data from animal models suggest CBD may be able to improve deficits in cognition, language, social behavior and motor function, as well as having the potential to modulate the cellular mechanisms thought to be involved in the neurobehavioral deficits present in RTT. In addition, clinical evidences from open label investigations in patients with refractory epilepsy suggest that Epidiolex may have beneficial effects on cognition, behavior and quality of life, which could benefit patients with RTT.

A Phase 3 trial of Epidiolex in patients with RTT is expected to start in the second quarter of 2019. It is an international multi-center, randomized, double-blind, placebo-controlled study to investigate safety and efficacy. The primary objective is to evaluate the efficacy of up to 24 weeks of treatment with Epidiolex, compared with placebo, in reducing symptom severity in patients with RTT using the Rett Syndrome Behavior Questionnaire (RSBQ) and the Clinical Global Impressions - Improvement (CGI-I).

In addition to the currently marketed Epidiolex oral solution formulation, we continue to develop additional formulations of CBD as part of its life cycle management plan. We are developing a capsule to provide more convenient administration, particularly for adults and older children across our target indications. We are also developing an improved oral solution and an IV formulation.

In addition to seven years of orphan exclusivity plus the expected six-month pediatric extension (to be filed), we seek to protect Epidiolex through the expansion of our patent portfolio. Our patent portfolio relating to the use of CBD in the treatment of epilepsy includes 28 distinct patent families that are either granted or filed. Most of the patent families in this portfolio claim the use of CBD in the treatment of particular childhood epilepsy syndromes, seizure sub-types and interactions with other concomitantly dosed anti-seizure drugs. To date, we have obtained twelve patents and received notices of allowance for a further application from the U.S. Patent and Trademark Office, or USPTO, including claims for the use of CBD for the treatment of convulsive, drop and atonic seizures associated with both LGS and Dravet syndrome, as well as the use of CBD with clobazam, and the teaching that dose adjustment may be needed when concomitantly prescribed. Some of these patents are directly aligned with the Epidiolex label and we have listed them in the Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the Orange Book). These patents have expiry to 2035. We continue to identify novel findings and submit patent applications resulting from the Epidiolex development program and we expect additional grants from these applications.

Sativex is an oromucosal spray of a formulated extract of the cannabis sativa plant that contains the principal cannabinoids delta-9-tetrahydrocannabinol, or THC, and CBD in a 1:1 ratio as well as specific minor cannabinoids and other non-cannabinoid components (the product has been granted the U.S. Adopted Name, or USAN, of nabiximols). We developed Sativex to be administered as an oromucosal spray, whereby the active ingredients are absorbed in part in the lining of the mouth, either under the tongue or inside the cheek. At this time, we have received regulatory approval for Sativex in numerous countries outside the U.S.

In December 2017, we terminated our license agreement with Otsuka Pharmaceutical Co., Ltd., in relation to Sativexin the U.S. and we have reacquired full ownership of the development and commercialization rights to the product in the U.S. In the U.S., we met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval of Sativex and are now in the process of planning a pivotal Phase 3 clinical trial, which we expect to commence in the fourth quarter of 2019.

Beyond an initial target U.S. indication of spasticity in MS, we believe that Sativex has significant additional market potential. We have completed over 10 placebo-controlled trials and believe there is the potential for future development of multiple indications.

To support the development and commercialization of Sativex internationally, we have license and development agreements with the following major pharmaceutical companies: Almirall S.A., or Almirall, in Europe (excluding the U.K.) and Mexico; Bayer

HealthCare AG, or Bayer, in the U.K. and Canada; Ipsen Biopharm Ltd, or Ipsen, in Latin America (excluding Mexico and the Islands of the Caribbean); Neopharm Group, or Neopharm, in Israel; and Emerge Health in Australia and New Zealand. These agreements provide our collaborators with the sole right to commercialize Sativex in exclusive territories for all indications.

Our strategy is to seek and obtain patents related to Sativex across all major pharmaceutical markets around the world. In the U.S., our patents (and our pending applications if they issue) relating to Sativex would expire on various dates between 2021 and 2029, excluding possible patent term extensions. We have at least seven different patent families containing one or more pending and/or issued patents directed to the Sativex formulation, the extracts from which Sativex is composed, the extraction technique used to produce the extracts and the therapeutic use of Sativex.

The cannabis plant is the unique source of more than 70 structurally related, plant-derived cannabinoids. Although one cannabinoid, THC, is known to cause psychoactive effects associated with the use of illicit herbal cannabis, none of the other cannabinoids are known to share this property. In recent decades, there have been major scientific advances that have led to the discovery of new plant-derived cannabinoids and a cannabinoid receptor system in the human body, or endocannabinoid system. We are at the forefront of this new area of science, and we believe that our proprietary cannabinoid product platform uniquely positions us to discover and develop cannabinoids as new therapeutics.

With the exception of Sativex, which is subject to licensing agreements described above, we retain global commercial rights to all of our product pipeline candidates.

Product/Product Candidates	Indication	Partner(s)	Status	Expected Next Steps

Epidiolex (CBD)	Childhood-onset epilepsy Initial targets: Treatment of seizures in LGS and Dravet syndrome in patients two years of age and older	We retain global rights.	Approved by the FDA and launched in the U.S. Under review by EMA in Europe.	CHMP opinion expected in Q2 2019.

	Additional targets: TSC		Phase 3 trial in TSC fully recruited.	Data from Phase 3 TSC trial expected in H1 2019. Subject to positive results, sNDA in Q4 2019.

	Rett syndrome			IND for pivotal trial submitted. Trial expected to commence H1 2019.

GWP42006 (CBDV)	ASD	We retain global rights.	Company-sponsored IND submitted Nov. 2018. Investigator led placebo-controlled trial in autism; expanded access IND to treat seizures associated with autism underway.	Company sponsored open-label trial expected to commence H1 2019. Investigator-led placebo-controlled trial expected to commence H1 2019.

	Rett syndrome		Investigator-led Phase 2 open label trial in Rett syndrome. FDA orphan designation in Rett syndrome.	Trial expected to commence H1 2019.

	Epilepsy		Phase 2a trial completed.	Under evaluation.

Intravenous GWP42003	Neonatal hypoxic-ischemic encephalopathy	We retain global rights.	Phase 1 trial in healthy volunteers complete.	Phase 2 trial due to commence H2 2019.

Product/Product
Candidates

Indication

Partner(s)

Status

Expected Next Steps

Sativex (nabiximols)

MS spasticity (ex- U.S.)

Almirall, Bayer, Ipsen and Neopharm

Approved in numerous countries.

MS spasticity (U.S.)

We retain rights.

FDA meeting completed in December 2018.

Pivotal Phase 3 trial expected to commence in Q4 2019.

Pain/other neurological symptoms

Multiple placebo-controlled trials completed.

Pivotal program in planning.

Combination of CBD and THC

Glioblastoma

We retain global rights.

Phase 2 trial complete and reported in February 2017. Data presented at ASCO. FDA orphan designation.

Pivotal clinical program under evaluation.

GWP42003

Schizophrenia

We retain global rights.

Positive Phase 2 proof-of-concept.

Phase 2b trial under evaluation.

GWP42006 features CBDV as the primary cannabinoid. CBDV has shown anti-epileptic properties across a range of in vitro and in vivo models of epilepsy.

We have also evaluated GWP42006 in both general and syndromic pre-clinical models of ASD yielding promising signals on cognitive and social endpoints as well as repetitive behavior. These animal models include both genetically determined abnormalities of neurobehavioral, and chemically-induced models, and include Rett syndrome and Fragile X among others. Many of the pediatric intractable epilepsy conditions within the Epidiolex expanded access program share considerable overlap with ASD and these conditions often fall within the orphan disease space. Initial clinical observations from treating physicians suggest a potential role for cannabinoids in addressing problems associated with ASD such as deficits in cognition, behavior and communication.

We have completed a Phase 1 trial of GWP42006 in 66 healthy subjects. In the trial, GWP42006 was generally well tolerated. More patients in the active group (73 percent) experienced treatment emergent adverse events compared to the placebo group (48 percent). A majority of the GWP42006 patients experienced adverse events of mild or moderate severity. The incidence of serious adverse events was low (3.7 percent on active compared to 1.2 percent on placebo).

We are working on various clinical initiatives for CBDV within the field of ASD. A physician-led expanded access IND is underway to treat seizures associated with autism in 30 patients. An investigator-led 100 patient placebo-controlled trial in autism is expected to commence in the first half of 2019. In November 2018, we filed an IND for a company-sponsored trial in ASD, which we expect to commence in 2019. An open-label proof of concept study is expected to commence in the first half of 2019 evaluating CBDV in 30 children with Rett syndrome and seizures. CBDV in Rett Syndrome has received Orphan Drug Designation from the FDA.

In February 2018, we announced that a Phase 2a study of CBDV in adult patients with focal seizures did not meet its primary endpoint and showed a favorable safety and tolerability profile. We are currently evaluating next steps for this indication.

We have a portfolio of intellectual property relating to CBDV for use in various indications including epilepsy and autism spectrum disorder. These patent families include issued and pending claims to use of CBDV alone or in combination with standard anti-epileptic drugs in the treatment of seizures, and pending claims to the use of CBDV in the treatment of ASD and associated conditions. Other families include pending claims directed to the use of CBDV in other therapeutic areas such as neuropathic pain, Alzheimer’s disease and Duchenne’s disease, CBDV compositions and CBDV extracts. We anticipate additional patent applications being filed as new data is generated.

We are evaluating a combination product containing GWP42002:GWP42003 (CBD:THC, as well as specific minor cannabinoids and other non-cannabinoid components) in the treatment of recurrent glioblastoma multiforme, or GBM, a particularly aggressive brain tumor. We have received Orphan Drug Designation from the FDA and the EMA for this indication.

GBM describes any tumor that arises from the glial tissue of the brain. GBM is a particularly aggressive tumor that forms from abnormal growth of glial tissue. According to the New England Journal of Medicine, GBM accounts for approximately 46 percent of the 22,500 new cases of brain cancer diagnosed in the U.S. each year. Treatment options are limited and expected survival is a little over one year. GBM is considered a rare disease by the FDA and the EMA.

In 2017, we completed a placebo-controlled Phase 2 study of a combination of CBD and THC in recurrent glioblastoma multiforme, or GBM. This study, which evaluated a number of safety and exploratory efficacy endpoints, showed that patients with documented recurrent glioblastoma treated with this product as add-on therapy to dose-intense temozolomide, had an 83 percent one-year survival compared with 44 percent for patients on placebo (plus dose-intense temozolomide) (p=0.042). Preliminary data showed that median survival time for the CBD:THC group was 662 days compared with 369 days in the placebo group. Further follow-up demonstrates continued increased survival in the CBD:THC arm. CBD:THC was generally well tolerated with treatment emergent adverse events leading to discontinuation in two patients in each group. The most common adverse events (three patients or more and greater than placebo) were vomiting, dizziness, nausea, headache, and constipation.

We believe that the signals of efficacy demonstrated in this study further reinforce the potential role of cannabinoids in the field of oncology and provides us with the prospect of a new and distinct cannabinoid product candidate in the treatment of additional oncology indications.

Our portfolio of intellectual property related to the use of cannabinoids in oncology includes a number of issued patents and pending applications in both the U.S. and Europe. This portfolio is directed to the use of various cannabinoids individually or in combination, in the treatment of a variety of oncology-specific disorders and product formulations.

NHIE is acute or sub-acute brain injury due to asphyxia caused during birth resulting from deprivation of oxygen, referred to as hypoxia, as a result of a sentinel event such as ruptured placenta, parental shock and even increased heart rate. Hypoxic damage can occur to most of the infant’s organs, but brain damage is the most serious and least likely to heal, resulting in encephalopathy. This can later manifest itself as either mental retardation (including developmental delay and/or intellectual disability) or physical disabilities such as spasticity, blindness and deafness. Spastic diplegia and the other manifestations of cerebral palsy almost always feature asphyxiation during the birth process as a contributing factor. The exact timing and underlying causes of these outcomes remains unknown, but it is widely stipulated that interventions need to be administered within six hours of the hypoxic insult.

According to Kurinczuk. et al. in the 2010 edition of Early Human Development, the incidence of NHIE is 1.5 to 2.8 per 1,000 births in the U.S., or, by our estimate, 6,500 to 12,000 cases per year. Of these, 35 percent are expected to die in early life and 30 percent of cases will result in permanent disability. There are currently no FDA-approved medicines specifically indicated for NHIE. The only FDA-approved treatment is the Olympic Cool-Cap System and treatment guidelines in many European countries also support use of whole-body hypothermia.

We held a pre-IND meeting with the FDA to discuss the development program for an intravenous CBD formulation in the treatment of NHIE. In April 2015, we received Orphan Drug Designation from the FDA for CBD for the treatment of NHIE and in July 2015 we received fast track designation. In July 2015 we received Orphan Drug Designation from the EMA for CBD for the treatment of perinatal asphyxia, an alternate term that describes the same condition. A Phase 1 trial of intravenous GWP42003 in healthy volunteers is now complete and we are planning for a Phase 2 trial to commence in the second half of 2019.

Our portfolio of intellectual property related to the use of cannabinoids in NHIE includes a number of issued patents and pending applications in both the U.S. and Europe. This portfolio is directed to the use of cannabidiol in the treatment of NHIE and product formulations.

Schizophrenia is a chronic disease that manifests through disturbances of perception, thought, cognition, emotion, motivation and motor activity. Over a lifetime, about 1 percent of the population will develop schizophrenia cross-culturally. All antipsychotic treatments for schizophrenia rely primarily upon their antagonistic action at the dopamine D2 receptor for their antipsychotic effect. They produce a wide range of adverse events and are often poorly tolerated by patients resulting in poor compliance with treatment.

Current antipsychotics also have little or no effect upon the negative symptoms (blunted mood and lack of pleasure, motivation and movement) of schizophrenia or the associated cognitive deficit. Furthermore, the positive symptoms (such as hallucinations, delusions and thought disorder) of at least one-third of patients fail to respond adequately to current treatments.

GWP42003 features CBD as the primary cannabinoid and has shown notable anti-psychotic effects in accepted pre-clinical models of schizophrenia and importantly has also demonstrated the potential to reduce the characteristic movement disorders induced by currently available anti-psychotic agents. In September 2015, we announced positive top line results from an exploratory Phase 2 placebo-controlled clinical trial of GWP42003 in 88 patients with schizophrenia who had previously failed to respond adequately to first line anti-psychotic medications. Over a series of exploratory endpoints, GWP42003 was consistently superior to placebo, with the most notable differences being in the PANSS positive sub-scale (p=0.019), the Clinical Global Impression of Severity (p=0.04) and Clinical Global Impression of Improvement (p=0.018). The safety profile of GWP42003 was reassuring, with no serious adverse events and an overall frequency of adverse events similar to placebo.

We are evaluating appropriate next steps regarding product development in schizophrenia.

Our portfolio of intellectual property related to the use of cannabinoids in schizophrenia includes a number of issued patents and pending applications in both the U.S. and Europe. This portfolio is directed to the use of various cannabinoids individually or in combination with other cannabinoids or antipsychotic medications in the treatment of schizophrenia or side effects relating to schizophrenia.

Our goal is to capitalize on our leading position in the field of plant-derived cannabinoid therapeutics by pursuing the following strategies:

We have established a world-leading position in cannabinoid therapeutics through our proven proprietary cannabinoid product platform. Our platform consists of a continually evolving library of internally generated novel cannabis plant types that produce selected cannabinoids, discovery of novel cannabinoid pharmacology through our network of world leading scientists, a global intellectual property portfolio, in-house formulation, processing and manufacturing capabilities, and development and regulatory expertise. We further believe that we are in a unique position to develop and manufacture plant-derived cannabinoid formulations worldwide at sufficient quality, uniformity, scale and sophistication for the purposes of pharmaceutical development and to meet international regulatory requirements.

Although one cannabinoid, THC, is known to cause specific euphoric effects, no other cannabinoid is known to share these properties. In recent decades, there have been major scientific advances that have led to the discovery of new plant-derived cannabinoids and the endocannabinoid system. We are at the forefront of this science and our research into a large number of these cannabinoids suggests that each has distinct pharmacological effects. Although more studies are required to establish the clinical significance of these effects, they clearly have the potential to have therapeutic applications.

There are at least two types of cannabinoid receptors, CB1 and CB2, in the human endocannabinoid system. CB1 receptors are considered to be among the most widely expressed G protein-coupled receptors in the brain and are particularly abundant in areas of the brain concerned with movement and postural control, pain and sensory perception, memory, cognition, emotion, and autonomic and endocrine function. CB1 receptors are also found in peripheral tissues including peripheral nerves and non-neuronal tissues such as muscle, liver tissues and fat. CB2 receptors are expressed primarily in tissues in the immune system and are believed to mediate the immunological effects of cannabinoids. In addition, research suggests that beyond this endocannabinoid system non-THC cannabinoids interact with other important neurotransmitter and neuromodulatory systems in the human body, including G-protein coupled receptors (GPR55), TRP channels, adenosine uptake and serotonin receptors. The far-reaching and diverse pharmacology of the numerous cannabinoids provides significant potential for development of cannabinoid therapeutics across many indications and disease areas.

Our approach to early product development of novel cannabinoids consists of the following stages:

Cannabinoid Chemotype Development. Our research activities commence with the generation of novel and proprietary cannabinoid plant types that produce selected cannabinoids. Our plant geneticists breed unique and protected chemotypes, or plants characterized by their chemical content, such that we can precisely control the cannabinoid composition of a plant. We employ traditional and molecular methods of plant breeding, with no use of genetic modification. We select chemotypes on the basis of their cannabinoid profile, appropriate levels of ingredients and botanical characteristics that enable commercial viability.

Active Pharmaceutical Ingredient Preparation. After we generate the unique chemotypes, we develop and characterize preparations from an extract of the chemotype. In addition to preparing whole plant extracts, we also modify the extract preparations by adding or removing certain components or purifying preparations to produce a purified cannabinoid. Each of these steps may give rise to patentable inventions.

Pharmacologic Evaluation. We then conduct in vitro and in vivo pharmacologic evaluation studies in validated disease models, testing the potential activity, safety and routes of drug metabolism of each cannabinoid preparation as well as combinations of preparations. These studies seek to identify the pharmacology of cannabinoid preparations and allow us to determine the potential therapeutic area in which they might have promise. We then conduct additional pharmacology, toxicology and pre-clinical development on promising preparations.

We conduct most of our pharmacologic evaluations in collaboration with cannabinoid scientists at academic institutions around the world. We enter into research collaboration agreements and other arrangements that enable us to benefit from the expertise of external scientists while retaining intellectual property rights that emerge from the study of our research materials.

Product Composition and Formulation Development. In parallel with the later stages of pharmacological evaluation, we identify optimum extraction and processing methods for the most promising preparations and then develop clinical formulations from the plant extract and analytical methodologies to further study the formulations. We are able to develop formulations of potential product candidates that focus on one or more cannabinoids as key active constituents, those that harness the complexity of the whole plant extract, as well as formulations that focus on a single cannabinoid. Each of these steps may give rise to patentable inventions.

With respect to complex extracts, our formulation approach is exemplified by Sativex, the first approved cannabinoid therapeutic based on whole plant extracts from the cannabis plant. The main active ingredients of Sativex, THC and CBD, are extracted from two proprietary chemotypes. In addition to THC and CBD, Sativex contains additional cannabinoid and non-cannabinoid plant components. In order to achieve a fully standardized formulation of these complex extracts, we employ a range of

advanced analytical technologies to demonstrate batch-to-batch uniformity. We standardize the formulation across the extract as a whole, not simply by reference to their key active components.

With respect to pure cannabinoid formulations, our approach is exemplified by Epidiolex. The active ingredient, CBD, is extracted from proprietary CBD containing chemotypes and then undergoes various processing steps to generate the isolated highly-purified compound.

Clinical development. Selected cannabinoid product candidates progress into clinical development. We have an in-house clinical operations team that has the proven capability to execute Phase 1, 2, 3 and 4 trials rapidly and cost effectively, and to support regulatory approvals. Since our inception, we have undertaken an extensive program of clinical trials in over 7,000 patients, including over 50 Phase 2 and Phase 3 trials and have undertaken post-market studies involving over 1,000 patients.

We are responsible for the manufacture and supply of our products for commercial and clinical purposes. Some of these manufacturing activities are contracted to external third parties. We operate under GMP manufacturing licenses issued by the Medicines and Healthcare products Regulatory Agency, or MHRA, in the U.K. and our facilities have been audited by the MHRA, the FDA, and other international agencies. We have extensive in-house experience in production of botanical raw material, pharmaceutical production, quality control, quality assurance and supply chain management.

We have successfully exported cannabinoid commercial or research materials to more than 30 countries and have the necessary in-house expertise to manage the import/export process worldwide. For Epidiolex, our supply chain partners have obtained the permits and licenses necessary to support importation into the U.S. We have substantial expertise in, and experience with, relevant international, U.S. federal, and U.S. state regulations in relation to the research, distribution and commercialization of cannabinoid therapeutics. We have formed relationships with relevant international, U.S. federal, and U.S. state agencies in order to enable licensing of research sites, establishing appropriate product distribution channels and securing licensed storage, obtaining import/export licenses, and facilitating amendments to relevant legislation if required for commercialization.

Our success depends in significant part on our ability to protect the proprietary elements of Epidiolex, Sativex and our other product candidates, technology and know-how, to operate without infringing on the proprietary rights of others, and to defend challenges and oppositions from others and prevent others from infringing on our proprietary rights. We have sought, and will continue to seek, patent protection in the U.S. and other countries for our proprietary technologies. Our intellectual property portfolio at January 31, 2019, includes 85 patent families with issued and/or pending claims directed to plants, plant extracts, extraction technology, pharmaceutical formulations, drug delivery and the therapeutic uses of cannabinoids, as well as plant variety rights, know-how and trade secrets. From these families, as of January 31, 2019, we own and/or license 265 pending patent applications worldwide. Within the U.S., we have 53 issued patents with a further 40 pending patent applications under active prosecution. There are an additional 622 issued patents outside of the U.S. Our policy is to seek patent protection for the technology, inventions and improvements that we consider important to the development of our business, but only in those cases where we believe that the costs of obtaining patent protection is justified by the commercial potential of the technology, and typically only in those jurisdictions that we believe present significant commercial opportunities.

We also rely on trademarks, trade secrets, know-how and continuing innovation to develop and maintain our competitive position.

Our strategy is to seek and obtain patents related to our products across all major pharmaceutical markets around the world. We have a portfolio of intellectual property relating to the use of CBD in various conditions, including epilepsy and schizophrenia; the use of CBDV in various conditions, including ASD and epilepsy; and the use of CBD:THC in glioblastoma. We also hold several patent families covering Sativex. We anticipate additional patent applications being filed as new data is generated.

Under the 2007 research collaboration agreement with Otsuka, which expired in June 2013, all intellectual property (including both patents and non-manufacturing related know-how) that was conceived by either Otsuka or us during the course of the collaboration is jointly owned by Otsuka and us. We have an exclusive sub-licensable royalty-bearing license to it both outside and within the fields of CNS and oncology.

The term of individual patents depends upon the countries in which they are obtained. In most countries in which we have filed, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the U.S., a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office, or PTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over another patent.

The term of a patent that covers an FDA-approved drug may also be eligible for extension, which permits term restoration as compensation for the term lost during the FDA regulatory review process. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits an extension of up to five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. Extensions cannot extend the remaining term of a patent beyond 14 years from the date of product approval and only one patent applicable to an approved drug may be extended. Similar provisions to extend the term of a patent that covers an approved drug are available in Europe and other non-U.S. jurisdictions; indeed Supplementary Protection Certificates have been applied for such that the European formulation patent for Sativex will be extended to 2025 in Europe. We may apply for extensions on patents covering FDA approval of Epidiolex.

To protect our rights to any of our issued patents and proprietary information, we may need to litigate against infringing third parties, avail ourselves of the courts or participate in hearings to determine the scope and validity of those patents or other proprietary rights.

We also rely on trade secret protection for our confidential and proprietary information, and it is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us.

From time to time, in the normal course of our operations, we will be a party to litigation and other dispute matters and claims relating to intellectual property. One of our European patents is currently the subject of appeal proceedings following successfully overcoming the opposition filed against it. Such proceedings may result in claims in these patents being narrowed or cancelled such that the scope of the patent may not be as broad, or the patent may be revoked in its entirety. Our U.S. patent claiming the use of CBD in the treatment of partial seizures is also subject of a petition for inter partes review by the Patents Trial and Appeal Board of the USPTO. A hearing was held in April 2018 and a final decision was issued in January 2019. Claims 1 and 2 of the patent were invalidated and the remaining claims remain. An interference action was commenced in January 2019 against our U.S. patent claiming the use of a 1:1 ratio CBD:THC in the treatment of glioblastoma multiforme. A final decision in this matter is not expected until late 2020/early 2021. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict and our view of these matters may change in the future as the litigation and events related thereto unfold. An unfavorable outcome to any legal matter, if material, could have a materially adverse effect on our operations or our financial position, liquidity or results of operations.

The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our scientific knowledge, technology and development experience provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions, governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. We are aware of exploratory research into the effects of THC and CBD drug formulations. We are aware of discovery research within the pharmaceutical industry into synthetic agonists and antagonists of CB1 and CB2 receptors. We are also aware of companies that supply synthetic cannabinoids and cannabis extracts to researchers for pre-clinical and clinical investigation. We are also aware of various companies that cultivate cannabis plants with a view to supplying herbal cannabis or nonpharmaceutical cannabis-based formulations to patients. These activities have not been approved by the FDA.

Patients in the U.S. suffering from seizures associated with Dravet or LGS are treated with a variety of FDA-approved products, including cannabidiol, clobazam, clonazepam, valproate, lamotrigine, levetiracetam, rufinamide, topiramate, ethosuximide, and zonisamide. In addition, Insys Therapeutics, Inc. has publicly stated its intention to develop CBD for infantile spasms and potentially other orphan indications. Zogenix, Inc. is developing low-dose fenfluramine in Dravet syndrome, for which it has reported positive Phase 3 results and in February 2019, submitted regulatory applications in both the U.S. and Europe. Stiripentol has been approved in Europe for several years to treat Dravet syndrome and was recently approved by the FDA. Zynerba Pharmaceuticals, Inc. is developing a topical formulation of CBD, for which it has commenced a pivotal trial in Fragile X syndrome.

In both MS spasticity and cancer pain, Sativex aims to treat patients who do not respond adequately to standard care. In MS spasticity, such treatments include baclofen and tizanidine, and in cancer pain such treatments include morphine and other opioids.

With respect to CBD, a number of nonapproved and nonstandardized artisanal, vernacular CBD preparations derived from crude herbal cannabis have been made available in limited quantities by producers of “medical marijuana” in the U.S. We have never endorsed or supported the idea of distributing or legalizing crude herbal cannabis, or preparations derived from crude herbal cannabis, for medical use and do not believe prescription cannabinoids are the same, and therefore competitive with, crude herbal cannabis. We have consistently maintained that only a cannabinoid medication, one that is standardized in composition, formulation and dose, administered by means of an appropriate delivery system, and tested in properly controlled pre-clinical and clinical studies, can meet

the standards of regulatory authorities around the world, including those of the FDA. We have also repeatedly stressed that these regulatory processes provide important protections for patients, and we believe that any cannabinoid medication must be subjected to, and satisfy, such rigorous scrutiny.

In the U.S., pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act, or the FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as imposition of clinical holds, FDA refusal to approve pending NDAs, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, civil penalties and criminal prosecution.

Pharmaceutical product development in the U.S. typically involves pre-clinical laboratory and animal tests and the submission to the FDA of an IND, which must become effective before clinical testing may commence. For commercial approval, the sponsor must submit adequate tests by all methods reasonably applicable to show that the drug is safe for use under the conditions prescribed, recommended or suggested in the proposed labeling. The sponsor must also submit substantial evidence, generally consisting of adequate, well-controlled clinical trials to establish that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended or suggested in the proposed labeling. In certain cases, the FDA may determine that a drug is effective based on one clinical study plus confirmatory evidence. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.

Pre-clinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the pre-clinical tests must comply with federal regulations and requirements, including the FDA’s good laboratory practices regulations and the U.S. Department of Agriculture’s (USDA’s) regulations implementing the Animal Welfare Act. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long-term pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.

A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not imposed a clinical hold on the IND or otherwise commented or questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.

Clinical trials involve the administration of the investigational new drug to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations, (ii) in compliance with GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators and monitors, and (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.

The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time or impose other sanctions if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The trial protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements or may impose other conditions.

Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In general in Phase 1, the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases, the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. The FDA may, however, determine that a drug is effective based on one clinical study plus confirmatory

evidence. Only a small percentage of investigational drugs complete all three phases and obtain marketing approval. In some cases, the FDA may require post-market studies, known as Phase 4 studies, to be conducted as a condition of approval in order to gather additional information on the drug’s effect in various populations and any side effects associated with long-term use. Depending on the risks posed by the drugs, other post-market requirements may be imposed.

After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. The FDA approval of the NDA is required before marketing of the product may begin in the U.S. The NDA must include the results of all pre-clinical, clinical, and other testing and a compilation of data relating to the product’s pharmacology, chemistry, manufacture, and controls. The cost of preparing and submitting an NDA is substantial. Under federal law, the submission of most NDAs is additionally subject to a substantial application user fee, for fiscal year 2018 $2,421,495, and the manufacturer and/or sponsor under an approved NDA are also subject to annual program fees, for fiscal year 2018 $304,162.

The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review. Under the statute and implementing regulations, the FDA has 180 days (the initial review cycle) from the date of filing to issue either an approval letter or a complete response letter, unless the review period is adjusted by mutual agreement between the FDA and the applicant or as a result of the applicant submitting a major amendment. In practice, the performance goals established pursuant to the Prescription Drug User Fee Act have effectively extended the initial review cycle beyond 180 days. The FDA’s current performance goals call for the FDA to complete review of 90 percent of standard (non-priority) NDAs within 10 months of receipt and within six months for priority NDAs, but two additional months are added to standard and priority NDAs for a new molecular entity (NME).

The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee, which is typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with current GMP is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.

After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing 90 percent of resubmissions within two to six months depending on the type of information included.

An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for health care professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.

Sponsors of clinical trials of certain FDA-regulated products, including prescription drugs, are required to register and disclose certain clinical trial information on a public website maintained by the U.S. National Institutes of Health. Information related to the product, patient population, phase of investigation, study sites and investigator, and other aspects of the clinical trial is made public as part of the registration. Under a new rule, effective January 18, 2017, sponsors are also obligated to disclose the results of these trials after completion. Disclosure of the results of these trials can be delayed for up to two years if the sponsor certifies that it is seeking approval of an unapproved product or that it will file an application for approval of a new indication for an approved product within one year. Competitors may use this publicly available information to gain knowledge regarding the design and progress of our development programs.

The FDA is required to facilitate the development, and expedite the review, of drugs that are intended for the treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the condition. Under the Fast Track Program, the sponsor of a new drug candidate may request that the FDA

designate the drug candidate for a specific indication as a Fast Track drug concurrent with, or after, the filing of the IND for the drug candidate. The FDA must determine if the drug candidate qualifies for Fast Track designation within 60 days of receipt of the sponsor’s request.

Under the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments.

In clinical trials, a surrogate endpoint is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug from the market on an expedited basis. Unless otherwise informed by the FDA, for an accelerated approval product an applicant must submit to the FDA for consideration during the preapproval review period copies of all promotional materials, including promotional labeling as well as advertisements, intended for dissemination or publication within 120 days following marketing approval. After 120 days following marketing approval, unless otherwise informed by the FDA, the applicant must submit promotional materials at least 30 days prior to the intended time of initial dissemination of the labeling or initial publication of the advertisement

In addition to other benefits such as the ability to use surrogate endpoints and engage in more frequent interactions with the FDA, the FDA may initiate review of sections of a Fast Track drug’s NDA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA is submitted. Additionally, the Fast Track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.

In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown through bioequivalence testing to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, pre-clinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are considered to be therapeutically equivalent to the listed drug, are commonly referred to as “generic equivalents” to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug in accordance with state law.

The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA’s Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement, certifying that its proposed ANDA labeling does not contain (or carve out) any language regarding the patented method-of-use, rather than certify to a listed method-of-use patent.

If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.

A certification that the new product will not infringe the already approved product’s listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit, or a decision in the infringement case that is favorable to the ANDA applicant.

The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.

Upon NDA approval of a new chemical entity or NCE, which is a drug that contains no active moiety that has been approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which time the FDA cannot receive any ANDA or 505(b)(2) application seeking approval of a drug that references a version of the NCE drug. Certain changes to a drug, such as the addition of a new indication to the package insert, are associated with a three-year period of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) application that includes the change.

An ANDA or 505(b)(2) application may be submitted one year before NCE exclusivity expires if a Paragraph IV certification is filed. If there is no listed patent in the Orange Book, there may not be a Paragraph IV certification and thus no ANDA or 505(b)(2) application may be filed before the expiration of the exclusivity period.

For a botanical drug, the FDA may determine that the active moiety is one or more of the principal components or the complex mixture as a whole. This determination would affect the utility of any five-year exclusivity as well as the ability of any potential generic competitor to demonstrate that it is the same drug as the original botanical drug.

Five-year and three-year exclusivities do not preclude FDA approval of a 505(b)(1) application for a duplicate version of the drug during the period of exclusivity, provided that the 505(b)(1) applicant conducts or obtains a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.

After NDA approval, owners of relevant drug patents may apply for up to a five-year patent extension. The allowable patent term extension is calculated as half of the drug’s testing phase — the time between IND submission and NDA submission — and all of the review phase — the time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years.

For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the PTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition — generally a disease or condition that affects fewer than 200,000 individuals in the U.S (or affects more than 200,000 in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for such disease or condition will be recovered from sales in the U.S. of such drug). Orphan drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S. for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity. If the FDA designates an orphan drug based on a finding of clinical superiority, the FDA must provide a written notification to the sponsor that states the basis for orphan designation, including “any plausible hypothesis” relied upon by the FDA. The FDA must also publish a summary of its clinical superiority findings upon granting orphan drug exclusivity based on clinical superiority. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA application user fee.

A company may reach an agreement with the FDA under the Special Protocol Assessment, or SPA, process as to the required design and size of clinical trials intended to form the primary basis of an efficacy claim. According to its performance goals, the FDA is supposed to evaluate the protocol within 45 days of the request to assess whether the proposed trial is adequate, and that evaluation may result in discussions and a request for additional information. A SPA request must be made before the proposed trial begins, and all open issues must be resolved before the trial begins. If a written agreement is reached, it will be documented and made part of the administrative record. Under the FDC Act and FDA guidance implementing the statutory requirement, an SPA is generally binding upon the FDA except in limited circumstances, such as if the FDA identifies a substantial scientific issue essential to determining

safety or efficacy after the study begins, public health concerns emerge that were unrecognized at the time of the protocol assessment, the sponsor and the FDA agree to the change in writing, or if the study sponsor fails to follow the protocol that was agreed upon with the FDA.

Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs.

Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling. Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.

Adverse event reporting and submission of periodic reports is required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, may require under a REMS special communication regarding the safety of the drug or heightened surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging, and labeling procedures must continue to conform to GMP, after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with GMP. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain compliance with GMP. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered.

The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month period of exclusivity attached to any other exclusivity listed with the FDA — patent or non-patent — for a drug if certain conditions are met. Conditions for pediatric exclusivity include a determination by the FDA that information relating to the use of a new drug in the pediatric population may produce health benefits in that population; a written request by the FDA for pediatric studies; and agreement by the applicant to perform the requested studies and the submission to the FDA, completion of the studies in accordance with the written request, and the acceptance by the FDA, of the reports of the requested studies within the statutory time frame. Applications under the BPCA are treated as priority applications.

In addition, under the Pediatric Research Equity Act, or PREA, NDAs or supplements to NDAs must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective, unless the sponsor has received a deferral or waiver from the FDA. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted. The sponsor or the FDA may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding that the drug is ready for approval for use in adults before pediatric studies are complete or that additional safety or effectiveness data need to be collected before the pediatric studies begin. Under PREA, the FDA must send a noncompliance letter requesting a response within 45 days to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

We were awarded a Rare Pediatric Disease Priority Review Voucher (PRV) as part of the FDA approval for Epidiolex. Rare pediatric disease designation is granted to drugs and biologics intended to treat orphan diseases affecting fewer than 200,000 patients in the U.S., primarily age 18 years or younger. Under the FDA’s Rare Pediatric Disease Priority Review Voucher program, a sponsor that receives approval for an NDA or BLA for a rare pediatric disease may be eligible to receive a voucher for a priority review of a subsequent marketing application for a different product. The PRV may be used by the sponsor or sold or transferred. The voucher relates to only the timing and action of application review and does not guarantee approval of the application.

The federal Controlled Substances Act of 1970, or CSA, and its implementing regulations establish a “closed system” of regulations for controlled substances. The CSA imposes registration, security, recordkeeping and reporting, storage, manufacturing,

distribution, importation and other requirements under the oversight of the DEA. The DEA is the federal agency responsible for regulating controlled substances, and requires those individuals or entities that manufacture, import, export, distribute, research, or dispense controlled substances to comply with the regulatory requirements in order to prevent the diversion of controlled substances to illicit channels of commerce.

The DEA categorizes controlled substances into one of five schedules — Schedule I, II, III, IV or V — with varying qualifications for listing in each schedule. Schedule I substances by definition have a high potential for abuse, have no currently accepted medical use in treatment in the U.S. and lack accepted safety for use under medical supervision. Pharmaceutical products having a currently accepted medical use that are otherwise approved for marketing may be listed as Schedule II, III, IV or V substances, with Schedule II substances presenting the highest potential for abuse and physical or psychological dependence, and Schedule V substances presenting the lowest relative potential for abuse and dependence. Epidiolex is a Schedule V controlled substance. Sativex, if approved in the U.S., will require scheduling by the DEA before it can be marketed.

Facilities that manufacture, distribute, import or export any controlled substance must register annually with the DEA. The DEA registration is specific to the particular location, activity(ies) and controlled substance schedule(s). For example, separate registrations are required for importation and manufacturing activities, and each registration authorizes which schedules of controlled substances the registrant may handle. However, certain coincident activities are permitted without obtaining a separate DEA registration, such as distribution of controlled substances by the manufacturer that produces them.

The DEA inspects all manufacturing facilities to review security, recordkeeping, reporting and handling prior to issuing a controlled substance registration. The specific security requirements vary by the type of business activity and the schedule and quantity of controlled substances handled. The most stringent requirements apply to manufacturers of Schedule I and Schedule II substances. Required security measures commonly include background checks on employees and physical control of controlled substances through storage in approved vaults, safes and cages, and through use of alarm systems and surveillance cameras. An application for a manufacturing registration as a bulk manufacturer (not a dosage form manufacturer or a repacker/relabeler) for a Schedule I or II substance must be published in the Federal Register, and is open for 60 days to permit interested persons to submit comments, objections or requests for a hearing. A copy of the notice of the Federal Register publication is simultaneously forwarded by DEA to all those registered, or applicants for registration, as bulk manufacturers of that substance. Once registered, manufacturing facilities must maintain records documenting the manufacture, receipt and distribution of all controlled substances. Manufacturers must submit periodic reports to the DEA of the distribution of Schedule I and II controlled substances, Schedule III narcotic substances, and other designated substances. Registrants must also report any controlled substance thefts or significant losses, and must obtain authorization to destroy or dispose of controlled substances. As with applications for registration as a bulk manufacturer, an application for an importer registration for a Schedule I or II substance must also be published in the Federal Register, which remains open for 30 days for comments. Imports of Schedule I and II controlled substances for commercial purposes are generally restricted to substances not already available from a domestic supplier or where there is not adequate competition among domestic suppliers. In addition to an importer or exporter registration, importers and exporters must obtain a permit for every import or export of a Schedule I and II substance or Schedule III, IV and V narcotic, and submit import or export declarations for Schedule III, IV and V non-narcotics. In some cases, Schedule III non-narcotic substances may be subject to the import/export permit requirement, if necessary to ensure that the U.S. complies with its obligations under international drug control treaties.

For drugs manufactured in the U.S., the DEA establishes annually an aggregate quota for the amount of substances within Schedules I and II that may be manufactured or produced in the U.S. based on the DEA’s estimate of the quantity needed to meet legitimate medical, scientific, research and industrial needs. This limited aggregate amount of cannabis that the DEA allows to be produced in the U.S. each year is allocated among individual companies, which, in turn, must annually apply to the DEA for individual manufacturing and procurement quotas. The quotas apply equally to the manufacturing of the active pharmaceutical ingredient and production of dosage forms. The DEA may adjust aggregate production quotas a few times per year, and individual manufacturing or procurement quotas from time to time during the year, although the DEA has substantial discretion in whether or not to make such adjustments for individual companies.

The states also maintain separate controlled substance laws and regulations, including licensing, recordkeeping, security, distribution, and dispensing requirements. State Authorities, including Boards of Pharmacy, regulate use of controlled substances in each state. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action that could have a material adverse effect on our business, operations and financial condition. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution.

In addition to regulations in the U.S., we are and will be subject, either directly or through our distribution partners, to a variety of regulations in other jurisdictions governing, among other things, clinical trials and any commercial sales (including pricing and reimbursement) and distribution of our products, if approved.

Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in non-U.S. countries prior to the commencement of clinical trials or marketing of the product in those countries.

In the European Union, medicinal products are subject to extensive pre- and post-marketing regulation by regulatory authorities at both the European Union and national levels. Additional rules also apply at the national level to the manufacture, import, export, storage, distribution and sale of controlled substances. In many European Union member states the regulatory authority responsible for medicinal products is also responsible for controlled substances. Responsibility is, however, split in some member states, such as the U.K. Generally, any company manufacturing or distributing a medicinal product containing a controlled substance in the European Union will need to hold a controlled substances license from the competent national authority and will be subject to specific record-keeping and security obligations. Separate import or export certificates are required for each shipment into or out of the member state.

Certain countries outside of the U.S. have a process that requires the submission of a clinical trial application much like an IND prior to the commencement of human clinical trials. In Europe, for example, a clinical trial application, or CTA, must be submitted to the competent national health authority and to independent ethics committees in each country in which a company intends to conduct clinical trials. Once the CTA is approved in accordance with a country’s requirements and a company has received favorable ethics committee approval, clinical trial development may proceed in that country.

The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country, even though there is already some degree of legal harmonization in the European Union member states resulting from the national implementation of underlying European Union legislation. In all cases, the clinical trials must be conducted in accordance with the International Conference on Harmonization, or ICH, guidelines on GCP and other applicable regulatory requirements.

To obtain regulatory approval to place a drug on the market in European Union countries, we must submit a marketing authorization application. This application is similar to the NDA in the U.S., with the exception of, among other things, country-specific document requirements. All application procedures require an application in the common technical document, or CTD, format, which includes the submission of detailed information about the manufacturing and quality of the product, and nonclinical and clinical trial information. Drugs can be authorized in the European Union by using (i) the centralized authorization procedure, (ii) the mutual recognition procedure, (iii) the decentralized procedure or (iv) national authorization procedures. The initial Sativex approvals were a consequence of an application under the De-Centralized Procedure, or DCP, to the E.U. member states of the U.K. and Spain.

The European Commission created the centralized procedure for the approval of human drugs to facilitate marketing authorizations that are valid throughout the European Union and, by extension (after national implementing decisions) in Iceland, Liechtenstein and Norway, which, together with the European Union. member states, comprise the European Economic Area, or EEA. Applicants file marketing authorization applications with the EMA, where they are reviewed by a relevant scientific committee, in most cases the CHMP. The EMA forwards CHMP opinions to the European Commission, which uses them as the basis for deciding whether to grant a marketing authorization. This procedure results in a single marketing authorization granted by the European Commission that is valid across the European Union, as well as in Iceland, Liechtenstein and Norway. The centralized procedure is compulsory for human drugs that are: (i) derived from biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii) officially designated “orphan drugs” (drugs used for rare human diseases) and (iv) advanced-therapy medicines, such as gene-therapy, somatic cell-therapy or tissue-engineered medicines. The centralized procedure may at the voluntary request of the applicant also be used for human drugs that do not fall within the above-mentioned categories if the CHMP agrees that the human drug (a) contains a new active substance not yet approved on November 20, 2005; (b) constitutes a significant therapeutic, scientific or technical innovation or (c) authorization under the centralized procedure is in the interests of patients at the European Union level.

Under the centralized procedure in the European Union, the maximum time frame for the evaluation of a marketing authorization application by the EMA is 210 days (excluding clock stops, when additional written or oral information is to be provided by the applicant in response to questions asked by the CHMP), with adoption of the actual marketing authorization by the European Commission thereafter.

Accelerated evaluation might be granted by the CHMP in exceptional cases, when a medicinal product is expected to be of a major public health interest from the point of view of therapeutic innovation, defined by three cumulative criteria: the seriousness of the disease to be treated; the absence of an appropriate alternative therapeutic approach, and anticipation of exceptional high therapeutic benefit. In this circumstance, EMA ensures that the evaluation for the opinion of the CHMP is completed within 150 days and the opinion issued thereafter.

For those medicinal products for which the centralized procedure is not available, the applicant must submit marketing authorization applications to the national medicines regulators through one of three procedures: (i) the mutual recognition procedure (which must be used if the product has already been authorized in at least one other European Union member state, and in which the European Union member states are required to grant an authorization recognizing the existing authorization in the other European Union member state, unless they identify a serious risk to public health), (ii) the decentralized procedure (in which applications are submitted simultaneously in two or more European Union member states) or (iii) national authorization procedures (which results in a marketing authorization in a single European Union member state).

The mutual recognition procedure, or MRP, for the approval of human drugs is an alternative approach to facilitate individual national marketing authorizations within the European Union. Basically, the MRP may be applied for all human drugs for which the centralized procedure is not obligatory. The MRP is applicable to the majority of conventional medicinal products, and must be used if the product has already been authorized in one or more member states. Since the first approvals for Sativex were national approvals in the U.K. and Spain (following a DCP), the only route open to us for additional marketing authorizations in the European Union was the MRP.

The characteristic of the MRP is that the procedure builds on an already-existing marketing authorization in a member state of the European Union that is used as a reference in order to obtain marketing authorizations in other European Union member states. In the MRP, a marketing authorization for a drug already exists in one or more member states of the European Union and subsequently marketing authorization applications are made in other European Union member states by referring to the initial marketing authorization. The member state in which the marketing authorization was first granted will then act as the reference member state. The member states where the marketing authorization is subsequently applied for act as concerned member states. The concerned member states are required to grant an authorization recognizing the existing authorization in the reference member state, unless they identify a serious risk to public health.

The MRP is based on the principle of the mutual recognition by European Union member states of their respective national marketing authorizations. Based on a marketing authorization in the reference member state, the applicant may apply for marketing authorizations in other member states. In such case, the reference member state shall update its existing assessment report about the drug in 90 days. After the assessment is completed, copies of the report are sent to all member states, together with the approved summary of product characteristics, labeling and package leaflet. The concerned member states then have 90 days to recognize the decision of the reference member state and the summary of product characteristics, labeling and package leaflet. National marketing authorizations shall be granted within 30 days after acknowledgement of the agreement.

Should any Member State refuse to recognize the marketing authorization by the reference member state, on the grounds of potential serious risk to public health, the issue will be referred to a coordination group. Within a time frame of 60 days, member states shall, within the coordination group, make all efforts to reach a consensus. If this fails, the procedure is submitted to an EMA scientific committee for arbitration. The opinion of this EMA Committee is then forwarded to the European Commission, for the start of the decision-making process. As in the centralized procedure, this process entails consulting various European Commission Directorates General and the Standing Committee on Human Medicinal Products. Since the initial approvals of Sativex in the U.K. and Spain, there have been three “waves” of additional approvals under three separate MRPs. Each of these procedures have been completed without any referral, and therefore without any delay.

In the European Union, marketing authorization applications for generic medicinal products do not need to include the results of pre-clinical and clinical trials, but instead can refer to the data included in the marketing authorization of a reference product for which regulatory data exclusivity has expired. If a marketing authorization is granted for a medicinal product containing a new active substance, that product benefits from eight years of data exclusivity, during which generic marketing authorization applications referring to the data of that product may not be accepted by the regulatory authorities, and a further two years of market exclusivity, during which such generic products may not be placed on the market. The two-year period may be extended to three years if during the first eight years a new therapeutic indication with significant clinical benefit over existing therapies is approved.

The EMA’s Committee for Orphan Medicinal Products, or COMP, may recommend orphan medicinal product designation to promote the development of products that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than 5 in 10,000 persons in the European Union. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the product in the European Union would be sufficient to justify the necessary investment in developing the medicinal product. The COMP may only recommend orphan medicinal product designation

when the product in question offers a significant clinical benefit over existing approved products for the relevant indication. Following a positive opinion by the COMP, the European Commission adopts a decision granting orphan status. The COMP will reassess orphan status in parallel with EMA review of a marketing authorization application and orphan status may be withdrawn at that stage if it no longer fulfills the orphan criteria (for instance because in the meantime a new product was approved for the indication and no convincing data are available to demonstrate a significant benefit over that product). Orphan medicinal product designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity is granted following marketing authorization. During this period, the competent authorities may not accept or approve any similar medicinal product, unless it offers a significant clinical benefit. This period may be reduced to six years if the orphan medicinal product designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify maintenance of market exclusivity.

In the European Union, companies developing a new medicinal product must agree to a Pediatric Investigation Plan, or PIP, with the EMA and must conduct pediatric clinical trials in accordance with that PIP unless a waiver applies, for example, because the relevant disease or condition occurs only in adults. The marketing authorization application for the product must include the results of pediatric clinical trials conducted in accordance with the PIP, unless a waiver applies, or a deferral has been granted, in which case the pediatric clinical trials must be completed at a later date. Products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the PIP are eligible for a six-month extension of the protection under a supplementary protection certificate (if the product covered by it qualifies for one at the time of approval). This pediatric reward is subject to specific conditions and is not automatically available when data in compliance with the PIP are developed and submitted.

If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension of clinical trials, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

In addition, most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining marketing approval for Sativex and our other products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit Sativex or our other products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In that case, we would be unable to market our products in those countries in the near future or perhaps at all.

Sales of pharmaceutical products in the U.S. will depend, in part, on the extent to which the costs of the products will be covered by third-party payers, such as government health programs, and commercial insurance and managed health care organizations. These third-party payers are increasingly challenging the prices charged for medical products and services. Additionally, the containment of health care costs has become a priority of federal and state governments, and the prices of drugs have been a focus in this effort. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost-containment programs, including price controls, utilization management and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our net revenue and results. If these third-party payers do not consider our products to be cost effective compared to other available therapies, they may not cover our products after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or the MMA, imposed requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries and included a major expansion of the prescription drug benefit under Medicare Part D. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Part D is available through both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Parts A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive marketing approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from nongovernmental payers.

On February 17, 2009, President Obama signed into law The American Recovery and Reinvestment Act of 2009. This law provides funding for the federal government to compare the effectiveness of different treatments for the same illness. This research is overseen by the Department of Health and Human Services, the Agency for Healthcare Research and Quality and the National Institutes for Health, and periodic reports on the status of the research and related expenditures must be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payers, it is not clear how such a result could be avoided and what if any effect the research will have on the sales of our product candidates, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our product candidates. Decreases in third-party reimbursement for our product candidates or a decision by a third-party payer to not cover our product candidates could reduce physician usage of the product candidate and have a material adverse effect on our sales, results of operations and financial condition.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010 (collectively, the ACA) was enacted in March 2010. The ACA was enacted with the goal of expanding coverage for the uninsured while at the same time containing overall health care costs. With regard to pharmaceutical products, among other things, the ACA expanded and increased industry rebates for drugs covered under Medicaid programs and made changes to the coverage requirements under the Medicare D program. We still cannot fully predict the impact of the ACA on pharmaceutical companies as many of the ACA reforms require the promulgation of detailed regulations implementing the statutory provisions which has not yet been completed, and the Centers for Medicare & Medicaid Services has publicly announced that it is analyzing the ACA regulations and policies that have been issued to determine if changes should be made. In addition, although the U.S. Supreme Court has upheld the constitutionality of most of the ACA, some states have stated their intentions to not implement certain sections of the ACA and some members of Congress are still working to repeal the ACA. These challenges add to the uncertainty of the changes enacted as part of the ACA. In addition, the current legal challenges to the ACA, as well as Congressional efforts to repeal the ACA, add to the uncertainty of the legislative changes enacted as part of the ACA.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, some European Union jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to fix their own prices for medicines but monitor and control company profits. Such differences in national pricing regimes may create price differentials between European Union member states. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, products launched in the European Union do not follow price structures of the U.S. In the European Union, the downward pressure on healthcare costs in general, particularly prescription medicines, has become intense. As a result, barriers to entry of new products are becoming increasingly high and patients are unlikely to use a drug product that is not reimbursed by their government.

In the U.S., our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration), or CMS, other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice and individual U.S. Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the privacy provisions of the Health Insurance Portability and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, or VHCA, each as amended. If products are made available to authorized users of the Federal Supply Schedule, additional laws and requirements apply. Under the VHCA, drug companies are required to offer certain drugs at a reduced price to a number of federal agencies including the U.S. Department of Veteran Affairs and U.S. Department of Defense, the Public Health Service and certain private Public Health Service-designated entities in order to participate in other federal funding programs including Medicare and Medicaid. In addition, discounted prices must be offered for certain U.S. Department of Defense purchases for its TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government procurement contracts governed by the Federal Acquisition Regulations.

In order to distribute products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state, even if such manufacturers or distributors have no place of business within the state. Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities or register their sales representatives. Other legislation has been enacted in certain states prohibiting certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.

From time to time, we may be a party to litigation that arises in the ordinary course of our business. We do not have any pending litigation that, separately or in the aggregate, would, in the opinion of management, have a material adverse effect on our results of operations, financial condition or cash flows.

The number of employees by function and geographic location as of the end of the period for our fiscal year ended December 31, 2018 was as follows:

We have never had a work stoppage and none of our employees are covered by collective bargaining agreements or represented by a labor union. We believe our relationships with our employees around the world are good.

Access to our Transition Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed with or furnished to the SEC, may be obtained through the investor section of our website at http://www.gwpharm.com as soon as reasonably practical after we electronically file or furnish these reports. We do not charge for access to and viewing of these reports. Information in the investor section and on our website is not part of this Transition Report on Form 10-K or any of our other securities filings unless specifically incorporated herein by reference. Our filings with the SEC may be accessed through the SEC’s website at www.sec.gov. All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law.

The financial information required under this Item 1 is incorporated herein by reference to Item 8 of this Transition Report on Form 10-K.

Our registered and principal executive offices are located at Sovereign House, Vision Park, Chivers Way, Histon, Cambridge, CB24 9BZ, United Kingdom, our general telephone number is +44 1223 266 800 and our Internet address is http://www.gwpharm.com. Our website and the information contained on or accessible through our website are not part of this document.

Our business has significant risks. You should carefully consider the following risk factors and all other information contained in this Transition Report, including our consolidated financial statements and the related notes. The risks and uncertainties described below are those significant risk factors currently known and specific to us that we believe are relevant to our business, results of operations and financial condition. Additional risks and uncertainties not currently known to us or that we now deem immaterial may also impair our business, results of operations and financial condition.

Our prospects are highly dependent on the successful commercialization of Epidiolex, which received approval in June 2018 from the FDA as a treatment for seizures associated with LGS or Dravet syndrome in patients two years of age and older. To the extent Epidiolex is not commercially successful, our business, financial condition and results of operations may be materially adversely affected and the price of our ADSs may decline.

Epidiolex is our only drug that has been approved for sale in the U.S. and it has only been approved for the treatment of seizures associated with LGS and Dravet syndrome in patients two years of age and older. We are focusing a significant portion of our activities and resources on Epidiolex, and we believe our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully commercialize Epidiolex in the U.S.

Successful commercialization of Epidiolex is subject to many risks. Prior to Epidiolex, we have only launched or commercialized one product, Sativex, outside of the U.S., and there is no guarantee that we will be able to successfully commercialize Epidiolex for its approved indications. While we have established our commercial team and have hired our U.S. sales force, we will need to maintain and further develop the team in order to successfully coordinate the commercialization of Epidiolex. Even if we are successful in maintaining and continuing to develop our commercial team, there are many factors that could cause the commercialization of Epidiolex to be unsuccessful, including a number of factors that are outside our control. Because no drug has previously been approved by the FDA for the treatment of seizures associated with Dravet syndrome prior to 2018, it is especially difficult to estimate Epidiolex’s market potential. The commercial success of Epidiolex depends on the extent to which patients and physicians accept and adopt Epidiolex as a treatment for LGS and Dravet syndrome, and we do not know whether our or others’ estimates in this regard will be accurate. We have limited information about how physicians, patients and payers will respond to the pricing of Epidiolex. Physicians may not prescribe Epidiolex and patients may be unwilling to use Epidiolex if coverage is not provided or reimbursement is inadequate to cover a significant portion of the cost. Additionally, any negative development for Epidiolex in the market after launch, in clinical development for additional indications, or in regulatory processes in other jurisdictions, may adversely impact the commercial results and potential of Epidiolex. Thus, significant uncertainty remains regarding the commercial potential of Epidiolex.

If the launch or commercialization of Epidiolex is unsuccessful or perceived as disappointing, our share price could decline significantly and the long-term success of the product and the Company could be harmed.

If we do not obtain regulatory approval of Epidiolex for other indications in the U.S., or for any indications in foreign jurisdictions, we will not be able to market Epidiolex for other indications or in other jurisdictions, which will limit our commercial revenues.

While Epidiolex has been approved by the FDA for the treatment of seizures associated with LGS and Dravet syndrome in patients two years of age and older, it has not been approved by the FDA for any other indications, and it has not been approved in any other jurisdiction for these indications or for any other indication. In order to market Epidiolex for other indications or in other jurisdictions, we must obtain regulatory approval for each of those indications and in each of the applicable jurisdictions, and we may never be able to obtain such approval. Approval of Epidiolex by the FDA for the treatment of seizures associated with LGS and Dravet syndrome in patients two years of age and older does not ensure that the foreign jurisdictions will also approve Epidiolex for these indications, nor does it ensure that Epidiolex will be approved by the FDA for any other indication. The research, testing, manufacturing, labeling, approval, sale, import, export, marketing and distribution of pharmaceutical product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the U.S. and other countries, whose regulations differ from country to country. We will be required to comply with different regulations and policies of the jurisdictions where we seek approval for our product candidates, and, outside of the U.S. and Europe we have not yet identified all of the requirements that we will need to satisfy before submitting Epidiolex for approval for other indications or in other jurisdictions. In addition, some jurisdictions, including the U.S., may impose further restrictions through designation of our products as controlled substances. This will require additional time, expertise and expense, including the potential need to conduct additional studies or development work for other jurisdictions beyond the work that we have conducted to support our NDA submission in LGS and Dravet syndrome. In addition, strategic considerations need to be taken into account when determining whether and when to submit Epidiolex for approval in other jurisdictions. If we do not receive marketing approval for Epidiolex for any other indication or from any regulatory agency other than the FDA, we will never be able to commercialize Epidiolex for any other indication in the U.S. or for any indication in any other jurisdiction. Even if we do receive additional regulatory approvals, we may not be successful in commercializing those approved products.

If the results or timing of regulatory filings, the regulatory process, regulatory developments, clinical trials or nonclinical studies or other activities, actions or decisions related to Epidiolex do not meet our or others’ expectations, the market price of our ADSs could decline significantly.

In June 2018, we received FDA approval for Epidiolex for the treatment of seizures associated with LGS or Dravet syndrome in patients two years of age and older. That approval subjects us to ongoing obligations and continued regulatory review, which may result in significant additional expense. If we do not meet those ongoing obligations, we could be subject to significant penalties, including market withdrawal and/or civil or criminal penalties. Additionally, our other product candidates, if approved, could be subject to labeling and other restrictions and we may be subject to penalties (including market withdrawal) if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

In June 2018, we received FDA regulatory approval for Epidiolex for the treatment of seizures associated with LGS or Dravet syndrome in patients two years of age and older. In Europe, we submitted an application to the European Medicines Agency, or EMA, in December 2017 and we expect a decision on the application in the second quarter of 2019. We have received Orphan Drug Designation from the FDA for Epidiolex for seizures associated with LGS, Dravet syndrome and TSC. We also received Orphan Designation from the EMA’s COMP for Epidiolex for Dravet syndrome, LGS and TSC, although there is no guarantee that upon approval, the designation will be reconfirmed. The FDA approval and other regulatory approvals for any of our product candidates may be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the approved product candidate. With respect to the FDA’s approval of Epidiolex, we are subject to certain post-marketing requirements. Failure to comply with these post-marketing requirements could result in withdrawal of our marketing approval for Epidiolex and/or other civil or criminal penalties. In addition, with respect to Epidiolex, and any product candidate that the FDA or a comparable foreign regulatory authority approves, the manufacturing processes, labeling, packaging, distribution, import, export, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current Good Manufacturing Practices, or GMPs, with Good Clinical Practices, or GCPs, for any clinical trials that we conduct post-approval, and with Good Laboratory Practices, or GLPs, for any nonclinical studies.

Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any of our product candidates or future indications for currently approved products. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we could lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Epidiolex has only been studied in a limited number of patients and in limited populations. As we continue our commercial launch, Epidiolex will become available to a much larger number of patients, and we do not know whether the results of Epidiolex use in such larger number of patients will be consistent with the results from our clinical trials.

Epidiolex has been administered only to a limited number of patients and in limited populations in clinical trials, including our two LGS Phase 3 pivotal studies and first Dravet syndrome Phase 3 pivotal efficacy and safety trial. While the FDA granted approval of Epidiolex based on the data included in the NDA, and we believe such data to be robust, we do not know whether the results will be consistent with those resulting from administration of the drug to a large number of patients. New data relating to Epidiolex, including from adverse event reports and post-marketing studies in the U.S., and from other ongoing clinical trials, may result in changes to the product label and/or imposition of a REMs and may adversely affect sales, or result in withdrawal of Epidiolex from the market. The FDA and regulatory authorities in other jurisdictions may also consider the new data in reviewing Epidiolex marketing applications for indications other than our approved uses in other jurisdictions, or impose additional post-approval requirements. If any of these actions were to occur, it could result in significant expense and delay or limit our ability to generate sales revenues.

We are dependent on the success of our product candidates, some of which may not receive regulatory approval or be successfully commercialized.

Our success will depend on our ability to successfully commercialize our product pipeline, including commercialization of Epidiolex, Sativex and our other cannabinoid product candidates. While we have received U.S. regulatory approval for the use of Epidiolex for the treatment of seizures associated with LGS or Dravet syndrome in patients two years of age and older, we are evaluating Epidiolex for the treatment of other conditions such as TSC. We also continue to develop Epidiolex for additional rare childhood-onset epilepsy disorders including TSC and Rett syndrome. Epidiolex may never receive regulatory approval for the treatment of any other indications in the U.S. or elsewhere. Even if completed Phase 3 clinical trials and/or ongoing or future Phase 3 clinical trials show positive results, there can be no assurance that the FDA, EMA or any other regulatory authority will approve Epidiolex for any additional indications or that any other product candidate will receive approval.

Our ability to successfully commercialize Epidiolex, Sativex and our other product candidates will depend on, among other things, our ability to:

Our failure or delay with respect to any of the factors above could have a material adverse effect on our business, results of operations and financial condition.

We have limited marketing experience, and have only recently established our sales force, distribution and reimbursement capabilities, and we may not be able to successfully commercialize Epidiolex, or any of our product candidates if they are approved in the future.

Our ability to generate revenues ultimately depends on our ability to sell our approved products and secure adequate third-party reimbursement. We currently have limited experience in marketing and selling our products. Our product Sativex is currently approved and sold through marketing partners in a number of countries outside of the U.S. for treatment of MS spasticity. Epidiolex for treatment of LGS and Dravet syndrome in patients two years of age and older is our only product approved for sale in the U.S., and we have only recently completed the build-out of an experienced commercial organization consisting of sales, medical affairs, marketing and market access teams.

The commercial success of Epidiolex and Sativex depends on a number of factors beyond our control, including the willingness of physicians to prescribe Epidiolex and Sativex to patients, payers’ willingness and ability to pay for the drug, the level of pricing achieved, patients’ response to Epidiolex and Sativex and the ability of our marketing partners to generate sales. There can be

no guarantee that we will be able to establish or maintain the personnel, systems, arrangements and capabilities necessary to successfully commercialize Epidiolex, Sativex or any product candidate approved by the FDA in the future. If we fail to establish or maintain successful marketing, sales and reimbursement capabilities or fail to enter into successful marketing arrangements with third parties, our product revenues may suffer.

If we are unable to effectively train and equip our sales force, our ability to successfully commercialize Epidiolex may be harmed.

Epidiolex is a newly marketed drug and, therefore, none of the members of our sales force will have ever promoted Epidiolex. As a result, we are and will continue to be required to expend significant time and resources to train our sales force to be credible, persuasive and compliant with applicable laws in marketing Epidiolex for the treatment of LGS and Dravet syndrome to physicians. In addition, we must train our sales force to ensure that a consistent and appropriate message about Epidiolex is being delivered to our potential customers. If we are unable to effectively train our sales force and equip them with effective materials, including medical and sales literature to help them inform and educate potential customers about the benefits of Epidiolex and its proper administration, our efforts to successfully commercialize Epidiolex could be jeopardized, which would negatively impact our ability to generate product revenues.

We have recently grown our business and will need to further increase the size and complexity of our organization in the future, and we may experience difficulties in managing our growth and executing our growth strategy.

Our management and personnel, systems and facilities currently in place may not be adequate to support our business plan and future growth. With the FDA approval for Epidiolex and the decision to promote and market in the U.S. the product candidates for which we receive marketing approval from the FDA, we have increased our number of full-time equivalent employees from 194 on September 30, 2013 to 791 as of December 31, 2018 primarily because we were conducting all of our Phase 2 and 3 clinical trials of Epidiolex and our other product candidates ourselves, and establishing a commercial organization and our commercial infrastructure. As a result of these activities, the complexity of our business operations has substantially increased. We will need to further expand our scientific, manufacturing, sales and marketing, managerial, compliance, operational, financial and other resources to support our planned research, development, manufacturing and commercialization activities.

Our need to effectively manage our operations, growth and various projects requires that we:

In addition, historically, we have utilized and continue to utilize the services of part-time outside consultants and contractors to perform a number of tasks for us, including tasks related to compliance programs, clinical trial management, regulatory affairs, formulation development and other drug development functions. Our growth strategy may entail expanding our use of consultants and contractors to implement these and other tasks going forward. If we are not able to effectively expand our organization by hiring new employees and expanding our use of consultants and contractors, we may be unable to successfully implement the tasks necessary to effectively execute on our planned research, development, manufacturing and commercialization activities and, accordingly, may not achieve our research, development and commercialization goals.

Our product candidates, if approved, may be unable to achieve the expected market acceptance and, consequently, limit our ability to generate revenue from new products.

Even when product development is successful and regulatory approval has been obtained, our ability to generate sufficient revenue depends on the acceptance of our products by physicians and patients. We cannot assure you that Epidiolex or Sativex and our other product candidates will achieve the expected level of market acceptance and revenue if and when they obtain the requisite regulatory approvals. The market acceptance of any product depends on a number of factors, including the indication statement and warnings required by regulatory authorities in the product label. Market acceptance can also be influenced by continued demonstration

of efficacy and safety in commercial use, physicians’ willingness to prescribe the product, reimbursement from third-party payers such as government health care programs and private third-party payers, the price of the product, the nature of any post-approval risk, management activities mandated by regulatory authorities, competition, and marketing and distribution support. Further, our U.S. distribution depends on the adequate performance of a reimbursement support hub and contracted specialty pharmacies in a closed-distribution network. An ineffective or inefficient U.S. distribution model at launch may lead to inability to fulfill demand, and consequently a loss of revenue. The success and acceptance of a product in one country may be negatively affected by our activities in another. If we fail to adapt our approach to clinical trials in the U.S. market to meet the needs of EMA or other European regulatory authorities, or to generate the health economics and outcomes research data needed to support pricing and reimbursement negotiations in Europe, we may have difficulties obtaining marketing authorization for our products from EMA and may have difficulties obtaining pricing and reimbursement approval for our products at a national level. Any factors preventing or limiting the market acceptance of our products could have a material adverse effect on our business, results of operations and financial condition.

In respect of our product candidates targeting rare indications, orphan drug exclusivity may afford limited protection, and if another party obtains orphan drug exclusivity for the drugs and indications we are targeting, we may be precluded from commercializing our product candidates in those indications during that period of exclusivity.

The first NDA applicant with an Orphan Drug Designation for a particular active moiety to treat a specific disease or condition that receives FDA approval is usually entitled to a seven-year exclusive marketing period in the U.S. for that drug, for that indication. We rely in part on this orphan drug exclusivity and other regulatory exclusivities to protect Epidiolex and, potentially, our other products and product candidates from competitors, and we expect to continue relying in part on these regulatory exclusivities in the future. The duration of that exclusivity period could be impacted by a number of factors, including the FDA’s later determination that the request for designation was materially defective, that the manufacturer is unable to supply sufficient quantities of the drug, or that the extension of the exclusivity period established by the Improving Regulatory Transparency for New Medical Therapies Act does not apply. There is no assurance that we will successfully obtain Orphan Drug Designation for other product candidates or other rare diseases or that a product candidate for which we receive Orphan Drug Designation will be approved, or that we will be awarded orphan drug exclusivity upon approval as, for example, the FDA may reconsider whether the eligibility criteria for such exclusivity have been met and/or maintained. Moreover, a drug product with an active moiety that is a different cannabinoid from that in our drug candidate or, under limited circumstances, the same drug product, may be approved by the FDA for the same indication during the period of marketing exclusivity. The limited circumstances include a showing that the second drug is clinically superior to the drug with marketing exclusivity through a demonstration of superior safety or efficacy or that it makes a major contribution to patient care. In addition, if a competitor obtains approval and marketing exclusivity for a drug product with an active moiety that is the same as that in a product candidate we are pursuing for the same indication before us, approval of our product candidate would be blocked during the period of marketing exclusivity unless we could demonstrate that our product candidate is clinically superior to the approved product. In addition, if a competitor obtains approval and marketing exclusivity for a drug product with an active moiety that is the same as that in a product candidate we are pursuing for a different orphan indication, this may negatively impact the market opportunity for our product candidate. There have been legal challenges to aspects of the FDA’s regulations and policies concerning the exclusivity provisions of the Orphan Drug Act, including whether two drugs are the same drug product, and future challenges could lead to changes that affect the protections potentially afforded our products in ways that are difficult to predict. In a recent successful legal challenge, a court invalidated the FDA’s denial of orphan exclusivity to a drug on the grounds that the drug was not proven to be clinically superior to a previously approved product containing the same ingredient for the same orphan use. In response to the decision, the FDA released a policy statement stating that the court’s decision is limited just to the facts of that particular case and that the FDA will continue to require the sponsor of a designated drug that is the “same” as a previously approved drug to demonstrate that its drug is clinically superior to that drug upon approval in order to be eligible for orphan drug exclusivity, or in some cases, to even be eligible for marketing approval. In the future, there is the potential for additional legal challenges to the FDA’s orphan drug regulations and policies, and it is uncertain how such challenges might affect our business.

In the European Union, if a marketing authorization is granted for a medicinal product that is designated an orphan drug, that product is entitled to ten years of marketing exclusivity. During the period of marketing exclusivity, subject to limited exceptions, no similar medicinal product may be granted a marketing authorization for the orphan indication. There is no assurance that we will successfully obtain Orphan Drug Designation for future rare indications or orphan exclusivity upon approval of any of our product candidates that have already obtained designation. Even if we obtain orphan exclusivity for any product candidate, the exclusivity period can be reduced to six years if at the end of the fifth year it is established that the orphan designation criteria are no longer met or if it is demonstrated that the orphan drug is sufficiently profitable that market exclusivity is no longer justified. Further, a similar medicinal product may be granted a marketing authorization for the same indication notwithstanding our marketing exclusivity if we are unable to supply sufficient quantities of our product, or if the second product is safer, more effective or otherwise clinically superior to our orphan drug. In addition, if a competitor obtains marketing authorization and orphan exclusivity for a product that is similar to a product candidate we are pursuing for the same indication, approval of our product candidate would be blocked during the period of orphan marketing exclusivity unless we could demonstrate that our product candidate is safer, more effective or otherwise clinically superior to the approved product.

If the price for Epidiolex, Sativex or any future approved products decreases or if governmental and other third-party payers do not provide coverage and adequate reimbursement levels, our revenue and prospects for profitability will suffer.

Patients who are prescribed medicine for the treatment of their conditions generally rely on third-party payers to reimburse all or part of the costs associated with their prescription drugs. Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals generally must be obtained on a country-by-country basis. Coverage and adequate reimbursement from governmental healthcare programs, such as Medicare and Medicaid, and commercial payers is critical to new product acceptance. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when more established or lower-cost therapeutic alternatives are already available or subsequently become available. Even if we obtain coverage for Epidiolex, Sativex or other products we may market, the resulting reimbursement payment rates may require co-payments that patients find unacceptably high. Patients may not use Epidiolex or Sativex if coverage is not provided or reimbursement is inadequate to cover a significant portion of its cost.

In addition, the market for Epidiolex and Sativex will depend significantly on access to third-party payers’ drug formularies, or lists of medications for which third-party payers’ provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payers may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available, even if not approved for the indication for which Epidiolex or Sativex is approved.

Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. The current environment is putting pressure on companies to price products below what they may feel is appropriate. Selling Epidiolex and Sativex at less than an optimized price could impact our revenues and overall success as a company. We do not know if the price we have selected for Epidiolex or Sativex is the optimized price. In addition, in the U.S., no uniform policy of coverage and reimbursement for drug products exists among third-party payers. Therefore, coverage and reimbursement for Epidiolex may differ significantly from payer to payer. As a result, the coverage determination process is often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of Epidiolex or Sativex to each payer separately, with no assurance that coverage will be obtained. If we are unable to obtain coverage of, and adequate payment levels for, Epidiolex, Sativex or any other products we may market to third-party payers, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize Epidiolex, Sativex or any other products we may market, and thereby adversely impact our profitability, results of operations, financial condition and future success.

In addition, where we have chosen to collaborate with a third party on product candidate development and commercialization, our partner may elect to reduce the price of our products in order to increase the likelihood of obtaining reimbursement approvals. In many countries, products cannot be commercially launched until reimbursement is approved and the negotiation process in some countries can exceed 12 months. In addition, pricing and reimbursement decisions in certain countries can be affected by decisions taken in other countries, which can lead to mandatory price reductions and/or additional reimbursement restrictions across a number of other countries, which may thereby adversely affect our sales and profitability. In the event that countries impose prices that are not sufficient to allow us or our partners to generate a profit, our partners may refuse to launch the product in such countries or withdraw the product from the market, which would adversely affect sales and profitability. For example, whereas the All Wales Medicines Strategy Group has recommended Sativex for use in MS spasticity in Wales, the National Institute for Clinical Excellence published MS treatment guidelines that did not recommend Sativex for use in England. While this example refers to the commercialization of Sativex, the same or similar events, such as price decreases, government mandated rebates or unfavorable reimbursement decisions, could affect the pricing and reimbursement of Epidiolex and our other product candidates and could have a material adverse effect on our business, reputation, results of operations and financial condition.

We expect to face intense competition, often from companies with greater resources and experience than we have.

The pharmaceutical industry is highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially greater financial, technological, managerial and research and development resources and experience than we have. Some of these competitors and potential competitors have more experience than we have in the development of pharmaceutical products, including validation procedures and regulatory matters. In addition, Epidiolex and Sativex compete with, and our product candidates, if successfully developed, will compete with, product offerings from large and well-established companies that have greater marketing and sales experience and capabilities than we or our collaboration partners have. In particular, Insys Therapeutics, Inc. is developing CBD in Infantile Spasms, or IS, and potentially other indications. Zogenix, Inc. has reported positive data in two Phase 3 trials of low dose fenfluramine in Dravet syndrome (for which it has submitted marketing applications in the U.S. and Europe) and has commenced a Phase 3 trial with this product in LGS. Biocodex recently received regulatory approval from the FDA for the drug Stiripentol (Diacomit) for the treatment of Dravet syndrome. Other companies with greater resources than us may announce similar plans in the future. In addition, there are non-FDA approved CBD preparations being made available from companies in the medical marijuana industry, which might attempt to compete with Epidiolex. If we are unable to compete successfully, our commercial opportunities will be reduced and our business, results of operations and financial conditions may be materially harmed.

Product shipment delays could have a material adverse effect on our business, results of operations and financial condition.

The shipment, import and export of Epidiolex, Sativex and our other product candidates require import and export licenses. In the U.S., the FDA, U.S. Customs and Border Protection and the DEA, and in the U.K., the Home Office, and in other countries, similar regulatory authorities regulate the import and export of pharmaceutical products that contain controlled substances, including Epidiolex, Sativex and our other product candidates. Specifically, the import and export process requires the issuance of import and export licenses by the relevant controlled substance authority in both the importing and exporting country. We may not be granted, or if granted, maintain, such licenses from the authorities in certain countries. Even if we obtain the relevant licenses, shipments of Epidiolex, Sativex and our product candidates may be held up in transit, which could cause significant delays and may lead to product batches being stored outside required temperature ranges. Inappropriate storage may damage the product shipment resulting in a partial or total loss of revenue from one or more shipments of Epidiolex, Sativex or our other product candidates. A partial or total loss of revenue from one or more shipments of Epidiolex, Sativex or our other product candidates could have a material adverse effect on our business, results of operations and financial condition.

Problems in our manufacturing process, failure to comply with manufacturing regulations or unexpected increases in our manufacturing costs could harm our business, results of operations and financial condition.

We are responsible for the manufacture and supply of Sativex to our collaboration partners and for the manufacture and supply of Epidiolex, Sativex and other product candidates for commercial use and for use in clinical trials. The manufacturing of Epidiolex, Sativex and our product candidates necessitates compliance with GMP and other regulatory requirements in jurisdictions internationally. Our ability to successfully manufacture Epidiolex, Sativex and other product candidates involves cultivation of botanical raw material from specific cannabinoid plants, extraction and purification processes, manufacture of finished products and labeling and packaging, which includes product information, tamper evidence and anti-counterfeit features, under tightly controlled processes and procedures. For Epidiolex, Sativex and our product candidates, production also requires the cultivation of cannabinoid plants under highly controlled and standardized conditions. In addition, we must ensure chemical consistency among our batches, including clinical batches and, if approved, marketing batches. Demonstrating such consistency may require typical manufacturing controls as well as clinical data. We must also ensure that our batches conform to complex release specifications. For each step in the manufacturing process for Sativex, we are currently reliant on single manufacturing facilities and no back-up facilities are yet in place. We have a second site at which we can grow the specific cannabinoid plants that produce the CBD used in Epidiolex, a second site at which we can extract CBD from botanical raw material and a second site at which we can crystallize the purified CBD from the liquid plant extract, but we are currently reliant on a single manufacturing facility, and no back-up facilities are yet in place, for the other steps in the Epidiolex production process. Because Sativex is a complex mixture manufactured from plant materials, and because the release specifications may not be identical in all countries, certain batches may fail release testing and not be able to be commercialized. A number of our product candidates (excluding Epidiolex) also consist of a complex mixture manufactured from plant materials, and are therefore subject to a similar risk. If we are unable to manufacture Epidiolex, Sativex or other product candidates in accordance with regulatory specifications, including GMP, or if there are disruptions in our manufacturing process due to damage, loss or otherwise, or failure to pass regulatory inspections of our manufacturing facilities, we may not be able to meet current demand or supply sufficient product for use in clinical trials, and this may also harm our ability to commercialize Epidiolex, Sativex and our product candidates on a timely or cost-competitive basis, if at all. We have an on-going program for expanding and upgrading parts of our growing and manufacturing facilities and we are working with a number of contract manufacturing partners. This has allowed us to implement a manufacturing program that we believe includes a sufficient number of growing and manufacturing sites that should provide sufficient quantities to meet initial demand, and meet the FDA’s stringent requirements for demonstrating equivalence of the scaled-up manufacturing process. This program requires significant time and resources and may not be successful. We are in the final stages of significantly expanding our growing facilities to meet potential peak demand for Epidiolex, including working with several new contractor manufacturers and adopting new methods in order to handle and process bulk quantities of botanical raw material. We are planning to increase the scale at which we manufacture Epidiolex over the next few years in order to meet potential peak demand for Epidiolex, including working with several new contractors and, potentially, adopting new processes. These activities may be unsuccessful, may lead to delays, interruptions to supply or may prove to be more costly than anticipated.

We may fail to expand our growing and manufacturing capability in time to meet market demand for our products and product candidates, and the FDA may refuse to accept our facilities or those of our contract manufactures as being suitable for the production of our products and product candidates. Any problems in our growing or manufacturing process could have a material adverse effect on our business, results of operations and financial condition.

In addition, before we can begin commercial manufacture of any product candidates for sale in the U.S., we must obtain FDA regulatory approval for the product, which requires a successful FDA inspection of our manufacturing facilities and those of our contract manufacturers, processes and quality systems in addition to other product-related approvals. We have successfully navigated this pre-approval inspection process as it relates to Epidiolex in the U.S. However, pharmaceutical manufacturing facilities are continuously subject to post-approval inspection by the FDA and foreign regulatory authorities. Due to the complexity of the processes used to manufacture our product candidates, we may be unable to initially or continue to pass federal, state or international

regulatory inspections in a cost effective manner. If we are unable to comply with manufacturing regulations, we may be subject to fines, unanticipated compliance expenses, recall or seizure of any approved products, total or partial suspension of production and/or enforcement actions, including injunctions, and criminal or civil prosecution. These possible sanctions would adversely affect our business, results of operations and financial condition.

Further, the processes we use for cultivation of botanical raw material and the production of product candidates for use in clinical trials may be different from the processes we use to produce commercial product and/or may not be capable of producing sufficient quantities of product for commercial purposes. We may therefore need to undertake additional manufacturing process development and scale-up activities before we can commercialize a product. This may include the conduct of bioequivalence studies to demonstrate that product produced by the process used to manufacture on a commercial scale is the same as the material used in clinical trials. If we cannot demonstrate that our commercial scale product is the same as material used in our clinical trials, we may not be permitted to sell that product, which could have an impact on our business, results of operations and financial condition.

Product recalls or inventory losses caused by unforeseen events, cold chain interruption and testing difficulties may adversely affect our operating results and financial condition.

Epidiolex, Sativex and our product candidates are manufactured and distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as strict company and government standards for the manufacture of our products, subjects us to production risks. While product batches released for use in clinical trials or for commercialization undergo sample testing, some defects may only be identified following product release. Some of our products must be stored and transported at temperatures within a certain range, which is known as “strict cold chain” storage and transportation. The occurrence or suspected occurrence of production and distribution difficulties can lead to lost inventories, and in some cases product recalls, with consequential reputational damage and the risk of product liability. The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and delays of new product launches.

Epidiolex, Sativex and our product candidates contain controlled substances, the use of which may generate public controversy.

Since Epidiolex, Sativex and our other product candidates contain controlled substances, their regulatory approval may generate public controversy. Political and social pressures and adverse publicity could lead to delays in approval of, and increased expenses for, Epidiolex, Sativex and our product candidates. These pressures could also limit or restrict the introduction and marketing of Epidiolex, Sativex and our product candidates. Adverse publicity from cannabis misuse or adverse side effects from cannabis or other cannabinoid products may adversely affect the commercial success or market penetration achievable by Epidiolex, Sativex and our product candidates. The nature of our business attracts a high level of public and media interest, and in the event of any resultant adverse publicity, our reputation may be harmed.

Business interruptions could delay us in the process of developing our product candidates and could disrupt our product sales.

Loss of our manufacturing facilities, our growing facilities, stored inventory or laboratory facilities through fire, theft or other causes, or loss of our botanical raw material due to pathogenic infection or other causes, could have an adverse effect on our ability to meet demand for Epidiolex or Sativex or to continue product development activities and to conduct our business. Failure to supply our partners with commercial product may lead to adverse consequences, including the right of partners to take over responsibility for product supply. We currently have insurance coverage to compensate us for such business interruptions; however, such coverage may prove insufficient to fully compensate us for the damage to our business resulting from any significant property or casualty loss to our inventory or facilities.

We have significant and increasing liquidity needs and may require additional funding.

Our operations have consumed substantial amounts of cash since inception. For the three months ended December 31, 2018, we reported a net operating cash outflow of $75.0 million and a net cash outflow from investing activities of $18.8 million. For the fiscal year ended September 30, 2018, we reported a net operating cash outflow of $231.9 million and a net cash outflow from investing activities of $32.9 million.

Research and development, sales, general and administrative expenses and cash used for operations will continue to be significant and may increase substantially in the future in connection with new research and development initiatives, continued product commercialization efforts and the launch of Epidiolex. We may need to raise additional capital to fund our operations, continue to conduct clinical trials to support potential regulatory approval of marketing applications and to fund commercialization of our products.

The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

While we expect to fund our future capital requirements from a number of sources including cash flow from operations, the proceeds from further public offerings and the proceeds from the exercise of share options, we cannot assure you that any of these funding sources will be available to us on favorable terms, or at all. Further, even if we can raise funds from all of the above sources, the amounts raised may not be sufficient to meet our future capital requirements.

Our quarterly revenues, expenses and operating results have fluctuated in the past and are likely to fluctuate significantly in the future. Our financial results are unpredictable and may fluctuate, for among other reasons, due to:

A high portion of our costs are predetermined on an annual basis, due in part to our significant research and development costs. Thus, small declines in revenue could disproportionately affect financial results in a quarter. Because of these factors, our financial results in one or more future quarters may fail to meet the expectations of securities analysts or investors, which could cause our share price to decline.

If product liability lawsuits are successfully brought against us, we will incur substantial liabilities and may be required to limit the commercialization of Epidiolex, Sativex and our product candidates.

Although we have never had any product liability claims or lawsuits brought against us, we face potential product liability exposure related to the testing of our product candidates in human clinical trials, and we currently face exposure to claims in jurisdictions where we currently or potentially market and distribute our products. We may face exposure to claims by an even greater number of persons when we begin marketing and distributing our products commercially in the U.S. and elsewhere. Now, and in the future, an individual may bring a liability claim against us alleging that Epidiolex, Sativex or one of our product candidates caused an injury. While we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us. Large judgments have been awarded in class action or individual lawsuits based on drugs that had unanticipated side effects. Although we have purchased insurance to cover product liability lawsuits, if we cannot successfully defend ourselves against product liability claims, or if such insurance coverage is inadequate, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

Counterfeiting activities and the presence of counterfeit products in a number of markets and over the Internet continue to be a challenge for maintaining a safe drug supply for the pharmaceutical industry. Counterfeit products are frequently unsafe or ineffective, and can be life-threatening. To distributors and users, counterfeit products may be visually indistinguishable from the authentic version. Reports of adverse reactions to counterfeit drugs along with increased levels of counterfeiting could be mistakenly attributed to the authentic product, affect patient confidence in the authentic product and harm the business of companies such as ours. If our products were to be the subject of counterfeits, we could incur reputational and financial harm.

We depend upon our key personnel and our ability to attract and retain employees.

Our future growth and success depend on our ability to recruit, retain, manage and motivate our employees. The inability to hire or retain experienced management personnel could adversely affect our ability to execute our business plan and harm our operating results. Due to the specialized scientific and managerial nature of our business, we rely heavily on our ability to attract and retain qualified scientific, technical and managerial personnel. The competition for qualified personnel in the pharmaceutical field is intense. Due to this intense competition, we may be unable to continue to attract and retain qualified personnel necessary for the development of our business or to recruit suitable replacement personnel.

Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply with FDA regulations, provide accurate information to the FDA, comply with applicable manufacturing standards, comply with other federal and state laws and regulations, report information or data accurately or disclose unauthorized activities to us. Employee misconduct could also involve the improper use of information, including information obtained in the course of clinical trials, or illegal appropriation of drug product, which could result in government investigations and serious harm to our reputation. We have adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct. The precautions we take to detect and prevent these prohibited activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

If we are unable to use net operating loss carry-forwards and certain built-in losses to reduce future tax payments, or benefit from favorable tax legislation, our business, results of operations and financial condition may be adversely affected.

As a U.K. resident trading company, we are predominantly subject to U.K. corporate taxation. At December 31, 2018, we had cumulative carry-forward tax losses of $558.8 million, available to offset against future profits (subject to the restrictions on the use of such losses described below). The majority of these tax loss attributes have not been recognized on our balance sheet at December 31, 2018. It should be noted, however, that the use of carry-forward losses is restricted such that they are not available for offset against more than 50% of taxable profits in any accounting period (subject to a £5 million annual allowance). Additionally, as we carry out extensive research and development activities in the U.K., we benefit from the U.K. research and development tax credit regime. Up until the end of the financial year ended September 30, 2017, we have benefitted from the U.K. research and development tax credit regime for small and medium-sized companies, whereby our principal research subsidiary, GW Research Ltd, was able to surrender a portion of available losses that arise from research and development activity for a refundable credit of up to approximately 33.4% of the eligible research and development expenditure. However, due to the increase in the size of our employee workforce in

the U.K. and our annual turnover we are now subject to the U.K. research and development tax credit regime for large companies. Beginning October 1, 2017, GW Research Ltd is able to claim a refundable research and development expenditure credit, but that credit is payable at a lower effective rate of approximately 9.7%. We may also benefit in the future from the U.K.’s “patent box” regime, which would allow certain profits attributable to revenue from patented products to be taxed at a lower rate of 10%. When taken in combination with our available carry-forward tax losses and the enhanced relief available on our research and development expenditure, we expect that this may result in a long-term low rate of corporation tax. If, however, we are unable to generate sufficient future taxable profits, or for any reason to utilize our carry-forward losses (as currently restricted), or there are unexpected adverse changes to the U.K. research and development tax credit regime or “patent box” regime, or we are unable to qualify for such advantageous tax legislation, our business, results of operations and financial condition may be adversely affected.

We are subject to the U.K. Bribery Act, the U.S. Foreign Corrupt Practices Act and other anti-corruption laws, as well as export control laws, customs laws, sanctions laws and other laws governing our operations. If we fail to comply with these laws, we could be subject to civil or criminal penalties, other remedial measures and legal expenses, which could adversely affect our business, results of operations and financial condition.

Our operations are subject to anti-corruption laws, including the U.K. Bribery Act 2010, or Bribery Act, the U.S. Foreign Corrupt Practices Act, or FCPA, and other anti-corruption laws that apply in countries where we do business. The Bribery Act, FCPA and these other laws generally prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. Additionally, under the Bribery Act there could be an offense if we failed to prevent a third party from committing bribery in the performance of services for us or on our behalf. We and our commercial partners operate in a number of jurisdictions that pose a high risk of potential Bribery Act or FCPA violations, and we participate in collaborations and relationships with third parties whose actions could potentially subject us to liability under the Bribery Act, FCPA or local anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the U.K. and the U.S., and authorities in the European Union, including applicable export control regulations, economic sanctions on countries and persons, customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws.

However, there is no assurance that we will be completely effective in ensuring our compliance with all applicable anti-corruption laws, including the Bribery Act, the FCPA or other legal requirements, including Trade Control laws. If we are not in compliance with the Bribery Act, the FCPA and other anti-corruption laws or Trade Control laws, we may be subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity. Likewise, any investigation of any potential violations of the Bribery Act, the FCPA, other anti-corruption laws or Trade Control laws by the U.K., the U.S. or other authorities could also have an adverse impact on our reputation, our business, results of operations and financial condition.

Our proprietary information, or that of our customers, suppliers and business partners, may be lost or we may suffer security breaches.

In the ordinary course of our business, we collect and store sensitive data, including valuable and commercially sensitive intellectual property, clinical trial data, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers, clinical trial subjects and employees, and patients, in our data centers, on our networks, and with our third-party cloud service providers. The secure processing, maintenance and transmission of this information is critical to our operations. Despite our security measures, our information technology and infrastructure, and that of our third parties, may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disrupt our operations, damage our reputation and cause a loss of confidence in our products and our ability to conduct clinical trials, which could adversely affect our business and reputation and lead to delays in gaining regulatory approvals for Epidiolex. Although we maintain business interruption insurance coverage, our insurance might not cover all losses from any future breaches of our systems.

Failure of our information technology systems, including cybersecurity attacks or other data security incidents, could significantly disrupt the operation of our business.

Our business increasingly depends on the use of information technologies, which means that certain key areas such as research and development, production and sales are to a large extent dependent on our information systems or those of third-party providers. Our ability to execute our business plan and to comply with regulators’ requirements with respect to data control and data

integrity depends, in part, on the continued and uninterrupted performance of our information technology systems, or IT systems and the IT systems supplied by third-party service providers. As information systems and the use of software and related applications by us, our business partners, suppliers and customers become more cloud-based, there has been an increase in global cybersecurity vulnerabilities and threats, including more sophisticated and targeted cyber-related attacks that pose a risk to the security of our information systems and networks and the confidentiality, availability and integrity of data and information. In addition, our IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and backup measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we and our third-party service providers have taken to prevent unanticipated problems that could affect our IT systems, a successful cybersecurity attack or other data security incident could result in the misappropriation and/or loss of confidential or personal information, create system interruptions or deploy malicious software that attacks our systems. It is also possible that a cybersecurity attack might not be noticed for some period of time. In addition, sustained or repeated system failures or problems arising during the upgrade of any of our IT systems that interrupt our ability to generate and maintain data, and in particular to operate our proprietary technology platform, could adversely affect our ability to operate our business. The occurrence of a cybersecurity attack or incident could result in business interruptions from the disruption of our information technology systems, or negative publicity resulting in reputational damage with our shareholders and other stakeholders and/or increased costs to prevent, respond to or mitigate cybersecurity events. In addition, the unauthorized dissemination of sensitive personal information or proprietary or confidential information could expose us or other third parties to regulatory fines or penalties, litigation and potential liability, or otherwise harm our business

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing critical information or expose us to liability, which could adversely affect our business and our reputation.

In the ordinary course of our business, we, our vendors, and our third-party cloud service providers collect and store sensitive data, including legally protected patient health information, credit card information, personally identifiable information about our employees and patients, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing cloud-based and on-site systems. These applications and data encompass a wide variety of business critical information including research and development information, commercial information and business and financial information.

The secure processing, storage, maintenance and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers, or viruses, breaches or interruptions due to employee error, malfeasance or other disruptions, or lapses in compliance with privacy and security mandates. Any such virus, breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to prevent, and if necessary to detect and respond to such security incidents, breaches of privacy, and security mandates. However, in the future, any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA and General Data Protection Regulation, or GDPR, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process samples, provide test results, share and monitor safety data, bill payers or patients, provide customer support services, conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and may damage our reputation, any of which could adversely affect our business, financial condition and results of operations.

In May 2016, the European Union formally adopted the GDPR, which applies to all European Union member states from May 25, 2018 and replaced the European Union Data Protection Directive. The regulation introduces stringent new data protection requirements in the European Union and substantial fines for breaches of the data protection rules. It has increased our responsibility and liability in relation to personal data that we process and we may be required to put in place additional mechanisms ensuring compliance with the new European Union data protection rules. The GDPR is a complex law and the regulatory guidance is still evolving, including with respect to how the GDPR should be applied in the context of clinical trials or other transactions from which we may gain access to personal data. These changes in the law will increase our costs of compliance and result in greater legal risks.

Legislative or regulatory reform of the health care system in the U.S. and foreign jurisdictions may affect our ability to profitably sell our products, if approved.

Our ability to commercialize our future products successfully, alone or with collaborators, will depend in part on the extent to which coverage and reimbursement for the products will be available from government and health administration authorities, private health insurers and other third-party payers. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payers for health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.

Specifically, in both the U.S. and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. For example, the 2010 Affordable Care Act, or the ACA, substantially changed the way healthcare is financed by both governmental and private insurers. Both Congress and the U.S. President have already taken some actions that are intended to limit significantly the ACA, and we expect efforts to further modify or repeal the ACA to continue. The success and potential effects of these efforts to repeal or modify the ACA are not clear.

We expect additional federal and state legislative proposals for health care reform, which could limit the prices that can be charged for the products we develop and may limit our commercial opportunity.

The continuing efforts of government and other third-party payers to contain or reduce the costs of health care through various means may limit our commercial opportunity. It will be time-consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare, Medicaid and other governmental health programs and from private payers. Our products may not be considered cost-effective, and government and third-party private health insurance coverage and reimbursement may not be available to patients for any of our future products or sufficient to allow us to sell our products on a competitive and profitable basis. Our results of operations could be adversely affected by ACA, changes to the ACA, and by other health care reforms that may be enacted or adopted in the future. In addition, increasing emphasis on managed care in the U.S. will continue to put downward pressure on the pricing of pharmaceutical products. Cost-control initiatives could decrease the price that we or any potential collaborators could receive for any of our future products and could adversely affect our ability to generate revenue in the U.S. market and maintain profitability.

In some foreign countries, including major markets in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to 12 months or longer after the receipt of regulatory approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a pharmacoeconomic study that compares the cost effectiveness of our product candidates to other available therapies. Such pharmacoeconomic studies can be costly and the results uncertain. Our business could be harmed if reimbursement of our products is unavailable or limited in scope or amount or if pricing is set at unsatisfactory levels.

We may acquire other companies which could divert our management’s attention, result in additional dilution to our shareholders and otherwise disrupt our operations and harm our operating results.

We may in the future seek to acquire businesses, products or technologies that we believe could complement or expand our product offerings, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, effectively manage the combined business following the acquisition or realize anticipated cost savings or synergies. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:

In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results arising from the impairment assessment process. Acquisitions may also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our operating results. In addition, if an acquired business fails to meet our expectations, our business, results of operations and financial condition may be adversely affected.

The United Kingdom’s vote in favor of withdrawing from the European Union could lead to increased market volatility which could adversely impact the market price of our ADSs and make it more difficult for us to do business in Europe or have other adverse effects on our business.

The U.K. is currently negotiating the terms of its exit from the European Union (“Brexit”) scheduled for March 29, 2019. In November 2018, the U.K. and the European Union agreed upon a draft withdrawal agreement (“Withdrawal Agreement”) that sets out the terms of the U.K.’s departure, including commitments on citizen rights after Brexit, a financial settlement from the U.K., and a transition period from March 29, 2019 through December 31, 2020 to allow time for a future trade agreement to be agreed. On January 15, 2019, the draft Withdrawal Agreement was rejected by the U.K. Parliament creating significant uncertainty about the terms (and timing) under which the U.K. will leave the European Union. If no agreement can be reached and the U.K. leaves the European Union with no agreement (“hard Brexit”), there will be a period of considerable uncertainty particularly in relation to United Kingdom financial and banking markets as well as on the regulatory process in Europe. As a result of this uncertainty, financial markets could experience volatility which could adversely affect the market price of our ADSs. We may also face new regulatory costs and challenges that could have a material adverse effect on our operations, including the potential for a delay in our European launch of Epidiolex. In this regard, the EMA has already issued a notice reminding marketing authorization holders of centrally authorized medicinal products for human and veterinary use of certain legal requirements that need to be considered as part of Brexit, such as the requirement for the marketing authorization holder of a product centrally approved by the European Commission to be established in the European Union, and the requirement for some activities relating to centrally approved products, such as batch release and pharmacovigilance, to be performed in the European Union. As a result of the foregoing developments, and in the absence of any clear indication that any agreed form of a Withdrawal Agreement will contain a contrary requirement, we have taken steps to establish a network of subsidiary undertakings in the major European markets and are planning to establish pharmacovigilance and batch release operations in the European Union. Depending on the terms of Brexit, the United Kingdom could lose the benefits of global trade agreements negotiated by the European Union on behalf of its members, which may result in increased trade barriers which could make our doing business worldwide more difficult. In addition, currency exchange rates in the pound sterling and the euro with respect to each other and the U.S. dollar have already been adversely affected by Brexit. Should this foreign exchange volatility continue it could cause volatility in our financial results.

Risks Related to Development and Regulatory Approval of Epidiolex, Sativex and Our Product Candidates

Clinical trials for our product candidates are expensive, time-consuming, uncertain and susceptible to change, delay or termination. The results of clinical trials are open to differing interpretations

Clinical trials are expensive, time consuming and difficult to design and implement. Regulatory agencies may analyze or interpret the results differently than us. Even if the results of our clinical trials are favorable, the clinical trials for a number of our product candidates are expected to continue for several years and may take significantly longer to complete. In addition, we, the FDA or other regulatory authorities, including state and local authorities, or an Institutional Review Board, or IRB, with respect to a trial at its institution, may suspend, delay or terminate our clinical trials at any time, require us to conduct additional clinical trials, require a particular clinical trial to continue for a longer duration than originally planned, require a change to our development plans such that we conduct clinical trials for a product candidate in a different order, e.g., in a step-wise fashion rather than running two trials of the same product candidate in parallel, or the DEA could suspend or terminate the registrations and quota allotments we require in order to procure and handle controlled substances, for various reasons, including:

Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.

Any failure by us to comply with existing regulations could harm our reputation and operating results.

We are subject to extensive regulation by U.S. federal and state and foreign governments in each of the markets where we currently sell or plan to sell Epidiolex and Sativex, as applicable, or in markets where we have product candidates progressing through the approval process.

We must also adhere to all regulatory requirements including FDA’s GLP, GCP, and cGMP requirements, pharmacovigilance requirements, advertising and promotion restrictions, reporting and recordkeeping requirements, and their European equivalents. If we or our suppliers fail to comply with applicable regulations, including FDA pre-or post-approval cGMP requirements, then the FDA or other foreign regulatory authorities could sanction us. Even if a drug is FDA-approved, regulatory authorities may impose significant restrictions on a product’s indicated uses or marketing or impose ongoing requirements for potentially costly post-marketing trials. Epidiolex, and any of our product candidates that may be approved in the U.S. in the future, will be subject to ongoing regulatory requirements for manufacturing, labeling, packaging, storage, distribution, import, export, advertising, promotion, sampling, recordkeeping and submission of safety and other post-market information, including both federal and state requirements in the U.S. In addition, manufacturers and manufacturers’ facilities are required to comply with extensive FDA requirements, including ensuring that quality control and manufacturing procedures conform to GMP. As such, we and our contract manufacturers (in the event contract manufacturers are appointed in the future) are subject to continual review and periodic inspections to assess compliance with GMP. Accordingly, we and others with whom we work must continue to expend time, money and effort in all areas of regulatory compliance, including manufacturing, production, quality control and quality assurance. We will also be required to report certain adverse reactions and production problems, if any, to the FDA, and to comply with requirements concerning advertising and promotion for our products. Promotional communications with respect to prescription drugs are subject to a variety of legal and regulatory restrictions and must be consistent with the information in the product’s approved label.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of the product, it may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may:

In addition, our products are regulated by the DEA, under the Controlled Substances Act. DEA scheduling is a separate process that can delay when a drug may become available to patients beyond an NDA approval date, and the timing and outcome of such DEA process is uncertain. See also “Risks Related to Controlled Substances”.

In addition, any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from Epidiolex, Sativex and our product candidates. If regulatory sanctions are applied or if regulatory approval is withdrawn, the value of our business and our operating results may be adversely affected.

Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation. We expend significant resources on compliance efforts and such expenses are unpredictable and might adversely affect our results. Changing laws, regulations and standards might also create uncertainty, higher expenses and increase insurance costs. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment might result in increased management and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

We are subject to federal, state and foreign healthcare laws and regulations and implementation of or changes to such healthcare laws and regulations could adversely affect our business and results of operations.

In both the U.S. and certain foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could impact our ability to sell Epidiolex or Sativex, as applicable, and any other potential products. If we are found to be in violation of any of these laws or any other federal or state regulations, we may be subject to administrative, civil and/or criminal penalties, damages, fines, individual imprisonment, exclusion from federal health care programs and the restructuring of our operations. Any of these could have a material adverse effect on our business and financial results. Since many of these laws have not been fully interpreted by the courts, there is an increased risk that we may be found in violation of one or more of their provisions. Any action against us for violation of these laws, even if we ultimately are successful in our defense, will cause us to incur significant legal expenses and divert our management’s attention away from the operation of our business.

In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. We may face competition from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with Epidiolex, and any other products we may market, which could negatively impact our profitability.

We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we may receive for any approved product, including Epidiolex. There have been judicial challenges to certain aspects of the ACA and numerous legislative attempts to repeal and/or replace the ACA in whole or in part, and we expect there will be additional challenges and amendments to the ACA in the future. At this time, the full effect that the ACA will have on our business in the future remains unclear. An expansion in the government’s role in the U.S. healthcare industry may cause general downward pressure on the prices of prescription drug products, lower reimbursements or any other product for which we obtain regulatory approval, reduce product utilization and adversely affect our business and results of operations. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize Epidiolex or any other products for which we may receive regulatory approval.

Information obtained from expanded access studies may not reliably predict the efficacy of our product candidates in company-sponsored clinical trials and may lead to adverse events that could limit approval.

The expanded access studies we are currently supporting are uncontrolled, carried out by individual investigators and not typically conducted in strict compliance with GCPs, all of which can lead to a treatment effect which may differ from that in placebo-controlled trials. These studies provide only anecdotal evidence of efficacy for regulatory review. These studies contain no control or comparator group for reference and these patient data are not designed to be aggregated or reported as study results. Moreover, data from such small numbers of patients may be highly variable. Information obtained from these studies, including the statistical principles that we and the independent investigators have chosen to apply to the data, may not reliably predict data collected via systematic evaluation of the efficacy in company-sponsored clinical trials or evaluated via other statistical principles that may be applied in those trials. Reliance on such information to design our clinical trials may lead to Phase 2 and 3 trials that are not adequately designed to demonstrate efficacy and could delay or prevent our ability to seek approval of our product candidates.

Expanded access programs provide supportive safety information for regulatory review. Physicians conducting these studies may use our product candidates in a manner inconsistent with the protocol, including in children with conditions beyond those being studied in trials which we sponsor. Any adverse events or reactions experienced by subjects in the expanded access program may be attributed to our product candidates and may limit our ability to obtain regulatory approval with labeling that we consider desirable, or at all.

There is a high rate of failure for drug candidates proceeding through clinical trials.

Generally, there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical trials similar to the experience of a number of other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in earlier trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. For example, as the endpoint preferred by EMA was not achieved in our first Phase 3 trial of Epidiolex for Dravet syndrome, our Marketing Authorization Application, or MAA for Dravet syndrome may not be accepted even though our NDA has been approved by the FDA. In the event that we obtain negative results from clinical trials for product candidates or other problems related to potential chemistry, manufacturing and control issues or other hurdles occur and our product candidates are not approved, we may not be able to generate sufficient revenue or obtain financing to continue our operations, our ability to execute on our current business plan may be materially impaired, our reputation in the industry and in the investment community might be significantly damaged and the price of our ADSs could decrease significantly. In addition, our inability to properly design, commence and complete clinical trials may negatively impact the timing and results of our clinical trials and ability to seek approvals for our drug candidates.

If we are found in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty and/or be suspended from participation in federal or state health care programs, which may adversely affect our business, financial condition and results of operations.

In the U.S., we are subject to various federal and state health care “fraud and abuse” laws, including anti-kickback laws, false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs, which could affect us particularly upon successful commercialization of our products in the U.S. The Medicare and Medicaid Patient Protection Act of 1987, or federal Anti-Kickback Statute, makes it illegal for any person, including a prescription drug manufacturer (or a party acting on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal health care program, such as Medicare or Medicaid. Under federal law, some arrangements, known as safe harbors, are deemed not to violate the federal Anti-Kickback Statute. Although we seek to structure our business arrangements in compliance with all applicable requirements, it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute and Federal False Claims Act. Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including fines and/or exclusion or suspension from federal and state health care programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of several states.

Many states have adopted laws similar to the federal anti-kickback statute, some of which apply to the referral of patients for health care services reimbursed by any source, not just governmental payers. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement we could be subject to penalties.

Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. While we believe we have structured our business arrangements to comply with these laws, it is possible that the government could allege violations of, or convict us of violating, these laws. If we are found in violation of one of these laws, we could be required to pay a penalty and could be suspended or excluded from participation in federal or state health care programs, and our business, results of operations and financial condition may be adversely affected.

Our ability to research, develop and commercialize Epidiolex, Sativex and our product candidates is dependent on our ability to maintain licenses relating to the cultivation, possession and supply of controlled substances.

Our research and manufacturing facilities are located exclusively in the United Kingdom. In the United Kingdom, licenses to cultivate, possess and supply cannabis for medical research are granted by the Home Office on an annual basis. Although the Home Office has renewed our licenses each year since 1998, it may not do so in the future, in which case we may not be in a position to carry on our research and development program in the United Kingdom. In addition, we are required to maintain our existing commercial licenses to cultivate, produce and supply cannabis. However, if the Home Office were not prepared to renew such licenses, we would be unable to manufacture and distribute our products on a commercial basis in the United Kingdom or beyond. In order to carry out research in countries other than the United Kingdom, similar licenses to those outlined above are required to be issued by the relevant authority in each country. In addition, we will be required to obtain licenses to export from the United Kingdom and to import into the recipient country. To date, we have obtained necessary import and export licenses to over 30 countries. Although we have an established track record of successfully obtaining such licenses as required, this may change in the future.

In the U.S., the DEA regulates the cultivation, possession and supply of cannabis for medical research and commercial development, including the requirement of annual registrations to manufacture or distribute pharmaceutical products derived from cannabis extracts. See also “Risks Related to Controlled Substances”.

Serious adverse events or other safety risks could require us to abandon development and preclude, delay or limit approval of our product candidates, limit the scope of any approved label or market acceptance, or cause the recall or loss of marketing approval of products that are already marketed.

If Epidiolex, Sativex or any of our product candidates prior to or after any approval for commercial sale, cause serious or unexpected side effects, or are associated with other safety risks such as misuse, abuse or diversion, a number of potentially significant negative consequences could result, including:

We may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to participants or if preliminary data demonstrate that our product candidates are unlikely to receive regulatory approval or unlikely to be successfully commercialized. Following receipt of approval for commercial sale of a product we may voluntarily withdraw or recall that product from the market if at any time we believe that its use, or a person’s exposure to it, may cause adverse health consequences or death. To date we have not withdrawn, recalled or taken any other action, voluntary or mandatory, to remove an approved product

from the market. To date, we have only voluntarily suspended clinical trials when recruitment of the target patients has proven to be too difficult or, temporarily, to properly investigate suspected adverse events. In addition, regulatory agencies, IRBs or data safety monitoring boards may at any time recommend the temporary or permanent discontinuation of our clinical trials or request that we cease using investigators in the clinical trials if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements, or that they present an unacceptable safety risk to participants. Although we have never been asked by a regulatory agency, IRB or data safety monitoring board to temporarily or permanently discontinue a clinical trial, if we elect or are forced to suspend or terminate a clinical trial of any of our product candidates, the commercial prospects for that product will be harmed and our ability to generate product revenue from that product may be delayed or eliminated. Furthermore, any of these events may result in labeling statements such as warnings or contraindications. In addition, such events or labeling could prevent us or our partners from achieving or maintaining market acceptance of the affected product and could substantially increase the costs of commercializing our product candidates and impair our ability to generate revenue from the commercialization of these products either by us or by our collaboration partners.

The development of a REMS for Epidiolex or our product candidates could cause delays in the approval process and would add additional layers of regulatory requirements that could impact our ability to commercialize our product candidates in the U.S. and reduce their market potential.

Although the FDA approved our NDA for Epidiolex without requiring a REMS as a condition of approval of the NDA, the FDA may, post-approval, require a REMS for Epidiolex if it becomes aware of new safety information that makes a REMS necessary to ensure that the benefits of the drug outweigh the potential risks. REMS elements can include medication guides, communication plans for health care professionals, and ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. We may be required to adopt a REMS for our product candidates to ensure that the benefits outweigh the risks of abuse, misuse, diversion and other potential safety concerns. There can be no assurance that the FDA will approve a manageable REMS for our product candidates, which could create material and significant limits on our ability to successfully commercialize our product candidates in the U.S. Delays in the REMS approval process could result in delays in the NDA approval process. In addition, as part of the REMS, the FDA could require significant restrictions, such as restrictions on the prescription, distribution and patient use of the product, which could significantly impact our ability to effectively commercialize our product candidates, and dramatically reduce their market potential thereby adversely impacting our business, financial condition and results of operations. Even if initial REMS are not highly restrictive, if, after launch, our product candidates were to be subject to significant abuse/non-medical use or diversion from licit channels, this could lead to negative regulatory consequences, including a more restrictive REMS.

Our existing collaboration arrangements and any that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize Epidiolex, Sativex and our product candidates.

We are a party to, and may seek additional, collaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization of Epidiolex, Sativex and our product candidates. We may, with respect to our product candidates, enter into new arrangements on a selective basis depending on the merits of retaining commercialization rights for ourselves as compared to entering into selective collaboration arrangements with leading pharmaceutical or biotechnology companies for each product candidate, both in the U.S. and internationally. To the extent that we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators and the terms of any collaboration or other arrangements that we may establish may not be favorable to us.

Any existing or future collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding development, intellectual property, regulatory or commercialization matters can lead to delays in the development process or commercialization of the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Any such termination or expiration could harm our business reputation and may adversely affect us financially.

We depend on a limited number of suppliers for materials and components required to manufacture Epidiolex, Sativex and our product candidates. The loss of these suppliers, or their failure to supply us on a timely basis, could cause delays in our current and future capacity and adversely affect our business.

We depend on a limited number of suppliers for the materials and components required to manufacture Epidiolex, Sativex and our product candidates. As a result, we may not be able to obtain sufficient quantities of critical materials and components in the future. A delay or interruption by our suppliers may also harm our business, results of operations and financial condition. In addition, the lead time needed to establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must switch to a new supplier. The time and effort to qualify for and, in some cases, obtain regulatory approval for a

new supplier could result in additional costs, diversion of resources or reduced manufacturing yields, any of which would negatively impact our operating results. Our dependence on single-source suppliers exposes us to numerous risks, including the following: our suppliers may cease or reduce production or deliveries, raise prices or renegotiate terms; our suppliers may become insolvent or cease trading; we may be unable to locate a suitable replacement supplier on acceptable terms or on a timely basis, or at all; and delays caused by supply issues may harm our reputation, frustrate our customers and cause them to turn to our competitors for future needs.

A significant portion of our cash and cash equivalents are held at a small number of banks.

A significant portion of our cash and cash equivalents is presently held at a small number of banks. Although our board has adopted a treasury policy requiring us to limit the amount of cash held by each banking group taking into account their credit ratings, we are subject to credit risk if any of these banks are unable to repay the balance in the applicable account or deliver our securities or if any bank should become bankrupt or otherwise insolvent. Any of the above events could have a material and adverse effect on our business, results of operations and financial condition.

We may not be able to adequately protect Epidiolex, Sativex, our product candidates or our proprietary technology in the marketplace.

Our success will depend, in part, on our ability to obtain patents, protect our trade secrets and operate without infringing on the proprietary rights of others. We rely upon a combination of patents, plant variety rights, trade secret protection (i.e., know-how), and confidentiality agreements to protect the intellectual property of Epidiolex, Sativex and our product candidates. The strengths of patents in the pharmaceutical field involve complex legal and scientific questions, and can be uncertain. Where appropriate, we seek patent protection for certain aspects of our products and technology. However, patent protection for naturally occurring compounds is exceedingly difficult to obtain, defend and enforce. Filing, prosecuting and defending patents throughout the world would be prohibitively expensive, so our policy is to look to patent technologies with commercial potential in jurisdictions with significant commercial opportunities. However, patent protection may not be available for some of the products or technology we are developing. If we must spend significant time and money protecting, defending or enforcing our patents, designing around patents held by others or licensing, potentially for large fees, patents or other proprietary rights held by others, our business, results of operations and financial condition may be harmed. We may not develop additional proprietary products that are patentable.

The patent positions of pharmaceutical products are complex and uncertain. The scope and extent of patent protection for Epidiolex, Sativex and our product candidates are particularly uncertain. To date, our principal product candidates, including Epidiolex and Sativex, have been based on specific formulations of certain previously known cannabinoids found in nature in the cannabis sativa plant. While we have sought patent protection, where appropriate, directed to, among other things, composition-of-matter for our specific formulations, their methods of use, and methods of manufacture, we do not have and will not be able to obtain composition of matter protection on these previously known cannabinoids per se. We anticipate that the products we develop in the future will continue to include or be based on the same or other naturally occurring compounds, as well as synthetic compounds we may discover. Although we have sought and expect to continue to seek patent protection for our product candidates, their methods of use, and methods of manufacture, any or all of them may not be subject to effective patent protection. For example, we are unable to obtain composition of matter patent protection for CBD, the active ingredient in Epidiolex, as it is a naturally occurring compound. If any of our products is approved and marketed for an indication for which we do not have an issued patent, our ability to use our patents to prevent a competitor from commercializing a non-branded version of our commercial products for that non-patented indication could be significantly impaired or even eliminated.

Publication of information related to Epidiolex, Sativex and our product candidates by us or others may prevent us from obtaining or enforcing patents relating to these products and product candidates. Furthermore, others may independently develop similar products, may duplicate our products, or may design around our patent rights. In addition, any of our issued patents may be opposed and/or declared invalid or unenforceable. Two of our recently issued European patents, including our European patent claiming the use of CBD in the treatment of partial seizures, have received a notice of opposition, which may result in claims in these patents being narrowed or cancelled such that the scope of the opposed patent may not be as broad, or the opposed patent may be revoked in its entirety. In one of the opposition proceedings, the opponent failed to show the patent invalid. The other opposition proceeding relating to CBD in the treatment of partial seizures resulted in an initial decision that is under appeal. One of our U.S. patents was involved in an Inter Partes Review proceeding before the USPTO that resulted in invalidation of certain but not all claims of that patent. If we fail to adequately protect our intellectual property, we may face competition from companies who attempt to create a generic product to compete with Epidiolex or Sativex. We may also face competition from companies who develop a substantially similar product to Epidiolex, Sativex or one of our other product candidates that is not covered by any of our patents.

Many companies have encountered significant problems in protecting, defending and enforcing intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property rights, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.

If third parties claim that intellectual property used by us infringes upon their intellectual property, our operating profits could be adversely affected.

There is a substantial amount of litigation, both within and outside the U.S., involving patent and other intellectual property rights in the pharmaceutical industry. We may, from time to time, be notified of claims that we are infringing upon patents, trademarks, copyrights or other intellectual property rights owned by third parties, and we cannot provide assurances that other companies will not, in the future, pursue such infringement claims against us, our commercial partners or any third-party proprietary technologies we have licensed. If we were found to infringe upon a patent or other intellectual property right, or if we failed to obtain or renew a license under a patent or other intellectual property right from a third party, or if a third party that we were licensing technologies from was found to infringe upon a patent or other intellectual property rights of another third party, we may be required to pay damages, including damages of up to three times the damages found or assessed, if the infringement is found to be willful, suspend the manufacture of certain products or reengineer or rebrand our products, if feasible, or we may be unable to enter certain new product markets. Any such claims could also be expensive and time consuming to defend and divert management’s attention and resources. Our competitive position could suffer as a result. In addition, if we have declined or failed to enter into a valid non-disclosure or assignment agreement for any reason, we may not own the invention or our intellectual property, and our products may not be adequately protected. Thus, we cannot guarantee that Epidiolex, Sativex or our other product candidates, or our commercialization thereof, does not and will not infringe any third party’s intellectual property.

Controlled substance legislation differs between countries and legislation in certain countries may restrict or limit our ability to sell Epidiolex, Sativex and our product candidates.

Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade and domestic control of narcotic substances, including cannabis extracts. Countries may interpret and implement their treaty obligations in a way that creates a legal obstacle to our obtaining regulatory approval for Epidiolex, Sativex and our other products in those countries. These countries may not be willing or able to amend or otherwise modify their laws and regulations to permit Epidiolex, Sativex or our other products to be marketed, or achieving such amendments to the laws and regulations may take a prolonged period of time. In the case of countries with similar obstacles, we would be unable to market Epidiolex, Sativex and our product candidates in countries in the near future or perhaps at all if the laws and regulations in those countries do not change.

Epidiolex is and the product candidates we are developing will be subject to U.S. controlled substance laws and regulations and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations, both during clinical development and post approval, and our financial condition.

Epidiolex, Sativex and our product candidates we are developing contain controlled substances as defined in the federal Controlled Substances Act of 1970, or CSA. Controlled substances that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things, certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I substances by definition have a high potential for abuse, no currently “accepted medical use” in the U.S., lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the U.S. Pharmaceutical products approved for use in the U.S. which contain a controlled substance are listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted. For example, they may not be refilled without a new prescription.

While cannabis is a Schedule I controlled substance, products approved for medical use in the U.S. that contain cannabis or cannabis extracts should be placed in Schedules II-V, since approval by the FDA satisfies the “accepted medical use” requirement. If and when any of our product candidates receive FDA approval, the DEA will make a scheduling determination. Having now been rescheduled into Schedule V, the manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use of Epidiolex will still be subject to specific and potentially significant levels of regulation by the DEA. If any foreign regulatory authority determines that Epidiolex may have potential for abuse, or if FDA or DEA makes a similar determination for Sativex, it may require us to generate more clinical or other data than we currently anticipate to establish whether or to what extent the substance has an abuse potential, which could increase the cost and/or delay the launch of that product.

DEA registration and inspection of facilities. Facilities conducting research, manufacturing, distributing, importing or exporting, or dispensing controlled substances must be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. All these facilities must renew their registrations annually, except dispensing facilities, which must renew every three years. The DEA conducts periodic inspections of certain registered establishments that handle controlled substances. Obtaining and maintaining the necessary registrations may result in delay of the importation, manufacturing or distribution of Sativex and/or Epidiolex or other products. Furthermore, failure to maintain compliance with the CSA, particularly non-compliance resulting in loss or diversion, can result in regulatory action that could have a material adverse effect on our business, financial condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings.

State-controlled substances laws. Individual states have also established controlled substance laws and regulations. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule Epidiolex or our product candidates as well. We or our partners must also obtain separate state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the states in addition to those from the DEA or otherwise arising under federal law.

Clinical trials. Because our products are controlled substances in the U.S., to conduct clinical trials in the U.S., each of our research sites must submit a research protocol to the DEA and obtain and maintain a DEA researcher registration that will allow those sites to handle and dispense our products and to obtain product from our importer. If the DEA delays or denies the grant of a research registration to one or more research sites, the clinical trial could be significantly delayed, and we could lose clinical trial sites. The importer for the clinical trials must also obtain an importer registration and an import permit for each import. We do not currently conduct any manufacturing or repackaging/relabeling of Sativex or its active ingredients (i.e., the cannabis extract) in the U.S.

Importation. If one of our product candidates is approved and classified as a Schedule II or III substance, an importer can import for commercial purposes if it obtains an importer registration and files an application for an import permit for each import. The DEA provides annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of controlled substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import authority, including specific quantities, could affect product availability and have a material adverse effect on our business, results of operations and financial condition. In addition, an application for a Schedule II importer registration must be published in the Federal Register, and there is a waiting period for third party comments to be submitted. It is always possible that adverse comments may delay the grant of an importer registration.

If one of our product candidates is approved and classified as a Schedule II controlled substance, federal law may impose additional restrictions on importation for commercial purposes.

Manufacture in the U.S. If, because of a Schedule II classification or voluntarily, we were to conduct manufacturing or repackaging/relabeling in the U.S., our contract manufacturers would be subject to the DEA’s annual manufacturing and procurement quota requirements. Additionally, regardless of the scheduling of Epidiolex and Sativex, cannabis and the BDSs comprising the active ingredient in the final dosage form are currently Schedule I controlled substances and would be subject to such quotas as these substances could remain listed on Schedule I. The annual quota allocated to us or our contract manufacturers for the active ingredients in our products may not be sufficient to complete clinical trials or meet commercial demand. Consequently, any delay or refusal by the DEA in establishing our, or our contract manufacturers’, procurement and/or production quota for controlled substances could delay or stop our clinical trials or product launches, which could have a material adverse effect on our business, financial position and results of operations.

Distribution in the U.S. If any of our product candidates is scheduled as Schedule II or III, we would also need to identify wholesale distributors with the appropriate DEA and state registrations and authority to distribute the product to pharmacies and other health care providers. We would need to identify distributors to distribute the product to pharmacies; these distributors would need to obtain Schedule II or III distribution registrations. The failure to obtain, or delay in obtaining, or the loss any of those registrations could result in increased costs to us. If any of our product candidates is a Schedule II drug, pharmacies would have to maintain enhanced security with alarms and monitoring systems and they must adhere to recordkeeping and inventory requirements. This may discourage some pharmacies from carrying either or both of these products. Furthermore, state and federal enforcement actions, regulatory requirements, and legislation intended to reduce prescription drug abuse, such as the requirement that physicians consult a state prescription drug monitoring program may make physicians less willing to prescribe, and pharmacies to dispense, Schedule II products.

The legalization and use of medical and recreational marijuana in the U.S. and elsewhere may impact our business.

There is a substantial amount of change occurring in the U.S. regarding the use of medical and recreational marijuana products. While marijuana products not approved by FDA are Schedule I substances as defined under federal law, and their possession and use is not permitted according to federal law, at least 30 jurisdictions and the District of Columbia have enacted state laws to enable possession and use of marijuana for medical purposes, and at least ten jurisdictions for recreational purposes Under the U.S. Farm Bill, enacted in late 2018, certain extracts and other material derived from certain marijuana plants with extremely low THC content are now descheduled, although ,the marketing of such products as a food, dietary supplement, or for medical purposes remains subject to regulatory pre-marketing approval requirements and other FDA rules. Although our business is quite distinct from that of online and dispensary marijuana companies, future legislation authorizing the sale, distribution, use, and insurance reimbursement of non-FDA approved marijuana products could affect our business.

Many factors may have a material adverse effect on the market price of the ADSs, including, but not limited to:

In addition, the stock market in general, and Nasdaq in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of individual companies. The market for equity securities in pharmaceutical companies, in particular, has at various times experienced extreme volatility. Broad market and industry factors may negatively affect the market price of our ADSs, regardless of our actual operating performance.

In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation often has been instituted against that company.

Our largest shareholder owns a significant percentage of our share capital and voting rights of the Company.

As of December 31, 2018, Capital Research and Management Company (Global Investors) held approximately 11.8% of our issued share capital, accounting for approximately 11.8% of the voting rights of the Company. To the extent Capital Research and Management Company (Global Investors) continues to hold a large percentage of our share capital and voting rights, it will remain in a position to exert greater influence in the appointment of our directors and officers and in other corporate actions that require shareholders’ approval.

Substantial future sales of our ADSs in the public market, or the perception that these sales could occur, could cause the price of the ADSs to decline.

Sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of the ADSs to decline. The ordinary shares held by our directors, including our officers, are available for sale in the form of ADSs and are not subject to contractual and legal restrictions on resale. If any of our large shareholders or members of our management team seek to sell substantial amounts of our ADSs, particularly if these sales are in a rapid or disorderly manner, or other investors perceive that these sales could occur, the market price of our ADSs could decrease significantly.

Unlike in prior years, as of October 1, 2018, we are required to comply with the domestic reporting regime under the Exchange Act and will incur significant legal, accounting and other expenses, and our management will be required to devote substantial additional time to new compliance initiatives and corporate governance matters.

We determined that, as of March 31, 2018, we no longer qualified as a “foreign private issuer” under the rules and regulations of the SEC. While we were a foreign private issuer, we were exempt from compliance with certain laws and regulations of the SEC, including the proxy rules, the short-swing profits recapture rules and certain governance requirements, such as independent director oversight of the nomination of directors and executive compensation. In addition, we were not required to file annual, quarterly and current reports and financial statements with the SEC as frequently or as promptly as U.S. companies registered under the Exchange Act. As a result of this determination, beginning on October 1, 2018, we were no longer entitled to “foreign private issuer” exemptions and we now report as a domestic U.S. filer, including filing quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements under Section 14 of the Exchange Act. In addition, we now prepare our financial statements in U.S. dollars in accordance with generally accepted accounting principles in the United States rather than International Financial Reporting Standards. In addition, beginning October 1, 2018, our “insiders” are subject to the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act and are no longer exempt from the requirements of Regulation FD promulgated by the SEC under the Exchange Act. Moreover, beginning October 1, 2018, we were no longer permitted to follow our home country rules in lieu of the corporate governance obligations imposed by Nasdaq, and are required to comply with the governance practices required of U.S. domestic issuers.

The regulatory and compliance costs associated with the reporting and governance requirements applicable to U.S. domestic issuers may be significantly higher than the costs we previously incurred as a foreign private issuer. As a result, we expect that the loss of foreign private issuer status will increase our legal and financial compliance costs and will make some activities highly time consuming and costly. In addition, we need to develop our reporting and compliance infrastructure and may face challenges in complying with the new requirements applicable to us.

U.S. investors may have difficulty enforcing civil liabilities against our Company, our directors or members of senior management and the experts named in this Transition Report.

We are incorporated under the laws of England and Wales, and our subsidiaries are incorporated in various jurisdictions, including foreign jurisdictions. A number of the officers and directors of the Company and each of our subsidiaries and some of the experts named in this Transition Report are non-residents of the United States, and all or a substantial portion of the assets of such

persons are located outside the United States. Mayer Brown International LLP, our English solicitors, advised us that there is doubt as to whether English courts would enforce certain civil liabilities under U.S. securities laws in original actions or judgments of U.S. courts based upon these civil liability provisions. In addition, awards of punitive damages in actions brought in the United States or elsewhere may be unenforceable in the United Kingdom. An award for monetary damages under the U.S. securities laws would be considered punitive if it does not seek to compensate the claimant for loss or damage suffered and is intended to punish the defendant. The enforceability of any judgment in the United Kingdom will depend on the particular facts of the case as well as the laws and treaties in effect at the time. The United States and the United Kingdom do not currently have a treaty providing for recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters

The rights of our shareholders may differ from the rights typically offered to shareholders of a U.S. corporation.

We are incorporated under English law. The rights of holders of ordinary shares, and therefore certain of the rights of shareholders, are governed by English law, including the provisions of the Companies Act 2006, and by our Amended and Restated Articles of Association (“Articles of Association”). These rights differ in certain respects from the rights of shareholders in typical U.S. corporations. Certain differences between the provisions of the Companies Act 2006 applicable to us and the Delaware General Corporation Law, or DGCL, relating to shareholders’ rights and protections include, but are not limited to, the following.

We may be classified as a passive foreign investment company, or PFIC, in any taxable year and U.S. holders of our ordinary shares could be subject to adverse U.S. federal income tax consequences.

The rules governing PFICs can have adverse effects for U.S. federal income tax purposes. The tests for determining PFIC status for a taxable year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds of income. The determination of whether we are a PFIC depends on the particular facts and circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject to differing interpretations. Based on our estimated gross income, the average value of our assets, including goodwill and the nature of our active business, we do not believe that we were classified as a PFIC for U.S. federal income tax purposes for the taxable year ending December 31, 2018.

If we are a PFIC, U.S. holders of our ordinary shares would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under U.S. federal income tax laws and regulations. A U.S. holder of our ordinary shares may be able to mitigate some of the adverse U.S. federal income tax consequences described above with respect to owning the ordinary shares if we are classified as a PFIC, provided that such U.S. investor is eligible to make, and validly makes, a “mark-to-market” election. In certain circumstances a U.S. Holder can make a “qualified electing fund” election to mitigate some of the adverse tax consequences described with respect to an ownership interest in a PFIC by including in income its share of the PFIC’s income on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election.

Investors should consult their own tax advisors regarding all aspects of the application of the PFIC rules to our ordinary shares.

There are no written comments from the staff of the SEC which remain unresolved before the end of the fiscal year to which the Transition Report relates.

Our operations are conducted in leased facilities located in the United Kingdom and the United States. In addition to our leased administrative, research and manufacturing facilities, we also have dedicated growing facilities operated by contract partners. The following table provides a summary of our significant properties as of December 31, 2018:

We believe that our office, research and manufacturing facilities are sufficient to meet our current needs. We are not aware of any environmental issues that may affect our utilization of our property.

Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Our ordinary shares, par value £0.001 per share, are not publicly traded. Our American Depositary Shares (“ADSs”) each represent twelve ordinary shares of GW Pharmaceuticals plc. An ADS may be evidenced by an American Depositary Receipt (“ADR”) issued by Citibank., N.A. as depositary, and is listed on the Nasdaq Global Market under the symbol “GWPH” since May 1, 2013.

Prior to that date, there was no public trading market for our ADSs. Our ordinary shares were traded on the Alternative Investment Market, or AIM, a market operated by London Stock Exchange plc, under the symbol GWP between June 28, 2001 and December 5, 2016.

As of December 31, 2018, there were approximately 1,031 holders of record of our ordinary shares and 336 holders of record of our ADSs. The closing sale price per ADS on the Nasdaq Global Market on February 20, 2019 was $145.88.

Since our inception, we have not declared or paid any dividends on our ordinary shares. We intend to retain any earnings for use in our business and do not currently intend to pay dividends on our ordinary shares.

The payment of dividends by us is governed by English law. The declaration and payment of any future dividends will be at the discretion of our board of directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by our indebtedness, any future debt agreements or applicable laws and other factors that our board of directors may deem relevant.

Information regarding our equity compensation plans is incorporated by reference in Item 12 of Part III of this Transition Report on Form 10-K.

The following graph shows the cumulative total shareholder return of an investment of $100 in cash at market close on May 1, 2013 (the first day of trading of our ADSs) through December 31, 2018 for (1) our ADSs, (2) the Nasdaq Biotechnology Index and (3) the Nasdaq Composite Index (U.S.).

This graph shows the daily movements to December 31, 2018 of $100 invested in GW Pharmaceuticals plc ADRs on January 1, 2014 compared with the value of $100 invested in the Nasdaq Biotech Index or the Nasdaq Composite Index.

This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or incorporated by reference into any of our filings under the U.S. Securities Act of 1933, as amended (Securities Act) or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

We did not sell any unregistered securities during the year ended December 31, 2018.

The following table sets forth our consolidated financial data for the three-month transition period ended December 31, 2018, the comparative three months ended December 31, 2017 and each of our five preceding fiscal years. The selected consolidated financial data as of December 31, 2018, September 30, 2018 and 2017 and for the three months ended December 31, 2018, and fiscal year ended September 30, 2018, 2017 and 2016, presented in this table have been derived from our audited consolidated financial statements and related notes included elsewhere in this Transition Report. The information set forth below is not necessarily indicative of our results of future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing elsewhere in this Transition Report on Form 10-K.

	Three Months Ended December 31,						Years Ended September 30,
	2018			2017			2018			2017			2016			2015			2014
	(in thousands, except per share amounts)
Consolidated Statement of Operations Data:
Revenues:
Product net sales	$	6,617		$	2,220		$	10,469		$	7,957		$	7,317		$	6,537		$	7,295
Other revenue		37			1,772			2,268			672			5,413			42,392			48,426
Total revenues		6,654			3,992			12,737			8,629			12,730			48,929			55,721
Operating expenses:
Cost of product sales		1,829			1,171			5,986			4,521			3,820			4,022			3,429
Research and development		29,086			36,195			153,736			112,249			104,375			95,653			61,380
Selling, general and administrative		49,083			25,174			141,818			58,020			33,188			21,659			12,120
Total operating expenses		79,998			62,540			301,540			174,790			141,383			121,334			76,929
Loss from operations		(73,344	)		(58,548	)		(288,803	)		(166,161	)		(128,653	)		(72,405	)		(21,208	)
Interest income, net		2,154			290			2,396			1,112			367			260			115
Foreign exchange (loss) gain		(982	)		160			(4,963	)		(6,442	)		35,897			9,528			5,307
Loss before income taxes		(72,172	)		(58,098	)		(291,370	)		(171,491	)		(92,389	)		(62,617	)		(15,786	)
Income tax (benefit) expense		(266	)		3,718			3,797			(1,032	)		(693	)		(3	)		—
Net loss	$	(71,906	)	$	(61,816	)	$	(295,167	)	$	(170,459	)	$	(91,696	)	$	(62,620	)	$	(15,786	)
Net loss per common share, basic and diluted	$	(0.20	)	$	(0.20	)	$	(0.88	)	$	(0.56	)	$	(0.34	)	$	(0.25	)	$	(0.08	)
Weighted average common shares outstanding, basic and diluted		366,458			313,730			333,936			305,826			272,165			246,411			210,377

	December 31,		September 30,
	2018		2018		2017		2016		2015		2014
			(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	591,497	$	354,913	$	322,154	$	483,445	$	355,291	$	266,788
Working capital		580,406		332,042		319,673		480,742		349,560		255,080
Total assets		756,068		490,535		442,922		583,315		443,177		316,389
Total liabilities		81,988		75,376		62,099		57,642		56,288		49,389
Total stockholders’ equity		674,080		415,159		380,823		525,673		386,887		267,000

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains management’s discussion and analysis of our financial condition and results of operations and should be read together with “Selected Financial Data” and the historical consolidated financial statements and the notes thereto included in “Financial Statements and Supplementary Data”. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the “Risk Factors” section of this Transition Report. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Information Regarding Forward-Looking Statements” and “Risk Factors.”

GW Pharmaceuticals plc was founded in 1998 and is a public limited company incorporated under the laws of England and Wales. Our ordinary shares were admitted to trading on the Alternative Investment Market, or AIM, a market operated by London Stock Exchange plc, under the symbol GWP on June 28, 2001. On May 1, 2013, we completed our initial public offering of ADSs, on the Nasdaq Global Market. Our ADSs are traded under the symbol GWPH. We cancelled the admission of our ordinary shares to trading on AIM on December 5, 2016 and our shares are now traded exclusively on Nasdaq.

We are a biopharmaceutical company focused on discovering, developing and commercializing novel therapeutics from our proprietary cannabinoid product platform in a broad range of disease areas. In our 20 years of operations, we have established a world leading position in the development of plant-derived cannabinoid therapeutics through our proven drug discovery and development processes, our intellectual property portfolio and regulatory and manufacturing expertise. Our lead cannabinoid product is Epidiolex, a pharmaceutical formulation of CBD for which we retain global commercial rights. Epidiolex was approved by the FDA on June 25, 2018, for the treatment of seizures associated with LGS, or Dravet syndrome, in patients two years of age and older. LGS and Dravet syndrome are severe childhood-onset, drug-resistant epilepsy syndromes. On September 28, 2018, the DEA placed Epidiolex in Schedule V, the lowest restriction classification. Epidiolex became commercially available in the U.S. on November 1, 2018.

In Europe, we submitted an application to the CHMP in December 2017, and we expect a decision on the application in the second quarter of 2019. We have received Orphan Drug Designation from the FDA for Epidiolex for LGS, Dravet syndrome and TSC. We also received Orphan Designation from the COMP for Epidiolex for Dravet syndrome, LGS, and TSC. We continue to develop Epidiolex for additional indications, including the treatment of seizures associated with TSC and plan to commence a pivotal trial in the treatment of Rett syndrome.

Previously, we developed the world’s first plant-derived cannabinoid prescription drug, Sativex (nabiximols), which is approved for the treatment of spasticity due to multiple sclerosis in numerous countries outside the U.S. In the U.S., we met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval of Sativex and are now in the process of planning a pivotal Phase 3 trial, which is expected to commence in the fourth quarter of 2019.

We have a deep pipeline of additional cannabinoid product candidates focusing primarily on orphan childhood-onset neurologic conditions and oncology. Our pipeline includes research in ASD and Rett syndrome, using both CBD and cannabidivarin (CBDV). We reported positive Phase 2 data for our CBD:THC product in the treatment of glioblastoma multiforme. We have also reported positive Phase 2 data in schizophrenia. In addition, we have received Orphan Drug Designation and Fast Track Designation from the FDA for intravenous CBD for the treatment of NHIE for which a Phase 1 trial has been completed.

We have changed our fiscal year end to December 31 from September 30. This transition report is for the three-month period of October 1, 2018 through December 31, 2018, which we refer to as the transition period.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States or U.S. GAAP. These accounting principles require us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. The significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:

We have adopted ASU 2014-09, Revenue from Contracts with Customers or Topic 606, and all the related amendments to all contracts using the full-retrospective method. As required by the full-retrospective implementation method, revenue for all periods presented are accounted for under the new guidance. Certain practical expedients prescribed in Topic 606 were utilized in the adoption of Topic 606, including using historical experience to calculate transaction price for our revenue contracts. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Our product sales consist of sales of Epidiolex in the United States and sales of Sativex in numerous countries outside of the United States.

Epidiolex was approved by the FDA for the treatment of Dravet syndrome and LGS in June 2018. Subsequent to the approval of Epidiolex by the FDA, the DEA reclassified Epidiolex from a Schedule I controlled substance to a Schedule V controlled substance, thereby allowing Epidiolex prescribed and distributed in the United States. On November 1, 2018, we launched sales of Epidiolex to specialty pharmacies (“SPs”) and specialty distributors (“SDs”). We recognize revenue from product sales upon receipt of product at the SPs and SDs, net of the following allowances which are reflected as either a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:

Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”), and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.

Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit, and contractual rebates with commercial payers. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements or statutory requirements. The allowance for rebates is based on contracted and statutory discount rates and expected utilization. Our estimates for expected utilization of rebates is based on utilization data received from the SPs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates. If actual future rebates vary from estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to us the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. We also incur group purchasing organization fees for transactions through certain purchasing organizations. We estimate sales with these entities and accrue for anticipated chargebacks and organization fees, based on the applicable contractual terms. If actual future chargebacks vary from these estimates, we may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Co-Payment Assistance: We offer co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Returns: Consistent with industry practice, we offer the SPs and SDs limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. We do not allow product returns for product that has been dispensed to a patient. As we receive inventory reports from the SPs and SDs and have the ability to control the amount of product that is sold to the SPs and SDs, we are able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at our estimate, we also consider historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

Our product sales of Sativex, sold outside of the United States for the treatment of spasticity due to multiple sclerosis, or MS, are made pursuant to license agreements with commercial partners. We have entered into license agreements for the commercialization of Sativex with Almirall S.A., or Almirall, in Europe (excluding the United Kingdom) and Mexico; Bayer HealthCare AG in the United Kingdom and Canada; Ipsen Biopharm Ltd in Latin America (excluding Mexico and the Islands of the Caribbean); and Neopharm Group in Israel. Under these license agreements, we sell fully labeled Sativex vials to our commercial partners for a contractually agreed price, which is generally based on percentages of the commercial partners’ in-market net selling price charged to end customers. Product net sales revenue related to Sativex shipments to commercial license partners is recognized when shipped, at which point the customer obtains control of the product. We commercialize Sativex in Australia and New Zealand through a consignment relationship with a local distributor. Product net sales revenues related to Sativex sales in Australia and New Zealand are recognized when the product is sold through to the end customer.

The Sativex license agreements contain provisions for us to earn future variable consideration in the form of regulatory milestone payments, sales-based milestone payments, and royalty payments. The Company has no further performance obligations related to the regulatory milestone payments and these amounts will be recognized in accordance with Topic 606 when receipt of these payments becomes probable and there is no significant risk of revenue reversal. Revenue related to the sales-based milestone payments and product royalty payments are subject to the sales-based royalty exception under Topic 606 and will be recognized when the underlying sales are made.

We recognize share-based compensation expense for grants of stock options under our Long-Term Incentive Plans to employees and non-employee members of the board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award's requisite service period. Expense related to awards with graded vesting is generally recognized over the vesting period using the accelerated attribution method.

We use the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company's ADS price, (ii) the periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on the Ordinary Shares, and (iv) risk-free interest rates. Share-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Inventory is stated at the lower of cost or estimated net realizable value. We use a combination of standard and actual costing methodologies to determine the cost basis for our inventories, which approximates actual cost. Inventory is valued on a first-in, first-out basis. We reduce our inventory to net realizable value for potentially excess, dated or obsolete inventory based on an analysis of forecasted demand compared to quantities on hand, as well as product shelf life.

We capitalize inventory costs associated with our products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Prior to FDA approval of Epidiolex, all costs related to the manufacturing of Epidiolex were charged to research and development expense in the period incurred.

Prior to September 30, 2017, we benefited from the U.K. Small and Medium-sized Enterprise R&D Tax Credit scheme, or the SME scheme, under which we were able to obtain a refundable credit of up to 33.4% of eligible research and development expenses incurred by our U.K. domiciled entities. Eligible expenses generally include employment costs for research staff, consumables and certain internal overhead costs incurred as part of research projects. Additionally, subcontracted research expenses are eligible for a cash rebate of up to approximately 21.68%. Due to the increase in the size of our employee workforce in the U.K. and our annual net revenues, beginning in our 2018 fiscal year we are subject to the U.K. R&D Expenditure Credit scheme, or the RDEC scheme, available to larger companies, which has a significantly lower credit than the SME scheme. The majority of our pipeline research, clinical trials management and the Epidiolex and Sativex chemistry and manufacturing controls development activities, which are generally carried out by a subsidiary in the U.K., are eligible for inclusion under the SME and RDEC schemes. Reimbursable credits accrued under these schemes reduce our research and development expense in the period that the qualifying expenses are incurred.

We estimate a benefit under the RDEC scheme of $0.8 million for the three months ended December 31, 2018 and a $4.3 million benefit for the year ended September 30, 2018. We develop estimates at each reporting date for the amount of the reimbursable research and development tax and expense credits and ultimately make reimbursement claims from Her Majesty’s

Revenue and Customs, or HMRC, as part of the annual U.K. tax return. Such claims are complex and require management to interpret and apply U.K. research and development tax legislation to our specific circumstances which requires the use of certain assumptions in estimating the portion of current year research costs that are eligible for the claim. If actual reimbursements differ from our estimates, adjustments to prior period accruals would affect the amount of research and development expense in the period of the adjustment.

Deferred tax is accounted for using the asset and liability method that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amount and the tax bases of assets and liabilities at the applicable tax rates. As of December 31, 2018, we have deferred tax assets of $111.5 million, offset by deferred tax liabilities of $1.2 million and a valuation allowance of $101.6 million.

A valuation allowance is provided when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Future realization of the tax benefit of a deferred tax asset depends on the existence of sufficient taxable income of the appropriate character (for example, ordinary income or capital gain) within the carryback or carryforward period available under the tax law. The Company considers the following possible sources of taxable income when assessing whether there is sufficient taxable income to realize a tax benefit for deductible temporary differences and carryforwards:

We consider both positive and negative evidence regarding realization of the deferred tax assets and the subjectivity of this evidence. This assessment includes estimating future taxable income, scheduling reversals of temporary differences, evaluating expectations of future profitability, determining refund potential in the event of net operating loss carrybacks, and evaluating potential tax-planning strategies.

We have generated losses in the United Kingdom since inception and expect to generate tax losses for the next several years and therefore the deferred tax assets arising in the United Kingdom do not meet the more-likely-than-not of being realized threshold. Accordingly, there is a full valuation allowance against deferred taxes in the U.K.

Our U.S. subsidiary, Greenwich Biosciences, Inc., is currently profitable and incurs a U.S. tax liability on taxable profits earned in the United States. Due to service agreements between our U.S. and U.K. operating subsidiaries and the commercialization of Epidiolex in the United States, our U.S. subsidiary is forecast to continue to generate taxable income in future periods. In determining whether the deferred tax asset is more-likely-than-not of being realized, we have taken into account the history of taxable profits, the forecast of future taxable income, including whether future originating temporary deductible differences are likely to be realized, and the reversal of temporary taxable deductions. We have determined that the deferred tax for Greenwich Biosciences, Inc. is more-likely-than-not to be realized and therefore have no valuation allowance against the U.S. deferred tax balances.

Forecasting U.S. taxable income is by nature subject to known and unknown risks, uncertainties, assumptions and other factors that could negatively impact our ability to realize the value of our deferred tax assets. These risks include our ability to successfully commercialize Epidiolex and the extent of future product development work performed by the U.S. subsidiary. If we determine in the future that an amount of our U.S. deferred tax assets fail to meet the more-likely-than-not to be realizable threshold, there will be a negative impact on our provision for income taxes and the amount of deferred tax assets recognized in our consolidated balance sheet. The amount of deferred taxes for our U.S. subsidiary included in our consolidated balance sheets is $8.7 million as of December 31, 2018 and $7.3 million and $6.8 million as of September 30, 2018 and 2017, respectively.

See Item 15 of Part IV, “Notes to Consolidated Financial Statements—Note 2—Summary of Significant Accounting Policies.”

The following table summarizes the results of our operations for the three months ended December 31, 2018 and 2017:

	Three Months Ended December 31,
	2018			2017			Increase/Decrease
	(in thousands)
Consolidated Statement of Operations Data:
Revenues:
Product net sales	$	6,617		$	2,220		$	4,397
Other revenue		37			1,772			(1,735	)
Total revenues		6,654			3,992			2,662
Operating expenses:
Cost of product sales		1,829			1,171			658
Research and development		29,086			36,195			(7,109	)
Selling, general and administrative		49,083			25,174			23,909
Total operating expenses		79,998			62,540			17,458
Loss from operations		(73,344	)		(58,548	)		(14,796	)
Interest income		2,449			604			1,845
Interest expense		(295	)		(314	)		19
Foreign exchange (loss) gain		(982	)		160			(1,142	)
Loss before income taxes		(72,172	)		(58,098	)		(14,074	)
Income tax (benefit) expense		(266	)		3,718			(3,984	)
Net loss	$	(71,906	)	$	(61,816	)	$	(10,090	)

The following table summarizes the results of our operations for the years ended September 30, 2018 and 2017:

	Years Ended September 30,
	2018			2017			Increase/Decrease
	(in thousands)
Consolidated Statement of Operations Data:
Revenues:
Product net sales	$	10,469		$	7,957		$	2,512
Other revenue		2,268			672			1,596
Total revenues		12,737			8,629			4,108
Operating expenses:
Cost of product sales		5,986			4,521			1,465
Research and development		153,736			112,249			41,487
Selling, general and administrative		141,818			58,020			83,798
Total operating expenses		301,540			174,790			126,750
Loss from operations		(288,803	)		(166,161	)		(122,642	)
Interest income		3,645			2,063			1,582
Interest expense		(1,249	)		(951	)		(298	)
Foreign exchange (loss) gain		(4,963	)		(6,442	)		1,479
Loss before income taxes		(291,370	)		(171,491	)		(119,879	)
Income tax (benefit) expense		3,797			(1,032	)		4,829
Net loss	$	(295,167	)	$	(170,459	)	$	(124,708	)

The following table summarizes the results of our operations for the years ended September 30, 2017 and 2016:

	Years Ended September 30,
	2017			2016			Increase/Decrease
	(in thousands)
Consolidated Statement of Operations Data:
Revenues:
Product net sales	$	7,957		$	7,317		$	640
Other revenue		672			5,413			(4,741	)
Total revenues		8,629			12,730			(4,101	)
Operating expenses:
Cost of product sales		4,521			3,820			701
Research and development		112,249			104,375			7,874
Selling, general and administrative		58,020			33,188			24,832
Total operating expenses		174,790			141,383			33,407
Loss from operations		(166,161	)		(128,653	)		(37,508	)
Interest income		2,063			611			1,452
Interest expense		(951	)		(244	)		(707	)
Foreign exchange (loss) gain		(6,442	)		35,897			(42,339	)
Loss before income taxes		(171,491	)		(92,389	)		(79,102	)
Income tax (benefit) expense		(1,032	)		(693	)		(339	)
Net loss	$	(170,459	)	$	(91,696	)	$	(78,763	)

Our product net sales are comprised of Epidiolex sales in the U.S. and sales of Sativex outside of the U.S. Sales of Sativex are made pursuant to license agreements with commercial partners. Prior to the U.S. launch of Epidiolex in November 2018, our product net sales consisted entirely of Sativex sales outside of the U.S.

Product net sales in the three months ended December 31, 2018 were comprised of $4.7 million in net sales of Epidiolex and $1.9 million in net sales of Sativex. The $4.4 million increase in product net sales to $6.6 million for the three months ended December 31, 2018 compared to $2.2 million for the three months ended December 31, 2017 was primarily due to the launch of Epidiolex in the U.S. on November 1, 2018.

Product net sales increased $2.5 million in the year ended September 30, 2018 to $10.5 million compared to $8.0 million in the year ended September 30, 2017. The increase in product net sales in the year ended September 30, 2018 was primarily due to increases in sales of Sativex in Europe, Canada and Israel.

Product net sales increased $0.7 million in the year ended September 30, 2017 to $8.0 million compared to $7.3 million in the year ended September 30, 2016. The increase in product net sales in the year ended September 30, 2017 was primarily due to increases in sales of Sativex in the U.K. and Europe.

Other revenue primarily consists of milestone revenue related to our Sativex license agreements and research and development fee revenue related to license and collaboration agreements.

Other revenue in the three months ended December 31, 2018 consists of remaining development fees related to the Otsuka license agreement. Other revenue in the three months ended December 31, 2017 primarily consists of previously deferred development fee revenue that was recognized upon the termination of the Otsuka license agreement. The reduction in other revenue in the three months ended December 31, 2018 compared to the three months ended December 31, 2017 was primarily due to the termination of the Otsuka license agreement which occurred in December of 2017.

Other revenue in the year ended September 30, 2018 consists of $2.1 million of research and development fee revenue related to the Otsuka license agreement that was terminated in the first quarter of the fiscal year ended September 30, 2018 and $0.2 million of milestone revenue related to the achievement of a Sativex regulatory approval milestone. Other revenue in the year ended September 30, 2017 consists of $0.7 million of research and development fees related to the Otsuka license agreement. The increase in development fee revenue in the year ended September 30, 2018 is due to deferred research and development fees that were recognized in the fiscal year ended September 30, 2018 in conjunction with the termination of the Otsuka license agreement.

Other revenue declined in the year ended September 30, 2017 to $0.7 million from $5.4 million in the year ended September 30, 2016. Other revenue in the year ended September 30, 2016 consists entirely of research and development fee revenue related to the Otsuka license agreement. The decline in other revenue in the year ended September 30, 2017 is due primarily to the conclusion of the Otsuka-funded Sativex clinical trials for cancer pain in the U.S.

Cost of sales increased $0.7 million, or 56% in the three months ended December 31, 2018 to $1.8 million, or 28% of product net sales, compared to $1.2 million, or 53% of product net sales in the three months ended December 31, 2017. The increase in cost of sales in dollars is primarily due to an increase in product net sales, primarily due to the launch of Epidiolex in the U.S. The reduction in cost of sales as a percentage of product net sales is due to the positive impact in the three months ended December 31, 2018 of directly commercializing Epidiolex in the U.S. compared to the similar period in the prior year when products net sales consisted only of Sativex sales outside of the U.S. through license partners.

Cost of sales increased $1.5 million, or 32%, in the year ended September 30, 2018 to $6.0 million, or 57% of product net sales, compared to $4.5 million, or 57% of product net sales in the year ended September 30, 2017. The increase in cost of sales in dollars is primarily due to the increase in product net sales in the year ended September 30, 2018 compared to the year ended September 30, 2017.

Cost of sales increased $0.7 million, or 18%, in the year ended September 30, 2017 to $4.5 million, or 57% of product net sales, compared to $3.8 million, or 52% of product net sales in the year ended September 30, 2016. The increase in cost of sales in dollars is primarily due to the increase in product net sales in the year ended September 30, 2017 compared to the year ended September 30, 2016.

We believe that our future revenues and cash flows are most likely to be affected by the successful development and approval of our significant late-stage research and development candidates. As of December 31, 2018, we consider the following R&D projects to be our most significant late-stage product candidates:

We have submitted a marketing authorization application in December 2017 for both the Dravet syndrome and LGS indications in Europe. This application has been validated by the European Medicines Agency and the outcome is expected in second quarter of 2019. We have submitted 121-day responses to the Committee for Medicinal Products for Human Use questions. We have also received Orphan Designation from the Committee for Orphan Medical Products for Epidiolex for Dravet syndrome, LGS, and TSC.

We are progressing a Phase 3 trial of Epidiolex in patients with TSC, which is now fully recruited. Data from this trial is expected in the first half of 2019.

In December 2017, we terminated our license agreement with Otsuka and we have reacquired full ownership of the development and commercialization rights to Sativex in the U.S. We met with the FDA in December 2018 to discuss the optimal regulatory pathway for U.S. approval of Sativex and are now in the process of planning a pivotal trial that is due to commence in the fourth quarter of 2019. We have already completed three positive Phase 3 trials in Europe for Sativex in MS spasticity.

R&D expenses consist of internal and external costs to conduct our pre-clinical studies and clinical trials, payroll costs associated with employing our team of research and development staff, share-based payment expenses, property costs associated with leasing laboratory and office space to accommodate our research teams, costs of growing botanical raw material, costs of consumables used in the conduct of our in-house research programs, payments for research work conducted by sub-contractors and sponsorship of work by our network of academic collaborative research scientists, costs associated with safety studies and costs associated with the development of Epidiolex, Sativex, and our other pipeline product candidates. Research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government.

We track all research and development expenditures against detailed budgets but do not seek to allocate all research and development costs by individual project. In 2018, we began to track external third-party costs for clinical trials by product candidate. In prior years we tracked costs for historical Sativex projects funded by Otsuka, but other costs were not allocated to individual projects. The components of R&D expense for the three months ended December 31, 2018 and 2017 and the year ended September 30, 2018 are as follows:

The components of R&D expense for the years ended September 30, 2017, and 2016 are as follows:

R&D expenses decreased $7.1 million, or 20%, to $29.1 million for the three months ended December 31, 2018 compared to $36.2 million the three months ended December 31, 2017. The decrease in R&D expenses was primarily due to the prior period impact of inventory production costs for Epidiolex that were charged to R&D expenses prior to FDA approval in June 2018.

R&D expenses increased $41.5 million, or 37.0%, to $153.7 million in the year ended September 30, 2018 compared to $112.2 million in the year ended September 30, 2017. The increase in R&D expenses was primarily due to an increase in personnel and related costs, including share-based compensation expense, related to an increase in our global R&D headcount, an increase in costs to prepare the Epidiolex regulatory submissions in the U.S. and Europe, an increase in costs of growing high CBD plant material for Epidiolex, which prior to the achievement of regulatory approval in the U.S. were included in R&D expenses, and a decrease in the U.K. research and development tax and expense credits due to the transition out of the SME scheme and into the RDEC scheme in the U.K.

R&D expenses increased $7.8 million, or 7.5%, to $112.2 million in the year ended September 30, 2017 compared to $104.4 million in the year ended September 30, 2016. The increase in R&D expenses was primarily due to an increase in personnel and related costs, including share-based compensation expense, related to an increase in our global R&D headcount, an increase in costs of growing CBD plant material for the Epidiolex development program, and an increase in other overheads associated with running clinical trials such as depreciation of R&D assets, consumables and other property-related expenses. These increases were partially offset by a decrease in epilepsy and other GW-funded clinical program costs, including the completion of the three Epidiolex Phase 3 studies in Dravet syndrome and LGS during the year ended September 30, 2016.

Sales, general and administrative, or SG&A, expenses consist primarily of salaries and benefits related to our executive, commercial, and corporate support functions, expenses associated with our commercial activities, and other general administration expenses.

We expect that sales, general and administrative expenses will increase in the future as we expand our operating activities and continue to build our commercial team in preparation for commercialization of Epidiolex in Europe.

SG&A expenses increased $23.9 million, or 95%, to $49.1 million in three months ended December 31, 2018 compared to $25.2 million in 2017. The increase in SG&A expenses in 2018 was primarily due to an increase in employee-related expenses driven by the build-out of our commercial functions in the U.S. and Europe, costs related to the November 2018 launch of Epidiolex in the U.S., an increase in all of our corporate support functions, and, to a smaller degree, an increase in insurance expenses and an increase audit and legal fees related to our transition to domestic registrant status with the SEC.

SG&A expenses increased $83.8 million, or 144.4%, to $141.8 million in the year ended September 30, 2018 compared to $58.0 million in the year ended September 30, 2017. The increase in SG&A expenses in 2018 was primarily due to an increase in employee-related expenses driven by the build-out of our commercial functions in the U.S. and Europe, pre-launch costs related to the October 2018 launch of Epidiolex in the U.S., an increase in all of our corporate support functions, and, to a smaller degree, an increase in insurance expenses and an increase audit and legal fees related to our transition to domestic registrant status with the SEC.

SG&A expenses increased $24.8 million, or 74.7%, to $58.0 million in the year ended September 30, 2017 compared to $33.2 million in the year ended September 30, 2016. The increase in SG&A expenses in 2017 was primarily due to an increase in employee-related expenses driven by the build-out of our commercial function in the U.S., an increase in pre-launch commercialization preparation costs, an increase in facilities costs due to the expansion of the U.S. operations, and an increase in Sarbanes-Oxley Act of 2002 compliance costs.

Interest income increased $1.8 million in the three months ended December 31, 2018 to $2.4 million compared to interest income of $0.6 million during the three months ended December 31, 2017. The increase in interest income in 2018 is primarily due to higher average cash and cash equivalent balances in 2018 compared to 2017 and increases in interest rates during the period.

Interest income increased $1.5 million in the year ended September 30, 2018 to $3.6 million compared to interest income of $2.1 million in the year ended September 30, 2017. The increase in interest income in 2018 is primarily due to higher average cash and cash equivalent balances in 2018 compared to 2017 and a small increase in interest rates during the period.

Interest income increased $1.5 million in the year ended September 30, 2017 to $2.1 million compared to interest income of $0.6 million in the year ended September 30, 2016. The increase in interest income in 2017 is primarily due to higher average cash and cash equivalent balances in 2017 compared to 2016 and a small increase in interest rates during the period.

Interest expense remained consistent during the three months ended December 31, 2018 of $0.3 million compared to interest expense of $0.3 million in the three months ended December 31, 2017.

Interest expense increased $0.2 million in the year ended September 30, 2018 to $1.2 million compared to interest expense of $1.0 million in the year ended September 30, 2017. The increase in interest expense in 2018 is primarily due to the increase in interest paid on capital leases in 2018 compared to 2017.

Interest expense increased $0.8 million in the year ended September 30, 2017 to $1.0 million compared to interest expense of $0.2 million in the year ended September 30, 2016. The increase in interest expense in 2017 is primarily due to the increase in interest paid on capital leases and our landlord financing obligation in 2017 compared to 2016.

Foreign currency exchange gains and losses are driven primarily by cash balances and accounts payable denominated in a currency other than the transacting entity’s functional currency. A significant majority of our cash balances are denominated in U.S. dollars and the functional currency of the GW Pharmaceuticals plc legal entity was the British Pound for the years ended September 30, 2017 and 2016. Accordingly, a substantial portion of foreign currency transaction gains and losses in the years ended September 30, 2017 and 2016 related to the impact of exchange rate changes between the U.S. dollar and British Pound on the U.S. dollar denominated cash deposits held by GW Pharmaceuticals plc. On October 1, 2017, the U.S. dollar became the functional currency of GW Pharmaceuticals plc, which resulted in a significant reduction in foreign currency transaction gains and losses in the year ended September 30, 2018 compared to prior years. Beginning in 2018, our primary exposure to foreign currency exchange gains and losses is the British Pound denominated cash balance held by GW Pharmaceuticals plc.

Foreign currency exchange loss for the three months ended December 31, 2018 was $1.0 million compared to a foreign currency exchange gain of $0.2 million in the three months ended December 31, 2017. The increase in the foreign exchange loss in 2018 was due primarily to a due to the weakening of the U.S. dollar against the British Pound.

Foreign currency exchange loss for the year ended September 30, 2018 was $5.0 million compared to a foreign currency exchange loss of $6.4 million in the year ended September 30, 2017. The decrease in the foreign exchange loss in 2018 was due primarily to a revaluation on our British Pound denominated cash deposits due to weakening of the U.S. dollar against the British Pound.

Foreign currency exchange loss for the year ended September 30, 2017 was $6.4 million compared to a foreign currency exchange gain of $35.9 million in the year ended September 30, 2016. The change in foreign currency exchange gains and losses in 2017 is primarily due to relatively stable exchange rates between the U.S. dollar and the British Pound in 2017 compared to a significant strengthening of the U.S. dollar compared to the British Pound in 2016. During 2017 and 2016 the functional currency of GW Pharmaceuticals plc was the British Pound. During these periods, our U.S. dollar deposits were subject to foreign exchange exposure and were positively impacted by the strengthening U.S. dollar against the British Pound.

Income tax benefit for the three months ended December 31, 2018 was $0.3 million compared to an income tax expense of $3.7 million for the three months ended December 31, 2017. The decrease in income tax expense for 2018 was primarily due to the remeasurement of the federal portion of our U.S. subsidiary’s deferred tax assets and liabilities recorded in the three months ended December 31, 2017, the period of enactment of the Tax Cuts and Jobs Act.

Income tax expense for the year ended September 30, 2018 was $3.8 million compared to an income tax benefit of $1.0 million for the year ended September 30, 2017. The increase in income tax expense for 2018 was primarily due to the remeasurement of the federal portion of our U.S. subsidiary’s deferred tax assets and liabilities to the enacted tax rate expected to apply when the temporary differences are to be realized. The President of the United States signed into law the Tax Cuts and Jobs Act on December 22, 2017 which among a broad range of tax reform measures, reduced the corporate tax rate from 35% to 21% effective January 1, 2018. The negative impact of the remeasurement of deferred tax assets was partially offset by a reduction in taxes on current period income due to the decline in the U.S. statutory tax rate.

Income tax benefit for the year ended September 30, 2017 was $1.0 million compared to an income tax benefit of $0.7 million for the year ended September 30, 2016. The increase in the income tax benefit for 2017 was primarily due to increased tax deductions related to employee stock option exercises.

In recent years, we have incurred significant net losses and negative cash flows from operations. We have largely funded our operations from issuances of equity securities, government expense and tax credits, and milestone payments from our out-license partners. Our cash flows may fluctuate, are difficult to forecast and will depend on many factors, including:

We believe that our cash and cash equivalents as of December 31, 2018 of $591.5 million will be sufficient to fund our operations, including currently anticipated research and development activities and planned capital expenditures, for the foreseeable future, including for at least the next 12 months.

The following table summarizes the results of our cash flows for the three months ended December 31, 2018 and 2017 and years ended September 30, 2018, 2017 and 2016.

As of December 31, 2018, we had cash and cash equivalents totaling $591.5 million compared to $559.2 million as of December 31, 2017. Net cash used in operating activities increased by $22.9 million to $74.5 million during the three months ended December 31, 2018 compared to $51.6 million for the three months ended December 31, 2017. The increase in cash used is primarily attributable to net loss of $72.2 million adjusted for non-cash items, including depreciation and amortization expense of $2.5 million and stock-based compensation of $9.7 million.

Net cash used in operating activities increased by $82.9 million to $231.9 million for the year ended September 30, 2018 compared to $149.0 million for the year ended September 30, 2017. The increase in cash used in operating activities was primarily due to the increase in research and development expenses, including the cost of growing high CBD plant material for Epidiolex prior to the achievement of regulatory approval in the U.S., and increased SG&A expenses related to the ramp up of commercialization activities and corporate support functions.

Net cash used in operating activities increased by $29.0 million to $149.0 million for the year ended September 30, 2017 compared to $119.9 million for the year ended September 30, 2016. The increase in cash used in operating activities was primarily due to the increase investment in Epidiolex and other pipeline research and development activities offset by additional research and development tax and expense credits under the SME scheme in the U.K.

Net cash used in investing activities increased by $10.1 million to $18.8 million during the three months ended December 31, 2018 compared to $8.7 million for the three months ended December 31, 2017. The increase in cash used in investing activities is primarily due to the continued expansion of our manufacturing facilities.

Net cash used in investing activities increased by $12.8 million to $32.9 million for the year ended September 30, 2018 compared to $20.1 million for the year ended September 30, 2017. The increase in cash used in investing activities was primarily due to the continued expansion of our manufacturing facilities.

Net cash used in investing activities increased by $7.2 million to $20.1 million for the year ended September 30, 2017 compared to $12.9 million for the year ended September 30, 2016. The increase in cash used in investing activities was primarily due to the commencement of the next phase of construction of our manufacturing facilities.

Financing activities provided an increase in net cash of $26.8 million to $324.5 million during the three months ended December 31, 2018 compared to $297.7 million during the three months ended December 31, 2017. The increase in cash provided by financing activities is primarily due to net proceeds of $324.6 million received from our equity offering in October 2018.

Net cash provided by financing activities increased by $298.9 million to $297.7 million for the year ended September 30, 2018 compared to cash used in financing activities of $1.2 million for the year ended September 30, 2017. The increase in cash provided by financing activities was primarily due to net proceeds of $297.9 million from our equity offering in December 2017.

Net cash used in financing activities was $1.2 million for the year ended September 30, 2017 compared to cash provided by financing activities of $274.3 million for the year ended September 30, 2016. The decrease in cash provided by financing activities was primarily due to net proceeds from our equity offering in July 2016 compared to no equity offerings in fiscal year 2017.

In October 2018, we completed a public offering of ADSs in which we sold 26.2 million ordinary shares at an offering price of $158.00 per ADS. The ADSs were sold pursuant to a shelf registration statement with the SEC. The net proceeds generated from this transaction, after underwriting discounts and commissions and offering costs, were approximately $324.6 million.

In December 2017, we completed a public offering of ADSs in which we sold 33.1 million ordinary shares at an offering price of $115.00 per ADS. The ADSs were sold pursuant to a shelf registration statement with the SEC. The net proceeds generated from this transaction, after underwriting discounts and commissions and offering costs, were approximately $297.9 million.

The following table summarizes our contractual obligations as at December 31, 2018.

	Payments Due by Period
	Total		Less than 1 year		1 – 3 years		3 – 5 years		More than 5 years
	(in thousands)
Operating lease obligations	$	35,847	$	6,164	$	12,122	$	6,550	$	11,011
Capital lease obligations		1,923		223		446		430		824
Purchase obligations		38,193		38,193		—		—		—
Build-to-suit and landlord financing obligations		23,315		1,828		3,414		3,414		14,659
Growing operations		36,579		12,284		12,365		11,930		—
Total contractual obligations	$	135,857	$	58,692	$	28,347	$	22,324	$	26,494

We are exposed to market risks in the ordinary course of our business, which are principally limited to foreign currency exchange rate fluctuations, particularly between the British Pound and the U.S. dollar, and credit risk. These risks are managed by maintaining an appropriate mix of cash deposits and securities in various currencies, placed with a variety of financial institutions for varying periods according to expected liquidity requirements.

We are exposed to interest rate risk on cash and cash equivalents. The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high-quality government and other debt securities. To minimize our exposure due to adverse shifts in interest rates, we invest in short-term securities. Due to the short holding period of our investments and the nature of our investments, we have concluded that we do not have a material financial market risk exposure.

We are exposed to currency exchange rate risk because we currently operate in the United Kingdom and the United States. Our manufacturing operations and a substantial portion of our research and development costs are incurred in our U.K.-based subsidiaries and are generally denominated in British Pounds, which is also the functional currency of the U.K.-based subsidiaries. The functional currency of GW Pharmaceuticals plc and our U.S. subsidiary is the U.S. dollar. We do not use forward exchange contracts to manage currency exchange rate exposure.

The consolidated financial statements required pursuant to this item are included in Item 15 of this report and are presented beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

As required by Rule 13a-15 under the Exchange Act, management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding our required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the foregoing, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of December 31, 2018, our disclosure controls and procedures in internal control over financial reporting were effective.

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. We have a program for the review of our internal control over financial reporting to ensure compliance with the requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act. Our internal control over financial reporting includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In conducting its assessment of internal control over financial reporting, management based its evaluation on the Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as at December 31, 2018. Based on its evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2018.

Our internal control over financial reporting as of December 31, 2018 has been audited by Deloitte & Touche LLP. Their audit report on internal control over financial reporting appears in Part IV, Item 15. Deloitte & Touche LLP has also audited the consolidated financial statements as of and for the three months ended December 31, 2018 and their report expressed an unqualified opinion on those financial statements.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation described above in “Internal Control Over Financial Reporting” that occurred during the three months ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required under this item is incorporated herein by reference to our definitive proxy statement pursuant to Regulation 14A, to be filed with the Commission not later than 120 days after the close of our fiscal year ended December 31, 2018.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Transactions, and Director Independence

As part of this Transition Report on Form 10-K, the consolidated financial statements are listed in the accompanying index to financial statements on page F-1.

All schedules are omitted because they are not applicable, or the required information is shown in the Financial Statements or notes thereto.

The following is a list of exhibits filed as part of this Transition Report on Form 10-K or are incorporated herein by reference:

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Dr. Geoffrey Guy, Justin Gover and Scott Giacobello, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Transition Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Transition report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Justin Gover	Chief Executive Officer and Director
Justin Gover	(Principal Executive Officer)	February 27, 2019

/s/ Scott Giacobello	Chief Financial Officer
Scott Giacobello	(Principal Financial and Accounting Officer)	February 27, 2019

/s/ Geoffrey Guy
Dr. Geoffrey Guy	Director	February 27, 2019

/s/ James Noble
James Noble	Director	February 27, 2019

/s/ Cabot Brown
Cabot Brown	Director	February 27, 2019

/s/ Thomas Lynch
Thomas Lynch	Director	February 27, 2019

/s/ Catherine Mackey
Dr. Catherine Mackey	Director	February 27, 2019

/s/ Alicia Secor
Alicia Secor	Director	February 27, 2019

/s/ William Waldegrave
Lord William Waldegrave	Director	February 27, 2019

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of GW Pharmaceuticals plc and subsidiaries (the “Company”) as of December 31, 2018 and September 30, 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for the three months ended December 31, 2018 and year ended September 30, 2018, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and September 30, 2018, and the results of its operations and its cash flows for the three months ended December 31, 2018 and year ended September 30, 2018, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audit of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have audited the accompanying consolidated balance sheet of GW Pharmaceuticals plc and subsidiaries (the “Company”) as of September 30, 2017, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows, for each of the two years in the period ended September 30, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2017 and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2017, in conformity with accounting principles generally accepted in the United States of America.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We began serving as the Company’s auditor in 2002. In 2018 we became the predecessor auditor.

	December 31,			September 30,
	2018			2018			2017
Assets
Cash and cash equivalents	$	591,497		$	354,913		$	322,154
Accounts receivable, net		4,192			2,122			1,367
Inventory		33,030			19,061			5,669
Prepaid expenses and other current assets		17,903			14,615			35,392
Total current assets		646,622			390,711			364,582
Property, plant, and equipment, net		90,832			82,381			63,175
Goodwill		6,959			6,959			6,959
Deferred tax assets		8,720			7,334			6,805
Other assets		2,935			3,150			1,401
Total assets	$	756,068		$	490,535		$	442,922
Liabilities and stockholders’ equity
Accounts payable	$	9,796		$	9,741		$	7,757
Accrued liabilities		52,477			46,739			33,656
Current tax liabilities		2,384			1,385			1,119
Other current liabilities		1,559			804			2,377
Total current liabilities		66,216			58,669			44,909
Long-term liabilities:
Capital lease obligations		1,454			1,535			1,741
Build-to-suit financing obligation		4,236			4,378			4,611
Other liabilities		10,082			10,794			10,838
Total long-term liabilities		15,772			16,707			17,190
Total liabilities		81,988			75,376			62,099
Commitments and contingencies (Note 10)
Stockholders’ equity:
Ordinary shares par value £0.001; 366,616,688 shares outstanding as of December 31, 2018; 340,246,840 and 304,439,740 shares outstanding as of September 30, 2018 and 2017, respectively		564			530			482
Additional paid-in capital		1,581,144			1,246,857			916,726
Accumulated deficit		(828,940	)		(757,034	)		(461,867	)
Accumulated other comprehensive loss		(78,688	)		(75,194	)		(74,518	)
Total stockholders’ equity		674,080			415,159			380,823
Total liabilities and stockholders’ equity	$	756,068		$	490,535		$	442,922

	Three Months Ended December 31,			Years Ended September 30,
	2018			2018			2017			2016
Revenues
Product net sales	$	6,617		$	10,469		$	7,957		$	7,317
Other revenue		37			2,268			672			5,413
Total revenues		6,654			12,737			8,629			12,730
Operating expenses
Cost of product sales		1,829			5,986			4,521			3,820
Research and development		29,086			153,736			112,249			104,375
Selling, general and administrative		49,083			141,818			58,020			33,188
Total operating expenses		79,998			301,540			174,790			141,383
Loss from operations		(73,344	)		(288,803	)		(166,161	)		(128,653	)
Interest income		2,449			3,645			2,063			611
Interest expense		(295	)		(1,249	)		(951	)		(244	)
Foreign exchange (loss) gain		(982	)		(4,963	)		(6,442	)		35,897
Loss before income taxes		(72,172	)		(291,370	)		(171,491	)		(92,389	)
Income tax (benefit) expense		(266	)		3,797			(1,032	)		(693	)
Net loss	$	(71,906	)	$	(295,167	)	$	(170,459	)	$	(91,696	)

Net loss per common share, basic and diluted	$	(0.20	)	$	(0.88	)	$	(0.56	)	$	(0.34	)

Weighted average common shares outstanding, basic and diluted		366,458			333,936			305,826			272,165

	Three Months Ended December 31,			Years Ended September 30,
	2018			2018			2017			2016
Cash flows from operating activities
Net loss	$	(71,906	)	$	(295,167	)	$	(170,459	)	$	(91,696	)
Adjustments to reconcile net loss to net cash used in operating activities:
Foreign exchange loss (gain)		742			4,917			9,280			(35,750	)
Stock-based compensation		9,683			31,627			15,479			12,661
Depreciation and amortization		2,534			9,290			7,054			5,152
Deferred income taxes		(1,265	)		(317	)		(3,770	)		(2,343	)
Other		—			241			1,554			1
Changes in operating assets and liabilities:
Accounts receivable, net		(2,125	)		(804	)		(277	)		(735	)
Inventory		(14,460	)		(13,646	)		5			656
Prepaid expenses and other current assets		(3,635	)		14,489			(12,471	)		(11,415	)
Other assets		(47	)		(564	)		—			—
Accounts payable		(1,211	)		2,238			3,171			(403	)
Current tax liabilities		878			54			57			432
Accrued liabilities		5,942			16,507			1,253			3,397
Other current liabilities		93			(1,546	)		(11	)		(80	)
Long-term liabilities		317			813			161			195
Net cash used in operating activities		(74,460	)		(231,868	)		(148,974	)		(119,928	)
Cash flows from investing activities
Additions to property, plant and equipment		(18,687	)		(31,362	)		(19,285	)		(12,192	)
Additions to capitalized software		(63	)		(2,042	)		(812	)		(719	)
Proceeds from disposal of property, plant and equipment		—			517			—			—
Net cash used in investing activities		(18,750	)		(32,887	)		(20,097	)		(12,911	)
Cash flows from financing activities
Proceeds from issuance of ordinary shares, net of issuance costs		324,638			297,931			—			273,804
Proceeds from exercise of stock options		—			621			122			972
Payments on build-to-suit financing obligation		—			(113	)		(105	)		(21	)
Payments on capital leases		(40	)		(163	)		(156	)		(157	)
Payments on landlord financing obligation		(130	)		(522	)		(1,074	)		(337	)
Net cash provided by (used in) financing activities		324,468			297,754			(1,213	)		274,261
Effect of exchange rate changes on cash		5,326			(240	)		8,993			(13,268	)
Net increase (decrease) in cash and cash equivalents		236,584			32,759			(161,291	)		128,154
Cash and cash equivalents at beginning of period		354,913			322,154			483,445			355,291
Cash and cash equivalents at end of period	$	591,497		$	354,913		$	322,154		$	483,445
Supplemental disclosure of cash flow information:
Income taxes paid	$	—		$	3,726		$	2,928		$	1,241
Interest paid	$	198		$	1,249		$	1,232		$	97
Supplemental disclosure of noncash information:
Property and equipment purchases in accounts payable and accrued liabilities	$	1,899		$	322		$	1,793		$	3,407

										Accumulated
					Additional					Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Loss			Equity
Balances at September 30, 2015		261,180	$	424	$	613,746	$	(199,712	)	$	(27,571	)	$	386,887
Issuance of common stock in public offering, net of issuance costs		38,640		52		273,752		—			—			273,804
Issuance of common stock from exercise of stock options		2,273		3		969		—			—			972
Net loss		—		—		—		(91,696	)		—			(91,696	)
Stock-based compensation		—		—		12,661		—			—			12,661
Other comprehensive loss		—		—		—		—			(56,955	)		(56,955	)
Balances at September 30, 2016		302,093	$	479	$	901,128	$	(291,408	)	$	(84,526	)	$	525,673
Issuance of common stock from exercise of stock options		2,347		3		119		—			—			122
Net loss		—		—		—		(170,459	)		—			(170,459	)
Stock-based compensation		—		—		15,479		—			—			15,479
Other comprehensive income		—		—		—		—			10,008			10,008
Balances at September 30, 2017		304,440	$	482	$	916,726	$	(461,867	)	$	(74,518	)	$	380,823
Issuance of common stock in public offering, net of issuance costs		33,120		44		297,888		—			—			297,932
Issuance of common stock from exercise of stock options		2,687		4		616		—			—			620
Net loss		—		—		—		(295,167	)		—			(295,167	)
Stock-based compensation		—		—		31,627		—			—			31,627
Other comprehensive loss		—		—		—		—			(676	)		(676	)
Balances at September 30, 2018		340,247	$	530	$	1,246,857	$	(757,034	)	$	(75,194	)	$	415,159
Issuance of common stock in public offering, net of issuance costs		26,220		34		324,604		—			—			324,638
Issuance of common stock from exercise of stock options		150		—		—		—			—			—
Net loss		—		—		—		(71,906	)		—			(71,906	)
Stock-based compensation		—		—		9,683		—			—			9,683
Other comprehensive loss		—		—		—		—			(3,494	)		(3,494	)
Balances at December 31, 2018		366,617	$	564	$	1,581,144	$	(828,940	)	$	(78,688	)	$	674,080

GW Pharmaceuticals plc and its subsidiaries (the “Company”) are primarily involved in the development of cannabinoid prescription medicines using botanical extracts derived from the Cannabis plant. The Company is developing a portfolio of cannabinoid medicines, of which the lead product is Epidiolex®, an oral medicine for the treatment of refractory childhood epilepsies.

The Company is a public limited company, which has had American Depository Shares (“ADSs”) registered with the U.S. Securities and Exchange Commission (“SEC”) and has been listed on Nasdaq since May 1, 2013. Until December 5, 2016, the Company was also listed on the Alternative Investment Market, which is a submarket of the London Stock Exchange. The Company is incorporated and domiciled in the United Kingdom. The address of the Company’s registered office and principal place of business is Sovereign House, Vision Park, Histon, Cambridgeshire.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

The financial position and results of operations of the Company’s non-U.S. subsidiaries are generally determined using local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the exchange rate in effect at each year end. Income statement accounts are translated at the average rate of exchange prevailing during the year. Adjustments arising from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss in stockholders’ equity. Foreign currency transaction gains and losses are included in “foreign exchange (loss) gain” in the Company’s consolidated statements of operations.

The Company considers all highly liquid investments with an original maturity date of three months or less to be cash equivalents.

The carrying values of the Company’s financial instruments, consisting of cash and cash equivalents, trade receivables, interest and other receivables, and accounts payable and accrued liabilities, approximate fair value due to the relative short-term nature of these instruments.

Accounts receivable are recorded net of customer allowances for prompt payment discounts, chargebacks, and doubtful accounts. Allowances for prompt payment discounts and chargebacks are based on contractual terms. The Company estimates the allowance for doubtful accounts based on existing contractual payment terms, actual payment patterns of its customers and individual customer circumstances. As of December 31, 2018, September 30, 2018 and September 30, 2017, the Company determined that an allowance for doubtful accounts was not required and no accounts were written off during the periods presented.

Inventory is stated at the lower of cost or estimated net realizable value. The Company uses a combination of standard and actual costing methodologies to determine the cost basis for its inventories which approximates actual cost. Inventory is valued on a first-in, first-out basis. The Company reduces its inventory to net realizable value for potentially excess, dated or obsolete inventory based on an analysis of forecasted demand compared to quantities on hand, as well as product shelf life.

The Company capitalizes inventory costs associated with its products upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed. Prior to FDA approval of Epidiolex, all costs related to the manufacturing of Epidiolex were charged to research and development expense in the period incurred.

Property, plant, and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Leasehold improvements are amortized over the shorter of their estimated useful lives or the term of the lease by use of the straight-line method. The estimated useful lives for buildings and leasehold improvements range from 4 to 20 years. The estimated useful lives of machinery and equipment range from 3 to 20 years. Construction-in-process reflects amounts incurred for property, equipment or improvements that have not been placed in service. Maintenance and repair costs are expensed as incurred. When assets are retired or sold, the assets and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to estimated future operating cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Goodwill represents the excess of purchase price over fair value of net assets acquired in a business combination and is not amortized. Goodwill is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We performed the annual assessment for goodwill impairment in October of 2018, noting no impairment.

The Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers (“Topic 606”), the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is

determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Revenue for the Company’s product sales has not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping and handling costs are included in cost of sales.

Epidiolex was approved by the United States Food and Drug Administration (“FDA”) in June 2018. Subsequent to the approval by the FDA, the United States Drug Enforcement Agency (“DEA”) took action to change the classification of Epidiolex from a Schedule I controlled substance to Schedule V controlled substance, thereby allowing Epidiolex prescribed and distributed in the United States. On November 1, 2018, the Company launched sales of Epidiolex to specialty pharmacies (“SPs”) and specialty distributors (“SDs”). The Company recognizes revenue from product sales upon receipt of product at the SPs and SDs, the date at which the control is transferred, net of the following allowances and reflects each of these as either a reduction to the related account receivable or as an accrued liability, depending on how the allowance is settled:

Distribution Fees: Distribution fees include distribution service fees paid to the SPs and SDs based on a contractually fixed percentage of the wholesale acquisition cost (“WAC”), fees for data, and prompt payment discounts. Distribution fees are recorded as an offset to revenue based on contractual terms at the time revenue from the sale is recognized.

Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program and the Medicare Part D prescription drug benefit. Rebates are amounts owed after the final dispensing of the product to a benefit plan participant and are based upon contractual agreements with, or statutory requirements pertaining to, Medicaid and Medicare benefit providers. The allowance for rebates is based on statutory discount rates and expected utilization. The Company’s estimates for expected utilization of rebates is based on utilization data received from the SPs since product launch. Rebates are generally invoiced and paid in arrears so that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s activity, plus an accrual balance for prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Chargebacks: Chargebacks are discounts and fees that relate to contracts with government and other entities purchasing from the SDs at a discounted price. The SDs charge back to the Company the difference between the price initially paid by the SDs and the discounted price paid to the SDs by these entities. The Company also incurs group purchasing organization fees for transactions through certain purchasing organizations. The Company estimates sales with these entities and accrues for anticipated chargebacks and organization fees, based on the applicable contractual terms. If actual future chargebacks vary from these estimates, the Company may need to adjust prior period accruals, which would affect revenue in the period of adjustment.

Co-Payment Assistance: The Company offers co-payment assistance to commercially insured patients meeting certain eligibility requirements. Co-payment assistance is accrued for based on actual program participation and estimates of program redemption using data provided by third-party administrators.

Product Returns: Consistent with industry practice, the Company offers the SPs and SDs limited product return rights for damages, shipment errors, and expiring product; provided that the return is within a specified period around the product expiration date as set forth in the applicable individual distribution agreement. The Company does not allow product returns for product that has been dispensed to a patient. As the Company receives inventory reports from the SPs and SDs and has the ability to control the amount of product that is sold to the SPs and SDs, it is able to make a reasonable estimate of future potential product returns based on this on-hand channel inventory data and sell-through data obtained from the SPs and SDs. In arriving at its estimate, the Company also considers historical product returns, the underlying product demand, and industry data specific to the specialty pharmaceutical distribution industry.

Sales of Sativex, which is currently being commercialized for spasticity due to multiple sclerosis (“MS”) outside the United States, are made pursuant to license agreements with commercial partners. The Company has entered into license agreements for the commercialization of Sativex with Almirall S.A. (“Almirall”), in Europe (excluding the United Kingdom) and Mexico; Bayer HealthCare AG (“Bayer”) in the United Kingdom and Canada; Ipsen Biopharm Ltd (“Ipsen”), in Latin America (excluding Mexico and the Islands of the Caribbean); and Neopharm Group (“Neopharm”) in Israel. Under these license agreements, the Company sells fully labeled Sativex vials to its commercial partners for a contractually agreed price, which is generally based on percentages of the commercial partners’ in-market net selling price charged to end customers. Product net sales revenue related to Sativex shipments to commercial license partners is recognized when shipped, the date at which the control is transferred. The Company commercializes Sativex in Australia and New Zealand through a consignment relationship with a local distributor. Product net sales revenue related to Sativex sales in Australia and New Zealand are recognized when the product is sold through to the end customer.

The Company’s other revenue primarily consists of research and development fee revenue for research and development services provided under a collaboration agreement with Otsuka Pharmaceutical Co. Ltd (“Otsuka”) that was terminated in December 2017 and variable consideration milestone payments related to the Sativex license agreements.

The research and development fee revenue is recognized at the time the underlying services are performed.

The Sativex license agreements contain provisions for the Company to earn variable consideration in the form of regulatory milestone payments, sales-based milestone payments, and royalty payments. The Company has no further performance obligations related to the regulatory milestone payments and these amounts are recognized in accordance with Topic 606 when receipt of these payments becomes probable and there is no significant risk of revenue reversal. Revenue related to the sales-based milestone payments and product royalty payments are subject to the sales-based royalty exception under Topic 606 and will be recognized when the underlying sales are made.

Research and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As actual costs become known, the Company adjusts its accruals accordingly.

Research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits from the U.K. government. Prior to September 30, 2017, the Company benefited from the U.K. Small and Medium-sized Enterprise R&D Tax Credit scheme, under which companies are able to obtain a refundable credit of up to 33.4% of eligible research and development expenses incurred by U.K. domiciled entities. Due to the increase in the size of the Company’s employee workforce in the U.K. and annual net revenues, beginning October 1, 2017 the Company is subject to the U.K. R&D Expenditure Credit scheme, available to larger companies, which has a significantly lower credit than the SME scheme. The majority of the Company’s pipeline research, clinical trials management and the Epidiolex and Sativex chemistry and manufacturing controls development activities, which are generally carried out by a subsidiary in the U.K., are eligible for inclusion under the U.K tax and expenditure rebate schemes. For the three months ended December 31, 2018 and years ended September 30, 2018, 2017 and 2016, the Company recorded $0.8 million, $4.3 million, $26.0 million and $30.5 million, respectively, of U.K. tax and expenditure rebates as a component of research and development expense.

Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, investment securities, and accounts receivable. The Company’s cash and cash equivalents balances are primarily in depository accounts at major financial institutions in accordance with the Company’s investment policy. The Company’s investment policy defines allowable investments and establishes guidelines relating to credit quality, diversification, and maturities of its investments to preserve principal and maintain liquidity. Further, the Company specifies credit quality standards for its customers that are designed to limit the Company’s credit exposure to any single party.

For the three months ended December 31, 2018, the Company’s five largest customers represented approximately 71% of the Company’s product net sales and 75% of the Company’s accounts receivable balance as of December 31, 2018. For the years ended September 30, 2018, 2017 and 2016, product net sales consisted entirely of Sativex sales outside of the United States pursuant to license agreements with a small number of commercial partners.

The Company recognizes share-based compensation expense for grants of stock options under the Company's Long-Term Incentive Plans to employees and non-employee members of the Company's board of directors based on the grant-date fair value of those awards. The grant-date fair value of an award is generally recognized as compensation expense over the award's requisite service period. Expense related to awards with graded vesting is generally recognized over the vesting period using the accelerated attribution method.

The Company uses the Black-Scholes model to compute the estimated fair value of stock option awards. Using this model, fair value is calculated based on assumptions with respect to (i) expected volatility of the Company's ADS price, (ii) the periods of time over which employees and members of the board of directors are expected to hold their options prior to exercise (expected lives), (iii) expected dividend yield on the ordinary shares, and (iv) risk-free interest rates. Share-based compensation expense also includes an estimate, which is made at the time of grant, of the number of awards that are expected to be forfeited. This estimate is revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities along with net operating loss and tax credit carryovers. The Company records a valuation allowance against its deferred tax assets to reduce the net carrying value to an amount that it believes is more likely than not to be realized. When the Company establishes or reduces the valuation allowance against its deferred tax assets, its provision for income taxes will increase or decrease, respectively, in the period such determination is made.

Valuation allowances against the Company’s deferred tax assets were $101.6 million, $97.5 million and $46.1 million at December 31, 2018, September 30, 2018 and September 30, 2017, respectively. Changes in the valuation allowances are generally recognized in the provision for income taxes as a component of the estimated annual effective tax rate.

Uncertain tax positions, for which management's assessment is that there is more than a 50% probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to certain recognition and measurement criteria. The Company re-evaluates uncertain tax positions and considers various factors, including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, and changes in facts or circumstances related to a tax position. The Company adjusts the level of the liability to reflect any subsequent changes in the relevant facts and circumstances surrounding the uncertain positions. The Company recognizes interest and penalties related to income tax matters in income tax expense.

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, market-priced stock options are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be anti-dilutive. Nominal strike-price options are considered common stock equivalents and are included in the calculation of basic weighted average shares outstanding once they have become vested. The Company incurred net losses for all periods presented and there were no reconciling items for potentially dilutive securities. More specifically, at December 31, 2018, and September 30, 2018, 2017 and 2016, options totaling approximately 13.0 million, 13.0 million, 9.9 million and 7.6 million ordinary shares, respectively, were excluded from the calculation of diluted net loss per share as their effect would have been anti-dilutive.

Management has determined that the Company operates in one business segment which is the discovery, development and commercialization of novel therapeutics from its proprietary cannabinoid product platform in a broad range of disease areas.

Revenues recorded in the three months ended December 31, 2018 and years ended September 30, 2018, 2017 and 2016 were generated in the following geographical areas:

Long-lived assets which include property, plant, and equipment were located as follows:

In February 2016, the FASB issued ASU 2016-02, Leases, which requires a lessee to recognize a lease liability and a right-of-use asset for all leases with lease terms of more than 12 months and requires disclosure of key information about leasing arrangements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The classification criteria for distinguishing between operating and finance (previously capital) leases are substantially similar to the previous lease guidance, but with no explicit bright lines.

ASU No. 2016-02 became effective for the Company as of January 1, 2019. The Company elected the transition method that allows it to apply the standard as of the adoption date and record a cumulative adjustment in retained earnings, if applicable. The Company has also elected the package of practical expedients permitted under the transition guidance, which among other things, allows the Company to carryforward the historical lease classification. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company has made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet and recognize those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company has also elected the practical expedient to not separate lease and non-lease components for all of its leases as the non-lease components are not significant to the overall lease costs.

While the Company is still finalizing the adoption procedures, the Company estimates that the adoption of this standard will result in recognition of additional lease assets and lease liabilities on its consolidated balance sheet as of January 1, 2019 of approximately $13.0 million to $17.0 million. Additionally, the Company’s build-to-suit financing obligation will be classified as a finance lease liability. The Company does not believe the adoption of ASU No. 2016-02 will materially affect its consolidated net loss or liquidity.

The Company has entered into six separate license agreements for Sativex with major pharmaceutical companies. Each agreement provides the respective partner with exclusive rights in a defined geographic territory to commercialize Sativex in all indications, while the Company retains the exclusive right to manufacture and supply Sativex to license partners on commercial supply terms for the duration of the commercial life of the product. In November 2016, the Company entered into a mutual termination agreement with Novartis Pharma AG (“Novartis”), pursuant to which rights in Sativex in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East (excluding Israel) and Africa will be returned to the Company over an agreed transition period. In December 2017, the Company entered into a mutual termination agreement with Otsuka to return the rights to develop and commercialize Sativex in the United States to the Company. As part of the termination agreement, the Company agreed to pay Otsuka a contingent future milestone payment of $10 million if Sativex achieves FDA approval in the U.S. and a total of $30 million of potential sales-based milestones if U.S. sales of Sativex reach certain thresholds. As of December 31, 2018, no amounts have been accrued related to the contingent payments because it is not probable that the milestones will be achieved.

In 2007, the Company entered into an exclusive license agreement with Otsuka for the development and commercialization of Sativex in the United States. Under the terms of the agreement, Otsuka was responsible for substantially all development costs and the commercialization of Sativex in the United States. GW was responsible to perform certain Otsuka-funded development activities and supply Sativex to Otsuka. The financial terms of this agreement included an $18.0 million up-front license payment and potential future contingent development, regulatory and commercial milestone payments. GW earned a $4.0 million regulatory milestone payment related to the commencement of the first Phase 3 clinical trial for cancer pain in 2010, but ultimately did not earn any additional milestone payments before the agreement was terminated in December 2017.

In 2003, the Company entered into an exclusive agreement with Bayer to commercialize Sativex in the United Kingdom. This agreement was amended later in 2003 to include Canada. Under the terms of the agreement, GW is the marketing authorization holder for Sativex in the United Kingdom and Canada and is responsible for supplying commercial product to Bayer. The financial terms of the agreement included an upfront fee of $8.2 million, a per-unit supply price, and potential contingent development, regulatory, and sales-based milestone payments. In total, the Company has received $24.2 million in milestone payments from Bayer with the potential to receive a further $11.7 million in future contingent regulatory milestone payments. The Company’s revenue from the supply of Sativex to Bayer equates to a percentage in the mid-thirties to forty percent of Bayer’s in-market net sales price.

In 2005, the Company entered into an exclusive agreement with Almirall, an international pharmaceutical company with headquarters in Spain, to commercialize Sativex in the European Union (excluding the United Kingdom) and E.U. accession countries, as well as Switzerland, Norway and Turkey. In 2012, this agreement was amended to add Mexico as a licensed territory. In countries where Almirall has no direct presence at the time of product launch, the Company and Almirall will jointly agree on the appointment of distribution partners. In such countries, the Company may elect to distribute the product itself. Under the terms of this agreement, the Company is the marketing authorization holder for Sativex in all countries in the territory, except where local regulations require a locally registered entity to assume this responsibility. The Company is responsible for supplying commercial product to Almirall. The financial terms of the agreement include an up-front license fee of $21.5 million, a per-unit supply price, and $54.6 million in potential contingent regulatory and commercial milestone payments. To date, the Company has received $32.5 million in milestone payments from Almirall with the potential to receive an additional $5.2 million in regulatory and clinical milestones and $16.9 million in sales-based milestones. The Company receives revenue from the supply of Sativex to Almirall, currently equating to a percentage in the low to mid-twenties of Almirall’s in-market net sales price. This percentage will increase to the mid-thirties of net sales price beginning on January 1, 2021.

In 2011, GW entered into an exclusive agreement with Novartis to commercialize Sativex in Australia and New Zealand, Asia (excluding Japan, China and Hong Kong), the Middle East (excluding Israel) and Africa. Under the terms of the agreement, Novartis held exclusive commercialization rights to Sativex in the licensed territories and acted as the marketing authorization holder for Sativex. GW was responsible for supplying commercial product to Novartis. The financial terms of the agreement included an up-front license fee of $5.0 million from Novartis and potential future milestone payments. In November 2016, the Company entered into a mutual termination agreement with Novartis, pursuant to which rights to Sativex in these territories will return to GW over a transition period.

In 2017, GW entered into an agreement with a distributor in Australia and New Zealand for the sale of Sativex in those countries.

In 2014, the Company entered into an exclusive agreement with Ipsen. Under the terms of this agreement, Ipsen will promote and distribute Sativex in Latin America (excluding Mexico and the Islands of the Caribbean).

In 2010, the Company entered into an exclusive agreement with Neopharm, an Israeli pharmaceutical company, to commercialize Sativex in Israel. Under the terms of this agreement, Neopharm acts as market authorization holder in the territory and GW is responsible for supplying commercial product to Neopharm. Revenue from the supply of products to Neopharm is expected to equate to forty to fifty percent of Neopharm’s in-market net sales revenue.

As of December 31, 2018 and September 30, 2018, the Company’s cash equivalents consisted of money market funds, which are classified as Level 1 within the fair value hierarchy defined by authoritative guidance. At September 30, 2017, the Company’s cash and cash equivalents consisted of short-term cash deposits.

Investment securities classified as Level 1 are valued using quoted market prices. The Company does not hold any securities classified as Level 3, which are securities valued using unobservable inputs. The Company has not transferred any investment securities between the classification levels.

As a result of the application of build-to-suit lease guidance, the Company has determined that it is the accounting owner of its primary production facility. It is included in the Company’s property, plant and equipment as build-to-suit property. The capitalized amount of the build-to-suit property is equal to the construction costs of the landlord for the shell building. See Note 10—Commitments and Contingencies for additional information.

Depreciation of property and equipment was $2.2 million, $8.5 million, $7.0 million, and $5.1 million for the three months ended December 31, 2018 and for the years ended September 30, 2018, 2017, and 2016, respectively. The Company did not retire any property, plant, or equipment in the three months ended December 31, 2018. During the years ended September 30, 2018, 2017, and 2016, the Company retired $0.5 million, $1.8 million, and $1.4 million, respectively, of fully depreciated property, plant and equipment.

In October 2018, the Company completed a public offering of 2,185,000 ADSs listed on the Nasdaq Global Market, representing 26,220,000 ordinary shares of the Company, at a price of $158.00 per ADS. The net proceeds from this transaction after underwriting discounts and commissions were approximately $324.6 million.

In December 2017, the Company completed a public offering of 2,760,000 ADSs listed on the Nasdaq Global market, representing 33,120,000 ordinary shares of the Company, at a price of $115.00 per ADS. The net proceeds from this transaction after underwriting discounts and commissions were approximately $297.9 million.

In July 2016, the Company completed a public offering of 3,220,000 ADSs listed on the Nasdaq Global market, representing 38,640,000 ordinary shares of the Company at a price of $90.00 per ADS. The net proceeds from this transaction after underwriting discounts and commissions were approximately $273.8 million.

In March 2008, the Company adopted the GW Pharmaceuticals plc Long-Term Incentive Plan (“the 2008 LTIP Plan”). Share based awards granted by the Company from March 2008 to March 2017 were granted under the 2008 LTIP Plan. On March 14, 2017, the Company adopted the GW Pharmaceuticals plc 2017 Long-Term Incentive Plan (“the 2017 LTIP Plan”). The 2017 LTIP plan authorizes the Company to issue up to an aggregate of 15,000,000 ordinary shares, or 1,250,000 ADSs, related to share-based awards to employees, non-employee directors and consultants. No grants under the 2017 LTIP Plan may be made after March 13, 2022. As of December 31, 2018, 6,706,971 ordinary shares have been or may be issued pursuant to share-based awards that have been granted under the 2017 LTIP Plan.

The Company issues new ordinary shares and the commensurate number of ADS when share-based awards are exercised.

The Company issues nominal strike price stock options, which have an exercise price equal to the £0.001 par value per ordinary share of the Company’s ordinary shares, to executive officers, employees and consultants. The Company also issues market-priced options to executive officers and non-employee directors. Nominal strike priced options granted to U.S. residents prior to April 2017 contain short-term expiration provisions so the awards are compliant with provisions of IRS Code 409(a). Nominal strike price options granted to U.S. residents beginning in April 2017 are awarded in the form of RSU-style options that automatically exercise on the vesting date.

Substantially all of the share-based awards issued by the Company have service-based vesting conditions. Many awards also have non-market-based performance conditions, which must be achieved within the service-based vesting period for the awards to vest. These performance conditions are generally linked to operational, regulatory or strategic milestones and are designed to incentivize individual employees and advance the Company’s progress towards its strategic objectives. Share-based awards that do not automatically exercise at vest date expire ten years from the date of grant.

The following tables summarize the Company’s stock option activity. The number of options, the weighted average grant date fair value per stock option, and the weighted average exercise price are all on a per ordinary shares basis. The Company’s ADSs that are listed on the Nasdaq Global Market each represent twelve ordinary shares.

The following table summarizes the Company’s nominal strike price stock option activity:

	Three Months Ended					Years Ended
	December 31,					September 30,
	2018					2018					2017					2016
	Nominal Strike Price Options			Weighted Average Grant Date Fair Value		Nominal Strike Price Options			Weighted Average Grant Date Fair Value		Nominal Strike Price Options			Weighted Average Grant Date Fair Value		Nominal Strike Price Options			Weighted Average Grant Date Fair Value
	(in thousands, except weighted average grant date fair value)
Outstanding, beginning of period		11,240		$	8.41		9,752		$	7.90		9,182		$	5.16		7,334		$	6.61
Granted		184			9.58		4,247			9.34		3,097			9.66		3,750			4.38
Exercised		(150	)		7.36		(2,617	)		7.21		(2,239	)		3.21		(1,610	)		2.05
Cancelled		(92	)		8.61		(142	)		9.37		(288	)		6.69		(292	)		4.07
Outstanding, end of period		11,182		$	8.44		11,240		$	8.41		9,752		$	7.90		9,182		$	5.16
Exercisable, end of period		1,054		$	3.65		1,136		$	6.11		1,986		$	4.52		3,058		$	2.60

The following table summarizes the Company’s market-priced stock option activity:

	Three Months Ended				Years Ended
	December 31,				September 30,
	2018				2018					2017					2016
	Market Strike Price Options		Weighted Average Exercise Price		Market Strike Price Options			Weighted Average Exercise Price		Market Strike Price Options			Weighted Average Exercise Price		Market Strike Price Options			Weighted Average Exercise Price
	(in thousands, except weighted average grant date fair value)
Outstanding, beginning of period		2,889	$	8.49		2,174		$	8.28		1,452		$	5.80		1,098		$	7.89
Granted		—		—		785			9.65		830			9.62		1,017			4.09
Exercised		—		—		(70	)		9.03		(108	)		1.15		(663	)		1.50
Outstanding, end of period		2,889	$	8.49		2,889		$	8.49		2,174		$	8.28		1,452		$	5.80
Exercisable, end of period		461	$	6.90		257		$	8.74		—			—		107		$	1.17

The weighted average per share fair value of market priced options granted during the years ended September 30, 2018, 2017, and 2016 was $5.98, $6.00, and $2.13, respectively. No market priced options were granted in the three months ended December 31, 2018.

The aggregate intrinsic value of the stock options exercised in the three months ended December 31, 2018 was $1.6 million. The aggregate intrinsic value of stock options exercised in the years ended September 30, 2018, 2017 and 2016 was $30.7 million, $22.9 million and $13.1 million, respectively. As of December 31, 2018, the weighted average remaining contractual life of options outstanding and options exercisable are 5.1 years and 5.4 years, respectively. Based on the Company’s closing year-end stock price of $97.39 per ADS (or $8.12 per ordinary share) at December 31, 2018, the aggregate intrinsic value of options outstanding and options exercisable are $97.8 million and $9.8 million, respectively.

The fair value of stock option awards that do not contain a market condition is estimated using the Black-Scholes option-pricing model. The estimated fair value of each stock option is then expensed over the requisite service period, which is generally the vesting period. The determination of fair value using the Black-Scholes model is affected by the Company’s ADS price as well as assumptions regarding a number of complex and subjective variables, including expected ADS price volatility, risk-free interest rate, expected dividends and projected employee stock option exercise behaviors. Stock options granted during the three months ended December 31, 2018 and the years ended September 30, 2018, 2017 and 2016 were valued using the Black-Scholes option-pricing model with the following weighted-average assumptions:

The Company estimates its stock price volatility based using a combination of historical stock price volatility and the average implied volatility of options traded in the open market. The risk-free interest rate assumption is based on observed interest rates for the appropriate term of the Company’s stock options. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future. The expected option life assumption is estimated using the simplified method prescribed by ASC 718 and is based on the mid-point between vest date and expiration date since the Company does not have sufficient exercise history to estimate expected option life of historical grants.

Compensation expense for share-based awards based on a service condition is recognized only for those awards that are ultimately expected to vest. An estimated forfeiture rate has been applied to unvested awards for the purpose of calculating compensation cost. Forfeitures were estimated based on historical experience. These estimates are revised, if necessary, in future periods if actual forfeitures differ from the estimates. Changes in forfeiture estimates impact compensation cost in the period in which the change in estimate occurs. Compensation expense for share-based awards with graded, service-based vesting conditions is recognized over the requisite service period using the accelerated attribution method.

The table below summarizes the total share-based compensation expense included in the Company’s statements of operations for the periods presented (in thousands):

For the three months ended December 31, 2018, $0.4 million of share-based compensation related to manufacturing operations was capitalized into inventory. Share-based compensation related to manufacturing operations capitalized into inventory for the years ended September 30, 2018, 2017, and 2016 were negligible.

As of December 31, 2018, total compensation cost related to non-vested stock options not yet recognized was approximately $39.7 million, which is expected to be recognized over the next 38 months (11 months on a weighted average basis).

The Company operates defined contribution retirement plans in the U.S. and U.K. for the benefit of all qualifying employees. The Company makes discretionary contributions to these plans and contributed $0.9 million, $3.3 million, $2.5 million, and $1.9 million in the three months ended December 31, 2018 and years ended September 30, 2018, 2017, and 2016, respectively.

	Three Months Ended December 31,			Years Ended September 30,
	2018			2018			2017			2016
	(in thousands)
Current
U.S. federal	$	945		$	3,885		$	2,676		$	1,534
U.S. state and local		54			229			62			116
United Kingdom		—			—			—			—
Total Current	$	999		$	4,114		$	2,738		$	1,650

Deferred
U.S. federal	$	(1,166	)	$	(263	)	$	(3,685	)	$	(2,178	)
U.S. state and local		(99	)		(54	)		(85	)		(165	)
United Kingdom		—			—			—			—
Total Deferred	$	(1,265	)	$	(317	)	$	(3,770	)	$	(2,343	)
Total income tax (benefit) expense	$	(266	)	$	3,797		$	(1,032	)	$	(693	)

As of December 31, 2018, September 30, 2018, and September 30, 2017, respectively, the tax effects of temporary differences and carryforwards that give rise to deferred tax assets and liabilities were as follows:

	Three Months Ended December 31,			Years Ended September 30,
	2018			2018			2017
	(in thousands)
Deferred tax assets:
Net operating losses	$	94,999		$	94,570		$	46,379
Research and development tax credits		180			180			506
Share-based compensation		10,057			8,745			7,496
Accrued expenses		2,275			2,320			1,787
Capitalized costs		3,219			—			—
Other		825			291			199
Total gross deferred tax assets, net of valuation allowance		111,555			106,106			56,367
Valuation allowance		(101,606	)		(97,462	)		(46,126	)
		9,949			8,644			10,241
Deferred tax liabilities:
Depreciation	$	(1,229	)	$	(1,310	)	$	(2,220	)
Deferred revenue		—			—			(1,216	)
Total gross deferred tax liabilities		(1,229	)		(1,310	)		(3,436	)
Net of deferred tax assets and liabilities	$	8,720		$	7,334		$	6,805

A valuation allowance of $101.6 million, $97.5 million, and $46.1 million at December 31, 2018, September 30, 2018 and 2017, respectively, has been recognized to offset net deferred tax assets where realization of such assets is uncertain. The valuation allowances are primarily related to deferred tax assets for operating loss carryforwards and temporary differences related to share-based compensation expense of the Company’s U.K. operations.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”) which, among a broad range of tax reform measures, reduced the U.S. corporate tax rate from 35.0% to 21.0% effective January 1, 2018. The reduction in the U.S. corporate tax rate required the Company’s U.S. subsidiary to remeasure the federal portion of deferred tax assets and liabilities at December 31, 2017 to the enacted tax rate expected to apply when the temporary differences are to be realized. SEC Staff Accounting Bulletin No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act” (“SAB 118”), provides guidance on accounting for the tax effects of the 2017 Tax Act and allows a company to record provisional amounts during a remeasurement period not to extend beyond one year from the enactment date. The Company provisionally recorded $2.9 million of expense related to the remeasurement of deferred tax assets and liabilities of its U.S. subsidiary. As of December 22, 2018, when the SAB 118 period closed, the Company completed its accounting for the tax effects of the enactment of the 2017 Tax Act which resulted in immaterial adjustments to provisional estimates.

The following table reconciles the Company’s effective tax rate to the United Kingdom statutory rate:

	Three Months Ended December 31,			Years Ended September 30,
	2018			2018			2017			2016
Tax, computed at the UK statutory rate		19.0	%		19.0	%		19.5	%		20.0	%
U.S. research tax credits, net		0.4	%		0.9	%		1.6	%		3.4	%
Surrender of R&D expenditures for U.K. research tax credits, net		0.0	%		(0.1	%)		(5.7	%)		(12.7	%)
Foreign Derived Intangible Income		0.8	%	—			—			—
Share-based compensation		0.2	%		0.9	%		2.1	%		2.8	%
Changes in valuation allowances		(19.6	%)		(20.5	%)		(16.2	%)		(10.5	%)
Overseas profits taxed at different rates		(0.1	%)		(0.3	%)		0.0	%		(0.7	%)
Remeasurement of deferred taxes from 2017 Tax Act		0.0	%		(1.0	%)		0.0	%		0.0	%
Other		(0.3	%)		(0.2	%)		(0.7	%)		(1.6	%)
Effective income tax rate		0.4	%		(1.3	%)		0.6	%		0.7	%

The Company is headquartered in the United Kingdom and has subsidiaries in the United Kingdom, United States, Europe, and Australia.

The Company incurs tax losses in the United Kingdom. The weighted-average U.K. corporate tax rate for the three months ended December 31, 2018, and years ended September 30, 2018, 2017, and 2016 was 19.0%, 19.0%, 19.5%, 20.0%, respectively. The United Kingdom’s 2016 Finance Bill, which was enacted on September 15, 2016, contained reductions in corporation tax to 19% from April 1, 2017 and 17% from April 1, 2020. The Company used a 17% tax rate as of December 31, 2018 in respect of the measurement of deferred taxes arising in the United Kingdom, which reflects the currently enacted tax rate based upon the anticipated timing of the unwinding of the deferred tax balances.

As of December 31, 2018, the Company had U.K. net operating loss carryforwards of approximately $558.8 million. Unsurrendered U.K. tax losses and tax credit carryforwards can be carried forward indefinitely to be offset against future taxable profits, however this is restricted to an annual £5 million allowance in each standalone company or group and above this allowance, there will be a 50% restriction in the profits that can be covered by losses brought forward.

The Company’s subsidiary in the United States has generated taxable profits due to a service agreement between the Company’s subsidiaries in the United States and the United Kingdom and the commercialization of Epidiolex in the United States. The U.S. federal corporate tax rate for the three months ended December 31, 2018, and years ended September 30, 2018, 2017, and 2016 was 21.0%, 24.5%, 35%, and 35%, respectively. The U.S. federal statutory tax rate has decreased due to U.S. tax reform which was enacted in December 2017.

The impact of income taxes outside of the United States and United Kingdom are not significant.

The Company’s tax returns are subject to examination in the U.K. and U.S. The scope of these examinations includes, but is not limited to, the review of our taxable presence in a jurisdiction, the deduction of certain items, claims for research and development credits, compliance with transfer pricing rules and regulations and the inclusion or exclusion of amounts from the Company’s tax returns as filed. The Company is no longer subject to examinations by tax authorities for tax years ended September 30, 2016 and prior in the United Kingdom. The Company’s U.K. income tax returns have been submitted to Her Majesty’s Revenue and Customs through the period ended September 30, 2017 and may be subject to audit until September 30, 2019. The Company is subject to examinations by U.S. Federal tax authorities for tax years ended September 30, 2017, 2016, 2015, and by state authorities for the tax years ended September 30, 2017, 2016, 2015, and 2014. The California Franchise Tax Board has initiated an income tax audit of the Company’s U.S. subsidiary for tax years ended September 30, 2017, 2016, and 2015. The Company believes it has adequately accrued for tax deficiencies or reductions in tax benefits, if any, that could result from the examination and all open audit years.

Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. The Company’s total amount of unrecognized tax benefits was $1.9 million, $1.8 million, $1.1 million, and $0.9 million as of December 31, 2018, September 30, 2018, 2017, and 2016, respectively. The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense and unrecognized tax benefits. The amounts accrued for interest and penalty charges as of December 31, 2018, September 30, 2018, 2017, and 2016 were not significant. If recognized, $1.9 million would affect the effective tax rate. The Company does not anticipate that the amount of unrecognized tax benefits as of December 31, 2018 will significantly change within the next twelve months.

The reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:

The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through September 2029. Leases are classified as capital leases when the terms of the lease transfer substantially all of the risk and rewards of ownership to the lease. Other leases are classified as operating leases. In 2018, the Company entered into a master lease agreement giving the Company the ability to lease vehicles under operating leases with initial terms of 50 months from the date of delivery. In connection with this lease agreement, the Company has established a letter of credit for $0.3 million.

Property and equipment under capital leases are initially recorded at the lower of asset fair value or the present value of the minimum lease payments on the consolidated balance sheet. The corresponding liability to the lessor is included in the balance sheet as a capital lease obligation. Lease payments under capital leases are treated as debt-service payments and recognized as a reduction of the capital lease obligation and an increase in interest expense.

Rent expense for operating leases is recorded on a straight-line basis over the life of the lease term. If an operating lease contains fixed and determinable escalation clauses or rent-free periods, the difference between the rent expense and the rent paid is recorded as deferred rent. Rent expense under the Company’s operating leases was $1.8 million, $5.7 million, $4.6 million, and $3.3 million, for the three months ended December 31, 2018 and years ended September 30, 2018, 2017, and 2016, respectively.

In 2013, the Company entered into an agreement with its landlord for the construction of a new production facility. Under the terms of the agreement, the landlord was responsible for the construction of the cold shell of the building and GW was responsible for the fit out of all internal building systems and improvements. In accordance with U.S. GAAP, the Company considered the nature and extent of its involvement during the construction period and, due to the Company’s extensive involvement in the construction of the facility, the Company has concluded that it was the accounting owner of the cold shell facility during the construction phase. As such, the Company has capitalized the landlord’s construction costs as build-to-suit property. Additionally, U.S. GAAP requires the Company to recognize a financing obligation for construction costs incurred by the landlord. Once construction was complete and the facility was leased by the Company, a sale-leaseback analysis was performed to determine if the Company could remove the landlord’s assets and associated financing obligations from the Company’s consolidated balance sheet. Since the Company maintains significant continuing involvement in the property, it is precluded from derecognizing the asset and associated financing obligation. As such, the Company continues to account for the landlord’s asset as if the Company is the legal owner and recognizes the present value of future rent payments associated with the property as a build-to-suit financing obligation.

In conjunction with the build-to-suit property described above, the Company’s landlord provided $13.1 million of funding to the Company for the internal fit out of the production facility. The repayment of this landlord financing takes the form of quarterly rent payments over a 15-year period that commenced in May 2016. The landlord financing liability is accounted for at amortized cost using the effective interest method at a rate of 7.0%. As of December 31, 2018, September 30, 2018, and 2017, the total landlord financing liability balance was $10.0 million, $10.4 million and $11.1 million respectively and included in “other current liabilities” and “other liabilities” in the Company’s consolidated balance sheets.

The aggregate future minimum rent payments under leases in effect as of December 31, 2018, are as follows (in thousands):

Lease agreements accounted for as:	Capital Leases		Operating Leases		Build-to-Suit Financing Obligation		Landlord Financing		Total
2019	$	223	$	6,164	$	603	$	1,225	$	8,215
2020		223		6,686		482		1,225		8,616
2021		223		5,436		482		1,225		7,366
2022		217		3,952		482		1,225		5,876
2023		213		2,598		482		1,225		4,518
Thereafter		824		11,011		5,872		8,787		26,494
Minimum lease commitments	$	1,923	$	35,847	$	8,403	$	14,912	$	61,085

The Company also enters into short-term agreements with various vendors and suppliers of goods and services in the normal course of operations through purchase orders or other documentation, or that are undocumented except for an invoice. Such short-term agreements are generally outstanding for periods less than a year and are settled by cash payments upon delivery of goods and services. The nature of the work being conducted under these agreements is such that, in most cases, the services may be stopped on short notice. In such event, the Company would not be liable for the full amount of the agreement and are therefore not reflected in the above table.

The following interim financial information reflects all normal recurring adjustments necessary to fairly present the Company’s quarterly financial results. The summarized quarterly data for the three months ended December 31, 2018 and years ended September 30, 2018 and 2017 are as follows:

The Company is presenting audited financial statements for the three months ended December 31, 2018. The following tables provide certain unaudited comparative financial information for the same period of the prior year.

	Three Months Ended December 31,
	2018			2017
	(in thousands, except share and per share amounts)
Revenues
Product net sales	$	6,617		$	2,220
Other revenue		37			1,772
Total revenues		6,654			3,992
Operating expenses
Cost of product sales		1,829			1,171
Research and development		29,086			36,195
Selling, general and administrative		49,083			25,174
Total operating expenses		79,998			62,540
Loss from operations		(73,344	)		(58,548	)
Interest income		2,449			604
Interest expense		(295	)		(314	)
Foreign exchange (loss) gain		(982	)		160
Loss before income taxes		(72,172	)		(58,098	)
Income tax (benefit) expense		(266	)		3,718
Net loss	$	(71,906	)	$	(61,816	)

Net loss per common share, basic and diluted	$	(0.20	)	$	(0.20	)

Weighted average common shares outstanding, basic and diluted		366,458			313,730

	Three Months Ended December 31,
	2018			2017
	(in thousands)
Cash flows from operating activities
Net loss	$	(71,906	)	$	(61,816	)
Adjustments to reconcile net loss to net cash used in operating activities:
Foreign exchange loss (gain)		742			(180	)
Stock-based compensation		9,683			5,592
Depreciation and amortization		2,534			2,163
Deferred income taxes		(1,265	)		(1,152	)
Other		—			8
Changes in operating assets and liabilities:
Accounts receivable, net		(2,125	)		(223	)
Inventory		(14,460	)		378
Prepaid expenses and other current assets		(3,635	)		(516	)
Other assets		(47	)		(166	)
Accounts payable		(1,211	)		(1,802	)
Current tax liabilities		878			4,898
Accrued liabilities		5,942			3,004
Other current liabilities		93			(2,071	)
Long-term liabilities		317			325
Net cash used in operating activities		(74,460	)		(51,558	)
Cash flows from investing activities
Additions to property, plant and equipment		(18,687	)		(7,748	)
Additions to capitalized software		(63	)		(993	)
Proceeds from disposal of property, plant and equipment		—			—
Net cash used in investing activities		(18,750	)		(8,741	)
Cash flows from financing activities
Proceeds from issuance of ordinary shares, net of issuance costs		324,638			297,932
Proceeds from exercise of stock options		—			1
Payments on build-to-suit financing obligation		—			(26	)
Payments on capital leases		(40	)		(39	)
Payments on landlord financing obligation		(130	)		(125	)
Net cash provided by (used in) financing activities		324,468			297,743
Effect of exchange rate changes on cash		5,326			(371	)
Net increase (decrease) in cash and cash equivalents		236,584			237,073
Cash and cash equivalents at beginning of period		354,913			322,154
Cash and cash equivalents at end of period	$	591,497		$	559,227

England and Wales		Not Applicable
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Sovereign House, Vision Park Chivers Way, Histon Cambridge, CB24 9BZ United Kingdom		+44 1223 266800
(Address of principal executive offices)		(Registrant’s telephone number, including area code)

Title of each class		Name of exchange on which registered
American Depositary Shares, each representing 12 Ordinary Shares, par value £0.001 per share		The Nasdaq Global Market

CBD (Cannabidiol)			CBN (Cannabinol)
CBDV (Cannabidivarin)			CBNV (Cannabinovarin)
CBDA (Cannabidiol — Acid)			D8-THC (Delta-8 Tetrahydrocannabinol)
CBDVA (Cannabidivarin — Acid)			THC (Delta-9 Tetrahydrocannabinol)
CBC (Cannabichromene)			THCA (Tetrahydrocannabinol — Acid)
CBG (Cannabigerol)			THCV (Tetrahydrocannabivarin)
CBGA (Cannabigerol — Acid)			THCVA (Tetrahydrocannabivarin — Acid)
CBGV (Cannabigerovarin)

Type	Location	Size (sq. ft.)	Lease / Contract Expiration
Administrative office	London, United Kingdom	6,950	2020-2028
Administrative office	Cambridge, United Kingdom	16,036	2021-2023
Administrative office	Andover, United Kingdom	3,113	2020
Administrative office	Carlsbad, United States	63,516	2019-2025
Administrative office	Southern United Kingdom	17,222	2025
Research and manufacturing	Southern United Kingdom	121,325	2019-2036
Growing facility	Eastern United Kingdom	1,960,000	2021
Growing facility	Northern United Kingdom	914,760	2019
Growing facility	Southern United Kingdom	163,350	2020

	Three Months Ended December 31,						Year Ended September 30,
	2018			2017			2018
	(in thousands)
External clinical trial expense
Epidiolex	$	9,171		$	7,456		$	33,262
Other programs		604			393			1,460
Total external clinical trial expense		9,775			7,849			34,722
Otsuka funded research and development	—			—				565
Research and development tax and expense credits		(759	)		(994	)		(4,325	)
Other internal research and development		20,070			29,340			122,774
Total research and development expense	$	29,086		$	36,195		$	153,736

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

		Page
	Part I
	Explanatory Note Regarding the Transition Report	3
	Information Regarding Forward-Looking Statements	3
	General Information	4
Item 1.	Business	4
Item 1A.	Risk Factors	27
Item 1B	Unresolved Staff Comments	53
Item 2.	Properties	53
Item 3.	Legal Proceedings	53
Item 4.	Mine Safety Disclosures	53
	Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	54
Item 6.	Selected Financial Data	56
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	68
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	68
Item 9A.	Controls and Procedures	69
Item 9B.	Other Information	70
	Part III
Item 10.	Directors, Executive Officers and Corporate Governance	71
Item 11.	Executive Compensation	71
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71
Item 13.	Certain Relationships and Related Transactions, and Director Independence	71
Item 14.	Principal Accounting Fees and Services	71
	Part IV
Item 15	Exhibits, Financial Statement Schedules	72
Item 16.	Form 10–K Summary	77

		As of December 31, 2018
By Function:
Research and development		251
Manufacturing and operations		175
Quality control and assurance		74
Commercial		173
Management and administrative		118
Total		791
By Geography:
United Kingdom		540
North America		251
Total		791

Exhibit Number		Description of Exhibit

3.1*		Amended and Restated Memorandum & Articles of Association of GW Pharmaceuticals plc (incorporated by reference to Exhibit 3.1 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

4.1*		Form of specimen certificate evidencing ordinary shares (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

4.2⁽¹⁾*		Form of Deposit Agreement among GW Pharmaceuticals plc, Citibank, N.A., as the depositary bank and all Holders and Beneficial Owners of ADSs issued thereunder (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

4.3⁽¹⁾*		Form of American Depositary Receipt (included in Exhibit 2.2) (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.1†*		Licence and Distribution Agreement between Bayer AG Division Pharma and GW Pharma Limited., dated May 20, 2003 (incorporated by reference to Exhibit 10.1 to our Registration Statement on F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.2†*		Amendment Number 1 to the Licence and Distribution Agreement, dated November 4, 2003 (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.3*		Amendment Number 2 to the Licence and Distribution Agreement between GW Pharma Limited. and Bayer Healthcare AG Division Pharma, dated January 14, 2004 (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.4†*		Amendment Number 3 to the Licence and Distribution Agreement between GW Pharma Limited. and Bayer Healthcare AG Division Pharma, dated March 1, 2005 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.5†*		Amendment Number 4 to the Licence and Distribution Agreement between GW Pharma Limited. and Bayer Healthcare AG Division Pharma, dated May 10, 2005 (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.6*		Amendment Number 5 to the Licence and Distribution Agreement between GW Pharma Limited. and Bayer Schering Pharma AG (f/k/a Bayer AG, Bayer HealthCare, Division Pharma), dated March 10, 2010 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.7 †*		Supply Agreement between Bayer AG and GW Pharma Limited, dated May 20, 2003 (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

Exhibit Number		Description of Exhibit
10.8 †*		Amendment Number 1 to the Supply Agreement between GW Pharma Limited. and Bayer Healthcare AG, dated November 4, 2003 (incorporated by reference to Exhibit 10.8 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.9 †*		Amendment Number 2 to the Supply Agreement between GW Pharma Limited. and Bayer Healthcare AG, dated May 10, 2005 (incorporated by reference to Exhibit 10.9 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.10 †*		Amendment Number 3 to the Supply Agreement between GW Pharma Limited. and Bayer Schering Pharma AG (f/k/a Bayer AG, Bayer HealthCare, Division Pharma), dated March 10, 2010 (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.11 †*		Product Commercialisation and Supply Consolidated Agreement between GW Pharma Limited and Almirall Prodesfarma, S.A., dated June 6, 2006 (incorporated by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.12 †*		Amendment No. 1 to the Product Commercialisation and Supply Consolidated Agreement between GW Pharma Limited. and Laboratories Almirall S.A., dated March 4, 2009 (incorporated by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.13 †*		Amendment to the Product Commercialisation and Supply Consolidated Agreement, dated June 6, 2006 between GW Pharma Limited. and Almirall S.A., dated July 23, 2010 (incorporated by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.14 †*		Supplementary Agreement to the Product Commercialisation and Supply Consolidated Agreement, dated June 6, 2006 between GW Pharma Limited. and Almirall S.A., dated November 17, 2011 (incorporated by reference to Exhibit 10.14 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.15 †*		Amendment and Supplementary Agreement to the Product Commercialisation and Supply Consolidated Agreement, dated June 6, 2006 between GW Pharma Limited. and Almirall S.A., dated March 13, 2012 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.16 †*		Research Collaboration and Licence Agreement between GW Pharma Limited. and GW Pharmaceuticals plc and Otsuka Pharmaceutical Co., Ltd., dated July 9, 2007 (incorporated by reference to Exhibit 10.16 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.17 †*		Amendment No. 1 to Research Collaboration and Licence Agreement, dated March 14, 2008 (incorporated by reference to Exhibit 10.17 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.18 †*		Amendment No. 2 to Research Collaboration and Licence Agreement, dated June 29, 2010 (incorporated by reference to Exhibit 10.18 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.19 †*		Development and Licence Agreement between GW Pharma Limited. and GW Pharmaceuticals Plc and Otsuka Pharmaceutical Co., Ltd., dated February 14, 2007 (incorporated by reference to Exhibit 10.19 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.20 †*		Amendment No. 1 to Development and Licence Agreement, dated November 1, 2008 (incorporated by reference to Exhibit 10.20 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.21 †*		Letter amending Development and Licence Agreement, dated October 21, 2010 (incorporated by reference to Exhibit 10.21 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.22 †*		Production Supply Agreement, dated March 7, 2007 (incorporated by reference to Exhibit 10.24 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.23 †*		Lease, dated July 6, 2009 (incorporated by reference to Exhibit 10.25 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

Exhibit Number		Description of Exhibit
10.24 †*		Lease, dated October 9, 2009 (incorporated by reference to Exhibit 10.26 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.25 †*		Lease, dated April 6, 2011 (incorporated by reference to Exhibit 10.27 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.26 †*		Lease, dated October 12, 2011 (incorporated by reference to Exhibit 10.28 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.27 †*		Lease, dated January 6, 2012 (incorporated by reference to Exhibit 10.29 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.28 †*		Agreement for Lease, dated April 4, 2012 (incorporated by reference to Exhibit 10.30 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.29*		Occupational Underlease, dated August 11, 2010 (incorporated by reference to Exhibit 10.31 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.30*		Lease, dated May 24, 2011 (incorporated by reference to Exhibit 10.32 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.31*		Tenancy Agreement, dated November 19, 2012 (incorporated by reference to Exhibit 10.33 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.32*		Service Agreement by and between GW Pharma Limited, and Adam George, dated June 1, 2012 (incorporated by reference to Exhibit 10.34 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.33 †*		Service Agreement by and between GW Pharma Limited, and Chris Tovey, dated July 11, 2012 (incorporated by reference to Exhibit 10.35 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.34*		Service Agreement by and between GW Research Limited and Dr. Geoffrey Guy, dated March 14, 2013 (incorporated by reference to Exhibit 10.36 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.35*		Service Agreement by and between GW Research Limited and Justin Gover, dated February 26, 2013 (incorporated by reference to Exhibit 10.37 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.36*		Service Agreement by and between GW Research Limited and Dr. Stephen Wright, dated January 18, 2013 (incorporated by reference to Exhibit 10.38 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.37*		Letter of Appointment by and between GW Pharmaceuticals plc and James Noble, dated February 26, 2013 (incorporated by reference to Exhibit 10.39 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.38*		Letter of Appointment by and between GW Pharmaceuticals plc and Thomas Lynch, dated February 26, 2013 (incorporated by reference to Exhibit 10.40 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.39*		Service Agreement by and between Greenwich Biosciences, Inc. (formerly GW Pharmaceuticals Inc.) and Cabot Brown, dated November 7, 2013 (incorporated by reference to Exhibit 4.41 to our Annual Report on Form 20-F (file no. 001-35892), filed with the SEC on November 25, 2013).

10.40*		Long Term Incentive Plan (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form S-8 (file no. 333-204389), filed with the SEC on May 22, 2015).

10.41*		GW Pharmaceuticals All Employee Share Scheme (incorporated by reference to Exhibit 10.43 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.42*		GW Pharmaceuticals Approved Share Option Scheme 2001, as amended (incorporated by reference to Exhibit 10.44 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

Exhibit Number		Description of Exhibit
10.43*		GW Pharmaceuticals Unapproved Share Option Scheme 2001, as amended (incorporated by reference to Exhibit 10.45 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.44 †*		Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.46 to our Annual Report on Form 20-F (file no. 001-35892), as amended, originally filed with the SEC on November 25, 2013).

10.45 †*		Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.47 to our Annual Report on Form 20-F (file no. 001-35892), as amended, originally filed with the SEC on November 25, 2013).

10.46 †*		Lease, dated May 24, 2013 (incorporated by reference to Exhibit 4.48 to our Annual Report on Form 20-F (file no. 001-35892), as amended, originally filed with the SEC on November 25, 2013).

10.47*		Lease, dated August 1, 2013 (incorporated by reference to Exhibit 4.49 to our Annual Report on Form 20-F (file no. 001-35892), as amended, originally filed with the SEC on November 25, 2013).

10.48*		Lease, dated July 16, 2013 (incorporated by reference to Exhibit 4.50 to our Annual Report on Form 20-F (file no. 001-35892), as amended, originally filed with the SEC on November 25, 2013).

10.49 †*		Amendment and Supplementary Agreement to the Product Commercialisation and Supply Consolidated Agreement dated June 6, 2006, between GW Pharma Limited and Almirall, S.A., dated September 30, 2014 (incorporated by reference to Exhibit 10.15 to our Registration Statement on Form F-1 (file no. 333-187356), as amended, initially filed with the SEC on March 19, 2013).

10.50*		Transfer of Contract, dated July 20, 2015 among GW Pharmaceuticals plc, GW Research Limited and Justin Gover (incorporated by reference to Exhibit 4.53 to our Annual Report on Form 20-F (file no. 001-35892) filed with the SEC on December 7, 2015).

10.51 *		Offer Letter, dated July 17, 2015 between Greenwich Biosciences, Inc. (formerly GW Pharmaceuticals Inc.) and Justin Gover (incorporated by reference to Exhibit 4.54 to our Annual Report Form 20-F (file no. 001-35892) filed with the SEC on December 7, 2015).

10.52*		Offer Letter, dated May 5, 2015 between Greenwich Biosciences, Inc. (formerly GW Pharmaceuticals Inc.) and Julian Gangolli (incorporated by reference to Exhibit 4.55 to our Annual Report Form 20-F (file no. 001-35892) filed with the SEC on December 7, 2015).

10.53*		Discretionary Benefits Letter, dated May 5, 2015 between Greenwich Biosciences, Inc. (formerly GW Pharmaceuticals Inc.) and Julian Gangolli (incorporated by reference to Exhibit 4.56 to our Annual Report Form 20-F (file no. 001-35892) filed with the SEC on December 7, 2015).

10.54*		Service Agreement by and between GW Pharmaceuticals plc and Julian Gangolli, effective July 21, 2015 (incorporated by reference to Exhibit 4.57 to our Annual Report Form 20-F (file no. 001-35892) filed with the SEC on December 7, 2015).

10.55 †*		Lease, dated May 27, 2016 (incorporated by reference to Exhibit 4.58 to our Annual Report Form 20-F (file no. 001-35892) filed with the SEC on December 5, 2016).

10.56 †*		Amended and Restated Production and Supply Agreement, dated August 31, 2016, among GW Pharma Limited, GW Pharmaceuticals plc and British Sugar plc (incorporated by reference to Exhibit 4.59 to our Annual Report (file no. 001-35892) filed with the SEC on December 5, 2016).

10.57*		Letter of Appointment by and between GW Pharmaceuticals plc and Cabot Brown, effective January 1, 2016 (incorporated by reference to Exhibit 4.61 to our Annual Report (file no. 001-35892) filed with the SEC on December 5, 2016).

10.58*		Letter of Appointment by and between GW Pharmaceuticals plc and James Noble, effective February 1, 2016 (incorporated by reference to Exhibit 4.62 to our Annual Report (file no. 001-35892) filed with the SEC on December 5, 2016).

10.59 *		Fee Letter, dated April 10, 2017 from GW Pharmaceuticals plc to Cabot Brown (incorporated by reference to Exhibit 4.63 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.60 *		Fee Letter, dated April 10, 2017 from GW Pharmaceuticals plc to James Noble (incorporated by reference to Exhibit 4.64 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.61 *		Salary and Bonus Letter, dated April 13, 2017 from GW Pharmaceuticals plc to Chris Tovey (incorporated by reference to Exhibit 4.65 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

Exhibit Number		Description of Exhibit
10.62 *		Salary and Bonus Letter, dated April 13, 2017 from GW Pharmaceuticals plc to Geoffrey Guy (incorporated by reference to Exhibit 4.66 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.63 *		Salary and Bonus Letter, dated April 13, 2017 from GW Pharmaceuticals plc to Stephen Wright (incorporated by reference to Exhibit 4.67 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.64 *		Salary and Bonus Letter, dated April 13, 2017 from GW Pharmaceuticals plc to Adam George (incorporated by reference to Exhibit 4.68 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.65 *		Greenwich Biosciences, Inc. Compensation Memo, dated February 21, 2017 to Justin Gover (incorporated by reference to Exhibit 4.69 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.66 *		Greenwich Biosciences, Inc. Compensation Memo, dated February 22, 2017 to Julian Gangolli (incorporated by reference to Exhibit 4.70 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.67 *		Offer Letter, dated February 20, 2017 between Greenwich Biosciences, Inc. and Scott Giacobello (incorporated by reference to Exhibit 4.71 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.68 *		Offer Letter, dated April 20, 2017 between Greenwich Biosciences, Inc. and Volker Knappertz (incorporated by reference to Exhibit 4.72 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.69 *		Offer Letter, dated May 5, 2017 between Greenwich Biosciences, Inc. and Douglas Snyder(incorporated by reference to Exhibit 4.73 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.70 *		Relocation Assistance Agreement, dated May 8, 2017 between Greenwich Biosciences, Inc. and Douglas Snyder (incorporated by reference to Exhibit 4.74 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.71 *		Greenwich Biosciences, Inc. Change in Control and Severance Benefit Plan (incorporated by reference to Exhibit 4.75 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.72 *		Change in Control and Severance Benefit Plan Participation Agreement, dated July 12, 2017 between Greenwich Biosciences, Inc. and Julian Gangolli (incorporated by reference to Exhibit 4.76 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.73 *		Change in Control and Severance Benefit Plan Participation Agreement, dated July 13, 2017 between Greenwich Biosciences, Inc. and Volker Knappertz (incorporated by reference to Exhibit 4.77 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.74 *		Change in Control and Severance Benefit Plan Participation Agreement, dated August 2, 2017 between Greenwich Biosciences, Inc. and Scott Giacobello (incorporated by reference to Exhibit 4.78 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.75 *		Change in Control and Severance Benefit Plan Participation Agreement, dated August 9, 2017 between Greenwich Biosciences, Inc. and Douglas Snyder (incorporated by reference to Exhibit 4.79 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.76 *		Master Services Agreement, dated April 1, 2017 between GW Research Ltd and inVentiv Health Commercial Europe Limited (incorporated by reference to Exhibit 4.80 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.77 * ††		Master Statement of Work, dated June 15, 2017 between GW Research Ltd and inVentiv Health Commercial Europe Limited (incorporated by reference to Exhibit 4.81 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.78 * ††		Purchase Agreement, dated March 1, 2017 between GW Pharma Limited and Natex Prozesstechnologie GesmbH (incorporated by reference to Exhibit 4.82 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.79 * ††		Contract for the Design, Construction, Testing and Commissioning of GW Pharma Building 750B and Process Equipment at Kent Science Park, dated September 7, 2017 between GW Pharma Limited and The Austin Company of (U.K.) Limited (incorporated by reference to Exhibit 4.83 to our Annual Report on Form 20-F, filed with the SEC on December 4, 2017).

10.80*		Letter of Appointment by and between GW Pharmaceuticals plc and Catherine Mackey, dated December 20, 2017 (incorporated by reference to Exhibit 10.80 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

Exhibit Number		Description of Exhibit
10.81*		Letter of Appointment by and between GW Pharmaceuticals plc and Alicia Secor, dated December 20, 2017 (incorporated by reference to Exhibit 10.81 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

10.82*		Letter of Appointment by and between GW Pharmaceuticals plc and Lord William Waldegrave, dated December 20, 2017 (incorporated by reference to Exhibit 10.82 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

14.1*		Code of Ethics (incorporated by reference to Exhibit 14.1 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

16.1*		Letter of Deloitte LLP, dated November 28, 2018 (incorporated by reference to Exhibit 16.1 to our Annual Report on Form 10-K filed with the SEC on November 29, 2018).

21.1**		List of Subsidiaries

23.1**		Consent of Deloitte LLP

23.2**		Consent of Deloitte & Touche LLP

31.1**		Certificate of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2**		Certificate of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1***		Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

101***		INS XBRL Instance Document

101***		SCH XBRL Taxonomy Extension Schema Document

101***		CAL XBRL Taxonomy Calculation Linkbase Document

101***		DEF XBRL Taxonomy Extension Definition Linkbase Document

101***		LAB XBRL Taxonomy Label Linkbase Document

101***		PRE XBRL Taxonomy Presentation Linkbase Document

	GW PHARMACEUTICALS PLC

	By:
		/s/Justin Gover
	Name:	Justin Gover
	Title:	Chief Executive Officer

Date: February 27, 2019

		Page
Reports of Independent Registered Public Accounting Firms		F-2
Consolidated Balance Sheets as of December 31, 2018, September 30, 2018 and 2017		F-5
Consolidated Statements of Operations for the three months ended December 31, 2018 and years ended September 30, 2018, 2017 and 2016		F-6
Consolidated Statements of Comprehensive Loss for the three months ended December 31, 2018 and years ended September 30, 2018, 2017 and 2016		F-7
Consolidated Statements of Cash Flows for the three months ended December 31, 2018 and years ended September 30, 2018, 2017, and 2016		F-8
Consolidated Statements of Stockholders’ Equity for the three months ended December 31, 2018 and years ended September 30, 2018, 2017, and 2016		F-9
Notes to the Consolidated Financial Statements		F-10

	December 31, 2017			March 31, 2018			June 30, 2018			September 30, 2018			December 31, 2018
	(in thousands)
Revenue	$	3,992		$	3,041		$	3,284		$	2,420		$	6,654
Operating loss		(58,548	)		(68,242	)		(81,406	)		(80,607	)		(73,344	)
Net loss attributable to ordinary shareholders		(61,816	)		(69,461	)		(84,011	)		(79,879	)		(71,906	)
Net loss per ordinary share, basic and diluted		(0.20	)		(0.20	)		(0.25	)		(0.23	)		(0.20	)
Weighted average shares outstanding, basic and diluted		313,730			340,252			340,457			341,302			366,458

	December 31, 2016			March 31, 2017			June 30, 2017			September 30, 2017
	(in thousands)
Revenue	$	2,034		$	1,381		$	2,764		$	2,450
Operating loss		(35,801	)		(38,923	)		(43,023	)		(48,414	)
Net loss attributable to ordinary shareholders		(20,692	)		(43,266	)		(52,648	)		(53,853	)
Net loss per ordinary share, basic and diluted		(0.07	)		(0.14	)		(0.17	)		(0.18	)
Weighted average shares outstanding, basic and diluted		305,216			305,818			306,011			306,263