Exhibit 99.2







EMERALD
HEALTH THERAPEUTICS, INC.



Consolidated Financial Statements



For the years ended December 31, 2018 and 2017



(Expressed in Canadian Dollars)



1







EMERALD HEALTH THERAPEUTICS, INC.



Management’s Responsibility for Financial Reporting



The accompanying consolidated financial
statements have been prepared by management and are the responsibility of the Board of Directors of Emerald Health Therapeutics,
Inc. (the “Company”).



The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board and reflect management’s best estimates and judgments
based on currently available information. The Company has developed and maintains a system of internal controls in order to ensure,
on a reasonable and cost effective basis, the reliability of its financial information.



The Board of Directors of the Company
is responsible for overseeing management’s performance of its responsibilities for financial reporting and internal control.
The Audit Committee of the Company, which is composed of non-executive directors, meets with management as well as the external
auditors to ensure that management is properly fulfilling its financial reporting responsibilities to the Board of Directors who
approve the financial statements. The external auditors have unrestricted access to the Audit Committee to discuss the scope of
their audits and the adequacy of the system of internal controls.



The consolidated financial statements have been audited by Deloitte LLP. Their report outlines the scope of
their examination and opinion on the consolidated financial statements.



April 30, 2019



|/s/ Avtar Dhillon |  | /s/ Robert Hill        
|----------------- |  | -----------------------
|Avtar Dhillon     |  | Robert Hill            
|President         |  | Chief Financial Officer



2









REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders and the Board of Directors of
Emerald Health Therapeutics, Inc.



Opinion on the Financial Statements

We have audited the accompanying consolidated
statements of financial position of Emerald Health Therapeutics, Inc. (the "Company") as of December 31, 2018 the related
consolidated statements of loss, comprehensive loss, shareholders' equity, and cash flows, for the year then ended, 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 December 31, 2018 and its financial performance and its cash
flows for the year ended December 31, 2018, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board.



Going Concern

The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the
Company has not yet achieved profitable operations and has accumulated losses since inception. Management's plans in regard to
these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



Basis for Opinion

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.



/s/ Deloitte LLP



Vancouver, Canada



April 30, 2019



We have served as the Company’s auditors since 2015.















Independent Auditor’s Report



To the Shareholders and the Board of Directors of
Emerald Health Therapeutics, Inc.



We have audited the accompanying consolidated
statements of financial position of Emerald Health Therapeutics, Inc., which compromise the consolidated statement of financial
position as at December 31, 2017 and the consolidated statements of loss, comprehensive loss, changes in shareholders’ equity
and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.



Management’s Responsibility
for the Consolidated Financial Statements

Management is responsible for the preparation
and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards,
and for such internal controls as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.



Auditor’s Responsibility

Our responsibility is to express an opinion
of these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.



An audit involves performing procedure
to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend
on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error. In making those risk assessments, the auditor consider internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstance but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.
An audit also includes evaluating the appropriateness of accounting policies and the reasonableness of accounting estimates made
by management, as well as evaluating the overall presentation of the consolidated financial statements.



We believe that the audit evidence we have
obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.



Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Emerald Health Therapeutics, Inc. as at December 31, 2017 and its financial performance and it cash flows for the
years then ended in accordance with International Financial Reporting Standards.



Chartered Professional Accountant

March 29, 2018

Vancouver, British Columbia



3







|EMERALD HEALTH THERAPEUTICS, INC.            
|---------------------------------------------
|CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|(Expressed in Canadian dollars)              



|                                              |  | December 31 |             |   | December 31 |  
|--------------------------------------------- |  | ----------- | ----------- | - | ----------- | -
|                                              |  | 2018        |             |   | 2017        |  
|                                              |  |             |             |   |             |  
|ASSETS                                        |  |             |             |   |             |  
|                                              |  |             |             |   |             |  
|Current                                       |  |             |             |   |             |  
|Cash and cash equivalents                     |  | $           | 36,042,090  |   |             | $
|Accounts receivable (Note 7)                  |  |             | 3,579,271   |   |             |  
|Biological assets (Note 8)                    |  |             | 1,088,528   |   |             |  
|Inventory (Note 9)                            |  |             | 6,772,525   |   |             |  
|Prepaid expenses                              |  |             | 1,326,780   |   |             |  
|Due from related parties (Note 17)            |  |             | 14,973,749  |   |             |  
|Total current assets                          |  |             | 63,782,943  |   |             |  
|                                              |  |             |             |   |             |  
|Plant and equipment (Note 10)                 |  |             | 16,965,989  |   |             |  
|Plant under construction (Note 11)            |  |             | 10,310,229  |   |             |  
|Deposits on materials and equipment (Note 12) |  |             | 981,832     |   |             |  
|Refundable deposits                           |  |             | 2,196,391   |   |             |  
|Intangible assets (Note 13)                   |  |             | 86,612,636  |   |             |  
|Goodwill                                      |  |             | 169,323     |   |             |  
|Long-term investment (Note 14)                |  |             | 282,508     |   |             |  
|Investment in joint venture (Note 15)         |  |             | 25,660,843  |   |             |  
|Total non-current assets                      |  |             | 143,179,751 |   |             |  
|                                              |  |             |             |   |             |  
|TOTAL ASSETS                                  |  | $           | 206,962,694 |   |             | $
|                                              |  |             |             |   |             |  
|LIABILITIES                                   |  |             |             |   |             |  
|                                              |  |             |             |   |             |  
|Current liabilities                           |  |             |             |   |             |  
|Accounts payable and accrued liabilities      |  | $           | 9,634,464   |   |             | $
|Current portion of long-term debt (Note 16)   |  |             | 2,503,064   |   |             |  
|Deferred payment (Note 6)                     |  |             | 22,226,565  |   |             |  
|Payable to joint venture (Note 15)            |  |             | -           |   |             |  
|Due to related parties (Note 17)              |  |             | 1,806,393   |   |             |  
|Total current liabilities                     |  |             | 36,170,486  |   |             |  
|                                              |  |             |             |   |             |  
|Deferred income tax liability                 |  |             | 293,886     |   |             |  
|                                              |  |             |             |   |             |  
|TOTAL LIABILITIES                             |  | $           | 36,464,372  |   |             | $
|                                              |  |             |             |   |             |  
|SHAREHOLDERS' EQUITY                          |  |             |             |   |             |  
|Share capital (Note 18)                       |  |             | 204,791,733 |   |             |  
|Warrants                                      |  |             | 4,360,000   |   |             |  
|Contributed surplus                           |  |             | 14,202,536  |   |             |  
|Accumulated deficit                           |  |             | (52,855,947 | ) |             |  
|TOTAL SHAREHOLDERS' EQUITY                    |  |             | 170,498,322 |   |             |  
|                                              |  |             |             |   |             |  
|Non-controlling interest (Note 6)             |  |             | -           |   |             |  
|                                              |  |             |             |   |             |  
|TOTAL LIABILITIES AND EQUITY                  |  | $           | 206,962,694 |   |             | $



Nature and continuance of operations (Note 1)

Commitments (Note 20)

Events after the reporting period (Note 27)



On behalf of the Board of Directors:





|/s/ Punit Dhillon |  | /s/ Avtar Dhillon
|----------------- |  | -----------------
|Director          |  | Director         



The accompanying notes form an integral part of these
consolidated financial statements



4







|EMERALD HEALTH THERAPEUTICS, INC.                     
|------------------------------------------------------
|CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
|(Expressed in Canadian dollars)                       



|                                                            |  | Year ended  |             |   | Year ended  |  
|----------------------------------------------------------- |  | ----------- | ----------- | - | ----------- | -
|                                                            |  | December 31 |             |   | December 31 |  
|                                                            |  | 2018        |             |   | 2017        |  
|                                                            |  |             |             |   |             |  
|Revenue                                                     |  |             |             |   |             |  
|Sales (Note 25)                                             |  | $           | 2,110,403   |   |             | $
|Excise taxes                                                |  |             | 161,982     |   |             |  
|Net revenue                                                 |  |             | 1,948,421   |   |             |  
|                                                            |  |             |             |   |             |  
|Cost of sales                                               |  |             |             |   |             |  
|Cost of goods sold                                          |  |             | 3,575,132   |   |             |  
|Production costs                                            |  |             | 1,461,941   |   |             |  
|Depreciation of Health Canada license (Note 13)             |  |             | 2,829,015   |   |             |  
|Gain on changes in fair value of biological assets (Note 8) |  |             | (2,818,442  | ) |             |  
|Gross margin                                                |  |             | (3,099,225  | ) |             |  
|                                                            |  |             |             |   |             |  
|Expenses                                                    |  |             |             |   |             |  
|General and administrative (Note 26)                        |  |             | 13,993,498  |   |             |  
|Sales and marketing                                         |  |             | 11,333,294  |   |             |  
|Research and development                                    |  |             | 801,351     |   |             |  
|Depreciation (Note 10 and 13)                               |  |             | 618,438     |   |             |  
|Loss on disposal of equipment (Note 10)                     |  |             | -           |   |             |  
|Share-based payments (Note 18)                              |  |             | 7,498,450   |   |             |  
|                                                            |  |             | 34,245,031  |   |             |  
|                                                            |  |             |             |   |             |  
|Loss from operations                                        |  |             | 37,344,256  |   |             |  
|                                                            |  |             |             |   |             |  
|Share of (income) loss from joint venture (Note 15)         |  |             | (5,753,782  | ) |             |  
|Interest income                                             |  |             | (1,186,214  | ) |             |  
|Interest expense                                            |  |             | 218,600     |   |             |  
|Fair value changes in financial assets (Note 14)            |  |             | 384,159     |   |             |  
|Deferred income tax recovery                                |  |             | (23,611     | ) |             |  
|NET LOSS AND COMPREHENSIVE LOSS                             |  |             | 30,983,408  |   |             |  
|                                                            |  |             |             |   |             |  
|Net loss and comprehensive loss attributable to:            |  |             |             |   |             |  
|Emerald Health Therapeutics, Inc.                           |  |             | 30,576,893  |   |             |  
|Non-controlling interest                                    |  |             | 406,515     |   |             |  
|                                                            |  |             | 30,983,408  |   |             |  
|Net loss per common share                                   |  |             |             |   |             |  
|Basic and diluted                                           |  | $           | 0.22        |   |             | $
|                                                            |  |             |             |   |             |  
|Weighted average number of common shares outstanding        |  |             |             |   |             |  
|Basic and diluted                                           |  |             | 141,443,116 |   |             |  



The accompanying notes form an integral part of these
consolidated financial statements



5







|EMERALD HEALTH THERAPEUTICS, INC.           
|--------------------------------------------
|CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|(Expressed in Canadian dollars)             



|                                                                  |  | Share Capital |             |  | Warrants |   |             |          |  |  |             |   |  |             |            |   |             |   |            |               | 
|----------------------------------------------------------------- |  | ------------- | ----------- |  | -------- | - | ----------- | -------- |  |  | ----------- | - |  | ----------- | ---------- | - | ----------- | - | ---------- | ------------- | 
|                                                                  |  |               |             |  |          |   |             |          |  |  |             |   |  |             |            |   |             |   |            | Total         | 
|                                                                  |  | # of          |             |  |          |   |             | # of     |  |  |             |   |  | Contributed |            |   | Accumulated |   |            | Shareholders' | 
|                                                                  |  | Shares        |             |  | Amount   |   |             | Warrants |  |  | Amount      |   |  | Surplus     |            |   | Deficit     |   |            | Equity        | 
|                                                                  |  |               |             |  |          |   |             |          |  |  |             |   |  |             |            |   |             |   |            |               | 
|Balance, December 31, 2017                                        |  |               | 106,787,226 |  |          | $ | 77,912,246  |          |  |  | 9,707,677   |   |  | $           | 461,772    |   |             | $ | 5,285,709  |               | 
|                                                                  |  |               |             |  |          |   |             |          |  |  |             |   |  |             |            |   |             |   |            |               | 
|Shares issued on stock option exercises (Note 18)                 |  |               | 1,410,195   |  |          |   | 1,893,247   |          |  |  | -           |   |  |             | -          |   |             |   | (698,716   | )             | 
|Units issued on prospectus offerings (Note 18)                    |  |               | 14,000,000  |  |          |   | 51,540,000  |          |  |  | 10,000,000  |   |  |             | 9,060,000  |   |             |   | -          |               | 
|Share issuance costs                                              |  |               | -           |  |          |   | (455,062    | )        |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Acquisition of Verdelite Sciences Inc. (Note 6)                   |  |               | 9,911,894   |  |          |   | 45,000,000  |          |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Deemed Issuance for acquisition of Avalite Sciences Inc. (Note 6) |  |               | 1,093,938   |  |          |   | 4,000,000   |          |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Shares issued on warrant exercises (Note 18)                      |  |               | 8,239,863   |  |          |   | 24,901,302  |          |  |  | (8,239,863  | ) |  |             | (3,044,679 | ) |             |   | -          |               | 
|Warrants expired                                                  |  |               | -           |  |          |   | -           |          |  |  | (3,056,050  | ) |  |             | (2,117,093 | ) |             |   | 2,117,093  |               | 
|Share-based payments (Note 18)                                    |  |               | -           |  |          |   | -           |          |  |  | -           |   |  |             | -          |   |             |   | 7,498,450  |               | 
|Net loss and comprehensive loss                                   |  |               | -           |  |          |   | -           |          |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Balance, December 31, 2018                                        |  |               | 141,443,116 |  |          | $ | 204,791,733 |          |  |  | 8,411,764   |   |  | $           | 4,360,000  |   |             | $ | 14,202,536 |               | 
|                                                                  |  |               |             |  |          |   |             |          |  |  |             |   |  |             |            |   |             |   |            |               | 
|Balance, December 31, 2016                                        |  |               | 67,794,698  |  |          | $ | 9,756,732   |          |  |  | 8,489,451   |   |  | $           | -          |   |             | $ | 3,043,099  |               | 
|                                                                  |  |               |             |  |          |   |             |          |  |  |             |   |  |             |            |   |             |   |            |               | 
|Shares issued on stock option exercises (Note 18)                 |  |               | 1,531,250   |  |          |   | 1,699,945   |          |  |  | -           |   |  |             | -          |   |             |   | (579,885   | )             | 
|Units issued on prospectus offerings                              |  |               | 24,870,100  |  |          |   | 36,260,901  |          |  |  | 12,690,250  |   |  |             | 4,679,773  |   |             |   | -          |               | 
|Share issuance costs                                              |  |               | -           |  |          |   | (3,168,869  | )        |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Compensation options                                              |  |               | -           |  |          |   | (350,098    | )        |  |  | -           |   |  |             | -          |   |             |   | 350,098    |               | 
|Shares issued on warrant exercises (Note 19)                      |  |               | 11,845,075  |  |          |   | 32,314,959  |          |  |  | (11,845,075 | ) |  |             | (4,396,189 | ) |             |   |            |               | 
|Shares issued on compensation option -  exercises
    (Note 18)   |  |               | 746,103     |  |          |   | 1,398,676   |          |  |  | 373,051     |   |  |             | 178,188    |   |             |   | (350,098   | )             | 
|Acquisition of Avalite Sciences Inc. (Note 6)                     |  |               | -           |  |          |   | -           |          |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Share-based payments (Note 18)                                    |  |               | -           |  |          |   | -           |          |  |  | -           |   |  |             | -          |   |             |   | 2,822,495  |               | 
|Net loss and comprehensive loss                                   |  |               | -           |  |          |   | -           |          |  |  | -           |   |  |             | -          |   |             |   | -          |               | 
|Balance, December 31, 2017                                        |  |               | 106,787,226 |  |          | $ | 77,912,246  |          |  |  | 9,707,677   |   |  | $           | 461,772    |   |             | $ | 5,285,709  |               | 



The accompanying notes form an integral part of these
consolidated financial statements



6







|EMERALD HEALTH THERAPEUTICS, INC.   
|------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOW
|(Expressed in Canadian dollars)     



|                                                       |  | Year ended   |             |   | Year ended   | 
|------------------------------------------------------ |  | ------------ | ----------- | - | ------------ | 
|                                                       |  | December 31, |             |   | December 31, | 
|                                                       |  | 2018         |             |   | 2017         | 
|                                                       |  |              |             |   |              | 
|Operating activities                                   |  |              |             |   |              | 
|Net loss                                               |  | $            | (30,983,408 | ) | $            | 
|Items not involving cash                               |  |              |             |   |              | 
|Depreciation                                           |  |              | 3,447,452   |   |              | 
|Gain on changes in fair value of biological assets     |  |              | (2,818,442  | ) |              | 
|Fair value changes in financial assets                 |  |              | 384,159     |   |              | 
|Share-based payments                                   |  |              | 7,498,450   |   |              | 
|Share of (income) loss from joint venture              |  |              | (5,753,782  | ) |              | 
|Interest expense                                       |  |              | 225,334     |   |              | 
|Deferred income tax recovery                           |  |              | (23,611     | ) |              | 
|Loss on disposal of asset                              |  |              | -           |   |              | 
|Changes in non-cash operating working capital          |  |              |             |   |              | 
|Accounts receivable                                    |  |              | (3,196,248  | ) |              | 
|Due from related parties                               |  |              | (1,649,075  | ) |              | 
|Prepaid expenses                                       |  |              | (1,157,943  | ) |              | 
|Inventory and biological assets                        |  |              | (2,920,781  | ) |              | 
|Accounts payable and accrued liabilities               |  |              | 6,221,897   |   |              | 
|Due to related parties                                 |  |              | 1,636,796   |   |              | 
|Net cash flows used in operating activities            |  |              | (29,089,202 | ) |              | 
|                                                       |  |              |             |   |              | 
|Investing activities                                   |  |              |             |   |              | 
|Investment in joint venture (Note 15)                  |  |              | (17,000,000 | ) |              | 
|Acquisition of assets, net of cash acquired (Note 6)   |  |              | (22,796,513 | ) |              | 
|Acquisition of business, net of cash acquired (Note 6) |  |              | (2,000,004  | ) |              | 
|Deposits on equipment                                  |  |              | (981,832    | ) |              | 
|Purchase of long-term investment                       |  |              | -           |   |              | 
|Purchase of plant and equipment                        |  |              | (17,235,075 | ) |              | 
|Purchase of intangible assets                          |  |              | (465,457    | ) |              | 
|Refundable deposits                                    |  |              | (2,000,000  | ) |              | 
|Net cash flows used in investing activities            |  |              | (62,478,881 | ) |              | 
|                                                       |  |              |             |   |              | 
|Financing activities                                   |  |              |             |   |              | 
|Principal payment on long-term debt                    |  |              | (91,555     | ) |              | 
|Proceeds from prospectus offering                      |  |              | 60,600,000  |   |              | 
|Share issuance costs                                   |  |              | (472,570    | ) |              | 
|Stock option exercises                                 |  |              | 1,194,531   |   |              | 
|Warrant exercises                                      |  |              | 21,856,622  |   |              | 
|Compensation option exercises                          |  |              | -           |   |              | 
|Net cash flows generated from financing activities     |  |              | 83,087,028  |   |              | 
|                                                       |  |              |             |   |              | 
|(Decrease)/increase in cash and cash equivalents       |  |              | (8,481,055  | ) |              | 
|Cash and cash equivalents, beginning of year           |  |              | 44,523,145  |   |              | 
|Cash and cash equivalents, end of year                 |  | $            | 36,042,090  |   | $            | 



The accompanying notes form an integral part of these
consolidated financial statements



7







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



| | 1. | NATURE AND CONTINUANCE OF OPERATIONS
| | -- | ------------------------------------



Emerald Health
Therapeutics Inc. (the "Company"), is classified as a Tier 1 Venture Issuer on the TSXV, with its common shares listed
under the trading symbol “EMH.” The Company is also traded on the OTCQX, with its common shares listed under the trading
symbol “EMHTF.”



The Company was incorporated pursuant to the Business Corporations Act (British Columbia) on July 31,
2007 as Firebird Capital Partners Inc. and changed its name to Firebird Energy Inc. in December 2012. On September 4, 2014, the
Company completed the acquisition of all of the issued and outstanding common shares of Thunderbird Biomedical Inc. (“Thunderbird”),
by way of a reverse takeover (the “RTO”) under the rules of the TSX Venture Exchange (the “TSXV”) and concurrently
changed its name to T-Bird Pharma, Inc. Thunderbird became a wholly owned subsidiary of the Company. In June 2015, the Company
changed its name to Emerald Health Therapeutics, Inc. and Thunderbird changed its name to Emerald Health Botanicals Inc. (“Botanicals”).
On February 23, 2018, Botanicals changed its name to Emerald Health Therapeutics Canada Inc. (“EHTC”). The Company’s
registered office is at Suite 2600 Oceanic Plaza, 1066 West Hastings Street, Vancouver, BC, V6E 3X1.



The Company
owns 100% of the shares of Emerald Health Therapeutics Canada Inc. (“EHTC”), a company incorporated pursuant to the
Business Corporations Act (British Columbia). The principal business of EHTC is the production and sale of cannabis pursuant
to the Cannabis Act.



These consolidated financial statements have been prepared by management on a going concern basis which
assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business for
the foreseeable future. As at December 31, 2018, the Company had not yet achieved profitable operations and had accumulated losses
of $52,855,947 (December 31, 2017 - $17,829,369) since its inception. The continuing operations of the Company are dependent upon
its ability to continue to raise adequate capital, to commence profitable operations in the future, to satisfy its commitments
and to repay its liabilities arising from normal business operations as they become due. Management is aware, in making its assessment,
of material uncertainties related to events or conditions that may cast significant doubt upon the Company’s ability to continue
as a going concern.



These consolidated
financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification
of liabilities that might be necessary should the Company be unable to continue as a going concern.



| | 2. | BASIS OF PRESENTATION
| | -- | ---------------------



| | a) | Statement of Compliance
| | -- | -----------------------



These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board.



The annual consolidated financial statements were authorized for filing by the Board of Directors on April
30, 2019.





8







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



| | b) | Basis of measurement
| | -- | --------------------



These consolidated financial statements have been prepared on a going concern basis, at historical cost
except for certain financial instruments and biological assets, which are measured at fair value (see Note 8).



| | c) | Basis of consolidation
| | -- | ----------------------



These
consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and
balances are eliminated on consolidation. Subsidiaries are all entities over which the Company has control. The Company controls
an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the
ability to affect those returns through its power over the entity.



The
subsidiaries of the Company at December 31, 2018 include the following:



|                                        |  | Ownership Interest as at December 31, |     |   | Ownership Interest as at December 31, | 
|--------------------------------------- |  | ------------------------------------- | --- | - | ------------------------------------- | 
|Name of Entity                          |  | 2018                                  |     |   | 2017                                  | 
|Emerald Health Therapeutics Canada Inc. |  |                                       | 100 | % |                                       | 
|Avalite Sciences Inc.                   |  |                                       | 100 | % |                                       | 
|Pure Sunfarms Corp.                     |  |                                       | 50  | % |                                       | 
|Verdélite Sciences Inc.                 |  |                                       | 100 | % |                                       | 
|Verdélite Property Holdings Inc.        |  |                                       | 100 | % |                                       | 



On
May 2, 2018, the Company acquired 100% of the issued and outstanding shares of Verdélite Sciences Inc. and its affiliate
Verdélite Property Holdings Inc. (together as “Verdélite,” formerly known as Agro-Biotech Sciences Inc.
and Agro-Biotech Property Holdings Inc.). The principle business of Verdélite Sciences Inc. is the production of cannabis
pursuant to the Cannabis Act (Canada) (the “Cannabis Act”). The principal business of Verdélite Property
Holdings Inc. is to hold the land and building, located in Saint-Eustache, Quebec, occupied by Verdélite Sciences Inc.
for cannabis production.



9







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



Through
EHTC’s 50% equity interest in Pure Sunfarms Corp. (“Pure Sunfarms”), the Company cultivates and intends to distribute
wholesale cannabis and cannabis extracts for therapeutic and non-therapeutic use purposes.



Through
EHTC’s 100% owned subsidiary, Avalite Sciences Inc. (“Avalite,” formerly known as Northern Vine Canada Inc.),
a Licensed Dealer under the provisions of the Canadian Controlled Drugs and Substances Act, the Company operates a laboratory
facility located in Langley, British Columbia.



| | d) | Functional and presentation currency
| | -- | ------------------------------------



The
Company and its subsidiaries’ functional currency is Canadian dollars. All dollar amounts presented are in Canadian dollars
unless otherwise specified.



| | 3. | ACCOUNTING POLICIES
| | -- | -------------------



| | a) | Cash and cash equivalents
| | -- | -------------------------



Cash and cash equivalents include cash and redeemable short-term investment certificates with a maturity
of less than three months held at major financial institutions.



| | b) | Biological assets
| | -- | -----------------



The Company
measures biological assets consisting of cannabis on plants at fair value less cost to sell up to the point of harvest, which becomes
the basis for the cost of finished goods inventories after harvest. Seeds are measured at fair market value, except for a portion
which are restricted with respect to distribution due to the conditions under which they were acquired that are measured at cost.

Gains or losses
arising from changes in fair value less cost to sell are included in the results of operations of the related period.



| | c) | Inventory
| | -- | ---------



Inventories
of dried cannabis consists of harvested cannabis and purchased cannabis and are valued at the lower of cost and net realizable
value. Inventories of harvested cannabis are transferred from biological assets at their fair value at harvest, which becomes deemed
cost. Any subsequent post-harvest costs are capitalized to inventory to the extent that cost is less than net realizable value.
Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale. Cost is determined using the average cost basis. Cannabis oils are
derived from dried cannabis and are measured at the lower of cost and net realizable value. Goods for resale are measured at the
lower of cost and net realizable value. Supplies and consumables are valued at cost.



10







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



| | d) | Plant and equipment
| | -- | -------------------



Plant and
equipment are carried at cost less accumulated depreciation. Plant and equipment are depreciated over their expected lives based
on the following:



| | · | Building – 15 to 25 years straight line
| | - | ---------------------------------------

| | · | Leasehold improvements – lesser of useful life or term of lease
| | - | ---------------------------------------------------------------

| | · | Production, lab and growing equipment – 5 to 10 years straight line
| | - | -------------------------------------------------------------------

| | · | Computers – 3 years straight line
| | - | ---------------------------------



In the year
of acquisition, depreciation for plant and equipment is recorded once the asset is available for use.



An item of
plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued
use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds
and the carrying amount of the asset, is recognized in profit or loss.



Residual values
and estimated useful lives are reviewed annually.



| | e) | Plant under construction
| | -- | ------------------------



Expenditures
for plant under construction are capitalized to the statement of financial position and will be amortized over the life of the
asset, commencing at the time the asset is ready for its intended use. At each balance sheet date, the Company considers whether
there is objective evidence of impairment of the asset, and if so, will write down the asset to its recoverable value.



| | f) | Intangible Assets
| | -- | -----------------



Intangible
assets are recorded at cost and amortized over their estimated useful lives at the following annual rate:



| | · | Computer software – 2 to 3 years straight line
| | - | ----------------------------------------------

| | · | Health Canada licenses – term, plus life of building or renewal term of leased facility site
| | - | --------------------------------------------------------------------------------------------

| | · | Patents –straight line over the life of the patent
| | - | --------------------------------------------------



Estimated
useful lives are reviewed annually.



11







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



| | g) | Investment in joint venture
| | -- | ---------------------------



IFRS 11, Joint
Arrangements, and IAS 28, Investments in Associates and Joint Ventures establishes the criteria for accounting for joint ventures.
Investments in joint ventures are accounted for using the equity method. The equity method involves recording the initial investment
at cost and subsequently adjusting the carrying value of the investment for the proportionate share of the profit or loss, other
comprehensive income or loss and any other changes in the joint venture’s net assets such as dividends. At each balance sheet
date, the Company considers whether there is objective evidence of impairment in the joint venture. If there is such evidence,
the Company will determine the amount of impairment to record, if any, in relation to the joint venture.



| | h) | Business combinations
| | -- | ---------------------



The Company
uses the acquisition method of accounting for business combinations, whereby the purchase consideration is allocated to the fair
value of the identifiable assets and liabilities at the date of acquisition. Preliminary fair values allocated at a reporting date
are finalized as soon as the relevant information becomes available, within a period not to exceed twelve months from the acquisition
date with retrospective restatement of the impact of adjustments to those preliminary fair values effective as at the acquisition
date. Acquisition related costs are expensed as incurred.



When the cost
of the acquisition exceeds the fair value attributable to the Company’s share of the identifiable net assets, the difference
is recorded as goodwill. If the cost of the acquisition is less than the fair value attributable to the Company’s share of
the identifiable net assets the difference is recognized in the consolidated statements of loss.



Non-controlling
interests are measured either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts
of the acquirers’ identifiable net assets at the date of acquisition. The choice of measurement is made on a transaction
by transaction basis.



In a business
combination achieved in stages, the Company remeasures any previously held equity interest at its acquisition date fair value and
recognizes any gain or loss in the consolidated statements of loss.



| | i) | Revenue recognition
| | -- | -------------------



Revenue is
recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange
for transferring promised goods to a customer. Gross revenue includes excise taxes, which the Company pays as principal. Net revenue
from sale of goods, as presented in the consolidated statement of loss and comprehensive loss, represents revenue from the sale
of goods less applicable excise taxes, expected price discounts, and allowances for customer returns. Excise taxes are a production
tax which become payable when a cannabis product is delivered to the customer and are not directly related to the value of the
product sold.



The Company's
contracts with customers for the sales of dried cannabis and cannabis oil consist of one performance obligation. The Company has
concluded that revenue from the sale of these products should be recognized at the point in time when control is transferred to
the customer, which is on delivery.



12







EMERALD HEALTH THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2018 and 2017

(Expressed in Canadian
dollars)



| | j) | Income taxes
| | -- | ------------



Income tax
expense comprises current and deferred tax. Income tax is recognized in profit or loss except to the extent that it relates to
items recognized directly in equity. Current tax expense is the expected tax payable on taxable income for the year, using tax
rates enacted or substantively enacted at period end, adjusted for amendments to tax payable with regard to previous years.



Deferred tax
is recorded using the liability method, providing for temporary differences, between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Temporary differences are not provided for the initial
recognition of assets or liabilities that affect neither accounting nor taxable loss, and differences relating to investments in
subsidiary to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the end of the reporting period. A deferred tax asset is recognized only to the extent that it is probable
that future taxable profits will be available against which the asset can be utilized.



| | k) | Loss per share
| | -- | --------------



Basic loss
per share is computed by dividing total net loss attributable to the Company for the year by the weighted average number of common
shares of the Company (the “Common Shares”) outstanding during the year. The Company uses the treasury stock method
for calculating diluted loss per share. When the Company is in a loss position, all potential share issuances on the exercise of
options or warrants is anti-dilutive. In the event of a loss position, diluted loss per share is the same a basic loss per share.



| | l) | Segment reporting
| | -- | -----------------



A segment
is a component of the Company that engages in business activities in which revenues and expenses are incurred, that has distinguishable
financial information available, and whose operating results are regularly reviewed by the chief operating decision maker (“CODM”).



| | m) | Leases
| | -- | ------



Leases are
classified as an operating lease whenever the terms of the lease do not transfer substantially all of the risks and rewards of
ownership to the lessee.



Operating
lease payments are recognized as an operating expense in profit or loss on a straight-line basis over the lease term.



A finance
lease is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and
the lease term.



13







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | n) | Foreign currency translation
| | -- | ----------------------------



Transactions
in currencies other than the Canadian dollar are recorded at exchange rates prevailing on the dates of the transactions. At the
end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated at the period end
exchange rate. Revenues and expenses are translated at the exchange rates approximating those in effect on the date of the transactions.
Exchange gains and losses arising on translation are included in net loss.



| | o) | Financial instruments
| | -- | ---------------------



| | i. | Financial assets
| | -- | ----------------



The Company
classifies its financial assets initially at fair value at the time of acquisition. Subsequently, they are measured at amortized
cost, at fair value through other comprehensive income, or at fair value through profit or loss. Upon initial recognition, management
determines the classification of its financial assets based upon the purpose for which the financial assets were acquired. Measurement
and classification of financial assets is determined based on the entity’s business model for managing the financial assets
and the contractual cash flow characteristics of the financial asset. Management may, at initial recognition, irrevocably designate
a financial asset as measured at fair value through profit or loss to prevent a measurement or recognition inconsistency.



Financial assets
are derecognized when they mature or are sold and substantially all the risks and rewards of ownership have been transferred.



| | ii. | Financial liabilities
| | --- | ---------------------



The Company
initially recognizes financial liabilities at fair value and are subsequently measured at amortized cost.



| | p) | Impairment of long-lived assets
| | -- | -------------------------------



At the end
of each reporting period, the Company’s assets are reviewed to determine whether there is any indication that those assets
may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of
the impairment, if any. The recoverable amount is the higher of fair value less costs to sell and value in use. Fair value is determined
as the amount that would be obtained from the sale of the asset in an arm’s length transaction between knowledgeable and
willing parties. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable
amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable
amount and the impairment loss is recognized in profit or loss for the period. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.



14







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Management
considers both external and internal sources of information in determining if there are any indications that the Company’s
plant and equipment or intangible assets are impaired. Management considers the market, economic, and legal environment in which
the Company operates that are not within its control and affect the recoverable amount of its plant and equipment and intangible
assets. Management considers the manner in which the plant and equipment and intangible assets are being used or are expected to
be used, and indication of economic performance of the assets. Where an impairment loss subsequently reverses, the carrying amount
of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have
been recorded had no impairment loss been recognized previously.



| | q) | Goodwill
| | -- | --------



Goodwill represents the excess of the price paid for the acquisition of an entity over the fair value
of the net identifiable assets acquired. Goodwill is allocated to the cash generating unit to which is relates. The Company has
determined that the goodwill associated with all acquisitions belong to the cannabis production and cash generating unit.



Goodwill is
measured as historical cost and is evaluated for impairment annually or more often if events or circumstances indicate there may
be an impairment. Impairment is determined for goodwill by assessing if the carrying value of a cash generating unit, including
the allocated goodwill, exceeds its recoverable amount determined as the greater of the estimated fair value less costs to sell
and the value in use. Impairment losses recognized in respect of a cash generating unit are first allocated to the carrying value
of goodwill and any excess is allocated to the carrying amount of assets in the cash generating unit. Any goodwill impairment is
recorded as a loss in the period in which the impairment is identified. Impairment losses on goodwill are not subsequently reversed.



| | r) | Share-based payments
| | -- | --------------------



The Company
grants options to directors, officers, employees and service providers under the Company’s Omnibus Incentive Plan. The fair
value of share options granted to employees is recognized as an expense over the vesting period with a corresponding increase in
equity. An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee)
or provides services similar to those performed by a direct employee, including directors of the Company. At each financial position
reporting date, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected
to vest. In situations where equity instruments are issued to non-employees and some or all of the goods or services received by
the entity as consideration cannot be specifically identified, they are measured at fair value of the share-based payment.



No expense
is recognized for awards that do not ultimately vest except for equity settled transactions for which vesting is conditional upon
a market or non-vesting condition.



15







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Share options
with a graded vesting schedule are accounted for as separate grants with different vesting periods and fair values. The fair value
is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the share purchase
options were granted.



Where the
terms of an equity settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified.
An additional expense is recognized for any modification which increases the total fair value of the share-based payment arrangement,
or is otherwise beneficial to the employee as measured at the date of modification.



When an equity
award is cancelled, it is treated as if it vests on the date of the cancellation and any expense not recognized for the award is
recognized immediately.



| | s) | Warrants
| | -- | --------



The Company
uses the residual value approach in respect of unit offerings whereby the amount assigned to the warrant is the excess of the unit
price over the trading price of the Company’s shares at the date of issuance, if any, to a maximum fair value of the warrant
determined by using the Black-Scholes Option-Pricing Model.



| | t) | Research and development
| | -- | ------------------------



Research costs
are expensed as incurred. Development expenditures are capitalized only if development costs can be measured reliably, the product
or process is technically and commercially feasible, future economic benefits are probable, and the Company intends to and has
sufficient resources to complete the development to use or sell the assets. Other development expenditures are expensed as incurred.
Other than certain patent development costs, to date, no development costs have been capitalized.



| | u) | Significant accounting judgments and estimates
| | -- | ----------------------------------------------



The preparation
of financial statements in conformity with IFRS requires management to make certain estimates, judgments and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during
the year. Actual results may differ from these estimates.



Significant
estimates are evaluation and assumptions about the future and other sources of estimation uncertainty that management has made,
that could result in a material adjustment to the carrying amounts of assets and liabilities. Significant estimates used in the
preparation of these consolidated financial statements include, but are not limited to, the following:



| | v) | Biological assets and inventory
| | -- | -------------------------------



The Company measures biological
assets consisting of cannabis on plants at fair value less cost to sell up to the point of harvest. Calculating the value requires
management to estimate, among others, expected yield on harvest, expected selling price and remaining costs to be incurred up to
the point of harvest.



16







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



The Company measures inventory
at the lower of cost and net realizable value and estimates selling price, the estimated costs of completion and the estimated
costs necessary to make the sale.



Estimated useful lives of plant
and equipment and intangible assets



The Company makes estimates and
utilizes assumptions in determining the useful lives and residual value of plant and equipment and intangible assets and related
depreciation. Uncertainties in these estimates relate to technical obsolescence that may change the utilization of certain assets.



Provisions
and contingencies



The amount recognized as a provision,
including legal, contractual, constructive and other exposures or obligations, is the best estimate of the consideration required
to settle the related liability, including any related interest charges, taking into account the risks and uncertainties surrounding
the obligation. In addition, contingencies will only be resolved when one or more future events occur or fail to occur. Therefore,
assessment of contingencies inherently involves the exercise of significant judgment and estimates of the outcome of future events.
The Company assesses its liabilities and contingencies based upon the best information available.



Share-based compensation



The fair value of share-based compensation
expense is estimated using the Black-Scholes option pricing model and relies on a number of estimated inputs, such as the expected
life of the option, the volatility of the underlying share price, and the risk-free rate of return. Changes in the underlying estimated
inputs may result in materially different results.



Warrants



In calculating the fair value of
warrants, management relies on estimated inputs, such as the volatility of the Company’s stock price and the risk-free rate
of return.



Business combinations



In a business combination, all
identifiable assets, liabilities and contingent liabilities acquired are recorded at their fair values. One of the most significant
estimates relates to the determination of the fair value of these assets and liabilities.



Certain fair values may be estimated
at the acquisition date pending confirmation or completion of the valuation process. Where provisional values are used in accounting
for a business combination, they may be adjusted retrospectively in subsequent periods. However, the measurement period will last
for one year from the acquisition date.



17







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Goodwill
impairment



The Company performs a test for
goodwill impairment at each financial year end and whenever events or circumstances indicate the carrying amount of goodwill may
not be recoverable. Determining whether an impairment has occurred requires valuation of the respective CGU, which is estimated
using the discounted cash flow method. A number of estimates are used in this valuation technique, including actual operating results,
future business plan, economic projections and market data.



Deferred income taxes



In assessing the probability of
realizing deferred income tax assets, management makes estimates related to expectations of future taxable income, expected timing
of reversals of existing temporary differences and the likelihood that tax positions taken will be sustained upon examination by
applicable tax authorities. In making its assessments, management gives additional weight to positive and negative evidence that
can be objectively verified.



| | 4. | NEW ACCOUNTING PRONOUNCEMENTS
| | -- | -----------------------------



Revenue
from Contracts with Customers



Effective January 1, 2018, the
Company adopted IFRS 15 Revenue from Contracts with Customers. The Company recognizes revenue from contracts with customers
based on a five-step model, which is applied to all contracts with customers.



Determining the amount of variable
consideration to recognize, and whether the amount of variable consideration should be constrained, is dependent on management's
estimate of the most likely amount to which the Company will be entitled and the probability of a significant reversal in that
amount. These determinations require management to make estimates based on historical amounts received, current economic conditions,
and current industry conditions, in Canada and abroad, adjusted for forward looking information.



Cost of sales represents the deemed cost of inventory
that arose from the fair value measurement of biological assets, subsequent post-harvest costs capitalized to inventory, purchased
dried cannabis, costs to produce cannabis oils capitalized to inventory (including the deemed cost of dried inventory that arose
from the fair value measurement of biological assets that were used to produce cannabis oils), and packaging costs.



There were no changes required
to the Company’s consolidated financial statements as a result of adopting this standard, other than enhanced disclosures.



18







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Financial Instruments



Effective January 1, 2018, the
Company adopted IFRS 9 Financial Instruments(“IFRS 9”), which replaced IAS 39 Financial Instruments: Recognition
and Measurement(“IAS 39”). The standard eliminates the existing IAS 39 categories of held to maturity, available-for-sale
and loans and receivable.



The new classification and measurement
of the Company’s financial assets and liabilities are as follows:



Amortized cost



This category includes financial
assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash
flows that meet the solely principal and interest ("SPPI") criterion. Financial assets classified in this category are
measured at amortized cost using the effective interest method.



Fair value through profit or
loss ("FVTPL")



This category includes quoted equity
instruments which the Company has not irrevocably elected, at initial recognition or transition, to classify at fair value through
other comprehensive income. This category would also include debt instruments whose cash flow characteristics fail the SPPI criterion
or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual
cash flows and sell. Financial assets in this category are recorded at fair value with changes recognized in profit or loss.



The following table summarizes
the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s
financial assets and financial liabilities:



|                                         | IAS 39         |  | IFRS 9        
|---------------------------------------- | -------------- |  | --------------
|                                         | Classification |  | Classification
|Financial Assets                         |                |  |               
|Cash                                     | FVTPL          |  | FVTPL         
|Cash equivalents                         | Amortized cost |  | Amortized cost
|Accounts receivable                      | Amortized cost |  | Amortized cost
|Due from related parties                 | Amortized cost |  | Amortized cost
|Refundable deposits                      | Amortized cost |  | Amortized cost
|Long-term investment                     | FVTPL          |  | FVTPL         
|                                         |                |  |               
|Financial Liabilities                    |                |  |               
|Accounts payable and accrued liabilities | Amortized cost |  | Amortized cost
|Payable to joint venture                 | Amortized cost |  | Amortized cost
|Due to related parties                   | Amortized cost |  | Amortized cost



19







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



The adoption of this standard did
not have a material impact on the measurement of the Company’s financial instruments in these consolidated financial statements,
however additional disclosures have been provided.



Impairment of financial assets



The adoption of IFRS 9 has fundamentally
changed the Company's accounting of impairment losses for financial assets by replacing IAS 39's incurred loss approach with a
forward-looking expected credit loss approach. There were no impairment losses recognized in these consolidated financial statements
as a result of the adoption of IFRS 9 as at the date of initial application.



| | 5. | NEW ACCOUNTING PRONOUNCEMENTS, ISSUED BUT NOT YET ADOPTED
| | -- | ---------------------------------------------------------



IFRS 16, Leases – replaces the guidance
in IAS 17 Leases and establishes principles for the recognition, measurement, presentation and disclosure of leases, with
the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions.



IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019. The Company has completed
an assessment of the impact on its consolidated financial statements. Based on this assessment, the Company expects to recognize
right of use assets and associated lease liabilities. The Company will be applying IFRS 16 retrospectively, with the cumulative
effect of initially applying the Standard recognised at the date of initial application (January 1, 2019) as an adjustment to the
opening balance of retained earnings, which is expected to be immaterial.



| | 6. | ACQUISITIONS
| | -- | ------------



Avalite



The following investments made by the Company during the years ended December 31, 2018 and 2017 resulted
in the Company’s 100% ownership of Avalite through step acquisition. On August 14, 2018, the Company increased its ownership
in Avalite to 100% by purchasing the remaining shares of Avalite held by Abattis Bioceuticals Corp (“Abattis”) for
$2 million consideration and issuing 1,093,938 Common Shares valued at $4 million. Previously, the Company had increased its original
53% ownership of Avalite (acquired on November 17, 2017) to 65% by way of additional shares purchased from treasury on May 15,
2018 for $2,750,000 cash.



If Avalite’s sales exceed
$10 million within thirty-six months ended August 9, 2021, from the sale of products or services introduced to Avalite by Abattis,
the Company will issue additional Common Shares with a deemed value of $4 million.



20







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



If the Company had increased its
interest at the beginning of the year there would have been no change to revenue or net loss as Avalite is a consolidated subsidiary.
The net loss attributable to the Company would have increased by $406,515 and the net loss attributable to the non-controlling
interest would have decreased by $406,515.



The increase in the Company’s
ownership interest was accounted for as an equity transaction.



Upon the initial acquisition of
53% ownership, the non-controlling interest was measured by proportionate share in the recognized amounts of the identifiable net
assets. The change in non-controlling interest at the time of the May 15, 2018 transaction and the acquisition of the non-controlling
interest at the time of the August 14, 2018 transaction were also measured by the proportionate share of net identifiable assets
method.



Acquisition of Non-Controlling Interest:



|                                                                        |  | $ |           
|----------------------------------------------------------------------- |  | - | ----------
|Initial amount at acquisition, November 17, 2017                        |  |   | 2,066,826 
|Loss attributed as at December 31, 2017                                 |  |   | (109,992  
|Non controlling interest of 47% as at December 31, 2017                 |  |   | 1,956,834 
|                                                                        |  |   |           
|Loss attributed January 1, 2018 to May 15, 2018                         |  |   | (232,342  
|Increase due to issuance of shares from treasury for cash consideration |  |   | 1,292,500 
|12% reduction of non-controlling interest                               |  |   | (770,296  
|Non-controlling interest of 35% as at May 16, 2018                      |  |   | 2,246,696 
|                                                                        |  |   |           
|Loss attributed May 16, 2018 to August 14, 2018                         |  |   | (174,175  
|Non-controlling interest of 35% as at August 14, 2018                   |  |   | 2,072,521 
|                                                                        |  |   |           
|35% reduction of non-controlling interest                               |  |   | (2,072,521
|Nil non-controlling interest as at December 31, 2018                    |  |   | -         



Nominal transaction
costs of $8,683 were expensed during the year ended December 31, 2018 (December 31, 2017 – $64,197).



Verdélite



On May 2, 2018, the Company acquired
100% of the issued and outstanding shares of Verdélite and the shareholder
loans payable by Verdélite, for total consideration of $90 million, payable
50% in cash and 50% in Common Shares (the “Purchase Price”). The Company paid $22.5 million in cash upon closing and
$45 million was satisfied by the issuance of 9,911,894 Common Shares of which 4,955,947 Common Shares will be held in escrow until
May 1, 2019 pursuant to an escrow agreement (Note 18). The remaining $22.3 million (adjusted for working capital) in cash is payable
on May 1, 2019.



Verdélite
is a Licensed Producer under the Cannabis Act.



Management has determined that
on the date of acquisition, Verdélite did not have significant processes or
outputs, therefore Verdélite does not meet the definition of a business under
IFRS 3 Business Combinations. As a result, the transaction was accounted for as an asset acquisition.



21







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



The total purchase price of the
acquisition and the fair value of the net assets acquired of Verdélite are
disclosed below:



|                                                                             |  | $ |           
|---------------------------------------------------------------------------- |  | - | ----------
|Cash                                                                         |  |   | 22,500,000
|Deferred payment, present value of final $22.5 million cash payable May 2019 |  |   | 22,009,404
|Portion specified as purchase of shareholder loans                           |  |   | (3,933,591
|9,911,894 Common Shares                                                      |  |   | 45,000,000
|Transaction costs                                                            |  |   | 153,967   
|Total purchase price                                                         |  |   | 85,729,780



|                                         |  |  | $          |  
|---------------------------------------- |  |  | ---------- | -
|Cash                                     |  |  | 19,906     |  
|Amounts receivable                       |  |  | 100,304    |  
|Prepaid expenses                         |  |  | -          |  
|Property and equipment                   |  |  | 6,311,123  |  
|Intangible assets                        |  |  | 86,103,549 |  
|Total assets                             |  |  | 92,534,882 |  
|                                         |  |  |            |  
|Accounts payable and accrued liabilities |  |  | (285,067   | )
|Current portion of long-term debt        |  |  | (2,586,444 | )
|Shareholder loans                        |  |  | (3,933,591 | )
|Total liabilities                        |  |  | (6,805,102 | )
|                                         |  |  |            |  
|Net assets acquired                      |  |  | 85,729,780 |  



On February 21, 2018, Verdéliteand its former shareholders entered into a non-binding
letter of intent (“LOI”) with Pivot Pharmaceuticals Inc. (“Pivot”) for the potential sale of Verdélite.
The parties were unable to agree to final terms and the LOI was terminated. On April 24, 2018 Verdélite
was served a statement of claim (the “Claim”) from Pivot which alleges that Verdélite
and its former shareholders failed to negotiate in good faith. Pivot is seeking damages of $72.4 million. Subsequent to December
31, 2018, the Claim was settled without any payment or compensation made from Verdélite
to Pivot (see Note 27).



22







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | 7. | ACCOUNTS RECEIVABLE
| | -- | -------------------



The Company’s accounts receivable
is comprised of:



|                                         |  | December 31 |           |  | December 31 | 
|---------------------------------------- |  | ----------- | --------- |  | ----------- | 
|                                         |  | 2018        |           |  | 2017        | 
|                                         |  |             | $         |  |             | 
|Goods and services tax refund receivable |  |             | 2,519,789 |  |             | 
|Trade receivables                        |  |             | 801,756   |  |             | 
|Other receivables                        |  |             | 257,726   |  |             | 
|                                         |  |             |           |  |             | 
|                                         |  |             | 3,579,271 |  |             | 



Accounts receivable are neither
impaired nor past due.



| | 8. | BIOLOGICAL ASSETS
| | -- | -----------------



The Company’s biological assets
consist of cannabis seeds and cannabis plants. Changes in the Company’s biological assets are as follows:



|                                                                |  | December 31 |            |   | December 31 | 
|--------------------------------------------------------------- |  | ----------- | ---------- | - | ----------- | 
|                                                                |  | 2018        |            |   | 2017        | 
|                                                                |  | $           |            |   | $           | 
|Carrying amount, beginning of year                              |  |             | 114,559    |   |             | 
|Costs incurred until harvest                                    |  |             | -          |   |             | 
|Effect of unrealized changes in fair value of biological assets |  |             | 2,818,442  |   |             | 
|Biological assets purchased                                     |  |             | 3,841      |   |             | 
|Biological assets sold                                          |  |             | (133,680   | ) |             | 
|Transferred to inventory upon harvest                           |  |             | (1,714,634 | ) |             | 
|Carrying amount, end of year                                    |  |             | 1,088,528  |   |             | 



As at December 31, 2018, included in the carrying amount of biological assets is $28,570 (December 31,
2017 - $25,113) in seeds and $1,059,958 (December 31, 2017 - $89,446) in live plants.



The following inputs and assumptions
are categorized within Level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which
could significantly effect the fair value of the biological assets in future periods:



| | · | plant waste – wastage of plants based on various stages of growth;
| | - | ------------------------------------------------------------------

| | · | yield per plant – represents the weighted average grams of dry cannabis expected to be harvested
from a cannabis plant, based on historical yields;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------

| | · | selling price, less costs to sell – based on estimated selling price per gram of dry cannabis
based on historical sales and expected sales;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------



23







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | · | percentage of costs incurred to date compared to the total costs to be incurred (to estimate the
fair value of an in-process plant) – represents estimated costs to bring a gram of cannabis from propagation to harvest;
and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | stage of plant growth – represents the weighted average age in of the plant out of the average
growing cycle as at period end date.
| | - | -----------------------------------------------------------------------------------------------------------------------------------



As at December 31, 2018, on average, the biological assets were 39% complete as to the next expected harvest
date, compared to a 6160% average stage of completion as at December 31, 2017. The average number of days from the point of propagation
to harvest is 108 days.



Biological assets are classified as Level 3 on the fair value hierarchy. Significant unobservable inputs
used to fair value biological assets include the Company’s estimate of the yield of cannabis per plant as well as the average
selling price per gram less cost to sell. A 5% increase or decrease in the estimated yield of cannabis per plant would result in
an increase or decrease in the fair value of biological assets of $52,876232 at December 31, 2018 (December 31, 2017 - $4,472).
A 5% increase or decrease in the average selling price per gram less cost to sell would result in an increase or decrease in the
fair value of the biological assets of $59,579 at December 31, 2018 (December 31, 2017 - $10,328).



| | 9. | INVENTORY
| | -- | ---------



The Company’s inventory is
comprised of:



|                         |  | December 31 |           |  | December 31 | 
|------------------------ |  | ----------- | --------- |  | ----------- | 
|                         |  | 2018        |           |  | 2017        | 
|                         |  | $           |           |  | $           | 
|Dried cannabis           |  |             | 5,778,176 |  |             | 
|Cannabis oils            |  |             | 337,314   |  |             | 
|Goods for resale         |  |             | 1,498     |  |             | 
|Supplies and consumables |  |             | 655,537   |  |             | 
|                         |  |             | 6,772,525 |  |             | 



Inventory expensed and included in cost of sales during the year ended December 31, 2018 was $3,575,132
(December 31, 2017 – $637,751). The fair value change in biological assets included in cost of goods sold during the year
ended December 31, 2018 was $158,676 (December 31, 2017 – $163,754).



24







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | 10. | PLANT AND EQUIPMENT
| | --- | -------------------



|                               |  |                            |         |      |         |  |            |  |            |             |           |  | Production, Lab |  |           |           |           |  |           |  |         |       |        
|------------------------------ |  | -------------------------- | ------- | ---- | ------- |  | ---------- |  | ---------- | ----------- | --------- |  | --------------- |  | --------- | --------- | --------- |  | --------- |  | ------- | ----- | -------
|                               |  |                            |         |      |         |  |            |  |            | Leasehold   |           |  | and Growing     |  |           |           |           |  | Other     |  |         |       |        
|                               |  |                            |         | Land |         |  | Buildings  |  |            | Improvement |           |  | Equipment       |  |           | Computers |           |  | Equipment |  |         | Total |        
|                               |  |                            |         | $    |         |  | $          |  |            | $           |           |  | $               |  |           | $         |           |  | $         |  |         | $     |        
|Costs:                         |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|                               |  | Balance, December 31, 2016 |         |      | -       |  |            |  | -          |             |           |  | 184,929         |  |           |           | 455,779   |  |           |  | 41,522  |       |        
|                               |  | Additions                  |         |      | -       |  |            |  | -          |             |           |  | 59,242          |  |           |           | 299,675   |  |           |  | 16,359  |       |        
|                               |  | Acquired Through Avalite   |         |      | -       |  |            |  | -          |             |           |  | 30,300          |  |           |           | 237,271   |  |           |  | -       |       |        
|                               |  | Disposals                  |         |      | -       |  |            |  | -          |             |           |  | -               |  |           |           | -         |  |           |  | -       |       |        
|                               |  |                            |         |      |         |  |            |  | -          |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|                               |  | Balance, December 31, 2017 |         |      | -       |  |            |  | -          |             |           |  | 274,471         |  |           |           | 992,725   |  |           |  | 57,881  |       |        
|                               |  | Additions                  |         |      | -       |  |            |  | 6,747,648  |             |           |  | 1,407,177       |  |           |           | 1,457,537 |  |           |  | 138,641 |       |        
|                               |  | Acquired Through Verdelite |         |      | 476,041 |  |            |  | 5,265,894  |             |           |  | -               |  |           |           | 237,793   |  |           |  | 73,642  |       |        
|                               |  | Disposals                  |         |      | -       |  |            |  | -          |             |           |  | -               |  |           |           | -         |  |           |  | -       |       |        
|Balance,
    December 31, 2018 |  |                            | 476,041 |      |         |  | 12,013,542 |  |            |             | 1,681,648 |  |                 |  | 2,688,055 |           |           |  | 270,164   |  |         |       | 861,073
|                               |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|Accumulated Depreciation:      |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|                               |  | Balance, December 31, 2016 |         |      | -       |  |            |  | -          |             |           |  | 46,004          |  |           |           | 96,951    |  |           |  | 4,522   |       |        
|                               |  | Additions                  |         |      | -       |  |            |  |            |             |           |  | 33,605          |  |           |           | 113,702   |  |           |  | 4,480   |       |        
|                               |  | Disposals                  |         |      | -       |  |            |  | -          |             |           |  | -               |  |           |           | -         |  |           |  | -       |       |        
|                               |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|                               |  | Balance, December 31, 2017 |         |      | -       |  |            |  | -          |             |           |  | 79,609          |  |           |           | 210,653   |  |           |  | 9,002   |       |        
|                               |  | Additions                  |         |      | -       |  |            |  | 153,563    |             |           |  | 75,074          |  |           |           | 336,932   |  |           |  | 67,524  |       |        
|                               |  | Disposals                  |         |      | -       |  |            |  | -          |             |           |  | -               |  |           |           | -         |  |           |  | -       |       |        
|Balance,
    December 31, 2018 |  |                            | -       |      |         |  | 153,563    |  |            |             | 154,683   |  |                 |  | 547,585   |           |           |  | 76,526    |  |         |       | 92,177 
|                               |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|Carrying value:                |  |                            |         |      |         |  |            |  |            |             |           |  |                 |  |           |           |           |  |           |  |         |       |        
|                               |  | December 31, 2018          |         |      | 476,041 |  |            |  | 11,859,979 |             |           |  | 1,526,965       |  |           |           | 2,140,470 |  |           |  | 193,638 |       |        
|                               |  | December 31, 2017          |         |      | -       |  |            |  | -          |             |           |  | 194,862         |  |           |           | 782,072   |  |           |  | 48,879  |       |        



| | 11. | PLANT UNDER CONSTRUCTION
| | --- | ------------------------



During 2017,
site preparation began on the Company’s new self-constructed plant located in Metro Vancouver, British Columbia. As at December
31, 2018, $10,310,229 (December 31, 2017 - $2,772,051) of expenditures were capitalized. Construction on the new asset is expected
to continue throughout 2019, at the time the asset is ready for its intended use depreciation will commence.



| | 12. | DEPOSITS ON MATERIALS AND EQUPMENT
| | --- | ----------------------------------



During the year ended December
31, 2018, the Company prepaid for intangible assets, grow equipment, extraction equipment, packaging equipment and construction
that totalled $981,832 (December 31, 2017 - $Nil).



25









|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | 13. | INTANGIBLE ASSETS
| | --- | -----------------



The Company’s intangible
assets continuity is as follows:



|                           |  |         |         |  | Health Canada |  |            | Computer |  |  |         | 
|-------------------------- |  | ------- | ------- |  | ------------- |  | ---------- | -------- |  |  | ------- | 
|                           |  | Patents |         |  | License       |  |            | Software |  |  | Total   | 
|                           |  | $       |         |  | $             |  |            | $        |  |  | $       | 
|Cost:                      |  |         |         |  |               |  |            |          |  |  |         | 
|Balance, December 31, 2016 |  |         | -       |  |               |  | -          |          |  |  | 62,135  | 
|Acquired Through Avalite   |  |         | -       |  |               |  | 2,922,096  |          |  |  | -       | 
|                           |  |         |         |  |               |  |            |          |  |  |         | 
|Balance, December 31, 2017 |  |         | -       |  |               |  | 2,922,096  |          |  |  | 62,135  | 
|Acquired Through Verdelite |  |         | -       |  |               |  | 86,103,549 |          |  |  | -       | 
|Additions                  |  |         | 368,531 |  |               |  | -          |          |  |  | 133,032 | 
|Balance, December 31, 2018 |  |         | 368,531 |  |               |  | 89,025,645 |          |  |  | 195,167 | 
|                           |  |         |         |  |               |  |            |          |  |  |         | 
|                           |  |         |         |  | Health Canada |  |            | Computer |  |  |         | 
|                           |  | Patents |         |  | License       |  |            | Software |  |  | Total   | 
|                           |  | $       |         |  | $             |  |            | $        |  |  | $       | 
|Accumulated amortization:  |  |         |         |  |               |  |            |          |  |  |         | 
|Balance, December 31, 2016 |  |         | -       |  |               |  | -          |          |  |  | 16,717  | 
|Additions                  |  |         | -       |  |               |  | 87,446     |          |  |  | 28,213  | 
|                           |  |         |         |  |               |  |            |          |  |  |         | 
|Balance, December 31, 2017 |  |         | -       |  |               |  | 87,446     |          |  |  | 44,930  | 
|Additions                  |  |         | -       |  |               |  | 2,829,015  |          |  |  | 15,316  | 
|Balance, December 31, 2018 |  |         | -       |  |               |  | 2,916,461  |          |  |  | 60,246  | 
|                           |  |         |         |  |               |  |            |          |  |  |         | 
|                           |  |         |         |  | Health Canada |  |            | Computer |  |  |         | 
|                           |  | Patents |         |  | License       |  |            | Software |  |  | Total   | 
|                           |  | $       |         |  | $             |  |            | $        |  |  | $       | 
|Net book value:            |  |         |         |  |               |  |            |          |  |  |         | 
|December 31, 2018          |  |         | 368,531 |  |               |  | 86,109,184 |          |  |  | 134,921 | 
|December 31, 2017          |  |         | -       |  |               |  | 2,834,650  |          |  |  | 17,205  | 



| | 14. | LONG-TERM INVESTMENTS
| | --- | ---------------------



On November 27, 2017, the Company
purchased 1,666,667 units of Avricore Health Inc. (“Avricore”, formerly VANC Pharmaceuticals Inc.), a related party,
pursuant to a subscription agreement dated November 7, 2017. Each unit entitled the holder to 1,666,667 common shares and 1,666,667
common share purchase warrants. The common shares of Avricore are traded on the TSX Alpha Exchange under the symbol “AVCR.”



Each warrant entitles the holder
to purchase one common share at the price of $0.20 per share. The warrants expire November 27, 2022, or earlier if the accelerated
exercise provision is enacted. If the closing sales price trades at $0.25 or higher for 10 consecutive trading days, and Avricore,
within 5 days of such event, provides notice by way of news release to the holders of the warrants of the early expiry of the warrants,
then the warrants shall expire 30 days from the date of notice. As at December 31, 2018, no notice has been issued.



26







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



|                                |  | Fair value   |         |  |            |  |          | Fair value   | 
|------------------------------- |  | ------------ | ------- |  | ---------- |  | -------- | ------------ | 
|                                |  | December 31, |         |  | Change in  |  |          | December 31, | 
|                                |  | 2017         |         |  | fair value |  |          | 2018         | 
|                                |  | $            |         |  | $          |  |          | $            | 
|Level 1 on fair value hierarchy |  |              |         |  |            |  |          |              | 
|Avricore - shares               |  |              | 500,000 |  |            |  | (333,333 | )            | 
|                                |  |              |         |  |            |  |          |              | 
|Level 2 on fair value hierarchy |  |              |         |  |            |  |          |              | 
|Avricore - warrants             |  |              | 166,667 |  |            |  | (50,826  | )            | 
|                                |  |              |         |  |            |  |          |              | 
|                                |  |              | 666,667 |  |            |  | (384,159 | )            | 



The fair value of the warrants was calculated using the Black-Scholes option-pricing model with the following
assumptions: expected life of 3.9 years, risk free interest rate of 1.86%, expected annualized volatility of 121.98% and Nil expected
dividend yield. The fair value was determined to be $0.07. The share price used for fair value as at December 31, 2018 was $0.10
(December 31, 2017 - $0.30).



| | 15. | INVESTMENT IN JOINT VENTURE
| | --- | ---------------------------



The Company has contributed $20
million in cash to the joint venture as at December 31, 2018. As at December 31, 2018, the amount payable to Pure Sunfarms was
$Nil (December 31, 2017 - $4,000,000).



On July 5, 2018, the Company and
Village Farms International, Inc. (together, the “Shareholders”) entered into a Shareholder Loan Agreement, subsequently
amended August 24, 2018 (the “Loan Agreement”) with Pure Sunfarms, whereby, as at December 31, 2018, the Shareholders
had each contributed $13,000,000 in the form of a demand loan to Pure Sunfarms. The loan amounts will initially bear simple interest
at the rate of 6.2% per annum, calculated annually. Interest will accrue and be payable upon demand being made by both Shareholders.



Profits and losses resulting from
upstream and downstream transactions between the Company and its associate are recognized in the Financial Statements only to the
extent of unrelated investor's interests in the associates. Unrealized gains arising from transactions with the associate are eliminated.
Unrealized losses resulting from similar transactions to unrealized gains are also eliminated, but only to the extent that there
is no evidence of impairment.



27







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



The Company’s investment
in Pure Sunfarms is as follows:



|                             |  | $ |           
|---------------------------- |  | - | ----------
|Balance at January 1, 2017   |  |   | -         
|Investment in Joint Venture  |  |   | 20,000,000
|Transaction costs            |  |   | 229,639   
|Share of loss                |  |   | (322,578  
|Balance at December 31, 2017 |  |   | 19,907,061
|Share of income              |  |   | 5,753,782 
|Balance at December 31, 2018 |  |   | 25,660,843



Summarized financial information
for Pure Sunfarms is set out below:



|                                                  |  | December 31 |            |  | December 31 | 
|------------------------------------------------- |  | ----------- | ---------- |  | ----------- | 
|                                                  |  | 2018        |            |  | 2017        | 
|                                                  |  | $           |            |  | $           | 
|Non-current assets                                |  |             | 67,263,020 |  |             | 
|Current assets (a)                                |  |             | 20,414,439 |  |             | 
|Total assets                                      |  |             | 87,677,459 |  |             | 
|                                                  |  |             |            |  |             | 
|Non-current liabilities                           |  |             | 2,688,273  |  |             | 
|Current liabilities                               |  |             | 39,465,718 |  |             | 
|Total liabilities                                 |  |             | 42,153,991 |  |             | 
|                                                  |  |             |            |  |             | 
|(a) includes cash and cash equivalents            |  |             | 2,361,948  |  |             | 
|                                                  |  |             |            |  |             | 
|Revenue (loss)                                    |  |             | 4,916,607  |  |             | 
|                                                  |  |             |            |  |             | 
|Income (loss) and comprehensive income (loss) (b) |  |             | 6,168,624  |  |             | 
|                                                  |  |             |            |  |             | 
|(b) includes income tax recovery                  |  |             | -          |  |             | 



A reconciliation of the summarized
financial information to the carrying amount of the investment in Pure Sunfarms is set out below:



28







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



|                                                         |  | December 31 |            |   | December 31 | 
|-------------------------------------------------------- |  | ----------- | ---------- | - | ----------- | 
|                                                         |  | 2018        |            |   | 2017        | 
|                                                         |  | $           |            |   | $           | 
|Total net assets of Pure Sunfarms                        |  |             | 45,523,468 |   |             | 
|                                                         |  |             |            |   |             | 
|50% ownership interest held by the Company               |  |             | 22,761,734 |   |             | 
|50% fair value adjustment on changes in biological asset |  |             | 3,964,389  |   |             | 
|Elimination of transactions with the Company             |  |             | (1,294,919 | ) |             | 
|Transaction costs                                        |  |             | 229,639    |   |             | 
|Carrying amount of the investment                        |  |             | 25,660,843 |   |             | 



To date, Pure Sunfarms has not
issued dividends. As a privately held company, there are no quoted market prices available for the shares of Pure Sunfarms.



| | 16. | LONG-TERM DEBT
| | --- | --------------



|                                                                           |  |               |  | December 31 |            |   | December 31 | 
|-------------------------------------------------------------------------- |  | ------------- |  | ----------- | ---------- | - | ----------- | 
|                                                                           |  | Maturity Date |  | 2018        |            |   | 2017        | 
|                                                                           |  |               |  | $           |            |   | $           | 
|National Bank of Canada mortgage variable interest of bank rate plus 0.65% |  | February 2019 |  |             | 2,503,064  |   |             | 
|                                                                           |  |               |  |             |            |   |             | 
|Less: current portion                                                      |  |               |  |             | (2,503,064 | ) |             | 
|                                                                           |  |               |  |             |            |   |             | 
|Long-term portion                                                          |  |               |  |             | -          |   |             | 



The
mortgage held by National Bank of Canada, has an amortization period of twenty years, is payable monthly in the amount of $11,444
plus interest, and is secured by the property held by Verdélite Property Holdings
Inc.



During
the year ended December 31, 2018, the Company paid $86,490 (December 31, 2017 – $Nil) in interest on mortgage.



| | 17. | RELATED PARTY TRANSACTIONS
| | --- | --------------------------



With Emerald Health Sciences
Inc.



Emerald Health Sciences Inc. (“Sciences”)
charged the Company $4,200,000 during the year ended December 31, 2018 (December 31, 2017 - $1,871,521) for services related to
financing, business development, investor relations and acquisition activities, in accordance with the amended management agreement.
Sciences charged the Company $134,676 during the year ended December 31, 2018 (December 31, 2017 - $303,099) for invoices paid
on behalf of the Company. As of December 31, 2018, the Company owed $502,194 (December 31, 2017 - $125,486) to Sciences, this amount
is included in the due to related parties caption on the consolidated statements of financial position and is non-interest bearing.
As of December 31, 2018, Sciences owed the Company $31,421 (December 31, 2017 – $3,161) for invoices paid on behalf of Sciences,
this amount is included in the due from related parties caption on the consolidated statements of financial position.



29







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



During the year ended December
31, 2018, Sciences exercised 4,077,687 warrants at a price of $0.27 per warrant for total gross proceeds to the Company of $1,100,975.



As of December 31, 2018, Sciences
held an aggregate of 43,234,242 shares, representing 31% (December 31, 2017 – 45,156,555 shares, representing 42%) of the
issued and outstanding Common Shares and it held 4,411,764 (December 31, 2017 – 8,489,451) common share purchase warrants
of the Company.



With the Company’s joint
venture



As of December 31, 2018, Pure Sunfarms owes the Company $1,942,329 (December 31, 2017 - $324,674) for
expenditures made on behalf of the joint venture. As of December 31, 2018, the Company owes to Pure Sunfarms $1,287,082 (December
31, 2017 - $Nil) for inventory, that was paid subsequent to December 31, 2018. These amounts are included in the respective due
to and due from related parties captions on the consolidated statements of financial position, and are non-interest bearing. The
Company also contributed $13,000,000 in the form of an on-demand loan as described in Note 15.



With a company controlled by
the Company’s Executive Chairman



During the year ended December 31, 2017, the Company entered into a 30-year lease with a company (the
“Landlord”) that is controlled by Avtar Dhillon, MD, the Executive Chairman of the Company with respect to land in
Metro Vancouver, British Columbia on which the Company is constructing its new production facility. During the year ended December
31, 2018, the Company paid to the Landlord $340,562 (December 31, 2017 - $86,471) in rent, $48,168 (December 31, 2017 - $Nil) for
building permits, $40,699 (December 31, 2017 - $Nil) for invoices paid on behalf of the Company and a $60,000 (December 31, 2017
- $Nil) damage deposit. The Landlord also charged the Company $108,855 during the year ended December 31, 2018 (December 31, 2017
- $144,979) for services related to construction of the Company’s new facility. As of December 31, 2018, the Company owed
$502 (December 31, 2017 - $77,244) to the Landlord, this amount is included in the due to related parties caption on the consolidated
statements of financial position and is non-interest bearing.



With a company whose CEO is also
a director of the Company



The Company holds 1,666,667 common
shares and 1,666,667 common share purchase warrants of Avricore as described in Note 14.



Remuneration
of directors and key management of the Company



The remuneration awarded to directors
and to senior key management including the Executive Chairman, the President, the Chief Executive Officer, the Chief Financial
Officer and the Executive Vice President Sales, includes the following expenses recognized during the period:



30







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



|                               |  | For the year      |           |  | For the year      | 
|------------------------------ |  | ----------------- | --------- |  | ----------------- | 
|                               |  | ended             |           |  | ended             | 
|                               |  | December 31, 2018 |           |  | December 31, 2017 | 
|                               |  | $                 |           |  | $                 | 
|Wage and short-term benefits   |  |                   | 973,318   |  |                   | 
|Share-based payments (Note 17) |  |                   | 4,102,295 |  |                   | 
|                               |  |                   | 5,075,613 |  |                   | 



Included in the due to related
parties caption on the consolidated statements of financial position at December 31, 2018 is $16,614 (December 31, 2017 - $44,775)
due to related parties with respect to key management personnel and expense reimbursements and are non-interest bearing.



In the event that senior key management
employment agreements are terminated by the Company, other than for just cause, such officers are entitled to a minimum severance
amount equal to six months of salary.



These transactions are in the normal
course of the operations on normal commercial terms and conditions.



| | 18. | SHARE CAPITAL
| | --- | -------------



Authorized



| | · | Unlimited number of Common Shares without par value
| | - | ---------------------------------------------------

| | · | Unlimited number of preferred shares without par value, issuable in series
| | - | --------------------------------------------------------------------------



Issued



| | · | 141,443,116 Common Shares (December 31, 2017 – 106,787,226)
| | - | -----------------------------------------------------------

| | · | Nil preferred shares (December 31, 2017 - Nil)
| | - | ----------------------------------------------



During the year ended December 31, 2018 the outstanding share
capital increased by 34,655,890 Common Shares due to the following transactions:



| | · | A prospectus offering (the “January 2018 Offering”) completed January 8, 2018, for
3,000,000 units of the Company at a price of $5.00 per unit, for gross proceeds of $15,000,000. Each unit consisted of one Common
Share and one common share purchase warrant of the Company, with each warrant entitling the holder to acquire an additional Common
Share at an exercise price of $6.00 for a period of 36 months from the closing date;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A prospectus offering completed February 14, 2018, for 3,000,000 units of the Company at a price
of $6.00 per unit, for gross proceeds of $18,000,000. Each unit consisted of one Common Share and one common share purchase warrant
of the Company, with each warrant entitling the holder to acquire an additional Common Share at an exercise price of $7.00 for
a period of 6 months from the closing date. The warrants expired, unexercised on August 13, 2018;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | · | A prospectus offering completed May 22, 2018, for 4,000,000 units of the Company at a price of
$4.20 per unit, for gross proceeds of $16,800,000. Each unit consisted of one Common Share and one common share purchase warrant
of the Company, with each warrant entitling the holder to acquire an additional Common Share at an exercise price of $5.20 for
a period of 18 months from the closing date;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A prospectus offering completed December 7, 2018, for 4,000,000 units of the Company at a price
of $2.70 per unit, for gross proceeds of $10,800,000. Each unit consisted of one Common Share;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Issued 9,911,894 shares for the acquisition of Verdélite
as described in Note 6;
| | - | --------------------------------------------------------------------------------

| | · | Issued 1,093,938 shares for the acquisition of Avalite as described in Note 6;
| | - | ------------------------------------------------------------------------------

| | · | A total of 4,077,687 warrants were exercised at an exercise price of $0.27 for gross proceeds of
$1,100,975;
| | - | ------------------------------------------------------------------------------------------------------------

| | · | A total of 443,350 warrants were exercised at an exercise price of $2.00 for gross proceeds of
$886,700;
| | - | --------------------------------------------------------------------------------------------------------

| | · | A total of 718,826 warrants were exercised at an exercise price of $2.60 for gross proceeds of
$1,868,948;
| | - | ----------------------------------------------------------------------------------------------------------

| | · | A total of 3,000,000 warrants were exercised at an exercise price of $6.00 for gross proceeds of
$18,000,000; and
| | - | -----------------------------------------------------------------------------------------------------------------

| | · | A total of 1,410,195 stock options were exercised ranging in exercise price from $0.03 to $4.25
for gross proceeds of $1,194,530.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



Escrowed
Common Shares



The shares issued as part of the purchase price of Verdélite
are subject to an Escrow Agreement. Under the agreement, 50% of the shares issued to the prior owners of Verdélite
remain in escrow until May 1, 2019. As at December 31, 2018, 4,955,947 Common Shares (December 31, 2017 – Nil) were held
in escrow.



Share
based payments



The Board of Directors has the
discretion to determine to whom options will be granted, the number and exercise price of such options and the terms and time frames
in which the options will vest and be exercisable. The exercise price of the options must be no less than the closing market price
of the Common Shares on the day preceding the grant.



32







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



|                             |  |                   |            |   | Weighted Average | 
|---------------------------- |  | ----------------- | ---------- | - | ---------------- | 
|                             |  | Number of Options |            |   | Exercise Price   | 
|                             |  |                   |            |   | $                | 
|Balance at December 31, 2016 |  |                   | 5,758,200  |   |                  | 
|Granted                      |  |                   | 5,905,000  |   |                  | 
|Forfeited                    |  |                   | (270,836   | ) |                  | 
|Exercised                    |  |                   | (1,531,250 | ) |                  | 
|Balance at December 31, 2017 |  |                   | 9,861,114  |   |                  | 
|Granted                      |  |                   | 2,811,000  |   |                  | 
|Forfeited                    |  |                   | (1,367,708 | ) |                  | 
|Exercised                    |  |                   | (1,410,195 | ) |                  | 
|Balance at December 31, 2018 |  |                   | 9,894,211  |   |                  | 



During the year ended December
31, 2018, the Company granted 2,811,000 stock options to employees and consultants. The stock options granted had exercise prices
between $2.49 and $6.68, have expiry dates of five years and vest over three years. The weighted average fair value of the stock
options granted was $2.77. The weighted average trading share price of the options exercised during the year ended December 31,
2018 was $4.73.



The fair values of the options
granted during the year ended December 31, 2018 and 2017 were determined on the date of the grant using the Black-Scholes option
pricing model with the following assumptions:



|                                                    |  | December 31 |              |   | December 31 |  
|--------------------------------------------------- |  | ----------- | ------------ | - | ----------- | -
|                                                    |  | 2018        |              |   | 2017        |  
|Risk free interest rate                             |  |             | 1.73% - 2.31 | % |             |  
|Expected life of options (years)                    |  |             | 2.85         |   |             |  
|Expected annualized volatility                      |  |             | 80%-121.16   | % |             |  
|Expected dividend yield                             |  |             | Nil          |   |             |  
|Weighted average Black-Scholes value of each option |  | $           | 2.77         |   |             | $



Volatility was determined by using
the historical volatility of the Company. The expected life in years represents the period of time that options granted are expected
to be outstanding. The risk-free rate is based on Canada government bonds with a remaining term equal to the expected life of the
options.



33







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Incentive stock options outstanding and exercisable at December
31, 2018 are summarized as follows:



|             |  | Outstanding |           |  | Exercisable  | 
|------------ |  | ----------- | --------- |  | ------------ | 
|             |  |             |           |  |              | 
|Range of     |  |             |           |  | Remaining    | 
|exercise     |  |             |           |  | contractual  | 
|prices       |  | Quantity    |           |  | life (years) | 
|$            |  |             |           |  |              | 
|0.175 - 0.43 |  |             | 761,673   |  |              | 
|0.44 - 0.50  |  |             | 1,500,000 |  |              | 
|0.51 - 0.94  |  |             | 1,399,934 |  |              | 
|0.95 - 1.25  |  |             | 1,019,445 |  |              | 
|1.26 - 1.49  |  |             | 415,284   |  |              | 
|1.50 - 3.40  |  |             | 1,485,625 |  |              | 
|3.41 - 4.23  |  |             | 281,000   |  |              | 
|4.24 - 4.25  |  |             | 2,186,250 |  |              | 
|4.26 - 5.44  |  |             | 452,500   |  |              | 
|5.45 - 6.68  |  |             | 392,500   |  |              | 
|             |  |             | 9,894,211 |  |              | 



The Company recorded share-based
compensation expense related to the incentive stock options of $5,545,379 for the year ended December 31, 2018 (December 31, 2017
– $2,716,400). The expense has been charged to the consolidated statements of loss and comprehensive loss.



Restricted
share units



The Board of Directors has the
discretion to determine to whom restricted share units (“RSUs”) will be granted, the number granted, and the terms
and time frames in which the RSUs will vest and be settled.



|                             |  |                |         |  | Weighted average | 
|---------------------------- |  | -------------- | ------- |  | ---------------- | 
|                             |  |                |         |  | fair value per   | 
|                             |  | Number of RSUs |         |  | unit at issue    | 
|                             |  |                |         |  | $                | 
|Balance at December 31, 2016 |  |                | -       |  |                  | 
|Granted                      |  |                | 825,000 |  |                  | 
|Balance at December 31, 2017 |  |                | 825,000 |  |                  | 
|Granted                      |  |                | 5,000   |  |                  | 
|Balance at December 31, 2018 |  |                | 830,000 |  |                  | 



34







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



During
the year ended December 31, 2018, the Company issued 5,000 RSUs to an employee, which vest on January 12, 2019 and settle in Common
Shares. The Company recorded share-based compensation expense related to the RSUs of $1,953,071 for the year ended December 31,
2018 (December 31, 2017 – $106,095) to the consolidated statement of loss and comprehensive loss.



| | 19. | WARRANTS
| | --- | --------



|                                           |  |           |             |   | Weighted       | 
|------------------------------------------ |  | --------- | ----------- | - | -------------- | 
|                                           |  | Number of |             |   | Average        | 
|                                           |  | Warrants  |             |   | Exercise Price | 
|                                           |  |           |             |   | $              | 
|Balance at December 31, 2016               |  |           | 8,489,451   |   |                | 
|Issued in February 2017                    |  |           | 5,117,500   |   |                | 
|Issued in April 2017                       |  |           | 7,572,750   |   |                | 
|Issued upon exercise of compensation units |  |           | 153,525     |   |                | 
|Issued upon exercise of compensation units |  |           | 219,526     |   |                | 
|Exercised                                  |  |           | (11,845,075 | ) |                | 
|Balance at December 31, 2017               |  |           | 9,707,677   |   |                | 
|                                           |  |           |             |   |                | 
|Issued in January 2018                     |  |           | 3,000,000   |   |                | 
|Issued in February 2018                    |  |           | 3,000,000   |   |                | 
|Issued in May 2018                         |  |           | 4,000,000   |   |                | 
|Exercised                                  |  |           | (8,239,863  | ) |                | 
|Expired                                    |  |           | (3,056,050  | ) |                | 
|Balance at December 31, 2018               |  |           | 8,411,764   |   |                | 
|                                           |  |           |             |   |                | 
|Expire:                                    |  |           |             |   |                | 
|November 2021                              |  |           | 4,411,764   |   |                | 
|November 2019                              |  |           | 4,000,000   |   |                | 
|Balance at December 31, 2018               |  |           | 8,411,764   |   |                | 



| | 20. | COMMITMENTS
| | --- | -----------



Operating
leases



The Company has entered into certain
operating lease commitments for land, office space and temporary housing through 2047. The future minimum lease payments for the
next five years and thereafter are as follows:



35







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



|                      |  | 2018 |         |  | 2019 |  |         | 2020 |  |  | 2021    |  |  | 2022 |         |  | 2023 |  |         | Thereafter | 
|--------------------- |  | ---- | ------- |  | ---- |  | ------- | ---- |  |  | ------- |  |  | ---- | ------- |  | ---- |  | ------- | ---------- | 
|                      |  | $    |         |  | $    |  |         | $    |  |  | $       |  |  | $    |         |  | $    |  |         | $          | 
|Production Facilities |  |      | 173,787 |  |      |  | 210,740 |      |  |  | 49,748  |  |  |      | -       |  |      |  | -       |            | 
|Equipment             |  |      | 21,600  |  |      |  | 21,600  |      |  |  | 19,800  |  |  |      | -       |  |      |  | -       |            | 
|Office Space          |  |      | 128,065 |  |      |  | 170,578 |      |  |  | 170,578 |  |  |      | 170,578 |  |      |  | 170,578 |            | 
|Temporary Housing     |  |      | 75,600  |  |      |  | 48,600  |      |  |  | -       |  |  |      | -       |  |      |  | -       |            | 
|Land                  |  |      | 320,000 |  |      |  | 320,000 |      |  |  | 320,000 |  |  |      | 320,000 |  |      |  | 320,000 |            | 
|Total                 |  |      | 719,052 |  |      |  | 771,518 |      |  |  | 560,126 |  |  |      | 490,578 |  |      |  | 490,578 |            | 



During the year ended December 31,
2017, the Company entered into agreements for the supply of material and labour to build greenhouses, with expected completion
in 2019.



| | 21. | FINANCIAL INSTRUMENTS
| | --- | ---------------------



The classification of the Company’s
financial instruments, as well as their carrying amounts and fair values, are as follows:



|                                         |  | December 31, 2018 |            |  | December 31, 2017 | 
|---------------------------------------- |  | ----------------- | ---------- |  | ----------------- | 
|                                         |  | Fair Value        |            |  | Carrying Value    | 
|                                         |  | $                 |            |  | $                 | 
|Financial Assets                         |  |                   |            |  |                   | 
|FVTPL                                    |  |                   |            |  |                   | 
|Long-term investment                     |  |                   | 282,508    |  |                   | 
|                                         |  |                   |            |  |                   | 
|Amortized cost                           |  |                   |            |  |                   | 
|Cash and cash equivalents                |  |                   | 36,042,090 |  |                   | 
|Accounts receivable                      |  |                   | 3,579,271  |  |                   | 
|Due from related parties                 |  |                   | 14,973,749 |  |                   | 
|Refundable deposits                      |  |                   | 2,196,391  |  |                   | 
|                                         |  |                   |            |  |                   | 
|Financial Liabilities                    |  |                   |            |  |                   | 
|Amortized cost                           |  |                   |            |  |                   | 
|Accounts payable and accrued liabilities |  |                   | 9,634,464  |  |                   | 
|Current portion of long-term debt        |  |                   | 2,503,064  |  |                   | 
|Deferred payment                         |  |                   | 22,226,565 |  |                   | 
|Payable to joint venture                 |  |                   | -          |  |                   | 
|Due to related parties                   |  |                   | 1,806,393  |  |                   | 



The carrying value of the cash
and cash equivalents, accounts receivable (excluding statutory receivable balances), due from related parties, refundable deposits,
accounts payable and accrued liabilities, current portion of long-term debt, deferred payment, payable to joint venture and amounts
due to related parties, approximate the fair value because of the short-term nature of these instruments.



36







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Fair value hierarchy – financial
instruments recorded at fair value at the statement of financial position dates are classified using the fair value hierarchy,
which reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:



Level 1 – Valuation based
on quoted prices unadjusted in active markets for identical assets or liabilities.



Level 2 – Valuation techniques
based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or
indirectly.



Level 3 – Valuation
techniques using inputs for the asset or liability that are not based on observable market data.



There have been no transfers between
fair value levels during the year.



The Company’s financial instruments
that are recorded at fair value are presented in the following table:



|                                       |  | Fair Value Measurement |         |  |         | 
|-------------------------------------- |  | ---------------------- | ------- |  | ------- | 
|                                       |  | Level 1                |         |  | Level 2 | 
|                                       |  | $                      |         |  | $       | 
|As at December 31, 2018                |  |                        |         |  |         | 
|                                       |  |                        |         |  |         | 
|Financial Assets Long-term investments |  |                        | 166,667 |  |         | 
|                                       |  |                        |         |  |         | 
|As at December 31, 2017                |  |                        |         |  |         | 
|                                       |  |                        |         |  |         | 
|Financial Assets Long-term investments |  |                        | 500,000 |  |         | 



The Company is exposed to varying
degrees to a variety of financial instrument related risks:



Currency risk



The Company’s functional
and presentation currency is the Canadian dollar and major purchases are transacted in Canadian dollars. As a result, the Company’s
exposure to foreign currency risk is minimal.



Credit risk



Credit risk is the risk of an unexpected loss to the Company if a customer or third-party to a financial
instrument fails to meet its contractual obligations. The Company’s maximum exposure to credit risk as at December 31, 2018
is the carrying value of its financial assets. The Company’s cash and redeemable short-term investment certificates are largely
held in large Canadian financial institutions. The Company does not have any asset backed commercial paper. The Company maintains
cash deposits with Schedule A financial institutions, which from time to time may exceed federally insured limits. With regards
to receivables, the Company is not exposed to significant credit risk as the Company’s sales are to government bodies or
are typically paid at the time of the transaction. The Company provides credit to some of its customers in the normal course of
business majority of the trade receivables held are with crown corporations of British Columbia.



37







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



Interest rate risk



Interest rate risk is the risk
the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Financial
assets and liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not hold
any financial liabilities with variable interest rates. The Company does maintain bank accounts and redeemable short-term investment
certificates which earn interest at variable rates, but it does not believe it is currently subject to any significant interest
rate risk.



Liquidity risk



Liquidity risk is the risk that the Company will not be able to meet its obligations associated with financial
liabilities. As at December 31, 2018, the Company had positive working capital of $27,612,457 (December 31, 2017 – positive
working capital of $40,510,006). The Company’s ability to continue as a going concern is dependent on management’s
ability to raise required funding through future equity issuances and through short term borrowing. The Company manages its liquidity
risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management and the Board
of Directors are actively involved in the review, planning and approval of significant expenditures and commitments.



| | 22. | CAPITAL MANAGEMENT
| | --- | ------------------



The
Company’s objective when managing its capital is to ensure sufficient equity financing to fund its planned operations in
a way that maximizes the shareholder return given the assumed risks of its operations. The Company considers shareholders’
equity as capital. Through the ongoing management of its capital, the Company will modify the structure of its capital based on
changing economic conditions. In doing so, the Company may issue new shares. Annual budgeting is the primary tool used to manage
the Company’s capital. Updates are made as necessary to both capital expenditure and operational budgets in order to adapt
to changes in risk factors, proposed expenditure programs and market conditions.



| | 23. | INCOME TAXES
| | --- | ------------



As
the Company has recorded a net loss for accounting and income tax purposes in both 2018 and 2017, no current income tax expense
has been recorded in these financial statements.



The income taxes shown in the Statements
of Loss and Comprehensive Loss differ from the amounts obtained by applying statutory rates to the loss before income taxes due
to the following:



38







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               





|                  |  | December 31, |    |   | December 31, | 
|----------------- |  | ------------ | -- | - | ------------ | 
|                  |  | 2018         |    |   | 2017         | 
|Statuory tax rate |  |              | 27 | % |              | 



|                                              |  |  | $           |   |  |  | $          |  
|--------------------------------------------- |  |  | ----------- | - |  |  | ---------- | -
|Loss for the year before income taxes         |  |  | (30,983,409 | ) |  |  | (8,841,824 | )
|Expected income tax recovery                  |  |  | (8,365,520  | ) |  |  | (2,298,874 | )
|Non-deductible items                          |  |  | 2,042,556   |   |  |  | 772,027    |  
|Tax impact of rate change                     |  |  | -           |   |  |  | (58,725    | )
|Changes in recognition of deferred tax assets |  |  | 6,322,964   |   |  |  | 1,585,572  |  
|Income tax expense                            |  |  | -           |   |  |  | -          |  





The statutory rate increased from
26% to 27% effective January 1, 2018.



Deferred taxes reflect the tax
effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes. Deferred
tax assets (liabilities) at December 31, 2018 and 2017 are comprised of the following:





|                                                     |  | December 31, |          |   | December 31, | 
|---------------------------------------------------- |  | ------------ | -------- | - | ------------ | 
|                                                     |  | 2018         |          |   | 2017         | 
|                                                     |  | $            |          |   | $            | 
|                                                     |  |              |          |   |              | 
|Deferred tax assets from:                            |  |              |          |   |              | 
|Non-capital loss carryforwards and tax pool balances |  |              | 506,263  |   |              | 
|Deferred tax liabilities from:                       |  |              |          |   |              | 
|Intangible assets                                    |  |              | (765,355 | ) |              | 
|Plant and Equipment                                  |  |              | (34,794  | ) |              | 
|Long term investments                                |  |              | -        |   |              | 
|                                                     |  |              | (800,149 | ) |              | 
|                                                     |  |              |          |   |              | 
|Deferred income tax liabilites, net                  |  |              | (293,886 | ) |              | 



|                                             |  | December 31, |            |  | December 31, | 
|-------------------------------------------- |  | ------------ | ---------- |  | ------------ | 
|                                             |  | 2018         |            |  | 2017         | 
|                                             |  | $            |            |  | $            | 
|                                             |  |              |            |  |              | 
|Non-capital loss carryforwards and tax pools |  |              | 42,692,305 |  |              | 
|Share issuance costs                         |  |              | 2,394,797  |  |              | 
|Long term investments                        |  |              | 192,080    |  |              | 
|Plant and equipment                          |  |              | -          |  |              | 
|                                             |  |              | 45,279,182 |  |              | 





Tax pool balances consist of Scientific
Research and Experimental Development qualified expenditures of $329,749 which may be carried forward indefinitely and deducted
against any Canadian business income.



39







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



The Company has non-capital losses carry forward of approximately $42.3 million at December 31, 2018 (December
31, 2017 $12.8 million) for which a deferred tax asset has not been recognized. These losses may be carried forward to apply against
future year income tax for Canadian income tax purposes, subject to the final determination by taxation authorities, expire as
follows:





|Expires |  | $ |           
|------- |  | - | ----------
|2034    |  |   | 1,098,363 
|2035    |  |   | 2,537,489 
|2036    |  |   | 2,122,188 
|2037    |  |   | 6,521,389 
|2038    |  |   | 30,069,704





40







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | 24. | SEGMENTED INFORMATION
| | --- | ---------------------



Segment reporting is prepared on the same basis that the Company’s President, who is the Company’s
CODM, manages the business, makes resource allocation decisions and assesses performance. The Company operates in one reportable
segment, being the production and sale of cannabis and in one geographical location, Canada.



|                                     |  | Operating |             |   | Other |  |             | Total | 
|------------------------------------ |  | --------- | ----------- | - | ----- |  | ----------- | ----- | 
|                                     |  | $         |             |   | $     |  |             | $     | 
|For the year ended December 31, 2018 |  |           |             |   |       |  |             |       | 
|Sales                                |  |           | 2,087,299   |   |       |  | 23,104      |       | 
|Interest revenue                     |  |           | 266,389     |   |       |  | 919,825     |       | 
|Loss from operations                 |  |           | (14,545,511 | ) |       |  | (22,798,745 | )     | 
|Net loss and comprehensive loss      |  |           | (8,819,226  | ) |       |  | (22,164,182 | )     | 
|Share of income from joint venture   |  |           | 5,753,782   |   |       |  | -           |       | 
|                                     |  |           |             |   |       |  |             |       | 
|For the year ended December 31, 2017 |  |           |             |   |       |  |             |       | 
|Sales                                |  |           | 929,464     |   |       |  | 8,190       |       | 
|Interest revenue                     |  |           | 65          |   |       |  | 161,453     |       | 
|Loss from operations                 |  |           | (2,749,660  | ) |       |  | (6,347,771  | )     | 
|Net loss and comprehensive loss      |  |           | (2,749,660  | ) |       |  | (6,092,164  | )     | 
|Share of loss from joint venture     |  |           | (322,578    | ) |       |  | -           |       | 



41







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               





| | 25. | SALES
| | --- | -----



A summary of the Company’s
sales by product line is provided in the table below:





|               |  | For the           |           |  | For the           | 
|-------------- |  | ----------------- | --------- |  | ----------------- | 
|               |  | year ended        |           |  | year ended        | 
|               |  | December 31, 2018 |           |  | December 31, 2017 | 
|Dried Cannabis |  |                   | 1,297,517 |  |                   | 
|Cannabis Oils  |  |                   | 771,533   |  |                   | 
|Other          |  |                   | 41,353    |  |                   | 
|Total          |  |                   | 2,110,403 |  |                   | 





During the year ended December
31, 2018, the Company earned approximately 35% of gross revenues from 2 major customers, one being a crown corporation (December
31, 2017 – $Nil).



42







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



| | 26. | GENERAL AND ADMINISTRATIVE EXPENSES
| | --- | -----------------------------------



|                                           |  | December 31, 2018 |            |  | December 31, 2017 | 
|------------------------------------------ |  | ----------------- | ---------- |  | ----------------- | 
|                                           |  | $                 |            |  | $                 | 
|Professional, director and consulting fees |  |                   | 7,287,630  |  |                   | 
|Investor relations and media               |  |                   | 2,377,219  |  |                   | 
|Wages and benefits                         |  |                   | 2,297,988  |  |                   | 
|Office and general                         |  |                   | 1,477,764  |  |                   | 
|Travel and accomodations                   |  |                   | 552,897    |  |                   | 
|Total general and administrative expenses  |  |                   | 13,993,498 |  |                   | 



| | 27. | EVENTS AFTER THE REPORTING PERIOD
| | --- | ---------------------------------



On January 10, 2019, the TSXV approved the Company’s agreement with Emerald Health Bioceuticals,
Inc. (“EHB”), any entity with common directors, to form Emerald Health Naturals (“EHN”). The Company will
invest $5,000,000 for 51% ownership of EHN and EHB will grant EHN the exclusive Canadian distribution rights to EHB’s product
line for 49% ownership of EHN.



On January
30, 2019, the Company announced that it had entered into a release, discharge and transaction agreement settling all claims made
by Pivot against Verdélite and its former shareholders. The claims relate to a non-binding letter of intent which Verdélite
and its former shareholders had previously entered into with Pivot with respect to a potential sale of Verdélite. Pursuant
to the settlement, all claims against Verdélite have been discharged without Verdélite making any payment or providing
any compensation to Pivot.



On February 13, 2019, the Company announced that Pure
Sunfarms had entered into a credit agreement with Bank of Montreal, as agent and lead lender, and Farm Credit Canada, as lender,
in respect of a $20 million secured non-revolving term loan (the "Credit Facility"). The Credit Facility, which
matures on February 7, 2022, is secured by the Delta 3 Facility, and contains customary financial and restrictive covenants. The
Company is not a party to the Credit Facility but has provided a limited guarantee in the amount of $10 million in connection with
the Credit Facility.



On March 13, 2019, the Company
filed a final short form base shelf prospectus (the “2019 Base Shelf Prospectus”) in, and was receipted by, each of
the provinces of Canada. The 2019 Base Shelf Prospectus qualified the issuance and secondary sale of up to $150,000,000 of Common
Shares, preferred shares, debt securities, warrants, units or subscription receipts of the Company or a combination thereof from
time to time, separately or together, in amounts, at prices and on terms to be determined based on market conditions at the time
of the offering and as set out in an accompanying prospectus supplement, during the 25-month period that the 2019 Base Shelf Prospectus
remains effective.



On March 27,
2019, the Company filed a prospectus supplement in connection with an at-the-market equity program (“ATM Program”)
that it established with GMP Securities L.P. (the “Agent”). In connection with the ATM Program, the Company entered
into an equity distribution agreement with the Agent. The ATM Program allows the Company to issue Common Shares from treasury having
an aggregate gross sales price of up to $39 million to the public from time to time, at the Company’s discretion, at the
prevailing market price when issued on the TSXV or on any other marketplace for the Common Shares in Canada. The ATM Program is
effective until the earlier of April 13, 2021 or completion of the sale of the maximum amount of shares thereunder. Sales of Common
Shares will be made through “at-the-market distributions” as defined in National Instrument 44-102 – Shelf
Distributions on the TSXV or on any other existing marketplace for the Common Shares in Canada. The Common Shares will be distributed
at the prevailing market prices at the time of the sale and, as a result, prices may vary among purchasers and during the period
of distribution.



43







|EMERALD HEALTH THERAPEUTICS, INC.             
|----------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS    
|For the years ended December 31, 2018 and 2017
|(Expressed in Canadian dollars)               



On April 1, 2019, the Company announced
that Pure Sunfarm had exercised its option to acquire from Village Farms International, Inc. (“Village Farms”) a second
1.1 million square foot (25 acre) greenhouse (“Delta 2”) adjacent to Pure Sunfarm’s existing 1.1 million square
foot cannabis operation (“Delta 3”) in Delta, BC. The Company has also entered into an agreement with Pure Sunfarms
to purchase 25% of its aggregate cannabis production from Delta 3 and Delta 2 in 2020, 2021 and 2022. In accordance with the terms
of the Pure Sunfarms joint venture agreement, Village Farms is contributing the Delta 2 facility to the joint venture and the Company
has committed to contribute an aggregate of $25 million in cash, of which $2.5 million was contributed at closing and the remainder
will be advanced in tranches as needed to cover initial construction costs. Conversion of the Delta 2 facility to cannabis production
is estimated to cost approximately $60 million, based on the conversion costs incurred for conversion of the Delta 3 facility.
Following the Company’s investment, the remainder of the conversion costs are expected to be funded by cash flow generated
by Pure Sunfarms.



Subsequent to the year end, the Company granted an aggregate of 5,383,000 options to purchase Common Shares,
to various employees and consultants, at an average exercise price of $4.10 per share. These options vest over three years and
expire after five years. The Company also issued an aggregate of 475,000 restricted share units to various employees and consultants,
that vest over two years.



44