# EDGAR Filing Document

**Accession Number:** 0000831609
**File Stem:** 0001062993-25-012045
**Filing Date:** 2025-6
**Character Count:** 855287
**Document Hash:** f1434c37410c07dbc265dadefbb5b800
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001062993-25-012045.hdr.sgml**: 20250623

**ACCESSION NUMBER**: 0001062993-25-012045

**CONFORMED SUBMISSION TYPE**: 20-F

**PUBLIC DOCUMENT COUNT**: 138

**CONFORMED PERIOD OF REPORT**: 20250331

**FILED AS OF DATE**: 20250623

**DATE AS OF CHANGE**: 20250623

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** C21 Investments Inc.
- **CENTRAL INDEX KEY:** 0000831609
- **STANDARD INDUSTRIAL CLASSIFICATION:** MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833]
- **ORGANIZATION NAME:** 03 Life Sciences
- **EIN:** 000000000
- **STATE OF INCORPORATION:** A1
- **FISCAL YEAR END:** 0331

**FILING VALUES:**
- **FORM TYPE:** 20-F
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-55982
- **FILM NUMBER:** 251065398

**BUSINESS ADDRESS:**
- **STREET 1:** SUITE 1900-855 WEST GEORGIA STREET
- **CITY:** VANCOUVER
- **STATE:** A1
- **ZIP:** V6C 3H4
- **BUSINESS PHONE:** 604-336-8613

**MAIL ADDRESS:**
- **STREET 1:** SUITE 1900-855 WEST GEORGIA STREET
- **CITY:** VANCOUVER
- **STATE:** A1
- **ZIP:** V6C 3H4

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** CURLEW LAKE RESOURCES INC
- **DATE OF NAME CHANGE:** 20121129

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** CURLEW LAKE RESOURCES INC                               /FI
- **DATE OF NAME CHANGE:** 19880409

?xml version='1.0' encoding='ASCII'? C21 Investments Inc.: Form 20-F - Filed by newsfilecorp.com

------

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

Washington, D.C. 20549

**FORM 20-F**

---

| | |
|:---|:---|
| &nbsp;&nbsp; **☐** | &nbsp;&nbsp;**REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| &nbsp;&nbsp;**OR** | &nbsp;&nbsp;**OR** |
| &nbsp;&nbsp; ☒ | &nbsp;&nbsp;**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| For fiscal year ended  **<u>March 31, 2025</u>** | For fiscal year ended  **<u>March 31, 2025</u>** |
| &nbsp;&nbsp;**OR** | &nbsp;&nbsp;**OR** |
| &nbsp;&nbsp; **☐** | &nbsp;&nbsp;**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| &nbsp;&nbsp;For the transition period from ____ to ______ | &nbsp;&nbsp;For the transition period from ____ to ______ |
| &nbsp;&nbsp;**OR** | &nbsp;&nbsp;**OR** |
| &nbsp;&nbsp; **☐** | &nbsp;&nbsp;**SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| &nbsp;&nbsp;Date of event requiring this shell company report: | &nbsp;&nbsp;Date of event requiring this shell company report: |

---

**Commission file number 000-55982**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **C21 Investments Inc.** 

(Exact name of Registrant as specified in its charter)

**British Columbia, Canada**

(Jurisdiction of incorporation or organization)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **19 <sup>th</sup>** **Floor, 885 West Georgia Street** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Vancouver, British Columbia V6E 3H4** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Canada** 

(Address of principal executive offices)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Michael Kidd** 

**C21 Investments Inc.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **19 <sup>th</sup>** **Floor, 885 West Georgia Street** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Vancouver, British Columbia V6E 3H4** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; **Canada** 

**Tel: 833-289-2994**

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

------

Securities registered pursuant to Section 12(b) of the Act: **<u>Not applicable.</u>**

Securities registered pursuant to Section 12(g) of the Act:  **<u>Common shares, no par value</u>**

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: <u>**None**</u>

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: <u>**As at March 31, 2025, 117,996,814 common shares of the Registrant were issued and outstanding.**</u>

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes **☐** No ☒

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes **☐** No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No **☐**

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Yes ☒ No **☐**

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer, "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | | | |
|:---|:---|:---|:---|
| &nbsp;&nbsp; Large accelerated filer **☐** | &nbsp;&nbsp; Accelerated filer **☐** | &nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Non-accelerated filer ☒  | &nbsp;&nbsp; Emerging growth company ☒ |

---

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. **☐** 

† The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. **☐** 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. [ ]

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

---

| | | | |
|:---|:---|:---|:---|
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board | **☐** | Other **☐** |

---

------

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17 **☐** Item 18 **☐**

If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes **☐** No ☒

------

**TABLE OF CONTENTS**

---

| | |
|:---|:---|
| [INTRODUCTION](#page_6) | [6](#page_6) |
| [CURRENCY](#page_6) | [6](#page_6) |
| [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](#page_6) | [6](#page_6) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 1. Identity of Directors, Senior Management and Advisers](#page_7) | [7](#page_7) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 2. Offer Statistics and Expected Timetable](#page_7) | [7](#page_7) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 3. Key Information](#page_7) | [7](#page_7) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 4. Information on the Company](#page_27) | [27](#page_27) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 4A. Unresolved Staff Comments](#page_35) | [35](#page_35) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 5. Operating and Financial Review and Prospects](#page_35) | [35](#page_35) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 6. Directors, Senior Management and Employees](#page_50) | [50](#page_50) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 7. Major Shareholders and Related Party Transactions](#page_57) | [57](#page_57) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 8. Financial Information](#page_59) | [59](#page_59) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 9. The Offer and Listing](#page_60) | [60](#page_60) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 10. Additional Information](#page_61) | [61](#page_61) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 11. Quantitative and Qualitative Disclosures about Market Risk](#page_68) | [68](#page_68) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 12. Description of Securities Other than Equity Securities](#page_69) | [69](#page_69) |
| [Part II.](#page_69) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 13. Defaults, Dividend Arrearages and Delinquencies](#page_69) | [69](#page_69) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds](#page_70) | [70](#page_70) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 15. Controls and Procedures](#page_70) | [70](#page_70) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16. \[Reserved\]](#page_71) | [71](#page_71) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16A. Audit Committee Financial Expert](#page_71) | [71](#page_71) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16B. Code of Ethics](#page_71) | [71](#page_71) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16C. Principal Accountant Fees and Services](#page_71) | [71](#page_71) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16D. Exemptions from the Listing Standards for Audit Committees](#page_72) | [72](#page_72) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers](#page_72) | [72](#page_72) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16F. Changes in Registrant's Certifying Accountant](#page_73) | [73](#page_73) |

---

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16G. Corporate Governance](#page_73) | [73](#page_73) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16H. Mine Safety Disclosure.](#page_73) | [73](#page_73) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#page_73) | [73](#page_73) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 16J. Insider Trading Polcies.](#page_73) | [73](#page_73) |
| [Part III.](#page_74) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 17. Financial Statements](#page_74) | [74](#page_74) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 18. Financial Statements](#page_74) | [74](#page_74) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Item 19. Exhibits](#page_106) | [75](#page_106) |
| [SIGNATURES](#page_107) | [76](#page_107) |

---

------

**INTRODUCTION**

In this annual report on Form 20-F, which we refer to as the "Annual Report", except as otherwise indicated or as the context otherwise requires, the "Company", "we", "our" or "us" or "C21" refers to C21 Investments Inc. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the United States Securities and Exchange Act of 1934, as amended (the "**Exchange Act**") and Rule 405 under the United States Securities Act of 1933, as amended (the "**Securities Act**"). Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 thereunder.

**CURRENCY**

Unless otherwise indicated, all dollar amounts in this Annual Report are in United States dollars. The exchange rate of Canadian dollars into United States dollars, on March 31, 2025 based upon the daily exchange rate as quoted by the Bank of Canada was U.S.$1.00 = Cdn.$1.3550.

**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

This Annual Report includes "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities laws and United States ("U.S.") securities laws (collectively, "forward-looking statements"). All forward-looking statements, other than statements of historical facts, included in this Annual Report that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking statements. Forward-looking statements includes, among other things, information regarding: statements relating to the business and future activities of, and developments related to, the Company, including information concerning the completion and timing of the completion of contemplated acquisitions or dispositions, expectations whether such proposed transactions will be consummated on the current terms or otherwise and contemplated timing, expectations and effects of such proposed transactions, including the potential number and location of cultivation and production facilities and dispensaries or licenses therefor to be acquired or sold and markets to be entered into or exited by the Company as a result of completing such proposed transactions, the ability of the Company to successfully achieve its business objectives as a result of completing such proposed acquisitions or dispositions, estimates of future cultivation, manufacturing and extraction capacity, expectations as to the development and distribution of the Company's brands and products, the expansion into additional U.S. and international markets, any potential future legalization of adult-use and/or medical cannabis under U.S. federal law, expectations of market size and growth in the United States and the states in which the Company operates or contemplates future operations and the effect such growth will have on the Company's financial performance, expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally, and other events or conditions that may occur in the future.

Readers are cautioned that forward-looking statements are based on reasonable assumptions, estimates, analysis and opinions of management of the Company at the time they were provided or made in light of their experience and their perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements is not a guarantee of future performance and are based upon a number of estimates and assumptions of management at the date the statements are made including among other things assumptions about: the contemplated acquisitions and dispositions being completed on the current terms and current contemplated timeline; development costs remaining consistent with budgets; ability to manage anticipated and unanticipated costs; favorable equity and debt capital markets; the ability to raise sufficient capital to advance the business of the Company; favorable operating and economic conditions; political and regulatory stability; obtaining and maintaining all required licenses and permits; receipt of governmental approvals and permits; sustained labor stability; favorable production levels and costs related to the Company's operations; the pricing of various cannabis products; the level of demand for cannabis products; the availability of third party service providers and other inputs for the Company's operations; the Company's ability to conduct operations in a safe, efficient and effective manner; the ability of the Company to restructure and service its secured debt; the availability of securitized debt financing on terms acceptable to the Company, or at all. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive and other risks, uncertainties, contingencies and other factors that could cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.

------

Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements include, among others, risks relating to U.S. regulatory landscape and enforcement related to cannabis, including governmental and environmental regulation, public opinion and perception of the cannabis industry, risks related to the ability to consummate any proposed acquisitions or dispositions on the proposed terms and the ability to obtain requisite regulatory approvals and third party consents and the satisfaction of other conditions, risks related to reliance on third party service providers, the limited operating history of the Company, risks inherent in an agricultural business, risks related to proprietary intellectual property, risks relating to financing activities, risks relating to the management of growth, increasing competition in the cannabis industry, risks associated to cannabis products manufactured for human consumption including health risks, potential product recalls, reliance on key inputs, reliance on a healthy global supply chain, suppliers and skilled labor (the availability and retention of which is subject to uncertainty), cyber-security risks, ability and constraints on marketing products, fraudulent activity by employees, contractors and consultants, risk of litigation and conflicts of interest, and the difficulty of enforcement of judgments and effecting service outside of Canada, risks related to future acquisitions or dispositions, limited research and data relating to cannabis, as well as those risk factors discussed elsewhere herein, including under "**Risk Factors**".

Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking statements.

The Company may elect to update such forward-looking statements at a future time, it assumes no obligation for doing so except to the extent required by applicable law.

The forward-looking statements or information contained in this Annual Report are made as of the date of this filing.

**PART I.**

**Item 1. Identity of Directors, Senior Management and Advisers**

Not Applicable.

**Item 2. Offer Statistics and Expected Timetable**

Not Applicable.

**Item 3. Key Information**

**A. [Reserved]** 

**B. Capitalization and Indebtedness**

Not Applicable.

**C. Reasons for the Offer and Use of Proceeds**

Not Applicable.

**D. Risk Factors**

The following are certain factors relating to the business and securities of the Company. The Company will face a number of challenges and significant risks in the development of its business due to the nature of and present stage of its business. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or currently deemed immaterial by the Company, may also impair the operations of or materially adversely affect the securities of the Company. If any such risks occur, the Company's shareholders could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of the Company could be materially adversely affected. Some of the risk factors described herein are interrelated and, consequently, readers should treat such risk factors as a whole.

------

The acquisition of any of the securities of the Company is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are enough to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of the Company should not constitute a major portion of a person's investment portfolio and should only be made by persons who can afford a total loss of their investment.

**Risks Related to the Cannabis Industry**

***While certain U.S. states have enacted medical and/or adult-use cannabis legislation, cannabis continues to be illegal under U.S. federal law, which may subject us to regulatory or legal enforcement, litigation, increased costs and reputational harm.***

Eighty (80%) of the U.S. states have enacted legislation to regulate the sale and use of cannabis on either a medical or adult- use level. However, notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a controlled substance under the U.S. Controlled Substances Act of 1970 ("**CSA**"), and as such, activities within the cannabis industry are illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire to attempt to engage in such activities. Financing businesses in the cannabis industry may be deemed aiding and abetting an illegal activity under federal law. If such an action were brought, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

Individual U.S. state laws do not always conform to U.S. federal regulatory standards, or to other U.S. state laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalized and/or created medical marijuana exemptions. Several states have also legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized or created medical marijuana exemptions. For example, Oregon and Colorado have limits on the number of marijuana plants that can be home grown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of a medical marijuana license or that person's caregiver. Even in those states in which the use and commercialization of marijuana has been legalized, its use remains a violation of U.S. federal law.

The Company is currently aware of 40 states of the United States, the District of Columbia, and four out of five U.S. territories, that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Additionally, the sale and adult-use of recreational cannabis is legal in 17 U.S. states and the District of Columbia, including: Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia and Washington. At the federal level, however, cannabis currently remains a Schedule I controlled substance under the CSA. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law.

Although the Company's activities are in compliance with applicable state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may adversely affect the Company's operations and financial performance.

***The Company could face a number of operational risks and may not be adequately insured for such risks.***

The Company will be affected by a number of operational risks and may not be adequately insured for certain risks, including: labor disputes, catastrophic accidents, fires, blockades or other acts of social activism, changes in the regulatory environment, impact of non-compliance with laws or regulations, natural phenomena, such as inclement weather conditions, floods, earthquakes and ground movements. There is no assurance that the foregoing risks and hazards will not result in damage to, or destruction of, the Company's properties, grow facilities and extraction facilities, personal injury or death, environmental damage, adverse impacts on the Company's operations, costs, monetary losses, potential legal liability and adverse governmental action, any of which could have an adverse impact on the Company's future cash flows, earnings and financial condition.

***Proceeds from the Company's financings could be considered proceeds of crime which may restrict the Company's ability to pay dividends or effect other distributions to its shareholders.***

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Currently, the Company engages in the manufacture, distribution, possession and sale of cannabis in the U.S. medical and recreational cannabis markets, and therefore the enforcement of U.S. federal laws is a significant risk to the Company. Unless and until the U.S. Congress amends the CSA (or the Drug Enforcement Agency ("**DEA**") reschedules or de-schedules cannabis), there is a risk that U.S. federal authorities, including the United States Attorney's Office for the District of Nevada, may enforce current federal law, and the Company may be deemed to be possessing, manufacturing, and trafficking marijuana in violation of U.S. federal law. Such activities also may serve as the basis for the prosecution of other crimes, such as those prohibited by the money laundering statutes, the unlicensed money transmitter statute, and the U.S. Currency and Foreign Transactions Reporting Act of 1970 ("**Bank Secrecy Act**"). Additionally, the Company may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of U.S. federal law with respect to the Company's current or proposed business operations. As to the timing or scope of any such potential amendments to the CSA, there can be no assurances to when or if any potential amendments will be enacted. Active enforcement of the current federal statutory laws and regulatory rules regarding cannabis may thus directly and/or indirectly and adversely affect the Company's future operations, cash flows, earnings, and financial condition.

The Company could face (i) seizure of its cash and other assets used to support or derived from its cannabis subsidiaries; and (ii) the arrest of its employees, directors, officers, managers and investors, who could face charges of ancillary criminal violations of the CSA for aiding and abetting and conspiring to violate the CSA by virtue of providing financial support to state-licensed or permitted cultivators, processors, distributors, and/or retailers of cannabis. Additionally, as affirmed by U.S. Customs and Border Protection, employees, directors, officers, managers and investors of the Company who are not U.S. citizens face the risk of being barred from entry into the United States for life.

***Management may not be able to predict all new emerging risks or how such risks may impact actual results of the Company in the highly regulated, highly competitive and rapidly evolving U.S. cannabis industry.***

As a result of the conflicting views between individual state governments and the U.S. federal government regarding cannabis, investments in U.S. cannabis businesses are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then U.S. Deputy Attorney General, James Cole, authorized the Cole Memo (as defined herein) addressed to all United States Attorneys acknowledging that, notwithstanding the designation of cannabis as a controlled substance at the federal level in the U.S., several U.S. states have enacted laws relating to cannabis for medical purposes. The Cole Memo outlined certain priorities for the U.S. Department of Justice relating to the prosecution of cannabis offenses. In particular, the Cole Memo noted that in jurisdictions that have enacted laws legalizing cannabis in some form, and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, that conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.

On January 4, 2018, Jeff Sessions, the U.S. Attorney General at the time, issued the Sessions Memo (as defined herein) to all United States Attorneys, which rescinded the Cole Memo in its entirety. The Sessions Memo provided that in deciding which marijuana activities to prosecute under U.S. federal laws, prosecutors should follow the same well-established principles that govern all U.S. federal prosecutions. Following the release of the Sessions Memo, the fate of state-legal cannabis is uncertain, and the risk of prosecution varies from state to state based on the posture, priorities and resources of each United States Attorney's Office for each applicable state.

Although the Cole Memo was rescinded, one legislative safeguard for the medical cannabis industry, appended to federal appropriations legislation, remains in place. Currently referred to as the "Rohrabacher-Blumenauer Amendment", this so-called "rider" provision has been appended to the Consolidated Appropriations Acts every year since fiscal year 2015. Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. On December 20, 2019, then President Donald Trump signed the Consolidated Appropriations Act, 2020 which included the Rohrabacher-Blumenauer Amendment, which prohibits the funding of federal prosecutions with respect to medical cannabis activities that are legal under state law. On December 27, 2020, the omnibus spending bill passed including the Rohrabacher-Blumenauer Amendment, extending its application until September 30, 2021. The Amendment was then renewed through a series of stopgap spending bills on September 30, 2021, December 3, 2021, February 18, 2022, and March 11, 2022. On March 15, 2022, the Amendment was renewed through the signing of the fiscal year 2022 omnibus spending bill, extending previous funding levels and riders, including the Rohrabacher-Blumenauer Amendment. There can be no assurances that the Rohrabacher-Blumenauer Amendment will be included in future appropriations bills to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.

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On March 11, 2021, Merrick Garland was sworn in as the U.S. Attorney General. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during a February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memo or announce a substantive marijuana enforcement policy. Justice Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. It is unclear what impact, if any, the current administration will have on U.S. federal government enforcement policy on cannabis.

In October 2021, in a letter from U.S. Senators Corey Booker and Elizabeth Warren to Attorney General Garland, the Senators advocated the federal decriminalization of cannabis by removing cannabis from the CSA's list of controlled substances. To date, Attorney General Garland and the Department of Justice have not publicly responded to the Senators' letter. Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

Given the conflict of laws and regulations, there is no certainty as to how the U.S. Department of Justice ("**DOJ**"), Federal Bureau of Investigation and other government agencies will handle cannabis matters in the future. There can be no assurance that the Biden Administration would not change the current enforcement policies, priorities and resources and choose to enforce the subject federal laws. The Company regularly monitors ongoing developments in this regard.

Violations of any laws and regulations could result in significant fines, penalties, administrative sanctions, forfeiture, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company, including its reputation and ability to conduct business, its title (directly or indirectly) to cannabis licenses in the United States, the listing of its securities on various stock exchanges, its financial position, its operating results, and profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or the final resolution of such matters because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested and degree of enforcement by the applicable authorities involved, and such time or resources could be substantial.

As a company listed on the Canadian Securities Exchange (the "**CSE**"), the Company accesses the Canadian capital markets on a public and private basis, and any capital raised may be utilized for the ongoing operations of its U.S. holdings that operate in the U.S. cannabis industry. There is no assurance that the Company will be successful, in whole or in part, in raising funds, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from residents, citizens, venture capital, private equity and banks in the United States may be limited due to their unwillingness to be associated with activities that violate U.S. federal laws. Notwithstanding the above, the SAFE Banking Act (as defined herein) would be a positive development for the industry and access to more affordable banking and lending.

***Changes to current laws and regulation may impose substantial costs on the Company.***

Local, state and federal cannabis laws and regulations in the United States are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter certain aspects of its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company's business plan and result in a material adverse effect on certain aspects of the Company's planned operations. Furthermore, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of the Company's cannabis business. The Company cannot predict the nature of any future laws, rules, regulations, resolutions, declarations, policy positions, interpretations or applications, nor can it determine what affect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on the Company's business.

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Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Company's business, results of operations, financial condition and prospects would be materially adversely affected.

The Company is aware that multiple states are considering special taxes or fees on businesses in the marijuana industry. It is a potential yet unknown risk at this time that other states are in the process of reviewing such additional fees and taxation. This could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.

Beginning in September 2019, the United States media began reporting on potential vape related illnesses and death based on conditions resembling pneumonia, that consumers of flavored nicotine and flavored THC vaping products were experiencing. Vaping product sales are a material source of revenue for the Company. Although there has been no conclusive medical or scientific determination as to the cause of the subject conditions, management believes that the Company's products do not contain any of the components or chemicals, including but not limited to vitamin E acetate, which were implicated as possible sources of the condition, and which were identified by the CDC based on laboratory findings released on November 8, 2019. Out of an abundance of caution, governors of certain US states took precautionary, short-term actions until a more conclusive link between vaping products and the condition is determined; as mentioned in previous reports, Oregon was one of those states until the State was forced to lift its ban by court order on January 16, 2020.

***The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants, including the Company.***

The Company operates in a new industry which is highly regulated, highly competitive and evolving rapidly. As such, new risks may emerge, and management may not be able to predict all such risks. The Company incurs ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.

Further, the Company may be subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect its ability to conduct its business.

Litigation and other claims are subject to inherent uncertainties and management's view of these matters may change in the future. A material adverse impact on the Company's financial statements could also occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the control of the Company and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings on investments and could make future capital investments or the Company's operations uneconomic.

The cannabis industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants in the industry, such as the Company, which cannot be readily predicted.

***Regulatory scrutiny of the Company's industry may negatively impact its ability to raise additional capital.***

The Company's business activities rely on newly established and/or developing laws and regulations. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company's profitability or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the U.S. Food and Drug Administration, U.S. Securities and Exchange Commission (the "SEC"), the DOJ, the Financial Industry Regulatory Authority or other federal, applicable state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States.

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It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company's industry may adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, which could reduce, delay or eliminate any return on investment in the Company.

***The Company's operations in the U.S. are subject to applicable anti-money laundering laws and regulations.***

The Company is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

In the event that any of the Company's operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on C21's common shares in the foreseeable future, in the event that a determination was made that the Company's proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

The Company's operations and any proceeds thereof may be considered proceeds of crime since cannabis remains illegal federally in the United States. This restricts the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while the Company has no current intention to declare or pay dividends on its shares in the foreseeable future, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time in response to factors outside of the Company's control.

The Company may have difficulty accessing the services of banks and processing credit card payments in the future, which may make it difficult to operate. To mitigate this risk, the Company has maintained banking relations with three private credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), Salal (Washington State) and Greater Nevada Credit Union (Nevada). Through these private credit unions, the Company is able to access bank services to support its Nevada cannabis operations.

***Losing access to traditional banking, or bank-specific liquidity risks, could have a significant effect on our ability to operate, conclude financings and achieve returns.***

Since the use of cannabis is illegal under U.S. federal law, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the cannabis industry. Consequently, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain traditional bank accounts may make it difficult to operate the Company's cannabis business. To mitigate this risk, the Company has maintained banking relations with three private credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), Salal (Washington State) and Greater Nevada Credit Union (Nevada). Through these private credit union banks, the Company can access comprehensive banking services including cash management checking accounts, ACH transfer processing, cash pick-up and delivery services, debit card and credit card processing, online banking, and processing of bank wires and transfers.

The recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation ("FDIC") have identified bank-specific liquidity risks and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band Bank and Signature Bank would have access to their funds, even deposit amounts that exceed FDIC deposit insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.

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The February 2014 U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN") Guidance (as defined herein), sets forth certain circumstances whereby it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. However, as discussed above, most banks and other financial institutions do not feel comfortable providing banking services to cannabis-related businesses, or relying on the FinCEN Guidance which could be revoked at any time by the Biden Administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses.

Accordingly, the Company may have limited or no access to banking or other financial services in the U.S. in the future and may have to operate the Company's U.S. business on a cash-only basis. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the United States House of Representatives has passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company's inability, or limitations on the Company's ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments, may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently. The prospects of the SAFE Banking Act, or some permutation thereof, becoming law is uncertain as of the date of this Annual Report.

***The Company's operations in the United States may be subject to heightened scrutiny.***

The Company's existing operations in the United States cannabis market, and any future interests, may become the subject of heightened scrutiny by regulators, stock exchanges, clearing agencies or other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Company's ability to invest in the United States or any other jurisdiction.

Given the heightened risk profile associated with cannabis in the United States, it was previously reported by certain publications in Canada that the Canadian Depository for Securities Limited may implement policies that would see its subsidiary, CDS Clearing and Depository Services Inc. ("**CDS**"), refuse to settle trades for cannabis issuers that have investments in the United States. The TMX Group, the owner and operator of CDS, subsequently issued a statement on August 17, 2017, reaffirming that there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States, despite media reports to the contrary, and that the TMX Group was working with regulators to arrive at a solution that will clarify this matter, which would be communicated at a later time.

On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (the "**TMX MOU**") with Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange and the TSX Venture Exchange (the "**TSXV**"). The TMX MOU outlines the parties' understanding of Canada's regulatory framework applicable to the rules, procedures and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the United States.

The TMX MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, there can be no guarantee that this approach to regulation will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of common shares to make and settle trades. In particular, the common shares would become highly illiquid and until an alternative was implemented investors would have no ability to affect a trade of common shares through the facilities of a stock exchange.

***Unfavorable publicity or consumer perception of cannabis may have an adverse effect on the demand for our products.***

The Company believes the adult-use and medical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a material adverse effect on the demand for adult-use or medical cannabis and on the business, results of operations, financial condition, cash flows or prospects of the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis in general, or associating the consumption of adult-use and medical cannabis with illness or other negative effects or events, could have such a material adverse effect. There is no assurance that such adverse publicity reports, findings or other media attention will not arise.

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Public opinion may result in a significant influence over the regulation of the cannabis industry in Canada, the United States or elsewhere. A negative shift in the public's perception of cannabis in the United States, or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical cannabis, thereby limiting the number of new state jurisdictions into which the Company could expand. Any limits on future expansion may have a material adverse effect on the Company's business, financial condition, and results of operations.

***State and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company's current and proposed brands and products will remain or be approved for sale and distribution in any state.***

States generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance notice of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products based on the form of the product and the concentration of the various cannabinoids in the product. While the Company will continue to follow the guidelines and regulations of each applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such future products will be approved to the extent necessary. For the products that are approved, there is a risk that any state or local jurisdiction may revoke its approval for such products based on changes in laws or regulations or based on its discretion or otherwise.

***The business premises of the Company are a target for theft, which may have an adverse impact on its financial condition and results of operations.***

The business premises of the Company are a target for theft. While the Company has implemented security measures and continues to monitor and improve its security measures, its cultivation, processing, distribution and dispensary facilities could be subject to break-ins, robberies and other breaches in security. If there was a breach in security and the Company fell victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers, cannabis products, cultivation and processing equipment, and cash could have a material adverse impact on the business, financials condition, results of operation and property of the Company.

***The Company has historically relied on access to both public and private capital in order to support its continuing operations, and the Company expects to continue to rely on the capital markets to finance its business.***

Although such business carries a higher degree of risk, and despite the legal standing of cannabis businesses pursuant to U.S. federal laws, Canadian based issuers involved in the U.S. state-legal cannabis industry have been successful in raising substantial amounts of private and public financing. However, there is no assurance the Company will be successful, in whole or in part, in raising funds in the future, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from U.S. residents may be limited due to their unwillingness to be associated with activities which violate U.S. federal laws.

***As consumer perceptions of cannabis evolve, the Company may face unfavorable publicity or consumer perception.***

The state-legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and will continue to be, a controlled substance for the foreseeable future. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding cannabis in general or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medical and adult-use cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use cannabis, it remains a controversial issue subject to differing opinions surrounding the nature of legalization (for example, support for legalization of medical versus recreational cannabis). The Company's ability to maintain and increase market acceptance of its company and products may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure may have an adverse effect on the Company.

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***Product liability claims or regulatory actions against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business.***

As a manufacturer and distributor of products designed to be ingested by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. This is particularly true in light of the United States media news, beginning in September 2019, regarding potential vaporizer (vape) related illnesses and deaths. The Company closely monitors the news reports on this topic, including results from the investigations being conducted by the CDC, and put out a statement over its social media feed on September 11, 2019 confirming its commitment to consumer safety, discussing the rigorous quality control and testing of its products, and explaining that none of its vape products are manufactured with vitamin E acetate, or any other additives, thickeners or agents. The Company further disclosed its complete ingredient list for all of its vape products. In addition, the manufacture and sale of marijuana involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur. As a manufacturer, distributor and retailer of adult-use and medical marijuana, or in its role as an investor in or service provider to an entity that is a manufacturer, distributor and/or retailer of adult-use or medical marijuana, the Company may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business, results of operations, financial condition or prospects of the Company. There can be no assurances that the Company will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products or otherwise have a material adverse effect on the business, results of operations, financial condition or prospects of the Company.

***As the cannabis industry is nascent, expectations regarding the development of the market may not be accurate and may change.***

Due to the early stage of the state-legal cannabis industry, forecasts regarding the size of the industry and the sales of products are inherently subject to significant unreliability. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the Company.

***The cultivation, extraction and processing of cannabis and derivative products is dependent on a number of key inputs and their related costs which relies on a health supply chain.***

Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.

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**Operational and General Business Risks** 

***The Company may pursue strategic acquisitions in the future, which may be unsuccessful or result in other costs to the Company.***

As part of the Company's overall business strategy, the Company may pursue select strategic acquisitions which would provide additional product offerings, vertical integrations, additional industry expertise, and a stronger industry presence in both existing and new jurisdictions. Future acquisitions may expose the Company to potential risks, including risks associated with (a) the integration of new operations, services and personnel; (b) unforeseen or hidden liabilities; (c) the diversion of resources from the Company's existing business and technology; (d) potential inability to generate sufficient revenue to offset new costs; (e) the expenses of acquisition; or (f) the potential loss of or harm to relationships with both employees and existing users resulting from its integration of new business. In addition, any proposed acquisitions may be subject to regulatory approval.

While the Company intends to conduct reasonable due diligence in connection with such strategic acquisitions, there are risks inherent in any acquisition. Specifically, there could be unknown or undisclosed risks or liabilities of such entities or assets for which the Company is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely affect the Company's financial performance and results of operations. The Company could encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits from the acquisition. All of these factors could cause dilution to the Company's revenue per share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of C21's common shares.

***The Company (and the third parties with whom it works) is subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Its actual or perceived failure (or that of the third parties with whom it works) to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.***

The Company's employees and personnel may use generative artificial intelligence ("AI") technologies to assist with their work, and the disclosure and use of personal data in generative AI technologiesis subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating generative AI. The Company's use of this technology could result in additional compliance costs, regulatory investigations and actions, and lawsuits. If the Company are unable to use generative AI, this could make its business less efficient and result in competitive disadvantages.

Obligations related to data privacy and security (and consumer's data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires the Company to devote significant resources and may necessitate changes to its services, information technologies, systems, and practices and to those of any third parties with whom it works.

The Company may at times fail, or be perceived to have failed, in its efforts to comply with its data privacy and security obligations. Moreover, despite its efforts, the Company's personnel or third parties with whom it works may fail to comply with such obligations, which could negatively impact its business operations. If the Company or the third parties with whom it works fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, it could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations.

Any of these events could have a material adverse effect on the Company's reputation, business, or financial condition, including but not limited to: loss of customers; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize its products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to its business model or operations.

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***Changes to U.S. or other countries' trade policies and tariff and import/export regulations or our failure to comply with such regulations may have an adverse effect on our business, financial condition, and results of operations.***

Changes in import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and countersanctions, safeguards or customs restrictions by the U.S. and/or other foreign governments, and/or general uncertainty about potential changes in such policies, could require us to change the way we conduct business and/or adversely affect our financial condition, results of operations, reputation, and our relationships with customers, vendors, and employees in the short- or long-term.

The U.S. government recently announced tariffs on product imports from certain countries and subsequently announced a 90-day suspension of such tariffs other than with respect to China. Thereafter, on May 12, 2025, the U.S. and China announced that the countries have agreed to a reduction in the previously-imposed tariffs for a 90-day period. The current environment is dynamic and uncertain, as the U.S. President has imposed, modified and paused tariffs, and granted exemptions from tariffs, on different countries and products multiple times since taking office in January 2025. These actions have resulted in reciprocal tariffs or other countermeasures from other countries, and may result in further retaliatory measures on U.S. goods. If implemented and maintained, these tariffs and the potential escalation of trade disputes could pose a risk to our business that could affect our revenue and our expenses as certain of our inputs are manufactured in Asia. Our domestic suppliers may incur tariffs leading to increased prices. We are closely monitoring this evolving situation and evaluating our responses, which may include shifts in sourcing strategies, price adjustments, or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the financial and competitive impacts of such tariffs or trade restrictions. In addition, changing U.S. tariff and trade policies could cause higher inflation, higher interest rates and slower economic growth or recession in the U.S., which could adversely affect demand for our products and services. At this time, the overall impact on our business related to these tariffs and trade policies remains uncertain and depends on multiple factors, including the duration and potential expansion of current tariffs, future changes to tariff rates, scope, or enforcement, retaliatory measures by impacted exporting countries, inflationary effects and broader macroeconomic responses, changes to consumer purchasing behavior, and the effectiveness of our responses in managing these challenges. Further, actions we take to adapt to new tariffs or trade restrictions may increase risk or may cause us to modify our operations, which could be time-consuming and expensive; impact pricing, which could impact our sales, profitability, and our reputation; or cause us to forgo business opportunities.

***The Company may face litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities.***

The Company's participation in the cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against the Company. Litigation, complaints and enforcement actions involving the Company could consume considerable amounts of financial and other corporate resources, which could have an adverse effect on the Company's future cash flows, earnings, results of operations and financial condition.

Should any litigation in which the Company is or becomes involved be determined against the Company, such a decision could adversely affect the Company's ability to continue operating and the market price for its common shares. Even if the Company wins current or future litigation, such litigation can redirect significant resources.

***The Company has identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting or effective disclosure controls, we may be at risk to accurately report financial results or detect fraud, which could have a material adverse effect on our business.***

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring an annual assessment by management of the effectiveness of a public company's internal controls over financial reporting and an attestation report by the Company's independent auditors addressing this assessment, if applicable. As discussed in Item 15 "Controls and Procedures" based on a review of our internal controls over financial reporting, management concluded that our internal controls over financial reporting was not effective due to the existence of material weaknesses related to inadequate segregation of duties in certain financial reporting processes, lack of evidence and review of certain internal controls processes, and partly due to the Company's small size insufficient personnel with an appropriate level of technical accounting knowledge and experience relative to the Company's complexity and financial accounting and reporting requirements resulting in certain errors within the Company's consolidated financial statements in accordance with US GAAP. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the Company's internal controls. Management intends on expanding the scope of services with the Company's independent outside accounting consultants in order to remediate this weakness, among other measures. For additional information, see Item 15 "Controls and Procedures."

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We cannot assure you that we will be able to remediate our existing material weaknesses in a timely manner, if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that is significantly increased in light of the complexity of our business. If our efforts to remediate this material weakness, as described in Item 15 "Controls and Procedures", is not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in late filings of our annual or interim reports under the Exchange Act, restatements of our consolidated financial statements or other corrective disclosures. Our failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could harm our business and negatively impact the trading price of the common shares. In addition, future changes in our accounting, financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our financial reporting, which may adversely affect our share price, suspension of trading or removal of our common shares from the OTCQX International Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity. Furthermore, if we continue to have this existing material weakness, other material weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our shares.

***The Company's operations are subject to environmental regulation in the various jurisdictions in which it operates, which may adversely affect the Company's operations.***

The Company's operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company's operations.

***The Company is dependent on governmental approvals, licenses and permits to operate, and failure to obtain or maintain such approvals, licenses and permits may adversely affect the Company's operations.***

Government approvals and permits are currently, and may in the future, be required in connection with the Company's operations or future operations. To the extent such approvals are required and not obtained or maintained, the Company may be curtailed or prohibited from its current or proposed production, manufacturing, processing, distribution or sale of cannabis or from proceeding with the development of its operations as currently proposed.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.

Amendments to current laws, regulations and permits governing the production or manufacturing of cannabis, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in expenses, capital expenditures or production or manufacturing costs or reduction in levels of production or manufacturing or require abandonment or delays in development.

Further, the Company may not be able to obtain or maintain the necessary licenses, permits, authorizations or accreditations, or may only be able to do so at great cost, to operate its marijuana business. In addition, the Company may not be able to comply fully with the wide variety of laws and regulations applicable to the marijuana industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations or accreditations could result in restrictions on the Company's ability to operate the marijuana business, which could have a material adverse effect on the Company's business. Further, should any state in which the Company considers a license important not grant, extend or renew such license or should it renew such license on different terms or decide to grant more than the anticipated number of licenses, the business, financial condition and results of operations of the Company could be materially adversely affected.

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***The Company's limited operating history makes evaluating its business and prospects difficult.***

The Company has a limited operating history on which to base an evaluation of its business, financial performance and prospects. As such, the Company's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. As the Company is in an early stage and is introducing new products, the Company's revenues may be materially affected by the decisions, including timing decisions, of a relatively consolidated customer base. The Company has had limited experience in addressing the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving industries such as the cannabis industry. There can be no assurance that the Company will be successful in addressing these risks, and the failure to do so in any one area could have a material adverse effect on the Company's business, prospects, financial condition and results of operations.

***The Company is dependent upon existing management, its key research and development personnel and its growing and extraction personnel, and its business may be severely disrupted if it loses their service.***

The Company's future success depends substantially on the continued services of its executive officers, its key research and development personnel and its key growing and extraction personnel. If one or more of its executive officers or key personnel were unable or unwilling to continue in their present positions, the Company might not be able to replace them easily or at all. In addition, if any of its executive officers or key employees joins a competitor or forms a competing company, the Company may lose know-how, key professionals and staff members. These executive officers and key employees could compete with and take customers away.

***The Company will need to hire additional personnel in order to grow its business.***

As the Company grows, it will need to hire additional human resources to continue to develop the business. However, experienced talent is difficult to source, and there can be no assurance that the appropriate individuals will be available or affordable to the Company. Without adequate personnel and expertise, the growth of the Company's business may suffer.

***The Company may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to the Company, could subject the Company to significant liabilities and other costs.***

The Company's success may likely depend on its ability to use and develop new extraction technologies, recipes, know-how and new strains of marijuana without infringing the intellectual property rights of third parties. The Company cannot assure that third parties will not assert intellectual property claims against it. The Company is subject to additional risks if entities licensing to its intellectual property do not have adequate rights in any such licensed materials. If third parties assert copyright or patent infringement or violation of other intellectual property rights against the Company, it will be required to defend itself in litigation or administrative proceedings, which can be both costly and time consuming and may significantly divert the efforts and resources of management personnel. An adverse determination in any such litigation or proceedings to which the Company may become a party could subject it to significant liability to third parties, require it to seek licenses from third parties, to pay ongoing royalties or subject the Company to injunctions prohibiting the development and operation of its applications.

***The Company may need to incur significant expenses to enforce its proprietary rights, and if the Company is unable to protect such rights, its competitive position could be harmed.***

The Company regards proprietary methods and processes, domain names, trade names, trade secrets, recipes and other intellectual property as critical to its success. The Company's ability to protect its proprietary rights is critical for the success of its business and its overall financial performance. The Company has taken certain measures to protect its intellectual property rights. However, the Company cannot assure that such measures will be sufficient to protect its proprietary information and intellectual property. Policing unauthorized use of proprietary information and intellectual property is difficult and expensive. Any steps the Company has taken to prevent misappropriation of its proprietary technology may be inadequate. The validity, enforceability and scope of protection of intellectual property in the marijuana industry is uncertain and still evolving. In particular, the laws and enforcement procedures in some developing countries are uncertain and may not protect intellectual property rights in this area to the same extent as do the laws and enforcement procedures in Canada, the United States and other developed countries.

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***The Company may face increased competition in the marketplace for cannabis.***

There can be no assurance that significant competition will not enter the marketplace and offer some number of similar products and services or take a similar approach. An increase in the number of companies competing in this industry could limit the ability of the Company to expand its operations. Current and new competitors may be better capitalized, have a longer operating history, have more expertise and be able to develop higher quality equipment or products, at the same or a lower cost. The Company cannot provide assurances that it will be able to compete successfully against current and future competitors. Such competition could have a material adverse effect on the growth potential of the Company's business by effectively dividing the existing market for its products. In addition, despite Canadian federal and U.S. state-level legislation of marijuana, illicit or "black market" operations remain abundant and present substantial competition to the Company. In particular, illicit operations, despite being largely clandestine, are not required to comply with the extensive regulations that the Company must comply with to conduct business and, accordingly, may have significantly lower costs of operations.

***There is no assurance of the Company's profitability.***

The Company cannot give assurances that it will not incur losses in the future. The limited operating history makes it difficult to predict future operating results. The Company is subject to the risks inherent in the operation of a new business enterprise in an emerging and uncertain business sector, and there can be no assurance that the Company will be able to successfully address these risks.

***The success of the Company will be dependent on its ability to manage growth.***

The Company may experience a period of significant growth in the number of personnel that will place a strain upon its management systems and resources. Its future will depend in part on the ability of its officers and other key employees to implement and improve financial management controls, reporting systems and procedures on a timely basis and to expand, train, motivate and manage the workforce. The Company's current and planned personnel, systems, procedures and controls may be inadequate to support its future operations.

***The Company's operations are impacted by general economic trends.***

Any worldwide economic slowdown and tightening of credit in the financial markets may impact the business of the Company's customers, which could have an adverse effect on the Company's business, financial condition, or results of operations. Adverse changes in general economic or political conditions in the United States and elsewhere could adversely affect the Company's business, financial condition, results of operations and property.

***The Company faces significant costs in order to gain and increase market acceptance of its products.***

The Company's ability to gain and increase market acceptance of its products depends on its ability to educate the public on the benefits of its marijuana products. It also requires the Company to establish and maintain its brand name and reputation. In order to do so, substantial expenditures on product development, strategic relationships and marketing initiatives may be required. There can be no assurance that these initiatives will be successful, and their failure may have an adverse effect on the Company's operations.

***The Company may not have adequate insurance coverage, which may adversely impact the Company's business, results of operations and profitability.***

The Company requires insurance coverage for a number of risks, including business interruption, environmental matters and contamination, product liability, personal injury and property damage. Although the Company believes that the events and amounts of liability covered by its insurance policies will be reasonable, considering the risks relevant to its business, and the fact that agreements with users contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Company may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Company's financial resources, results of operations and prospects could be adversely affected. Further, because the Company is engaged in the cannabis industry, there may be additional difficulties and complexities associated with such insurance coverage that could cause the Company to suffer uninsured losses, which could adversely impact the Company's business, results of operations and profitability.

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***The Company faces risks related to tax credits and deductions.***

Currently, U.S. state licensed cannabis businesses are assessed at a comparatively high effective U.S. federal income tax rate due to Section 280E of the Internal Revenue Code of 1986, as amended (the "Code"), which prohibits businesses associated with trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) from deducting certain expenses. The IRS has invoked Section 280E of the Code in tax audits against various cannabis businesses in the United States that are permitted under applicable U.S. state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted. In addition, on June 28, 2024, the IRS published a press release reminding taxpayers that cannabis remains a Schedule I controlled substance until a final rule is published that reschedules cannabis and, therefore, cannabis is still subject to the limitations of Section 280E of the Code, and stating that taxpayers that have filed amended returns seeking a refund of taxes paid related to Section 280E of the Code are not entitled to a refund or payment and that the IRS is taking steps to address these claims. While there are currently several pending cases before various U.S. administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E of the Code favorable to cannabis businesses. Given these facts, the impact of any such challenges cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the Company.

The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Code, including the planned refiling of amended U.S. federal income tax returns in the next few months. The refiling of tax returns will be for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Because the Company's tax positions could be (and, as discussed below, has been) challenged by the IRS and other taxing authorities and the Company may not be wholly successful in defending its tax positions, the Company records reserves for unrecognized tax benefits based on its assessment of the probability of successfully sustaining its tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount.

The Company may be at risk of increased scrutiny from the IRS on past and future tax filings and, in the normal course of business, the Company receives notices, from time to time, from various local, state, and federal tax agencies. If the IRS makes a determination that the Company is not in compliance with Section 280E of the Code, the Company may be required to pay any difference in the amounts owed, in addition to penalties and interest, which could equal or exceed the amounts reserved by the Company, exceed the amount of cash on hand and materially impact the Company's financial condition or results of operations.

On October 6, 2022, President Joseph Biden requested that the Secretary of HHS and the Attorney General to initiate a review as to how cannabis is currently scheduled under federal law. In August 2023, following a review by the FDA, the Secretary of HHS issued a recommendation to the DEA that cannabis be moved to Schedule III under the Controlled Substances Act. In December 2023, the DEA confirmed that it is currently conducting its review. On May 21, 2024, the DOJ published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider transferring cannabis to Schedule III under the Controlled Substances Act. The Controlled Substances Act requires formal rulemaking on the record after an opportunity for a hearing. The hearing has been postponed multiple times and is currently pending resolution of an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied.

If cannabis is moved to Schedule III from Schedule I under the Controlled Substances Act, it could end the effect of Section 280E of the Code on some or all of the Company's operations. However, any such change from Schedule I to Schedule III is beyond the control of the Company and cannot be predicted.

***Proposed legislation in the U.S. Congress, including changes in U.S. tax law, and the Inflation Reduction Act of 2022 may adversely impact the Company and the value of the Common Shares.***

Changes to U.S. tax laws (which changes may have retroactive application) could adversely affect the Company or holders of the common shares. In recent years, many changes to U.S. federal income tax laws have been proposed and made, and additional changes to U.S. federal income tax laws are likely to continue to occur in the future.

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The U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect, which legislation could adversely impact the Company's financial performance and the value of the common shares. Additionally, states in which the Company operates or owns assets may impose new or increased taxes. If enacted, most of the proposals would be effective for the current or later years. The proposed legislation remains subject to change, and its impact on the Company and purchasers of the common shares is uncertain.

***Results of future clinical research may negatively impact demand for the Company's products.***

Research in Canada, the U.S. and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such CBD and THC) remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although the Company believes that the articles, reports and studies to date support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles, reports and studies. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for the Company's products with the potential to lead to a material adverse effect on the Company's business, financial condition, results of operations or prospects.

***The Company faces risks inherent in an agricultural business, including adverse weather conditions and rising energy costs.***

Adult-use and medical marijuana are agricultural products. There are risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of the Company's products. The occurrence of severe adverse weather conditions, especially droughts, fires, storms or floods is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce the Company's yields or require the Company to increase its level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts might reduce the yield and quality of the Company's cannabis production, which could materially and adversely affect the Company's business, financial condition and results of operations.

Adult-use and medical marijuana growing operations consume considerable energy, making the Company potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of the Company.

***The Company relies on third-party contractors to maintain its information technology systems.***

We rely on information technology ("**IT**") systems and networks in our operations which are provided and maintained by third-party contractors. The availability, capacity, reliability and security of these IT systems could be subject to network disruptions caused by a variety of malicious sources, including computer viruses, security breaches, cyber-attacks and theft, as well as network and/or hardware disruptions resulting from unexpected failures such as human error, software or hardware defects, natural disasters, fire, flood or power loss. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures.

The ability of the IT function to support our business in the event of any such failure and the ability to recover key systems from unexpected interruptions cannot be fully tested. There is a risk that if such an event were to occur, our response may not be adequate to immediately address all of the potential repercussions of the incident. In the event of a disaster affecting our head office, key systems may be unavailable for a number of days, leading to inability to perform some business processes in a timely manner. The failure of our IT systems or a component thereof could, depending on their nature, materially impact our financial condition, results of operations, reputation and share price.

Unauthorized access to our IT systems as a result of cyber-attacks could lead to exposure, corruption or loss of confidential information, and disruption to our communications, operations, business activities or our competitive position. Further, disruption of critical IT services, or breaches of information security, could expose us to financial losses and regulatory or legal action. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber- security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.

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We apply technical and process controls in line with industry-accepted standards to protect information, assets and systems. Although these measures are robust, they cannot possibly prevent all types of cyber-threat. There is no assurance that we will not suffer losses associated with cyber-security breaches in the future, and we may be required to expend significant additional resources to investigate, mitigate and remediate any potential vulnerabilities. As cyber-threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

***The size of the Company's target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.***

Because the cannabis industry is in an early stage with uncertain boundaries, there is a lack of information about comparable companies available for potential investors to review in deciding about whether to invest in the Company and, few, if any, established companies whose business model the Company can follow or upon whose success the Company can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in the Company. There can be no assurance that the Company's estimates are accurate or that the market size is sufficiently large for its business to

***The Company is a British Columbia corporation governed by the Business Corporations Act (British Columbia) ("BCBCA") and, as such, our corporate structure, the rights and obligations of shareholders and our corporate bodies may be different from the United States or those of the home countries of international investors.***

Substantially all of the Company's assets are located outside of Canada, and certain of its directors are resident outside of Canada, and their assets are outside of Canada. Serving process on those directors may prove to be difficult or excessively time consuming. Non-Canadian residents may find it more difficult and costlier to exercise shareholder rights. Additionally, it may be difficult to enforce a judgment obtained in Canada against the Company, its subsidiaries and any directors and officers residing outside of Canada.

***The success of the Company may depend, in part, on the ability of an operator to maintain and enhance trade secret protection over its various existing and potential proprietary techniques and processes, or trademark and branding developed by it.***

Each operator may also be vulnerable to competitors who develop competing technology, whether independently or as a result of acquiring access to the proprietary products and trade secrets of the operator. In addition, effective future patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries and may be unenforceable under the laws of certain jurisdictions.

***The Company may experience difficulty implementing its business strategy.***

The growth and expansion of the Company is heavily dependent upon the successful implementation of its business strategy. There can be no assurance that the Company will be successful in the implementation of its business strategy.

***Conflicts of interest involving the Company's directors and officers may arise and may be resolved in a manner that is unfavorable to the Company.***

Certain of the Company's directors and officers are, and may continue to be, involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services the Company intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers may conflict with or diverge from the Company's interests. In accordance with applicable corporate law, directors who have a material interest in or who is a party to a material contract or a proposed material contract with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers of the Company are required to act honestly and in good faith with a view to the Company's best interests. However, in conflict-of-interest situations, the Company's directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.

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***Prolonged periods of inflation could increase costs, have an adverse effect on general economic conditions and impact consumer spending, which could impact our profitability and have a material adverse effect on our business and results of operations.***

Inflation has risen on a global basis and countries around the world are experiencing historically high levels of inflation. If the inflation rate continues to increase, it can also push up the costs of labor and other expenses. There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and general economic conditions. Such adverse conditions could negatively impact demand for our products, which could adversely affect our profitability, results of operations and cash flow.

***Currency fluctuations** **may have a material adverse effect on the Company's business, financial condition and operating results.***

Due to the Company's present operations in the United States, and its intention to continue future operations outside Canada, the Company is expected to be exposed to significant currency fluctuations. All or substantially all of the Company's revenue will be earned in U.S. dollars, but operating expenses are incurred in both U.S. and Canadian dollars. The Company does not have currency hedging arrangements in place, and there is no expectation that the Company will put any currency hedging arrangements in place in the future. Fluctuations in the exchange rate between the U.S. dollar and Canadian dollar may have a material adverse effect on the Company's business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.

**Risks Associated With The Securities Of The Company**

***The Company may require additional financing, which may not be available, or may be too expensive.***

The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds, or failure to raise or procure such additional funds at an affordable interest rate in an increasingly higher interest rate environment, could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

***Investors in the Common Shares may experience dilution from future financings.***

The Company may issue additional securities in the future, which may dilute a shareholder's holdings in the Company. The Company's articles permit the issuance of an unlimited number of common shares, and the Company's shareholders will have no pre-emptive rights in connection with such further issuances. C21's Board of Directors ("**Board**") has discretion to determine the price and the terms of further issuances. Moreover, additional common shares will be issued by the Company on the exercise, conversion or redemption of certain outstanding securities of the Company in accordance with their terms. The Company may also issue common shares to finance future acquisitions. The Company cannot predict the size of future issuances of common shares or the effect that future issuances and sales of common shares or other securities will have on the market price of its common shares. Issuances of a substantial number of additional common shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the common shares. With any additional issuance of common shares, investors will suffer dilution and the Company may experience dilution in its revenue per share.

***Company indebtedness could have a number of adverse impacts on the Company, including reducing the availability of cash flows to fund working capital and capital expenses.***

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Any indebtedness of the Company could have significant consequences on the Company, including: increase the Company's vulnerability to general adverse economic and industry conditions; require the Company to dedicate a substantial portion of its cash flow from operations to making interest and principal payments on its indebtedness, reducing the availability of the Company's cash flow to fund capital expenditures, working capital and other general corporate purposes; limit the Company's flexibility in planning for, or reacting to, changes in the business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have greater financial resources; and limit the Company's ability to complete fundamental corporate changes or transactions or to declare or pay dividends.

***There is a limited market for resale of the Company's common shares.***

Notwithstanding that the Company's common shares are listed on the CSE, there can be no assurance that an active and liquid market for such securities will develop or be maintained and securityholders may find it difficult to resell any securities of the Company.

There can be no assurance that the publicly traded price of the Company's common shares will be high enough to create a positive return for investors. Further, there can be no assurance that the common shares will be sufficiently liquid so as to permit investors to sell their position in the Company without adversely affecting the stock price. In such an event, the probability of resale of the common shares would be diminished.

As well, the continued operations of the Company will be dependent upon its ability to procure additional financing in the short term and to generate operating revenues in the longer term. There can be no assurance that any such financing can be obtained or that revenues can be generated. If the Company is unable to obtain such additional financing or generate such revenues, investors may be unable to sell their common shares and any investment in the Company may be lost.

***The price of the Common Shares has been and may continue to be volatile.***

The market price of C21's common shares cannot be predicted and has been and may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company's control. This volatility may affect the ability of shareholders or holders of other securities to sell their securities at an advantageous price. Market price fluctuations in the securities may be due to the Company's operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts' estimates, adverse changes in general market conditions or competitive, regulatory or economic trends, adverse changes in the economic performance or market valuations of companies in the industry in which the Company operates, acquisitions, dispositions, strategic partnerships, joint ventures, capital commitments or other material public announcements by the Company or its competitors or government and regulatory authorities, operating and share price performance of the companies that investors deem comparable to the Company, addition or departure of the Company's executive officers and other key personnel, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Company's securities.

Financial markets have at times historically experienced significant price and volume fluctuations that have particularly affected the market prices of equity and convertible securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of C21's common shares and other securities may decline even if the Company's operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue or arise, the Company's operations may be adversely impacted, and the trading price of the common shares and other securities may be materially adversely affected.

***Maintaining a public listing is costly and will add to the Company's legal and financial compliance costs.***

As a public company, there are costs associated with legal, accounting and other expenses related to regulatory compliance. Securities legislation and the rules and policies of the CSE require listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company's legal and financial compliance costs. The Company may also elect to devote greater resources than it otherwise would have on communication and other activities typically considered important by publicly traded companies.

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***The Company has not paid dividends and does not anticipate paying dividends for the foreseeable future.***

The Company has not paid dividends to shareholders in the past and does not anticipate paying dividends in the foreseeable future. The Company expects to retain its earnings to finance growth, and where appropriate, to pay down debt.

***The Company is a Foreign Private Issuer under U.S. Securities Laws.***

The Company is a "foreign private issuer", under applicable U.S. federal securities laws, and is, therefore, not subject to the same requirements that are imposed upon U.S. domestic issuers by the United States Securities and Exchange Commission (the "**SEC**"). Under the Exchange Act, the Company is subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, the Company does not file the same reports that a U.S. domestic issuer would file with the SEC, although the Company is required to file with or furnish to the SEC the continuous disclosure documents that it is required to file in Canada under Canadian securities laws. In addition, the Company's officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. Therefore, the Company's shareholders may not know on as timely a basis when the Company's officers, directors and principal shareholders purchase or sell Common Shares, as the reporting periods under the corresponding Canadian insider reporting requirements are longer.

As a foreign private issuer, the Company is exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. The Company is also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While the Company complies with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, the Company may not be required under the Exchange Act to file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act.

***The Company could lose Foreign Private Issuer status, which would alter its reporting requirements.***

The Company may in the future lose its foreign private issuer status if a majority of its common shares are held in the U.S. and if the Company fails to meet the additional requirements necessary to avoid loss of its foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer using the standard foreign form or as Canadian foreign private issuer eligible to use the multi-jurisdictional disclosure system adopted by the securities regulatory authorities in United States and Canada ("**MJDS**"). If the Company is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer.

***The Company is an emerging growth company and relies on exemptions from certain disclosure requirements which may make its common shares less attractive to investors.***

The Company is an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and the Company will continue to qualify as an emerging growth company until the earliest to occur of: (a) the last day of the fiscal year during which the Company has total annual gross revenues of US$1,235,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the Securities Act, as amended; (c) the date on which the Company has, during the previous three year period, issued more than US$1,235,000,000 in non-convertible debt; and (d) the date on which the Company is deemed to be a "large accelerated filer", as defined in Rule 12b-2 under the Exchange Act. The Company will qualify as a large accelerated filer (and would cease to be an emerging growth company) at such time when on the last business day of its second fiscal quarter of such year the aggregate worldwide market value of its common equity held by non-affiliates will be US$700,000,000 or more.

For so long as the Company remains an emerging growth company, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. The Company cannot predict whether investors will find its common shares less attractive because the Company relies upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the Common Share price may be more volatile. On the other hand, if the Company no longer qualifies as an emerging growth company, the Company would be required to divert additional management time and attention from the Company's development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact the Company's business, financial condition and results of operations.

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**Item 4. Information on the Company**

**A. History and Development of the Company**

**History**

The Company was incorporated in the Province of British Columbia under the Company Act (British Columbia) on January 15, 1987, as Empire Creek Mines Inc. On May 11, 1987, the Company changed its name to Curlew Lake Resources Inc. Effective November 24, 2017, the Company changed its name to C21 Investments Inc.

On June 15, 2018, the common shares of the Company were delisted from the TSXV and on June 18, 2018, the common shares of the Company commenced trading on the CSE under the symbol "CXXI". The Company registered its common shares in the United States and on May 6, 2019, its common shares were cleared by FINRA for trading on the OTC Markets platform under the U.S. trading symbol "CXXIF". On August 23, 2019, the Company announced it had been approved for trading on the OTCQB Venture Market, and on September 28, 2020 the Company commenced trading on the OTCQX Best Market.

The Company's corporate office and principal place of business is 19<sup>th</sup> Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4. The Company's telephone number is +1 833-289-2994 and its corporate website is www.cxxi.ca. The information contained on its website is not incorporated by reference into this Annual Report. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.

**Development**

Since the Company changed its focus to the cannabis market on January 29, 2018, the Company has aggressively grown its business, based primarily on its acquisition and optimization of assets in Nevada in 2019. The Company funded its acquisitions through private placement financings and convertible debentures.

During 2019, the Company has closed its acquisitions of Silver State Relief LLC (retail) and Silver State Cultivation LLC (cultivation and extraction) located in Nevada, and closed its acquisitions and subsequently sold off the majority of its assets with respect to Eco Firma Farms LLC (cultivation), Megawood Enterprises Inc (retail), Phantom Venture Group, LLC and Phantom Brands, LLC (cultivation, extraction and wholesale) and Swell Companies Limited (extraction and wholesale), located in Oregon. The Company is no longer operational in Oregon and has sold its remaining real and personal property in Oregon.

**Strategic Initiatives**

The Company's strategic initiatives over the next 12 months include extending our Nevada retail footprint where we have a proven track record of success, continuing our disciplined approach to growth and financing, and internally producing product to expand our Nevada retail footprint.

The Nevada cultivation expansion was completed in January 2023 at a total cost of $3.0 million dollars. The total completed expansion more than doubled the Company's annual production capacity to 8,100 pounds of high-quality flower. On June 7, 2024 the Company completed the acquisition of an operational retail cannabis store and license for a purchase price of $3.5 million dollars. This was financed from cash on hand and a private placement financing completed in May 2024.

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**Completed Acquisitions - Nevada**

**Nevada**

***Silver State Cultivation LLC and Silver State Relief LLC - Nevada, USA***

On January 15, 2019, the Company completed the acquisition of 100% of the membership interests of both Silver State Relief LLC and Silver State Cultivation LLC (collectively "**Silver State**"), which are Nevada limited liability companies. The acquisition was made effective January 1, 2019. Silver State operates indoor cannabis cultivation and processing in a licensed facility in Sparks, Nevada, and owns three retail licenses that operate cannabis dispensaries in Sparks, Reno and Fernley, Nevada.

In consideration for 100% of the membership interests of Silver State, the Company paid total consideration of $49,105,048, which included a secured promissory note to the vendor, Sonny Newman, for $30,000,000 (the "**Newman Note**"). Mr. Newman was subsequently engaged by the Company to act as its President and Chief Executive Officer.

*Acquisition of New Dispensary from Deep Roots Harvest Inc. ("Deep Roots")*

On June 7, 2024, the Company closed the acquisition of all the assets of a 6,500 square-foot, purpose-built, operational retail cannabis dispensary located in Reno, Nevada from Deep Roots. This acquisition will allow C21 to expand its retail footprint in Nevada, a pivotable step in its growth strategy. This store is being integrated and rebranded under the Silver State Relief banner. The purchase price paid by Silver State Relief to Deep Roots was $3,500,000 in cash. The new Reno dispensary rebranded "Silver State", was opened for business on June 26, 2024.

*Promissory Note to Sonny Newman* 

Effective November 21, 2019, Mr. Newman and the Company agreed to amend the terms of the Newman Note, with a remaining principal balance of $21,800,000. The December 1, 2019, principal payment of $800,000 was cancelled and the principal monthly payments thereafter were reduced to $600,000 per month. Further, the annual interest rate on the note was reduced from 10% to 9.5%. The remaining balance on the note was then due and payable on July 1, 2020.

Effective June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the Newman Note, with the remaining principal balance of $18,200,000. The maturity date of the Note was extended from July 1, 2020, to January 1, 2021, and all other terms of the Newman Note remained the same, including the monthly payment obligations of principal and interest.

Effective November 19, 2020, Mr. Newman and the Company agreed to further amend the terms of the Newman Note, with the remaining balance of $15,200,000. The remaining balance of the Note was termed out 30 months to May 1, 2023, and the monthly payments reduced to $506,666 per month; all other terms of the Newman Note remained the same. As at January 31, 2023, the outstanding balance of the Newman Note was $2,026,667, and is $nil as of the date of this Annual Report.

Effective February 6, 2023, Mr. Newman and the Company agreed to defer payment of the principal portion of the March 1, 2023, payment on the Newman Note to facilitate the cash payment on settlement with the Swell vendors. The payment was deferred to June 1, 2023. The Newman Note was fully repaid on June 1, 2023.

*Silver State Buildings*

The Silver State Relief dispensary in Sparks, Nevada was the first dispensary in Nevada and opened in July 2015 selling medical cannabis. In July 2017, the sale of recreational cannabis commenced, and in January 2019 a second dispensary location was opened in Fernley, Nevada.

The Silver State businesses operate in four buildings in Northern Nevada. A cultivation/production warehouse and a dispensary are both located in Sparks, Nevada. The other two are dispensaries, the first is a dispensary located in Fernley, Nevada, which opened on January 15, 2019, and the second is the new dispensary located in South Reno, Nevada. The Company has the option, exercisable during the term of its leases, to acquire three of the real estate assets of Silver State including: the land and 158,000 square-foot building ("**Stanford Way**") located in Sparks, Nevada that houses its cultivation and extraction facility; the land and 8.000 square foot retail dispensary building ("**Greg Street**") located in Sparks, Nevada, currently servicing more than 26,000 customers per month; and the 6,000 square foot dispensary and land located in Fernley, Nevada ("**Fernley**"), currently servicing more than 18,000 customers per month. The option price for Stanford Way is $12,700,000, payable in cash or common shares of the Company at $3.50 per common share, at the election of the landlord. The option price for Greg Street is $3,300,000, payable in cash. The option price for Fernley, extended on June 30, 2020, along with the lease term, to July 31, 2023, is $2,228,000, payable in cash.

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On November 19, 2020, the Company and the landlord agreed that the purchase options for the Greg Street and Fernley dispensaries would be extinguished. The leases on each of the 3 properties were extended to December 31, 2027, with a 5-year renewal option.

On February 28, 2023, the Company and the landlord agreed new lease agreements for the Greg Street and Fernley dispensaries. The leases have a 7-year term with options for up to three renewal terms of 7-years each.

As part of the acquisition of the South Reno dispensary license on June 7, 2024, the Company signed a 10-year lease which runs to June 30, 2034, with options for two periods of seven years. The 6,500 square foot dispensary is located in South Reno, Nevada and currently services more than 13,000 customer a month.

Today there are 19 grow rooms at the Silver State cultivation/production warehouse producing approximately 8,100 pounds of flower and 3,300 pounds of trim. Most of this production is sold through the three Silver State dispensaries. Excess production is sold into the wholesale market.

**Completed Financings**

On May 6, 2024, the Company closed a private placement of C$4 million from the issuance of convertible debentures units. The proceeds were used to fund the acquisition of the new South Reno dispensary. The convertible debenture units are comprised of a "Convertible Debenture" convertible into common shares at C$0.45, and a "Warrant" entitling the holder to exercise into common shares at C$0.55. The Convertible Debentures are governed by a trust indenture dated May 6, 2024, entered into between the Company and Alliance Trust Company ("Alliance"), as trustee, registrar and transfer agent in connection with the Convertible Debentures. The maximum shares issuable from the Convertible Debenture is 8,888,889 common shares, and from the Warrant, 4,000,000 common shares. The outstanding principal amount owing under the Convertible Debenture will accrue interest from the issue date at 12% per annum payable quarterly in cash. Repayment of the Convertible Debenture will be made in 25 equal monthly installments beginning on the last day of the 6th month from issuance. The Convertible Debenture matures 30 months after issuance.

**Completed Acquisitions and Dispositions - Oregon**

***Megawood Enterprises Inc - Oregon, USA (Sold)***

On January 23, 2019, the Company completed the acquisition of 100% of the common shares of Megawood Enterprises Inc ("**Pure Green**"), an Oregon corporation, which includes its retail location at 3738 Sandy Blvd. NE, Portland, OR. In consideration for 100% of the common shares of Pure Green, the Company paid total consideration of $794,888.

On January 7, 2021, the Company entered into the Oregon Agreement (as defined herein), pursuant to which, among other things, involved the sale of the Pure Green assets, and the assumption by the buyer of the lease at the Pure Green facility. Subsequent to the sale of the Pure Green assets, Pure Green was dissolved and is no longer in operation. See "*Sale of Non-Core Oregon Assets*" below.

***Phantom Venture Group, LLC and Phantom Brands, LLC - Oregon, USA (Non-operational/Sold)***

On February 4, 2019, the Company completed its acquisition of 100% of the membership interests of Phantom (as defined below), which encompasses the following limited liability companies: Phantom Venture Group, LLC, Phantom Distribution, LLC, 63353 Bend, LLC, 20727-4 Bend, LLC, 4964 BFH, LLC, and Phantom Brands, LLC (collectively "**Phantom**"). Phantom operates two outdoor cannabis cultivation facilities totaling 80,000 square feet in Southern Oregon. Phantom also operates a 5,600 square foot facility which includes a wholesale distribution warehouse and an extraction laboratory and a 7,700 square foot state-of-the-art indoor grow facility in Central Oregon.

In consideration for 100% of the membership interests of Phantom, the Company paid total consideration of $10,539,260 as follows:

(i) cash deposits on closing of $3,200,000

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(ii) a promissory note for $290,000;

(iii) issuance of 2,670,000 common shares of the Company valued at C$1.23/common share;

(iv) issuance of 1,700,000 share purchase warrants of C21, each warrant exercisable for one common share at a price of C$1.50 per common share; and,

(v) issuance of earnout shares of up to a maximum of 4,500,000 common shares of C21 (the "**Phantom Earn-Out Shares**"), to be issued over a period of seven years, contingent upon the achievement of certain stock price targets of C21 or change of control of C21 at certain stock price valuation targets (50% of the Phantom Earn-Out Shares issuable upon change of control of the Company at a valuation of C$3.00 per C21 common share or more; 100% of the Phantom Earn-Out Shares issuable upon change of control of the Company at a valuation of at least C$5.00 per C21 common share).

On January 19, 2022, the Company entered in the Southern Oregon Agreement (as defined herein), pursuant to which, among other things, involved the sale of the two Phantom outdoor cannabis cultivation facilities in Southern Oregon. On March 9, 2023, the Company executed a settlement agreement to terminate the Southern Oregon Agreement. The lessee failed to make the minimum payments under the agreement and the Company exercised its right to terminate the Agreement. The lessee paid $500,000 as consideration for the two cannabis licenses in Southern Oregon. The land and equipment in Southern Oregon will be listed for sale.

On April 28, 2022, the Company entered into the Central Oregon Agreement (as defined herein), pursuant to which, among other things, the Company sold three (3) Bend, Oregon cannabis licenses. The Company had remaining lease payment obligations in connection with the Phantom Tier I indoor cultivation facility, the processing facility and the wholesale distribution facility in Central Oregon until January 2024, but on March 27, 2023, the Company executed a lease surrender agreement with the subject landlord and paid out the remaining term of the three Phantom leases which had term to January 2024, in exchange for the equivalent of one month's abated rent on each of the three leases.

Phantom is no longer in operation; however, the Company has retained the Phantom Farms and Hood Oil brands, and will be listing the Southern Oregon real and personal property assets for sale. See "*Sale of Non-Core Oregon Assets*" below.

***Swell Companies Limited - Oregon, USA (Sold)***

On May 24, 2019, the Company completed its acquisition of 100% of the common shares of Swell Companies Limited ("**Swell**"), an Oregon corporation. Swell is a processor and wholesaler of THC and CBD products.

In consideration for 100% of the common shares of Swell, the Company paid or agreed to pay total consideration of $18,812,683 as follows:

(i) cash deposits on closing of $5,050,000;

(ii) liabilities assumed of $1,070,907;

(iii) $1,000,000 in the form of a 2-year convertible note at 10% interest, upon close;

(iv) 1,266,667 common shares of C21 on closing;

(v) 1,200,000 warrants to purchase common shares of C21 with an exercise price of C$1.50 per common share;

(vi) 456,862 common shares issuable on November 24, 2020;

(vii) 2,450,000 common shares issuable on May 24, 2021. Upon the vendors' election, up to $5 million in cash to be received 24 months from the closing date if the average closing price of the Company's shares over the 15 trading days immediately preceding the payment date is less than C$3.75 per share. If the vendors elect to take cash, common shares issuable would be reduced to 783,333; and,

(viii) issuance of up to a maximum of 6,000,000 earn out common shares (the "**Swell Earn-Out Shares**"), to be issued over a period of seven years, contingent upon the achievement of certain stock price targets of C21, and 50% of the Swell Earn-Out Shares issuable upon change of control of C21 and 100% of the Swell Earn-Out Shares issuable upon change of control of C21 at a C21 valuation of at least C$5.00 per C21 common share.

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On February 13, 2023, the Company announced the cancellation of most of the Swell Earn-Out Shares. The Company entered into agreements with certain Swell vendors to extinguish the Company's obligation to issue 4,792,800 common shares in exchange for a cash payment of $575,136.

As of the date of this Annual Report the outstanding balance of Swell Earn-Out Shares is 1,207,200 common shares.

***Eco Firma Farms LLC - Oregon, USA (Non-Operational)***

On June 13, 2018, the Company completed the acquisition of 100% of the membership interests of Eco Firma Farms LLC ("**EFF**"), an Oregon limited liability company (former subsidiary of Proudest Monkey Holdings LLC), which owned and operated a 22,000 square-foot cannabis production facility, and related assets, in Oregon. On June 28, 2018, and July 6, 2018, the Company announced certain post-closing adjustments with respect to the acquisition of EFF. In consideration for 100% of the membership interests of EFF, the Company paid total consideration of $7,849,684.

The vendors of Eco Firma Farms LLC can also earn up to 3,948,750 (was 6,500,000, see below December 28, 2018 restructuring) common shares of C21, at a deemed issue price of $1.00 per common share, over a maximum seven-year period, if the EBITDA earned by the Company in relation to EFF satisfies certain agreed upon amounts (the "**EFF Earn Out**"). Management has determined that the EFF Earn-Out has no value.

On December 28, 2018, the Company restructured certain real estate rights connected with its EFF operations. Under the restructured arrangement, for a $3,800,000 purchase price, the Company formally acquired the real estate assets housing EFF's cultivation operations under a vendor finance arrangement that converted rental payments into mortgage interest payments. As part of the restructuring, two of the vendors of EFF agreed, among other things, to assign the rights to their 39.25% share of the EFF Earn-Out to a wholly owned subsidiary of the Company.

On May 10, 2019, the Company issued 3,983,886 common shares (the common shares were issued subject to escrow release in four consecutive monthly installments of 25% each commencing on September 14, 2019), at a deemed price of $0.825 per common share, to settle the $3,800,000 purchase price for the real property used in EFF's operations, in addition to assuming the $513,294 balance under the first mortgage for the property.

Cultivation activities at the EFF facility were temporarily shuttered in October 2019. The EFF facility was under third-party management pursuant to a management agreement dated June 15, 2020, whereby the management company has assumed all costs at the facility including real property taxes and costs. On March 8, 2022, the Company terminated the management agreement. The EFF land and building has been sold during the year ended March 31, 2025.

***Sale of Non-Core Oregon Assets***

On January 7, 2021, the Company announced entering into a definitive agreement (the "**Oregon Agreement**") for the sale of select non-core assets in Oregon, currently under third-party management agreements for $1.3 million. These assets included the Company's Portland licenses and BHO processing equipment and the Dab Society brand, including an assumption by the buyer of the respective leases at the Swell and the Pure Green facilities. The parties received Oregon Liquor Control Commission ("**OLCC**") approval to the transfer of the licenses and effective April 23, 2021, the funds were received, and the sale was closed.

On January 19, 2022, the Company announced entering into a definitive agreement (the "**Southern Oregon Agreement**") for the sale of select assets, including its real property located in Southern Oregon and associated outdoor production licenses and equipment, for $2.0 million. The Company has received a $100,000 cash down payment with an additional $400,000 to be paid upon the buyer's receipt of the OLCC approval of the license transfer and closing. The Company will receive interest-only monthly installments starting in July 2022 at an annual interest rate of 8%, including annual principal payments of $100,000, on a $1.5 million secured promissory note maturing on the fifth (5<sup>th</sup>) anniversary of the agreement.

On April 28, 2022, the Company entering into a definitive agreement (the "**Central Oregon Agreement**") for the sale of select assets, including its indoor production license, wholesale license and processing license located in Bend, Oregon, and certain nominal equipment, for $87,500. The Company has received full payment under the Central Oregon Agreement and the licenses are in the process of being transferred.

On March 9, 2023, the Company executed a settlement agreement to terminate the Southern Oregon Agreement. The lessee failed to make the minimum payments under the agreement and the Company exercised its right to terminate the Agreement. The lessee paid $500,000 as consideration for the two production licenses in Southern Oregon. The land and equipment in Southern Oregon was sold during the year ended March 31, 2025.

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**B. Business Overview**

The Company is a vertically integrated cannabis company that cultivates, processes, distributes and sells quality cannabis and hemp-derived consumer products in Nevada, U.S.A. The Company is focused on value creation through the disciplined acquisition and integration of core retail, manufacturing, and distribution assets in strategic markets, leveraging industry-leading retail revenues together with high-growth potential and multi-market branded consumer packaged goods ("**CPG**").

The Company focuses on scalable opportunities in key markets that take advantage of its core competencies, including: (i) retail operational excellence and expanding its retail footprint through value-add acquisitions in existing markets, and (ii) branded CPG expansion through both captive retail and wholesale channels. The Company focuses on acquiring businesses that provide immediate contribution to overall profitability, or have a path to profitability within twelve months, where it can leverage existing assets, brands, and domain expertise.

The Company currently holds licenses in Nevada, spanning the entire cannabis supply chain.

The Company is operated by a management team that has significant professional experience, including deep experience both within the cannabis industry and other fast-paced growth industries like technology, healthcare, and venture capital. The Company's management team also includes experts from more traditional industries like forestry, manufacturing, real estate, and capital markets.

***Cultivation and Processing***

Through Silver State in Nevada, the Company operates its indoor cultivation and processing out of a 104,000 square foot facility now with 37,000 square feet of cultivation and 1,200 square feet dedicated to volatile extraction. Silver State completed a $3 million expansion of its grow facility in April 2022, more than doubling capacity to 11,500 pounds of biomass with 8,100 pounds of flower and 3,300 pounds of trim annually. An additional 30,000 sq ft of cultivation can be built out on future expansion of Nevada retail footprint, which should produce an additional 6,000 pounds per annum of high-quality flower.

The Company's extraction processing supports branded CPG in both captive retail and wholesale channels. Silver State manufactures Hood Oil cartridges, Phantom Farms pre-rolls, and flower strains, together with the Silver State branded products which include Flower, pre-rolls, and concentrates. These in-house brands make up over 26% of sales in the dispensaries. With the addition of our third dispensary, wholesale sales fell to $1.4 million during the year ended March 31, 2025 ($3.0 million in prior year ended January 31, 2024).

***Retail***

The Company operates three dispensaries with the acquisition of the third store completed on June 7, 2024. An 8,000-square foot retail dispensary, located in Sparks, Nevada, and a 6,000-square foot dispensary located in Fernley, Nevada collectively servicing a total of more than 175,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store.

The new dispensary in Reno is a 6,500 square foot, purpose-built, operational retail cannabis dispensary. With the dispensary's desirable location in a high traffic, flourishing area of South Reno, we have seen strong revenue growth from this acquisition, along with the added benefit of allowing us to expand the portion of our cultivation capacity sell through.

Silver State had total retail sales of $28.7 million during the year ended March 31, 2025 as compared to $25.3 million in the prior full year ended January 31, 2024.

***Branding and Marketing***

The Company utilizes consistent branding and messaging across its retail and wholesale channels under Phantom Farms, Hood Oil, and Silver State Relief. The Company currently sells over 700 distinct SKUs, including the following product categories: CO2 vaporizer pens, live resin vaporizer pens, distillate vaporizer pens, live resin extract, cured resin extract, bulk flower, packaged flower, pre-rolls, CBD cured resin vaporizer pens, CBD CO2 vaporizer pens, and CBD cured resin extracts.

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***Banking and Processing***

In Nevada, the Company deposits funds from its operations into its credit union accounts held at Greater Nevada Credit Union (Nevada) and at Partner Colorado Credit Union through Safe Harbor Private Banking services (Colorado). The Company is fully transparent with its credit union partners regarding the nature of its business.

***Product Selection and Offerings***

Product selection decisions are currently made by the Company's buyers, who negotiate with potential vendors across all product categories including packaged and wholesale flower, vaporizer pens, cured extracts, edibles and pre-rolls. The Company bases its product selection decisions on product quality, margin potential, and scalability.

The Company's branded CPG and flower-based products are sold primarily through captive retail and wholesale channels in Nevada. The Company's retail locations in Nevada also offer third party branded CPG and flower-based products including a wide variety of THC and CBD based products, including vaporizer pens, cured resin extracts, bulk flower, packaged flower, pre-rolls, edibles, tinctures, and topicals.

***Product Pricing***

The Company's wholesale and retail pricing strategies are regularly adjusted in accordance with individual market dynamics. Generally speaking, when pricing adjustments are made within a given market, such adjustments are applied, and held consistently, across all business lines and channel partners.

The state of Nevada does not regulate pricing and licensed dispensing organizations within the state may also set their own prices for cannabis and cannabis products. However, products sold at dispensaries in Nevada are subject to a 10% cannabis excise and sales tax.

***In-Store Pickup, Drive-thru window and Delivery***

The Company's Nevada retail locations offer in-store pickup and delivery utilizing the leading third-party service providers, a leading cannabis sales and fulfillment web-based application. The Company added a Drive-thru window at our Sparks dispensary in the year end January 31, 2024. The Company actively monitors the continued growth of a number of cannabis web-based sales and fulfillment platforms and is well poised to utilize strategic third-party service providers during the ongoing pandemic.

***Inventory Management***

The Company has comprehensive inventory management procedures, which are compliant with all applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict controls over the Company's cannabis flower and CPG inventory from its production, processing and distribution licensees through to ultimate sale to end consumers (or rare cases disposal as cannabis waste). Such inventory management procedures also include strong quality control and quality assurance measures to prevent in-process contamination and maintain the safety and quality of the products. The Company is committed to supplying safe, consistent, and high-quality cannabis flower and CPG products at a value-oriented price.

***Research and Development***

Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same become available and/or are appropriate.

***Competition***

Across a modified and strategic cannabis value chain, the Company expects to continue to vigorously compete with other licensees in Nevada. Nevada is a "limited" license state, as such the broader market dynamics can be more favorable than states with unlimited licenses. Some of the Company's direct competitors continue to be small-scale local operators, but market rationalization through consolidation continues. Of note is the increased participation of multi-state operators with national growth aspirations in the Nevada marketplaces. As more U.S. jurisdictions pass state legislation allowing the recreational use and sale of cannabis, the Company is assured an increased level of competition in U.S. markets. These increasingly competitive U.S. markets may adversely affect the financial condition and operations of the Company.

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***Employees***

The Company's employees are highly talented individuals who have educational achievements ranging from Ph.D., Masters, and undergraduate degrees in a wide range of disciplines, as well as staff who have been trained on the job to uphold the highest standards as set by the Company. The Company hires and promotes individuals who are best qualified for each position, priding itself on using a process that identifies people who are trainable, cooperative and share the Company's core values.

The Company takes all reasonable steps to ensure staff are appropriately informed and trained to ensure a culture of health, safety, and continuous improvement. Wherever possible, the Company will continue to adopt generally accepted health and safety best practices from non-cannabis-related industries and follows all health and safety guidelines issued by the United States Centers for Disease Control ("**CDC**") and all orders from relevant provincial, state and local jurisdictions and authorities.

***Intellectual Property***

The Company has developed numerous proprietary genetics, processes, technologies and products. These assets include genetics, ERP and other software applications, cultivation and extraction technologies, as well as consumer brands. Whenever available and appropriate, the Company undertakes reasonable intellectual property protections to secure these assets.

To date, absent the availability of customary federal patent, trademark, and copyright protections for cannabis applications, the Company has relied on non-disclosure/confidentiality arrangements, common law trade secrets, and state-based trademark protections. The Company actively monitors and responds to all potentially material intellectual property infringements and maintains strict standards and controls regarding the use and dissemination of its intellectual property.

***Government Regulations***

Please see Item 5.D. "United States Regulatory Environment", for a discussion of the material effects of government regulations on the Company's business.

In addition, the Company owns four (4) website domains including: www.cxxi.ca, www.phantom-farms.com, www.silverstaterelief.com and c21supply.co, along with numerous social media accounts across all major platforms.

**C. Organizational Structure**

The Company conducts its business as the parent company to the following ten (10) significant subsidiaries in the United States:

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| | |
|:---|:---|
| **Name of Subsidiary** | **Principal Activity** |
| 320204 US Holdings | Holding Company |
| 320204 Oregon Holdings Corp | Holding Company |
| 320204 Nevada Holdings Corp | Holding Company |
| 320204 Re Holdings, LLC | Holding Company |
| Eco Firma Farms LLC (\*) | Cannabis producer |
| Silver State Cultivation LLC | Cannabis producer |
| Silver State Relief LLC | Cannabis retailer |
| Phantom Venture Group LLC (\*) | Holding Company |
| Phantom Brands, LLC (\*) | Holding Company |
| Phantom Distribution, LLC (\*) | Cannabis distributor |
| Workforce Concepts 21, Inc | Payroll and benefits services |

---

(\*) Operations discontinued and results included in discontinued operations

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**D. Property, Plants and Equipment**

Our executive offices are located at 19<sup>th</sup> Floor, 885 West Georgia Street, Vancouver, BC, V6C 3H4.

Our Sparks, Nevada production and processing facility is located at 250 S Stanford Way, Sparks, NV 89431. This facility is a total of 104,000 square feet, with 37,000 square feet utilized for cultivation of cannabis flower, and 1,200 square feet utilized for extraction and processing of cannabis products.

Our Sparks, Nevada dispensary is located at 175 E Greg Street, Sparks, NV 89431. This retail building is 8,000 square feet primarily selling the Company's cannabis flower and products and third-party cannabis products.

Our Fernley, Nevada dispensary is located at 1301 Financial Way, Fernley, NV 89408. This retail building is 6,000 square feet, primarily selling the Company's cannabis flower and products and third-party cannabis products.

Our Reno, Nevada dispensary is located at 12240 Old Virginia Road, Reno, NV 89521. This retail building is 6,500 square feet, primarily selling the Company's cannabis flower and products and third-party cannabis products.

Our Canby, Oregon production facility is located at 24700 S Mulino Road, Canby, OR 97013. The Canby property has been sold during the year ended March 31, 2025.

The Company no longer leases properties in Central Oregon. In March 2023, the Company paid out the remaining 11 months of the three Bend real property leases and vacated the premises.

Our Southern Oregon outdoor cannabis production facilities are located at 4962 and 4964 Butte Falls Highway, Eagle Point, Oregon, 97524. The associated real property is approximately 60 acres, and the facilities include a total of 80,000 square feet of production capacity. In 2023, the transfer of the licenses was approved and were transferred pursuant to the Southern Oregon Agreement. Payment for the Southern Oregon production facilities and real property was not made, and the Company has terminated the agreement. The Company sold the facilities during the year ended March 31, 2025.

**Item 4A. Unresolved Staff Comments**

Not applicable.

**Item 5. Operating and Financial Review and Prospects**

**A. Operating Results**

The Company previously presented its financial statements in conformity with the International Financial Reporting Standards, as issued by the International Accounting Standards Board ("**IFRS**"). Beginning for the fiscal year ended January 31, 2022, the Company changed the accounting principles governing the presentation of its consolidated financial statements to the U.S. generally accepted accounting principles ("**U.S. GAAP**").

Financial statements included in this Annual Report for the fiscal year ended March 31, 2025, two months ended March 31, 2024 and 12 months ended January 31, 2024, were prepared in conformity with U.S. GAAP.

**Financial Information for three years to FY 2024 in accordance with U.S. GAAP**

The following table presents selected financial information for the year ended March 31, 2025, two months ended March 31, 2024 and 12 months ended January 31, 2024.

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| | | | |
|:---|:---|:---|:---|
|  |  | **Two months** |  |
| **C21 Investments Inc., PROFIT AND LOSS** | **Year ended** | **ended** | **Year ended** |
|  | **31-Mar-25** | **31-Mar-24** | **31-Jan-24** |
| **Revenue** | 30117880 | 4464950 | 28285200 |
| Inventory expensed to cost of sales | 17558940 | 2688650 | 17135434 |
| **Gross profit** | 12558940 | 1776300 | 11149766 |
| Gross Margin% | 41.7% | 39.8% | 39.4% |
| **Expenses** |  |  |  |
| General and administration | 7728838 | 1151305 | 7537233 |
| Sales, marketing, and promotion | 207634 | 21581 | 75561 |
| Operating lease cost | 785241 | 106283 | 633840 |
| Depreciation and amortization | 1706012 | 207225 | 1408976 |
| Share based compensation | 849559 |  | 22128 |
| **Total expenses** | 11277284 | 1486394 | 9677738 |
| **Income from operations** | 1281656 | 289906 | 1472028 |
| **Other items** |  |  |  |
| Interest expense | (293675) |  | (35210) |
| Accretion expense | (509871) |  |  |
| Other Income (loss) | (135446) | 9209 | (726789) |
| Gain on change in fair value of derivative liabilities | 52257 | 22189 | (451372) |
| **Net income (loss) from continuing operations before income taxes** | 394921 | 321304 | 258657 |
| Income tax expense | (4151650) | (372743) | (3482125) |
| **Net income (loss) from continuing operations after income taxes** | (3756729) | (51439) | (3223468) |
| **Net loss from discontinued operations** | (212813) | (22965) | (81817) |
| **Net income (loss)** | (3969542) | (74404) | (3305285) |
| **Income (loss) from continuing operations per share, basic and diluted** | (0.03) | (0.00) | (0.03) |
| **Basic and diluted income (loss) per share** | (0.03) | (0.00) | (0.03) |
| **Distributions or cash dividends** | n/a | n/a | n/a |
| **Weighted average number of shares outstanding - basic** | 119794951 | 120047814 | 120047814 |
| **Weighted average number of shares outstanding - diluted** | 120588044 | 122880907 | 122880907 |

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All the current and comparative figures are in U.S. GAAP.

"**Revenue**" includes retail revenues from our three stores and wholesale revenue from our cultivation operations. Financial Year ("**FY**") and the year ended March 31, 2025 **("FY2025")** and the year ended January 31, 2024 ("**FY2024**") are defined here. The two month fiscal year ended March 31, 2024 is not used for comparison in this discussion due to it is only two months. FY 2025 revenues increased versus FY 2024 by 6.5% to $30.1 million. This increase is mainly due to the opening of our third store in June 2024, offset by a fall in wholesale revenues.

**"Cost of Sales"** includes the costs directly attributable to cultivating and processing cannabis plus the cost of product purchases from third parties, for sale in our stores. With the expansion of our cultivation facility our cost of production has come down due to economies of scale. We use an average costing model which captures and averages costs over several quarters.

"**Gross profit**" increased by $1.41 million in FY 2025 to $12.56 million (41.7% of Revenue) versus FY 2024 of $11.15 million (39.4% of Revenue), mainly due to economies of scale with the added third store.

**"Income from operations"** despite the increase in gross profit above, Income from operations for FY 2025 fell to $1.3 million, down 13% versus FY 2024 of $1.5 million. This result is due to increased share-based compensation expense (a non-cash expense) and smaller increases in other costs due to the opening of the third store and general inflation.

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**Expenses** 

"**General and administration**" includes all overhead costs that have not otherwise been allocated to cost of sales. These include salaries and wages, professional fees including legal and accounting, insurance and some local taxes. FY 2025 costs were $7,728,838 versus $7,537,233 (FY2024), an increase of $191,605 (2.5%) due to increased salaries, wages and professional fees.

**"Operating lease cost"** is the cost of our facility leases not included in cost of sales and were $785,241 in FY 2025 versus $633,840 in FY 2024. The increase is due to the addition of our third store.

"**Depreciation and amortization**" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in FY2025 was $1,706,012 versus $1,408,976 in FY 2024. This increase is due to the amortization of intangibles and fixed assets of our third store which opened in Q1.

"**Share based compensation**" is a non-cash item and reflects the issuance of stock options to employees, officers, and directors. The increase of $827,431 in FY 2025 is due to the issuance of stock options in Q1.

**Other Items**

"**Interest expense**" in FY2025 increased to $293,675 versus $35,210 in FY 2024 due to issuance of the 12% convertible debentures in Q1.

"**Other income (loss)**" in FY2025 is a loss of $135,446 versus a loss of $726,789 in FY 2024, which included a $830,000 write-down of the book value of a property held in Oregon.

**"Change in fair value of derivative liabilities"** is a periodic revaluation of the earn out shares outstanding to vendors of businesses purchased by the Company. These earn-out shares are revalued using a Monte Carlo simulation. The fair value of this liability will increase with an increase in the stock price of the Company and vice versa. The change in fair value must be recorded through the Company's profit or loss statement. As a result, a share price increase period-over-period will result in a reduction in net income and vice versa. In February and March 2023, the Company entered into cancelation agreements with the majority of the Swell Vendors who had rights to Swell Earn-Out shares, canceling those rights for a one-time cash payment. Of the 6.0 million original Swell Earn-Out shares 1.2 million remain outstanding. Of the original 10.5 million of earn out shares to both Phantom and Swell, 1.2 million remain. The Swell Earn-Out shares expire May 24, 2026.

**"Provision for income taxes"** for FY 2025 of $4,151,650 is up from $3,482,125 in FY2024.

**"Other comprehensive income (loss**),**"** specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (investments made in C$) and the US subsidiaries (US$). These foreign exchange gains or losses at each reporting date result from the translation of C$ amounts to US$(which is our reporting currency).

**"Net income (loss) from discontinued operations"** the Company has classified all of its Oregon operations to 'discontinued operations'. The revenues and expenses pertaining to the Oregon operations are shown in this line item. We have had no active business in Oregon since early 2022. There is no effect of this treatment on our revenues (FY2025 -nil, FY2024-$nil) and our gross profit (FY2025-nil, FY2024-nil) and an increase to our income from operations and net income of (FY 2025-$281,438, FY2024-$81,817). There is no effect of discontinuing the Oregon operations on our Nevada operations as the cannabis business in each state is unique and separate, which is due to the regulation of the cannabis industry. Our remaining two properties in Oregon were both sold to third parties in FY 2025.

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**Fourth Quarter**

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | **2 months** |  |  |  |
| **LAST EIGHT QUARTERS, except as noted (000's unless noted)** | **LAST EIGHT QUARTERS, except as noted (000's unless noted)** | **LAST EIGHT QUARTERS, except as noted (000's unless noted)** | **LAST EIGHT QUARTERS, except as noted (000's unless noted)** |  | **ended** |  |  |  |
|  | **31-Mar-25** | **31-Dec-24** | **30-Sep-24** | **30-Jun-24** | **31-Mar-24** | **31-Jan-24** | **31-Oct-23** | **31-Jul-23** |
| Inventory | 4051 | 3885 | 3975 | 3300 | 2866 | 2709 | 2839 | 3038 |
| **Revenues** | 8106 | 7908 | 7509 | 6596 | 4465 | 6549 | 6882 | 7162 |
| Income (loss) from operations, adding back share based compensation | 974 | 1122 | 454 | (418) | 290 | 493 | 226 | 217 |
| Adjusted EBITDA | 1692 | 1568 | 1295 | 311 | 633 | 1055 | 943 | 972 |
| Income (loss) from continuing operations | (1530) | (81) | (759) | (1386) | (51) | (2082) | (357) | (397) |
| \*per common share, basic & diluted | (0.01) | (0.00) | (0.01) | (0.01) | (0.00) | (0.02) | (0.00) | (0.00) |
| Profit (loss) attributable to owners | (1563) | (1) | (845) | (1412) | (74) | (2042) | (376) | (416) |
| \*per common share basic & diluted | (0.01) | (0.00) | (0.01) | (0.01) | (0.00) | (0.02) | (0.00) | (0.00) |

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Revenues continued to grow in the last 12 months with the opening of our third store in South Reno on June 26, 2024. Inventory balance at March 31, 2025, increased by $1.2 million since March 31, 2024 due to the opening of our third store.

Adjusted EBITDA for quarter-ended March 31, 2025, was up slightly from the quarter-ended Dec 31, 2024, mainly due to the economies of scale from the addition of our third store. See non-GAAP financial measures below.

Federal corporate income taxes are very high in the cannabis industry due to the restrictions of Section 280E of the U.S Internal Revenue Code. Share- based compensation is a large non-cash expense in the current year. Therefore, the measure of income from operations (before taxes), adding back share-based compensation is a useful measure.

Adjusted EBITDA for the full year ended March 31, 2025 (FY 2025) is $4.87 million, an increase of $335,336 from FY 2024 of $4.53 million. See explanation of Non-GAAP financial measures below.

**Non-GAAP Financial Measures**

"**Adjusted EBITDA**" is supplemental, non-GAAP financial measures. The Company defines EBITDA as earnings before depreciation and amortization, depreciation and interest in cost of sales, income taxes, and interest. Additionally, the Company's Adjusted EBITDA presented above excludes accretion, loss from discontinued operations, one-time transaction costs and all other non-cash items. The Company has presented "Adjusted EBITDA" because its management believes it is a useful measure for investors when assessing and considering the Company's continuing operations and prospects for the future. Furthermore, "Adjusted EBITDA" is a commonly used measurement in the financial community when evaluating the market value of similar companies. "Adjusted EBITDA" is not a measure of performance calculated in accordance with GAAP, and these metrics should not be considered in isolation of, or as a substitute for, the measurement of the Company's performance prepared in accordance with GAAP. "Adjusted EBITDA," as calculated and reconciled in the table above, may not be comparable to similarly titled measurements used by other issuers and is not necessarily a measure of the Company's ability to fund its cash needs. Figures have been restated to match the current presentation.

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| | | | |
|:---|:---|:---|:---|
| **Adjusted EBITDA** |  |  |  |
|  | **Year ended** | **2 months ended** | **Year ended** |
|  | **March 31, 2025** | **March 31, 2024** | **Jan 31, 2024** |
| **Net Income (loss)** | $(3969542) | $(74404) | $(3305285) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest, accretion expenses, net | 803546 |  | 35210 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes | 4151650 | 372743 | 3482125 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 1706012 | 207225 | 1408976 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and interest in cost of sales | 812366 | 135395 | 812368 |
| **EBITDA** | 3504032 | 640959 | 2433394 |
| &nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative liabilities | (52257) | (22189) | 451372 |
| &nbsp;&nbsp;&nbsp;&nbsp;Share based compensation | 849559 |  | 22128 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations | 212813 | 22965 | 81817 |
| &nbsp;&nbsp;&nbsp;&nbsp;One-time special project costs | 187543 |  | 159000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Production curtailment, inventory adjustments | 28700 |  | 656000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other gain/loss | 135446 | (9209) | 726789 |
| **Adjusted EBITDA** | $**4865836** | $**632526** | $**4530500** |

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**Selected Annual Information** 

The following table summarizes selected information for the most recent three fiscal year ends.

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| | | | |
|:---|:---|:---|:---|
| **Selected Balance Sheet (000's)** | **as at:** |  |  |
|  | **31-Mar-25** | **31-Mar-24** | **31-Jan-24** |
| **Assets** |  |  |  |
| Cash and other | 3453 | 5272 | 4534 |
| Inventory | 4051 | 2866 | 2709 |
| *current* | 7504 | 8138 | 7243 |
| Property and equipment | 2666 | 3391 | 3433 |
| Goodwill, Intangibles, Right of use | 46830 | 43697 | 43853 |
| *Total assets* | 57000 | 55226 | 54529 |
| **Liabilities** |  |  |  |
| Accounts payable | 2148 | 2593 | 2216 |
| Convertible debentures and other | 2134 | 1156 | 1156 |
| Income taxes payable | 2834 | 10230 | 9720 |
| Deferred tax , other | 841 | 1067 | 1073 |
| *current* | 7957 | 15047 | 14165 |
| Lease liabilities | 9771 | 9120 | 9193 |
| Uncertain tax position | 9823 |  |  |
| Convertible debentures | 710 |  |  |
| Derivative liability | 28 | 85 | 108 |
| other | 35 |  | 16 |
| *Non-current financial liabilities* | 20367 | 9205 | 9317 |
| Equity | 28676 | 30973 | 31047 |
| *Total liabilities and equity* | 57000 | 55226 | 54529 |

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**"Total Assets"** increased in the past year due to the effects of the purchase of our third dispensary in June 2024 for consideration of $3.5 million. This acquisition reduced our cash balance, increased inventory to stock the new store, and increased intangibles.

**"Current liabilities"** has decreased mainly due to the change in our position on the 280E income taxes. This change in position has moved much of the income tax payable balance to long term included in Uncertain tax position. The convertible debenture balance increased with the issuance of 12% convertible debentures to assist in funding the acquisition of the third dispensary.

**"Non-current financial liabilities"** has increased in the past year with the change in our position on 280E income taxes. Uncertain tax position is $9.8 million versus nil at prior balance sheet dates. Smaller increases in lease liabilities and convertible debentures both arose from the acquisition of the third dispensary.

**B. Liquidity and Capital Resources** 

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investment and financing activities. Management and the Board are actively involved in the review, planning and approval of significant expenditures and commitments.

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The Company's consolidated financial statements for year ended March 31, 2025, have been prepared on a going concern basis, which assumes that the Company will be able to continue its operations and realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

There remains uncertainty about the U.S. federal government's position on cannabis with respect to cannabis-legal states. A change in its enforcement policies could impact the ability of the Company to continue as a going concern and have a material adverse impact on the business.

The following table is a summary of C21's balance sheet exposure to U.S. cannabis-related activities as of March 31, 2025:

![form20fxu002.jpg](form20fxz003.jpg)

The following represents the portion of certain assets on C21's consolidated balance sheet that pertain to U.S. Cannabis activity as of March 31, 2025:

* Inventory: 100%

* Property plant & equipment: 100%

* Intangible assets and goodwill: 100%

* Notes receivable and deposits: 76%

The Company's objectives when managing its capital are to ensure there are enough capital resources to continue operating as a going concern and maintain the Company's ability to ensure sufficient levels of funding to support its ongoing operations and development. The purpose of these objectives is to provide continued returns and benefits to the Company's shareholders. The Company's capital structure includes items classified in debt and shareholders' equity.

The Company manages its capital structure and makes adjustments to it in light of economic conditions and financial needs. The Company, upon approval from its Board, will balance its overall capital structure through new share issues or by undertaking other activities as deemed appropriate under the specific circumstances.

The Board does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business considering changes in economic conditions and the risk characteristics of the Company's underlying assets.

The Company works with its capital advisors CB1 Capital Advisors, LLC ("**CB1**"), organized in Delaware and based in New York, to identify the best strategic options to execute our corporate growth plans, as well as increasing financial flexibility in managing our debt.

The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company, especially in the current higher interest rate environment. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

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For further information, see Management's Discussion and Analysis, attached hereto as <u>Exhibit 15.1</u>, and incorporated by reference herein.

**C. Research and Development, Patents and Licenses, etc.**

Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same become available and/or are appropriate.

**D. Trend Information**

**United States Industry Background and Trends**

The emergence of the legal cannabis sector in the United States, both for medical and adult use, has been rapid as more states adopt regulations for its production and sale. Today 60% of Americans live in a state where cannabis is legal in some form and almost a quarter of the population lives in states where it is fully legalized for adult use.

The use of cannabis and cannabis derivatives to treat or alleviate the symptoms of a wide variety of chronic conditions has been generally accepted by a majority of citizens with a growing acceptance by the medical community as well. A review of the research, published in 2015 in the Journal of the American Medical Association, found evidence that cannabis can treat pain and muscle spasms. The pain component is particularly important, because other studies have suggested that cannabis can replace patients' use of highly addictive, potentially deadly opiates - meaning cannabis legalization literally improves lives.

Polls throughout the United States consistently show overwhelming support for the legalization of medical cannabis, together with strong majority support for the full legalization of recreational adult-use cannabis. According to an April 2021 Pew Research Center survey, around nine-in-ten Americans favor some form of cannabis legalization, with only 8% saying cannabis should not be legal in any form. In that survey, 91% of U.S. adults support legalizing cannabis either for medical and recreational use (60%) or medical use only (31%). These are large increases in public support over the past 40 years in favor of legalized cannabis use.

Notwithstanding that 40 states and the District of Columbia have now legalized adult-use and/or medical cannabis, cannabis remains illegal under U.S. federal law with cannabis listed as a Schedule I drug under the CSA.

Currently the Company only operates in the state of Nevada. The Company may expand into other states within the United States that have legalized cannabis use either medicinally or recreationally.

**United States Regulatory Environment**

***U.S Federal Regulatory Environment***

Under U.S. federal law, marijuana is currently a Schedule I drug. The CSA has five different tiers or schedules. A Schedule I drug means the DEA considers it to have a high potential for abuse, no accepted medical treatment, and lack of accepted safety for the use of it even under medical supervision. Other Schedule I drugs are heroin, LSD and ecstasy. The Company believes the CSA categorization as a Schedule I drug is not reflective of the medicinal properties of marijuana or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, has medicinal properties, and can be safely administered. Additionally, while some studies show cannabis is less harmful than alcohol, alcohol is not classified under the CSA.

Forty (40) states and the District of Columbia have now legalized adult-use and/or medical marijuana. The federal government sought to provide guidance to enforcement agencies and banking institutions with the introduction of the U.S. Department of Justice Memorandum drafted by former Deputy Attorney General James Michael Cole in 2013 (the "**Cole Memo**") and FinCEN guidance in 2014.

The Cole Memo offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions regarding marijuana in all states. The memo put forth eight prosecution priorities:

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* preventing the distribution of marijuana to minors;

* preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;

* preventing the diversion of marijuana from states where it is legal under state law in some form to other states;

* preventing the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

* preventing the violence and the use of firearms in the cultivation and distribution of marijuana;

* preventing the drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;

* preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and,

* preventing marijuana possession or use on federal property.

In January 2018, the then United States Attorney General, Jeff Sessions, by way of issuance of a new U.S. Department of Justice Memorandum (the "**Sessions Memo**"), rescinded the Cole Memo and thereby created a vacuum of guidance for U.S. enforcement agencies and the DOJ. Rather than establish national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain marijuana activity was legal under State law, the Sessions Memo instructs that "[i]n deciding which marijuana activities to prosecute... with the [DOJ's] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.

Former United States Attorney General Sessions resigned on November 7, 2018, and was replaced by William Barr on February 14, 2019. On December 14, 2020, former President Trump announced that Mr. Barr would be resigning from his post as Attorney General, effective December 23, 2020. Merrick Garland, President Biden's nominee to succeed Mr. Barr, was sworn in as the current United States Attorney General on March 11, 2021. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memo or announce a substantive marijuana enforcement policy. Justice Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. It is unclear what specific impact the new Biden administration will have on U.S. federal government enforcement policy. There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

Due to the CSA categorization of marijuana as a Schedule I drug, U.S. federal law makes it illegal for financial institutions that depend on the Federal Reserve's money transfer system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses under the Bank Secrecy Act. Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy.

While there has been no change in U.S. federal banking laws to account for the trend towards legalizing medical and recreational marijuana by U.S. states, FinCEN has issued guidance advising prosecutors of money laundering and other financial crimes not to focus their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses, so long as that business is legal in their state and none of the federal enforcement priorities are being violated (such as keeping marijuana away from children and out of the hands of organized crime). The "**FinCEN Guidance**" also clarifies how financial institutions can provide services to marijuana-related businesses consistent with the Bank Secrecy Act obligations, including thorough customer due diligence, but makes it clear that they are doing so at their own risk.

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The customer due diligence steps include:

* verifying with the appropriate state authorities whether the business is duly licensed and registered;

* reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;

* requesting from state licensing and enforcement authorities available information about the business and related parties;

* developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);

* ongoing monitoring of publicly available sources for adverse information about the business and related parties;

* ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and

* refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

Due to the fear by financial institutions of being implicated in or prosecuted for money laundering, cannabis businesses are often forced into becoming "cash-only" businesses. As banks and other financial institutions in the U.S. are generally unwilling to risk a potential violation of federal law without guaranteed immunity from prosecution, most refuse to provide any kind of services to cannabis businesses. Despite the attempt by FinCEN to legitimize cannabis banking, in practice its guidance has not made banks much more willing to provide services to cannabis businesses. This is because, as described above, the current law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence on each cannabis business they take on as a customer. Over the last 18 months, some banks that have been servicing cannabis businesses have been closing accounts operated by cannabis businesses and are now refusing to open accounts for new cannabis businesses for the reasons enumerated above.

The few credit unions who have agreed to work with cannabis businesses are limiting those accounts to no more than 5% of their total deposits to avoid creating a liquidity risk. Since the federal government could change the banking laws as it relates to cannabis businesses at any time and without notice, these credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis businesses in a single day, while also servicing the need of their other customers. Those state-chartered banks and credit unions that do have customers in the cannabis industry charge marijuana businesses high fees to pass on the added cost of ensuring compliance with the FinCEN Guidance. Unlike the Cole Memo, however, the FinCEN Guidance from 2014 has not been rescinded.

The U.S. Treasury Department has publicly stated they were not informed of the then Attorney General Jeff Sessions' desire to rescind the Cole Memo and do not have a desire to rescind the FinCEN Guidance for financial institutions. The former Secretary of the U.S. Department of the Treasury, Stephen Mnuchin, publicly stated that he did not have a desire to rescind the FinCEN Guidance. The newly appointed Secretary of the Treasury, Janet Yellen, has not yet articulated an official Treasury Department position with regard to the FinCEN Guidance and thus as an industry best practice and consistent with its standard operating procedures, the Company adheres to all customer due diligence steps in the FinCEN Guidance.

Because the DOJ memorandums serve as discretionary agency guidance and do not constitute a force of law, cannabis related businesses have worked to continually renew the Rohrabacher-Blumenauer Amendment (originally the Rohrabacher-Farr Amendment) that has been included in federal annual spending bills since 2014. This amendment restricts the DOJ from using federals funds to prevent states with medical cannabis regulations from implementing laws that authorize the use, distribution, possession or cultivation of medical cannabis. In 2017, Senator Patrick Leahy (D-Vermont) introduced a parity amendment to H.R.1625 - a vehicle for the Consolidated Appropriations Act of 2018, preventing federal prosecutors from using federal funds to impede the implementation of medical cannabis laws enacted at the state level, subject to Congress restoring such funding.

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An additional challenge to cannabis-related businesses is that the provisions of Section 280E of the Code are being applied by the IRS to businesses operating in the medical and adult use cannabis industry. Section 280E of the Code prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be.

Another aspect of federal law is that it provides that cannabis and cannabis products may not be transported across state lines in the United States. As a result, all cannabis consumed in a state must be grown and produced in that same state. This dynamic could make it more difficult for the Company, in the short term, to maintain a balance between supply and demand. If excess cultivation and production capacity is created in any given state and this is not matched by increased demand in that state, then this could exert downward pressure on the retail price for the products the Company sells. If too many retail licenses are offered by state authorities in any given state, then this could result in increased competition and exert downward pressure on the retail price for the products the Company sells. On the other hand, if cultivation and production in a state fails to match growing demand then, in the short term, there could be insufficient supply of product in a state to meet demand and while the Company may be able to raise its prices there could be inadequate product availability in the short term, causing the Company's revenue in that state to fall.

Progressive federal legislation has been both introduced in the U.S. House of Representatives ("U.S. House")and received positive votes in recent years. On September 26, 2019, the U.S. House passed the Secure and Fair Enforcement Banking Act of 2019 (commonly known as the "**SAFE Banking Act**"), which aims to provide safe harbor and guidance to financial institutions that work with legal U.S. cannabis businesses. On May 11, 2020, the U.S. House introduced the Health and Economic Recovery Omnibus Emergency Solutions Act (the "**HEROES Act**"), an economic stimulus package which included the language of the SAFE Banking Act. On September 28, 2020, the House introduced a revised version of the HEROES Act, including the text of the SAFE Act for a second time. The revised bill was passed by the U.S. House on October 1, 2020, before going to the Senate. On December 21, 2020, Congress reached a deal for a different $900 billion stimulus package. On April 19, 2021, the U.S. House again passed the SAFE Banking Act. On July 14, 2022, the U.S. House voted to include the SAFE Act in the fiscal year 2023 defense budget bill (the 2023 National Defense Authorization Act - "**NDAA**"), but again, the U.S. Senate required the SAFE Act's removal from the NDAA. On April 23, 2023, Sen. Jeff Merkley (D-OR) and Sen. Steve Daines (R-MT), along with Rep. Dave Joyce (R-OH) and Rep. Earl Blumenauer (D-OR), reintroduced the SAFE Banking Act of 2023. While Congress may introduce and consider this and other legislation in the future that may address issues that are important to the Company, there can be no assurance of the content of any proposed legislation or that any pending legislation will ever be passed.

Further, the Marijuana Opportunity Reinvestment and Expungement Act, also known as the "**MORE Act**", is a proposal to legalize cannabis and expunge prior cannabis related convictions. On November 20th, 2019, the MORE Act was passed by the House Judiciary Committee, and although the U.S. House voted to pass the MORE Act on December 4, 2020, it failed to pass in the Senate prior to the end of the 2020 legislative session. There can be no assurance that it will be passed in its current form or at all.

The Joseph R. Biden Administration and balance of power in U.S. Congress may impact the likelihood of any legal developments regarding cannabis at the national level, including the passage of the SAFE Banking Act and the MORE Act, as well as potential executive action to clarify federal policy toward the industry, although it is uncertain whether and in what manner any such federal changes will occur. On a federal level, President Biden campaigned on a platform that included cannabis decriminalization. Democrats, who are generally more supportive of federal cannabis reform than Republicans, maintained their majority in the U.S. House, although at a smaller margin than initially expected, and have gained sufficient seats in the Senate to control a majority by a single vote. As of this writing, both the SAFE Banking and MORE Acts have yet to receive action in the U.S. Senate, however, in late 2020, incoming Senate Majority Leader Charles Schumer made comments on multipole occasions suggesting that passage of these bills and potential additional favorable federal legislation are on his agenda. The Company continues to monitor U.S. federal law and the law in all jurisdictions where it is active, with respect to (a) compliance with applicable state regulatory frameworks, and (b) potential exposure and implications arising from U.S. federal law.

On July 21, 2022, U.S. Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the Cannabis Administration and Opportunity Act ("**CAOA**"), a much-anticipated bill to federally legalize marijuana and promote social equity. On July 22, 2022, Assistant Democratic Leader Patty Murray (D-WA) and Sen. Gary Peters (D-MI) signed onto the CAOA. The CAOA would have legalized cannabis nationwide, ending federal prohibition and expunging records of some cannabis offenders, and it also lays out a framework to establish a federal cannabis tax and FDA regulations for cannabis products. The bill did not pass the U.S. Senate during the 2022 legislative session (i.e., the 117<sup>th</sup> Congress).

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On January 17, 2023, U.S. Representative Gregory Steube (R-FL) introduced H.R. 610, the Marijuana 1-to-3 Act of 2023 ("**1-to-3 Act**"), which would direct the DEA to transfer marijuana from Schedule I to Schedule III. A Schedule III controlled substance is a drug, substance, or chemical that has less potential for abuse than a Schedule I or II substance; that has a currently accepted medical use; and that has low or moderate risk of dependence if abused. The 1-to-3 Act bill was referred to the Committee on Energy and Commerce, and the Committee on the Judiciary, for further consideration.

On October 6, 2022, President Biden requested that the Secretary of Health and Human Services ("HHS") and the Attorney General initiate a review of cannabis scheduling pursuant to the Controlled Substances Act and federal law. On August 29, 2023, following a review by the FDA, the Assistant Secretary of HHS, Anne Milgram, issued a letter recommendation to the DEA that cannabis be rescheduled under the Controlled Substances Act to Schedule III. In December 2023, the DEA confirmed it was conducting its review.

On May 21, 2024, the DOJ published a "Notice of Proposed Rulemaking" to reschedule cannabis from Schedule I to Schedule III of the CSA in the Federal Register. In-person testimony in the DEA's upcoming hearing on marijuana rescheduling would not begin until January or February 2025, and it was later scheduled for January 21, 2025. On January 13, 2025, the hearing was canceled by Chief Administrative Law Judge ("ALJ") John Mulrooney, and the proceedings were stayed indefinitely pending an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied. The future of the rescheduling process remains uncertain under the new Donald J. Trump administration. If the rule is finalized, cannabis would be considered a drug with "moderate to low potential for physical and psychological dependence" and would be available for medical use only, not legalized at the federal level.

The following sections describe the legal and regulatory landscape in Nevada, the only state in which the Company currently operates. The Company believes that its operations are in full compliance with all applicable state laws, regulations and licensing requirements. Nonetheless, for the reasons described above and the risks further described under the heading "Risk Factors" herein, there are significant risks associated with the business of the Company. Readers are strongly encouraged to carefully read all of the risk factors contained under the heading "Risk Factors" herein.

***Nevada Regulatory Environment***

Nevada Summary

Nevada has a medical marijuana program and passed an adult-use (21 and older) legalization through the ballot box in November 2016. In 2000, Nevada voters passed a medical marijuana initiative allowing physicians to recommend cannabis for an inclusive set of qualifying conditions, including severe pain and created a limited non-commercial medical marijuana patient/caregiver system. Senate Bill 374, which passed the legislature and was signed by the Governor in 2013, expanded this program and established a for-profit regulated medical marijuana industry.

The Nevada Division of Public and Behavioral Health licensed medical marijuana establishments up until July 1, 2017, when the state's medical marijuana program merged with adult-use marijuana enforcement under the Nevada Department of Taxation ("**NDOT**"). In 2014, Nevada accepted medical marijuana business applications and a few months later the Division approved 182 cultivation licenses, 118 licenses for the production of edibles and infused products, 17 independent testing laboratories, and 55 medical marijuana dispensary licenses. The number of dispensary licenses was then increased to 66 by legislative action in 2015. The application process is merit-based, competitive, and is currently closed. Nevada residency is not required to own or invest in a Nevada medical cannabis business. In addition, vertical integration is neither required nor prohibited. Nevada's medical law includes patient reciprocity, which permits medical patients from certain other states to purchase medical marijuana from Nevada dispensaries. Nevada also allows dispensaries to deliver medical marijuana to patients.

Under Nevada's adult-use marijuana law, the NDOT licensed marijuana cultivation facilities, product manufacturing facilities, distributors, retail stores and testing facilities. After merging medical and adult-use marijuana regulation and enforcement, the single regulatory agency is now known as the Marijuana Enforcement Division of the NDOT. Until November 2018, applications to the NDOT for adult-use establishment licenses were being accepted from existing medical marijuana establishments and existing liquor distributors for the adult-use distribution license.

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In February 2017, the NDOT announced plans to issue "early start" adult use marijuana establishment licenses in the summer of 2017. These licenses, beginning on July 1, 2017, allowed marijuana establishments holding both a retail marijuana store and dispensary license to sell their existing medical marijuana inventory as either medical or adult-use marijuana, and expired 90 days after January 1, 2018 (per Sec. 24 of LCB File No. T002-17). Starting July 1, 2017, medical and adult-use marijuana have incurred a 15% excise tax on the first wholesale sale (calculated on the fair market value) and adult-use cannabis have incurred an additional 10% special retail marijuana sales tax in addition to any general state and local sales and use taxes.

On January 16, 2018, the Marijuana Enforcement Division of the NDOT issued final rules governing its adult-use marijuana program, pursuant to which up to sixty-six (66) permanent adult-use marijuana dispensary licenses will be issued. Existing adult-use marijuana licensees under the "early start" regulations must re-apply for licensure under the permanent rules in order to continue adult-use sales.

In May of 2019, Governor Steve Sisolak signed into law Senate Bill 32, that increased transparency in the licensing process by releasing certain information about license applicants, as well as methods used to issue licenses. In June 2019, Governor Sisolak approved Assembly Bill 132 making Nevada the first state to ban employers from refusing to hire job applicants who test positive for marijuana during the hiring process.

As of August 23, 2019, as a result of discrepancies discovered in the application process by the State of Nevada, a court issued a partial preliminary injunction against the State of Nevada from moving forward with the numerous holders of provisional licenses awarded under the December 5, 2018, provisional license awards. In addition to the preliminary injunction, the State of Nevada and various intervenors remain subject to ongoing litigation.

In early 2019, Nevada legislature passed Nevada Assembly Bill 533 ("**AB 533**"), which authorized the formation of the Cannabis Compliance Board (the "**CCB**") to be vested with the authority to license and regulate persons and establishments engaged in cannabis activities within Nevada. The CCB consists of an executive director and five board members appointed by the Governor Steve Sisolak. Board members must have expertise in a range of fields, including financial and accounting, law enforcement, medicine, regulatory and legal compliance, and cannabis. AB 533 also established the Cannabis Advisory Commission (the "**CAC**") which serves to study cannabis-related issues and make recommendations to the CCB. The CAC consists of 12-members appointed by the governor representing relevant state agencies and members of the cannabis industry and the public. Pursuant to AB 533, the CCB is mandated with studying the feasibility and safe implementation of licensing for lounges, in addition to their general authority and oversight of cannabis operations in Nevada. The CCB held its first meeting in July 2021, and regularly meets regarding public health and safety, license suspensions, and held public workshops regarding, and moved forward with licensing, cannabis consumption lounges.

Nevada Regulatory Framework

Nevada Revised Statues 678C and 678D regulate the Medical and Adult Use of cannabis in Nevada. Nevada Administrative Code 453D provides a regulatory framework that outlines the function of the CCB Marijuana program. Subsections of this chapter outline licensing and enforcement guidelines which guide the CCB.

Nevada Licensing Requirements

Licenses issued by CCB can be renewed annually so long as the licensee continues to demonstrate compliance with local and state law and pays the renewal fee. Dispensary/Retail store licenses have a set statutory "cap" (per NRS 453D.210 & NRS 453A.324), other license types do not. Moreover, statutory license caps can only be changed by the Nevada legislature, which meets bi-annually. Marijuana businesses in Nevada may also be governed by local ordinances, which can include caps on the number of marijuana businesses, zoning limitations, and additional screening of business owners and investors. Applicants must demonstrate (and license holders must maintain) that: (i) they are registered with the Nevada Secretary of State to do business in Nevada, (ii) they have contributed to the advancement of the State of Nevada via regular tax payments, (iii) they do not have interests in the Casino or Alcohol industries, (iv) they have the operational expertise required by the individual license type, demonstrated by submission of an operation plan, (v) they have the ability to secure the premises, resources, and personnel necessary to operate the license, (vi) they have the ability to maintain accountability of all cannabis and cannabinoid products and by-products via the state mandated "seed-to-sale" CTS to prevent diversion or unlawful access to these materials, (vii) they have the financial ability to maintain operations for the duration of the license, (viii) all owners have passed background screening, inclusive of fingerprinting, and (ix) all local land use, zoning, and planning notices have been followed in the development of the licensed site.

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Nevada Security Requirements

A licensee must maintain a fully operational alarm and video monitoring system at all times. The alarm system must secure all points of ingress and egress and be equipped with motion detectors. The 24-hour video surveillance system must record at a high-resolution format approved by the CCB and have camera coverage which covers all areas of the facility without any blind spots. Video footage must be backed-up for a minimum of 30 days in hard-form. Cultivation and product manufacturing sites are not open to the public.

Nevada Transportation and Storage Requirements

Cannabis and cannabis goods must be stored in a lockable safe or vault at any time that employees are not on location. Any storage container that is large enough to allow an employee to walk into it must have cameras placed inside. Goods to be transported to another licensee must be fully manifested via the state mandated "seed-to-sale" CTS prior to being transported.

Nevada Department of Taxation Inspections

The CCB conducts announced and unannounced inspections of all licensed facilities to determine compliance with laws and rules. The CCB will inspect a licensee in the event of a complaint indicating that the licensee has or is actively violating existing statute. The CCB will also inspect at the time of any modification, as well as at the time of annual renewal.

Nevada Product Testing and Packaging Requirements

Both medical and adult-use marijuana and marijuana products are subject to stringent testing and packaging requirements. Before usable marijuana, concentrated marijuana, or marijuana products may be packaged for further processing or for transfer to a dispensary or retail store, an independent testing laboratory licensed by the CCB must collect samples from each homogenized lot or production run for testing. These samples are tested by the independent testing laboratory for compliance with specified limits on contaminants such as yeast and mold, heavy metals and pesticides, and microbes. Testing is also done to determine the potency of the sample. Cultivation and product manufacturing facilities are also subject to random quality assurance compliance testing at the discretion of the CCB. Generally, if a sample fails any of the tests conducted by the testing laboratory, the entire lot or production run must be destroyed.

All marijuana or marijuana products intended to be sold to consumers must be individually packaged, sealed, and labeled. Edible products must be packaged in opaque, child-resistant containers. Depending on the type of marijuana product, the CCB places limit on the amount of THC that a single package of marijuana may contain or the number of ounces of product a package may contain. All packages of marijuana or marijuana product sold to consumers must have detailed labels that include, inter alia, various warnings about the effects and risks of marijuana use; the name, license number, and contact information of the dispensary or retail store conducting the sale; the name and license number of the cultivation or product manufacturing facility that harvested or produced the marijuana or marijuana product; the potency levels of the marijuana or marijuana product; and the date the marijuana or marijuana product was harvested or produced.

***Public Opinion***

The increase in state legalization of cannabis use is largely a result of changing public opinion in the United States. According to an October 2017 poll conducted by Gallup, 64% of Americans think that the use of cannabis should be made legal, the highest level in the 48 years that Gallup has conducted the poll. Further, in the 2016 Gallup poll, support among adults aged 18 to 34 increased from 35% to 77% between 2005 and 2016 and support among adults aged 35 to 54 increased from 35% to 61% over the same period. According to an April 2017 Quinnipiac University Poll, 94% of U.S. voters support the medical use of cannabis if recommended by a physician. An April 2021 Pew Research Center poll found that 91% of U.S. voters support legal marijuana for either medical or recreational use; only 8% of U.S. voters say marijuana should not be legal for use by adults. As of July 21, 2022, by a margin of more than 2 to 1, Americans favor a federal mandate legalizing the adult use of marijuana nationwide, according to polling data compiled by The Economist and YouGov.com. Based on a Pew Research Center survey conducted October 10-16, 2022, 88% of U.S. adults say either that marijuana should be legal for medical and recreational use by adults (59%) or that it should be legal for medical use only (30%), and only 10% say marijuana use should not be legal.

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***Industry Outlook***

Due to increases in state legalization and shifting public opinion, state-legal cannabis industry sales have grown substantially in recent years. [According to a recent study by Marijuana Business Daily ("MJBiz"), a division of Emerald X, LLC, and leading business-to-business industry resource, legal sales of marijuana are expected to reach $44 billion by the end of 2025, a 16% increase over 2024's total of $38 billion. By 2026, MJBiz estimates annual sales will exceed $49 billion.

**E. Critical Accounting Estimates**

The preparation of the Company's financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.

Areas requiring a significant degree of estimation and judgment relate to the determination of business combinations, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities and share-based compensation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*i. Business combinations*

Judgment is used in determining whether the Company's acquisition is considered a business combination or an asset acquisition. Additionally, judgment is required to assess whether any amounts paid on the achievement of agreed upon milestones represents contingent consideration or compensation for post-acquisition services. Judgment is also required to assess whether contingent consideration arising from an acquisition should be classified as a liability or equity. Contingent consideration classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement by the Company is accounted for within equity. Contingent consideration classified as a liability is remeasured at reporting period ends in accordance with the Company's accounting policies for financial liabilities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*ii. Assets and liabilities held for resale*

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. Judgment is required in the estimation of fair value less costs to sell of assets and liabilities held for sale. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*iii. Income taxes and deferred tax assets/liabilities*

The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management applies judgment in determining the likelihood that deferred tax assets may or may not be realized. As the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of comprehensive income. Management applies judgment in the determination of whether an uncertain tax position has a 50% likelihood of being sustained.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*iv. Impairment of long-lived assets*

Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value. For the years ended March 31, 2025, January 31, 2024 and the two months ended March 31, 2024, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded its carrying amount and as such, no impairment was noted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*v. Inventories*

Inventory consists of raw materials, consumables and packaging supplies used to prepare inventory for sale, work in process consisting of pre-harvested cannabis plants, by products to be extracted, oils and terpenes, and finished goods. Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. The net realizable value of inventory represents the estimated selling price for inventory in the ordinary course of business, less all estimated costs of completion and selling costs. The determination of net realizable value requires significant judgment, including consideration of factors such as shrinkage, demand for inventory, and expected selling price, reserves, if any, for excess and obsolete inventory are based upon quantities on hand, projected volumes from demand forecasts and net realizable value. The estimates are judgmental in nature and are made at a point in time, using available information, expected business plans and expected market conditions.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*vi. Fair value measurements*

Certain assets and liabilities held by the Company are measured at fair value. In measuring fair value, management estimates the price at which assets or liabilities could be exchanged between knowledgeable, willing parties in an orderly transaction. The Company uses market-observable data to the extent that such data is available. The Company follows the fair value hierarchy, utilizing Level 1, Level 2, or Level 3 inputs depending on their availability. In situations where Level 1 inputs are not available, the Company makes an estimate or engages qualified, third-party valuators to perform the valuation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*vii. Estimated useful lives and depreciation and amortization of property, equipment and intangible assets*

The Company's depreciation and amortization of property, equipment and intangible assets are dependent on the estimation of the assets' useful lives, which requires management to exercise judgment. The Company's assessment of any impairment of assets is dependent on its estimation of recoverable amounts that consider various factors, including market and economic conditions and the assets' useful lives.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*viii. Share-based compensation*

The Company uses the Black-Scholes option pricing model to measure share-based compensation. The Company's estimate of share-based compensation is dependent on measurement inputs including the share price on measurement date, exercise price of the option, volatility, risk-free rate, expected dividends, and the expected life.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*ix. Convertible notes*

The identification of convertible note components is based on interpretations of the substance of the contractual arrangement and therefore requires judgement from management.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*x. Financial Instruments* 

Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company calculates the estimated fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.

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Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e., as prices) or indirectly (i.e., derived from prices); and

Level 3 - Inputs that are not based on observable market data.

There have been no transfers between fair value hierarchy levels during the years ended March 31, 2025, March 31, 2024 and January 31, 2024

The Company's measures the derivative liability at fair value using Level 3 inputs.

The Company's cash, receivables, accounts payable and accrued liabilities, and income taxes payable are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Financial instruments subsequently measured at amortized cost include promissory note payable, and reclamation obligation.

**Item 6. Directors, Senior Management and Employees**

**A. Directors and Senior Management**

The size of the Company's Board is currently set at four. The Company's directors are elected annually by the shareholders and hold office until the net annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the BCBCA and the Company's articles of incorporation. The Company's current directors and officers, and their respective current positions, are as follows:

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| | |
|:---|:---|
| &nbsp;&nbsp;Name | &nbsp;&nbsp;Position |
| <br>Sonny Newman | <br>President and Chief Executive Officer. |
| <br>Michael Kidd | <br>Chief Financial Officer, Corporate Secretary and Director. |
| <br>Aron Swan | <br>Chief Operating Officer |
| <br>Todd Harrison | Director, Audit Committee Member and Corporate Governance and Compensation Committee Member |
| <br>D. Bruce Macdonald | <br>Chairman of the Board, Director, Audit Committee Member, Corporate Governance and Compensation Committee Member and Financial Expert. |
| <br>Leonard (Will) Werden | <br>Director, Audit Committee Member, and Corporate Governance and Compensation Committee Member. |

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The following is biographical information on our directors and officers who are acting in the capacity of director or officer as of the date hereof:

***Sonny Newman**, Chief Executive Officer, and President.* Sonny Newman is the founder of Silver State Relief and Silver State Cultivation in Nevada, and has several other companies in electronics, manufacturing, electronics distribution, real estate development and an investment company. Mr. Newman was the sole owner of the Silver State companies when they were purchased by the Company in 2019 and today controls the largest shareholder of the Company. Mr. Newman's proven operational and financial discipline in the cannabis and other sectors shows his ability to build solid teams and make strategic investments into opportunistic markets.

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***Michael Kidd**, Chief Financial Officer, Corporate Secretary and Director.* A native of Vancouver with international experience, Mr. Kidd brings an extensive background in finance with privately held firms in a variety of industries ranging from forestry to online retailing. Before joining the Company, Mr. Kidd was Chief Operating Officer and Chief Financial Officer at a privately held leading distributor with operations in Canada and Dubai. Mr. Kidd graduated from the University of British Columbia with a Bachelor of Commerce and is a Certified Public Accountant (Chartered Accountant).

***Aron Swan**, Chief Operating Officer.* Mr. Swan has been the long-standing head of operations for the Silver State Relief and Silver State Cultivation companies. Mr. Swan brings a breadth of experience in manufacturing, supply chain, and technology. Before joining the Company, Mr. Swan was Chief Information Officer at a prominent electronics manufacturer and has held other senior supply chain and operations roles. Mr. Swan holds a Bachelor of Science in Logistics Management and an MBA, both from the University of Nevada.

***Todd Harrison**, Director.* Mr. Harrison brings a wealth of knowledge and insight to the Company's Board, both through his near 30 years on Wall Street as VP at Morgan Stanley to President of Cramer Berkowitz, as well as through his current role as Chief Investment Officer of CB1 Capital Management. He is also an author and Emmy award-winning executive producer for his work at financial media company, Minyanville. Mr. Harrison founded CB1 Capital Management in 2017 - an investment advisory firm that invests in stocks focused on cannabinoid-based wellness solutions and other cannabis-based bio-pharmaceutical applications, therapies, and other use-cases. Mr. Harrison has lectured at numerous academic institutions, has appeared on CNBC, CNN, FOX, Bloomberg TV, and has been featured across numerous publications and platforms. Mr. Harrison has a Bachelor of Science degree in Finance from Syracuse University.

***D. Bruce Macdonald**, Chairman of the Board and Director.* Mr. Macdonald is a seasoned senior executive with more than 35 years of experience in financial services including extensive expertise in the capital markets sector. He has an impressive track record of leading innovative new business ventures in support of global growth strategies. Mr. Macdonald has exceptional expertise in building risk management and corporate governance control environments. Further, he serves on the boards of several Canadian corporations and associations and holds an ICD.D designation from the Institute of Corporate Directors.

***Leonard (Will) Werden**, Director.* Mr. Werden has over 30 years of experience in global horticulture cultivation. He specializes in outdoor and indoor grow practices, facilities construction and design, lighting systems and practices, temperature and humidity control, and genetic strain selection. Having overseen large-scale grow operations with state-of-the-art technology, Mr. Werden brings a wealth of valuable knowledge to the Company. Mr. Werden was formerly a certified Millwright for over 30 years, and has been involved in numerous projects, including the Cyclotron Project for TRIUMF (Canada's national laboratory for particle and nuclear physics) at the University of British Columbia. Mr. Werden was also former CEO of Seashore Organic Marijuana Corp. (which transitioned to Veritas Pharma Inc.) until February 2016.

**B. Compensation**

**Compensation Discussion and Analysis**

***Process for Determining Executive Compensation***

To determine compensation payable, the Corporate Governance and Compensation Committee will generally review compensation paid for directors, CEOs and CFOs (or persons acting in a similar capacity to a CEO or a CFO) of companies of similar size and stage of development in the cannabis industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management while taking into account the financial and other resources of the Company. In setting the compensation, the independent director will annually review the performance of the CEO and the CFO in light of the Company's objectives and consider other factors that may have impacted the success of the Company in achieving its objectives.

***Compensation Policies and Risk Management***

The Board has not proceeded to an evaluation of the implications of the risks associated with the Company's compensation policies and practices.

The Company has not retained a compensation consultant during or subsequent to the most recently completed financial year.

The Company does not use a specific "benchmark group" to determine executive compensation levels.

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Total compensation for executive officers includes consulting fees, long-term incentive stock options and performance milestone payments.

***Hedging of Economic Risks in the Company's Securities***

The Company has not adopted a policy forbidding directors or officers from purchasing financial instruments that are designed to hedge or offset a decrease in market value of the Company's securities granted as compensation or held, directly or indirectly, by directors or officers. The Company is not, however, aware of any directors or officers having entered into this type of transaction.

***Pension Plan Benefits***

The Company does not have a pension plan that provides for payments or benefits to its executive officers at, following, or in connection with retirement.

***Compensation for Year Ending March 31, 2025***

The following table sets forth all annual and long-term compensation for services in all capacities to the Company for the most recently completed financial year of the Company ending on March 31, 2025, in respect of each of the individuals comprised of the Company's directors and members of it administrative, supervisory and management bodies for services provided by such persons to the Company and its subsidiaries. During the year ended March 31, 2025, the Company paid aggregate remuneration to its directors and officers as a group who served in the capacity of director or executive officer during such year of US$1,298,537

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| &nbsp;&nbsp;**Name and**<br>**principal position** | &nbsp;&nbsp;**Salary,<br>Consulting Fees,<br>Retainer or<br>Commission** | &nbsp;&nbsp;**Option-based<br>awards** | &nbsp;&nbsp;**Non-equity incentive**<br>**plan compensation** | &nbsp;&nbsp;**Pension<br>value** | &nbsp;&nbsp;**All other<br>compensation** | &nbsp;&nbsp;**Total compensation** |
| &nbsp;&nbsp;**Name and**<br>**principal position** | &nbsp;&nbsp;**Salary,<br>Consulting Fees,<br>Retainer or<br>Commission** | &nbsp;&nbsp;**Option-based<br>awards** | &nbsp;&nbsp;**Long-term<br>incentive<br>plans** | &nbsp;&nbsp;**Pension<br>value** | &nbsp;&nbsp;**All other<br>compensation** | &nbsp;&nbsp;**Total compensation** |
| **Sonny Newman**<br>President and Chief Executive Officer | $200000 Nil | 77465 Nil | N/A | N/A | - | &nbsp;&nbsp;$277465 |
| **Michael Kidd**<br>Chief Financial Officer, Corporate Secretary and Director | $152063<sup>(1)</sup> Nil | 54459 Nil | N/A | N/A | - | $206522 |
| **Aron Swan**<br>Chief Operating Officer | $350000 Nil | 233394 Nil | N/A | N/A | &nbsp;&nbsp;- | $583394 |
| **Todd Harrison**<br>Director | $60000 Nil | 38899 Nil | N/A | N/A | &nbsp;&nbsp;- | $98899 |
| **D. Bruce Macdonald**<br>Chairman of the Board and Director | Nil | 116697 Nil | N/A | N/A | &nbsp;&nbsp;- | 116697 |
| **Leonard (Will) Werden**<br>Director | Nil | 7616 Nil | N/A | N/A | &nbsp;&nbsp;- | **7616** |

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___________________________

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Michael Kidd was not paid any compensation for his role as director of the Company.

**C. Board Practices** 

The Board currently consists of four directors. Two of the four current members of the Board are considered independent directors using the definition set forth in Section 803A of the NYSE American Company Guide. The independent directors are D. Bruce Macdonald and Leonard Werden. Todd Harrison is not an independent director as he controls CB1, a company which is engaged as a consultant to the Company. Michael Kidd is not an independent director as he is an executive officer of the Company. The size of the Company is such that all the Company's operations are conducted by a small management team. The Board considers that management is effectively supervised by the independent director on an informal basis as the independent director is involved in reviewing and supervising the operations of the Company and has full access to management.

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The directors of the Company are elected annually by the shareholders and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the BCBCA and the Company's articles of incorporation.

The mandate of the Board, as prescribed by the BCBCA, is to manage or supervise the management of the business and affairs of the Company and to act with a view to the best interests of the Company. In doing so, the Board oversees the management of the Company's affairs directly and through its various committees. In fulfilling its mandate, the Board, among other matters, is responsible for reviewing and approving the Company's overall business strategies, reviewing and approving significant acquisitions and capital investments; reviewing major strategic initiatives to ensure that the Company's proposed actions accord with shareholder objectives; reviewing succession planning; assessing management's performance against industry standards; reviewing and approving the reports and other disclosure issued to shareholders; ensuring the effective operation of the Board; and safeguarding shareholders' equity interests through the optimum utilization of the Company's capital resources.

The Board is responsible for identifying individuals qualified to become new members of the Board and recommending to the Board, new director nominees for the next annual meeting of shareholders. New nominees must have a track record in general business management, special expertise in an area of strategic interest to the Company, the ability to devote the required time, show support for the Company's mission and strategic objectives, and a willingness to serve.

The Board also takes responsibility for identifying the principal risks of the Company's business and for ensuring these risks are effectively monitored and mitigated to the extent reasonably practicable. At this stage of the Company's development, the Board does not believe it is necessary to adopt a written mandate, as sufficient guidance is found in the applicable corporate legislation and regulatory policies. However, as the Company grows, the Board may determine it is appropriate to develop a formal written mandate.

In keeping with its overall responsibility for the stewardship of the Company, the Board is responsible for the integrity of the Company's internal control and management information systems and for the Company's policies respecting corporate disclosure and communications.

Each member of the Board understands that he is entitled, at the cost of the Company, to seek the advice of an independent expert if he reasonably considers it warranted under the circumstances. No director found it necessary to do so during the financial year ended March 31, 2025.

The Board does not, and does not consider it necessary to, have any formal structures or procedures in place to ensure that it can function independently of management. The Board of the Company briefs all new directors with respect to the policies of the Board and other relevant corporate and business information. The Board does not provide any continuing education.

The Board regularly monitors the adequacy of information given to directors, communications between the Board and management and the strategic direction and processes of the Board and its committees.

***Directorships***

The current directors of the Company are not presently directors of other reporting issuers in Canada or elsewhere. Other than by virtue of being an officer, there are no termination benefits for directors who serve on the Board.

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***Orientation and Continuing Education***

The Company does not have formal orientation and training programs and does not consider these programs necessary at this stage of the Company's development. Board members are encouraged to communicate with management, auditors and technical consultants in order to keep themselves current with industry trends and developments and changes in legislation with management's assistance. Board members are also encouraged to attend related industry seminars and visit the Company's operations. Board members have full access to the Company's records.

***Ethical Business Conduct***

The Board views good corporate governance as an integral component to the success of the Company and to meet responsibilities to shareholders. The Company's reputation for integrity is an important asset. The Company has always set high standards of personal and business integrity for its employees and intends to continue to conduct its business in accordance with those high standards. It is expected that the Company's business conduct and the personal actions of its employees reflect the spirit and intent of the laws under which the Company operates, and its employees live. Common sense and judgment supported by a deeply ingrained tradition of integrity provide the Company's foundation.

The Board has found that the fiduciary duties placed on individual directors by the Company's governing corporate legislation and the common law, and the restrictions placed by applicable corporate legislation on an individual director's participation in decisions of the Board in which the director has an interest have been sufficient to ensure that the Board operates independently of management and in the best interests of the Company.

Under corporate legislation, a director is required to act honestly and in good faith with a view to the best interests of the Company and exercise the level of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In addition, as some of the directors of the Company also serve as directors and officers of other companies engaged in similar business activities, directors must comply with the conflict-of-interest provisions of the BCBCA as well as the relevant securities regulatory instruments, in order to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or officer has a material interest. Any interested director would be required to declare the nature and extent of his interest and would not be entitled to vote at meetings of directors which evoke such a conflict.

***Nomination of Directors***

The Board as a whole has responsibility for identifying potential Board candidates. The Board has not formed a nominating committee or similar committee to assist the Board with the nomination of directors for the Company. Each of the directors has contacts he can draw upon to identify new members of the Board as needed from time to time.

The Board will continually assess its size, structure and composition, taking into consideration its current strengths, skills and experience, proposed retirements and the requirements and strategic direction of the Company. As required, directors will recommend suitable candidates for consideration as members of the Board.

***Board Committees - Audit Committee; Corporate Governance and Compensation Committee***

The current Company committees include the Audit Committee and Corporate Governance and Compensation Committee. The Board has no other standing committees.

The Company's Audit Committee has a charter. The primary function of the Audit Committee is to assist the Board in fulfilling its financial oversight responsibilities by reviewing (1) the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, (2) the Company's systems of internal controls regarding finance and accounting, and (3) the Company's auditing, accounting and financial reporting processes. Consistent with this function, the Audit Committee encourages continuous improvement of, and fosters adherence to, the Company's policies, procedures and practices at all levels. As at the date of this Annual Report, the following Board members sit on the Audit Committee, all of which are financially literate: Leonard (Will) Werden, D. Bruce Macdonald and Todd Harrison. D. Bruce Macdonald is the Chair of the Audit Committee.

The Corporate Governance and Compensation Committee exercises the powers and carries out the obligations provided for in its mandate and in accordance with applicable regulatory standards and requirements and has the responsibility for determining director and senior management compensation. As at the date of this Annual Report, the following Board members sit on the Corporate Governance and Compensation Committee: Leonard (Will) Werden, D. Bruce Macdonald and Todd Harrison. D. Bruce Macdonald is the Chair of the Corporate Governance and Compensation Committee.

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To determine compensation, the Corporate Governance and Compensation Committee reviews compensation paid for directors and CEOs (or persons acting in a similar capacity to CEO, such as Presidents) of companies of similar size and stage of development in the cannabis industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management, while taking into account the financial and other resources of the Company. In setting the compensation, the Corporate Governance and Compensation Committee annually reviews the performance of the CEO (or President) in light of the Company's objectives and considers other factors that may have impacted the success of the Company in achieving its objectives. Further information regarding director compensation appears above under "Compensation - Compensation Discussion and Analysis".

***Assessments***

The Board does not consider that formal assessments would be useful at this stage of the Company's development. The Board conducts informal annual assessments of the Board's effectiveness, the individual directors and its Audit Committee. To assist in its review, the Board conducts informal surveys of its directors.

**D. Employees**

The following outlines the number of employees of the Company for the last three fiscal years, categorized by activity (operations or corporate) and geographic location (Vancouver, B.C. or Nevada):

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **Financial Year Ended** | **Vancouver Employees** | **Nevada Employees** | **Operations Employees** | **Corporate Employees** | **Total** |
| March 31, 2025 | 1 | 137 | 132 | 5 | 138 |
| March 31, 2024 | 1 | 113 | 110 | 4 | 114 |
| January 31, 2024 | 1 | 113 | 110 | 4 | 114 |

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**E. Share Ownership**

***Share Capital***

The Company is authorized to issue an unlimited number of common shares. As of the date of this Annual Report, there are 117,862,314 common shares issued and outstanding. The holders of the common shares are entitled to one vote per share at all meetings of the shareholders of the Company. The holders of common shares are also entitled to dividends, if and when declared by the Board and the distribution of the residual assets of the Company in the event of a liquidation, dissolution or winding up of the Company.

The following table sets forth the share ownership of the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:

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| | | | |
|:---|:---|:---|:---|
| &nbsp;&nbsp;**Names and Principal Position** | &nbsp;&nbsp;**No. of Shares<br>Held** | &nbsp;&nbsp;&nbsp;&nbsp;**Percentage<br>Ownership<br>(capital and voting)** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Percentage of holding on<br>a fully diluted bases<br>(capital and voting)** |
| &nbsp;&nbsp;Sonny Newman, President and Chief Executive Officer | &nbsp;&nbsp;12500000 | &nbsp;&nbsp;&nbsp;&nbsp;10.6% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10.3% |
| &nbsp;&nbsp;Michael Kidd, Chief Financial Officer and Director | &nbsp;&nbsp;38055 | &nbsp;&nbsp;&nbsp;&nbsp;0.0% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.0% |
| &nbsp;&nbsp;Aron Swan, Chief Operating Officer | &nbsp;&nbsp;1000 | &nbsp;&nbsp;&nbsp;&nbsp;0.0% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.0% |
| &nbsp;&nbsp;Todd Harrison, Director | &nbsp;&nbsp;300000 | &nbsp;&nbsp;&nbsp;&nbsp;0.3% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.2% |
| &nbsp;&nbsp;D. Bruce Macdonald, Chairman of the Board and Director | &nbsp;&nbsp;1440000 | &nbsp;&nbsp;&nbsp;&nbsp;1.2% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2% |
| &nbsp;&nbsp;Leonard (Will) Werden, Director | &nbsp;&nbsp;265000 | &nbsp;&nbsp;&nbsp;&nbsp;0.2% | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;0.2% |

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***Stock Option Plan***

On February 23, 2018, the Board adopted a 10% rolling stock option plan, as amended on July 9, 2021 (the "**Option Plan**"). The Option Plan provides that, subject to the requirements of the CSE, the aggregate number of common shares reserved for issuance pursuant to options granted under the Option Plan will not exceed 10% of the number of common shares that are issued and outstanding from time to time, less the aggregate number of common shares then reserved for issuance pursuant to any other equity compensation arrangement. The Option Plan is administered by the Board, which has full and final authority with respect to the granting of all options thereunder subject to the express provisions of the Option Plan. Options may be granted under the Option Plan to such directors, officers, employees or consultants of the Company and its subsidiaries as the Board may from time to time designate. The Option Plan is used to provide share purchase options to be granted in consideration of the level of responsibility of the executive as well as his or her impact or contribution to the longer-term operating performance of the Company. In determining the number of options to be granted to the executive officers, the Board takes into account the number of options, if any, previously granted to each executive officer, and the exercise price of any outstanding options to ensure that such grants are in accordance with the policies of CSE, and closely align the interests of the executive officers with the interests of shareholders of the Company. The directors of the Company are also eligible to receive stock option grants under the Option Plan, and the Company applies the same process for determining such awards to directors as with executive officers. The exercise prices for options is determined by the Board, but shall not, in any event, be less than the greater of the closing market price of the listed security on the CSE on the trading day prior to the date of grant, and the closing market price on the date of grant, of the options. The Option Plan provides for a cashless exercise feature which allows an option holder to exercise its vested options without paying the exercise price in cash, and in return, the Company will deliver the number of common shares to such option holder equal to the value of the options that are "in-the-money" (i.e. the market price of the common shares on the date of exercise less the exercise price of the respective options). Options may be granted for a maximum term of 10 years. The Option Plan provides that the number of common shares which may be reserved for issuance on a yearly basis to any one person under the Option Plan and any other equity compensation arrangement shall not exceed 5% of the outstanding common shares at the time of the grant. Moreover, the number of common shares which may be reserved for issuance on a yearly basis to any one consultant under the Option Plan and any other equity compensation arrangement shall not exceed 2% of the outstanding common shares at the time of the grant, and, unless the Company has received disinterred shareholder approval to do so pursuant to the policies of the CSE, the number of Common Shares reserved for issuance to insiders under the Option Plan and any other equity based compensation arrangement shall not exceed 10% of the outstanding common shares at the time of the grant.

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As of March 31, 2025, there were 5,425,000 options outstanding to purchase common shares of which 1,808,305 had vested. As of the date of this Annual Report there were 5,425,000 options outstanding to purchase common shares of which 1,808,305 had vested.

The following table sets forth the options, exercisable into common shares, owned by the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:

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| | | | | |
|:---|:---|:---|:---|:---|
| &nbsp;&nbsp;**Names and Principal Position** | &nbsp;&nbsp;**No. of<br>Options Held** | &nbsp;&nbsp;&nbsp;&nbsp;**No. of Shares<br>Underlying the Options** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Option Strike<br>Price (C$)** | &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Option<br>Expiration Date** |
| &nbsp;&nbsp;Sonny Newman, President and Chief Executive Officer | &nbsp;&nbsp;500000 | &nbsp;&nbsp;500000 | &nbsp;&nbsp;0.53 | &nbsp;&nbsp;May 13, 2027 |
| &nbsp;&nbsp;Michael Kidd, Chief Financial Officer and Director | &nbsp;&nbsp;350000 | &nbsp;&nbsp;350000 | &nbsp;&nbsp;0.53 | &nbsp;&nbsp;May 13, 2027 |
| &nbsp;&nbsp;Aron Swan, Chief Operating Officer | &nbsp;&nbsp;1500000 | &nbsp;&nbsp;1500000 | &nbsp;&nbsp;0.53 | &nbsp;&nbsp;May 13, 2027 |
| &nbsp;&nbsp;Todd Harrison, Director | &nbsp;&nbsp;250000 | &nbsp;&nbsp;250000 | &nbsp;&nbsp;0.53 | &nbsp;&nbsp;May 13, 2027 |
| &nbsp;&nbsp;D. Bruce Macdonald, Chairman of the Board and Director | &nbsp;&nbsp;750000 | &nbsp;&nbsp;750000 | &nbsp;&nbsp;.0.53 | &nbsp;&nbsp;May 13, 2027 |
| &nbsp;&nbsp;Leonard (Will) Werden, Director | &nbsp;&nbsp;100000 | &nbsp;&nbsp;100000 | &nbsp;&nbsp;0.53 | &nbsp;&nbsp;May 13, 2027 |

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A copy of the Option Plan is incorporated by reference into this Annual Report as <u>Exhibit 4.1</u>.

***Restricted Share Unit Plan***

On July 17, 2018, the Board adopted a restricted share unit plan (the "**RSU Plan**"). The RSU Plan provides for the grant of the right to acquire fully paid and non-assessable common shares ("**Restricted Share Units**" or "**RSUs**"), as applicable, in accordance with the terms of the RSU Plan to participants ("**Participants**"), being part-time or full-time employees or consultants of the Company or certain related entities. The maximum aggregate number of Common Shares issuable under the RSU Plan is 750,000 common shares.

The aggregate number of common shares issuable to insiders pursuant to Restricted Share Units and all other security-based compensation arrangements, at any time, shall not exceed 10% of the total number of common shares then outstanding. The aggregate number of common shares issued to insiders pursuant to Restricted Share Units and all other security-based compensation arrangements, within a one-year period, shall not exceed 10% of the total number of common shares then outstanding. The aggregate number of common shares reserved for issuance upon the exercise of Restricted Share Units to any one person or entity within any one-year period under all security based compensation arrangements shall not exceed 5% of the total number of common shares then outstanding.

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The Board will determine the period of time during which a Restricted Share Unit is not vested and the Participant holding such Restricted Share Unit remains ineligible to receive common shares (the "**Restricted Period**") applicable to such Restricted Share Units. In addition, at the sole discretion of the Board, at the time of grant, the Restricted Share Units may be subject to performance conditions to be achieved by the Company, a class of Participants or by a particular Participant on an individual basis, within a Restricted Period, for such Restricted Share Units to entitle the holder thereof to receive the underlying common shares. Upon the expiry of the applicable Restricted Period (or on the deferred payment date (as described below), as applicable), a Restricted Share Unit shall be automatically settled and the underlying Common Share shall be issued to the holder of such Restricted Share Unit, which Restricted Share Unit shall then be cancelled. Any Restricted Share Unit which has been granted under the RSU Plan and which has been settled and cancelled in accordance with the terms of the RSU Plan will again be available under the RSU Plan.

Participants who are (i) employees; (ii) residents of Canada for the purposes of the *Income Tax Act* (Canada); and (iii) not subject to the provisions of the Internal Revenue Code may elect to defer to receive all or any part of their common shares until one or more deferred payment dates, which is the date after the Restricted Period, which is the earlier of (i) the date which the Participant has elected to defer receipt of common shares; and (ii) the date the Participant retires from employment with the Company or related entity. No other Participants may elect a deferred payment date.

As of March 31, 2025, there were no RSUs outstanding to purchase common shares.

A copy of the RSU Plan is incorporated by reference into this Annual Report as <u>Exhibit 4.2</u>.

***Warrants***

As of March 31, 2025, there were 4,000,000 warrants outstanding to purchase common shares. As at the date of this Annual Report there were 4,000,000 warrants outstanding to purchase common shares.

The following table sets forth the warrants, exercisable into common shares, owned by the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:

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| | | | |
|:---|:---|:---|:---|
| **Names and Principal Position** | **Allotment Date** | **Expiration Date** | **Exercise Price (C$)** |
| Sonny Newman, President and Chief Executive Officer | N/A | N/A | N/A Nil |
| Aron Swan, Chief Operating Officer | N/A | N/A | N/A Nil |
| Michael Kidd, Chief Financial Officer and Director | N/A | N/A | N/A Nil |
| Todd Harrison, Director | N/A | N/A | N/A Nil |
| D. Bruce Macdonald, Chairman of the Board and Director | N/A | N/A | N/A Nil |
| Leonard (Will) Werden, Director | N/A | N/A | N/A Nil |

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For further information, see Management's Discussion and Analysis, attached hereto as <u>Exhibit 15.1</u>, and incorporated by reference herein.

**F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation**

Not applicable.

**Item 7. Major Shareholders and Related Party Transactions**

**A. Major Shareholders** 

The Company's securities are recorded on the books of its transfer agent, Computershare, in registered form. The majority of such shares are, however, registered in the name of intermediaries such as brokerage houses and clearing houses on behalf of their respective clients. The Company does not have knowledge of the beneficial owners thereof.

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To the best of the Company's knowledge, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over, securities carrying more than 5% of the voting rights attached to any class of voting securities of the Company, other than the Company's President and Chief Executive Officer, Sonny Newman, through his control of The Newman Family 1999 Trust (the "**Trust**"), and Nomura Holdings, Inc. (the "**Nomura**") which trades on NYSE.

The Trust obtained 12,500,000 common shares as a result of the Company's acquisition of 100% of the membership interests of both Silver State Relief LLC and Silver State Cultivation LLC, which are Nevada limited liability companies, on January 15, 2019.

Nomura purchases shares in the open market and as of December 31, 2024, holds 10,146,622 common shares, which represents an approximate 21% increase from the common shares held as of December 31, 2023, according to the Schedule 13G beneficial ownership report filed by Nomura and one of their wholly owned subsidiaries with the SEC on February 19, 2025.

The securities held by the Trust and Nomura do not have different voting rights from those of the other securityholders of the same class of securities.

The following table shows the record and, where known to us, the beneficial ownership of our shares by each shareholder holding at least 5% of the common shares of the Company as at the date of this report. As used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Exchange Act.

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| | | |
|:---|:---|:---|
| **Name of Shareholder** | **No. of Shares<br>Held** | **Percentage of<br>Issued Shares** |
| The Newman Family 1999 Trust | 12500000 | 10.4% |
| Nomura Holdings, Inc., and wholly owned subsidiaries | 10146622 | 8.4% |

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The Company is not owned directly or indirectly by another corporation, foreign government or any other natural person. There are no arrangements known to the Company, the operation of which may result in a change of control of the Company.

**B. Related Party Transactions**

***Promissory Note to Sonny Newman***

During the year ended January 31, 2024, the Company made payments totaling $2.03 million to Sonny Newman, the President and Chief Executive Officer of the Company in connection with the Newman Note. As at January 31, 2024, the outstanding balance of the Newman Note was $nil, and is $nil as of the date of this Annual Report. See Item 4.A. "Completed Acquisitions and Dispositions - Silver State Cultivation LLC and Silver State Relief LLC - Nevada, USA - Promissory Note to Sonny Newman."

***Consulting Agreement with CB1***

On September 1, 2019, the Company entered into a Consulting Services Agreement (the "**Consulting Agreement**") dated September 1, 2019, between the Company and CB1, a Delaware limited liability company. The Company engaged CB1 for a 1-year term, which may be extended for successive 1-year terms by mutual agreement of the parties, to provide strategic and business development advice in exchange for: (a) a $20,000 monthly consulting fee paid by the Company to CB1; (b) an option award of 500,000 shares of common stock of the Company at an exercise price equal to C$1.00 per share, exercisable for five years, but in no event greater than 12 months after the end of the termination of the Consulting Agreement; and (c) an origination fee related to loans or investments that arise from opportunities originated by CB1 equal to one percent of the total amount of any such loan or investment. Effective February 1, 2022, the monthly consulting fee was changed to $10,000 and the Consulting Agreement was set to terminate on March 31, 2023. Subsequently, on April 1, 2023, the monthly consulting fee was changed to $7,500 and effective October 1, 2023, the monthly consulting fee changed to $5,000. The Consulting Agreement terminated on September 30, 2024. CB1currently invoices $5,000 per month, cancelable at any time. Mr. Harrison is a principal of CB1. On January 28, 2021, Mr. Harrison was named to the Company's Board of Directors.

For further information, see Management's Discussion and Analysis, attached hereto as <u>Exhibit 15.1,</u> and incorporated by reference herein.

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**C. Interests of Experts and Counsel**

Not Applicable.

**Item 8. Financial Information**

**A. Consolidated Statements and Other Financial Information**

***Financial Statements***

See Item 18 "Financial Statements" for our Annual Audited Consolidated Financial Statements, related notes and other financial information filed with this Annual Report.

***Legal Proceedings***

Oregon Action

A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "**Plaintiffs**"), alleging contract, employment, and statutory claims, alleging $612,500 in damages (as amended), against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, in addition to three directors, two officers, and one former employee (the "**Oregon Action**"). The Company and the other defendants wholly denied the allegations and claims made in the lawsuit and are defending the lawsuit. On June 21, 2019, the Company filed Oregon Rule of Civil Procedure ("**ORCP**") 21 motions to dismiss all of the Plaintiffs' claims against it, its wholly owned subsidiaries, and other defendants. On December 30, 2019, plaintiffs filed an amended complaint dismissing the Company (and some of its directors and subsidiaries) from the case and reducing the amount in controversy in the Oregon Action. On May 6, 2020, the court granted the Company's ORCP 21 motions in its entirety to dismiss all of Plaintiffs' claims against the remaining defendants. The judgment of dismissal was entered by the Clackamas County court on or about October 14, 2020.

On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $68,195.00 in attorney's fees, $1,252 in costs, and a statutory prevailing party fee of $640, through a supplemental judgment, entered on February 2, 2021. The judgment in favor of the Company remains unpaid and continues to collect interest at the statutory rate of 9% per annum.

On November 12, 2020, the plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the plaintiffs amended their appeal to also appeal the award of attorney fees and costs.

On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied.

On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court which was also denied.

On November 1, 2023, the Court of Appeals issued an appellate judgment and supplemental judgment that reversed the October 14, 2020, general judgment of dismissal and remanded the case back to the trial court as to Phantom Brands, LLC, Swell Companies Limited, and two former Company employees. By operation of law, the February 2, 2021, supplemental judgment for attorney fees in favor of the Company was also automatically reversed.

On December 21, 2023, the plaintiffs filed their second amended complaint, which the Company answered and denied.

On April 2, 2024, the court confirmed dismissal of the Company and other defendants no longer named. The Company has filed a motion for costs and attorney fees totaling $108,876. By court order on September 8, 2024, the Company's motion was granted in full, awarding the Company $107,622 in attorney's fees, and $1,252 in costs. On October 8, 2024, the parties stipulated, and the Court granted, abatement of the matter until April 9, 2025. On October 30, 2024, the plaintiffs appealed the order, which is pending before the court. The Company's collection efforts are ongoing through garnishment procedures.

British Columbia Action

On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "**British Columbia Action**").

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On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $2,774,176 in damages (as amended), plus unquantified additional damages, interest and costs, of which amounts are partially duplicative of the Oregon Action. This action remains in the discovery stage. The current trial date is scheduled for three weeks in September 2025. It is too early to predict the resolution of the claims and counterclaims.

***Dividends***

The Company has not paid any dividends on its common shares in its last three financial years and does not anticipate doing so in the foreseeable future. It is contemplated by the Company that it will reinvest all future earnings in order to finance the development and growth of its business. Any future determination to pay distributions will be at the discretion of the Board and will be made in accordance with the BCBCA and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of distributions and any other factors that the Board deems relevant. The Company is not restricted from declaring dividends or other distributions on its common shares.

**B. Significant Changes**

The Company has not experienced any significant changes since the date of the financial statements included with this Annual Report, except as disclosed in this Annual Report.

**Item 9. The Offer and Listing**

**A. Offer and Listing**

The Company's common shares are listed for trading on the CSE under the symbol "CXXI" and are quoted on the OTCQX marketplace in the United States under the symbol "CXXIF".

**B. Plan of Distribution**

Not Applicable.

**C. Markets**

The Company's common shares are listed for trading on the CSE under the symbol "CXXI" and are quoted on the OTCQX marketplace in the United States under the symbol "CXXIF".

**D. Selling Shareholders**

Not Applicable.

**E. Dilution**

Not Applicable.

**F. Expenses of the Issue**

Not Applicable.

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**Item 10. Additional Information**

**A. Share Capital**

Not Applicable.

**B. Articles** 

The Company is a British Columbia corporation existing under the BCBCA under incorporation number BC0320204. A copy of the Company's Articles is incorporated by reference into this Annual Report as <u>Exhibit 1.1</u>.

The Company was incorporated in the Province of British Columbia under the Company Act (British Columbia) on January 15, 1987, as Empire Creek Mines Inc. On May 11, 1987, the Company changed its name to Curlew Lake Resources Inc. Effective November 24, 2017, the Company changed its name to C21 Investments Inc. with a focus on acquiring United States assets in the state-legal cannabis industry.

The Company's Articles do not limit the Company's objects and purposes and there are no restrictions on the business the Company may carry out in the Articles.

The Company is authorized to issue an unlimited number of common shares without par value. Each common share is entitled to one vote. All common shares of the Company rank equally as to dividends, voting power and participation in assets. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in the BCBCA and the Company's Articles.

A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction.

The directors may from time to time in their discretion authorize and cause the Company to:

(a) borrow money in such amount, in such manner, on such security, from such sources and upon such terms and conditions as they think fit;

(b) guarantee the repayment of money borrowed by any person or the performance of any obligation of any person;

(c) issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and

(d) mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other security on the undertaking or on the whole or any part of the property and assets of the Company, both present and future.

There are no age considerations pertaining to the retirement or non-retirement of directors.

A director is not required to hold a share in the capital of the Company as a qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director.

A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company's business, he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.

Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding.

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All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.

Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the assets of the Company, if any, remaining after payment of all debts and liabilities. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, sinking or purchase funds.

Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company's Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders' meeting.

The BCBCA contains provisions which require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a two-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution" include:

(a) transferring the Company's jurisdiction from British Columbia to another jurisdiction;

(b) giving financial assistance under certain circumstances;

(c) certain conflicts of interest by directors;

(d) disposing of all or substantially all of the Company's undertakings;

(e) certain alterations of share capital;

(f) altering any restrictions on the Company's business; and

(g) certain reorganizations of the Company.

There are no restrictions on the repurchase or redemption of common shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.

There is no liability to further capital calls by the Company.

There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of common shares.

No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders.

There are no limitations on the rights to own securities.

There is no provision of the Company's Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).

Shareholder ownership must be disclosed to Canadian securities administrators and the CSE by any shareholder who owns more than 10% of the Company's outstanding common shares.

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As a Canadian public company, the convocation of our annual general meetings and special meetings are governed by Canadian corporate and securities laws, including the BCBCA, National Instrument 51-102 - *Continuous Disclosure Obligations*, National Instrument 52-110 - *Audit Committees* and National Instrument 54-101 - *Communication with Beneficial Owners of Securities of a Reporting Issuer*.

**C. Material Contracts** 

Except for contracts entered into in the ordinary course of business and other than those described in Item 4. "Information on the Company" or elsewhere in this Annual Report, the only contract entered into by the Company during the two years immediately preceding the date of this Annual Report that is material is the following:

(i) Asset Purchase Agreement dated August 18, 2023, between a subsidiary of the Company and Deep Roots Harvest, Inc. The Asset Purchase Agreement is attached hereto as Exhibit 4.6 and is incorporated by reference herein.

(ii) Trust Indenture dated May 6, 2024, between the Company and Alliance, as trustee, registrar and transfer agent

**D. Exchange Controls**

Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company's securities, except as discussed below under Item 10.E "Additional Information - Taxation".

There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.

**E. Taxation**

*Certain United States Federal Income Tax Considerations*

The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, and disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including without limitation specific tax consequences to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income tax, U.S. federal alternative minimum tax, U.S. federal estate and gift tax, U.S. state and local tax, and non-U.S. tax consequences to U.S. Holders of the acquisition, ownership, and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership, and disposition of common shares.

No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "**IRS**") has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to a U.S. Holder arising from or relating to the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.

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**Scope of this Summary**

Authorities

This summary is based on the Internal Revenue Code of 1986, as amended (the "**Code**"), Treasury Regulations (whether final, temporary, or proposed) promulgated thereunder, published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "**Canada-U.S. Tax Convention**"), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive, current or prospective basis.

U.S. Holders

For purposes of this summary, the term "**U.S. Holder**" means a beneficial owner of common shares that is for U.S. federal income tax purposes:

* an individual who is a citizen or resident of the U.S.;

* a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the U.S., any state thereof or the District of Columbia;

* an estate whose income is subject to U.S. federal income taxation regardless of its source; or

* a trust that (1) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

Non-U.S. Holders

For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of common shares that is not a U.S. Holder or a partnership. This summary does not address the U.S. federal income tax considerations to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential application of, and operation of, any income tax treaties) relating to the acquisition, ownership and disposition of common shares.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquire common shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to special tax accounting rules; (i) are partnerships and other pass-through entities (and investors in such partnerships and entities); (j) are S corporations (and shareholders or investors in such S corporations); (k) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding common shares of the Company; (l) are U.S. expatriates or former long-term residents of the U.S.; (m) hold common shares in connection with a trade or business, permanent establishment, or fixed base outside the United States; or (n) are subject to the alternative minimum tax. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences relating to the acquisition, ownership and disposition of common shares.

If an entity or arrangement that is classified as a partnership (or other "pass-through" entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax consequences to such entity and the partners (or other owners) of such entity generally will depend on the activities of the entity and the status of such partners (or owners). This summary does not address the tax consequences to any such owner. Partners (or other owners) of entities or arrangements that are classified as partnerships or as "pass-through" entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership, and disposition of common shares.

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**Ownership and Disposition of Common Shares**

The following discussion is subject in its entirety to the rules described below under the heading "Passive Foreign Investment Company ("PFIC") Rules".

Taxation of Distributions

The Company has not paid dividends to shareholders in the past and does not anticipate paying dividends in the foreseeable future. A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any foreign income tax withheld from such distribution) to the extent of the current or accumulated "earnings and profits" of the Company, as computed for U.S. federal income tax purposes. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC (as defined below) for the tax year of such distribution or the preceding tax year. To the extent that a distribution exceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares (see "Sale or Other Taxable Disposition of Common Shares" below). However, the Company may not maintain the calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may have to assume that any distribution by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares by corporate U.S. Holders generally will not be eligible for the "dividends received deduction". Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or the common shares are readily tradable on a United States securities market, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC in the tax year of distribution or in the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

Sale or Other Taxable Disposition of Common Shares

A U.S. Holder will generally recognize gain or loss on the sale or other taxable disposition of common shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's tax basis in such common shares sold or otherwise disposed of. A U.S. Holder's tax basis in common shares generally will be such U.S. Holder's U.S. dollar cost for such common shares. Any such gain or loss recognized on such sale or other disposition generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such common shares are held for more than one year.

Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.

**Passive Foreign Investment Company ("PFIC") Rules**

If the Company were to constitute a PFIC within the meaning of Section 1297(a) of the Code for any year during a U.S. Holder's holding period, then certain potentially adverse rules would affect the U.S. federal income tax consequences to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Company believes that it was not a PFIC for its most recently completed tax year, and based on current business plans and financial expectations, the Company does not anticipate that it will be a PFIC for its current tax year. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold common shares.

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In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.

The Company generally will be a PFIC if, after the application of certain "look-through" rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the "income test") or (b) 50% or more of the value of the Company's assets either produce passive income or are held for the production of passive income (the "asset test"), based on the quarterly average of the fair market value of such assets. "Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental or outside operations or sources, and "passive income" generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all of a foreign corporation's commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.

If the Company were a PFIC in any tax year during which a U.S. Holder held common shares, such holder generally would be subject to special rules with respect to "excess distributions" made by the Company on the common shares and with respect to gain from the disposition of common shares. An "excess distribution" generally is defined as the excess of distributions with respect to the common shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder's holding period for the common shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the common shares ratably over its holding period for the common shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the "QEF Election" under Section 1295 of the Code and the "Mark-to-Market Election" under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record <u>-</u>keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any subsidiary that also is classified as a PFIC.

Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of common shares, and the availability of certain U.S. tax elections under the PFIC rules.

**Additional Considerations**

Receipt of Foreign Currency

The amount of any distribution paid to a U.S. Holder in foreign currency, or payment received on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt or, if applicable, the date of settlement if the common shares are traded on an established securities market (regardless of whether such foreign currency is converted into U.S. dollars at that time). A U.S. Holder will have a basis in the foreign currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who converts or otherwise disposes of the foreign currency after the date of receipt may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally will be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the common shares. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency.

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Foreign Tax Credit

Dividends paid on the common shares will be treated as foreign-source income, and generally will be treated as "passive category income" or "general category income" for U.S. foreign tax credit purposes. Any gain or loss recognized on a sale or other disposition of common shares generally will be United States source gain or loss. Certain U.S. Holders that are eligible for the benefits of Canada-U.S. Tax Convention may elect to treat such gain or loss as Canadian source gain or loss for U.S. foreign tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed as a credit by U.S. taxpayers. In addition, Treasury Regulations that apply to taxes paid or accrued (the "**Foreign Tax Credit Regulations**") impose additional requirements for Canadian withholding taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. The Treasury Department has released guidance temporarily pausing the application of certain of the Foreign Tax Credit Regulations.

Subject to the PFIC rules and the Foreign Tax Credit Regulations, each as discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax. Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder's income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder's particular circumstances. Accordingly, each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.

Backup Withholding and Information Reporting

Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.

Payments made within the U.S. or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding tax, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding tax, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding tax. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding tax rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.

The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules.

**THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.**

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**F. Dividends and Paying Agents**

Not Applicable.

**G. Statement by Experts**

Not Applicable.

**H. Documents on Display**

The Company is subject to the informational requirements of the Exchange Act and files reports and other information with the SEC. The SEC maintains a website that contains reports and other information regarding registrants that file electronically with the SEC at http://www.sec.gov ("**EDGAR**")

The documents concerning the Company referred to in this Annual Report may be inspected at the Company's registered and records office, located at 19<sup>th</sup> Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4.

The Company is subject to reporting requirements as a "reporting issuer" under applicable securities legislation in Canada and as a "foreign private issuer" under the Exchange Act. As a result, the Company must file periodic reports and other information with the Canadian securities regulatory authorities and the SEC.

A copy of this Annual Report and certain other documents referred to in this Annual Report and other documents filed by the Company may be retrieved from the system for electronic document analysis and retrieval ("**SEDAR**") system maintained by the Canadian securities regulatory authorities at www.sedar.ca or from EDGAR.

**I. Subsidiary Information**

Not Applicable.

**J. Annual Report to Security Holders** 

Not Applicable.

**Item 11. Quantitative and Qualitative Disclosures about Market Risk**

The Company, through its financial assets and liabilities, is exposed to various risks. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on these consolidated financial statements. The following analysis provides a measurement of risks as at the date of this Annual Report:

***Credit Risk***

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company deposits the majority of its cash with high credit quality financial institutions in the United States. The Company is not exposed to any significant credit risk.

***Liquidity Risk***

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investment and financing activities. Management and the Board are actively involved in the review, planning and approval of significant expenditures and commitments.

------

The Company's consolidated financial statements for year ended March 31, 2025, have been prepared on a going concern basis which assumes that the Company will be able to continue its operations and realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

The Company takes a disciplined approach to financing and intends to protect shareholder value by raising capital strategically. The Company is assessing various opportunities for additional financing through either debt or equity to be used for corporate working capital and possible future acquisitions.

Further, there remains uncertainty about the U.S. federal government's position on cannabis with respect to cannabis-legal states. A change in its enforcement policies could impact the ability of the Company to continue as a going concern and have a material adverse impact on the business.

***Interest Rate Risk***

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not subject to any interest rate volatility as its long-term debt instruments and convertible notes are carried at a fixed interest rate throughout their term.

***Foreign Currency Risk***

The Company is exposed to foreign currency risk from fluctuations in foreign exchange rates and the degree of volatility in these rates due to the timing of their accounts payable balances. The risk is mitigated by timely payment of creditors and monitoring of foreign exchange fluctuations by management. As at the date of this Annual Report, the Company did not use derivative instruments to hedge its exposure to foreign currency risk.

***Commodity Price Risk***

The Company's operations do not involve the direct input or output of any commodities and therefore it is not subject to any significant commodity price risk. In addition, the Company does not have any equity investment in other listed public companies, and therefore it is not subject to any significant stock market price risk.

The Company is not a party to any foreign currency hedge contracts as at the date of this Annual Report.

***Inflation Risk***

Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material effect on our financial position or results of operations to date, a continued high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our services do not increase with these increased costs.

**Item 12. Description of Securities Other than Equity Securities**

**A. - C.**

Not Applicable.

**D. American Depository Receipts**

The Company does not have securities registered as American Depository Receipts.

PART II.

**Item 13. Defaults, Dividend Arrearages and Delinquencies**

None.

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**Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds**

No modifications or qualifications have been made to the instruments defining the rights of the holders of the Company's common shares and no material amount of assets securing the Company's securities has been withdrawn or substituted by the Company or anyone else, other than in the ordinary course of business.

**Item 15. Controls and Procedures**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(a)** **Disclosure Controls and Procedures***

Under the supervision and with the participation of our senior management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as at March 31, 2025 (the "**Evaluation Date**").

Disclosure controls and procedures are controls and procedures that are designed to ensure that that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(b)** **Management's Annual Report on Internal Control Over Financial Reporting***

The Company's management is responsible for designing, establishing and maintaining a system of internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to provide reasonable assurance that the financial information prepared by the Company for external purposes is reliable and has been recorded, processed and reported in an accurate and timely manner in accordance with GAAP as issued by FASB. The Board is responsible for ensuring that management fulfills its responsibilities. The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and annual financial statements. Management reviewed the results of their assessment with the Company's Audit Committee.

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

To evaluate the effectiveness of the Company's internal control over financial reporting, management has used the Internal Control - Integrated Framework (2013), which is a suitable, recognized control framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on this evaluation, our management concluded that certain of our internal controls over financial reporting were not effective as of the Evaluation Date, due to the existence of a material weakness as it relates to inadequate segregation of duties in certain financial reporting processes, including accounting for deferred income taxes and preparation of statements of cash flows related to foreign currency translations, partly because of the Company's small size and insufficient personnel with an appropriate level of technical accounting knowledge, experience and training commensurate with the Company's complexity and its financial accounting and reporting requirements.

The Company is committed to maintaining a strong internal control environment. In order to address the material weaknesses in internal control over financial reporting noted above, management with oversight and direction from the Audit Committee and the Board of Directors, is developing a remediation plan. To remediate the material weakness and significant deficiencies described above, management is currently considering the following actions:

* retain additional in-house accounting personnel and continue to enhance our internal finance and accounting organizational structure;

* strengthen the direct management oversight of complex transactions, along with the use of legal and accounting professionals; and

* expand the scope of services with the Company's independent outside accounting consulting firm to assist with addition oversight of its financial statements and regulatory filings.

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As we continue to develop and implement our remediation plan, additional remediation steps will be identified and adopted.

We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded that the controls are operating effectively.

The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Disclosure Controls or its Internal Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(c)** **Attestation Report of Registered Public Accounting Firm***

This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Under the Jumpstart Our Business & Startups Act ("**JOBS Act**"), emerging growth companies are exempt from Section 404(b) of the Sarbanes-Oxley Act, which generally requires public companies to provide an independent auditor attestation of management's assessment of the effectiveness of their internal control over financial reporting. The Company qualifies as an emerging growth company under the JOBS Act and therefore has not included an independent auditor attestation of management's assessment of the effectiveness of its internal control over financial reporting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***(d)** **Changes in Internal Control over Financial Reporting***

There have been no changes in the Company's internal controls over financial reporting that occurred during the year ended March 31, 2025, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.

**Item 16. [Reserved]**

**Item 16A. Audit Committee Financial Expert**

The Board has determined that D. Bruce Macdonald qualifies as a financial expert and is independent (as determined under Exchange Act Rule 10A-3 and section 803A of the NYSE American Company Guide).

**Item 16B. Code of Ethics**

On February 4, 2019, the Company adopted a Code of Business Conduct and Ethics that applies to all employees of the Company, including its Chief Executive Officer and Chief Financial Officer. A copy of the Company's Code of Ethics will be provided to any person requesting the same without charge. To request a copy of our Code of Ethics, please make a written request to our Chief Financial Officer at the Company's corporate office, located at 19<sup>th</sup> Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4.

As at the date of this Annual Report, the Company has not made any modification, material departure, waiver or implicit waiver of the Company's Code of Business Conduct and Ethics.

**Item 16C. Principal Accountant Fees and Services** 

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Davidson & Company LLP ("**Davidson**") (PCAOB ID 731) has been the external auditor of the Company since January 19, 2024. The predecessor external auditor of the Company prior to the appointment of Davidson was Marcum, LLP ("**Marcum**"). The aggregate fees billed by the Company's external auditors, Davidson & Company LLP, in each of the last two financial years of the Company for services in each of the categories indicated are as follows:

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| | | | |
|:---|:---|:---|:---|
| **Financial Year End** | **Audit Fees** | **Audit Related Fees**<sup>(1)</sup> | **Tax Fees**<sup>(2)</sup> |
| March 31, 2025 | C$336,959 | Nil | C$46,200 Nil |
| March 31, 2024 | C$116,776 | C$54,200 | Nil |

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(1) Pertains to assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and that are not reported under "Audit Fees".

(2) Pertains to professional services for tax compliance, tax advice and tax planning.

(3) Pertains to products and services other than services reported under the other categories.

The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services, however the Company's external auditor has been approved by majority vote of the Audit Committee and 100% of the services described above were approved by the Audit Committee. At no time since February 1, 2020, was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Company's Board of Directors.

**Item 16D. Exemptions from the Listing Standards for Audit Committees**

Not Applicable.

**Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers**

Issuer Purchases of Equity Securities

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| | | | | |
|:---|:---|:---|:---|:---|
| Period | (a) Total number of<br>shares purchased | (b) Average price<br>paid per share | (c) Total number of<br>shares purchased as<br>part of publicly<br>announced plans or<br>programs | (d) Maximum number<br>(or approximate dollar<br>value) of that may yet be<br>purchased under the<br>plans or programs |
| Month #1 <br>(April 1, 2024 - April 30, 2024) |  |  |  |  |
| Month #2 (May 1, 2024 - May 31, 2024) |  |  |  |  |
| Month #3 (June 1, 2024 - June 30, 2024) |  |  |  |  |
| Month #4 (July 1, 2024 - July 31, 2024) |  |  |  |  |
| Month #5 (August 1, 2024 - August 31, 2024) |  |  |  |  |
| Month #6 (September 1, 2024 - September 30, 2024) |  |  |  |  |
| Month #7 (October 1, 2024 - October 31, 2024) |  |  |  |  |
| Month #8 (November 1, 2024 - November 30, 2024) |  |  |  | 6002390 |
| Month #9 (December 1, 2024 - December 31, 2024) |  |  |  | 6002390 |
| Month #10 (January 1, 2025 - January 31, 2025) |  |  |  | 6002390 |
| Month #11 (February 1, 2025 - February 29, 2025) | 2051000<sup>2</sup> | US$0.125 |  | 6002390 |
| Month #12 (March 1, 2025 - March 31, 2025) |  |  |  | 6002390 |
| Total | 2051000 | US$0.125 |  | &nbsp;&nbsp;&nbsp;&nbsp;6002390<sup>3</sup> |

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<sup>2</sup> The share repurchase was made pursuant to a Share Repurchase Agreement dated February 14, 2025 (the "Share Purchase Agreement"), for an aggregate purchase price of US$256,375. No further repurchases will be made pursuant to the Share Repurchase Agreement.

<sup>3</sup> On November 27, 2024, the Company established a Normal Course Issuer Bid (the "NCIB") to repurchase up to 6,002,390 common shares of the Company, representing approximately 5% of the issued and outstanding common shares. The expiration date of the NCIB is December 2, 2025.

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**Item 16F. Changes in Registrant's Certifying Accountant**

At the Company's request, the Company's former independent auditor, Marcum, resigned effective January 19, 2024, and Davidson was engaged as the Company's new independent auditor effective January 19, 2024. The disclosure required pursuant to this Item 16F was included in the Company's Current Report on Form 6-K filed with the SEC on February 1, 2024, in Exhibits 99.1, 99.2 and 99.3, which are hereby incorporated by reference into this Annual Report.

**Item 16G. Corporate Governance**

Not Applicable.

**Item 16H. Mine Safety Disclosure.**

Not Applicable.

**Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections**

Not Applicable.

**Item 16J. Insider Trading Policies** 

The Company does not have an insider trading policy as such policy is not required under Canadian law.

**Item 16K. Cybersecurity** 

**Risk Management and Strategy**

As of the date of the filing of this Annual Report, the Company has information systems in place and has not suffered a "cybersecurity threat" (as defined in Item 106(a) of Regulation S-K) or "cybersecurity incident" (as defined in Item 106(a) of Regulation S-K). Moreover, the Company is aware of the evolution of cybersecurity risks and is taking proactive steps by keeping up to date our information systems and educating our personnel about these risks.

Refer to the "Cybersecurity risk" section in "*Item 3-D - Risk Factors"* for the complete information regarding cybersecurity risks and, the potential likelihood of impacting the Company's technology systems.

In order to mitigate these risks to a degree, the Company has a full-time IT manager ("**Manager"**) and also engages third-party service providers to monitor and update the Company's information systems<sup>4</sup>.

The Company has implemented multiple measures to combat and reduce the risk of cybersecurity threats and cybersecurity incidents such as:

* Hiring the Manager, who is available to respond immediately in the event of any cybersecurity threat or cybersecurity incident;

_______________________________________________

<sup>4</sup> The Manager has 25 years' experience in company-wide email security, centrally managed security suites, and requisite experience drafting, updating and enforcing corporate IT policy including cyber and network security.

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* Developing an internal IT Control Guide ("**IT Guide**") reviewed by the COO;

* Enhancing the scrutiny of the emails received via third-party security service provider to identify potential threats; 

* Implementing informal educational outreach programs including email reminders to educate staff about certain cybersecurity risks.

**Governance**

The Manager monitors cybersecurity risks and potential incidents while following and periodically reviewing the IT Guide, recommending updates to the COO where needed. The COO advise the Board of any potential cybersecurity threat and the corresponding mitigation steps needed. In addition, the Board includes a member with expertise and experience in cybersecurity matters.

At the time of filing this Annual Report the Company does not have a subcommittee dedicated to cybersecurity but will consider increased oversight from the Board as the Company's situation evolves responsible for the oversight of risks from cybersecurity threats.

______________________________

PART III.

**Item 17. Financial Statements**

See Item 18 "Financial Statements".

**Item 18. Financial Statements** 

The following financial statements pertaining to the Company are filed as part of this Annual Report:

Audited Financial Statements of the Company for the year ended March 31, 2025, two months ended March 31, 2024 and year ended January 31, 2024 audited in accordance with U.S. GAAP.

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![](form20fxz101.jpg)

&nbsp;&nbsp;&nbsp;&nbsp; **Consolidated Financial Statements**<br> For the year ended **March 31, 2025,** the two months ended **March 31, 2024** and the year ended **January 31, 2024**<br> *(Expressed in U.S. Dollars)*<br>

<sup>(1</sup><sup>)</sup> See note 2(d) regarding change in financial year.

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| | |
|:---|:---|
| [CONSOLIDATED BALANCE SHEETS](#page_4) | &nbsp;&nbsp;[4](#page_4) |
| [CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS](#page_5) | &nbsp;&nbsp;[5](#page_5) |
| [CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY](#page_06) | &nbsp;&nbsp;[6](#page_06) |
| [CONSOLIDATED STATEMENTS OF CASH FLOWS](#page_07) | &nbsp;&nbsp;[7](#page_07) |
| [NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS](#page_8) | &nbsp;&nbsp;[8-31](#page_8) |

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![tmpxu001.jpg](form20fxz004.jpg)

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Shareholders and Directors of

C21 Investments Inc.

***Opinion on the Consolidated Financial Statements***

We have audited the accompanying consolidated balance sheets of C21 Investments Inc. (the "Company") as of March 31, 2025, March 31, 2024, and January 31, 2024 and the related consolidated statements of loss and comprehensive loss, changes in shareholders' equity, and cash flows for the year ended March 31, 2025, two months ended March 31, 2024, and year ended January 31, 2024, 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 March 31, 2025, March 31, 2024 and January 31, 2024, and the results of its operations and its cash flows for the year ended March 31, 2025, two months ended March 31, 2024 and year ended January 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

***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 consolidated 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 misstatements 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 2024.

**/s/ DAVIDSON & COMPANY LLP**

Vancouver, Canada Chartered Professional Accountants <br> June 23, 2025PCAOB #ID 731

![](form20fxu002.jpg)

------

**C21 INVESTMENTS INC.**

**Consolidated Balance Sheets**

(Expressed in U.S. dollars)

---

| |
|:---|
| **ASSETS** |
| **Current assets** |
| Cash |
| Receivables |
| Inventory |
| Prepaid expenses and deposits |
| Assets classified as held for sale |
| **Non-current assets** |
| Property and equipment |
| Right-of-use assets |
| Intangible assets |
| Goodwill |
| Note receivable |
| Deferred tax asset |
| **Total assets** |
| **LIABILITIES** |
| **Current liabilities** |
| Accounts payable and accrued liabilities |
| Convertible promissory notes |
| Convertible debentures - current portion |
| Income taxes payable |
| Deferred revenue |
| Lease liabilities - current portion |
| Liabilities classified as held for sale |
| **Non-current liabilities** |
| Convertible debentures |
| Lease liabilities |
| Uncertain tax position |
| Derivative liability |
| Deferred tax liability |
| **Total liabilities** |
| **SHAREHOLDERS' EQUITY** |
| Common stock, no par value; unlimited shares authorized; 117,996,814, 120,047,814 and 120,047,814 shares issued and outstanding as of March 31, 2025, March 31, 2024 and January 31, 2024, respectively |
| Commitment to issue shares |
| Accumulated other comprehensive loss**)** |
| Deficit**)** |
| **Total shareholders' equity** |
| **Total liabilities and shareholders' equity** |

---

Commitments (Note 19)

Contingencies (Note 22)

Subsequent event (Note 25)

---

| | | | |
|:---|:---|:---|:---|
| Approved and authorized for issue on behalf of the Board of Directors: | Approved and authorized for issue on behalf of the Board of Directors: | Approved and authorized for issue on behalf of the Board of Directors: | Approved and authorized for issue on behalf of the Board of Directors: |
| */s/ "Bruce Macdonald"* | Director | */s/ "Michael Kidd"* | Director |

---

*The accompanying notes are an integral part of these consolidated financial statements.*

------

**C21 INVESTMENTS INC.**

**Consolidated Statements of Loss and Comprehensive Loss**

(Expressed in U.S. dollars, except number of shares)

---

| |
|:---|
| Revenue |
| Cost of sales |
| Gross profit |
| Selling, general and administrative expenses |
| **Income from operations** |
| Gain (loss) on change in fair value of derivative liabilities |
| Gain on termination of sales-type lease |
| Accretion expense**)** |
| Loss on disposal of assets**)** |
| Impairment loss) |
| Interest expense**)** |
| Other income) |
| **Net income from continuing operations before income tax expense** |
| Income tax expense**)** |
| **Net loss from continuing operations after income tax expense)** |
| Net loss from discontinued operations after income tax expense**)** |
| **Net loss)** |
| **Other comprehensive income:** |
| Cumulative translation adjustment |
| **Comprehensive loss)**) |
| Basic and diluted loss per share from continuing operations**)** |
| Basic and diluted loss per share from discontinued operations**)** |
| Basic and diluted loss per share**)** |
| Weighted average number of common shares outstanding - basic |
| Weighted average number of common shares outstanding - diluted |

---

*The accompanying notes are an integral part of these consolidated financial statements.*

------

**C21 INVESTMENTS INC.**

**Consolidated Statements of Changes in Shareholders' Equity** 

(Expressed in U.S. dollars, except number of shares)

---

| | | |
|:---|:---|:---|
|  | **Number of<br>shares** | **Commitment<br>to issue<br>shares** |
|  | # | $|
| Balance, January 31, 2023 | 120047814 | 628141) |
| Share-based compensation |  |  |
| Net loss and comprehensive income for the year | - | -) |
| Balance, January 31, 2024 | 120047814 | 628141) |
| Net loss and comprehensive income for the year |  | -) |
| Balance, March 31, 2024 | 120047814 | 628141) |
| Warrants issued in private placement |  |  |
| Share-based compensation |  |  |
| Cancellation of shares | (2051000) | -) |
| Net loss and comprehensive income for the year |  | -) |
| **Balance, March 31, 2025** | **117996814** | **628141))** |

---

*The accompanying notes are an integral part of these consolidated financial statements.*

------

**C21 INVESTMENTS INC.**

**Consolidated Statements of Cash Flows**

(Expressed in U.S. dollars)

---

| |
|:---|
| **OPERATING ACTIVITIES** |
| Net loss from continuing operations after income tax expense**)** |
| Adjustments to reconcile net loss to cash provided by operating activities: |
| &nbsp;&nbsp;&nbsp;Accretion expense |
| &nbsp;&nbsp;&nbsp;Amortization of right-of-use assets |
| &nbsp;&nbsp;&nbsp;Deferred income tax recovery) |
| &nbsp;&nbsp;&nbsp;Depreciation and amortization |
| &nbsp;&nbsp;&nbsp;Foreign exchange gain) |
| &nbsp;&nbsp;&nbsp;Share-based compensation |
| &nbsp;&nbsp;&nbsp;(Gain) loss on change in fair value of derivative liabilities**)** |
| &nbsp;&nbsp;&nbsp;Gain on termination of sales-type lease) |
| &nbsp;&nbsp;&nbsp;Loss on disposal of assets |
| &nbsp;&nbsp;&nbsp;Impairment loss |
| &nbsp;&nbsp;&nbsp;Interest expense |
| Changes in operating assets and liabilities: |
| &nbsp;&nbsp;&nbsp;Receivables) |
| &nbsp;&nbsp;&nbsp;Inventory**)** |
| &nbsp;&nbsp;&nbsp;Prepaid expenses and deposits**)** |
| &nbsp;&nbsp;&nbsp;Accounts payable and accrued liabilities**)** |
| &nbsp;&nbsp;&nbsp;Income taxes payable**)** |
| &nbsp;&nbsp;&nbsp;Uncertain tax position |
| &nbsp;&nbsp;&nbsp;Deferred revenue) |
| &nbsp;&nbsp;&nbsp;Lease liabilities**)** |
| **Cash provided by operating activities of continuing operations** |
| **Cash (used in) provided by operating activities of discontinued operations)** |
| **INVESTING ACTIVITIES** |
| Purchases of property and equipment**)** |
| Proceeds from termination of sales-type lease and disposal of licenses |
| Purchases of licenses as part of Deep Roots acquisition**)** |
| Proceeds from disposal of property and equipment |
| **Cash used in investing activities of continuing operations)** |
| **Cash provided by investing activities of discontinued operations** |
| **FINANCING ACTIVITIES** |
| Settlement of earn out shares) |
| Proceeds from issuance of debenture units |
| Principal repayments on promissory note payable) |
| Principal repayments on convertible debentures**)** |
| Interest paid in cash**)** |
| Cancellation of shares**)** |
| **Cash provided by (used in) financing activities of continuing operations** |
| **Cash used in financing activities of discontinued operations)** |
| Effect of foreign exchange on cash) |
| Change in cash during the year**)** |
| Cash, beginning of year |
| **Cash, end of year** |
| **Supplemental disclosure of cash flow information:** |
| Income tax paid in cash |
| Interest paid in cash |
| Addition in right - of-use assets and lease liabilities |

---

*The accompanying notes are an integral part of these consolidated financial statements.*

------

**C21 INVESTMENTS INC.**<br> **Notes to the Consolidated Financial Statements**<br> **For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024** <br> **(Expressed in U.S. dollars, except as noted)**<br>

**1. NATURE OF OPERATIONS** 

C21 Investments Inc. (the "Company" or "C21") was incorporated January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 170-601 West Cordova Street, Vancouver, BC, V6B 1G1. The Company is listed on the Canadian Securities Exchange under the symbol CXXI and on the OTCQB® Venture Market under the symbol CXXIF.

The Company is a cannabis operator in Nevada, USA and is engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales. The Company initially also had operations in the state of Oregon. During the year ended January 31, 2022, the Company made a strategic decision to cease operations in Oregon. The results of the Company's Oregon operations are presented as discontinued operations.

As at March 31, 2025, the Company had a working capital deficiency of $452,928 (March 31, 2024 - $6,908,835 and January 31, 2024 - $6,922,786) and an accumulated deficit of $76,820,943 (two months ended March 31, 2024 - $72,851,401 and year ended January 31, 2024 - $72,776,997). During the year ended March 31, 2025, the Company generated $1,365,653 of cash from operating activities, while during the two months ended March 31, 2024 and year ended January 31, 2024, operating activities generated cash of $904,620 and $3,261,255, respectively.

At the federal level, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.

**2. BASIS OF PREPARATION**

**a) Basis of presentation**

These consolidated financial statements for the year ended March 31, 2025, the two months ended March 31, 2024 and the year ended January 31, 2024 ("consolidated financial statements") are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for certain financial instruments classified as fair value through profit or loss.

These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.

Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.

**b) Functional and reporting currency**

The functional currency of the Company is Canadian dollars ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars ("US$"). C21 has determined that the US$ is the most relevant and appropriate reporting currency as the Company's operations are conducted in US$ and its financial results are prepared and reviewed internally by management in US$. The consolidated financial statements are presented in US$ unless otherwise noted.

**c) Basis of consolidation**

The consolidated financial statements incorporate the accounts of the Company and all the entities in which the Company has a controlling voting interest and is deemed to be the primary beneficiary. All consolidated entities were under common control during the entirety of the periods for which their respective results of operations were included in the consolidated statements from the date of acquisition. All intercompany balances and transactions are eliminated upon consolidation.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**2. BASIS OF PREPARATION (continued)**

A summary of the Company's subsidiaries included in these consolidated financial statements as at March 31, 2025 is as follows:

---

| | |
|:---|:---|
| **Name of subsidiary <sup>(1)</sup>** | **Principal activity** |
| 320204 US Holdings Corp. | Holding Company |
| 320204 Oregon Holdings Corp. | Holding Company |
| 320204 Nevada Holdings Corp. | Holding Company |
| 320204 Re Holdings, LLC | Holding Company |
| Eco Firma Farms LLC ("EFF") <sup>(2)</sup> | Cannabis producer |
| Silver State Cultivation LLC | Cannabis producer |
| Silver State Relief LLC | Cannabis retailer |
| Phantom Brands, LLC <sup>(2)</sup> | Holding Company |
| Phantom Distribution, LLC <sup>(2)</sup> | Cannabis distributor |
| Workforce Concepts 21, Inc. | Payroll and benefits services |

---

(1) All subsidiaries of the Company were incorporated in the USA, are wholly owned and have US$ as their functional currency.

(2) Operations have been discontinued and results are included in discontinued operations.

**d) Change in financial year**

In May 2024, the Company changed its financial year end from January 31 to March 31 as approved by the Canadian Securities Exchange. The change will allow more capacity to complete annual financial statements in a timely and cost-efficient manner. The Company elected to have a transition year of two months from February 1, 2024 to March 31, 2024. The Company's first full financial year under the new schedule covers the twelve months ended March 31, 2025.

In accordance with Section 4.8 of National Instrument 51-102 *Continuous Disclosure Obligations*, the comparative annual periods presented in these consolidated financial statements are the two months ended March 31, 2024 and twelve months ended January 31, 2024.

**3. ACCOUNTING POLICIES** 

**a) Significant accounting judgement, estimates and assumptions**

The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.

Areas requiring a significant degree of judgement and estimation relate to the assessment of the transactions as business combinations or asset acquisitions, the determination of recoverability of goodwill, recoverability of intangible assets, fair value less costs to sell of assets classified as held for sale, estimates used in valuation and costing of inventory, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities, share-based compensation, and fair value of derivative liability.

**b) Recently issued accounting pronouncements**

In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). The Company adopted ASU 2023-07 as of April 1, 2024. This update enhances the disclosure requirements for reportable segments, including significant segment expenses and interim period disclosures. The Company have disclosed the title and position of our Chief Operating Decision Maker (CODM) to provide clarity on who is responsible for making operating decisions. These disclosures aim to enhance transparency and provide more decision-useful information to investors and other stakeholders.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**3. ACCOUNTING POLICIES (continued)**

*Recently issued accounting pronouncements not yet effective*

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, requiring entities to disclose more detailed information about income tax expense (benefit), significant components of income tax expense (benefit), separate disclosure of income tax expense (benefit) for domestic and foreign jurisdictions and by major jurisdictions. The Company will adopt ASU 2023-09 as of April 1, 2025. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its financial statements and disclosures.

In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-03 ("ASU 2024-03"), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): update required disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026. The Company has not early adopted this standard. The Company is currently evaluating the impact of the adoption of this amendment.

**c) Cash** 

Cash is held in financial institutions and at retail locations. The carrying value of cash approximates its fair value.

The failure of any bank in which C21 deposits funds may reduce the amount of cash available for operations or delay the ability to access such funds. C21 does not currently have a commercial relationship with a bank that has failed or has shown indications of experiencing operational distress, nor has C21 experienced delays or other issues in meeting its financial obligations. If banks and financial institutions where C21's cash is held enter receivership or become insolvent in response to financial conditions affecting the banking system and financial markets, its ability to access cash may be threatened and could have a material adverse effect on operations and financial condition of the Company.

As at March 31, 2025, the Company had FDIC coverage over $1,877,092 (two months ended March 31, 2024 - $876,783 and year ended January 31, 2024 - $965,157) of its cash balance.

**d) Foreign currency translation**

Foreign currency transactions are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in the consolidated statements of loss and comprehensive loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

Assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates and any revenue and expenses are translated at the average exchange rate for the year. The resulting exchange differences are recognized in other comprehensive income.

**e) Inventory**

Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods.

Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory.

Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.

**f) Property and equipment**

Property and equipment is measured at cost less accumulated depreciation and losses on impairment.

Depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows:

---

| | |
|:---|:---|
| Buildings | 45 years |
| Furniture & fixtures | 5 years |
| Computer equipment | 3 years |
| Machinery & equipment | 2-7 years |
| Leasehold improvements | shorter of the life of the improvement or the remaining life of the lease |

---

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**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**3. ACCOUNTING POLICIES (continued)**

**g) Intangible assets**

Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.

Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets begins when the asset becomes available for use. Brands, licenses, and customer relationships are amortized over 10 years, which reflect the estimated useful lives of the intangible assets.

**h) Goodwill**

Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net intangible and tangible assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The Company's goodwill is part of the Nevada reporting unit.

Goodwill is tested annually for any impairment, or more frequently in the case that events or circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If factors indicate this is the case, then a quantitative test is performed and impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill.

For the years ended March 31, 2025, the two months ended March 31, 2024 and the year ended January 31, 2024, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded the carrying amount and no impairment was noted.

**i) Impairment of long-lived assets**

Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives.

At the end of each fiscal year, the Company reviews the intangible assets estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis.

Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.

**j) Assets and liabilities held for sale**

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.

**k) Convertible instruments**

The Company accounts for convertible debt as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the Company uses the if-converted method for all convertible instruments in the diluted earnings per share calculation and includes the effect of potential share settlement for instruments that may be settled in cash or shares.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**3. ACCOUNTING POLICIES (continued)**

**l) Leases**

Upon commencement of a contract containing a lease, the Company classifies leases other than short-term leases as either an operating lease or a finance lease according to the criteria prescribed by *ASU 2016-02, Leases* ("ASC 842"). The lease classification is reassessed only when: (a) the contract is modified and the modification is not accounted for as a separate contract, and (b) there is a change in the lease term or the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. The Company has elected not to recognize right-of-use assets and liabilities for short-term leases that have a term of 12 months or less.

For both finance leases and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments and initial direct costs discounted at the interest rate implicit in the lease, or if that rate is not readily determinable, the Company's incremental borrowing rate. Subsequent measurement of lease liabilities classified as finance leases is at amortized cost using the effective interest rate method. Subsequent measurement of right-of-use assets classified as finance leases is at carrying amount less accumulated amortization, where amortization is recorded straight-line over the lease term. Subsequent measurement of lease liabilities classified as operating leases is at the present value of the unpaid lease payments discounted at the discount rate for the lease established at the commencement date. Subsequent measurement of right-of-use assets classified as operating leases is carrying amount less accumulated amortization where amortization is calculated as the difference between straight-line lease cost for the period, including amortization of initial direct costs, and the periodic accretion of the lease liability.

**m) Financial instruments**

Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.

Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 - Inputs that are not based on observable market data.

There have been no transfers between fair value hierarchy levels during the years ended March 31, 2025, the two months ended March 31, 2024 and the year ended January 31, 2024.

The Company's cash, receivables, accounts payable and accrued liabilities are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. The Company's note receivable is valued at amortized cost using the effective interest rate method. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest risks arising from these financial instruments.

Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The financial instruments that potentially subject the Company to a significant concentration of credit risk consist of cash, trade receivables and note receivable. The Company mitigates its exposure to credit loss associated with cash by placing its cash in major financial institutions. As at March 31, 2025, the Company had cash of $2,625,461 (two months ended March 31, 2024 - $3,260,568 and year ended January 31, 2024 - $2,408,526). The counterparties to the trade receivables and note receivable have a strong credit profile, and as such, the Company has assessed the associated credit risk as low.

Financial instruments subsequently measured at amortized cost include note receivable, convertible promissory notes and convertible debentures.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**3. ACCOUNTING POLICIES (continued)**

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. As at March 31, 2025, the Company had a working capital deficiency of $452,928 (two months ended March 31, 2024 - $6,908,835 and year ended January 31, 2024 - $6,922,786). Working capital deficiency includes a convertible promissory note with a carrying amount of $1,156,259, which is currently in dispute with a vendor, and the outcome of this dispute is yet to be determined (Note 22). Additionally, as at March 31, 2025, the Company had an income tax payable of $2,833,991 and an uncertain tax position of $9,822,797. These items include an estimated income tax for the current year from its U.S. subsidiaries of $4,151,650. To manage liquidity risk, the Company endeavours to ensure it has sufficient cash resources to meet its financial obligations. The Company has a thorough planning process to determine the funds required to sustain its operations. Currently, the Company primarily relies on cash generated from its cannabis operations to fulfil its financial commitments. The Company's ability to service its debt depends on sustaining the profitability of its operations and obtaining sufficient financing on acceptable terms.

Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to significant foreign currency risk as its operations and cash flows are all denominated in US$. The Canadian parent has a functional currency of Canadian dollars but does not routinely engage in financing activities in alternate currencies and during the years ended March 31, 2025, the two months ended March 31, 2024 and the year ended January 31, 2024 had no exposure to foreign currency risk.

**n) Share-based compensation**

The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.

**o) Income taxes**

The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of loss and comprehensive loss.

**p) Loss per share**

The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated using the weighted average number of shares outstanding during the respective years. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding adjusted for additional shares from the assumed exercise of stock options, restricted share units, or warrants, if dilutive.

The number of additional shares is calculated by assuming the outstanding dilutive convertible instruments, options, and warrants are exercised and that the assumed proceeds are used to acquire common shares at the average market price during the year. Diluted loss per share figures for the years presented are equal to those of basic loss per share for the years since the effects of convertible instruments, stock options and warrants are anti-dilutive.

**q) Revenue recognition**

Revenue is recognized by the Company in accordance with ASC 606 - *Revenue From Contracts With Customers* ("ASC 606"). Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**3. ACCOUNTING POLICIES (continued)**

In order to recognize revenue under ASC 606, the Company applies the following five steps:

1. Identify a customer along with a corresponding contract

2. Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer

3. Determine the transaction price that the Company expects to be entitled to in exchange for transferring promised goods or services to a customer

4. Allocate the transaction price to the performance obligation(s) in the contract

5. Recognize revenue when or as the Company satisfies the performance obligation(s) in the contract

The Company's contracts with customers for the sale of dried cannabis and other products derived from cannabis consist of one performance obligation, being the transfer of control of the goods to the customer at the point of sale. The Company transfers control and satisfies its performance obligation when collection has taken place, compliant documentation has been signed, and the product was accepted by the buyer. The Company does not have performance obligations subsequent to delivery on the sale of goods to customers and revenues from sale of goods are recognized at a "point in time", which is upon passing of control to the customer.

Provisions for expected credit losses on accounts receivable are based on the Company's assessment of the collectability of specific customer balances, which is based upon a review of the customer's creditworthiness and past collection history. For trade receivables deemed to be uncollectible, and arose from the sale of goods, the Company will write off the specific balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.

The Company disaggregates its revenues based on sales to its retail customers where cash is received immediately versus wholesale customers to whom the Company extends credit terms. For the year ended March 31, 2025, revenue from retail sales from continuing operations totaled $28,671,773 (two months ended March 31, 2024 - $4,163,292 and year ended January 31, 2024 - $25,314,672) and revenue from wholesale from continuing operations totaled $1,446,107 (two months ended March 31, 2024 - $301,658 and year ended January 31, 2024 - $2,970,528).

**r) Loyalty program**

The Company offers a loyalty reward program to its dispensary customers that allows customers to earn reward credits that can be applied to future purchases. Loyalty reward credits issued as part of a sales transaction result in revenue being deferred until the loyalty reward is redeemed by the customer. The loyalty rewards are shown as reductions to the 'Revenue' line within the accompanying consolidated statements of loss and comprehensive loss and included as deferred revenue on the consolidated balance sheets. A portion of the revenue generated in a sale must be allocated to the loyalty points earned. The amount allocated to the points earned is deferred until the loyalty points are redeemed or expire. The loyalty program expiration policy is six months. As of March 31, 2025, March 31, 2024 and January 31, 2024, the loyalty liability totaled $309,892 and $287,560 and $301,562, respectively, and is included in deferred revenue on the consolidated balance sheets.

**4. ACQUISITION**

On June 7, 2024, the Company completed the acquisition of a 6,500 square-foot, purpose-built, operational retail cannabis dispensary located in South Reno, Nevada. The dispensary acquisition was completed pursuant to the terms of an asset purchase agreement with Deep Roots Harvest, Inc. The acquisition involved the purchase of certain assets including applicable licenses. The purchase price in connection with the dispensary acquisition was $3,500,000 paid in cash to Deep Roots Harvest, Inc. on June 7, 2024. On June 26, 2024, the South Reno dispensary opened for business under the Silver State branding.

The acquisition of the new dispensary is accounted for as an asset acquisition due to the absence of identifiable processes and the inability of the acquired assets alone to operate as a business. The allocation of the purchase price to the acquired assets is as follows:

---

| | |
|:---|:---|
|  | $|
| Total consideration transferred | **3500000** |
| Assets acquired: |  |
| &nbsp;&nbsp;Property and equipment | 86353 |
| &nbsp;&nbsp;Licenses | 3413647 |
|  | **3500000** |

---

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**4. ACQUISITION (continued)**

Acquired property and equipment consisted of fixtures and leasehold improvements and have an assessed useful life of 5 years. Licenses consist of two licenses which permit the Company to sell retail cannabis products in the State of Nevada and City of Reno, respectively. The licenses each have a useful life of 10 years.

**5. DISCONTINUED OPERATIONS**

**a) Sales-type lease and disposal of licenses**

In January 2022, the Company entered into a lease-to-own arrangement with a lessee for certain licenses, land and equipment in Oregon, USA, representing its outdoor growing operation. The Company determined that the arrangement should be accounted for as a sales-type lease and concluded that it is not probable that all required payments will be made such that title will transfer at the end of the term. As such, in accordance with ASC 842, the land and equipment were not derecognized, and payments received are recorded as a deposit liability until such time that collectability becomes probable.

During the year ended January 31, 2024, the Company executed a settlement agreement to terminate its lease-to-own arrangement. Prior to the settlement, the Company had collected a cumulative $100,000 related to the lease-to-own arrangement, recorded as a deposit liability. Under the settlement agreement, the Company transferred certain licenses with a carrying value of $32,250 in exchange for $400,000, which was paid by the lessee. The Company retained the cumulative $100,000 in lease-to-own payments collected to date. As a result, the Company recognized a gain on the termination of the sales-type lease of $467,750.

Additionally, the Company sold three licenses in Bend, Oregon, with a carrying value of $39,206, to the same lessee. The titles of these licenses were fully transferred. The Company derecognized the related intangible assets and the $75,000 deposit liability, resulting in a gain on the disposal of licenses of $35,794.

**a) Oregon reporting unit**

As a result of non-profitable operations in the Oregon reporting unit, the Company began to wind down operations in Oregon beginning in the year ended January 31, 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale.

During April 2023, the Company had terminated all operating lease agreements in Oregon and paid a settlement payment of $151,350. As a result, security deposits with a carrying amount of $43,796 were written off and the Company recognized a loss on lease termination of $13,419.

Property and equipment include a building and fixtures previously used for cannabis operations. The long-term debt at March 31, 2024 consisted of a mortgage on the building held for sale, secured on February 1, 2015, with a maturity date of January 1, 2025. The mortgage carried a fixed interest rate of 4.5% and required monthly payments. For the year ended March 31, 2025, interest expense on long-term debt was $12,933 (two months ended March 31, 2024 - $2,968 and year ended January 31, 2024 - $18,526). During the year ended March 31, 2025, repayments of $45,551 was made towards the mortgage (two months ended March 31, 2024 - $7,591 and year ended January 31, 2024 - $45,551). On December 10, 2024, the Company paid out the remaining mortgage balance of $371,089.

On March 28, 2025, the Company completed the sale of its Canby building for total consideration of $1,255,485. The building had been classified as held for sale and included in discontinued operations since 2022, and, accordingly, no depreciation had been recorded since that time. At the date of sale, the carrying value of the building was $1,139,517. The sale consideration included a promissory note with a face value of $850,000, bearing interest at a fixed annual rate of 4%, maturing 18 months from the date of issuance (Note 8). The note was initially recognized at its present value of $802,766, based on a market discount rate of 8%. The transaction resulted in a gain on sale of $63,250, which is recognized within income from discontinued operations for the year ended March 31, 2025.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**5. DISCONTINUED OPERATIONS (continued)**

A summary of major classes of assets and liabilities of the discontinued Oregon operation that are classified as held for sale in the consolidated balance sheets is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| **Carrying amounts of the major classes of assets included in discontinued operations:** |  |  |  |
| Prepaid expenses and deposits | **4725** | 25179 | 31430 |
| Property and equipment | **-** | 1139517 | 1139517 |
| **Total assets classified as held for sale** | **4725** | 1164696 | 1170947 |
| **Carrying amounts of the major classes of liabilities included in discontinued operations:** |  |  |  |
| Long-term debt | **-** | 392320 | 396943 |
| **Total liabilities classified as held for sale** | **-** | 392320 | 396943 |

---

A summary of the Company's net loss from discontinued operations is as follows:

---

| |
|:---|
| **Expenses** |
| Selling, general and administrative expenses |
| Loss on lease termination |
| Other expenses**)** |
| **Net loss from discontinued operations before income tax expense)** |
| Income tax expense |
| **Net loss from discontinued operations after income tax expense)**) |

---

A summary of the Company's cash flows from discontinued operations is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months<br>ended | Year ended |
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31, 2024 |
|  | **$** | $| $|
| Net cash (used in) provided by operating activities of discontinued operations | **(176487)** | 6861 | 68599 |
| Net cash provided by investing activities of discontinued operations | **331936** |  |  |
| Net cash used in financing activities of discontinued operations | **(405253)** | (7591) | (45551) |

---

**6. RECEIVABLES**

A summary of the Company's receivables is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,**<br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Taxes receivable | **51868** | 16368 | 13829 |
| Trade receivables | **124827** | 238023 | 189192 |
|  | **176695** | 254391 | 203021 |

---

There was no provision for expected credit losses on trade receivables as at March 31, 2025, March 31, 2024 and January 31, 2024.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**7. INVENTORY**

A summary of the Company's inventory is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,**<br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Finished goods | **2227294** | 1549425 | 1421541 |
| Work in process | **1558428** | 1136096 | 1139116 |
| Raw materials | **265703** | 180533 | 148064 |
|  | **4051425** | 2866054 | 2708721 |

---

**8. NOTE RECEIVABLE**

As of March 31, 2025, the Company had a single note receivable totaling $802,766, representing the present value of a note issued in connection with the sale of a held-for-sale building (Note 5). The note has a principal balance of $850,000, bears interest at a fixed rate of 4% per annum, and has a term of 18 months from the date of issuance. The note receivable was discounted to its present value using a discount rate of 8%, reflecting the Company's assessment of market conditions and credit risk at the time of the sale.

The Company evaluates the collectability of the note receivable based on the borrower's financial condition and compliance with the note terms. The note receivable is expected to mature in September 2026, at which point the Company anticipates receiving the full principal of $850,000 plus accrued interest.

**9. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS**

**a) Property and equipment**

A summary of the Company's property and equipment is as follows:

---

| |
|:---|
| Land |
| Leasehold improvements |
| Furniture and fixtures |
| Computer equipment |
| Machinery and equipment |
| Less: Accumulated depreciation**)** |

---

In June 2024, as part of the acquisition of the new dispensary store (Note 4), the Company acquired furniture and fixtures as well as leasehold improvements with a fair value of $86,353 and estimated useful life of 5 years.

Total depreciation of property and equipment for the year ended March 31, 2025 was $585,120 (two months ended March 31, 2024 - $93,644 and year ended January 31, 2024 - $559,712). During the year ended March 31, 2025 - $477,591 (two months ended March 31, 2024 - $81,301 and year ended January 31, 2024 - $474,172) of the total depreciation was allocated to inventory.

During the year ended March 31, 2025, the Company disposed of equipment with total cost of $375,363 and accumulated depreciation of $328,417, receiving $6,278 in cash and land with total cost of $500,000 for cash of $360,951 and incurred transfer fees of $24,025. As a result, during the year ended March 31, 2025, the Company recorded a loss on disposal of assets of $155,692 (two months ended March 31, 2024 - $nil and year ended January 31, 2024 - $11,655).

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**9. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS (continued)**

**b) Right-of-use assets**

The Company's right-of-use assets result from its operating leases and consist of land and buildings used in the cultivation, processing, and warehousing of its products. During the year ended March 31, 2025, the Company recognized additional right-of-use assets of $1,221,143, related to the lease of the new dispensary store in South Reno, Nevada (Note 14).

**10. INTANGIBLE ASSETS AND GOODWILL**

**a) Intangible assets**

A summary of the Company's intangible assets subject to amortization is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Licenses | **15423921** | 12010274 | 12010274 |
| Brands | **644800** | 644800 | 644800 |
| Customer relationships | **1540447** | 1540447 | 1540447 |
|  | **17609168** | 14195521 | 14195521 |
| Less: accumulated amortization | **(9516505)** | (7908931) | (7712656) |
|  | **8092663** | 6286590 | 6482865 |

---

In June 2024, as part of the acquisition of the new dispensary store (Note 4), the Company acquired two licenses with total fair value of $3,413,647 and estimated useful life of 10 years.

During the year ended March 31, 2025, the Company recognized amortization expense on intangible assets of $1,607,574 (two months ended March 31, 2024 - $196,275 and year ended January 31, 2024 - $1,332,507). Of the total amortization expense, $9,091 (two months ended March 31, 2024 - $1,393 and year ended January 31, 2024 - $9,071) was allocated to inventory.

**b) Goodwill**

For the year ended March 31, 2025, the Company had goodwill of $28,541,323 (two months ended March 31, 2024 - $28,541,323 and year ended January 31, 2024 - $28,541,323), which was allocated to the Nevada reporting unit. There was no impairment on goodwill identified during the year ended March 31, 2025.

**11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**

A summary of the Company's accounts payable and accrued liabilities is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,**<br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Accounts payable | **1049610** | 1456637 | 1188133 |
| Accrued liabilities | **486043** | 524058 | 415323 |
| EFF settlement accrual (Note 22) | **612500** | 612500 | 612500 |
|  | **2148153** | 2593195 | 2215956 |

---

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**12. CONVERTIBLE PROMISSORY NOTES**

A summary of the Company's convertible promissory notes denominated in US$ is as follows:

---

| |
|:---|
| Balance, January 31, 2022 |
| Payment) |
| Interest expense |
| Effect of foreign exchange) |
| **Balance, March 31, 2025 and 2024, January 31, 2024 and 2023** |

---

On June 13, 2018, the Company issued convertible promissory notes to the vendors that sold Eco Firma Farms, LLC ("EFF") to the Company in the aggregate principal amount of $2,000,000. The convertible promissory notes were convertible at $1.00 per common stock. The convertible promissory notes accrue interest at a rate of 4% per annum, compounded annually, and were fully due and payable on June 13, 2021. The Company is engaged in an ongoing dispute with the vendors over repayment (Note 22). On issuance, the Company determined the conversion feature was a derivative liability as the convertible promissory notes were exercisable in US$ while the functional currency of the Company is Canadian dollars. On June 13, 2021, the conversion feature expired and as a result the fair value of the conversion feature is $nil.

**13. CONVERTIBLE DEBENTURES**

On May 6, 2024, the Company closed a non-brokered private placement, issuing 4,000 debenture units for aggregate proceeds of $2,920,562 (C$4,000,000). Each unit contains one convertible debenture and 1,000 common share purchase warrants. Each convertible debenture has a principal of C$1,000, maturing 30 months from the issue date, with interest accruing at 12% per annum, payable quarterly in cash. The principal and accrued interest may be converted into common shares at a price of C$0.45 per share at the holder's option any time before maturity.

The proceeds from the private placement were allocated to convertible debentures and warrants using the relative fair value method. Accordingly, $1,954,534 was allocated to convertible debentures and $966,028 to warrants. The Company accounts for the convertible debenture as a financial liability in its entirety, as the conversion feature does not require bifurcation and recognition as derivative liability.

A summary of the Company's convertible debentures is as follows:

---

| | |
|:---|:---|
|  | $|
| Balance, March 31, 2024 |  |
| Additions from private placement | 1954534 |
| Accretion | 509871 |
| Interest | 293675 |
| Payment of interest | (293675) |
| Repayment of principal | (677732) |
| Effect of foreign exchange | (98489) |
| **Balance, March 31, 2025** | **1688184** |
| Current portion | 977817 |
| Non-current portion | 710367 |

---

**14. LEASE LIABILITIES**

The Company's leases consist of land and buildings used in the cultivation, dispensary, processing, and warehousing of its products. All leases were classified as operating leases in accordance with ASC 842 *Leases*. A summary of the Company's active leases under contract as at March 31, 2025 is as follows:

---

| | | | |
|:---|:---|:---|:---|
| **Lessee** | **Asset** | **Remaining lease term<br>(years)** | **Type** |
| Silver State Cultivation LLC | Land and building | 7.68 | Operating lease |
| Silver State Relief LLC (Sparks) | Land and building | 11.68 | Operating lease |
| Silver State Relief LLC (Fernley) | Land and building | 11.68 | Operating lease |
| Silver State Relief LLC (Reno) | Land and building | 9.25 | Operating lease |

---

On February 1, 2023, the Company entered into amended agreements for the Sparks and Fernley leases, extending the lease terms from their original end date in 2025 to 2029, with three renewal periods of seven years each. The Company opted for one renewal term under the amended contracts, extending the lease terms until December 31, 2036. Accordingly, during the year ended January 31, 2024, the carrying amounts of right-of-use assets and lease liabilities were remeasured, resulting in an increase of $528,067 in the right-of-use asset and lease liabilities for the Sparks lease, and $396,038 for the Fernley lease.

On June 11, 2024, the Company entered into a lease agreement for the new dispensary store in South Reno, Nevada. The lease commenced on July 1, 2024, and will expire on June 30, 2034. Monthly payments are required at the beginning of each calendar month, with the first payment of $14,300 made on the lease commencement date. The base rent will increase by 3% annually. The lease is classified as an operating lease with an implicit interest rate of 10%. Accordingly, the Company recognized a lease liability valued at $1,221,143.

For the year ended March 31, 2025, the Company incurred operating lease costs of $1,597,609 (two months ended March 31, 2024 - $241,678 and year ended January 31, 2024 - $1,446,208). Of these amounts, during the year ended March 31, 2025 - $812,368 were allocated to inventory (two months ended March 31, 2024 - $135,395 and year ended January 31, 2024 - $812,368).

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**14. LEASE LIABILITIES (continued)**

A summary of the Company's weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
| Weighted average discount rate | **10%** | 10% | 10% |
| Weighted average remaining lease term (years) | **9.60** | 10.61 | 10.77 |

---

A summary of the maturity of contractual undiscounted liabilities associated with the Company's operating leases as at March 31, 2025 is as follows:

---

| |
|:---|
| **Year ending March 31,** |
| 2026 |
| 2027 |
| 2028 |
| 2029 |
| Thereafter |
| Total undiscounted lease liabilities |
| Effects of discounting) |
| Total present value of minimum lease payments |
| Current portion of lease liability |
| **Lease liabilities** |

---

As at March 31, 2025, the Company had total undiscounted lease liabilities of $16,517,271 (two months ended March 31, 2024 - $15,999,875 and year ended January 31, 2024 - $16,218,421) pertaining to lease liabilities.

**15. DERIVATIVE LIABILITY**

A summary of the Company's derivative liability is as follows:

---

| | |
|:---|:---|
|  | **Earn out** <br>**shares** |
|  | $|
| Balance, January 31, 2023 | 239700 |
| Gain on change in fair value of derivative liability | 451372 |
| Settlement | (575136) |
| Effect of foreign exchange | (7703) |
| Balance, January 31, 2024 | 108233 |
| Gain on change in fair value of derivative liability | (22189) |
| Effect of foreign exchange | (1173) |
| Balance, March 31, 2024 | 84871 |
| Gain on change in fair value of derivative liability | (52257) |
| Effect of foreign exchange | (4790) |
| **Balance, March 31, 2025** | **27824** |

---

Upon the May 24, 2019 acquisition of Swell Companies, the vendors can earn up to 6,000,000 'earn out' shares over a period of seven years. The conditions were based on the Company's common shares exceeding certain share prices during the period. Additionally, 50% of the earn out shares are earned upon a change of control of the Company. The fair value of the derivative liability is derived using a Monte Carlo simulation.

In February 2023, the Company settled the obligation to issue 4,792,800 common shares by making cash payments of $575,136. As at March 31, 2025, March 31, 2024 and January 31, 2024, the total number of remaining earn out shares is 1,207,200.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**16. SHARE CAPITAL**

Share capital consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.

A summary of the Company's share capital is as follows:

---

| | |
|:---|:---|
|  | **Number of<br>shares** |
|  | # |
| Balance, January 31, 2023 | 120047814 |
| Share-based compensation | - |
| Balance, January 31, 2024 and March 31, 2024 | 120047814 |
| Warrants issued in private placement |  |
| Share-based compensation |  |
| Cancellation of shares | (2051000) |
| **Balance, March 31, 2025** | **117996814** |

---

On February 2025, the Company repurchased 2,051,000 common shares in a private transaction for a total cost of $256,375 (CAD $363,181). The repurchased shares were subsequently cancelled.

**a) Commitment to issue shares**

In connection with the acquisition of EFF on June 13, 2018, the Company issued a promissory note payable to deliver 1,977,500 shares to the vendors of EFF in the amount of $1,905,635, without interest, any time after October 15, 2018. As at, March 31, 2025, and March 31, 2024, shares issued pursuant to this commitment total 1,184,407 shares.

**b) Warrants** 

A summary of the Company's warrant activity is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Number of<br>warrants** | **Weighted<br>average<br>exercise price** | **Weighted<br>average<br>remaining life** |
|  | # | C$ | Years |
| Balance, January 31, 2023 | 3240000 | 1.18 | 1.10 |
| Expired | (2040000) | 1.00 |  |
| Balance, January 31, 2024 | 1200000 | 1.50 | 0.31 |
| Balance, March 31, 2024 | 1200000 | 1.50 | 0.15 |
| Issuance from private placement | 4000000 | 0.55 | 1.60 |
| Expired | (1200000) | 1.50 |  |
| **Balance, March 31, 2025** | **4000000** | **0.55** | **1.60** |

---

On May 6, 2024, the Company closed its debenture unit private placement and issued 4,000,000 warrants. Each warrant is exercisable for one common share at a price of C$0.55 per share for a period of 30 months from the issuance date. The allocated value of these warrants is $966,028.

A summary of the Company's outstanding and exercisable warrants as at March 31, 2025, is as follows:

---

| | | |
|:---|:---|:---|
| **Expiry date** | **Exercise price** | **Number of<br>warrants<br>outstanding** |
|  | C$ | # |
| November 6, 2026 | 0.55 | 4000000 |

---

As at March 31, 2025, March 31, 2024 and January 31, 2024, outstanding and exercisable warrants had intrinsic values of $nil, $nil and $nil, respectively.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**16. SHARE CAPITAL (continued)**

**c) Stock options**

The Company is authorized to grant options to executive officers and directors, employees, and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of 10 years. Vesting is determined by the Board of Directors.

A summary of the Company's stock option activity is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **Number of<br>options** | **Weighted<br>average<br>exercise price** | **Weighted<br>average<br>remaining life** |
|  | # | C$ | Years |
| Balance, January 31, 2023 | 4810000 | 0.75 | 0.86 |
| Expired/forfeited | (3710000) | 0.73 |  |
| Balance, January 31, 2024 | 1100000 | 0.84 | 0.88 |
| Balance, March 31, 2024 | 1100000 | 0.84 | 0.71 |
| Granted | 5425000 | 0.53 | 2.12 |
| Expired | (1100000) |  |  |
| **Balance, March 31, 2025** | **5425000** | **0.53** | **2.12** |

---

On May 13, 2024, the Company granted 5,425,000 stock options to certain officers, directors, and employees. Each stock option entitles the holder to acquire one common share of the Company at an exercise price of C$0.53, expiring on May 13, 2027. Of the options granted, one-third vests immediately, with the remaining two-thirds vesting in equal parts every twelve months thereafter. The fair value of these options was $1,129,810 (C$1,544,676).

A summary of the Company's stock options outstanding and exercisable as at March 31, 2025, is as follows:

---

| | | | |
|:---|:---|:---|:---|
| **Expiry date** | **Exercise price** | **Number of<br>options<br>outstanding** | **Number of<br>options<br>exercisable** |
|  | C$ | # | # |
| May 13, 2027 | 0.53 | 5425000 | 1808333 |
|  | **0.53** | **5425000** | **1808333** |

---

As at March 31, 2025, March 31, 2024 and January 31, 2024, outstanding and exercisable stock options had intrinsic values of $nil, $nil and $nil, respectively.

During the year ended March 31, 2025, the Company recorded share-based compensation expense on vesting of stock options of $849,559 (two months ended March 31, 2024 - $nil and year ended January 31, 2024 - $22,128).

The Company used the following inputs in the Black-Scholes option pricing model to determine the fair value of options granted during the year ended March 31, 2025:

---

| | |
|:---|:---|
| Stock price | C$0.53 |
| Exercise price | C$0.53 |
| Risk-free interest rate | 4.37% |
| Expected life | 2.00 years |
| Expected volatility | 100.09% |
| Expected annual dividend yield | 0.00% |

---

For non-employee options, the expected term is the contractual life, while for employees and directors, it is the estimated period the options are expected to be outstanding, using the 'simplified' method for 'plain vanilla' employee options. Expected volatility is based on historical volatilities of similarly positioned public companies over a period equivalent to the expected life of the options. The risk-free interest rate is derived from the Treasury zero-coupon bond yields with a term matching the expected life of the options.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**17. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES**

A summary of the Company's selling, general and administration expenses is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months<br>ended | Year ended |
|  | **March 31,<br>2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Accounting and legal | **486228** | 110240 | 892733 |
| Depreciation and amortization | **1706012** | 207225 | 1408976 |
| License fees, taxes, and insurance | **1522962** | 241436 | 1603921 |
| Office facilities and administrative | **447826** | 79579 | 384585 |
| Operating lease costs | **785241** | 106283 | 633840 |
| Other expenses | **329852** | 45664 | 907918 |
| Professional fees and consulting | **727510** | 65174 | 522899 |
| Salaries and wages | **4138075** | 594569 | 3156440 |
| Sales, marketing, and promotion | **207634** | 21581 | 75561 |
| Share-based compensation | **849559** |  | 22128 |
| Shareholder communications | **19071** | 2465 | 16523 |
| Travel and entertainment expense | **57314** | 12178 | 52214 |
|  | **11277284** | 1486394 | 9677738 |

---

**18. SEGMENTED INFORMATION**

The Company defines its major geographic operating segments as Oregon and Nevada. Due to the ever-present jurisdictional cannabis compliance issues in the industry, each state operation is by nature operationally segmented.

The Chief Operating Decision Maker ("CODM") is the Company's CEO, Sonny Newman. The CODM's review consists of revenue, cost of sales, and gross profit as the primary indicators of segment performance. The CODM also reviews key categories of operating expenses including General and administration expenses, sales, marketing, and promotion expenses, and operating lease costs. The Corporate segment does not conduct income generating activities and its results are reviewed for cost management. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.

A summary of the Company's segmented operational activity and balances from continuing operations for the year ended March 31, 2025 is as follows:

---

| |
|:---|
| Total revenue |
| Gross profit |
| Operating expenses: |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administration) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sales, marketing, and promotion) |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating lease cost) |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization) |
| &nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation) |
| Interest expense and others) |
| **Net income (loss) from continuing operations before income tax expense)** |

---

Segmented information pertaining to discontinued operations (Oregon) is contained within Note 5.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**18. SEGMENTED INFORMATION (continued)**

A summary of the Company's segmented operational activity and balances from continuing operations for two months ended March 31, 2024 is as follows:

---

| |
|:---|
| Total revenue |
| Gross profit |
| Operating expenses: |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administration) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sales, marketing, and promotion) |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating lease cost) |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization) |
| &nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation |
| Interest expense and others |
| **Net income (loss) from continuing operations before income tax expense)** |

---

A summary of the Company's segmented operational activity and balances from continuing operations for the year ended January 31, 2024 is as follows:

---

| |
|:---|
| Total revenue |
| Gross profit |
| Operating expenses: |
| &nbsp;&nbsp;&nbsp;&nbsp;General and administration) |
| &nbsp;&nbsp;&nbsp;&nbsp;Sales, marketing, and promotion) |
| &nbsp;&nbsp;&nbsp;&nbsp;Operating lease cost) |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization) |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment loss) |
| &nbsp;&nbsp;&nbsp;&nbsp;Gain on termination of sales-type lease |
| &nbsp;&nbsp;&nbsp;&nbsp;Share-based compensation) |
| Interest expense and others) |
| **Net income (loss) from continuing operations before income tax expense))** |

---

Segmented information pertaining to discontinued operations (Oregon) is contained within Note 5.

**Entity-wide disclosures**

All revenue for the year ended March 31, 2025, March 31, 2024 and January 31, 2024 was earned in the United States.

For the year ended March 31, 2025, two months ended March 31, 2024, and the year ended January 31, 2024, no customer represented more than 10% of the Company's net revenue. As at March 31, 2025, March 31, 2024 and January 31, 2024, no customer represented more than 10% of the Company's receivables.

A summary of the Company's the long-lived tangible assets disaggregation by geographic area is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months<br>ended | Year ended |
|  | **March 31,<br>2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Nevada | **12058882** | 11637758 | 11762392 |
| Discontinued operations (Oregon) | **-** | 500000 | 500000 |
|  | **12058882** | 12137758 | 12262392 |

---

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**19. COMMITMENTS**

The Company and its subsidiaries are committed under lease agreements with third parties and related parties, for land, office space, and equipment in Nevada. A summary of the Company's future minimum payments as at March 31, 2025 is as follows:

---

| | | | |
|:---|:---|:---|:---|
| **Year ending March 31,** | **Third** <br>**parties** | **Related<br>parties** | **Total** |
|  | $| $| $|
| 2026 | 746972 | 789229 | 1536201 |
| 2027 | 769381 | 812906 | 1582287 |
| 2028 | 792462 | 837293 | 1629755 |
| 2029 | 816236 | 862412 | 1678648 |
| 2030 | 840723 | 888285 | 1729008 |
| Thereafter | 5781487 | 2579885 | 8361372 |
|  | **9747261** | **6770010** | **16517271** |

---

**20. RELATED PARTY TRANSACTIONS**

A summary of the Company's related balances included in accounts payable and accrued liabilities, and promissory note payable is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Lease liabilities due to a company controlled by the Chief Executive Officer ("CEO") | **4630273** | 4917482 | 4961727 |
| Due to the Chief Financial Officer ("CFO") | **557** | 770 | 561 |
|  | **4630830** | 4918252 | 4962288 |

---

Due to the CFO consists of reimbursable expenses incurred in the normal course of business.

A summary of the Company's transactions with related parties including key management personnel is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months<br>ended | Year ended |
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | $| $| $|
| Consulting fees paid to a director | **60000** | 30000 | 65000 |
| Amounts paid to CEO or companies controlled by CEO for leases | **768143** | 126756 | 1001214 |
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | **-** |  | 2078229 |
| Amounts paid to CEO or companies controlled by CEO for remuneration | **200000** | 38462 | 200000 |
| Salary paid to directors and officers | **489042** | 92420 | 438162 |
| Share-based compensation | **513735** |  | 22128 |
|  | **2030920** | 287638 | 3804733 |

---

On June 5, 2023, a company controlled by the CEO sold its interest in the Silver State Relief LLC (Sparks) property. The Company continues to lease this facility from a third party.

On August 19, 2023, a company controlled by the CEO sold its interest in the Silver State Relief LLC (Fernley) property. The Company continues to lease this facility from a third party.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**21. EARNINGS PER SHARE**

A summary of the Company's calculation of basic and diluted earnings per share is as follows:

---

| |
|:---|
| Net loss from continuing operations after income taxes**)** |
| Net loss from discontinued operations after income taxes**)** |
| Net loss**)** |
| Weighted average number of common shares outstanding |
| Dilutive effect of warrants and stock options outstanding |
| Diluted weighted average number of common shares outstanding |
| Basic and diluted loss per share, continuing operations**)** |
| Basic and diluted loss per share, discontinued operations**)** |
| Basic and diluted loss per share**)**) |

---

The computation of diluted earnings per share excludes the effect of the potential exercise of warrants and stock options when the average market price of the common stock is lower than the exercise price of the respective warrant or stock option and when inclusion of these amounts would be anti-dilutive. For the year ended March 31, 2025, two months ended March 31, 2024, and the year ended January 31, 2024, the number of warrants excluded from the computation was 4,000,000, 1,200,000 and 1,200,000, respectively. For the year ended March 31, 2025, two months ended March 31, 2024, and the year ended January 31, 2024, the number of stock options excluded from the computation was 1,803,333, 1,100,000 and 899,999, respectively. In addition, for the year ended March 31, 2025, two months ended March 31, 2024 and the year ended January 31, 2024, the computation of diluted earnings per share excludes the potential issuance of 1,207,200 remaining earn out shares (Note 15) as the market price of the common shares has not been high enough to trigger an earn out event.

**22. CONTINGENCIES**

From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities.

**Legal proceedings** 

**Oregon Action**: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "Plaintiffs"), alleging contract, employment, and statutory claims, alleging $612,500 in damages (as amended), against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, in addition to three directors, two officers, and one former employee (the "Oregon Action"). The Company and the other defendants wholly denied the allegations and claims made in the lawsuit and is defending the lawsuit. On June 21, 2019, the Company filed Oregon Rule of Civil Procedure ("ORCP") 21 motions to dismiss all of the Plaintiffs' claims against it, its wholly owned subsidiaries, and other defendants. On December 30, 2019, the Plaintiffs filed an amended complaint dismissing the Company (and some of its directors and subsidiaries) from the case and reducing the amount in controversy in the Oregon Action. On May 6, 2020, the court granted the Company's ORCP 21 motions in its entirety to dismiss all of Plaintiffs' claims against the remaining defendants. The judgment of dismissal was entered by the Clackamas County court on or about October 14, 2020.

On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $68,195 in attorney's fees, $1,252 in costs, and a statutory prevailing party fee of $640, through a supplemental judgment, entered on February 2, 2021. The judgment in favor of the Company remains unpaid and continues to collect interest at the statutory rate of 9% per annum.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**22. CONTINGENCIES (continued)**

On November 12, 2020, the Plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the Plaintiffs amended their appeal to appeal the award of attorney fees and costs.

On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied. On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court, which was denied. On November 1, 2023, the Court of Appeals issued the appellate judgement that reversed the October 2023 dismissal as well as the judgement for attorney fees and remanded the case against Phantom Brands, LLC, Swell Companies Limited, and two former employees. On December 21, 2023, the Plaintiffs filed a second amended complaint.

On April 2, 2024, the court confirmed dismissal of the Company and other defendants no longer named. The Company has filed a motion for costs and attorney fees totaling $108,876. By court order on September 8, 2024, the Company's motion was granted in full, awarding the Company $107,622.50 in attorney's fees, and $1,252 in costs. On October 8, 2024, the parties stipulated, and the Court granted, abatement of the matter until April 9, 2025. On October 30, 2024, the plaintiffs appealed the order, which is pending before the court. The Company's collection efforts are ongoing through garnishment procedures.

**British Columbia Action**: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").

On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $2,774,177 in damages (as amended), plus unquantified additional damages, interest and costs, of which amounts are partially duplicative of the Oregon Action. This action remains in the discovery stage. The current trial date is scheduled for three weeks in September 2025. It is too early to predict the resolution of the claims and counterclaims.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**23. INCOME TAXES**

The Company is a Canadian resident company, as defined in the Income Tax Act (Canada) (the "ITA"), for Canadian income tax purposes. However, it has subsidiaries that are treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) ("IRC") and are thereby subject to federal income tax on their worldwide income. As a result, the Company is subject to taxation both in Canada and the United States.

A summary of the Company's components of the income tax expense for continuing operations is as follows:

---

| | | |
|:---|:---|:---|
|  | Year ended | Year ended |
|  | **March 31,** <br>**2025** | January 31, 2024 |
|  | **$** | $|
| Current |  |  |
| &nbsp;&nbsp;&nbsp;Canadian | **-** |  |
| &nbsp;&nbsp;&nbsp;US Federal and State | **4054018** | 3233053 |
| Total current income tax expense | **4054018** | 3233053 |
| Deferred |  |  |
| &nbsp;&nbsp;&nbsp;Canadian | **-** |  |
| &nbsp;&nbsp;&nbsp;US Federal and State | **97632**) | 249072 |
| Total deferred income tax expense (recovery) | **97632**) | 249072 |
| **Total income tax expense** | **4151650** | 3482125 |

---

A summary of the Company's domestic and foreign components of income (loss) before income taxes for continuing operations were as follows:

---

| |
|:---|
| Canadian**)** |
| United States |
| **Income before income taxes** |

---

Section 80E of the Internal Revenue Code ("IRC") prohibits taxpayers engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting ordinary and necessary business expenses (excluding cost of goods sold) from gross income. While Section 280E was originally enacted to address criminal market participants, its application has been extended by the Internal Revenue Service ("IRS") to include state-legal cannabis businesses, as cannabis remains classified as a Schedule I controlled substance under federal law. As a result, cannabis businesses operating in states that conform to the IRC are similarly disallowed from deducting ordinary business expenses for state tax purposes.

Management asserts, based on a legal opinion provided by Greenspoon Marder, that Section 280E should not apply to the Company's operations. This constitutes an uncertain tax position. In accordance with ASC 740, this position does not meet the "more likely than not" recognition threshold, but management believes it is supported by a reasonable basis standard.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**23. INCOME TAXES (continued)**

A summary of the Company's reconciliation of the statutory income tax rate percentage to the effective tax is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months<br>ended | Year ended |
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Income for the year | **394921** | 321304 | 258657 |
| &nbsp;&nbsp;&nbsp;Statutory rate | **27%** | 27% | 27% |
| &nbsp;&nbsp;&nbsp;Income tax expense (recovery) at statutory rate | **(82602)** | 57498 | (74152) |
| &nbsp;&nbsp;&nbsp;IRC section 280E disallowance | **230890** | 265584 | 1954392 |
| &nbsp;&nbsp;&nbsp;Foreign tax rate differential | **606** | 5526 | 16068 |
| &nbsp;&nbsp;&nbsp;Change in foreign exchange rates and other | **145186** | 55019 | 21188 |
| &nbsp;&nbsp;&nbsp;Uncertain tax position, inclusive of interest and penalties | **3630467** | 48080 | (354637) |
| &nbsp;&nbsp;&nbsp;Change in valuation allowance | **413213** | (671) | (50016) |
| &nbsp;&nbsp;&nbsp;Payable adjustment to provision versus statutory tax returns | **(146592)** | 78204 | 1153756 |
| &nbsp;&nbsp;&nbsp;Deferred adjustment to provision versus statutory tax returns | **(39518)** | (136497) | 824220 |
| &nbsp;&nbsp;&nbsp;Other | **-** |  | (8694) |
|  | **4151650** | 372743 | 3482125 |

---

A summary of the Company's deferred tax asset (liability) significant components is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| **Deferred tax assets** |  |  |  |
| &nbsp;&nbsp;&nbsp;Share issuance costs and financing fees | **-** | 268 | 1610 |
| &nbsp;&nbsp;&nbsp;Allowable capital losses | **127977** | 131019 | 132394 |
| &nbsp;&nbsp;&nbsp;Non-capital losses | **5623310** | 5180776 | 5170743 |
| &nbsp;&nbsp;&nbsp;Intangible assets | **83871** | 80636 | 82004 |
| &nbsp;&nbsp;&nbsp;Goodwill | **749** |  | 6606 |
| &nbsp;&nbsp;&nbsp;Lease liabilities | **831988** | 1032671 | 1048101 |
| &nbsp;&nbsp;&nbsp;Derivative liability | **7513** | 22915 | 29223 |
| &nbsp;&nbsp;&nbsp;Property and equipment | **2688** | 4013 | 3686 |
| &nbsp;&nbsp;&nbsp;ARO | **-** | 14008 | 14187 |
| &nbsp;&nbsp;&nbsp;Other | **3** |  |  |
| Total deferred tax assets | **6678099** | 6466306 | 6488554 |
| Valuation allowance | **(5839472)** | (5260681) | (5261352) |
| Total net deferred tax assets | **838627** | 1205625 | 1227202 |
| **Deferred tax liabilities** |  |  |  |
| &nbsp;&nbsp;&nbsp;Right-of-use assets | **(873444)** | (942784) | (959509) |
| &nbsp;&nbsp;&nbsp;IRC 481(a) adjustments | **-** | (140998) | (283658) |
| Total deferred tax liabilities | **(873444)** | (1083782) | (1243167) |
| **Net deferred tax asset (liability)** | **(34817)** | 121843 | (15965) |

---

There are no deferred tax assets and liabilities included in the carrying amount of the disposal group classified as held for sale as of March 31, 2025. Amounts classified as part of the disposal group as of March 31, 2023 have been reclassified to continuing operations under ASC 360-10-20.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**23. INCOME TAXES (continued)**

As the Company operates in the cannabis industry, the Company is subject to the limits of Internal Revenue Code ("IRC") Section 280E for US federal income tax purposes as well as state income tax purposes. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to costs of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. However, based on a legal opinion from Greenspoon Marder, management has concluded that Section 280E should not apply to the Company's operations. This represents an uncertain tax position that, while supported by a reasonable basis, does not meet the "more likely than not" threshold for recognition under ASC 740.

Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company's management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the fiscal year ended March 31, 2025, the Company has provided a valuation allowance against the Company's Canadian net deferred tax assets. The net change in the valuation allowance for the year ended March 31, 2025 was an increase of $409,860.

The Company had net operating loss ("NOL") carryforwards for Canada, U.S. federal and state income tax purposes of approximately $20,204,090 and $2,227,032, respectively, as of March 31, 2025. Canada NOLs will begin to expire in 2026 and state NOLs will begin to expire in 2034.

As of March 31, 2025, the Company had Canadian capital losses of approximately $473,989 with no expiry date. The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 ("IRC Section 382"). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions. The Company may, in the future, experience one or more additional Section 382 "ownership changes." If so, the Company may not be able to utilize some of its carryforwards or other tax attributes, even if the Company achieves profitability in the jurisdiction of the carryforwards or other tax attributes. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation, due to the significant cost and complexity associated with such a study. Any limitation may result in expiration of a portion of the NOL carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.

The uncertain tax position arises from management's position that Section 280E does not apply to the Company. As a result, the Company has claimed deductions—including those for selling, general and administrative expenses —that would otherwise be disallowed under Section 280E.

As of March 31, 2025, the total amount of gross unrecognized tax benefits was $11,608,606, which includes interest and penalties. As of March 31, 2025, $nil of the total unrecognized tax benefits, if recognized, would have an impact on the Company's effective tax rate.

The Company estimates that approximately $1,662,683 of unrecognized tax benefits, including penalties and interest, may be recognized in the next 12 months.

During the year ended March 31, 2025, the Company recorded interest of $940,269 and penalties of $498,294 on uncertain tax liabilities within the consolidated statements of operations and comprehensive (loss) income. The Company files income tax returns in Canada, the U.S. federal jurisdiction and Oregon. The Company's tax years for the fiscal year ended January 31, 2022 and forward are subject to examination by the U.S. tax authorities. The Company's tax years for January 31, 2022 and forward are subject to examination for state purposes. The tax return for the 2021 fiscal year is also subject to examination by tax authorities in Canada.

------

**C21 INVESTMENTS INC.**

**Notes to the Consolidated Financial Statements**

**For the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024**

(Expressed in U.S. dollars, except as noted)

------

**23. INCOME TAXES (continued)**

The aggregate change in the balance of gross unrecognized tax (benefits) liabilities, excluding penalties and interest, is as follows:

---

| |
|:---|
| Beginning balance**)** |
| Increase due to tax positions taken during current year |
| Decrease in balance as a result of lapse of the applicable statute of limitations) |
| Increase in balance due to tax positions taken during prior years |
| Decrease in balance due to tax positions taken during prior years) |
| **Ending balance**) |

---

Beginning on January 1, 2022, the Tax Cuts and Jobs Act ("the Act"), enacted in December 2017, eliminated the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and development expenditures over five and fifteen years, respectively. There is no impact to our current income tax provision as a result of this tax legislation.

**24. FINANCIAL INSTRUMENTS**

A summary of the Company's financial instruments classified as fair value through profit or loss and their classification in the fair value hierarchy is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Fair value measurements at March 31, 2025 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 27824 | **27824** |
| **Fair value measurements at March 31, 2024 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 84871 | **84871** |
| **Fair value measurements at January 31, 2024 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 108233 | **108233** |

---

The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs and therefore represents a Level 3 measurement.

**25. SUBSEQUENT EVENT**

During April and May 2025, the Company repurchased 134,500 common shares under its Normal Course Issuer Bid (NCIB) program through open market transactions. The shares were acquired at an average price of $0.14 (CAD $0.20) per share, for a total cost of $18,959 (CAD $26,881). The repurchased shares were subsequently cancelled. The NCIB program, as authorized under Form 17A, allows the Company to repurchase up to 6,002,390 common shares, and as of May 31, 2025, 5,867,890 shares remain available for repurchase under the program.

------

**Item 19. Exhibits**

---

| | |
|:---|:---|
| Exhibit Number | Name |
| [1.1](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit1-1.htm) | [Articles of Incorporation (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 14, 2020)](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit1-1.htm) |
| [1.2](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit1-2.htm) | [Certificate of Incorporation and Certificates of name changes (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 14, 2020)](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit1-2.htm) |
| [2.1](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit2-1.htm) | [Description of the Company's Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 14, 2020)](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit2-1.htm) |
| [2.2](exhibit2-2.htm) | [Trust Indenture dated May 6, 2024, between the Company and Alliance, as trustee, registrar and transfer agent](exhibit2-2.htm) |
| [4.1](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit4-1.htm) | [Stock Option Plan (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 14, 2020)](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit4-1.htm) |
| [4.2](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit4-2.htm) | [Restricted Share Unit Plan (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 14, 2020)](http://www.sec.gov/Archives/edgar/data/831609/000106299320003303/exhibit4-2.htm) |
| [4.3](http://www.sec.gov/ix?doc=/Archives/edgar/data/831609/000106299324014058/form20f.htm) | [Consulting Services Agreement Second Amendment dated September 1, 2023, between the Company and CB1 Capital Advisors LLC (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 24, 2024)](http://www.sec.gov/ix?doc=/Archives/edgar/data/831609/000106299324014058/form20f.htm) |
| [4.4](http://www.sec.gov/ix?doc=/Archives/edgar/data/831609/000106299324014058/form20f.htm) | [Asset Purchase Agreement, dated August 18, 2023, between a subsidiary of the Company and Deep Roots Harvest, Inc. (incorporated by reference from our Annual Report on Form 20-F filed with the SEC on July 24, 2024)](http://www.sec.gov/ix?doc=/Archives/edgar/data/831609/000106299324014058/form20f.htm) |
| [8.1](exhibit8-1.htm) | [List of Significant Subsidiaries](exhibit8-1.htm) |
| [12.1](exhibit12-1.htm) | [Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)](exhibit12-1.htm) |
| [12.2](exhibit12-2.htm) | [Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)](exhibit12-2.htm) |
| [13.1](exhibit13-1.htm) | [Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350](exhibit13-1.htm) |
| [13.2](exhibit13-2.htm) | [Certificate of Chief Financial Officer pursuant to 18 U.S.C. Section 1350](exhibit13-2.htm) |
| [15.1](exhibit15-1.htm) | [Management's Discussion and Analysis for the Year Ended March 31, 2025](exhibit15-1.htm) |
| [15.2](http://www.sec.gov/Archives/edgar/data/831609/000106299324001686/exhibit99-1.htm) | [Change of Auditor and Notice Letters (incorporated by reference from our Form 6-K filed with the SEC on January 19, 2024)](http://www.sec.gov/Archives/edgar/data/831609/000106299324001686/exhibit99-1.htm) |
| [15.3](exhibit15-3.htm) | [Consent of Davidson & Company LLP](exhibit15-3.htm) |
| 101.INS | Inline XBRL Instance Document |
| [101.SCH](cxxif-20250331.xsd) | [Inline XBRL Taxonomy Extension Schema Document](cxxif-20250331.xsd) |
| [101.CAL](cxxif-20250331_cal.xml) | [Inline XBRL Taxonomy Extension Calculation Linkbase Document](cxxif-20250331_cal.xml) |
| [101.DEF](cxxif-20250331_def.xml) | [Inline XBRL Taxonomy Extension Definition Linkbase Document](cxxif-20250331_def.xml) |
| [101.LAB](cxxif-20250331_lab.xml) | [Inline XBRL Taxonomy Extension Label Linkbase Document](cxxif-20250331_lab.xml) |
| [101.PRE](cxxif-20250331_pre.xml) | [Inline XBRL Taxonomy Extension Presentation Linkbase Document](cxxif-20250331_pre.xml) |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |

---

------

**SIGNATURES**

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sight this Annual Report on its behalf.

**C21 Investments Inc.**

By: <u>/s/ Sonny Newman</u>

Name: Sonny Newman

Title: President and Chief Executive Officer

Date: June 23, 2025

------

## Exhibit 2.2

------

***Execution Version***

**C21 INVESTMENTS INC.<br>**

<br> and<br>

**ALLIANCE TRUST COMPANY<br>**

<br> as Trustee

------

**INDENTURE**

Dated as of May 6, 2024

providing for the issue of 12.0% Convertible Debentures

------

**TABLE OF CONTENTS**

---

| | |
|:---|:---|
| [**ARTICLE 1 INTERPRETATION**](#page_8) | [**2**](#page_8) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.1 Definitions](#page_8) | [2](#page_8) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.2 Interpretation](#page_13) | [7](#page_13) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.3 Accounting Terms](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.4 Headings and **Table of Contents**](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.5 Section and Schedule References](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.6 Governing Law](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.7 Currency](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.8 Non-Business Day](#page_14) | [8](#page_14) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.9 Time](#page_15) | [9](#page_15) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.10 Independence of Covenants](#page_15) | [9](#page_15) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.11 Form of Documents Delivered to Trustee](#page_15) | [9](#page_15) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.12 Acts of Holders](#page_15) | [9](#page_15) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.13 Interest Payments and Calculations](#page_16) | [10](#page_16) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.14 Successors and Assigns](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.15 Severability Clause](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.16 Benefits of Indenture](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.17 Unclaimed Debentures](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.18 Schedules](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.19 Benefits of Indenture through Trustee](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[1.20 English Language](#page_17) | [11](#page_17) |
| [**ARTICLE 2 THE DEBENTURES**](#page_17) | [**11**](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.1 Limit of Issue and Designation of Debentures](#page_17) | [11](#page_17) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.2 Form and Terms of Debentures](#page_18) | [12](#page_18) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.3 Interest](#page_19) | [13](#page_19) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.4 Prescription](#page_20) | [14](#page_20) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.5 Issue of Debentures](#page_20) | [14](#page_20) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.6 Execution of Certificated Debentures](#page_20) | [14](#page_20) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.7 Authentication](#page_20) | [14](#page_20) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.8 Persons Entitled to Payment](#page_21) | [15](#page_21) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.9 Payment of Principal and Interest on Debentures](#page_21) | [15](#page_21) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.10 Rank](#page_22) | [16](#page_22) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.11 Register and Transfer](#page_22) | [16](#page_22) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.12 Certificated Debentures; Transfers and Exchanges](#page_23) | [17](#page_23) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.13 Transferee Entitled to Registration](#page_23) | [17](#page_23) |

---

i

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;[2.14 No Notice of Trusts](#page_23) | [17](#page_23) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.15 Registers Open for Inspection](#page_23) | [17](#page_23) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.16 Exchanges of Debentures](#page_23) | [17](#page_23) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.17 Closing of Registers](#page_24) | [18](#page_24) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.18 Charges for Registration, Transfer and Exchange](#page_24) | [18](#page_24) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.19 Ownership of Debentures](#page_24) | [18](#page_24) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.20 Withholding Matters](#page_25) | [19](#page_25) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.21 Cancellation of Debentures](#page_25) | [19](#page_25) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.22 Mutilated, Lost, Stolen or Destroyed Debentures](#page_25) | [19](#page_25) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.23 Access to Lists of Holders](#page_26) | [20](#page_26) |
| &nbsp;&nbsp;&nbsp;&nbsp;[2.24 Canadian Legend on the Debentures and Common Shares](#page_26) | [20](#page_26) |
| [**ARTICLE 3 REDEMPTION AND PURCHASE OF DEBENTURES**](#page_27) | [**21**](#page_27) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.1 Corporation Redemption Right](#page_27) | [21](#page_27) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.2 Partial Redemption](#page_27) | [21](#page_27) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.3 Notice of Redemption](#page_28) | [22](#page_28) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.4 Debentures Due on Redemption Dates](#page_28) | [22](#page_28) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.5 Deposit of Redemption Monies or Common Shares](#page_28) | [22](#page_28) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.6 Right to Receive Principal Amount of Redemption Price in Common Shares](#page_28) | [22](#page_28) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.7 Failure to Surrender Debentures Called for Redemption](#page_30) | [24](#page_30) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.8 Purchase of Debentures](#page_30) | [24](#page_30) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.9 Debentures Purchased in Part](#page_31) | [25](#page_31) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.10 Compliance with Applicable Securities Law upon Purchase of Debentures](#page_31) | [25](#page_31) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.11 Repayment to the Corporation](#page_31) | [25](#page_31) |
| &nbsp;&nbsp;&nbsp;&nbsp;[3.12 Cancellation of Purchased Debentures](#page_31) | [25](#page_31) |
| [**ARTICLE 4 CONVERSION OF DEBENTURES**](#page_31) | [**25**](#page_31) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.1 Right to Convert](#page_31) | [25](#page_31) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.2 Notice of Expiry of Conversion Privilege](#page_32) | [26](#page_32) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.3 Revival of Right to Convert](#page_32) | [26](#page_32) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.4 Manner of Exercise of Right to Convert](#page_32) | [26](#page_32) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.5 Adjustment of Conversion Price](#page_33) | [27](#page_33) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.6 No Requirement to Issue Fractional Common Shares](#page_37) | [31](#page_37) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.7 Corporation to Reserve Common Shares](#page_37) | [31](#page_37) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.8 Cancellation of Converted Debentures](#page_38) | [32](#page_38) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.9 Certificate as to Adjustment](#page_38) | [32](#page_38) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.10 Notice of Special Matters](#page_38) | [32](#page_38) |
| &nbsp;&nbsp;&nbsp;&nbsp;[4.11 Protection of Trustee](#page_38) | [32](#page_38) |

---

ii

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;[4.12 Canadian Private Placement Legend on Common Shares](#page_39) | [33](#page_39) |
| [**ARTICLE 5 SECURITY FOR INDENTURES**](#page_39) | [**33**](#page_39) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.1 Grant of Pledged Shares](#page_39) | [33](#page_39) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.2 Priority of Security](#page_40) | [34](#page_40) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.3 After Acquired Property Further Assurances](#page_40) | [34](#page_40) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.4 Order of Payment](#page_40) | [34](#page_40) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.5 No Restriction on Additional Indebtedness](#page_40) | [34](#page_40) |
| &nbsp;&nbsp;&nbsp;&nbsp;[5.6 Restrictions on Pledged Shares](#page_40) | [34](#page_40) |
| [**ARTICLE 6 COVENANTS AND REPRESENTATIONS**](#page_41) | [**35**](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.1 Payment of Principal, Premium and Interest](#page_41) | [35](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.2 Existence; Books of Account](#page_41) | [35](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.3 Notice of Default](#page_41) | [35](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.4 Compliance Certificate](#page_41) | [35](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.5 Compliance with Applicable Laws](#page_41) | [35](#page_41) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.6 Conduct of Business](#page_42) | [36](#page_42) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.7 No Distribution on Shares if Event of Default](#page_42) | [36](#page_42) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.8 Payment of Trustee's Remuneration](#page_42) | [36](#page_42) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.9 Further Instruments and Acts](#page_42) | [36](#page_42) |
| &nbsp;&nbsp;&nbsp;&nbsp;[6.10 Performance of Covenant by Trustee](#page_42) | [36](#page_42) |
| [**ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES**](#page_43) | [**37**](#page_43) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.1 Events of Default and Enforcement](#page_43) | [37](#page_43) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.2 Notice of Event of Default](#page_44) | [38](#page_44) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.3 Waiver of Default](#page_44) | [38](#page_44) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.4 Waiver of Acceleration](#page_44) | [38](#page_44) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.5 Other Remedies](#page_45) | [39](#page_45) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.6 Application of Money Collected](#page_45) | [39](#page_45) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.7 Control by Holders](#page_46) | [40](#page_46) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.8 Limitation on Suits](#page_46) | [40](#page_46) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.9 Collection Suit by Trustee](#page_46) | [40](#page_46) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.10 Trustee May File Proofs of Claim](#page_46) | [40](#page_46) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.11 Undertaking for Costs](#page_46) | [40](#page_46) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.12 Delay or Omission Not Waiver](#page_47) | [41](#page_47) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.13 Remedies Cumulative](#page_47) | [41](#page_47) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.14 Judgment Against the Corporation](#page_47) | [41](#page_47) |
| &nbsp;&nbsp;&nbsp;&nbsp;[7.15 Rights of Holders to Receive Payment](#page_47) | [41](#page_47) |
| [**ARTICLE 8 SATISFACTION AND DISCHARGE**](#page_47) | [**41**](#page_47) |

---

iii

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;[8.1 Non-Presentation of Debentures](#page_47) | [41](#page_47) |
| &nbsp;&nbsp;&nbsp;&nbsp;[8.2 Discharge](#page_48) | [42](#page_48) |
| [**ARTICLE 9 CONCERNING THE TRUSTEE**](#page_48) | [**42**](#page_48) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.1 Duties of Trustee](#page_48) | [42](#page_48) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.2 Employ Agents](#page_48) | [42](#page_48) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.3 Reliance on Evidence of Compliance](#page_49) | [43](#page_49) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.4 Advice of Experts](#page_49) | [43](#page_49) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.5 Trustee May Deal in Debentures](#page_49) | [43](#page_49) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.6 Conditions Precedent to Trustee's Obligation to Act](#page_49) | [43](#page_49) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.7 Trustee Not Required to Give Security](#page_50) | [44](#page_50) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.8 Resignation or Removal of Trustee; Conflict of Interest](#page_50) | [44](#page_50) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.9 Authority to Carry on Business; Resignation](#page_51) | [45](#page_51) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.10 Protection of Trustee](#page_51) | [45](#page_51) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.11 Additional Representations and Warranties of Trustee](#page_53) | [47](#page_53) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.12 Third Party Interests](#page_53) | [47](#page_53) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.13 Trustee Not Bound to Act](#page_53) | [47](#page_53) |
| &nbsp;&nbsp;&nbsp;&nbsp;[9.14 Compliance with Privacy Laws](#page_53) | [47](#page_53) |
| [**ARTICLE 10 MEETINGS OF DEBENTUREHOLDERS**](#page_54) | [**48**](#page_54) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.1 Purposes for Which Meetings May be Called](#page_54) | [48](#page_54) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.2 Call, Notice and Place of Meetings](#page_54) | [48](#page_54) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.3 Proxies](#page_54) | [48](#page_54) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.4 Persons Entitled to Vote at Meetings](#page_55) | [49](#page_55) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.5 Quorum; Action](#page_55) | [49](#page_55) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.6 Determination of Voting Rights Chairman; Conduct and Adjournment of Meetings](#page_55) | [49](#page_55) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.7 Counting Votes and Recording Action of Meetings](#page_56) | [50](#page_56) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.8 Instruments in Writing](#page_56) | [50](#page_56) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.9 Holdings by the Corporation Disregarded](#page_56) | [50](#page_56) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.10 Persons Entitled to Attend Meetings](#page_57) | [51](#page_57) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.11 Meaning of "Extraordinary Resolution"](#page_57) | [51](#page_57) |
| &nbsp;&nbsp;&nbsp;&nbsp;[10.12 Powers Cumulative](#page_57) | [51](#page_57) |
| [**ARTICLE 11 AMALGAMATION, CONSOLIDATION, CONVEYANCE, TRANSFER OR LEASE**](#page_58) | [**52**](#page_58) |
| &nbsp;&nbsp;&nbsp;&nbsp;[11.1 Amalgamation and Consolidations of Corporation and Conveyances Permitted Subject to Certain Conditions](#page_58) | [52](#page_58) |
| &nbsp;&nbsp;&nbsp;&nbsp;[11.2 Rights and Duties of Successor Entity](#page_58) | [52](#page_58) |
| [**ARTICLE 12 NOTICES**](#page_59) | [**53**](#page_59) |
| &nbsp;&nbsp;&nbsp;&nbsp;[12.1 Notice to Corporation](#page_59) | [53](#page_59) |

---

iv

------

---

| | |
|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;[12.2 Notice to Holders](#page_59) | [53](#page_59) |
| &nbsp;&nbsp;&nbsp;&nbsp;[12.3 Notice to Trustee](#page_60) | [54](#page_60) |
| &nbsp;&nbsp;&nbsp;&nbsp;[12.4 Mail Service Interruption](#page_60) | [54](#page_60) |
| [**ARTICLE 13 AMENDMENTS, SUPPLEMENTS AND WAIVERS**](#page_60) | [**54**](#page_60) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.1 Without Consent of Holders](#page_60) | [54](#page_60) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.2 With Consent of Holders](#page_61) | [55](#page_61) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.3 Additional Powers Exercisable by Extraordinary Resolution](#page_61) | [55](#page_61) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.4 Execution of Supplemental Indentures](#page_63) | [57](#page_63) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.5 Effect of Supplemental Indentures](#page_63) | [57](#page_63) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.6 Reference in Debentures to Supplemental Indentures](#page_63) | [57](#page_63) |
| &nbsp;&nbsp;&nbsp;&nbsp;[13.7 Prior Approval of Recognized Stock Exchange](#page_63) | [57](#page_63) |
| [**ARTICLE 14 MISCELLANEOUS PROVISIONS**](#page_64) | [**58**](#page_64) |
| &nbsp;&nbsp;&nbsp;&nbsp;[14.1 Acceptance of Trusts](#page_64) | [58](#page_64) |
| &nbsp;&nbsp;&nbsp;&nbsp;[14.2 Protection of Trustee](#page_64) | [58](#page_64) |
| &nbsp;&nbsp;&nbsp;&nbsp;[14.3 Counterparts and Formal Date](#page_64) | [58](#page_64) |

---

v

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**THIS INDENTURE** dated as of May 6, 2024.

**BETWEEN: C21 INVESTMENTS INC**., a corporation existing under the laws of British Columbia;

(the "**Corporation**")

**AND: ALLIANCE TRUST COMPANY**, a trust company existing under the laws of Alberta;

(the "**Trustee**")

**RECITALS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Corporation wishes to provide for the creation and issue of convertible debentures with the designation of "**12.0% Convertible Debentures**" to be issued in connection with the closing of the offering of units of the Corporation (the "**Units**"), with each Unit comprised of $1,000 principal amount 12% convertible debentures (the "**Debentures**") and 1,000 common share purchase warrants of the Corporation (each a "**Warrant**"), each Warrant entitling the holder thereof to purchase one common share of the Corporation (each, a "**Common Share**") at a price of $0.55 per Common Share for a period of 30 months from the date of issue, all upon the terms and conditions set forth in this Indenture (as hereinafter defined) and the Warrant Indenture (as hereinafter defined);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. The Warrants shall be issued pursuant to and upon the terms set forth in a warrant indenture (the "**Warrant Indenture**") dated the same date hereof made between the Corporation and the Trustee;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;C. The Corporation is proposing to issue up to 4,000 Debentures in denominations of $1,000 and integral multiples of $1,000 for an aggregate total principal amount of $4,000,000;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;D. All necessary acts and proceedings have been done and taken and all necessary resolutions have been passed to authorize the execution and delivery of this Indenture by the Corporation, to make the same effective and binding upon the Corporation, and to make the Debentures, when certified by the Trustee and issued as provided in this Indenture, valid and legally binding obligations of the Corporation with the benefit and subject to the terms of this Indenture; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;E. The foregoing recitals are made as representations and statements of fact by the Corporation and not by the Trustee.

**NOW THEREFORE**, in consideration of the promises and mutual covenants hereinafter contained and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Corporation hereby appoints the Trustee to hold the rights, interests and benefits contained herein for and

on behalf of those persons who from time to time become the holders of Debentures issued pursuant to this Indenture and the parties hereto agree as follows:

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**ARTICLE 1**<br><u>**INTERPRETATION**</u>

1.1 <u>**Definitions**</u>

In this Indenture and in the Debentures, unless there is something in the subject matter or context inconsistent herewith, the expressions below shall have the following meanings:

"**Act**" or "**Act of Holder(s)**", when used with respect to any Holder(s), has the meaning ascribed thereto in Section 1.12(a);

"**Affiliate**" has the meaning ascribed thereto in the *Securities Act* (British Columbia);

"**Applicable Law**" means, at any time, with respect to any Person, property, transaction, event or other matter, as applicable, all laws, rules, statutes, regulations, treaties, orders, judgments and decrees, and all official requests, directives, rules, guidelines, orders, policies, practices and other requirements of any Governmental Authority relating or applicable at such time to such Person, property, transaction, event or other matter, and shall also include any interpretation thereof by any Person having jurisdiction over it or charged with its administration or interpretation;

"**Applicable Securities Law**" means any Applicable Law in any jurisdiction in Canada regulating, or regulating disclosure with respect to, any sale or distribution of securities in, or to residents of, such jurisdiction;

"**Applicants**" has the meaning ascribed thereto in Section 2.23(b);

"**Authenticated**" means, with respect to the issuance of a Certificated Debenture, one which has been duly signed by the Corporation and authenticated by manual signature of an authorized officer of the Trustee and "**Authenticate**", "**Authenticating**" and "**Authentication**" have corresponding meanings;

"**Board of Directors**" means either the Board of Directors of the Corporation, or any committee of that board duly authorized to make a decision on the matter in question;

"**Board Resolution**" means a copy of a resolution certified by a Responsible Officer of the Corporation to have been duly adopted by the Board of Directors and to be in full force and effect and unamended on the date of such certification;

"**Business Day**" means any day of the week, other than Saturday, Sunday or a statutory holiday in the Province of British Columbia or the Province of Alberta, on which banking institutions are open for business in the City of Vancouver, British Columbia or the City of Calgary, Alberta, respectively;

"**Canadian Dollar**" or "**Dollar**" or "**$**" means lawful currency of Canada;

"**Certificated Debentures**" means Debentures in the form of individual certificates in definitive fully registered form and substantially in the form of Schedule "A";

"**Common Share Redemption Notice**" has the meaning ascribed thereto in Section 3.6(b);

"**Common Share Redemption Right**" has the meaning ascribed thereto in Section 3.6(a);

"**Common Share Reorganization**" has the meaning ascribed thereto in Section 4.5(a);

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"**Common Shares**" has the meaning ascribed thereto on the first page of this Indenture; provided that in the event of any reclassification, subdivision, consolidation, conversion, exchange or other modification thereto shall thereafter mean the shares or other securities or property resulting therefrom;

"**Conversion Price**" means $0.45 per Common Share, subject to adjustment in accordance with the provisions of Article 4;

"**Corporate Trust Office**" means the principal office or offices of the Trustee in the City of Calgary, Province of Alberta, at which at any particular time its corporate trust business shall be administered;

"**Corporation**" has the meaning ascribed thereto on the first page of this Indenture, until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter, **"Corporation"** shall mean such successor corporation;

"**Corporation Request**" means a written request or order signed in the name of the Corporation by any Responsible Officer of the Corporation and delivered to the Trustee;

"**Counsel to the Trustee**" means any barrister, solicitor or other lawyer or firm of barristers, solicitors or other lawyers retained or employed by the Trustee which may be Counsel to the Corporation;

"**Counsel to the Corporation**" means any barrister, solicitor or other lawyer or firm of barristers, solicitors or other lawyers retained or employed by the Corporation;

"**CSE**" means the Canadian Securities Exchange;

"**Current Market Price**" for any date means the VWAP on the CSE for the 20 consecutive trading days ending on the fifth trading day preceding the date of the applicable event (or, if the Common Shares are not listed thereon, on such Recognized Stock Exchange on which the Common Shares are listed as may be selected by the Directors or, if the Common Shares are not listed on any Recognized Stock Exchange, then as determined by the Board of Directors, acting reasonably);

"**Date of Conversion**" has the meaning ascribed thereto in Section 4.4(b);

"**Debentureholder(s)**" or "**Holder(s)**" means the registered Holder(s) of Debentures for the time being;

"**Debentures**" has the meaning ascribed thereto on the first page of this Indenture;

"**deemed year**" has the meaning ascribed thereto in Section 2.3(a);

"**Default**" means any event or condition that constitutes an Event of Default or that would constitute an Event of Default with the giving of notice, passage of time, or both;

"**Directors**" means the directors of the Corporation on the date hereof or such directors as may, from time to time, be appointed or elected directors of the Corporation pursuant to the Corporation's articles and by- laws, and applicable laws, and "**Director**" means any one of them, and reference to action by the Directors means action by the Directors as the Board of Directors;

"**Distributed Securities**" has the meaning ascribed thereto in Section 4.5(e);

"**Event of Default**" means any of the events identified in Section 7.1 as being an Event of Default;

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"**Extraordinary Resolution**" has the meaning ascribed thereto in Section 10.8 and Section 10.11;

"**Fair Market Value**" means the value that would be paid by an informed and willing buyer to an arm's length informed and willing seller in a transaction not involving distress or necessity of either party, determined in by the Board of Directors of the Corporation acting reasonably and in good faith (unless otherwise provided in the Indenture);

"**Fiscal Year**" means any of the annual accounting periods of the Corporation ending on January 31 of each year;

"**GAAP**" means generally accepted accounting principles in the United States, consistently applied and any change therein from time to time;

"**Governmental Authority**" means, when used with respect to any Person, any government, parliament, legislature, regulatory authority, agency, tribunal, department, commission, board, instrumentality, court, arbitration board or arbitrator or other law, regulation or rule-making entity (including a Recognized Stock Exchange) having or purporting to have jurisdiction over such Person or the business or property of such Person pursuant to the laws of Canada or any country in which such Person is residing, incorporated, continued, amalgamated, merged or otherwise created or established or in which such Person carries on business or holds property, or any province, territory, state, municipality, district or political subdivision of any such country or of any such province, territory or state of such country;

"**Indenture**" means or refers to this Indenture as amended or supplemented by any indenture, deed or instrument supplemental or ancillary thereto;

"**Indenture Documents**" means this Indenture, the Debentures and each other document, instrument, application or agreement now or hereafter executed and delivered by or on behalf of the Corporation or under or pursuant to any of them;

"**Initial Payment Date**" has the meaning ascribed thereto in Section 2.2(a);

"**Interest Payment Date**" means a date specified herein as the date on which an instalment of interest on a Debenture is due and payable;

"**Interest Period**" has the meaning ascribed thereto in Section 2.3(a);

"**Internal Procedures**" means the minimum number of the Trustee's internal procedures customary at such time for the making of any one or more entries to, changes in or deletions of any one or more entries in the records of the Trustee (including without limitation, original issuance or registration of transfer of ownership) to be complete under the operating procedures followed at the time by the Trustee;

"**Issue Date**" means the date of issuance of any Debentures under this Indenture;

"**Lien**" means any hypothec, security interest, mortgage, lien, right of preference, pledge, assignment by way of security or any other agreement or encumbrance of any nature that secures the performance of an obligation, and a Person is deemed to own subject to a Lien any property or assets that it has acquired or

holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital or synthetic lease or similar agreement (other than an operating lease) relating to such property or assets;

"**Maturity Date**" means November 6, 2026 or such other date on which the Debentures become due and payable as provided in this Indenture;

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"**Monthly Instalment**" has the meaning ascribed thereto in Section 2.2(b);

"**Monthly Instalment Date**" has the meaning ascribed thereto in Section 2.2(b);

"**Notice**" shall mean any notice, document or other communication required or permitted to be given under this Indenture;

"**Officer's Certificate**" shall mean a certificate signed by any two officers of the Corporation, at least one of whom shall be the chief executive officer or the chief financial officer, (or officer holding a similar title) and delivered to the Trustee;

"**Opinion of Counsel**" means a written opinion addressed to the Trustee (among other addressees as applicable) by Counsel to the Corporation and in a form which, in each case, shall be reasonably satisfactory to the Trustee;

"**Outstanding**" when used with respect to the Debentures means, as of the date of determination, all Debentures theretofore certified and delivered by the Trustee under this Indenture, except:

(a) Debentures theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;

(b) Debentures for whose payment, purchase, or repurchase money in the necessary amount has been theretofore deposited with the Trustee under gratuitous deposit or set aside and segregated in trust by the Corporation (if the Corporation shall act as its own paying agent) for the Holders of such Debentures; and

(c) Debentures that have been surrendered to the Trustee pursuant to Section 2.21 or in exchange for or in lieu of which other Debentures have been certified and delivered pursuant to this Indenture, other than any such Debentures in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Debentures are held by a bona fide purchaser in whose hands such Debentures are valid obligations of the Corporation; provided, however, that: (i) in determining whether the Holders of the requisite principal amount of the Debentures then outstanding have taken any Act of Holders hereunder, Debentures owned by the Corporation or any Affiliate of the Corporation shall be disregarded and deemed not to be then Outstanding; (ii) in determining whether the Trustee shall be protected in acting and relying upon such Act of Holders, only Debentures of which the Trustee has actual notice that they are so owned shall be so disregarded; and (iii) that Debentures so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right to act with respect to such Debentures and that the pledgee is not the Corporation or any Affiliate of the Corporation;

"**Person**" means any natural Person, corporation, firm, partnership, joint venture, trustee, executor, liquidator of a succession, administrator, legal representative or other unincorporated association, trust, unincorporated organization, government or Governmental Authority and pronouns relating thereto have a similar extended meaning;

"**Pledge Agreement**" means the pledge agreement dated on or about the date of this Indenture by the Corporation in favour of the Trustee pursuant to which the Corporation granted a Lien in favour of the Trustee over the Pledged Shares;

------

"**Pledged Shares**" means all of the issued and outstanding shares of 320204 Nevada Holdings Corp., an indirect, wholly-owned subsidiary of the Corporation;

"**Principal Account**" has the meaning ascribed thereto in Section 2.9(a);

"**Principal Payment Election**" has the meaning ascribed thereto in Section 2.2(c);

"**Proceeding**" means any suit, action or other judicial or administrative proceeding;

"**Recognized Stock Exchange**" means the CSE or, if the Common Shares are not listed on the CSE, any other national securities exchange or market on which the Common Shares are then listed and posted for trading;

"**Redemption Date**" has the meaning ascribed thereto in Section 3.3;

"**Redemption Notice**" has the meaning ascribed thereto in Section 3.3;

"**Redemption Price**" has the meaning ascribed thereto in Section 2.2(e);

"**Regulation S**" means Regulation S adopted by the United States Securities and Exchange Commission under the U.S. Securities Act;

"**Release Date**" has the meaning ascribed thereto in Section 2.2(b);

"**Responsible Officer of the Corporation**" means the Chairman, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice-President, the Secretary, any Assistant Secretary, or any other officer of the Corporation customarily performing functions similar to those performed by any of the above designated officers;

"**Spinoff Securities**" has the meaning ascribed thereto in Section 4.5(e);

"**Spinoff Valuation Period**" has the meaning ascribed thereto in Section 4.5(e);

"**Subject Transaction**" has the meaning ascribed thereto in Section 11.1;

"**Subsidiary**" in relation to any specified Person, means: (a) any corporation, association or other business entity a majority of the outstanding Voting Securities of which are beneficially owned, directly or indirectly, by or for such Person and/or by or for any subsidiary or one or more of the other Subsidiaries of that Person (or a combination thereof), and (b) any partnership (i) the sole general partner or the sole managing general partner of which is such Person or a Subsidiary of such Person or (ii) the only general partners of which are the Person or one or more Subsidiaries of that Person (or any combination thereof);

"**Successor Entity**" has the meaning ascribed thereto in Section 11.1(a);

"**Supplemental Indenture**" has the meaning ascribed thereto in Section 13.4;

"**Time of Expiry**" has the meaning ascribed thereto in Section 2.2(d);

"**Transfer Agent**" means Computershare Investor Services Inc. or such other Person or Persons appointed as the transfer agent for the Common Shares, in such capacity, together with such Person's or Persons' successor from time to time in such capacity;

------

"**Trustee**" has the meaning ascribed thereto on the first page of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter, "**Trustee**" shall mean or include each Person who is then a Trustee hereunder;

"**United States**" or "**U.S.**" means the United States of America, its territories and possessions, any state of the United States, and the District of Columbia;

"**U.S. Marijuana Laws**" means certain United States federal laws relating to the cultivation, distribution or possession of marijuana in the United States and other related judgments, orders or decrees in effect from time to time that provide that such cultivation, distribution or possession is illegal;

"**U.S. Person**" means a "U.S. person" as that term is defined in Regulation S;

"**U.S. Securities Act**" means the United States Securities Act of 1933, as amended;

"**VWAP**" means the volume-weighted average trading price of the Common Shares for the applicable period (which must be calculated utilizing days in which the Common Shares actually trade). The VWAP shall be determined by dividing the total value of all trades of Common Shares on the applicable Recognized Stock Exchange or market, as the case may be, over the applicable period by the total number of Shares so traded;

"**Voting Securities**" means securities having under all circumstances voting power to elect the directors, managers or trustees of the corporation, association or other business entity, provided that securities which only carry the right to vote conditionally on the happening of an event shall not be considered to be Voting Securities nor shall any securities be deemed to cease to be Voting Securities solely by reason of a right to vote accruing to shares of another class or classes by reason of the happening of such event;

"**Warrant Indenture**" has the meaning ascribed thereto on the first page of this Indenture;

"**Wholly-Owned Subsidiary**" means any Subsidiary of which the Corporation beneficially owns, directly or indirectly, all the Voting Securities and equity interests (other than qualifying equity interests required to be issued under Applicable Law) and a Subsidiary shall be deemed to beneficially own Voting Securities and equity interests beneficially owned by a Wholly-Owned Subsidiary and so on indefinitely;

"**Withholding Taxes**" has the meaning ascribed there to in Section 2.20; and

"**written order of the Corporation**", "**written request of the Corporation**", "**written consent of the Corporation**" and "**certificate of the Corporation**" mean, respectively, a written order, request, consent and certificate signed in the name of the Corporation by its Chief Executive Officer or Chief Financial Officer, or a person acting in any such capacity for the Corporation; and may consist of one or more instruments so executed.

All other terms which are used herein but not otherwise defined herein, and that are defined in the *Securities Act* (British Columbia), either directly or by reference therein, shall have the meanings assigned to them therein.

1.2 <u>**Interpretation**</u>

(a) Words importing the singular number shall include the plural and vice versa and words importing gender shall include the masculine, feminine and neuter genders.

------

(b) The words "hereto", "herein", "hereof", "hereby", "hereunder", and other words of similar import refer to this Indenture as a whole and not to any particular article, section, subsection, paragraph, clause or other part of this Indenture.

(c) Except as otherwise provided herein, any reference in this Indenture to any act, statute, regulation, policy statement, instrument, agreement, or section thereof shall be deemed to be a reference to such act, statute, regulation, policy statement, instrument, agreement or section thereof as amended, re-enacted or replaced from time to time.

1.3 <u>**Accounting Terms**</u>

As used in this Indenture and in any certificate or other document made or delivered pursuant to this Indenture, accounting terms not defined in this Indenture, or in any such certificate or other document, and accounting terms partly defined in this Indenture or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms in this Indenture, or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP, the definitions contained in this Indenture, or in any such certificate or other document shall prevail.

1.4 <u>**Headings and Table of Contents**</u>

The division of this Indenture, or any related document, into articles, sections, subsections, paragraphs, clauses and other subdivisions, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or any such related document.

1.5 <u>**Section and Schedule References**</u>

Unless something in the subject matter or context is inconsistent therewith, references in this Indenture to articles, sections, subsections, paragraphs, clauses, other subdivisions, exhibits, appendices or schedules are to articles, sections, subsections, paragraphs, clauses other subdivisions, exhibits, appendices or schedules of or to this Indenture.

1.6 <u>**Governing Law**</u>

The parties to this Indenture agree that any legal suit or proceeding arising with respect to this Indenture or the Debentures will be tried exclusively in the courts of the Province of British Columbia in the City of Vancouver, and the parties to this Indenture agree to submit to the jurisdiction of, and to venue in, such courts. This Indenture and each Debenture issued hereunder shall be governed by, and construed with, the laws of the Province of British Columbia and the federal laws of Canada applicable therein and shall be treated in all respects as British Columbia contracts.

1.7 <u>**Currency**</u>

Unless expressly provided to the contrary in this Indenture or in any Debenture, all monetary amounts in this Indenture or in such Debenture refer to Canadian Dollars.

1.8 <u>**Non-Business Day**</u>

Unless expressly provided to the contrary in this Indenture or in any Debenture, whenever any payment shall be due, any period of time shall begin or end, any calculation is to be made or any other action is to be taken on, or as of, or from a period ending on, a day other than a Business Day, such period of time shall begin or end and such calculation shall be made as of the day that is not a Business Day, but such actions shall be taken and such payment shall be made, as the case may be, on the next succeeding Business Day.

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1.9 <u>**Time**</u>

Unless otherwise expressly stated in this Indenture or in any Debenture, all references to a time will mean Vancouver time. Time shall be of the essence of this Indenture.

1.10 <u>**Independence of Covenants**</u>

Each covenant contained in this Indenture shall be construed (absent an express provision to the contrary) as being independent of each other covenant, so that compliance with any one covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with any other covenant.

1.11 <u>**Form of Documents Delivered to Trustee**</u>

(a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

(b) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

1.12 <u>**Acts of Holders**</u>

(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in Person or by agents duly appointed in writing. Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may, alternatively, be embodied in and evidenced by the record of Debentureholders voting in favour thereof, either in Person or by proxies duly appointed in writing, at any meeting of Debentureholders duly called and held in accordance with the provisions of Article 10, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such requisite instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Corporation. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "**Act of Holders**", and the Holders signing such instrument or instruments is sometimes referred to as the "**Act**". Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and, subject to Section 9.1, conclusive in favour of the Trustee and the Corporation, if made in the manner provided in this Section 1.12. The record of any meeting of Debentureholders shall be provided in the manner specified in Section 10.7.

(b) If the Corporation or the Trustee shall solicit from the Debentureholders any Act, the Corporation or the Trustee, as the case may be, may, at its option, fix in advance a record date for the determination of Debentureholders entitled to take such Act, but the Corporation or the Trustee, as the case may be, shall have no obligation to do so. Any such record date shall be fixed at the Corporation's or the Trustee's discretion, as the case may be, provided that such record date shall be fixed on a date not more than 60 days prior to the Act. If such a record date is fixed, such Act may be sought or taken before or after the record date, but only the Debentureholders of record at the close of business on such record date shall be deemed to be Debentureholders for the purpose of determining whether Holders of the requisite proportion of Debentures Outstanding have authorized or agreed or consented to such Act, and for that purpose the Debentures Outstanding shall be computed as of such record date.

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(c) Any Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefore or in lieu thereof in respect of anything done, suffered or omitted by the Trustee or the Corporation in reliance thereon, whether or not notation of such action is made upon such Debenture.

1.13 <u>**Interest Payments and Calculations**</u>

(a) The rate of interest stipulated in this Indenture or in any Debenture will be calculated on the basis of a 365 day year.

(b) For purposes of the *Interest Act* (Canada), (i) whenever any interest under this Indenture is calculated using a rate based on a year of 365 days, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the applicable rate based on a year of 365 days, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest or fee is payable (or compounded) ends, and (z) divided by 365; (ii) the principle of deemed reinvestment of interest does not apply to any interest calculation under this Indenture, and (iii) the rates of interest stipulated in this Indenture are intended to be nominal rates and not effective rates or yields.

(c) In calculating interest under this Indenture or under a Debenture for any period, unless otherwise specifically stated, the first day of such period shall be included and the last day of such period shall be excluded.

(d) If any provision in any Indenture Document would oblige the Corporation to make any payment of interest or other amount payable to the Trustee or any Holder in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by the Trustee or that Holder of "interest" at a "criminal rate" (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by Applicable Law or so result in a receipt by the Trustee or that Holder of "interest" at a "criminal rate", such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) first, by reducing the amount or rate of interest to be paid to the Trustee or the affected Holder, as the case may be; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid to the Trustee or the affected Holder, as the case may be, which would constitute interest for purposes of Section 347 of the Criminal Code (Canada).

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1.14 <u>**Successors and Assigns**</u>

All covenants and agreements in this Indenture by the Corporation shall bind its successors and assigns, whether expressed or not.

1.15 <u>**Severability Clause**</u>

If any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

1.16 <u>**Benefits of Indenture**</u>

Nothing in this Indenture and in the Debentures, express or implied, shall give to any Person, other than the parties hereto, the Debentureholders, and their respective successors hereunder, any paying agent, any Person maintaining the record of the Debentureholders pursuant to Section 2.11, any Transfer Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

1.17 <u>**Unclaimed Debentures**</u>

Subject to Applicable Law, all amounts held or set aside for the payment of Debentures together with any interest thereon which remain unclaimed after a period of three calendar years from the Maturity Date shall be forfeited and shall revert to the Corporation.

1.18 <u>**Schedules**</u>

The attached Schedule "A" is incorporated into and forms part of this Indenture.

1.19 <u>**Benefits of Indenture through Trustee**</u>

For greater certainty, this Indenture is being entered into with the Trustee for the benefit of the Holders and the Trustee declares that it holds all rights, benefits and interests of this Indenture on behalf of and as the Person holding the power of attorney of, the Holders and each such Person who becomes a Holder of the Debentures from time to time.

1.20 <u>**English Language**</u>

The Corporation, the Trustee and, by their acceptance of Debentures and the benefits of this Indenture, the Holders acknowledge having consented to and requested that this Indenture, each Debenture and each document related hereto and thereto be drawn up in the English language only. La Société, le fiduciaire des débentures et, par leur acceptation des débentures et des avantages de la présente convention, les porteurs, reconnaissent avoir accepté et demandé que la présente convention, chaque débenture et chaque document relié à celles-ci soient rédigés en langue anglaise.

**ARTICLE 2**<br><u>**THE DEBENTURES**</u>

2.1 <u>**Limit of Issue and Designation of Debentures**</u>

The Debentures authorized to be issued hereunder are limited to 4,000 Debentures in aggregate principal amount of $4,000,000, which shall be designated as **"12.0% Convertible Debentures"**.

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2.2 <u>**Form and Terms of Debentures**</u>

(a) The Debentures shall be dated as of the Issue Date. The Debentures shall bear interest from and including the Issue Date at the rate of 12.0% per annum (after as well as before maturity, default and judgment, with interest on overdue interest at the said rate until the earlier of the dates set out in Section 2.3(a)(ii) to Section 2.3(a)(iv) below), payable in lawful money of Canada in equal quarterly instalments in arrears on March 31, June 30, September 30 and December 31 in each year (each, an "**Interest Payment Date**"), the first such payment to fall due on June 30, 2024 (the "**Initial Payment Date**") and the last such payment (representing interest payable from and including the last Interest Payment Date to, but excluding, the Maturity Date) to fall due on the Maturity Date. The Initial Payment Date on June 30, 2024 will include interest accrued from the Issue Date to, but excluding, June 30, 2024 and the last interest payment will include accrued interest from and including the last day on which interest is due hereunder to but excluding the Maturity Date.

(b) Subject to the Debentures being converted in accordance with the terms of Article 4 or redeemed or purchased prior to the Maturity Date in accordance with the terms of Article 3, the outstanding principal of the Debentures will be payable to the Holder in twenty-five (25) equal monthly instalments (each, a "**Monthly Instalment**"), each equal to the outstanding principal of the Debentures on the Issue Date divided by 25, with a final payment on the Maturity Date of all of the then outstanding principal of the Debentures, together with all accrued and unpaid interest thereon. Each Monthly Instalment shall be paid on the last day of each calendar month (each, a "**Monthly Instalment Date**"), beginning on the last day of the sixth calendar month from the Issue Date (the "**Release Date**"), with the first of such Monthly Instalments collectively due and payable on October 31, 2024. In the event that the Debentures are converted into Common Shares by the Holder in accordance with the terms of Article 4 or redeemed or purchased by the Corporation in accordance with the terms of Article 3 prior to the Maturity Date, the amount of each remaining Monthly Instalment on the date of such conversion or redemption shall be proportionally adjusted to reflect the outstanding principal of the Debentures after the occurrence of such conversion or redemption.

(c) Each Monthly Instalment shall be paid to the Holder in cash pursuant to Section 2.9, or the Holder may, elect to receive as payment for such portion of the principal amount of the Debentures payable on any given Monthly Instalment Date by way of the issuance to the Holder of up to such number of Common Shares as obtained by dividing the aggregate amount of such Monthly Instalment payable to the Holder at the time of such election by the Conversion Price. If a Holder elects to exercise such option, it shall provide the Trustee with a notice in the form of principal payment election notice set out in Schedule "A" or any other written notice in a form satisfactory to the Trustee specifying such election (the "**Principal Payment Election**") at least ten (10) days prior to any Monthly Instalment Date. The Common Shares issuable to the Holder pursuant to any Principal Payment Election shall be issued to the Holder on the applicable Monthly Instalment Date.

(d) Upon and subject to the provisions and conditions of Article 4 and subject to applicable regulatory approval (including the approval of such Recognized Stock Exchange on which the Common Shares are listed, if applicable), the holder of each Debenture shall have the right at such Debenture holder's option, at any time and from time to time from the Issue Date to 5:00 p.m. (Vancouver time) on the earlier of the sixth Business Day preceding the Maturity Date and the date specified by the Corporation for redemption or conversion of the Debentures by notice to the holders of Debentures in accordance with Section 2.2(e) or Article 4, as the case may be, (the earlier of which will be the "**Time of Expiry**" for the purposes of Article 4), to convert the whole or, in the case of a Debenture of a denomination in excess of $1,000, any part which is $1,000 or an integral multiple thereof, of the principal amount of such Debenture into that number of Common Shares equal to the quotient of such amount divided by the Conversion Price; subject to any adjustment pursuant to Section 4.5, subject to the prior approval of such stock exchange(s) on which the Common Shares are listed, if applicable. The Corporation shall confirm the Conversion Price and the number of Conversion Shares to be issued in respect of a conversion on the applicable Date of Conversion by way of Officer's Certificate delivered to the Trustee.

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(e) The Debentures shall be redeemable by the Corporation in accordance with the terms of this Section 2.2(e) and Article 3, provided that the Debentures will not be redeemable by the Corporation prior to the Release Date. From the Release Date and prior to the Maturity Date, the Debentures shall be redeemable, in whole or in part from time to time, at the option of the Corporation on notice as provided for in Section 4.4 at a cash redemption price equal to the principal amount thereof (the "**Redemption Price**"), or, at the option of the Holder, by way of issuance to the Holder of up to such number of Common Shares as obtained by dividing the aggregate principal amount of the Debentures held by the Holder at the time of the exercise of such option by the Conversion Price. All accrued and unpaid interest up to the Redemption Date payable in connection with such redemption shall be repayable in cash.

(f) The Debentures shall be issued as fully registered Debentures in denominations of $1,000 and integral multiples of $1,000 and the Trustee is hereby appointed as registrar and transfer agent for the Debentures.

(g) The Debentures and the certificate of the Trustee endorsed thereon shall be substantially in the form set forth in Schedule "A", with such insertions, omissions, substitutions or other variations as shall be required or permitted by this Indenture, and may have imprinted or otherwise reproduced thereon such legend or legends or endorsements, not inconsistent with the provisions of this Indenture, as may be required to comply with any applicable law or with any rules or regulations pursuant thereto or with any rules or regulations of any securities exchange or securities regulatory authority or to conform with general usage, all as may be determined by the directors or officers of the Corporation executing such Debenture in accordance with Section 2.6, as conclusively evidenced by their execution of a Debenture. Each Debenture shall additionally bear such distinguishing letters and numbers as the Trustee shall approve.

2.3 <u>**Interest**</u>

(a) Each Debenture issued hereunder, whether issued originally or in exchange for another Debenture, shall bear interest from the Issue Date, or from and including the last Interest Payment Date on which interest shall have been paid or made available for payment on the Debentures then Outstanding, whichever shall be the later, to but excluding the earlier of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the following Interest Payment Date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) if redeemed in accordance with Section 3.1 or purchased in accordance with Section 3.8, the date of payment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) if converted in accordance with Article 4, the Conversion Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) the Maturity Date;

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as the case may be (the "**Interest Period**"). The interest payable per $1,000 principal amount of Debentures in respect of an Interest Period other than an Interest Period that ends on an Interest Payment Date shall be calculated by multiplying $1,000 by the interest rate of 12.0% per annum, computed on the basis of a 365-day year. For the purposes of the *Interest Act* (Canada) and disclosure under such act, whenever interest to be paid is to be calculated on the basis of any period of time less than a calendar year (a "**deemed year**") such rate of interest shall be expressed as a yearly rate by multiplying such rate of interest for the deemed year by the actual number of days in the calendar year in which the rate is to be ascertained and dividing it by the number of days in the deemed year.

2.4 <u>**Prescription**</u>

The Corporation shall have satisfied its obligations under the Debentures upon irrevocable remittance to the Trustee for the account of the Debentureholders, upon repurchase or at the Maturity Date, of any and all consideration due hereunder in cash and such remittance shall for all purposes be deemed a payment to the Debentureholders, and to that extent such Debentures shall thereafter not be considered as Outstanding and the Debentureholders shall have no right, except to receive payment out of the moneys so paid and deposited upon surrender of its Debentures.

2.5 <u>**Issue of Debentures**</u>

Debentures in such aggregate principal amounts as the Board of Directors shall determine in accordance with the terms hereof and in lawful money of Canada shall be executed by the Corporation from time to time and, forthwith after such execution, shall be delivered to the Trustee and shall be authenticated by the Trustee and delivered to the Corporation in accordance with the terms of Section 2.7. Other than as contemplated by Section 2.12, the Trustee shall receive no consideration for the certification or Authentication of Debentures.

2.6 <u>**Execution of Certificated Debentures**</u>

All Certificated Debentures shall be signed manually by any one Responsible Officer of the Corporation holding office at the time of signing. Notwithstanding that any Person whose signature appears on a Certificated Debenture as a director or officer may no longer hold such office at the date of the Certificated Debenture or at the date of the certification and delivery thereof, such Certificated Debenture shall be valid and binding upon the Corporation and the registered holders thereof entitled to the benefits of this Indenture.

2.7 <u>**Authentication**</u>

(a) Only such Debentures as shall have been Authenticated shall be enforceable against the Corporation and entitled to the benefits of this Indenture at any time or be valid or obligatory for any purpose.

(b) Authentication by Trustee of any Certificated Debenture executed by the Corporation shall be conclusive evidence that the Holder is entitled to the benefits of this Indenture.

(c) No Debenture shall be issued or, if issued, shall be valid for any purpose, enforceable against the Corporation or entitle the registered Holder to the benefit hereof or thereof until it has been Authenticated. Such Authentication shall be conclusive evidence that such Debenture is a valid and binding obligation of the Corporation and that the Holder is entitled to the benefits of this Indenture. The Authentication by the Trustee of any such Debenture hereunder shall not be construed as a representation or warranty by the Trustee as to the validity of this Indenture or of such Debenture or its issuance (except the due Authentication thereof) or as to the performance by the Corporation of its obligations under this Indenture and the Trustee shall in no respect be liable or answerable for the use made of the Debentures or any of them or the proceeds thereof.

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2.8 <u>**Persons Entitled to Payment**</u>

(a) Prior to due presentment for registration of transfer of any Debenture, the Corporation, the Trustee and any other Person, as the case may be, may treat the Person in whose name any Debenture is registered in the applicable register as the absolute and sole owner of such Debenture for all purposes including receiving payment of the principal of, and any premium, if any, interest or other amount on such Debenture, receiving any notice to be given to the Holder of such Debenture, and taking any Act of Holders with respect to such Debenture, whether or not any payment with respect to such Debenture shall be overdue, and none of the Corporation, the Trustee or any other Person, as the case may be, shall be affected by notice to the contrary.

(b) Delivery of a Debenture to the Trustee by or on behalf of the Holder thereof shall, upon payment of such Debenture, be a valid discharge to the Corporation of all obligations evidenced by such Debenture. None of the Corporation, the Trustee or any other Person shall be bound to inquire into the title of any such Holder.

(c) In the case of the death of one or more joint registered Holders of a Debenture, the principal of, and premium, if any, interest and any other amounts on such Debenture may be paid to the survivor or survivors of such registered Holders whose receipt of such payment, accompanied by the delivery of such Debenture, shall constitute a valid discharge to the Corporation and the Trustee.

2.9 <u>**Payment of Principal and Interest on Debentures**</u>

(a) Except as may otherwise be provided herein, payments of Monthly Instalments will be made in the following manner: the Corporation will establish and maintain with the Trustee a principal payment account for the Debentures (the "**Principal Account**"). On or before 9:00 a.m. (Vancouver time) not less than one Business Day immediately prior to a Monthly Instalment Date, the Corporation will deliver to the Trustee a certified cheque or wire transfer for deposit in the applicable Principal Account in an amount sufficient to pay the cash amount payable in respect of such Monthly Instalment, less any tax required by law to be deducted. The Trustee, on behalf of the Corporation, will pay to each Holder entitled to receive payment (that has not submitted a Principal Payment Election pursuant to Section 2.2(c) in respect of such Monthly Instalment), the Monthly Instalment. The delivery of such funds to the Trustee for deposit to the applicable Principal Account will satisfy and discharge the liability of the Corporation for the Debentures to which the delivery of funds relates to the extent of the amount delivered (plus the amount of any tax deducted as aforesaid) and, on in respect of the last Monthly Instalment paid on the Maturity Date, such Debentures will thereafter to that extent not be considered as outstanding under this Indenture and such Holder will have no other right in regard thereto other than to receive out of the money so delivered or made available the amount to which it is entitled. Unless any Debenture is converted, redeemed or purchased in accordance with the terms of this Indenture prior to the Maturity Date, interest shall cease to accrue on the Debentures upon the Maturity Date provided the Trustee has received, by the Maturity Date, from the Corporation all the funds due and payable on the Debentures.

(b) As interest becomes due on each Debenture (except, on conversion or if redeemed or purchased in accordance with the terms of this Indenture), the Corporation, either directly or through the Trustee or any agent of the Trustee, shall send or forward by prepaid ordinary mail, electronic transfer of funds or such other means as may be agreed to by the Trustee, payment of such interest to the order of the registered Holder of such Debenture appearing on the registers maintained by the Trustee at the close of business on the record date prior to the applicable Interest Payment Date and addressed to the Holder at the Holder's last address appearing on the register, unless such Holder otherwise directs. If payment is made by cheque, such cheque shall be forwarded at least three days prior to each date on which interest becomes due, and if payment is made by other means (such as electronic transfer of funds), the Trustee must receive confirmation of receipt of funds prior to being able to forward funds or cheques to holders and such payment shall be made in a manner whereby the Holder receives credit for such payment on the date such interest on such Debenture becomes due. The mailing of such cheque or the making of such payment by other means shall, to the extent of the sum represented thereby, plus the amount of any tax withheld as aforesaid, satisfy and discharge all liability for interest on such Debenture, unless in the case of payment by cheque, such cheque is not paid at par on presentation. In the event of non-receipt of any cheque for or other payment of interest by the person to whom it is so sent as aforesaid, the Corporation will issue to such person a replacement cheque or other payment for a like amount upon being furnished with such evidence of non-receipt as it shall reasonably require and upon being indemnified to its satisfaction. Notwithstanding the foregoing, if the Corporation is prevented by circumstances beyond its control (including, without limitation, any interruption in mail service) from making payment of any interest due on each Debenture in the manner provided above, the Corporation may make payment of such interest or make such interest available for payment in any other manner acceptable to the Trustee with the same effect as though payment had been made in the manner provided above.

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(c) The Trustee is authorized by the Corporation to make payments of interest and principal to Holders, by electronic funds transfer, upon the request of such Holder and the reasonable and documented Trustee's fees in respect thereof will be for the account of the Holder.

(d) If a Debenture or a portion thereof is called or presented for conversion by the Holder or is redeemed or purchased by the Corporation in accordance with the terms of the Indenture and the payment date is prior to an Interest Payment Date, interest accrued up to but excluding, the Date of Conversion, Redemption Date or the date of surrender and presentation in respect of a purchase, as applicable, on such Debenture will be paid upon presentation and surrender of such Debenture to the Corporate Trust Office.

(e) Subject to the foregoing provisions of this section, each Debenture delivered upon the transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue, that were carried by such other Debenture.

2.10 <u>**Rank**</u>

The Debentures certified and issued under this Indenture rank pari passu with one another.

2.11 <u>**Register and Transfer**</u>

(a) The Corporation shall cause to be kept by and at the principal office of the Trustee in Calgary, Alberta and by the Trustee or such other registrar as the Corporation, with the approval of the Trustee, may appoint at such other place or places, if any, as the Corporation may designate with the approval of the Trustee, a register in which shall be entered the names and addresses of the holders of Debentures and particulars of the Debentures held by them respectively and of all transfers of Debentures. Such registration shall be noted on any Certificated Debentures by the Trustee or other registrar unless a new Certificated Debenture shall be issued upon such transfer.

(b) No transfer of any Debenture shall be valid unless entered on the register referred to in Section 2.11(a), and upon surrender of any Certificated Debentures together with a duly executed form of transfer acceptable to the Trustee, and, if applicable, upon compliance with such other reasonable requirements as the Trustee or other registrar may prescribe. In the case of Certificated Debentures, the Trustee shall rely on the Form of Assignment in the form included in Schedule "A" signed by the transferor without further enquiry.

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2.12 <u>**Certificated Debentures; Transfers and Exchanges**</u>

(a) Any Certificated Debenture issued to a transferee upon transfers contemplated by Section 2.11 shall bear the appropriate legends, as required by applicable Securities Laws, as set forth in Section 2.24.

(b) The Trustee shall not register a transfer of a Certificated Debenture unless the transferor has provided the Trustee with the Debenture and the Form of Assignment, in the form included in Schedule "A".

2.13 <u>**Transferee Entitled to Registration**</u>

The transferee of a Debenture shall be entitled, after the appropriate form of transfer is lodged with the Trustee or other registrar and upon compliance with all other conditions in that behalf required by this Indenture or by law, to be entered on the register as the owner of such Debenture free from all equities or rights of set-off, compensation or counterclaim between the Corporation and the transferor or any previous Holder of such Debenture, save in respect of equities of which the Corporation is required to take notice by statute or by order of a court of competent jurisdiction.

2.14 <u>**No Notice of Trusts**</u>

2.15 <u>**Registers Open for Inspection**</u>

The registers referred to in Section 2.11 shall be open for inspection by the Corporation, the Trustee or any Debentureholder. Every registrar, including the Trustee, shall from time to time when requested so to do by the Corporation or by the Trustee, in writing, furnish the Corporation or the Trustee, as the case may be, with a list of names and addresses of holders of registered Debentures entered on the register kept by them and showing the principal amount of the Debentures held by each such Holder, provided the Trustee shall be entitled to charge a reasonable fee to provide such a list.

2.16 <u>**Exchanges of Debentures**</u>

(a) Subject to Section 2.12 and Section 2.17, Certificated Debentures in any authorized form or denomination, may be exchanged for Certificated Debentures in any other authorized form or denomination, of the same series and date of maturity, bearing the same interest rate and of the same aggregate principal amount as the Certificated Debentures so exchanged.

(b) In respect of exchanges of Certificated Debentures permitted by Section 2.16(a), Certificated Debentures of any series may be exchanged only at the principal office of the Trustee in the city of Calgary, Alberta or at such other place or places, if any, as may be specified in the Debentures of such series and at such other place or places as may from time to time be designated by the Corporation with the approval of the Trustee. Any Certificated Debentures tendered for exchange shall be surrendered to the Trustee. The Corporation shall execute and the Trustee shall Authenticate all Certificated Debentures necessary to carry out exchanges as aforesaid. All Certificated Debentures surrendered for exchange shall be cancelled.

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2.17 <u>**Closing of Registers**</u>

(a) Neither the Corporation nor the Trustee nor any registrar shall be required to make transfers or exchanges of or convert any Debentures during the five preceding Business Days preceding any Interest Payment Date, Monthly Instalment Date or the Maturity Date.

(b) Subject to any restriction herein provided, the Corporation with the approval of the Trustee may at any time close any register for any series of Debentures, other than those kept at the principal office of the Trustee in Calgary, Alberta, and transfer the registration of any Debentures registered thereon to another register (which may be an existing register) and thereafter such Debentures shall be deemed to be registered on such other register. Notice of such transfer shall be given to the holders of such Debentures.

2.18 <u>**Charges for Registration, Transfer and Exchange**</u>

For each Debenture exchanged, registered, transferred or discharged from registration, the Trustee or other registrar, except as otherwise herein provided, may make a reasonable charge for its services and in addition may charge a reasonable sum for each new Debenture issued (such amounts to be agreed upon from time to time by the Trustee and the Corporation), and payment of such charges and reimbursement of the Trustee or other registrar for any stamp taxes or governmental or other charges required to be paid shall be made by the party requesting such exchange, registration, transfer or discharge from registration as a condition precedent thereto.

2.19 <u>**Ownership of Debentures**</u>

(a) Unless otherwise required by Applicable Law, the Person in whose name any registered Debenture is registered shall for all purposes of this Indenture be and be deemed to be the owner thereof and payment of or on account of the principal of and premium, if any, on such Debenture and interest thereon shall be made to such registered Holder.

(b) The registered Holder for the time being of any registered Debenture shall be entitled to the principal, premium, if any, and/or interest evidenced by such instruments, respectively, free from all equities or rights of set-off, compensation or counterclaim between the Corporation and the original or any intermediate Holder thereof and all Persons may act accordingly and the receipt of any such registered Holder for any such principal, premium or interest shall be a good discharge to the Trustee, any registrar and to the Corporation for the same and none shall be bound to inquire into the title of any such registered Holder.

(c) Where Debentures are registered in more than one name, the principal, premium, if any, and interest from time to time payable in respect thereof shall be paid to the order of all such holders, and the receipt of any one of such holders therefor shall be a valid discharge, to the Trustee, any registrar and to the Corporation.

(d) In the case of the death of one or more joint holders of any Debenture the principal, premium, if any, and interest from time to time payable thereon may, upon the delivery of such reasonable requirements as the Trustee may prescribe, be paid to the order of the survivor or survivors of such registered holders and the receipt of any such survivor or survivors therefor shall be a valid discharge to the Trustee and any registrar and to the Corporation.

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2.20 <u>**Withholding Matters**</u>

All payments made by or on behalf of the Corporation under or with respect to the Debentures (including, without limitation, any penalties, interest and other liabilities related thereto) will be made free and clear of and without withholding, or deduction for, or on account of, any present or future tax, duty, levy, impost, assessment or other governmental charge (including, without limitation, penalties, interest and other liabilities related hereto) imposed or levied by or on behalf of the Government of Canada or the United States or elsewhere, or of any province or territory thereof or by any authority or agency therein or thereof having power to tax ("**Withholding Taxes**"), unless the Corporation is required by law or the interpretation or administration thereof, to withhold or deduct any amounts for, or on account of Withholding Taxes. If the Corporation is so required to withhold or deduct any amount for, or on account of, Withholding Taxes from any payment made under or with respect to the Debentures, the Corporation shall deduct and withhold such Withholding Taxes from any payment to be made or with respect to the Debentures and, provided that the Corporation forthwith remits such amount to the relevant governmental authority or agency, the amount of any such deduction or withholding will be considered an amount paid in satisfaction of the Corporation's obligations under the Debentures. There is no obligation on the Corporation to gross-up or pay additional amounts to a holder of Debentures in respect of such deductions or withholdings. For greater certainty, if any amount is required to be deducted or withheld in respect of Withholding Taxes upon a conversion of a Debenture, the Corporation shall be entitled to liquidate such number of Common Shares (or other securities) issuable as a result of such conversion as shall be necessary in order to satisfy such requirement. The Corporation shall provide the Trustee with copies of receipts or other communications relating to the remittance of such withheld amount or the filing of any forms received from such government authority or agency promptly after receipt thereof.

2.21 <u>**Cancellation of Debentures**</u>

(a) All Debentures surrendered for payment of the final amount required to be paid thereon, or that have been surrendered to the Trustee for registration of exchange or transfer or surrendered in connection with a conversion, purchase or redemption by the Corporation in accordance with the terms of this Indenture, shall be promptly cancelled by the Trustee on receipt. The Trustee shall give prompt written notice to the Corporation of the particulars of any Debentures cancelled by it upon its request for this information, and the Corporation shall pay the Trustee's reasonable fees in connection therewith.

(b) The Corporation may, in its discretion at any time, deliver to the Trustee for cancellation any Debentures which the Corporation has purchased as provided for in this Indenture, and all such Debentures so delivered shall be cancelled by the Trustee.

(c) All Debentures which have been cancelled by the Trustee shall be destroyed by the Trustee in accordance with its standard practices, and the Trustee shall furnish to the Corporation a destruction certificate setting forth the numbers and denominations of the Debentures so destroyed.

2.22 <u>**Mutilated, Lost, Stolen or Destroyed Debentures**</u>

(a) If any Debenture has been mutilated or defaced or has or has been alleged to have been lost, stolen or destroyed, then, on application by the applicable Holder to the Trustee, the Corporation may, in its discretion, execute, and upon such execution the Trustee shall certify and deliver, a new Debenture of the same date and amount as the defaced, mutilated, lost, stolen or destroyed Debenture in exchange for and in place of the defaced or mutilated Debenture, and in lieu of and in substitution for the lost, stolen or destroyed Debenture. Notwithstanding the foregoing, no Debenture shall be delivered as a replacement for any Debenture which has been mutilated or defaced otherwise than upon surrender of the mutilated or defaced Debenture, and no Debenture shall be delivered as a replacement for any Debenture which has been lost, stolen or destroyed unless the applicant for the replacement Debenture has furnished to the Corporation and the Trustee evidence, satisfactory in form and substance to the Corporation and the Trustee, of its ownership of, and of such loss, theft or destruction of, such Debenture and has provided such a surety bond and indemnity to the Corporation and the Trustee in amount, form and substance satisfactory to each of them. Any instructions by the Corporation to the Trustee under this section shall include such indemnity for the protection of the Trustee as the Trustee may reasonably require.

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(b) If any mutilated, defaced, lost, stolen or destroyed Debenture has become or is about to become due and payable, the Corporation, in its discretion, may, instead of executing a replacement Debenture, pay to the Holder thereof the full amount outstanding on such mutilated, defaced, lost, stolen or destroyed Debenture.

(c) Upon the issuance of a replacement Debenture, the Corporation may require the applicant for such replacement Debenture to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in relation to such issuance and any other expenses (including the fees and expenses of the Trustee and the Corporation) connected with such issuance.

(d) Each replacement Debenture shall bear a unique legend, if applicable, and be in a form otherwise identical to the Debenture it replaces and shall be entitled to the benefits of this Indenture to the same extent and in the same manner as the Debenture it replaces.

(e) Unless the Corporation instructs otherwise, the Trustee shall, in accordance with its practice, destroy each mutilated or defaced Debenture surrendered to and cancelled by it and in respect of which a replacement Debenture has been delivered or moneys have been paid and shall, as soon as reasonably practicable, furnish to the Corporation, upon its receipt of a written request, a certificate as to such destruction.

2.23 <u>**Access to Lists of Holders**</u>

(a) The register of Debentureholders maintained by the Trustee will, at all reasonable times during the regular business hours of the Trustee, be open for inspection by the Corporation.

(b) If any one or more Holders as may be permitted by Applicable Law (in each case, the **"Applicants"**) apply to the Trustee (with a copy to the Corporation), then the Trustee, after having been funded and indemnified to its reasonable satisfaction by such Applicants for its related costs and expenses, shall afford or shall cause the Corporation to afford the Applicants, access during normal business hours to the most recent list of Debentureholders within 10 Business Days after the receipt of such application by the Trustee. Such list shall be as of a date no more than 10 days (or such other date as may be mandated by Applicable Law) prior to the date of receipt of the Applicants' request.

2.24 <u>**Canadian Legend on the Debentures and Common Shares**</u>

The certificates or other instruments representing the Debentures, and the stock certificates representing any Common Shares issued upon conversion of such Debentures, (if issued prior to the expiration of the applicable hold periods), if any, will bear the following legend in accordance with Applicable Securities Legislation:

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**"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE DISTRIBUTION DATE]."**

provided that if, at any time, in the opinion of Counsel to the Corporation, such legend is no longer necessary or advisable under Applicable Securities Laws, or the Holder of any such legended certificate, at the Holder's expense, provides the Corporation with evidence satisfactory in form and substance to the Corporation (which may include an opinion of counsel satisfactory to the Corporation) to the effect that such legend is not required, such legended certificate may thereafter be surrendered to the Corporation in exchange for a certificate which does not bear such legend.

**ARTICLE 3**<br><u>**REDEMPTION AND PURCHASE OF DEBENTURES**</u>

3.1 <u>**Corporation Redemption Right**</u>

In the circumstances described in, and subject to the additional procedures set out in Section 2.2(e), and subject to compliance with Applicable Law, the Corporation shall have the right to redeem, either in whole or in part at any time and from time to time from the Release Date and prior to the Maturity Date, any Debentures issued hereunder, either by payment of cash, by issuance of Common Shares as provided for in Section 3.6, or any combination thereof. In addition to the procedures set out in the section referred to above, the following procedures will apply.

3.2 <u>**Partial Redemption**</u>

If less than all the Debentures for the time being outstanding are at any time to be redeemed, or if a portion of the Debentures being redeemed are being redeemed for cash and a portion of such Debentures are being redeemed by the issuance of Common Shares by the Corporation pursuant to Section 3.6, the Corporation shall, at least 15 days before the date upon which the Redemption Notice is to be given, notify the Trustee in writing of its intention to redeem such Debentures and of the aggregate principal amount of Debentures to be redeemed. The Debentures to be so redeemed shall be selected by the Trustee (i) on a *pro rata* basis to the nearest multiple of $1,000 in accordance with the principal amount of the Debentures registered in the name of each Holder, or (ii) to the extent such *pro rata* allocation is not possible, *by* lot in such manner as the Trustee deems equitable, subject to any required approval of the exchange or market on which the Debentures or Common Shares are then listed, as may be required from time to time. No Debenture shall be redeemed in part unless the principal amount redeemed is $1,000 or a multiple thereof. For this purpose, the Trustee may make, and from time to time vary, regulations with respect to the manner in which such Debentures may be drawn for redemption and regulations so made shall be valid and binding upon all Holders of such Debentures notwithstanding the fact that as a result thereof one or more of such Debentures may become subject to redemption in part only. In the event that one or more of such Debentures becomes subject to redemption in part only, upon surrender of any such Debentures for payment of the Redemption Price or the issuance of Common Shares in respect of such redemption, as applicable, the Corporation shall execute and the Trustee shall certify and deliver without charge to the Holder thereof or upon the Holder's order one or more new Debentures for the unredeemed part of the principal amount of the Debenture or Debentures so surrendered. Unless the context otherwise requires, the terms "Debenture" or "Debentures" as used in this Article 3 shall be deemed to mean or include any part of the principal amount of any Debenture which in accordance with the foregoing provisions has become subject to redemption.

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3.3 <u>**Notice of Redemption**</u>

Written notice of redemption (the "**Redemption Notice**") of Debentures shall be given to the Trustee in the form of Redemption Notice set out in Schedule "A" (or any other written notice in a form satisfactory to the Trustee) and the Holders of the Debentures to be redeemed at least 30 days and not more than 60 days prior to the date fixed for redemption (the "**Redemption Date**") in the manner provided in Section 12.2. Every such Redemption Notice shall specify the aggregate principal amount of Debentures called for redemption, the Redemption Date, the Redemption Price, the right of the Holders to receive the principal amount of the Redemption Price in Common Shares in accordance with Section 3.6 and the places of payment and shall state that interest upon the principal amount of Debentures called for redemption shall cease to accrue and be payable from and after the Redemption Date. In addition, unless all the outstanding Debentures are to be redeemed, and subject to Section 3.2, the Redemption Notice shall specify:

(a) the distinguishing letters and numbers of the Debentures which are to be redeemed (or of such thereof as are registered in the name of such Debentureholder); and

(b) in all cases, the principal amounts of such Debentures or, if any such Debenture is to be redeemed in part only, the principal amount of such part.

3.4 <u>**Debentures Due on Redemption Dates**</u>

Upon notice having been given as aforesaid, all the Debentures so called for redemption shall thereupon be and become due and payable at the Redemption Price (plus accrued and unpaid interest thereon), on the Redemption Date specified in such notice, in the same manner and with the same effect as if it were the Maturity Date of such Debentures, anything therein or herein to the contrary notwithstanding, and from and after such Redemption Date, if the monies necessary to redeem such Debentures shall have been deposited as provided in Section 3.5 and affidavits or other proof satisfactory to the Trustee as to the mailing of such notices shall have been lodged with it, interest upon the Debentures shall cease. If any question shall arise as to whether any notice has been given as above provided and such deposit made, such question shall be decided by the Trustee whose decision shall be final and binding upon all parties in interest.

3.5 <u>**Deposit of Redemption Monies or Common Shares**</u>

Redemption of Debentures shall be provided for by the Corporation depositing via wire transfer with the Trustee or any paying agent to the order of the Trustee, on or before 9:00 a.m. (Vancouver time) on the Business Day immediately prior to the Redemption Date specified in such notice, such sums of money, or such Common Shares, or both as the case may be, as may be sufficient to pay the Redemption Price of the Debentures so called for redemption (and any accrued and unpaid interest thereon). The Corporation shall also deposit with the Trustee a sum of money sufficient to pay any reasonable charges or expenses which may be incurred by the Trustee in connection with such redemption. Every such deposit shall be irrevocable. From the sums so deposited, or Common Shares so deposited, or both, the Trustee shall pay or cause to be paid to the Holders of such Debentures so called for redemption, upon surrender of such Debentures, the principal, and interest (if any) (less any tax required to be withheld therefrom) to which they are respectively entitled on redemption. The Trustee will remit, as directed by the Corporation, such taxes withheld as and when required to the applicable tax authorities.

3.6 <u>**Right to Receive Principal Amount of Redemption Price in Common Shares**</u>

(a) Subject to the receipt of any required regulatory approvals, and the other provisions of this Section 3.6, each Holder may, at its option, in exchange for or in lieu of receiving the Redemption Price in cash, elect to satisfy the right to receive the Redemption Price in respect of a redemption of Debentures by the Corporation issuing and delivering to such Holder on the Redemption Date that number of Common Shares obtained by dividing the Redemption Price (or applicable portion thereof to be satisfied by the issuance and delivery of Common Shares) by the Conversion Price (the "**Common Share Redemption Right**").

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(b) The Holder shall exercise the Common Share Redemption Right by so specifying in a written notice (the "**Common Share Redemption Notice**"), the form of which is set out in Schedule "A" or any other written notice in a form satisfactory to the Trustee, which shall be delivered to the Trustee and the Corporation not more than 10 days after the delivery of the Redemption Notice to such Holder, and which shall also specify the aggregate principal amount of Debentures in respect of which the Holder is exercising the Common Share Redemption Right in such notice.

(c) In the event that the Holder duly exercises its Common Share Redemption Right, subject to the receipt by the Corporation of any required regulatory approval and the approval of Recognized Stock Exchange, upon presentation and surrender of the Debentures for payment on the Redemption Date, at any place where a register is maintained pursuant to Section 2.11 or any other place specified in the Redemption Notice, the Corporation shall on or before 9:00 a.m. (Vancouver time) on the Business Day immediately prior to the Redemption Date instruct the Transfer Agent to make the delivery to the Trustee for delivery to and on account of the Holders, of certificates representing the Common Shares to which such holders are entitled.

(d) No fractional Common Shares shall be delivered upon the exercise of the Common Share Redemption Right but, in lieu thereof, the Corporation shall pay to the Trustee for the account of the Holders, at the time contemplated in Section 3.6(c), the cash equivalent thereof determined on the basis of the Conversion Price (less any tax required to be deducted, if any); provided, however the Corporation shall not be required to make any payment of less than $20.00.

(e) A Holder shall be treated as the shareholder of record of the Common Shares issued on due exercise by the Holder of its Common Share Redemption Right effective immediately after the close of business on the Redemption Date, and shall be entitled to all substitutions therefor, all income earned thereon or accretions thereto and all dividends or distributions (including distributions and dividends in kind) thereon and arising thereafter, and in the event that the Trustee receives the same, it shall hold the same in trust for the benefit of such holder.

(f) The Corporation shall at all times reserve and keep available out of its authorized Common Shares (if the number thereof is or becomes limited), solely for the purpose of issue and delivery upon the exercise of the Holders' Common Share Redemption Right as provided herein, and shall issue to Debentureholders to whom Common Shares will be issued pursuant to exercise of the Common Share Redemption Right, such number of Common Shares as shall be issuable in such event. All Common Shares which shall be so issuable shall be duly and validly issued as fully paid and non-assessable.

(g) The Corporation shall comply with all Applicable Securities Law regulating the issue and delivery of Common Shares upon exercise of the Common Share Redemption Right by a Holder.

(h) The Corporation shall from time to time promptly pay, or make provision satisfactory to the Trustee for the payment of, all taxes and charges which may be imposed by the laws of Canada or any province thereof (except income tax, withholding tax or security transfer tax, if any) which shall be payable with respect to the issuance or delivery of Common Shares to Holders upon exercise of the Common Share Redemption Right pursuant to the terms of the Debentures and of this Indenture.

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(i) If the Holder elects to receive all or any portion of the Redemption Price by way of the receipt of Common Shares in accordance with this Section 3.6 and if the Redemption Price (or any portion thereof) to which a Holder is entitled is subject to withholding taxes and the amount of the cash payment of the Redemption Price, if any, is insufficient to satisfy such withholding taxes, the Trustee, on the written direction of the Corporation but for the account of the Holder, shall facilitate the delivery of the number of Common Shares indicated in the written direction of the Corporation required to be sold to the investment banks, brokers or dealers selected by the Corporation, out of the Common Shares issued by the Corporation for this purpose, such number of Common Shares that together with the cash payment of the Redemption Price, if any, is sufficient to yield net proceeds (after payment of all costs) to cover the amount of taxes required to be withheld, and shall remit same on behalf of, and as directed by, the Corporation to the proper tax authorities within the period of time prescribed for this purpose under Applicable Laws.

3.7 <u>**Failure to Surrender Debentures Called for Redemption**</u>

In case the Holder of any Debenture so called for redemption shall fail on or before the Redemption Date to so surrender such Holder's Debenture, or shall not within such time accept payment of the redemption monies payable, or take delivery of Common Shares issuable in respect thereof, or give such receipt therefor, if any, as the Trustee may require, such redemption monies may be set aside in trust, or such Common Shares may be held in trust without interest, either in the deposit department of the Trustee or in a chartered bank, and such setting aside shall for all purposes be deemed a payment to the Debentureholder of the sum or Common Shares so set aside and, to that extent, the Debenture shall thereafter not be considered as outstanding hereunder and the Debentureholder shall have no other right except to receive payment out of the monies so paid and deposited, or take delivery of the Common Shares so deposited, or both, upon surrender and delivery of such holder's Debenture of the Redemption Price, as the case may be, of such Debenture. Subject to applicable legislation, in the event that any money, or Common Shares, required to be deposited hereunder with the Trustee or any depository or paying agent on account of principal, premium, if any, or interest, if any, on Debentures issued hereunder shall remain so deposited for a period of six (6) years from the Redemption Date, then such monies or Common Shares, together with any accumulated interest thereon or any distribution paid thereon, shall at the end of such period be paid over or delivered over by the Trustee or such depository or paying agent to the Corporation on its demand and, upon receipt thereof, the Trustee shall not be responsible to Debentureholders for any amounts owing to them and subject to applicable law, thereafter the holder of a Debenture in respect of which such money was so repaid to the Corporation shall have no rights in respect thereof except to obtain payment of the money or Common Shares due from the Corporation, subject to any limitation period provided by the laws of British Columbia.

3.8 <u>**Purchase of Debentures**</u>

Provided that no Event of Default has occurred and is continuing, the Corporation may at any time and from time to time purchase all or any of the Debentures in the market (which shall include purchase from or through an investment dealer or a firm holding membership on a Recognized Stock Exchange) or by tender or by private contract, at any price, subject to compliance with Applicable Securities Laws and the provisions of this Indenture. Debentures so purchased by the Corporation shall be submitted to the Trustee for cancellation in accordance with Section 2.21. If an Event of Default has occurred and is continuing, the Corporation will not have the right to purchase any Debentures except as permitted by this Indenture.

If, upon an invitation for tenders, more Debentures than the Corporation is prepared to accept are tendered at the same lowest price, the Debentures to be purchased by the Corporation will be selected by the Trustee on a *pro rata* basis and in consultation with the Corporation and in accordance with Applicable Securities Laws, from the Debentures tendered by each tendering Debentureholder who tendered at such lowest price. For this purpose, the Trustee may make, and may from time to time amend, regulations with respect to the manner in which Debentures may be so selected, and regulations so made shall be valid and binding upon all Debentureholders, notwithstanding the fact that as a result thereof one or more such Debentures becomes subject to purchase in part only. The Holder of any Debenture of which a part only is purchased upon surrender of such Debenture for payment, shall be entitled to receive, without expense to such Holder, a replacement Debenture for and evidencing the same obligation as the unpurchased part so surrendered, and the Trustee shall certify and deliver such replacement Debenture upon receipt of the Debenture so surrendered.

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3.9 <u>**Debentures Purchased in Part**</u>

Any Debenture that is to be purchased only in part pursuant to this Article 3 shall be surrendered at the office of the Trustee, and promptly after the date of such purchase, the Corporation shall execute and the Trustee shall authenticate and deliver to the Holder of such Debenture, without service charge, a new Debenture or Debentures, of such authorized denomination or denominations as may be requested by such Holder, in aggregate principal amount equal to, and in exchange for, the portion of the principal amount of the Debenture so surrendered that is not purchased.

3.10 <u>**Compliance with Applicable Securities Law upon Purchase of Debentures**</u>

In connection with any offer to purchase Debentures under this Article 3, the Corporation shall comply with all Applicable Securities Laws in connection with such offer to purchase or purchase of Debentures, all so as to permit the rights of the Holders and obligations of the Corporation under this Article 3 to be exercised in the time and in the manner specified therein. To the extent that compliance with any Applicable Securities Laws would result in a conflict with any of the terms thereof, this Indenture is hereby modified to the extent required for the Corporation to comply with such Applicable Securities Laws.

3.11 <u>**Repayment to the Corporation**</u>

To the extent that the aggregate amount of cash deposited by the Corporation pursuant to the provisions of this Article 3 exceeds the aggregate purchase amount or portions thereof that the Corporation is obligated to purchase, then the Trustee shall return any such excess cash to the Corporation as soon as practicable following the completion of the applicable requirements hereunder.

3.12 <u>**Cancellation of Purchased Debentures**</u>

All Debentures purchased in whole or in part pursuant to this Article 3 shall be forthwith delivered to and cancelled by the Trustee and may not be reissued or resold and no Debentures shall be issued in substitution therefor.

**ARTICLE 4**<br><u>**CONVERSION OF DEBENTURES**</u>

4.1 <u>**Right to Convert**</u>

(a) Upon and subject to the provisions and conditions of this Article 4 and other provisions hereof, the Holder of each Debenture shall have the right at such Holder's option at any time prior to the close of business on the Time of Expiry, to convert any part, being $1,000 or an integral multiple thereof, of the principal amount of a Debenture into Common Shares at the Conversion Price in effect on the Date of Conversion.

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(b) Except as provided below, no adjustment in the number of Common Shares to be issued upon conversion will be made for dividends or distributions on Common Shares issuable upon conversion, the record date for the payment of which precedes the date upon which the Holder becomes a Holder of Common Shares in accordance with Article 4. No fractional Common Shares will be issued, any fraction of a Common Share that would otherwise be issued will be rounded down to the nearest whole number. The Conversion Price applicable to, and the Common Shares, securities or other property receivable on the conversion of, the Debentures is subject to adjustment pursuant to the provisions of Section 4.5.

(c) Holders converting Debentures will receive, in addition to the applicable number of Common Shares, accrued and unpaid interest in respect of the Debentures surrendered for conversion up to but excluding the Date of Conversion from, and including, the most recent Interest Payment Date in accordance with Section 4.4(e).

(d) Notwithstanding any other provisions of this Indenture, if a Debenture is surrendered for conversion on an Interest Payment Date or during the five preceding Business Days, the Person or persons entitled to receive Common Shares in respect of the Debenture so surrendered for conversion shall not become the Holder or holders of record of such Common Shares until the Business Day following such Interest Payment Date.

4.2 <u>**Notice of Expiry of Conversion Privilege**</u>

Notice of the expiry of the conversion privileges of the Debentures shall be given by or on behalf of the Corporation, not more than 60 days and not less than 30 days prior to the date fixed for the Time of Expiry, in the manner provided in Section 12.2.

4.3 <u>**Revival of Right to Convert**</u>

If the payment of the purchase price of any Debenture which has been tendered in acceptance of an offer by the Corporation to purchase Debentures for cancellation is not made on the date on which such purchase is required to be made then, provided the Time of Expiry has not passed, the right to convert such Debentures shall revive and continue as if such Debenture had not been tendered in acceptance of the Corporation's offer.

4.4 <u>**Manner of Exercise of Right to Convert**</u>

(a) The Holder of a Debenture desiring to convert such Debenture in whole or in part into Common Shares shall surrender such Debenture to the Trustee at its principal office in the City of Calgary, Alberta, together with the conversion notice set out in Schedule "A" or any other written notice in a form satisfactory to the Trustee, in either case duly executed by the Holder or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and executed in a manner satisfactory to the Trustee, exercising his right to convert such Debenture in accordance with the provisions of this Article. Thereupon such Debentureholder or, subject to payment of all applicable stamp or security transfer taxes or other governmental charges and compliance with all reasonable requirements of the Trustee, his nominee(s) or assignee(s) shall be entitled to be entered in the books of the Corporation as at the Date of Conversion (or such later date as is specified in Section 4.1 and Section 4.4(b)) as the Holder of the number of Common Shares into which such Debenture is convertible in accordance with the provisions of this Article and, as soon as practicable thereafter, the Corporation shall electronically deposit the Common Shares as directed by the Debentureholder or deliver to such Debentureholder or, subject as aforesaid, his nominee(s) or assignee(s), a certificate or certificates for such Common Shares and make or cause to be made any payment of interest to which such Holder is entitled in accordance with Section 4.4(e).

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(b) For the purposes of Section 4.1, a Debenture shall be deemed to be surrendered for conversion on the date (the "**Date of Conversion**") on which it is so surrendered when the register of the Trustee is open and in accordance with the provisions of this Article and, in the case of a Debenture so surrendered by post or other means of transmission, on the date on which it is received by the Trustee at its principal office specified in Section 4.4(a); provided that if a Debenture is surrendered for conversion on a day on which the register of Common Shares is closed, the Person or Persons entitled to receive Common Shares shall become the Holder or holders of record of such Common Shares as at the date on which such registers are next reopened.

(c) Any part, being $1,000 or an integral multiple thereof, of a Debenture in a denomination in excess of $1,000 may be converted as provided in this Article and all references in this Indenture to conversion of Debentures shall be deemed to include conversion of such parts.

(d) The Holder of any Debenture of which only a part is converted shall, upon the exercise of his, her or its right of conversion surrender such Debenture to the Trustee in accordance with Section 4.4(a), and the Trustee shall cancel the same and shall without charge forthwith Authenticate and deliver to the Holder a new Debenture or Debentures in an aggregate principal amount equal to the unconverted part of the principal amount of the Debenture so surrendered.

(e) The Holder of a Debenture surrendered for conversion in accordance with this Section 4.4 shall be entitled (subject to any applicable restriction on the right to receive interest on conversion of Debentures of any series) to receive accrued and unpaid interest in respect thereof from the date of the last Interest Payment Date up to but excluding the Date of Conversion (less applicable withholding taxes, if any), and the Common Shares issued upon such conversion shall rank only in respect of distributions or dividends declared in favour of shareholders of record on and after the Date of Conversion or such later date as such Holder shall become the Holder of record of such Common Shares pursuant to Section 4.4(b), from which applicable date they will for all purposes be and be deemed to be issued and outstanding as fully paid and non-assessable Common Shares.

4.5 <u>**Adjustment of Conversion Price**</u>

Subject to the requirements of a Recognized Stock Exchange, the Conversion Price in effect at any date shall be subject to adjustment from time to time as set forth below.

(a) If and whenever at any time prior to the Time of Expiry the Corporation shall: (i) subdivide, redivide or change the outstanding Common Shares into a greater number of shares, (ii) reduce, combine or consolidate the outstanding Common Shares into a smaller number of shares, or (iii) issue Common Shares or securities convertible into Common Shares to the holders of all or substantially all of the outstanding Common Shares by way of a dividend or distribution (other than cash dividends or distributions for which an adjustment would be made under Section 4.5(b)) (a "**Common Share Reorganization**"), the Conversion Price in effect on the date of such subdivision, redivision, reduction, combination or consolidation or on the record date for such issue of Common Shares or securities convertible into Common Shares by way of a dividend or distribution, as the case may be, shall be adjusted effective immediately after the record date at which the holders of Common Shares are determined for the purpose of the Common Share Reorganization by multiplying the Conversion Price in effect immediately prior to such record date by a fraction: (1) the denominator of which shall be the number of Common Shares outstanding immediately after giving effect to such Common Share Reorganization (including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would have been outstanding had such securities been exchanged for or converted into Common Shares on such record date, assuming in any case where such securities are not then convertible or exchangeable but subsequently become so, that they were convertible or exchangeable on the record date on the basis upon which they first become convertible or exchangeable); and (2) the numerator of which shall be the number of Common Shares outstanding on such record date before giving effect to such Common Share Reorganization. Such adjustment shall be made successively whenever any event referred to in this Section 4.5 shall occur. Any such issue of Common Shares or securities convertible into Common Shares by way of a dividend or distribution shall be deemed to have been made on the record date for the dividend or distribution for the purpose of calculating the number of outstanding Common Shares under subsections (c) and (d) of this Section 4.5.

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(b) If and whenever at any time prior to the Time of Expiry the Corporation shall fix a record date for the payment of a cash dividend or distribution to the holders of all or substantially all of the outstanding Common Shares in respect of any applicable period, the Conversion Price shall be adjusted immediately after such record date so that it shall be equal to the price determined by multiplying the Conversion Price in effect on such record date by a fraction, of which the denominator shall be the Current Market Price per Common Share on such record date and of which the numerator shall be the Current Market Price per Common Share on such record date minus the amount in cash per Common Share distributed to holders of Common Shares. Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such cash dividend or distribution is not paid, the Conversion Price shall be re-adjusted to the Conversion Price which would then be in effect if such record date had not been fixed.

(c) If and whenever at any time prior to the Time of Expiry the Corporation shall fix a record date for the issuance of options, rights or warrants to all or substantially all the holders of its outstanding Common Shares entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase Common Shares (or securities convertible into Common Shares) at a price per share (or having a conversion or exchange price per share) less than 95% of the Current Market Price of a Common Share on such record date, the Conversion Price shall be adjusted immediately after such record date so that it shall equal the price determined by multiplying the Conversion Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common Shares outstanding on such record date plus a number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of additional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of the convertible securities so offered) by such Current Market Price per Common Share, and of which the denominator shall be the total number of Common Shares outstanding on such record date plus the total number of additional Common Shares offered for subscription or purchase (or into which the convertible securities so offered are convertible). Such adjustment shall be made successively whenever such a record date is fixed. To the extent that any such options, rights or warrants are not so issued or any such options, rights or warrants are not exercised prior to the expiration thereof, the Conversion Price shall be re-adjusted to the Conversion Price which would then be in effect if such record date had not been fixed or to the Conversion Price which would then be in effect based upon the number of Common Shares (or securities convertible into Common Shares) actually issued upon the exercise of such options, rights or warrants were included in such fraction, as the case may be.

(d) If and whenever at any time prior to the Time of Expiry, there is a reclassification of the Common Shares or a capital reorganization of the Corporation other than as described in Section 4.5(a) or a consolidation, amalgamation, arrangement, binding share exchange, merger of the Corporation with or into any other Person or other entity or acquisition of the Corporation or other combination pursuant to which the Common Shares are converted into or acquired for cash, securities or other property; or a sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to any other Person (other than a direct or indirect wholly-owned subsidiary of the Corporation) or other entity or a liquidation, dissolution or winding-up of the Corporation, any Holder of a Debenture who has not exercised its right of conversion prior to the date of such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, share exchange, acquisition, combination, sale or conveyance or liquidation, dissolution or winding-up, upon the exercise of such right thereafter, shall be entitled to receive and shall accept, in lieu of the number of Common Shares then sought to be acquired by it, such amount of cash or the number of shares or other securities or property of the Corporation or of the Person or other entity resulting from such merger, amalgamation, arrangement, acquisition, combination or consolidation, or to which such sale or conveyance may be made or which holders of Common Shares receive pursuant to such liquidation, dissolution or winding-up, as the case may be, that such Holder of a Debenture would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, share exchange, acquisition, combination, sale or conveyance or liquidation, dissolution or winding-up, if, on the record date or the date of this Indenture, as the case may be, the Holder had been the registered Holder of the number of Common Shares sought to be acquired by it and to which it was entitled to acquire upon the exercise of the conversion right. If determined appropriate by the Board of Directors, to give effect to or to evidence the provisions of this Section 4.5(d), the Corporation, its successor, or such purchasing Person or other entity, as the case may be, shall, prior to or contemporaneously with any such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, share exchange, acquisition, combination, sale or conveyance or liquidation, dissolution or winding-up, enter into an indenture which shall provide, to the extent possible, for the application of the provisions set forth in this Indenture with respect to the rights and interests thereafter of the Holder of Debentures to the end that the provisions set forth in this Indenture shall thereafter correspondingly be made applicable, as nearly as may reasonably be, with respect to any cash, shares or other securities or property to which a Holder of Debentures is entitled on the exercise of its acquisition rights thereafter. Any indenture entered into between the Corporation and the Trustee pursuant to the provisions of this Section 4.5(d) shall be a supplemental indenture entered into pursuant to the provisions of Section 13.4. Any indenture entered into between the Corporation, any successor to the Corporation or such purchasing Person or other entity and the Trustee shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section 4.5(d) and which shall apply to successive reclassifications, capital reorganizations, amalgamations, consolidations, mergers, share exchanges, acquisitions, combinations, sales or conveyances.

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(e) If the Corporation shall make a distribution to all holders of shares in the capital of the Corporation, other than Common Shares, or evidences of indebtedness or other assets of the Corporation, including securities (but excluding (x) any issuance of rights or warrants for which an adjustment was made pursuant to Section 4.5(c), and (y) any dividend or distribution paid exclusively in cash for which an adjustment was made pursuant to Section 4.5(b) (the "**Distributed Securities**"), then in each such case (unless the Corporation distributes such Distributed Securities to the holders of Debentures on such dividend or distribution date (as if each Holder had converted such Debenture into Common Shares immediately preceding the record date with respect to such distribution)) the Conversion Price in effect immediately preceding the ex-distribution date fixed for the dividend or distribution shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately preceding such ex-distribution date by a fraction of which the denominator shall be the VWAP for the Common Shares for the five consecutive trading days immediately prior to the ex-distribution date and of which the numerator shall be the VWAP for the Common Shares for the first five consecutive trading days that occur immediately following ex-distribution date. Such adjustment shall be made successively whenever any such distribution is made and shall become effective five Business Days immediately following the ex-distribution date. In the event that such dividend or distribution is not so paid or made, the Conversion Price shall again be adjusted to be the Conversion Price that would then be in effect if such dividend or distribution had not been declared.

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Notwithstanding the foregoing, if the securities distributed by the Corporation to all holders of its Common Shares consist of capital stock of, or similar equity interests in, a Subsidiary or other business of the Corporation (the "**Spinoff Securities**"), the Conversion Price shall be adjusted, unless the Corporation makes an equivalent distribution to the holders of Debentures, so that the same shall be equal to the rate determined by multiplying the Conversion Price in effect on the record date fixed for the determination of shareholders entitled to receive such distribution by a fraction, the denominator of which shall be the sum of: (A) the VWAP for the Common Shares for the 20 consecutive trading day period (the "**Spinoff Valuation Period**") commencing on and including the fifth trading day after the date on which ex-dividend trading commences for such distribution on a Recognized Stock Exchange or market on which the Common Shares are then listed or quoted and (B) the product of: (i) the weighted average trading price (calculated in substantially the same way as the Current Market Price is calculated for the Common Shares) over the Spinoff Valuation Period of the Spinoff Securities or, if no such prices are available, the Fair Market Value of the Spinoff Securities (which determination shall be conclusive and shall be evidenced by an Officer's Certificate delivered to the Trustee) multiplied by (ii) the number of Spinoff Securities distributed in respect of one Common Share and the numerator of which shall be the VWAP for the Common Shares for the Spinoff Valuation Period, such adjustment to become effective immediately preceding the opening of business on the 25th trading day after the date on which ex-dividend trading commences; provided, however, that the Corporation may in lieu of the foregoing adjustment elect to make adequate provision so that each Holder of Debentures shall have the right to receive upon conversion thereof the amount of such Spinoff Securities that such Holder of Debentures would have received if such Debentures had been converted on the record date with respect to such distribution.

(f) In any case in which this Section 4.5 shall require that an adjustment shall become effective immediately after a record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing to the Holder of any Debenture converted after such record date and before the occurrence of such event the additional Common Shares issuable upon such conversion by reason of the adjustment required by such event before giving effect to such adjustment; provided, however, that the Corporation shall deliver to such Holder an appropriate instrument evidencing such Holder's right to receive such additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive any distributions made on such additional Common Shares declared in favour of holders of record of Common Shares on and after the Date of Conversion or such later date as such Holder would, but for the provisions of this Section 4.5(f), have become the Holder of record of such additional Common Shares pursuant to Section 4.4(b).

(g) The adjustments provided for in this Section 4.5 are cumulative and shall apply to successive subdivisions, redivisions, reductions, combinations, consolidations, distributions, issues or other events resulting in any adjustment under the provisions of this Section, provided that, notwithstanding any other provision of this Section, no adjustment of the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% in the Conversion Price then in effect; provided however, that any adjustments which by reason of this Section 4.5(g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.

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(h) For the purpose of calculating the number of Common Shares outstanding, Common Shares owned by or for the benefit of the Corporation shall not be counted.

(i) In the event of any question arising with respect to the adjustments provided in this Section 4.5, such question shall be conclusively determined by a firm of nationally recognized chartered accountants appointed by the Corporation and acceptable to the Trustee (who may be the auditors of the Corporation); such accountants shall have access to all necessary records of the Corporation and such determination shall be binding upon the Corporation, the Trustee, and the Debentureholders.

(j) In case the Corporation shall take any action affecting the Common Shares other than action described in this Section 4.5, which in the opinion of the Board of Directors, adjusted in such manner and at such time, by action of the Board of Directors, subject to the requirements of a Recognized Stock Exchange on which the Common Shares are listed, as the Board of Directors, in their sole discretion acting reasonably and in good faith may determine to be equitable in the circumstances. Failure of the directors to make such an adjustment shall be conclusive evidence that they have determined that it is equitable to make no adjustment in the circumstances.

(k) Subject to the requirements of a Recognized Stock Exchange on which the Common Shares are listed, no adjustment in the Conversion Price shall be made in respect of any event described in Section 4.5(a), Section 4.5(b), Section 4.5(c) or Section 4.5(e) other than the events described in Section 4.5(a)(i) or Section 4.5(a)(ii) if the holders of the Debentures are entitled to participate in such event on the same terms mutatis mutandis as if they had converted their Debentures prior to the date of this Indenture or record date, as the case may be, of such event.

(l) Except as stated above in this Section 4.5, no adjustment will be made in the Conversion Price for any Debentures as a result of the issuance of Common Shares at less than the Current Market Price for such Common Shares on the date of issuance or the then applicable Conversion Price.

4.6 <u>**No Requirement to Issue Fractional Common Shares**</u>

The Corporation shall not be required to issue fractional Common Shares upon the conversion of Debentures pursuant to this Article. If more than one Debenture shall be surrendered for conversion at one time by the same Holder, the number of whole Common Shares issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of such Debentures to be converted. If any fractional interest in a Common Share would, except for the provisions of this Section, be deliverable upon the conversion of any principal amount of Debentures, any fraction of a Common Share that would otherwise be issued will be rounded down to the nearest whole number. For clarity, the Corporation will not be required to make any cash payment to any Debentureholder in respect of the conversion of Debentures in respect of any fractional Common Shares unless such amount is greater than $20.

4.7 <u>**Corporation to Reserve Common Shares**</u>

The Corporation covenants with the Trustee that it will at all times reserve and keep available out of its authorized Common Shares (if the number thereof is or becomes limited), solely for the purpose of issue upon conversion of Debentures as in this Article provided, and conditionally allot to Debentureholders who may exercise their conversion rights hereunder, such number of Common Shares as shall then be issuable upon the conversion of all Outstanding Debentures. The Corporation covenants with the Trustee that all Common Shares which shall be so issuable shall be duly and validly issued as fully-paid and non- assessable.

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4.8 <u>**Cancellation of Converted Debentures**</u>

Subject to the provisions of Section 4.4 as to Debentures converted in part, all Debentures converted in whole or in part under the provisions of this Article shall be forthwith delivered to and cancelled by the Trustee and no Debenture shall be issued in substitution for those converted.

4.9 <u>**Certificate as to Adjustment**</u>

The Corporation, pursuant to a Board Resolution, shall from time to time immediately after the occurrence of any event which requires an adjustment or readjustment as provided in Section 4.5, deliver an Officer's Certificate to the Trustee specifying the nature of the event requiring the same and the amount of the adjustment necessitated thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, which certificate and the amount of the adjustment specified therein shall, in the event that Debentureholders holding an aggregate of 25% of the principal amount of the Debentures then outstanding notify the Trustee that they do not agree with such determination within 14 days of such determination being communicated to all the Holders, such Officer's Certificate and the amount of the adjustment specified therein shall be verified by an opinion of a firm of nationally recognized chartered accountants appointed by the Corporation and acceptable to the Trustee (who may be the auditors of the Corporation) and shall be conclusive and binding on all parties in interest. When so approved, the Corporation shall, except in respect of any subdivision, redivision, reduction, combination or consolidation of the Common Shares, forthwith give notice to the Debentureholders in the manner provided in Section 4.3 specifying the event requiring such adjustment or readjustment and the results thereof, including the resulting Conversion Price.

4.10 <u>**Notice of Special Matters**</u>

The Corporation covenants with the Trustee that so long as any Debenture remains outstanding, it will give notice to the Trustee, and to the Debentureholders in the manner provided in Section 12.2, of its intention to fix a record date for any event referred to in Section 4.5(a), Section 4.5(b), Section 4.5(c) or Section 4.5(e) (other than the subdivision, redivision, reduction, combination or consolidation of its Common Shares) which may give rise to an adjustment in the Conversion Price, and, in each case, such notice shall specify the particulars of such event and the record date and the date of this Indenture for such event; provided that the Corporation shall only be required to specify in such notice such particulars of such event as shall have been fixed and determined on the date on which such notice is given. Such notice shall be given not less than 7 days in each case prior to such applicable record date.

In addition, the Corporation covenants with the Trustee that so long as any Debenture remains outstanding, it will give notice to the Trustee, and to the Debentureholders in the manner provided in Section 12.2, at least 30 days prior to the date of any transaction referred to in Section 4.5(d) stating the consideration into which the Debentures will be convertible after the date of this Indenture of such transaction.

4.11 <u>**Protection of Trustee**</u>

Subject to Section 9.1, the Trustee:

(a) shall not at any time be under any duty or responsibility to any Debentureholder to determine whether any facts exist which may require any adjustment in the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making the same;

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(b) shall have no duty to determine when an adjustment under this Article 4 should be made, how it should be made or what such adjustment should be, but may accept as conclusive evidence of the fact or the correctness of any such adjustment, and shall be protected in acting and relying upon, an Officers' Certificate with respect thereto;

(c) shall not be accountable with respect to the validity or value (or the kind or amount) of any Common Shares or of any shares or other securities or property which may at any time be issued or delivered upon the conversion of any Debenture; and

(d) shall not be responsible for any failure of the Corporation to make any cash payment or to issue, transfer or deliver Common Shares or share certificates upon the surrender of any Debenture for the purpose of conversion, or to comply with any of the covenants contained in this Article.

4.12 <u>**Canadian Private Placement Legend on Common Shares**</u>

Each certificate representing Common Shares issued upon conversion of Debentures (or in lieu of cash as interest thereon), shall have imprinted or otherwise reproduced thereon such legend or legends substantially in the following form, unless not required by Applicable Securities Laws in order to permit the Holder to freely trade such Common Shares:

**"UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE DISTRIBUTION DATE]."**

provided that if, at any time, in the opinion of Counsel to the Corporation, such legend is no longer necessary or advisable under Applicable Securities Laws, or the Holder of any such legended certificate, at the Holder's expense, provides the Corporation with evidence satisfactory in form and substance to the Corporation (which may include an opinion of counsel satisfactory to the Corporation) to the effect that such legend is not required, such legended certificate may thereafter be surrendered to the Corporation in exchange for a certificate which does not bear such legend.

**ARTICLE 5**<br><u>**SECURITY FOR INDENTURES**</u>

5.1 <u>**Grant of Pledged Shares**</u>

(a) The Corporation shall execute and deliver the Pledge Agreement for the due, prompt and complete payment, performance and satisfaction by the Corporation of all of its indebtedness, liabilities and obligations (whether present or future, direct or indirect, absolute or contingent, matured or unmatured, at any time due or accruing due, including any ultimate unpaid balance thereof, in any currency, and whether incurred prior to, at the time of or subsequent to the execution of this Indenture) to the Trustee and the Holders of Debentures under and in respect of the Indenture and the Debentures.

(b) The Corporation shall ensure that the Trustee will receive the certificates representing the Pledged Shares, duly endorsed in blank for transfer or attached to duly executed stock transfers and powers of attorney in order to ensure that the Trustee has control (as defined in the *Securities Transfer Act* (British Columbia) or similar legislation in any other jurisdiction) in respect of such Pledged Shares.

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(c) The Pledge Agreement shall be effective as of the date of this Indenture regardless of the date that the Debentures are issued or the date on which any money is advanced to the Corporation pursuant to this Indenture and the terms of the Debentures.

5.2 <u>**Priority of Security**</u>

5.3 <u>**After Acquired Property Further Assurances**</u>

The Corporation shall forthwith, and from time to time, take such action and execute and deliver to the

Trustee, on behalf of the Holders of Debentures such agreements, conveyances, deeds and other documents and instruments which are necessary or advisable as a result of any change in Applicable Law after the date hereof or as may be necessary to ensure that any additional interests in the Pledged Shares acquired after the date hereof to be subject to a security interest pursuant to the terms hereof or the Pledge Agreement are subject to the security interests created hereby, in each case by giving the Trustee a valid Lien upon any of such Pledged Shares to secure the payment of all principal, interest and other amounts outstanding under the Indenture and the Debentures and the performance of all obligations of the Corporation to each of the holders of Debentures and the Trustee from time to time, under and in respect of the Indenture and the Debentures.

5.4 <u>**Order of Payment**</u>

Nothing contained in this Article 5 or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Corporation, its creditors, and the Holders of the Debentures, the obligation of the Corporation, which is absolute and unconditional, to pay to the Holders of the Debentures the principal of and interest on the Debentures, as and when the same shall become due and payable in accordance with their terms, or affect the relative rights of the holders of the Debentures and creditors of the Corporation, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by Applicable Law upon default under this Indenture.

5.5 <u>**No Restriction on Additional Indebtedness**</u>

Nothing in this Indenture shall restrict the Corporation from incurring additional indebtedness for borrowed money or other obligations or liabilities or mortgaging, pledging or charging its properties to secure any indebtedness or liabilities.

5.6 <u>**Restrictions on Pledged Shares**</u>

The Corporation covenants and agrees with the Trustee for the benefit of the Trustee and the Holders of the then Outstanding Debentures that at all times while the Pledge Agreement remains in effect, the Corporation shall not sell, exchange, transfer, assign or otherwise dispose of the Pledged Shares or the shares or assets held by 320204 Nevada Holdings Corp., directly or indirectly, except: (i) in the ordinary course of the Corporation's business; (ii) to an arm's length transferee; or (iii) to a bona fide purchaser for value.

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**ARTICLE 6**<br><u>**COVENANTS AND REPRESENTATIONS**</u>

As long as any Debentures remain outstanding, the Corporation hereby covenants and agrees with the Trustee for the benefit of the Trustee and the Holders of the then Outstanding Debentures, as follows (unless and for so long as the Corporation and/or one or more of its Subsidiaries are the only Holders (or Beneficial Holders) of the Outstanding Debentures, in which case the following provisions of this Article 6 shall not apply):

6.1 <u>**Payment of Principal, Premium and Interest**</u>

The Corporation shall duly and punctually pay the principal of and interest on the Debentures in accordance with their terms and this Indenture.

6.2 <u>**Existence; Books of Account**</u>

The Corporation shall do or cause to be done all things reasonably necessary to preserve and keep in full force and effect the corporate, partnership or other legal existence, as applicable, and the corporate, partnership or other legal power and capacity, as applicable, of the Corporation to own its properties and assets. The Corporation will keep or cause to be kept proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Corporation in accordance with GAAP.

6.3 <u>**Notice of Default**</u>

The Corporation shall promptly notify the Trustee upon becoming aware of the occurrence of any Default or Event of Default.

6.4 <u>**Compliance Certificate**</u>

The Corporation shall deliver to the Trustee within 120 days after the end of each Fiscal Year (and at any other reasonable time upon demand by the Trustee) beginning with the Fiscal Year ending January 31, 2025 an Officer's Certificate stating that the Corporation has compiled with all requirements of the Corporation contained in the Indenture Documents and stating whether or not a Default or an Event of Default has occurred. If a Default or an Event of Default shall have occurred, the certificate shall describe the nature and particulars of the Default of Event of Default and its current status and steps taken or proposed to be taken to eliminate such circumstances and remedy such Event of Default, as the case may be.

6.5 <u>**Compliance with Applicable Laws**</u>

The Corporation represents and warrants:

(a) that it currently operates, and will continue to operate, in compliance with all applicable securities guidance, laws and regulations, all applicable anti-money laundering laws and all applicable government marijuana-related laws and regulations within Canada and the United States (save and except for applicable U.S. marijuana-related federal laws and laws implicated by the violation of U.S. marijuana-related federal laws);

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(b) that U.S. businesses that the Corporation invests in operate in compliance with applicable marijuana-related licensing requirements and the regulatory framework enacted by the applicable U.S. State; and

(c) that to the best of its knowledge, that U.S. customers or suppliers with which the Corporation transacts in cannabis products are licensed pursuant to applicable State law.

6.6 <u>**Conduct of Business**</u>

The Corporation shall do or cause to be done all things reasonably required to carry on its business in a commercially reasonable manner in accordance with normal industry standards and Applicable Law, except for U.S. Marijuana Laws (and laws implicated by the violation of U.S. marijuana-related federal laws). The Corporation will notify the Trustee in the event of any material change in their marijuana- related business activity including, but not limited to, a notice of merger, acquisition, intent to enter the recreational marijuana business in Canada, an intent to operate in the United States in a state where medical or recreational marijuana is not legal at the state level. The Corporation will notify the Trustee in the event it receives notice of any regulatory, governmental or criminal citation, notice of violation, investigation or proceeding that may have an impact on the Corporation's license, business activities or operations..

6.7 <u>**No Distribution on Shares if Event of Default**</u>

The Corporation shall not declare or pay any distribution to the holders of its issued and outstanding shares after the occurrence of an Event of Default unless and until such default shall have been cured or waived or shall have ceased to exist.

6.8 <u>**Payment of Trustee's Remuneration**</u>

The Corporation will pay on demand the Trustee's reasonable remuneration for its services as Trustee hereunder (including reimbursements for distributions which include legal services) and will repay to the Trustee on demand all moneys which shall have been paid by the Trustee out of its own funds in and about the execution of the trusts hereby created. The said remuneration shall continue to be payable until the trusts hereof are finally wound up and whether or not the trusts of this Indenture shall be in course of administration by or under the direction of the court. This Section 6.8 shall survive the resignation of the Trustee or the termination of this Indenture. Notwithstanding the foregoing, the Corporation need not pay or reimburse the Trustee for expenses, disbursements or advances if the Trustee incurred such expenses, disbursements or advances as a result of its bad faith, willful misconduct or gross negligence of a right, duty or obligation by the Trustee.

6.9 <u>**Further Instruments and Acts**</u>

Upon reasonable request of the Trustee, the Corporation will execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the purposes of this Indenture.

6.10 <u>**Performance of Covenant by Trustee**</u>

If the Corporation fails to perform any of its covenants contained in this Indenture, the Trustee may itself perform any of such covenants capable of being performed by it, but will be under no obligation to do so. All sums expended or advanced by the Trustee for such purpose will be repayable as provided in Section 6.8 of this Indenture. No such performance or advance by the Trustee shall relieve the Corporation of any default hereunder or its continuing obligations hereunder.

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**ARTICLE 7**<br><u>**EVENTS OF DEFAULT AND REMEDIES**</u>

7.1 <u>**Events of Default and Enforcement**</u>

(a) If and when any one or more of the following events (each, an "**Event of Default**") shall happen on or after the date of this Indenture, namely:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a default in payment of any principal amount with respect to the Debentures, when the same becomes due and payable and the continuance of such default for 30 days;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) a default in payment of interest on any Debentures when due and payable and the continuance of such default for 30 days;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) a default by the Corporation in performing or observing any other covenants, agreements or obligations of the Corporation as described herein, and the continuance of such default for 30 days after the earlier of the Corporation becoming aware of same and written notice to the Corporation by the Trustee requiring the same to be remedied;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) a decree, judgment, or order by a court having jurisdiction in the premises shall have been entered adjudging the Corporation bankrupt or insolvent or approving as properly filed a petition seeking reorganization, readjustment, arrangement composition or similar relief for the Corporation, under the *Bankruptcy and Insolvency Act* (Canada), *Companies' Creditors Arrangement Act* (Canada) or any other similar bankruptcy, insolvency or analogous applicable law to include proceedings in desastre and/or the grant of a preliminary vesting order in saisie proceedings, in each case and such decree, judgment or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, administrator, controller or trustee or assignee in bankruptcy or insolvency of the Corporation or of a substantial part of its property, or for the winding up or liquidation of its affairs, shall have remained in force for a period of 30 consecutive days;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) the Corporation shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization, readjustment, arrangement, composition or similar relief under the *Bankruptcy and Insolvency Act* (Canada), *Companies' Creditors Arrangement Act* (Canada) or any other similar bankruptcy, insolvency or analogous applicable law or shall consent to the filing or any such petition in each case, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency for it or of a substantial part of its property, or shall make an assignment for the benefit of creditors, or shall be unable, or admit in writing its inability, to pay its debts generally as they become due, or corporate action shall be taken by the Corporation in furtherance of any of the aforesaid actions;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) if a resolution is passed for the winding-up or liquidation of the Corporation except in the course of carrying out or pursuant to a transaction in respect of which the conditions of Section 11.1 are duly observed and performed; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) if, after the date of this Indenture, any proceedings with respect to the Corporation are taken with respect to a compromise or arrangement, with respect to creditors of the Corporation generally, under the applicable legislation of any jurisdiction,

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then, and in each and every such case which has happened and is continuing, the Trustee may, in its discretion, and shall, upon the written request of the holders of, collectively, not less than 50% in principal amount of the Outstanding Debentures at such time, subject to the provisions of Section 7.3, declare the principal of (and premium, if any) together with accrued interest on all such Debentures to be due and payable immediately, by a Notice in writing to the Corporation (and to the Trustee if given by the Holders), and upon any such declaration such principal amount and premium, if any, together with accrued interest thereon, shall become immediately due and payable. Such payment when made shall be deemed to have been made in discharge of the Corporation's obligations hereunder and any monies so received by the Trustee shall be applied in the manner provided in Section 7.6.

7.2 <u>**Notice of Event of Default**</u>

The Trustee shall, within five Business Days after the Trustee becomes aware of the occurrence of an Event of Default, give to the Holders by way of written Notice, Notice of every Event of Default so occurring and continuing at the time the Notice is given to the Holders. When a Notice of the occurrence of an Event of Default is given by the Trustee pursuant to this Section 7.2 and the Event of Default is thereafter cured, the Trustee shall, within five Business Days after the Corporation provides written Notice to the Trustee that the Event of Default has been cured and is no longer outstanding, give to all Holders to whom Notice of the occurrence of the Event of Default was given, Notice that the Event of Default is no longer outstanding. The Trustee shall not be deemed to have notice of any Default or Event of Default unless written notice of any event which is in fact such a Default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references this Indenture. Delivery of reports to the Trustees shall not constitute actual knowledge of, or notice to, the Trustees of the information contained therein.

7.3 <u>**Waiver of Default**</u>

(a) The Holders of, collectively, more than 50% in aggregate principal amount of the Outstanding Debentures, may on behalf of the holders of all Debentures, by written Notice to the Trustee approved by an instrument in writing signed in one or more counterparts by such Holders or their duly appointed proxies or agents, instruct the Trustee to waive any past Default or Event of Default hereunder and its consequences, except a Default:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) in the payment of the principal of (or premium, if any) or interest on any Debentures; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) in respect of a covenant or provision hereof that under Section 13.2 cannot be modified or amended without approval by Extraordinary Resolution.

(b) Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

7.4 <u>**Waiver of Acceleration**</u>

At any time after a declaration of acceleration with respect to the Debentures has been made pursuant to this Article 7 and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter provided, the Holders of, collectively, more than 50% in aggregate principal amount of Outstanding Debentures by written Notice to the Trustee approved by an instrument in writing signed in one or more counterparts by such holders or their duly appointed proxies or agents, may instruct the Trustee to thereupon rescind and annul such declaration and its consequences if:

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(a) the Corporation has paid or deposited with the Trustee a sum sufficient to pay:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) all overdue interest on all Debentures;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the principal of (and premium, if any on), any of the Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefore in such Debentures; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) to the extent that payment of such interest is lawful and applicable, interest upon overdue instalments of interest at the rate or rates prescribed therefor in such Debentures;

(b) all Events of Default with respect to the Debentures, other than the non-payment of the principal of (and premium, if any), and interest on, such Debentures which have become due solely by such declaration of acceleration, have been cured or waived in accordance with the provisions of this Indenture; and

(c) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction.

7.5 <u>**Other Remedies**</u>

(a) If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal of (and premium, if any) or interest on Debentures or to enforce the performance of any terms of the Debentures or this Indenture.

(b) The Trustee may maintain a Proceeding even if it does not possess any Debentures or does not produce any of them in the Proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default.

7.6 <u>**Application of Money Collected**</u>

Any money collected by the Trustee pursuant to this Article 7 in respect of Debentures shall (subject to any claims having priority under Applicable Law) be applied in the following order, at the dates fixed by the Trustee and, in case of the distribution of such money on account of principal of (and premium, if any) or interest, upon presentation of Debentures and the notation thereon of the payment (if only partially paid) and upon surrender thereof (if fully paid):

(a) first, to the payment of all amounts due to the Trustee of its compensation, costs, charges, expenses, borrowing, advances or other moneys furnished or provided under this Indenture with respect to such Debentures;

(b) second, to the payment of accrued interest on such Debentures;

(c) third, to the payment of the principal of (and premium, if any) on such Debentures;

(d) fourth, to the payment of any other amounts with respect to such Debentures; and

(e) fifth, to whomever may be lawfully entitled to receive the balance of such money.

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7.7 <u>**Control by Holders**</u>

(a) The holders of, collectively, at least a majority in principal amount of the Outstanding Debentures may:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) direct the time, method and place in the Province of British Columbia of conducting any Proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it with respect to the Debentures; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of Debentures under any provisions of this Indenture or under Applicable Law.

(b) The Trustee may refuse, however, to follow any direction pursuant to section 7.8(a) that Counsel to the Trustee advises conflicts with Applicable Law or this Indenture.

7.8 <u>**Limitation on Suits**</u>

(a) No Holder of any Debenture will have any right to pursue any remedy (including any action, suit or proceeding authorized or permitted by this Indenture or pursuant to Applicable Law, except actions for payment of overdue principal, premium, if any, or interest with respect to this Indenture or the Debentures unless: (i) the Holder gives to the Trustee notice of a continuing Event of Default; (ii) the holders of, collectively, at least 50% in principal amount of the then Outstanding Debentures make a request in writing to the Trustee to pursue the remedy; (iii) such Holder or Holders offer or provide to the Trustee sufficient funding and indemnity in form satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 30 days after receipt of such request and indemnity; and (v) during such 30-day period the holders of, collectively, a majority in principal amount of Outstanding Debentures do not give the Trustee a direction inconsistent with the request.

(b) Holders may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over another Holder.

7.9 <u>**Collection Suit by Trustee**</u>

If an Event of Default occurs and is continuing, the Trustee may recover judgment in its own name and as trustee against the Corporation for the whole amount of principal (and premium, if any) and interest remaining unpaid on the Debentures and any other amounts owing under the terms of this Indenture.

7.10 <u>**Trustee May File Proofs of Claim**</u>

The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and the Holders lodged or allowed in any judicial proceedings relative to the Corporation, its creditors or its property.

7.11 <u>**Undertaking for Costs**</u>

In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defences made by the party litigant. This Section 7.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 7.8, or a suit by any Holder, group of Holders, of, collectively, more than 50% in aggregate principal amount of the Outstanding Debentures.

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7.12 <u>**Delay or Omission Not Waiver**</u>

No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

7.13 <u>**Remedies Cumulative**</u>

No remedy herein conferred upon or reserved to the Trustee or upon or to the Holders is intended to be exclusive of any other remedy, but each remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now existing or hereafter to exist by law or statute.

7.14 <u>**Judgment Against the Corporation**</u>

The Corporation covenants and agrees with the Trustee that, in case of any Proceeding to obtain judgment for payment of the principal of, premium, if any, or interest, if any, on the Debentures, judgment may be rendered against it in favour of the Holders or in favour of the Trustee, as Holder of a power of attorney for the Holders, for the amount which may remain due in respect of the Debentures and the interest and premium, if any, thereon.

7.15 <u>**Rights of Holders to Receive Payment**</u>

Notwithstanding any other provision of this Indenture, the right of any Holder of a Debenture to receive payment of the principal amount and interest, if any, in respect of the Debentures held by such Holder, on or after the respective due dates expressed in the Debentures and this Indenture (whether upon repurchase or otherwise), and to bring suit for the enforcement of any such payment on or after such respective due dates is, subject to compliance with the provisions of Section 7.8, absolute and unconditional and shall not be impaired or affected without the consent of the Holder.

**ARTICLE 8**<br><u>**SATISFACTION AND DISCHARGE**</u>

8.1 <u>**Non-Presentation of Debentures**</u>

If any Debentureholder fails to present any Debentures for payment on the date on which the principal of, premium, if any, or interest thereon, becomes payable, whether on a payment date, Maturity Date or any other repayment date, or shall not accept payment on account thereof and give such receipt therefore, if any, as the Trustee may require:

(a) the Corporation shall thereafter be entitled to pay or deliver to the Trustee and direct the Trustee to set aside; or

(b) in respect of moneys in the hands of the Trustee which may or should be applied to the payment of the Debentures, the Corporation shall thereafter be entitled to direct the Trustee to set aside;

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the principal of, premium, if any, and interest on such Holder's Debentures, in trust to be paid to such Debentureholder upon due presentation or surrender of such Debenture in accordance with the provisions of this Indenture; and thereupon the principal of, premium, if any, and interest payable on each Debenture in respect whereof such moneys have been set aside shall be deemed to have been paid and the Holder thereof shall thereafter have no right in respect thereof except to receive delivery and payment of the moneys so set aside by the Trustee upon due presentation and surrender thereof, subject to the provisions of Section 2.4.

8.2 <u>**Discharge**</u>

The Trustee shall at the written request of the Corporation release and discharge this Indenture and execute and deliver such instruments as it shall be advised by Counsel are requisite for that purpose and release the Corporation from its covenants herein contained (other than the provisions relating to the indemnification of the Trustee), upon proof being given to the reasonable satisfaction of the Trustee that the principal of, premium, if any, and interest on (including interest on amounts in default, if any) all of the Debentures and all other moneys payable hereunder have been paid or satisfied or that, all of the Debentures having matured, payment of the principal of, premium, if any, and interest (including interest on amounts in default, if any) on such Debentures and all other moneys payable hereunder have been duly and effectually provided for in accordance with the provisions hereof.

**ARTICLE 9**<br><u>**CONCERNING THE TRUSTEE**</u>

9.1 <u>**Duties of Trustee**</u>

In the exercise of its rights, duties and obligations prescribed or conferred by this Indenture, the Trustee shall act honestly and in good faith and shall exercise that degree of care, diligence and skill that a reasonably prudent corporate trustee would exercise in comparable circumstances. Subject to the foregoing, the Trustee shall be liable only for an act or failure to act arising from or in connection with dishonesty, bad faith, wilful misconduct, gross negligence or reckless disregard of a right, duty or obligation by the Trustee. The Trustee shall not be liable for any act or default on the part of any agent employed by it or for permitting any agent or co-trustee to receive and retain any moneys payable to the Trustee under this Indenture, except as aforesaid. The Trustee shall not be required to exercise any powers and shall not have any responsibilities except as expressly provided in this Indenture and shall have no obligation to recognize nor have any liability or responsibility arising under any other document or agreement to which the Trustee is not a party, notwithstanding that reference thereto may be made herein.

9.2 <u>**Employ Agents**</u>

The Trustee may, but is not required to employ such Counsel, agents and other assistants as it may reasonably require for the proper determination and discharge of its duties under this Indenture, and shall not be responsible for any negligence or misconduct on the part of any such Counsel, agent or other assistant or for any liability incurred by any Person as a result of not employing such Counsel, agent or other assistant, and may pay reasonable remuneration for all services performed for it with respect to this Indenture, and shall be entitled to receive reimbursement for all reasonable disbursements, costs, liabilities and expenses made or incurred by it with respect to this Indenture. All such disbursements, costs, liabilities and expenses in relation to this Indenture and all expenses incidental to the preparation, execution, creation and issuance of the Debentures, whether done or incurred at the request of the Trustee or the Corporation, shall bear interest at the posted annual rate of interest charged by the Trustee from time to time to its corporate trust customers from the date which is 30 days following receipt by the Corporation of an invoice from the Trustee with respect to such expenses until the date of reimbursement and shall (together with such interest) be paid by the Corporation immediately upon receipt of such invoice.

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9.3 <u>**Reliance on Evidence of Compliance**</u>

The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Corporation, personally or by agent or attorney at the sole cost of the Corporation and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation. Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Corporation shall be sufficient if signed by an Officer of the Corporation. The Trustee may request that the Corporation deliver an Officer's Certificate setting forth the names of the individuals and/or title of officers authorized at such time to take specified actions pursuant to this Indenture.

Before the Trustee acts or refrains from acting, it may, acting reasonably, require an Officer's Certificate or an opinion of counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer's Certificate or opinion of counsel. The Trustee may consult with counsel of its selection (including Counsel to the Corporation) and the advice of such counsel or any opinion of counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent or attorney appointed with due care.

9.4 <u>**Advice of Experts**</u>

The Trustee may act or not act and rely or not rely, and shall be protected in acting or not acting and relying or not relying in good faith, on the opinion, advice or information (including the Opinion of Counsel) obtained from any counsel, auditor, valuer, engineer, surveyor or other expert, whether obtained by the Trustee or by the Corporation, in relation to any matter arising in the administration of the trusts hereof and the Trustee shall not be responsible for any misconduct on the part of any of them or for any loss occasioned by so acting unless such action was taken in bad faith or such action constitutes negligence or wilful misconduct, and, if acting in good faith, may rely as to the truth of the statements and the accuracy of the opinions expressed in any report or opinion furnished by such Person and may obtain such assistance as may be necessary to the proper determination and discharge of its duties and may pay proper and reasonable compensation for all such legal and other advice or assistance as aforesaid, including the disbursements of any legal or other advisor or assistants.

9.5 <u>**Trustee May Deal in Debentures**</u>

In its personal capacity or any other capacity, the Trustee, and each Affiliate of the Trustee, may buy, sell, lend upon, become a pledgee of and deal in the Debentures and generally contract and enter into financial transactions with the Corporation and any Affiliate of the Corporation without being liable to account for any profits made thereby.

9.6 <u>**Conditions Precedent to Trustee's Obligation to Act**</u>

(a) The Trustee shall not be bound to give any notice, or to do, observe or perform or see to the observance or performance by the Corporation of any of the obligations imposed under this Indenture or to supervise or interfere with any of the activities of the Corporation, or to do or take any act, action or Proceeding by virtue of the powers conferred on it by this Indenture, unless and until it shall have been required to do so under the terms of this Indenture; nor shall the Trustee be required to take notice of any Default or Event of Default, other than in payment of any moneys required by this Indenture to be paid to the Trustee, unless and until notified in writing of such Default or Event of Default by the Corporation or by any Holder, which notice shall distinctly specify such Default or Event of Default, and in the absence of any such notice the Trustee may conclusively assume that no Default or Event of Default has occurred. Any such notice or requisition shall in no way limit any discretion given to the Trustee in this Indenture to determine whether or not to take action with respect to any Default or Event of default or with respect to any such requisition.

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(b) The obligation of the Trustee to do any of the actions referred to in (a), including to commence or to continue any Proceeding or any right of the Trustee or the Holders, shall be conditional upon the Holders furnishing, when required by notice in writing by the Trustee, sufficient funds to commence or continue such action and an indemnity satisfactory to the Trustee to protect and hold harmless the Trustee against the costs, charges, expenses and liabilities which may result from such action and any loss and damage the Trustee may suffer by reason of such action.

9.7 <u>**Trustee Not Required to Give Security**</u>

The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.

9.8 <u>**Resignation or Removal of Trustee; Conflict of Interest**</u>

(a) The Trustee represents and warrants to the Corporation that at the time of the execution and delivery of this Indenture no material conflict of interest exists with respect to the Trustee's role as a fiduciary hereunder.

(b) The Trustee may resign as trustee hereunder by giving not less than 90 days notice in writing to the Corporation or such shorter notice as the Corporation may accept as sufficient. The Trustee shall resign if a material conflict of interest arises with respect to its role as trustee under this Indenture that is not eliminated within 30 days after the Trustee becomes aware of such conflict of interest. Immediately after the Trustee becomes aware that it has a material conflict of interest it shall provide the Corporation with written notice of the nature of that conflict. Upon any such resignation, the Trustee shall be discharged from all further duties and liabilities under this Indenture. None of the validity and enforceability of this Indenture or the Debentures shall be affected in any manner whatsoever by reason only of the existence of a material conflict of interest on the part of the Trustee (whether arising prior to or after the date of this Indenture). If the Trustee does not comply with this section, any Holder or the Corporation may apply to the Supreme Court of British Columbia in Vancouver for an order that the Trustee be replaced as trustee under this Indenture.

(c) In the event of the Trustee resigning or being removed by the Holders by Extraordinary Resolution or by the Corporation or being dissolved, becoming insolvent or bankrupt, going into liquidation or otherwise becoming incapable of acting as trustee under this Indenture, the Corporation shall immediately appoint a successor Trustee unless a successor Trustee has already been appointed by the Holders; failing such appointment by the Corporation, the retiring Trustee or any other Holder may apply (at the expense of the Corporation) to a judge of the Supreme Court of British Columbia in Vancouver for, on such notice as such judge may direct, for the appointment of a successor Trustee. The successor Trustee so appointed by the Corporation or by such court shall be subject to removal by the Holders by way of an Act of Holders. Any successor Trustee appointed under any provision of this section shall be a corporation authorized to carry on the business of a trust company in Canada or in any province thereof. On any appointment of the successor Trustee, the successor Trustee shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named in this Indenture as Trustee. The expenses of all acts, documents and Proceedings required under this section will be paid by the Corporation in the same manner as if the amount thereof were fees payable to the Trustee under this Indenture.

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(d) Any successor Trustee shall, immediately upon appointment, become vested with all the estates, properties, rights, powers and trusts of its predecessor in the trusts under this Indenture, with like effect as if originally named as Trustee hereunder. Nevertheless, upon the written request of the successor Trustee or of the Corporation and upon payment of all outstanding fees and expenses, the Trustee ceasing to act shall execute and deliver a document assigning and transferring to such successor Trustee, upon the trusts expressed in this Indenture, all the rights, powers and trusts of the Trustee so ceasing to act, and shall duly assign, transfer and deliver all property (including money) held by such Trustee to the successor Trustee in its place. Should any deed, conveyance or other document in writing from the Corporation be required by any successor Trustee for more fully and certainly vesting in and confirming to it such estates, properties, rights, powers and trusts, then any and all such deeds, conveyances and other documents in writing shall, on the request of the successor Trustee, be made, executed, acknowledged and delivered by the Corporation.

(e) Any corporation into which the Trustee is amalgamated or with which it is consolidated or to which all or substantially all of its corporate trust business is sold or is otherwise transferred or any corporation resulting from any consolidation or amalgamation to which the Trustee is a party shall be a successor Trustee under this Indenture without the execution of any document or any further act; provided that such successor Trustee is a corporation qualified to carry on the business of a trust company in Canada or any province thereof and shall not have a material conflict of interest in its role as a fiduciary under this Indenture.

9.9 <u>**Authority to Carry on Business; Resignation**</u>

The Trustee represents and warrants to the Corporation that at the date of execution and delivery by it of this Indenture it is authorized to carry on the business of a trust company in Alberta. If the Trustee ceases to be so authorized to carry on business, the validity and enforceability of this Indenture and the Debentures issued hereunder shall not be affected in any manner by reason only of such event but the Trustee shall, within 90 days after ceasing to be authorized to carry on the business of a trust company in Canada or a province thereof, either become so authorized or resign in the manner and with the effect specified in Section 9.8.

9.10 <u>**Protection of Trustee**</u>

By way of supplement to any Applicable Law from time to time relating to trustees and in addition to any other provision of this Indenture for the relief of the Trustee, it is expressly agreed that:

(a) the Trustee shall not be liable for or by reason of any statements of fact or recitals in this Indenture or in the Debentures (except the representations and warranties contained in Section 9.1 and Section 9.11 which are being given by the Trustee in its personal capacity) or required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Corporation;

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(b) the Trustee shall not be bound to give to any Person notice of the execution of this Indenture unless and until an Event of Default and declaration of acceleration has occurred, and the Trustee has determined or become obliged to enforce the same;

(c) the Trustee shall not incur any liability or be in any way responsible for the consequence of any breach on the part of the Corporation of any of the covenants contained in this Indenture or of any acts of the agents or servants of the Corporation;

(d) the permissive rights of a Trustee enumerated herein shall not be construed as duties;

(e) in addition to and without limiting any other protection of the Trustee hereunder, or otherwise by law, the Corporation indemnifies and saves harmless the Trustee and its officers, directors and employees and agents from and against any and all liabilities, losses, costs, claims, actions, expenses (including legal fees and disbursements on a solicitor and client basis) or demands whatsoever which may be brought against the Trustee or which it may suffer or incur as a result of or arising out of the performance of its duties and obligations under this Indenture including, without limitation, those arising out of or related to actions taken or omitted to be taken by the Trustee contemplated by this Indenture, and including legal fees and disbursements on a solicitor and client basis and costs and expenses incurred in connection with the enforcement of this indemnity, which the Trustee may suffer or incur, whether at law or in equity, in any way caused by or arising, directly or indirectly, in respect of any act, deed, matter or thing whatsoever made, done, acquiesced in or omitted in or about or in relation to the execution of its duties as Trustee, save only in the event of the gross negligence or reckless disregard in acting or failing to act, or the wilful misconduct, dishonesty or bad faith of the Trustee. It is understood and agreed that this indemnification shall survive the termination or discharge of this Indenture or the resignation or removal of the Trustee;

(f) without limiting the generality of (e), the Corporation will indemnify and hold harmless the Trustee and upon written request reimburse the Trustee for the amount of: (i) any taxes levied or imposed and paid by the Trustee as a result of payments made under or with respect to the Debentures, (ii) any liability (including penalties and interest) arising therefrom or with respect thereto paid by the Trustee as a result of payments made under or with respect to the Debentures and (iii) any taxes levied or imposed and paid by the Trustee with respect to reimbursement under clauses (i) and (ii) of this Section 9.10(f), but excluding any taxes on the Trustee's net income arising from fees for acting as the trustee hereunder or in respect of the Trustee's capital.

(g) the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, the right to be indemnified, are extended to, and shall be enforceable by, Alliance Trust Company, and each agent, custodian and other Person employed to act hereunder;

(h) in no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether such Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;

(i) the Trustee may, in the exercise of all or any of the trusts, powers and discretion vested in it under this Indenture, act by the responsible officers of the Trustee; the Trustee may delegate to any Person the performance of any of the trusts and powers vested in it by this Indenture, and any delegation may be made upon such terms and conditions and subject to such regulations as the Trustee may think to be in the best interest of the Holders;

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(j) the Trustee shall not be required to take notice or be deemed to have notice or actual knowledge of any matter under this Indenture, unless the Trustee shall have received from the Corporation or a Holder written notice stating the matter in respect of which the Trustee should have notice or actual knowledge; and

(k) the Trustee shall not be responsible for any error made or act done by it resulting from reliance upon the signature of any Person on behalf of the Corporation or of any Person on whose signature the Trustee may be called upon to act or refrain from acting under this Indenture.

9.11 <u>**Additional Representations and Warranties of Trustee**</u>

The Trustee represents and warrants to the Corporation that:

(a) the Trustee is a trust company validly existing under the laws of its jurisdiction of incorporation;

(b) the Trustee has full power, authority and right to execute and deliver and perform its obligations under this Indenture, and has taken all necessary action to authorize the execution, delivery and performance by it of this Indenture; and

(c) this Indenture has been duly executed and delivered by the Trustee.

9.12 <u>**Third Party Interests**</u>

The Corporation hereby represents to the Trustee that any account to be opened by, or interest to be held by, the Trustee in connection with this Indenture for or to the credit of the Corporation, either: (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case the Corporation agrees to complete and execute forthwith a declaration in the Trustee's prescribed form as to the particulars of such third party.

9.13 <u>**Trustee Not Bound to Act**</u>

The Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Trustee, in its sole judgment, determines that such act might cause it to be in non- compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline. Further, should the Trustee, in its sole judgment, determine at any time that its acting under this Indenture has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days' written notice to the Corporation provided: (i) that the Trustee's written notice shall describe the circumstances of such non-compliance to the extent permitted under applicable anti-money launder or anti-terrorist legislation, regulation or guideline; and (ii) that if such circumstances are rectified to the Trustee's satisfaction within such 10-day period, then such resignation shall not be effective.

9.14 <u>**Compliance with Privacy Laws**</u>

The parties acknowledge that federal and/or provincial legislation that addresses the protection of individuals' personal information (collectively, the "**Privacy Laws**") applies to obligations and activities under this Indenture. Despite any other provision of this Indenture, no party to this Indenture shall take or direct any action that would contravene, or cause the other to contravene, applicable Privacy Laws. The Corporation shall, prior to transferring or causing to be transferred personal information to the Trustee, obtain and retain required consents of the relevant individuals to the collection, use and disclosure of their personal information, or shall have determined that such consents either have previously been given upon which the parties can rely or are not required under the Privacy Laws. The Trustee shall use commercially reasonable efforts to ensure that its services hereunder comply with Privacy Laws. Specifically, the Trustee agrees: (a) to have a designated chief privacy officer; (b) to maintain policies and procedures to protect personal information and to receive and respond to any privacy complaint or inquiry; (c) to use personal information solely for the purposes of providing its services under or ancillary to this Indenture and not to use it for any other purpose except with the consent of or direction from the Corporation or the individual involved; (d) not to sell or otherwise improperly disclose personal information to any third party; and (e) to employ administrative, physical and technological safeguards to reasonably secure and protect personal information against loss, theft, or unauthorized access, use or modification.

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**ARTICLE 10**<br><u>**MEETINGS OF DEBENTUREHOLDERS**</u>

10.1 <u>**Purposes for Which Meetings May be Called**</u>

A meeting of Debentureholders may be called at any time and from time to time pursuant to this Article to make, give or take any Act provided by this Indenture to be made, given or taken by Debentureholders.

10.2 <u>**Call, Notice and Place of Meetings**</u>

(a) The Trustee may at any time and from time to time and shall, on receipt of a Corporation Request or a requisition in writing made by the Holders of, collectively, at least 25% in principal amount of the Outstanding Debentures, call a meeting of Debentureholders for any purpose specified in Section 10.1, to be held at such time and at such place in the City of Vancouver, Province of British Columbia, as the Trustee shall determine. Notice of every meeting of Debentureholders, setting forth the time and place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 12.2, not less than 21 or more than 60 days prior to the date fixed for the meeting.

(b) If at any time the Corporation, pursuant to a Board Resolution, or the Holders of, collectively, at least 25% in principal amount of the Outstanding Debentures shall have requested the Trustee to call a meeting of the Debentureholders for any purpose specified in Section 10.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the mailing of the notice of such meeting within 30 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Corporation or the Debentureholders in the amount above specified, as the case may be, may determine the time and the place in the City of Vancouver, Province of British Columbia, for such meeting and may call such meeting for such purposes by giving notice thereof as provided in (a).

10.3 <u>**Proxies**</u>

A Debentureholder may be present and vote at any meeting of Debentureholders, and may sign written resolutions and other instruments in writing in lieu of a meeting as contemplated in Section 10.8, by an authorized representative. The Corporation with the approval of the Trustee may, from time to time, make and vary regulations as it shall think fit providing for and governing any or all the following matters for the purpose of enabling the Debentureholders to vote at any such meeting by proxy:

(a) the form of the instrument appointing a proxy, which shall be in writing, and the manner in which the same shall be executed and the production of the authority of any Person signing on behalf of a Debentureholder;

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(b) the deposit of instruments appointing proxies at such place as the Trustee, the Corporation or the Debentureholder convening the meeting, as the case may be, may in the notice convening the meeting, direct and the time, if before the holding of the meeting or any adjournment thereof by which the same must be deposited; and

(c) the deposit of instruments appointing proxies at such approved place or places other than the place at which the meeting is to be held and enabling particulars of such instruments appointing proxies to be mailed, faxed, or sent by other electronic communication before the meeting to the Corporation or to the Trustee at the place where the same is to be held and for the voting of proxies so deposited as though the instruments themselves were produced at the meeting.

10.4 <u>**Persons Entitled to Vote at Meetings**</u>

To be entitled to vote at any meeting of Debentureholders, a Person shall be: (a) a Holder of one or more Outstanding Debentures; or (b) a Person appointed by an instrument in writing as proxy for a Holder or holders of one or more Outstanding Debentures by such Holder or holders. The only persons who shall be entitled to be present or to speak at any meeting of Debentureholders shall be the persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its Counsel and any representatives of the Corporation and its Counsel.

10.5 <u>**Quorum; Action**</u>

(a) Two or more persons entitled to vote 25% in principal amount of Outstanding Debentures shall constitute a quorum for a meeting of Debentureholders. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Debentureholders, be dissolved. In the absence of a quorum in any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, the Debentureholders present or represented at such adjourned meeting shall constitute the quorum and the business for which the meeting was adjourned may be transacted. No notice of any reconvening of any adjourned meeting shall be required.

(b) Except as limited by Section 13.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of holders of, collectively, a majority in principal amount of the Debentures present or represented by proxy at such meeting or adjourned meeting; provided, however, that, except as limited by Section 13.2, any resolution with respect to any Act that this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of Outstanding Debentures may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the holders of such specified percentage in principal amount of Outstanding Debentures.

(c) Any resolution passed or decision taken at any meeting of Debentureholders duly held in accordance with this Section 10.5 will be binding on all Debentureholders, whether or not present or represented at the meeting.

10.6 <u>**Determination of Voting Rights Chairman; Conduct and Adjournment of Meetings**</u>

(a) Notwithstanding any other provisions of this Indenture, the Trustee or the Corporation, with the approval of the Trustee, may make and from time to time may vary such reasonable regulations as it may deem advisable for any meeting of Debentureholders in regard to proof of the holding of Debentures and the appointment of proxies and in regard to the appointment and duties of scrutineers of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted by any such regulations, the holding of Debentures shall be proved in the manner specified in Section 1.12 and the appointment of any proxy shall be proved in the manner specified in Section 1.12.

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(b) The Trustee shall, by an instrument in writing, appoint a chairman and secretary of the meeting, unless the meeting shall have been called by the Corporation or by Debentureholders as provided in Section 1.12, in which case the Corporation or the Debentureholders calling the meeting, as the case may be, shall in like manner appoint a chairman and secretary.

(c) At any meeting of Debentureholders each Holder of a Debenture or proxy shall be entitled to one vote for each one thousand Dollars ($1,000) principal amount of Debentures held or represented by such Holder; provided, however, that no vote shall be cast or counted at any meeting in respect of any Debenture challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Debenture or proxy.

(d) Any meeting of Debentureholders duly called pursuant to Section 10.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote, collectively, a majority in principal amount of Outstanding Debentures represented at the meeting and the meeting may be held as so adjourned without further notice.

10.7 <u>**Counting Votes and Recording Action of Meetings**</u>

The vote upon any resolution submitted to any meeting of Debentureholders shall be by written ballots on which shall be inscribed the signatures of the Debentureholders or of their representatives by proxy and the principal amounts and serial numbers of Outstanding Debentures held or represented by them. The chairman of the meeting shall appoint a scrutineer of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record of the proceedings of each meeting of Debentureholders shall be prepared by the secretary of the meeting and there shall be attached to said record the reports of the scrutineer of votes on any vote by ballot taken thereat.

10.8 <u>**Instruments in Writing**</u>

All actions which may be taken and all powers which may be exercised by the Holders at a meeting held as hereinbefore in this Article 10 may also be taken and exercised: (i) by the holders of, collectively, a majority in principal amount of Outstanding Debentures by an instrument in writing signed in one or more counterparts by such Holders or their duly appointed proxies or agents with respect to resolutions which are not Extraordinary Resolutions and (ii) by the holders of, collectively, not less than 66⅔% in principal amount of Outstanding Debentures by an instrument in writing signed in one or more counterparts by such holders or their duly appointed proxies or agents with respect to resolutions which are Extraordinary Resolutions and the expression "**Extraordinary Resolution**" when used in this Indenture shall include an instrument so signed.

10.9 <u>**Holdings by the Corporation Disregarded**</u>

In determining whether Holders holding Debentures evidencing the required number of Debentures are present at a meeting of Holders for the purpose of determining a quorum or for the purpose of determining whether Holders have concurred in any consent, waiver, resolution or other action under this Indenture, the Debentures owned legally or beneficially by the Corporation shall be disregarded.

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10.10 <u>**Persons Entitled to Attend Meetings**</u>

The Corporation and the Trustee, by their respective directors, officers and employees, the auditors of the Corporation and the legal advisers of the Corporation, the Trustee or any Debentureholder may attend and speak at any meeting of the Debentureholders but shall have no vote as such.

10.11 <u>**Meaning of "Extraordinary Resolution"**</u>

(a) The expression "Extraordinary Resolution" when used in this Indenture means, subject to the provisions of Section 10.8, and except as hereinafter in this Article provided, a resolution proposed to be passed as an Extraordinary Resolution at a meeting of Debentureholders (including an adjourned meeting) duly convened for the purpose and held in accordance with the provisions of this Article at which the holders of, collectively, not less than 25% of the aggregate principal amount of the Debentures then outstanding are present in Person or by proxy and passed by the favourable votes of the holders of, collectively, not less than 66⅔% of the aggregate principal amount of the Debentures present or represented by proxy at the meeting and voted upon on a poll on such resolution.

(b) If, at any such meeting, the holders of, collectively, not less than 25% of the aggregate principal amount of the Debentures then outstanding are not present in Person or by proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by or on the requisition of Debentureholders, shall be dissolved but in any other case it shall stand adjourned to such date, being not less than 21 nor more than 60 days later, and to such place and time as may be appointed by the chairman. Not less than 10 days' notice shall be given of the time and place of such adjourned meeting in the manner provided in Section 12.2. Such notice shall state that at the adjourned meeting the Debentureholders present in Person or by proxy shall form a quorum. At the adjourned meeting the Debentureholders present in Person or by proxy shall form a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed thereat by the affirmative vote of holders of, collectively, not less than 66⅔% of the aggregate principal amount of the Debentures present or represented by proxy at the meeting and voted upon on a poll shall be an Extraordinary Resolution within the meaning of this Indenture, notwithstanding that the holders of, collectively, not less than 25% in the aggregate principal amount of the Debentures then outstanding are not present in Person or by proxy at such adjourned meeting.

(c) Votes on an Extraordinary Resolution shall always be given on a poll and no demand for a poll on an Extraordinary Resolution shall be necessary.

10.12 <u>**Powers Cumulative**</u>

Any one or more of the powers in this Indenture stated to be exercisable by the Debentureholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers from time to time shall not be deemed to exhaust the rights of the Debentureholders to exercise the same or any other such power or powers thereafter from time to time.

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**ARTICLE 11** <br><u>**AMALGAMATION, CONSOLIDATION, CONVEYANCE, TRANSFER OR LEASE**</u>

11.1 <u>**Amalgamation and Consolidations of Corporation and Conveyances Permitted Subject to Certain Conditions**</u>

The Corporation shall not consolidate with, amalgamate or merge into any other Person or enter into any reorganization or arrangement or effect any conveyance, sale, transfer or lease of all or substantially all of its assets (any such transaction, a "**Subject Transaction**"), other than with or into one or more of the Corporation's Wholly-Owned Subsidiaries and other than such transactions as are permitted under this Indenture, unless in any such case:

(a) the Corporation shall be the continuing Person, or if not, in the case of a successor Person (or the Person that leases or that acquires by conveyance, sale or transfer all or substantially all of the assets of the Corporation) (such Person being referred to as the "**Successor Entity**"), such Successor Entity shall expressly assume the due and punctual payment of the principal of, the premium, if any, and interest on all Outstanding Debentures, according to their tenor. Such Successor Entity shall in all instances expressly assume the due and punctual performance and observance of all the covenants and conditions of this Indenture to be performed by the Corporation by supplemental indenture satisfactory to the Trustee, executed and delivered to the Trustee by the Successor Entity;

(b) in the case where the Successor Entity is a successor Person to the Corporation, the Debentures will be valid and binding obligations of the Successor Entity entitling the Holders thereof, as against the Successor Entity, to all the rights of Debentureholders under this Indenture;

(c) there shall not immediately after the date of this Indenture of the Subject Transaction be a Default or Event of Default; and

(d) if the Corporation will not be the continuing Person, the Corporation shall have, at or prior to the date of this Indenture of the Subject Transaction delivered to the Trustee an Officer's Certificate stating that the Subject Transaction complies with this Section 11.1 and, if a supplemental indenture is required in connection with the Subject Transaction, such supplemental indenture complies with this Article, and that all conditions precedent herein provided for and relating to the Subject Transaction have been complied with.

Upon the assumption of the Corporation's obligations by the Successor Entity in such circumstances, the Corporation shall be discharged from all obligations under the Debentures and this Indenture.

11.2 <u>**Rights and Duties of Successor Entity**</u>

(a) In case of any Subject Transaction and upon any such assumption by the Successor Entity, such Successor Entity shall agree to be bound by the terms of this Indenture as principal obligor in place of the Corporation with the same effect as if it had been named herein as the Corporation. Such Successor Entity to the Corporation thereupon may cause to be signed, and may issue either in its own name or in the name of the Corporation, any or all Debentures which theretofore shall not have been signed by the Corporation and delivered to the Trustee. All Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures have been issued at the date of the execution hereof.

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(b) In the case of any Subject Transaction, such changes in phraseology and form (but not in substance) may be made in Debentures thereafter to be issued as may be appropriate.

**ARTICLE 12**<br><u>**NOTICES**</u>

12.1 <u>**Notice to Corporation**</u>

Any Notice to the Corporation shall be in writing and shall be valid and effective if delivered, sent by electronic transmission (with receipt confirmed), or mailed to the Corporation, at:

C21 Investments Inc.

Suite 170 - 601 West Cordova St.

Vancouver, British Columbia V6B 1G1

<br>Attention: Michael Kidd, Chief Financial Officer

Email: Michael.kidd@cxxi.ca

With a copy to:

Koffman Kalef LLP

885 West Georgia Street, Suite 1900<br>Vancouver, BC V6C 3H4

Attention: Bernard Poznanski

Email: bp@kkbl.com

and such Notice shall be deemed to have been received by the Corporation, where given by delivery, on the day of delivery, where sent by electronic transmission (with receipt confirmed), on the day of transmittal of such Notice if sent before 5:00 p.m. (Vancouver time) on a Business Day and on the next succeeding Business Day if not sent before 5:00 p.m. (Vancouver time) on a Business Day, and, where mailed, on the fifth Business Day following the mailing date, but only if sent by first class mail from a destination within Canada, or only airmail, postage prepaid, if sent from a destination outside Canada. The Corporation may from time to time notify the Trustee of a change in address or electronic mail address by Notice given as provided in Section 12.3.

12.2 <u>**Notice to Holders**</u>

(a) Any Notice to Debentureholders may be effectively given if delivered, sent by electronic or facsimile transmission (with receipt confirmed), or mailed, in each case at post office address appearing in the relevant register and such Notice shall be deemed to have been received by a Holder, where given by delivery, on the day of delivery, where sent by electronic or facsimile transmission (with receipt confirmed) on the day of transmittal of such Notice if sent before 5:00 p.m. (Vancouver time) on a Business Day, and, where mailed, on the fifth Business Day following the mailing date, but only if sent by first class mail to a destination within Canada or only by airmail, postage prepaid if sent to a destination outside Canada.

(b) If the regular mail service is suspended or for any other reason it shall be impracticable to give Notice to Debentureholders by mail, then such notification to Debentureholders may be given by the publication of the Notice once in a daily newspaper with national circulation in Canada or in any other manner approved by the Trustee, and it shall constitute sufficient Notice to such Holders for every purpose hereunder. In any case where Notice to Debentureholders is given by mail, neither the failure to mail such Notice nor any defect in any Notice so mailed to any particular Holder shall affect the sufficiency of such Notice with respect to other Debentureholders.

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(c) Any Notice sent to the Debentureholders as provided above shall be effective notwithstanding that any such Notice has accidentally or inadvertently not been delivered or mailed to one or more such Holders.

12.3 <u>**Notice to Trustee**</u>

Any Notice to the Trustee shall be in writing and shall be valid and effective if delivered, sent by facsimile transmission (with receipt confirmed), or mailed to Alliance Trust Company, at:

Alliance Trust Company

407 - 2nd Street S.W., Suite 1010

Calgary, AB T2P 2Y3

<br>Attention: Zinat Damji<br>Telephone: (403) 237-6111

Email: zinat@alliancetrust.ca

and such Notice shall be deemed to have been received by Alliance Trust Company, where given by delivery, on the day of delivery, where sent by electronic or facsimile transmission (with receipt confirmed), on the day of transmittal of such Notice if sent before 5:00 p.m. (Vancouver time) on a Business Day and on the next succeeding Business Day if not sent before 5:00 p.m. (Vancouver time) on a Business Day, and, where mailed, on the third Business Day following the mailing date. The Trustee may from time to time notify the Corporation of a change in address or facsimile number by Notice given as provided in Section 12.1.

12.4 <u>**Mail Service Interruption**</u>

If by reason of any interruption of mail service, actual or threatened, any notice to be given to the Trustee would reasonably be unlikely to reach its destination by the time notice by mail is deemed to have been given pursuant to Section 12.3, such notice shall be valid and effective only if delivered at the appropriate address in accordance with Section 12.3.

**ARTICLE 13**<br><u>**AMENDMENTS, SUPPLEMENTS AND WAIVERS**</u>

13.1 <u>**Without Consent of Holders**</u>

The Corporation and the Trustee may amend or supplement this Indenture or the Debentures without notice to or consent of any Debentureholder for the purpose of:

(a) evidencing a successor to the Corporation and the assumption by that successor of the Corporation's obligations under this Indenture and the Debentures;

(b) evidence and provide for the acceptance of an appointment under the Indenture of a successor trustee; provided that the successor trustee is otherwise qualified and eligible to act as such under the terms of this Indenture;

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(c) curing any ambiguity, omission, inconsistency or correcting or supplementing any defective provision contained in this Indenture; or

(d) making any other changes to this Indenture that do not adversely affect the interest of the Holders in any material respect, based on an opinion of counsel (and in the case of a change affecting the rights of the Trustee, with its consent).

13.2 <u>**With Consent of Holders**</u>

(a) Subject to Section 13.1 and except as otherwise provided in this Section 13.2, the Corporation and the Trustee may amend or supplement this Indenture or the Debentures with the approval of the Holders of, collectively, at least a majority in aggregate principal amount of the Debentures then outstanding. However, without approval thereof by Extraordinary Resolution, an amendment, supplement or waiver may not:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) alter the manner of calculation or rate of accrual of interest on the Debentures or change the time of payment;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) change the Maturity Date of the Debentures or reduce the principal amount, with respect to the Debentures;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) make any change that adversely affects the rights of Holders to require the Corporation to purchase the Debentures at the option of Holders or make any change to any other covenant that adversely affects the rights of the Holders;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) change the currency of payment of principal of, or interest on, the Debentures; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) change the provisions in this Indenture that relate to modifying or amending this Indenture.

(b) After an amendment, supplement or waiver under this Section 13.2 becomes effective, the Corporation shall promptly mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Corporation to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amendment, supplement or waiver.

13.3 <u>**Additional Powers Exercisable by Extraordinary Resolution**</u>

In addition to the powers conferred upon them by any other provisions of this Indenture (including under Section 13.2) or by law, a meeting of the Debentureholders shall have the following powers exercisable from time to time by Extraordinary Resolution, subject to receipt of the prior approval of the applicable Recognized Stock Exchange, where required:

(a) power to authorize the Trustee to grant extensions of time for payment of any principal, premium or interest on the Debentures, whether or not the principal, premium or interest, the payment of which is extended, is at the time due or overdue;

(b) power to sanction any modification, abrogation, alteration, compromise or arrangement of the rights of the Debentureholders or, subject to the consent of the Trustee, the Trustee against the Corporation, or against its property, whether such rights arise under this Indenture or the Debentures or otherwise;

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(c) power to assent to any modification of or change in or addition to or omission from the provisions contained in this Indenture or any Debenture which shall be agreed to by the Corporation and to authorize the Trustee to concur in and execute any indenture supplemental hereto embodying any modification, change, addition or omission;

(d) power to sanction any scheme for the reconstruction, reorganization or recapitalization of the Corporation or for the consolidation, amalgamation or merger of the Corporation with any other Person or for the sale, leasing, transfer or other disposition of all or substantially all of the undertaking, property and assets of the Corporation or any part thereof, provided that no such sanction shall be necessary in respect of any such transaction if the provisions of Article 11 shall have been complied with;

(e) power to direct or authorize the Trustee to exercise any power, right, remedy or authority given to it by this Indenture in any manner specified in any such Extraordinary Resolution or to refrain from exercising any such power, right, remedy or authority;

(f) power to waive, and direct the Trustee to waive, any default hereunder or to cancel any declaration made by the Trustee pursuant to Section 7.1 which is not permitted to be waived or cancelled, as the case may be, in Section 7.3 by holders of, collectively, more than 50% of the principal amount of the Outstanding Debentures, either unconditionally or upon any condition specified in such Extraordinary Resolution;

(g) power to restrain any Debentureholder from taking or instituting any suit, action or proceeding for the purpose of enforcing payment of the principal, premium or interest on the Debentures, or for the execution of any trust or power hereunder;

(h) power to direct any Debentureholder who, as such, has brought any action, suit or proceeding, to stay or discontinue or otherwise deal with the same, if the taking of such suit, action or proceeding shall have been permitted by Article 7, upon payment of the costs, charges and expenses reasonably and properly incurred by such Debentureholder in connection therewith;

(i) power to assent to any compromise or arrangement with any creditor or creditors or any class or classes of creditors, whether secured or otherwise, and with holders of any Voting Securities or other securities of the Corporation;

(j) power to appoint a committee with power and authority (subject to such limitations, if any, as may be prescribed in the resolution) to exercise, and to direct the Trustee to exercise, on behalf of the Debentureholders, such of the powers of the Debentureholders as are exercisable by Extraordinary Resolution or other resolution as shall be included in the resolution appointing the committee. The resolution making such appointment may provide for payment of the expenses and disbursements of and compensation to such committee. Such committee shall consist of such number of persons as shall be prescribed in the resolution appointing it and the members need not be themselves Debentureholders. Every such committee may elect its chairman and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number and its procedure generally. Such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members thereof necessary to constitute a quorum. All acts of any such committee within the authority delegated to it shall be binding upon all Debentureholders. Neither the committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith;

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(k) power to remove the Trustee from office and to appoint a new Trustee or Trustees provided that no such removal shall be effective unless and until a new Trustee or Trustees shall have become bound by this Indenture; and

(l) power to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Debentureholders or by any committee appointed pursuant to (j).

13.4 <u>**Execution of Supplemental Indentures**</u>

13.5 <u>**Effect of Supplemental Indentures**</u>

Upon the execution of any Supplemental Indenture under this Article 13, this Indenture shall be modified in accordance therewith, and such Supplemental Indenture shall form a part of this Indenture for all purposes, unless otherwise so specified; and every Holder theretofore or thereafter certified and delivered under this Indenture shall be bound by the Supplemental Indenture.

13.6 <u>**Reference in Debentures to Supplemental Indentures**</u>

Debentures certified and delivered after the execution of any Supplemental Indenture pursuant to this Article 13 may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such Supplemental Indenture. If the Corporation shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any such Supplemental Indenture may be prepared and executed by the Corporation and certified and delivered by the Trustee in exchange for Outstanding Debentures.

13.7 <u>**Prior Approval of Recognized Stock Exchange**</u>

Notwithstanding anything to the contrary in this Indenture, any supplement or amendment to the terms of the Debentures or to this Indenture shall be made in accordance with the requirements of a Recognized Stock Exchange, as required.

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**ARTICLE 14**<br><u>**MISCELLANEOUS PROVISIONS**</u>

14.1 <u>**Acceptance of Trusts**</u>

The Corporation and the Trustee hereby specifically acknowledge and agree that the Trustee is acting hereunder in its capacity as the Person holding the power of attorney of the Holders for the purposes of this Indenture and in conformity with and subject to the terms and conditions of this Indenture. Each Holder, by its acceptance thereof, accepts and confirms the appointment of the Trustee as the Person holding the power of attorney of such Holder for the purposes of this Indenture and in conformity with and subject to the terms and conditions of this Indenture.

14.2 <u>**Protection of Trustee**</u>

None of the provisions of this Indenture shall require a Trustee to expend or risk its own funds or otherwise to incur any liability, financial or otherwise, in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not assured to it.

14.3 <u>**Counterparts and Formal Date**</u>

This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all of which shall together constitute one and the same instrument and notwithstanding their date of execution shall be deemed to bear a date as of the date hereof. Without limiting the foregoing, if the signatures on behalf of one party to this Indenture are on different counterparts, this shall be taken to be, and have the same effect as, signatures on the same counterpart and on a single copy of this Indenture.

***[Signature page follows]***

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**IN WITNESS WHEREOF** the parties hereto have executed this Indenture as of the date first written above.

**C21 INVESTMENTS INC.**

By: <u>*"Michael Kidd"*</u><u> </u>

Name: Michael Kidd

Title: Chief Financial Officer

**ALLIANCE TRUST COMPANY, as Trustee**

By: <u>*"Zinat H Damji"*</u><u> </u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name: Zinat H. Damji

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title: President & CEO

By: <u>*"Miguel Lahud"*</u><u> </u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Name: Miguel Lahud

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Title: Director, Client Services & Business Development

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**SCHEDULE "A"**

**FORM OF DEBENTURE**

**UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS 4 MONTHS AND A DAY AFTER THE DISTRIBUTION DATE].**

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|:---|:---|
| No. ◆ | $◆ |

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**C21 INVESTMENTS INC.**

**(A corporation incorporated under the laws of British Columbia)**

**12.0% CONVERTIBLE DEBENTURE**

**C21 INVESTMENTS INC.** (the "**Corporation**"), for value received, hereby acknowledges itself indebted and promises to pay to the order of the registered Holder, subject to this Debenture (as defined below) being converted, redeemed our purchased prior to November 6, 2026 (the "**Maturity Date**") in accordance with the terms set forth in the Indenture (as defined below), the principal sum of

**[insert amount],**

in twenty-five (25) equal monthly instalments (each, a "**Monthly Instalment**"), in lawful money of Canada each equal to the outstanding principal of this Debentures on the Issue Date (as defined in the Indenture) divided by 25, with a final payment on the Maturity Date of all of the then Outstanding (as defined in the Indenture) principal of this Debenture, together with all accrued and unpaid interest thereon, with each Monthly Instalment to be paid on the last day of each calendar month (each, a "**Monthly Instalment Date**"), beginning on the last day of the sixth calendar month from the Issue Date (the "**Release Date**"), with the first Monthly Instalment due and payable on October 31, 2024. In the event that prior to the Maturity Date, the Debentures are converted into Common Shares by the Holder or redeemed or purchased by the Corporation in accordance with the terms of the Indenture, the amount of each remaining Monthly Instalment on the date of such conversion, redemption or purchase, as applicable, shall be proportionally adjusted to reflect the outstanding principal of the Debentures after the occurrence of such conversion, redemption or purchase.

Each Monthly Instalment shall be paid to the Holder in cash, or the Holder may elect to receive as payment for all or a portion of the principal of this Debenture payable on any given Monthly Instalment Date by way of the issuance to the Holder of up to such number of Common Shares as obtained by dividing the principal amount of this Debenture at the time of such election by the Conversion Price (as defined in the Indenture) in accordance with the terms and conditions set forth in the Indenture.

The Corporation shall pay interest on the principal amount Outstanding on this Debenture at the rate of 12.0% per annum from the Issue Date, payable in lawful money of Canada in equal quarterly instalments in arrears on March 31, June 30, September 30 and December 31 in each year (each, an "**Interest Payment Date**"), the first such payment to fall due on June 30, 2024 (the "**Initial Payment Date**") and the last such payment (representing interest payable from and including the last Interest Payment Date to, but excluding, the Maturity Date) to fall due on the Maturity Date The Initial Payment Date on June 30, 2024 will include interest accrued from the Issue Date to, but excluding, June 30, 2024 and the last interest payment will include accrued interest from and including the last day on which interest is due hereunder to but excluding the Maturity Date.

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As interest on this Debenture becomes due, the Corporation (subject to early repurchase or redemption pursuant to the terms of the Indenture) shall forward or cause to be forwarded by ordinary post to the registered address of the registered Holder of the Debenture for the time being, or in the case of joint Holders to the registered address of one of such joint Holders, a cheque or electronic funds transfer for such interest, payable to the order of such Holder or Holders. The forwarding of such cheque or electronic funds transfer shall satisfy and discharge the liability for interest on this Debenture to the extent of the sum represented thereby, unless such cheques, if any, be not paid on presentation.

For the purposes of disclosure under the *Interest Act* (Canada), whenever interest is computed under this Debenture on the basis of a year (the "**deemed year**") which contains fewer days than the actual number of days in the calendar year of calculation, such rate of interest shall be expressed as a yearly rate by multiplying such rate of interest by the actual number of days in such calendar year of calculation and dividing it by the number of days in the deemed year.

This Debenture is one of the 12.0% Convertible Debentures (the "**Debentures**") created and issued under an Indenture (the "**Indenture**") dated as of May 6, 2024 made between the Corporation and Alliance Trust Company, as trustee (the **"Trustee"**). Reference is hereby made to the Indenture for a description of the rights of the holders of the Debentures, the Corporation and the Trustee and of the terms and conditions upon which the Debentures are issued and held, all to the same effect as if the provisions of the Indenture were herein set forth, to all of which provisions the Holder of this Debenture, by acceptance hereof, agrees. To the extent that the terms and conditions stated in this Debenture conflict with the terms and conditions of the Indenture, the latter shall prevail. All capitalized terms used herein have the meaning ascribed thereto in the Indenture unless otherwise indicated.

The Debentures are issuable as fully registered Debentures in denominations of $1,000 and integral multiples of $1,000. The Debentures of any authorized denomination may be exchanged, as provided in the Indenture, for Debentures in equal aggregate principal amount, provided that Debentures tendered for exchange must be equal to $1,000 principal amount or any integral thereof.

Any part, being $1,000 or an integral multiple thereof, of the principal of this Debenture, provided that the principal amount of this Debenture is in a denomination in excess of $1,000, is convertible, at the option of the Holder hereof, upon surrender of this Debenture at the principal office of the Trustee in Vancouver, British Columbia, at any time prior to the close of business on the sixth Business Day immediately preceding the Maturity Date into Common Shares (without adjustment for interest accrued hereon or for dividends or distributions on Common Shares issuable upon conversion) at the Conversion Price, all subject to the terms and conditions and in the manner set forth in the Indenture, including adjustment to the Conversion Price in accordance with the Indenture. The Indenture makes provision for the adjustment of the Conversion Price in the events therein specified. No fractional Common Shares will be issued on any conversion and any fraction of a Common Share that would otherwise be issued will be rounded down to the nearest whole number. Holders converting their Debentures will receive accrued and unpaid interest thereon. If a Debenture is surrendered for conversion on an Interest Payment Date or during the five preceding Business Days, the Person or Persons entitled to receive Common Shares in respect of the Debenture so surrendered for conversion shall not become the Holder or holders of record of such Common Shares until the Business Day following such Interest Payment Date.

This Debenture and all other Debentures certified and issued under the Indenture rank pari passu with one another, in accordance to their tenor without discrimination, preference or priority.

Upon the giving of notice by the Trustee of the occurrence of an Event of Default in accordance with the

Indenture, the Debentures will become immediately due and payable.

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From the Release Date to the Maturity Date, this Debenture shall be redeemable, in whole at any time, or in part from time to time, at the option of the Corporation on notice as provided for in the Indenture at a cash redemption price equal to the principal amount thereof plus accrued and unpaid interest up to the Redemption Date (the "**Redemption Price**"), or, at the option of the Holder, by way of issuance to the Holder of up to such number of Common Shares as obtained by dividing the principal amount of this Debenture at the time of exercise of such option by the Conversion Price. All accrued interest payable in connection with such redemption shall be payable to the Holder in cash.

The Indenture contains provisions for the holding of meetings of Debentureholders and rendering certain resolutions passed at such meetings by, or by instruments in writing signed by, the holders of, collectively, not less than a majority, or in the case of matters requiring approval by Extraordinary Resolution, not less than 66⅔%, in aggregate principal amount of the Outstanding Debentures, binding upon all Debentureholders, subject to the provisions of the Indenture.

This Debenture may only be transferred upon compliance with the conditions precedent in the Indenture on the register kept at the principal office of the Trustee and at such other place or places, if any, and/or by such other registrar or registrars, if any, as the Corporation with the approval of the Trustee may designate, and may be exchanged at any such place, by the Holder hereof or his executors or administrators or other legal representatives or his or their attorney duly appointed by an instrument in writing in form and execution satisfactory to the Trustee, and upon compliance with such reasonable requirements as the Trustee and/or registrar may prescribe, and such transfer shall be duly noted thereon by the Trustee or other registrar.

Neither the Debentures nor the Common Shares issuable upon conversion of the Debentures have been or will be registered under the U.S. Securities Act or any state securities laws of the United States.

This Debenture shall not become obligatory for any purpose until it shall have been certified by the Trustee for the time being under the Indenture.

This Debenture shall be governed by and construed in accordance with the laws of the province of British Columbia and the federal laws of Canada applicable thereto.

The Holder of this Debenture, by receiving and holding same, hereby accepts and agrees to be bound by the terms, and to be entitled to the benefits of this Debenture and of the Indenture and confirms the appointment of the Trustee and of the Indenture, the whole in accordance with and subject to the respective provisions thereof.

The Corporation will furnish to any Holder, upon written request and without charge, a copy of the Indenture.

***[signature page follows]***

------

**IN WITNESS WHEREOF C21 INVESTMENTS INC.** has caused this debenture to be signed by an authorized signing officer.

**DATED** as of May 6, 2024.

**C21 INVESTMENTS INC.**

---

| | |
|:---|:---|
| By: |  |
|  | Name: |
|  | Title: |

---

------

**TRUSTEE'S CERTIFICATE**

This Debenture is one of the 12.0% Convertible Debentures referred to in the within-mentioned Indenture.

**ALLIANCE TRUST COMPANY, as**

**Trustee**

---

| | |
|:---|:---|
| By: |  |
|  | Authorized Signatory |
|  | Date of Certification: |

---

------

**FORM OF ASSIGNMENT**

**FOR VALUE RECEIVED**, the undersigned hereby sells, assigns and transfers unto _________________, whose address and social insurance number, if applicable, are set forth below, this Debenture (or $ principal amount hereof\*) of **C21 INVESTMENTS INC.** (the "**Corporation**") standing in the name(s) of the undersigned in the register maintained by the registrar appointed by the Corporation with respect to such Debenture and does hereby irrevocably appoint __________________ as its attorney to transfer such Debenture in such register, with full power of substitution in the premises.

Dated:   <br> 

Address of Transferee:   <br> 

  <br> (Street Address, City, Province and Postal Code)

Social Insurance Number of Transferee, if applicable:  

\*If less than the full principal amount of the within Debenture is to be transferred, indicate in the space provided above the principal amount (which must be equal to $1,000 principal amount or any integral thereof) to be transferred.

The signature(s) to this assignment must correspond with the name(s) as written upon the face of this Debenture in every particular without alteration or any change whatsoever. The signature(s) on this form must be guaranteed by one of the following methods:

***Canada:*** A Signature Guarantee obtained from a major Canadian Schedule I chartered bank. The Guarantor must affix a stamp bearing the actual words "Signature Guaranteed". Signature Guarantees are not accepted from Treasury Branches, Credit Unions or Caisses Populaires unless they are members of a Medallion Signature Guarantee Program.

***Outside North America:*** For holders located outside North America, present the certificate(s) and/or document(s) that require a guarantee to a local financial institution that has a corresponding Canadian or American affiliate which is a member of an acceptable Medallion Signature Guarantee program. The corresponding affiliate will arrange for the signature to be over-guaranteed.

The registered Holder of this Debenture is responsible for the payment of any documentary, stamp or other transfer taxes that may be payable in respect of the transfer of this Debenture.

Signature of Guarantor:

_______________________________________________________________

Authorized Officer Signature of transferring registered Holder

_____________________________________________

Name of Institution

------

**FORM OF NOTICE OF CONVERSION**

**TO: C21 INVESTMENTS INC.** (the "**Corporation**")

c/o Alliance Trust Company

407 - 2nd Street S.W., Suite 1010

Calgary, Alberta T2P 2Y3

Attention: Securities Department

Facsimile: 403-237-6181

Email: inquiries@alliancetrust.ca

Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture (the "**Indenture**") dated as of May 6, 2024 between the Corporation and Alliance Trust Company, as trustee, unless otherwise indicated.

The undersigned registered Holder of 12.0% Convertible Debentures (the "**Debentures**") irrevocably elects to convert such Debentures (or $ principal amount thereof\*) in accordance with the terms of the Indenture referred to in such Debentures and tenders herewith the Debentures, and, if applicable, directs that the Common Shares of the Corporation issuable upon a conversion be issued and delivered to the person indicated below. (If Common Shares are to be issued in the name of a person other than the Holder, all requisite transfer taxes must be tendered by the undersigned).

---

| | |
|:---|:---|
| Dated:________________________________________ |  |
|  | (Name of Registered Holder) |
|  | (Signature of Registered Holder) |

---

\* If less than the full principal amount of the Debentures, indicate in the space provided the principal amount (which must $1,000 integral multiples thereof).

NOTE: If Common Shares are to be issued in the name of a person other than the Holder, the signature must be guaranteed by a chartered bank, a trust company or by a member of an acceptable Medallion Guarantee Program. The Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED".

(Print name in which Common Shares are to be issued, delivered and registered)

Name: ____________________________________________

__________________________________________________<br>(Address)

__________________________________________________<br>(City, Province and Postal Code)

Name of guarantor: __________________________________

Authorized signature: ________________________________

------

**FORM OF PRINCIPAL PAYMENT ELECTION NOTICE**

**TO: C21 INVESTMENTS INC.** (the "**Corporation**")

c/o Alliance Trust Company (the "**Trustee**")

407 - 2nd Street S.W., Suite 1010

Calgary, Alberta T2P 2Y3

Attention: Securities Department

Facsimile: 403-237-6181

Email: inquiries@alliancetrust.ca

Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture (the "**Indenture**") dated as of May 6, 2024 between the Corporation and Alliance Trust Company, as trustee, unless otherwise indicated.

The undersigned registered Holder of 12.0% Convertible Debentures in the aggregate principal amount of $____________\* (collectively, the "**Debentures**") irrevocably elects to receive the next Monthly Instalment of principal payable on the Debentures on ________________*[Insert last day of the month on which the next Monthly Instalment is payable]* by way of issuance to the Holder of Common Shares in accordance with the terms of the Indenture referred to in such Debentures and directs that the Common Shares of the Corporation issuable in connection with such Monthly Instalment be issued and delivered to the person indicated below. (If Common Shares are to be issued in the name of a person other than the Holder, all requisite transfer taxes must be tendered by the undersigned).

---

| | |
|:---|:---|
| Dated: ________________________________________ |  |
|  | (Name of Registered Holder) |
|  | (Signature of Registered Holder) |

---

Note: In order to be effective, this notice must be delivered to the Trustee at least ten (10) days prior to the next Monthly Instalment Date in accordance with the terms of the Indenture. Any late delivery of this notice shall result in the payment of the next applicable Monthly Instalment to the Holder in cash in accordance with the terms of the Indenture. This notice represents a Principal Payment Election only in connection with the next applicable Monthly Instalment payable, and shall not serve as a standing election for any Monthly Instalments payable after such Monthly Instalment Date.

\* If less than the full principal amount of the Debentures, indicate in the space provided the principal amount (which must $1,000 integral multiples thereof).

NOTE: If Common Shares are to be issued in the name of a person other than the Holder, the signature must be guaranteed by a chartered bank, a trust company or by a member of an acceptable Medallion Guarantee Program. The Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED".

------

(Print name in which Common Shares are to be issued, delivered and registered)

Name: ____________________________________________

__________________________________________________<br>(Address)

__________________________________________________<br>(City, Province and Postal Code)

Name of guarantor: __________________________________

Authorized signature: _________________________________

------

**FORM OF NOTICE OF REDEMPTION**

**DATE:**

**TO: ALLIANCE TRUST COMPANY** (the "**Trustee**")

407 - 2nd Street S.W., Suite 1010

Calgary, Alberta T2P 2Y3

Attention: Securities Department

Facsimile: 403-237-6181

Email: <u>inquiries@alliancetrust.ca</u>

**AND TO: HOLDERS OF DEBENTURES TO BE REDEEMED** (the "**Debentureholders**")

Note: All capitalized terms used herein have the meaning ascribed thereto in the indenture (the "**Indenture**") dated as of May 6, 2024 between the C21 Investments Inc. (the "**Corporation**") and Alliance Trust Company, as trustee, unless otherwise indicated.

In accordance with Section 3.3 of the Indenture, the Corporation hereby provides notice to the Trustee and the Debentureholders of its election to redeem an aggregate principal amount of $________ (the "**Redemption Price**") 12.0% Convertible Debentures (the "**Debentures**") in accordance with the terms and conditions of the Indenture referred to in such Debenture on the following terms:

**Aggregate Principal Amount of Debentures to be Redeemed:**

**Redemption Date:**

**Debentures to be Redeemed:**

*[Insert distinguishing letters and numbers of the Debentures which are to be redeemed (or of such thereof as are registered in the name of such Debentureholder) and the principal amounts of such Debentures (or, if any such Debenture is to be redeemed in part only, the principal amount of such part.]*

In order to receive the Redemption Price in respect of the Debentures, Debentureholders are required to surrender the certificates representing the Debentures to the Trustee at the address provided for above in accordance with the terms and conditions of the Indenture.

Interest on the principal amount of Debentures called for redemption shall cease to accrue and be payable from and after the Redemption Date. Debentureholders shall receive any accrued and unpaid interest on the Debentures up to the Redemption Date in cash upon the surrender of the Debentures in accordance with the terms of the Indenture.

**COMMON SHARE REDEMPTION NOTICE**

Pursuant to the terms and conditions of the Indenture, each Debentureholder has the right to elect to receive payment of the Redemption Price by way of the issuance of such number of Common Shares obtained by dividing the Redemption Price by the Conversion Price (initially equal to $0.45 per Common Shares, subject to adjustment in accordance with the terms of the Indenture) (the "**Common Share Redemption Right**").

------

Any Debentureholders electing to exercise their Common Share Redemption Right shall submit their notice of such election (the "**Common Share Redemption Notice**") by: (i) specifying the aggregate principal amount of Debentures in respect of which the Debentureholder wishes to exercise the Common Share Redemption Right; (ii) complete, sign and date the Common Share Redemption Notice below; and (iii) deliver the signed Common Share Redemption Notice to the Trustee and the Corporation at the addresses provided above not more than ten (10) days after the date of the Notice of Redemption.

**Aggregate Principal Amount of Debentures subject to the Common Share Redemption Right:**

$_____________________________

The Debentureholder directs that the Common Shares of the Corporation issuable in respect of the Common Share Redemption Right be issued and delivered to the person indicated below. (If Common Shares are to be issued in the name of a person other than the Debentureholder, all requisite transfer taxes must be tendered by the undersigned).

---

| | |
|:---|:---|
| Dated:________________________________________ |  |
|  | (Name of Registered Holder) |
|  | (Signature of Registered Holder) |

---

No fractional Common Shares shall be delivered upon the exercise of the Common Share Redemption Right but, subject to the terms and condition of the Indenture, in lieu thereof, the Debentureholder shall receive the cash equivalent thereof determined on the basis of the Conversion Price (less any tax required to be deducted, if any); provided, however the Corporation shall not be required to make any payment of less than $20.00.

The issuance of Common Shares in connection with the Common Share Redemption Right is subject to the receipt by the Corporation of any required regulatory approval and the approval of Recognized Stock Exchange.

NOTE: If Common Shares are to be issued in the name of a person other than the Debentureholder, the signature must be guaranteed by a chartered bank, a trust company or by a member of an acceptable Medallion Guarantee Program. The Guarantor must affix a stamp bearing the actual words: "SIGNATURE GUARANTEED".

(Print name in which Common Shares are to be issued, delivered and registered)

Name: ____________________________________________

__________________________________________________<br>(Address)

__________________________________________________<br>(City, Province and Postal Code)

Name of guarantor: __________________________________

Authorized signature: _________________________________

------

## Exhibit 8.1

------

---

| | | |
|:---|:---|:---|
|  | **Country of** | **Percentage** |
| **Name of Subsidiary** | **Incorporation** | **Ownership** |
| 320204 US Holdings Corp. | USA | 100% |
| 320204 Oregon Holdings Corp. | USA | 100% |
| 320204 Nevada Holdings Corp. | USA | 100% |
| 320204 Re Holdings, LLC | USA | 100% |
| Eco Firma Farms LLC | USA | 100% |
| Silver State Cultivation LLC | USA | 100% |
| Silver State Relief LLC | USA | 100% |
| Phantom Venture Group, LLC | USA | 100% |
| Phantom Brands, LLC | USA | 100% |
| Phantom Distribution, LLC | USA | 100% |
| 63353 Bend, LLC | USA | 100% |
| 20727-4 Bend, LLC | USA | 100% |
| 4964 BFH, LLC | USA | 100% |
| Workforce Concepts 21, Inc. | USA | 100% |

---

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## Exhibit 12.1

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**Exhibit 12.1**

**CERTIFICATION REQUIRED BY RULE 13a-14(a) <br>UNDER THE SECURITIES EXCHANGE ACT OF 1934**

I, Sonny Newman, certify that:

1. I have reviewed this annual report on Form 20-F of C21 Investments Inc. (the "Issuer");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;

4. The Issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Issuer and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.

5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: June 23, 2025 | By: | <u>/s/ Sonny Newman</u><u> </u><br>Sonny Newman<br>President and Chief Executive Officer<br>(Principal Executive Officer) |

---

------

## Exhibit 12.2

------

**Exhibit 12.2**

**CERTIFICATION REQUIRED BY RULE 13a-14(a) <br>UNDER THE SECURITIES EXCHANGE ACT OF 1934**

I, Michael Kidd, certify that:

1. I have reviewed this annual report on Form 20-F of C21 Investments Inc. (the "Issuer");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;

4. The Issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.

5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.

---

| | | |
|:---|:---|:---|
| Date: June 23, 2025 | By: | <u>/s/ Michael Kidd</u><u> </u><br> Michael Kidd<br>Chief Financial Officer and Director<br> (Principal Financial and Accounting Officer) |

---

------

## Exhibit 13.1

------

**Exhibit 13.1**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. §1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of C21 Investments Inc. (the "Company") on Form 20-F for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sonny Newman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| June 23, 2025 | /s/ Sonny Newman |
|  | Sonny Newman |
|  | President and Chief Executive Officer |
|  | (Principal Executive Officer) |

---

A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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## Exhibit 13.2

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**Exhibit 13.2**

**CERTIFICATION PURSUANT TO**

**18 U.S.C. §1350, AS ADOPTED PURSUANT TO**

**SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Annual Report of C21 Investments Inc. (the "Company") on Form 20-F for the period ended March 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Kidd, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| June 23, 2025 | /s/ Michael Kidd |
|  | Michael Kidd |
|  | Chief Financial Officer |
|  | (Principal Financial and Accounting Officer) |

---

A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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## Exhibit 15.1

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![](exhibit15-1x001.jpg)

C21 INVESTMENTS INC.

![](exhibit15-1x002.jpg)

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| | |
|:---|:---|
| ![](exhibit15-1x003.jpg) |  |
| ![](exhibit15-1x003.jpg) | Management's Discussion and Analysis |
| ![](exhibit15-1x003.jpg) | For the Year Ended **March 31, 2025** |
| ![](exhibit15-1x003.jpg) | *(Expressed in U.S. Dollars)* |
| ![](exhibit15-1x003.jpg) |  |

---

------

**GENERAL** 

C21 Investments Inc. (the "**Company**", "**C21**", "**we**", "**us**", "**it**" and "**our**") was incorporated in the Province of British Columbia under the *Company Act* (British Columbia) on January 15, 1987 as Empire Creek Mines Inc. On May 11, 1987, the Company changed its name to Curlew Lake Resources Inc. Effective November 24, 2017, the Company changed its name to C21 Investments Inc. On June 15, 2018, the Company's common shares (the "**Common Shares**") were delisted from the TSX Venture Exchange and on June 18, 2018, the Common Shares commenced trading on the Canadian Securities Exchange ("**CSE**") under the symbol CXXI. The Company registered its Common Shares in the United States ("**U.S.**") and on May 6, 2019, its Common Shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On August 23, 2019 the Company announced it had been approved for trading on the OTCQB Venture Market, and on September 28, 2020 the Company upgraded to trading on the OTCQX Best Market.

This Management's Discussion and Analysis ("**MD&A**") covers the operations of the Company for the year ended March 31, 2025. The MD&A should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the year ended March 31, 2025. All inter-company balances and transactions have been eliminated upon consolidation. The Company's financial statements are prepared in accordance accounting principles generally accepted in the United States of America ("**GAAP**"). Financial information presented in this MD&A is presented in United States dollars ("**$**" or "**US$**"), unless otherwise indicated.

The Company's audited consolidated financial statements for the year ended March 31, 2025, the two months ended March 31, 2024, and the year ended January 31, 2024, were authorized for issuance on June 23, 2025 by the Board.

Additional information related to the Company is available for viewing on SEDAR at <u>www.sedar.com</u> or the Company website at <u>www.cxxi.ca</u>.

**DESCRIPTION OF BUSINESS**

The Company is a vertically integrated cannabis company that cultivates, processes, distributes and sells quality cannabis and hemp-derived consumer products in Nevada, U.S.A. The Company is focused on value creation through the disciplined acquisition and integration of core retail, manufacturing, and distribution assets in strategic markets, leveraging industry-leading retail revenues together with high-growth potential and multi-market branded consumer packaged goods ("**CPG**").

The Company focuses on scalable opportunities in key markets that take advantage of its core competencies, including: (i) retail operational excellence and expanding its retail footprint through value-add acquisitions in existing markets, and (ii) branded CPG expansion through both captive retail and wholesale channels. The Company focuses on acquiring businesses that provide immediate contribution to overall profitability, or have a path to profitability within twelve months, where it can leverage existing assets, brands, and domain expertise.

The Company currently holds licenses in Nevada spanning the entire cannabis supply chain. The Company presents its Oregon operations as 'held for sale' on the Balance Sheet and as 'discontinued operations' in the Income Statement.

The Company's management team has significant professional experience, including deep experience both within the cannabis industry and other fast-paced growth industries like technology and venture capital. Management also includes experts from more traditional industries like forestry, manufacturing, real estate, and capital markets.

Strategic Focus and Growth

Our operations in Reno, Nevada under the Silver State Relief brand continues its strong financial performance generating healthy cash flow and satisfied customers. Building around this strong core we have accomplished much since the beginning of the Company's fiscal year 2025:

* Subsequent to March 31, 2025 to the date of this report, the Company repurchased and cancelled 134,500 of its own common shares in the open market pursuant to the NCIB (see below November 26, 2024) announced by the company on November 26, 2024. 

p. 2

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* The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Internal Revenue Code of 1986, including the planned refiling of amended U.S. federal income tax returns in the next few months. The refiling of tax returns will be for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and the two months ended March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount. See disclosure of Risks Factors later in this document.

* On February 19, 2025 the Company announced that it has completed a repurchase for cancellation of 2,051,000 of its common shares (the "Purchased Shares"), representing approximately 1.7% of the outstanding common shares ("Common Shares") of the Company, in a private transaction (the "Transaction"). The Purchased Shares were repurchased at a discount to the closing price of the Company's shares on the Canadian Securities Exchange (the "CSE") on February 14, 2025. The transaction was unanimously approved by the Board of Directors of the Company. "We are pleased to announce the purchase for cancellation of over 2 million outstanding Common Shares of C21 as we believe our current market valuation does not reflect the inherent value of our company given our growth trend, and proven track record of generating free cashflow over the last 5 years. Consistent with our strategy, this transaction represents the Company once again taking advantage of an opportunity that we believe will be accretive to our shareholders, " said Sonny Newman, Chief Executive Officer. "We continue to strive to be thoughtful stewards of capital and remain focused on pursuing additional accretive growth opportunities."

* On November 26, 2024 the Company announced that it intends to commence a normal course issuer bid ("NCIB") under which it may purchase up to 6,002,390 common shares of the Company representing approximately 5% of the issued and outstanding shares of the Company. The Company may purchase common shares for a period of 12 months ending on December 2, 2025. All shares will be purchased on the open market at the prevailing market prices. The Company has not repurchased any shares to date.

* On June 26, 2024, the Company's third Silver State Relief retail dispensary opened in South Reno, Nevada. 

* On June 7, 2024, the Company closed the acquisition of a cannabis dispensary in Reno, Nevada from Deep Roots Harvest. The Company acquired all the assets related to the operation of its 6,500 square foot, purpose-built, operational retail cannabis dispensary located in South Reno Nevada (the "South Reno Dispensary"). This acquisition allows C21 to expand its retail footprint in Nevada, a pivotable step in its growth strategy. This store was integrated and rebranded under the Silver State Relief banner. President and CEO of C21, Sonny Newman commented: "With the dispensary's desirable location in a high traffic, flourishing area of South Reno, we anticipate strong revenue growth from this acquisition, along with the added benefit of allowing us to expand the portion of our cultivation capacity sold through our retail channel."

* On May 6, 2024, the Company closed a private placement of C$4 million from the issuance of convertible debentures units (the "May 2024 Private Placement"). The proceeds will be used to fund the acquisition of the South Reno Dispensary. The convertible debenture units are comprised of a "Convertible Debenture" convertible into common shares at C$0.45, and a "Warrant" entitling the holder to exercise into common shares at C$0.55. The maximum shares issuable from the Convertible Debenture is 8,888,889 common shares, and from the Warrant, 4,000,000 common shares. The outstanding principal amount owing under the Convertible Debenture will accrue interest from the issue date at 12% per annum payable quarterly in cash. Repayment of the Convertible Debenture will be made in 25 equal monthly installments beginning on the last day of the 6th month from issuance. The Convertible Debenture matures 30 months after issuance. See the news release and public filings of this issuance for further information. 

* On March 15, 2024, the Company announced the acquisition of the South Reno Dispensary, subject to regulatory approval and May 2024 Private Placement, with proceeds of up to C$4 million. See above and the Company news releases and public filings for further information.

The Company's strategic Initiatives over the next 12 months include: (i) extending our Nevada retail footprint where we have a proven track record of success and (ii) continuing our disciplined approach to growth and financing.

p. 3

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NEVADA

The Company acquired Silver State Relief and Silver State Cultivation ("Silver State") on January 1, 2019. The Nevada business operates in Sparks, and Fernley, Nevada.

Cultivation, Processing and Wholesale

Through Silver State in Nevada, the Company operates its indoor cultivation and processing out of a 104,000 square foot facility now with 37,000 square feet of cultivation and 1,200 square feet dedicated to volatile extraction. Silver State completed a $3 million expansion of its grow facility in April 2022, more than doubling capacity to 11,500 pounds of biomass with 8,100 pounds of cannabis flower and 3,300 pounds of trim annually. An additional 30,000 sq ft of cultivation can be built out on future expansion of Nevada retail footprint, which should produce an additional 6,000 pounds per annum of high-quality cannabis flower.

The Company's extraction processing supports branded CPG in both captive retail and wholesale channels. Silver State manufactures Hood Oil cartridges, Phantom Farms pre-rolls, and cannabis flower strains, together with the Silver State branded products which include cannabis flower, pre-rolls, and concentrates. These in-house brands make up 26% of sales in the dispensaries. With the addition of our third dispensary, wholesale sales fell to $1.4 million for the year ended March 31, 2025 ($3.0 million in year ended January 31, 2024).

Retail

The Company now owns and operates three dispensaries with the acquisition of the third, the South Reno Dispensary, finalized on June 7, 2024. Its grand opening was on June 26, 2024. It is a 6,500 square foot, purpose-built, retail cannabis dispensary. With the dispensary's desirable location in a high traffic, flourishing area of Southern Reno, the Company has seen strong revenue growth from this acquisition, along with the added benefit of allowing it to expand the portion of our cultivation capacity sell through.

Our two established stores are an 8,000-square foot retail dispensary, located in Sparks, Nevada, and a 6,000-square foot dispensary located in Fernley, Nevada. Silver State Relief had total retail sales of $28.7 million during the year ended March 31, 2025 as compared to $25.3 million in the year ended January 31, 2024. The three stores now collectively service a total of more than 174,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Silver State Relief - quarterly customer transactions** | **Silver State Relief - quarterly customer transactions** | **Silver State Relief - quarterly customer transactions** | **Silver State Relief - quarterly customer transactions** | **Silver State Relief - quarterly customer transactions** |
| **Year ended Mar 31, 2025 and year ended Jan 31, 2024** | **Year ended Mar 31, 2025 and year ended Jan 31, 2024** | **Year ended Mar 31, 2025 and year ended Jan 31, 2024** | **Year ended Mar 31, 2025 and year ended Jan 31, 2024** | **Year ended Mar 31, 2025 and year ended Jan 31, 2024** |
| **Store location:** | **Store location:** | **Store location:** | **Store location:** | **Store location:** |
| ***Quarter*** | ***South Reno*** | ***Fernley*** | ***Sparks*** | ***Total*** |
| Q1-2024 |  | 44981 | 75101 | **120082** |
| Q2 |  | 47439 | 80199 | **127638** |
| Q3 |  | 49158 | 81232 | **130390** |
| Q4 |  | 48545 | 75684 | **124229** |
| Q1-2025 | 857 | 49796 | 75796 | **126449** |
| Q2 | 25319 | 53767 | 75825 | **154911** |
| Q3 | 34987 | 54277 | 79193 | **168457** |
| Q4 | 39535 | 54459 | 80617 | **174611** |

---

p. 4

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RESULTS OF OPERATIONS

Summary derived from the Company's consolidated financial statements:

---

| | | | |
|:---|:---|:---|:---|
| C21 Investments Inc., PROFIT AND LOSS | Year ended | Two months<br>ended | Year ended |
|  | 31-Mar-25 | 31-Mar-24 | 31-Jan-24 |
| **Revenue** | 30117880 | 4464950 | 28285200 |
| Inventory expensed to cost of sales | 17558940 | 2688650 | 17135434 |
| **Gross profit** | 12558940 | 1776300 | 11149766 |
| Gross Margin% | 41.7% | 39.8% | 39.4% |
| **Expenses** |  |  |  |
| General and administration | 7728838 | 1151305 | 7537233 |
| Sales, marketing, and promotion | 207634 | 21581 | 75561 |
| Operating lease cost | 785241 | 106283 | 633840 |
| Depreciation and amortization | 1706012 | 207225 | 1408976 |
| Share based compensation | 849559 |  | 22128 |
| **Total expenses** | 11277284 | 1486394 | 9677738 |
| **Income from operations** | 1281656 | 289906 | 1472028 |
| **Other items** |  |  |  |
| Interest expense | (293675) |  | (35210) |
| Accretion expense | (509871) |  |  |
| Other Income (loss) | (135446) | 9209 | (726789) |
| Gain on change in fair value of derivative liabilities | 52257 | 22189 | (451372) |
| **Net income (loss) from continuing operations before income taxes** | 394921 | 321304 | 258657 |
| Income tax expense | (4151650) | (372743) | (3482125) |
| **Net income (loss) from continuing operations after income taxes** | (3756729) | (51439) | (3223468) |
| **Net loss from discontinued operations** | (212813) | (22965) | (81817) |
| **Net income (loss)** | (3969542) | (74404) | (3305285) |
| **Income (loss) from continuing operations per share, basic and diluted** | (0.03) | (0.00) | (0.03) |
| **Basic and diluted income (loss) per share** | (0.03) | (0.00) | (0.03) |
| **Distributions or cash dividends** | n/a | n/a | n/a |
| **Weighted average number of shares outstanding - basic** | 119794951 | 120047814 | 120047814 |
| **Weighted average number of shares outstanding - diluted** | 120588044 | 122880907 | 122880907 |

---

"**Revenue**" includes retail revenues from our three stores and wholesale revenue from our cultivation operations. Financial Year ("**FY**") and the year ended March 31, 2025 **("FY2025")** and the year ended January 31, 2024 ("**FY2024**") are defined here. The two month fiscal year ended March 31, 2024 is not used for comparison in this discussion due to it is only two months. FY 2025 revenues increased versus FY 2024 by 6.5% to $30.1 million. This increase is mainly due to the opening of our third store in June 2024, offset by a fall in wholesale revenues.

p. 5

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**"Cost of Sales"** includes the costs directly attributable to cultivating and processing cannabis plus the cost of product purchases from third parties, for sale in our stores. With the expansion of our cultivation facility our cost of production has come down due to economies of scale. We use an average costing model which captures and averages costs over several quarters.

"**Gross profit**" increased by $1.41 million in FY 2025 to $12.56 million (41.7% of Revenue) versus FY 2024 of $11.15 million (39.4% of Revenue), mainly due to economies of scale with the added third store.

**"Income from operations"** despite the increase in gross profit above, Income from operations for FY 2025 fell to $1.3 million, down 13% versus FY 2024 of $1.5 million. This result is due to increased share-based compensation expense (a non-cash expense) and smaller increases in other costs due to the opening of the third store and general inflation.

**Expenses** 

"**General and administration**" includes all overhead costs that have not otherwise been allocated to cost of sales. These include salaries and wages, professional fees including legal and accounting, insurance and some local taxes. FY 2025 costs were $7,728,838 versus $7,537,233 (FY2024), an increase of $191,605 (2.5%) due to increased salaries, wages and professional fees.

**"Operating lease cost"** is the cost of our facility leases not included in cost of sales and were $785,241 in FY 2025 versus $633,840 in FY 2024. The increase is due to the addition of our third store.

"**Depreciation and amortization**" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in FY2025 was $1,706,012 versus $1,408,976 in FY 2024. This increase is due to the amortization of intangibles and fixed assets of our third store which opened in Q1.

"**Share based compensation**" is a non-cash item and reflects the issuance of stock options to employees, officers, and directors. The increase of $827,431 in FY 2025 is due to the issuance of stock options in Q1.

**Other Items**

"**Interest expense**" in FY2025 increased to $293,675 versus $35,210 in FY 2024 due to issuance of the 12% convertible debentures in Q1.

"**Other income (loss)**" in FY2025 is a loss of $135,446 versus a loss of $726,789 in FY 2024, which included a $830,000 write-down of the book value of a property held in Oregon.

**"Change in fair value of derivative liabilities"** is a periodic revaluation of the earn out shares outstanding to vendors of businesses purchased by the Company. These earn-out shares are revalued using a Monte Carlo simulation. The fair value of this liability will increase with an increase in the stock price of the Company and vice versa. The change in fair value must be recorded through the Company's profit or loss statement. As a result, a share price increase period-over-period will result in a reduction in net income and vice versa. In February and March 2023, the Company entered into cancelation agreements with the majority of the Swell Vendors who had rights to Swell Earn-Out shares, canceling those rights for a one-time cash payment. Of the 6.0 million original Swell Earn-Out shares 1.2 million remain outstanding. Of the original 10.5 million of earn out shares to both Phantom and Swell, 1.2 million remain. The Swell Earn-Out shares expire May 24, 2026.

**"Provision for income taxes"** for FY 2025 of $4,151,650 is up from $3,482,125 in FY2024 due to penalties and interest on unpaid taxes.

**"Other comprehensive income (loss**),**"** specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (recorded in C$) and the US subsidiaries (US$). These foreign exchange gains or losses at each reporting date result from the translation of C$ amounts to US$(which is our reporting currency).

p. 6

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**"Net income (loss) from discontinued operations"** the Company has classified all of its Oregon operations to 'discontinued operations'. The revenues and expenses pertaining to the Oregon operations are shown in this line item. We have had no active business in Oregon since early 2022. There is no effect of this treatment on our revenues (FY2025 -nil, FY2024-$nil) and our gross profit (FY2025-nil, FY2024-nil) and an increase to our income from operations and net income of (FY 2025-$281,438, FY2024-$81,817). There is no effect of discontinuing the Oregon operations on our Nevada operations as the cannabis business in each state is unique and separate, which is due to the regulation of the cannabis industry. Our remaining two properties in Oregon were both sold to third parties in FY 2025.

FOURTH QUARTER

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| LAST EIGHT QUARTERS, except as noted (000's unless noted) | LAST EIGHT QUARTERS, except as noted (000's unless noted) | LAST EIGHT QUARTERS, except as noted (000's unless noted) | LAST EIGHT QUARTERS, except as noted (000's unless noted) | LAST EIGHT QUARTERS, except as noted (000's unless noted) | 2 months<br>ended |  |  |  |
|  | 31-Mar-25 | 31-Dec-24 | 30-Sep-24 | 30-Jun-24 | 31-Mar-24 | 31-Jan-24 | 31-Oct-23 | 31-Jul-23 |
| Inventory | 4051 | 3885 | 3975 | 3300 | 2866 | 2709 | 2839 | 3038 |
| Revenues | 8106 | 7908 | 7509 | 6596 | 4465 | 6549 | 6882 | 7162 |
| Income (loss) from operations | 974 | 1122 | 454 | (418) | 290 | 493 | 226 | 217 |
| Adjusted EBITDA | 1692 | 1568 | 1295 | 311 | 633 | 1055 | 943 | 972 |
| Income (loss) from continuing operations | (1530) | (81) | (759) | (1386) | (51) | (2082) | (357) | (397) |
| \*per common share, basic & diluted | (0.01) | (0.00) | (0.01) | (0.01) | (0.00) | (0.02) | (0.00) | (0.00) |
| Profit (loss) attributable to owners | (1563) | (1) | (845) | (1412) | (74) | (2042) | (376) | (416) |
| \*per common share basic & diluted | (0.01) | (0.00) | (0.01) | (0.01) | (0.00) | (0.02) | (0.00) | (0.00) |

---

Revenues continued to grow in the last 12 months with the opening of our third store in South Reno on June 26, 2024. Inventory balance at March 31, 2025, increased by $1.2 million since March 31, 2024 due to the opening of our third store.

Adjusted EBITDA for quarter-ended March 31, 2025, was up slightly from the quarter-ended Dec 31, 2024, mainly due to the increase in sales and continued economies of scale from the addition of our third store. See non-GAAP financial measures below.

Federal corporate income taxes are very high in the cannabis industry due to the restrictions of Section 280E of the U.S Internal Revenue Code. Share- based compensation is a large non-cash expense in the current year. Therefore, the measure of income from operations (before taxes), adding back share-based compensation is a useful measure.

Adjusted EBITDA for the full year ended March 31, 2025 (FY 2025) is $4.87 million, an increase of $335,336 from FY 2024 of $4.53 million. See explanation of Non-GAAP financial measures below.

---

| | | | |
|:---|:---|:---|:---|
| **Adjusted EBITDA** |  |  |  |
|  | **Year ended** | **2 months ended** | **Year ended** |
|  | **March 31, 2025** | **March 31, 2024** | **Jan 31, 2024** |
| **Net Income (loss)** | $(3969542) | $(74404) | $(3305285) |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest, accretion expenses, net | 803546 |  | 35210 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision for income taxes | 4151650 | 372743 | 3482125 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 1706012 | 207225 | 1408976 |
| &nbsp;&nbsp;&nbsp;&nbsp;Depreciation and interest in cost of sales | 812366 | 135395 | 812368 |
| **EBITDA** | 3504032 | 640959 | 2433394 |
| &nbsp;&nbsp;&nbsp;&nbsp;Change in fair value of derivative liabilities | (52257) | (22189) | 451372 |
| &nbsp;&nbsp;&nbsp;&nbsp;Share based compensation | 849559 |  | 22128 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loss from discontinued operations | 212813 | 22965 | 81817 |
| &nbsp;&nbsp;&nbsp;&nbsp;One-time special project costs | 187543 |  | 159000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Production curtailment, inventory adjustments | 28700 |  | 656000 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other gain/loss | 135446 | (9209) | 726789 |
| **Adjusted EBITDA** | $**4865836** | $**632526** | $**4530500** |

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p. 7

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Non-GAAP Financial Measures

"**Adjusted EBITDA**" is supplemental, non-GAAP financial measures. The Company defines EBITDA as earnings before depreciation and amortization, depreciation and interest in cost of sales, income taxes, and interest. Additionally, the Company's Adjusted EBITDA presented above excludes accretion, loss from discontinued operations, one-time transaction costs and all other non-cash items. The Company has presented "Adjusted EBITDA" because its management believes it is a useful measure for investors when assessing and considering the Company's continuing operations and prospects for the future. Furthermore, "Adjusted EBITDA" is a commonly used measurement in the financial community when evaluating the market value of similar companies. "Adjusted EBITDA" is not a measure of performance calculated in accordance with GAAP, and these metrics should not be considered in isolation of, or as a substitute for, the measurement of the Company's performance prepared in accordance with GAAP. "Adjusted EBITDA," as calculated and reconciled in the table above, may not be comparable to similarly titled measurements used by other issuers and is not necessarily a measure of the Company's ability to fund its cash needs. Figures have been restated to match the current presentation.

**"Free Cash Flow"** is defined as Cash Provided by Operating Activities from Continuing Operations in a period minus capital expenses of property and equipment. Management believes that Free Cash Flow, which measures our ability to generate additional cash from our continuing business operations, is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.

---

| | | | |
|:---|:---|:---|:---|
| **FREE CASH FLOW** |  |  |  |
|  | **Year ended** | **2 months ended** | **Year ended** |
|  | Mar 31, 2025 | Mar 31, 2024 | Jan 31, 2024 |
| Cash provided by operating activities before taxes and changes in working capital (continuing operations) | $4432159 | $588813 | $3367021 |
| Purchases of property and equipment | (406733) | (51483) | (521579) |
| **Free Cash Flow** | $**4025426** | $**537330** | $**2845442** |

---

p. 8

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SELECTED ANNUAL INFORMATION

The following table summarizes selected information for the most recent three fiscal year ends.

---

| | | | |
|:---|:---|:---|:---|
| **Selected Balance Sheet (000's)** | **as at:** | **as at:** |  |
|  | **31-Mar-25** | **31-Mar-24** | **31-Jan-24** |
| **Assets** |  |  |  |
| Cash and other | 3453 | 5272 | 4534 |
| Inventory | 4051 | 2866 | 2709 |
| *current* | 7504 | 8138 | 7243 |
| Property and equipment | 2666 | 3391 | 3433 |
| Goodwill, Intangibles, Right of use | 46830 | 43697 | 43853 |
| *Total assets* | 57000 | 55226 | 54529 |
| **Liabilities** |  |  |  |
| Accounts payable | 2148 | 2593 | 2216 |
| Convertible debentures and other | 2134 | 1156 | 1156 |
| Income taxes payable | 2834 | 10230 | 9720 |
| Deferred tax , other | 841 | 1067 | 1073 |
| *current* | 7957 | 15047 | 14165 |
| Lease liabilities | 9771 | 9120 | 9193 |
| Uncertain tax position | 9823 |  |  |
| Convertible debentures | 710 |  |  |
| Derivative liability | 28 | 85 | 108 |
| other | 35 |  | 16 |
| *Non-current financial liabilities* | 20367 | 9205 | 9317 |
| Equity | 28676 | 30973 | 31047 |
| *Total liabilities and equity* | 57000 | 55226 | 54529 |

---

**"Total Assets"** increased in the past year due to the effects of the purchase of our third dispensary in June 2024 for consideration of $3.5 million. This acquisition reduced our cash balance, increased inventory to stock the new store, and increased intangibles.

**"Current liabilities"** has decreased mainly due to the change in our position on the 280E income taxes. This change in position has moved much of the income tax payable balance to long term included in Uncertain tax position. The convertible debenture balance increased with the issuance of 12% convertible debentures to assist in funding the acquisition of the third dispensary.

**"Non-current financial liabilities"** has increased in the past year with the change in our position on 280E income taxes. Uncertain tax position is $9.8 million versus nil at prior balance sheet dates. Smaller increases in lease liabilities and convertible debentures both arose from the acquisition of the third dispensary.

p. 9

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RELATED PARTY TRANSACTIONS

A summary of the Company's related balances included in accounts payable, accrued liabilities, and promissory note payable is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | **$** | $| $|
| Lease liabilities due to a company controlled by the Chief Executive Officer ("CEO") | **4630273** | 4917482 | 4961727 |
| Due to the Chief Financial Officer ("CFO") | **557** | 770 | 561 |
|  | **4630830** | 4918252 | 4962288 |

---

"Lease liabilities due to the CEO" consists of the lease on one of our buildings.

A summary of the Company's transactions with related parties including key management personnel for the year ended March 31, 2025, two months ended March 31, 2024 and year ended January 31, 2024 is as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | Year ended | Two months ended | Year ended |
|  | **March 31,** <br>**2025** | March 31,<br>2024 | January 31,<br>2024 |
|  | $| $| $|
| Consulting fees paid to a director | **60000** | 30000 | 65000 |
| Amounts paid to CEO or companies controlled by CEO for leases | **768143** | 126756 | 1001214 |
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | **-** |  | 2078229 |
| Amounts paid to CEO or companies controlled by CEO for remuneration | **200000** | 38462 | 200000 |
| Salary paid to directors and officers | **489042** | 92420 | 438162 |
| Share-based compensation | **513735** |  | 22128 |
|  | **2030920** | 287638 | 3804733 |

---

SHARE CAPITAL

The Company is authorized to issue an unlimited number of Common Shares.

As of March 31, 2025, there were:

* 117,996,814 Common Shares issued and outstanding;

* 5,425,000 options outstanding to purchase Common Shares, of which 1,808,333 options had vested; 

* 4,000,000 warrants outstanding to purchase Common Shares; and

* no restricted share units ("**RSUs**") outstanding to purchase Common Shares.

* 793,093 acquisition shares to EFF vendors, yet to be issued. See 'Legal Proceedings' later in this MD&A.

As of June 23, 2025 (the date of this MD&A) the Company had the following securities outstanding:

---

| | |
|:---|:---|
| **Type of Security** | **Number outstanding** |
| Common Shares | 117862314 |
| Stock Options | 5425000 |
| Warrants | 4000000 |
| Acquisition shares | 793093 |
| | 128,080,407 |

---

p. 10

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**OVERALL PERFORMANCE**

FACTORS AFFECTING PERFORMANCE:

EMPLOYEES

The Company's employees are highly talented individuals who have educational achievements ranging from Ph.D., Masters, and undergraduate degrees in a wide range of disciplines, as well as staff who have been trained on the job to uphold the highest standards as set by the Company. The Company hires and promotes individuals who are best qualified for each position, priding itself on using a process that identifies people who are trainable, cooperative and share the Company's core values.

The Company takes all reasonable steps to ensure staff are appropriately informed and trained to ensure a culture of health, safety, and continuous improvement. Wherever possible, the Company will continue to adopt generally accepted health and safety best practices from non-cannabis-related industries and follows all health and safety guidelines issued by the United States Centers for Disease Control ("**CDC**") and all orders from relevant provincial, state and local jurisdictions and authorities.

BRANDING AND MARKETING

The Company utilizes consistent branding and messaging across its retail and wholesale channels under Phantom Farms, Hood Oil, and Silver State Relief. The Company currently sells over 700 distinct SKUs, including the following product categories: CO2 vaporizer pens, live resin vaporizer pens, distillate vaporizer pens, live resin extract, cured resin extract, wholesale cannabis flower, packaged cannabis flower, pre-rolls, CBD cured resin vaporizer pens, CBD CO2 vaporizer pens, and CBD cured resin extracts.

BANKING AND PROCESSING

In Nevada, the Company deposits funds from its operations into its credit union accounts held Greater Nevada Credit Union (Nevada) and at Partner Colorado Credit Union through Safe Harbor Private Banking services (Colorado). The Company is fully transparent with its credit union partners regarding the nature of its business.

PRODUCT SELECTION AND OFFERINGS

Product selection decisions are currently made by the Company's buyers, who negotiate with potential vendors across all product categories including packaged and wholesale cannabis flower, vaporizer pens, cured extracts, edibles and pre-rolls. The Company bases its product selection decisions on product quality, margin potential, and scalability.

The Company's branded CPG and flower-based products are sold primarily through captive retail and wholesale channels in Nevada. The Company's retail locations in Nevada also offer third party branded CPG and flower-based products including a wide variety of THC and CBD based products, including vaporizer pens, cured resin extracts, wholesale cannabis flower, packaged cannabis flower, pre-rolls, edibles, tinctures, and topicals.

IN-STORE PICKUP, CURBSIDE DELIVERY AND DELIVERY

In addition to traditional point-of-sale retail, the Company's Nevada retail locations offer in-store pickup, curbside delivery and delivery utilizing the leading third-party service providers, a leading cannabis sales and fulfillment web-based application. The Company actively monitors the continued growth of a number of cannabis web-based sales and fulfillment platforms and is well poised to utilize strategic third-party service providers.

INVENTORY MANAGEMENT

The Company has comprehensive inventory management procedures, which are compliant with all applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict controls over the Company's cannabis flower and CPG inventory from its production, processing and distribution licensees through to ultimate sale to end consumers (or rare cases disposal as cannabis waste). Such inventory management procedures also include strong quality control and quality assurance measures to prevent in-process contamination and maintain the safety and quality of the products. The Company is committed to supplying safe, consistent, and high-quality cannabis flower and CPG products at a value-oriented price.

p. 11

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RESEARCH AND DEVELOPMENT

Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same become available and/or are appropriate.

COMPETITION

Across a modified and strategic cannabis value chain, the Company expects to continue to vigorously compete with other licensees in Nevada. Nevada is a "limited" license state, therefore competition to date has been less challenging and the broader market dynamics are more favorable. While many of the Company's direct competitors continue to be small-scale local operators, market rationalization through consolidation is increasingly a trend. Of note is the increased participation of multi-state operators with national growth aspirations in the Nevada marketplace. As more U.S. jurisdictions pass state legislation allowing the recreational use and sale of cannabis, the Company is assured an increased level of competition in U.S. markets. These increasingly competitive U.S. markets may adversely affect the financial condition and operations of the Company.

INTELLECTUAL PROPERTY

The Company has developed numerous proprietary genetics, processes, technologies and products. These assets include genetics, ERP and other software applications, cultivation and extraction technologies, as well as consumer brands. Whenever available and appropriate, the Company undertakes reasonable intellectual property protections to secure these assets.

To date, absent the availability of customary federal patent, trademark, and copyright protections for cannabis applications, the Company has relied on non-disclosure/confidentiality arrangements, common law trade secrets, and state-based trademark protections. The Company actively monitors and responds to all potentially material intellectual property infringements and maintains strict standards and controls regarding the use and dissemination of its intellectual property.

In addition, the Company owns nine (9) website domains including: www.cxxi.ca, www.phantom-farms.com, <u>www.silverstaterelief.com</u>, and c21supply.co, along with numerous social media accounts across all major platforms.

CONTRACTUAL OBLIGATIONS

The following table includes the Company's obligations to make future payments for each of the next five years that represent contracts and other commitments that are known and committed:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** | **CONTRACTUAL OBLIGATIONS** |
|  | **Carrying**<br>**amount** | **Contractual**<br>**cash flows** | **Under 1 year** | **1-3 years** | **3-5 years** | **More than 5**<br>**years** |
| **As at March 31, 2025** |  |  |  |  |  |  |
| Trade and other payables | $2148153 | $2148153 | $2148153 | $- | $- | $- |
| Finance lease payments (1) | 10302055 | 16517270 | 1536201 | 3212042 | 3407656 | 8361371 |
| Convertible debt (2) | 2844443 | 3481936 | 2671873 | 1520431 |  |  |
| **Total** | $**15294651** | $**22147359** | $**6356227** | $**4732473** | $**3407656** | $**8361371** |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Amounts in the table reflect minimum payments due for the Company's leased facilities and certain leased equipment under various lease agreements and purchase agreements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Amounts in the table reflect the contractually required principal payments payable under various convertible note and convertible debenture agreements.

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**ADDITIONAL INFORMATION**

LEGAL PROCEEDINGS

**Oregon Action**: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "**Plaintiffs**"), alleging contract, employment, and statutory claims, alleging $612,500 in damages (as amended), against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, in addition to three directors, two officers, and one former employee (the "**Oregon Action**"). The Company and the other defendants wholly denied the allegations and claims made in the lawsuit and are defending the lawsuit. On June 21, 2019, the Company filed Oregon Rule of Civil Procedure ("**ORCP**") 21 motions to dismiss all of the Plaintiffs' claims against it, its wholly owned subsidiaries, and other defendants. On December 30, 2019, plaintiffs filed an amended complaint dismissing the Company (and some of its directors and subsidiaries) from the case and reducing the amount in controversy in the Oregon Action. On May 6, 2020, the court granted the Company's ORCP 21 motions in its entirety to dismiss all of Plaintiffs' claims against the remaining defendants. The judgment of dismissal was entered by the Clackamas County court on or about October 14, 2020.

On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $68,195.00 in attorney's fees, $1,252 in costs, and a statutory prevailing party fee of $640, through a supplemental judgment, entered on February 2, 2021. The judgment in favor of the Company remains unpaid and continues to collect interest at the statutory rate of 9% per annum.

On November 12, 2020, the plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the plaintiffs amended their appeal to also appeal the award of attorney fees and costs.

On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied.

On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court which was also denied.

On November 1, 2023, the Court of Appeals issued an appellate judgment and supplemental judgment that reversed the October 14, 2020, general judgment of dismissal and remanded the case back to the trial court as to Phantom Brands, LLC, Swell Companies Limited, and two former Company employees. By operation of law, the February 2, 2021, supplemental judgment for attorney fees in favor of the Company was also automatically reversed.

On December 21, 2023, the plaintiffs filed their second amended complaint, which the Company answered and denied.

On April 2, 2024, the court confirmed dismissal of the Company and other defendants no longer named. The Company has filed a motion for costs and attorney fees totaling $108,876. By court order on September 8, 2024, the Company's motion was granted in full, awarding the Company $107,622 in attorney's fees, and $1,252 in costs. On October 8, 2024, the parties stipulated, and the Court granted, abatement of the matter until April 9, 2025. On October 30, 2024, the plaintiffs appealed the order, which is pending before the court. The Company's collection efforts are ongoing through garnishment procedures.

**British Columbia Action**: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "**British Columbia Action**").

On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $2,774,176 in damages (as amended), plus unquantified additional damages, interest and costs, of which amounts are partially duplicative of the Oregon Action. This action remains in the discovery stage. The current trial date is scheduled for three weeks in September 2025. It is too early to predict the resolution of the claims and counterclaims.

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OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION

The Company's financial statements and the other financial information included in this MD&A are the responsibility of the Company's management and have been examined and approved by the Board. The accompanying audited financial statements are prepared by management in accordance with GAAP, and include certain amounts based on management's best estimates using careful judgment. The selection of accounting principles and methods is management's responsibility.

Management recognizes its responsibility for conducting the Company's affairs in a manner that complies with the requirements of applicable laws and established financial standards and principles and maintains proper standards of conduct in its activities. The Board supervises the financial statements and other financial information through its audit committee, which is comprised of a majority of non-management directors.

The audit committee's role is to examine the financial statements and recommend that the Board approve them, to examine the internal control and information protection systems, and all other matters relating to the Company's accounting and finances. To do so, the Audit Committee meets annually with the external auditors, with or without the Company's management, to review their respective audit plans and discuss the results of their examination. The Audit Committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement.

<u>Recently issued accounting pronouncements</u>

Please refer to the discussion of recently adopted/issued accounting pronouncements in the Notes to the Consolidated Financial Statements Note 2 - Basis of Presentation.

PROPOSED TRANSACTIONS

There are no proposed transactions for the current fiscal year

FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS

A summary of the Company's financial instruments classified as fair value through profit or loss and their classification in the fair value hierarchy is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Fair value measurements at March 31, 2025 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 27824 | **27824** |
| **Fair value measurements at March 31, 2024 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 84871 | **84871** |
| **Fair value measurements at January 31, 2024 using:** | **Level 1** | **Level 2** | **Level 3** | **Total** |
|  | $| $| $| **$** |
| **Financial liabilities:** |  |  |  |  |
| Earn out shares (Note 15) | - | - | 108233 | **108233** |

---

The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs and therefore represents a Level 3 measurement.

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**ACCOUNTING POLICIES AND ESTIMATES<br>**

<br> **FINANCIAL RISK MANAGEMENT**

The Board approves and monitors the risk management processes of the Company, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

CREDIT RISK

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash held in bank accounts. The Company's cash is deposited in bank accounts held with a major bank in Canada, a credit union in Washington, Nevada and Colorado.

LIQUIDITY RISK

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management of the Company and the Board are actively involved in the review, planning and approval of significant expenditures and commitments.

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The Company's consolidated financial statements for year ended March 31, 2025 have been prepared on a going concern basis, which assumes that the Company will be able to continue its operations and realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.

At March 31, 2025, the Company had cash of $2,625,461, a working capital deficit of $452,928.

The Company has generated significant positive cash flow for the year ended March 31, 2025, and the fiscal year ended March 31, 2024. The Statement of Cash Flows for the year ended March 31, 2025, shows cash provided by continuing operations of $1.4 million ($3.3 million - year ended January 31, 2024). This cash flow includes the cash costs of opening a new dispensary during the year ended March 31, 2025 such as inventory build.

The promissory note owing to the President and CEO was fully repaid as of June 1, 2023, for which the monthly payments were $0.5 million plus interest. The Company closed on the purchase of the South Reno Dispensary on June 7, 2024, which was paid for from cash on hand and the May 2024 Private Placement.

The Company acquired, for $3.5 million, a third retail dispensary as of June 7, 2024. This store located in South Reno, Nevada opened for business on June 26, 2024. The acquisition was paid for with cash on hand generated by the Company and a C$4.0 million financing completed in May 2024. The Company has commenced repaying C$160,000 per month plus interest on this debt. The Company is also making periodic payments against its corporate income tax payable.

The Company does not have any other significant capital expenditure plans in the next 12 months. While operations' cash flow has slowed as our local markets in general have slowed, we expect to continue to generate positive operations cash flow, and the addition of the third dispensary has improved our cash flow. The repayment of the promissory note gives the Company flexibility to pursue its strategic growth plans as demonstrated with the recent purchase of a retail dispensary operation.

Working capital deficiency includes a convertible promissory note with a carrying amount of $1,156,259, which is currently in dispute with a vendor, which is noted in 'Legal Proceedings' above. Additionally, as at March 31, 2025, the Company had current income tax payable of $2,833,991, and an uncertain tax position of $9,822,797. See income tax discussion below. To manage liquidity risk, the Company endeavors to ensure it has sufficient cash resources to meet its financial obligations. The Company's ability to service its debt depends on sustaining the profitability of its operations and obtaining sufficient financing on acceptable terms.

There remains uncertainty about the U.S. federal government's position on cannabis with respect to cannabis-legal states. A change in its enforcement policies could impact the ability of the Company to continue as a going concern and have a material adverse impact on the business. See more complete discussion in Risk factors below.

INTEREST RATE RISK

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is not subject to any interest rate volatility as its long-term debt instruments and convertible notes are carried at a fixed interest rate throughout their term.

CAPITAL MANAGEMENT

The Company's objectives when managing its capital are to ensure there are enough capital resources to continue operating as a going concern and maintain the Company's ability to ensure sufficient levels of funding to support its ongoing operations and development. The purpose of these objectives is to provide continued returns and benefits to the Company's shareholders. The Company's capital structure includes items classified in debt and shareholders' equity.

The Board does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business considering changes in economic conditions and the risk characteristics of the Company's underlying asset.

The Company works with its capital advisors, CB1 Capital based in New York, to identify the best strategic options to execute our corporate growth plans, as well as increasing financial flexibility in managing our debt.

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**U.S. INDUSTRY BACKGROUND AND REGULATORY ENVIRONMENT**

INDUSTRY BACKGROUND AND TRENDS

The emergence of the legal cannabis sector in the United States, both for medical and adult use, has been rapid as more states adopt regulations for its production and sale. Today 73% of Americans live in a state where cannabis is legal in some form and 48% of the population lives in states where it is fully legalized for adult use.

The use of cannabis and cannabis derivatives to treat or alleviate the symptoms of a wide variety of chronic conditions has been generally accepted by a majority of citizens with a growing acceptance by the medical community as well. A review of the research, published in 2015 in the Journal of the American Medical Association, found evidence that cannabis can treat pain and muscle spasms. The pain component is particularly important, because other studies have suggested that cannabis can replace patients' use of highly addictive, potentially deadly opiates - meaning cannabis legalization literally improves lives.

Polls throughout the United States consistently show overwhelming support for the legalization of medical cannabis, together with strong majority support for the full legalization of recreational adult-use cannabis. According to an October 2022 Pew Research Center survey, around nine-in-ten Americans favor some form of cannabis legalization, with roughly 10% saying cannabis should not be legal in any form. In that survey, 88% of U.S. adults support legalizing cannabis either for medical and recreational use (59%) or medical use only (30%). These views have held steady since April 2021 polling from the Pew Research Center. These are large increases in public support over the past 40 years in favor of legalized cannabis use.

Notwithstanding that 40 states and the District of Columbia have now legalized adult-use and/or medical cannabis (with 21 states and the District of Columbia allowing adult-use cannabis), cannabis remains illegal under U.S. federal law with cannabis listed as a Schedule I drug under the U.S. Federal Controlled Substances Act of 1970 ("**CSA**").

Currently the Company only operates in the state of Nevada. The Company may expand into other states within the United States that have legalized cannabis use either medicinally or recreationally.

FEDERAL REGULATORY ENVIRONMENT

Under U.S. federal law, marijuana is currently a Schedule I drug. The CSA has five different tiers or schedules. A Schedule I drug means the U.S. Drug Enforcement Agency ("**DEA**") considers it to have a high potential for abuse, no accepted medical treatment, and lack of accepted safety for the use of it even under medical supervision. Other Schedule I drugs are heroin, LSD and ecstasy. The Company believes the CSA categorization as a Schedule I drug is not reflective of the medicinal properties of marijuana or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, has medicinal properties, and can be safely administered. Additionally, while some studies show cannabis is less harmful than alcohol, alcohol is not classified under the CSA.

Forty (40) states and the District of Columbia have now legalized adult-use and/or medical marijuana. The federal government sought to provide guidance to enforcement agencies and banking institutions with the introduction of the U.S. Department of Justice Memorandum drafted by former Deputy Attorney General James Michael Cole in 2013 (the "**Cole Memo**") and U.S. Department of the Treasury Financial Crimes Enforcement Network ("**FinCEN**") guidance in 2014.

The Cole Memo offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions regarding marijuana in all states. The memo put forth eight prosecution priorities:

* preventing the distribution of marijuana to minors;

* preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;

* preventing the diversion of marijuana from states where it is legal under state law in some form to other states;

* preventing the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

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* preventing the violence and the use of firearms in the cultivation and distribution of marijuana;

* preventing the drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;

* preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and,

* preventing marijuana possession or use on federal property.

In January 2018, the then United States Attorney General, Jeff Sessions, by way of issuance of a new U.S. Department of Justice Memorandum (the "**Sessions Memo**"), rescinded the Cole Memo and thereby created a vacuum of guidance for U.S. enforcement agencies and the U.S. Department of Justice ("**DOJ**"). Rather than establish national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain marijuana activity was legal under State law, the Sessions Memo instructs that "[i]n deciding which marijuana activities to prosecute... with the [DOJ's] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.

Former United States Attorney General Sessions resigned on November 7, 2018 and was replaced by William Barr on February 14, 2019. On December 14, 2020, former President Trump announced that Mr. Barr would be resigning from his post as Attorney General, effective December 23, 2020. Merrick Garland, President Biden's nominee to succeed Mr. Barr, was sworn in as the current United States Attorney General on March 11, 2021. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memo or announce a substantive marijuana enforcement policy. Justice Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. It is unclear what specific impact the new Biden administration will have on U.S. federal government enforcement policy. There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

Due to the CSA categorization of marijuana as a Schedule I drug, U.S. federal law makes it illegal for financial institutions that depend on the Federal Reserve's money transfer system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses under the Bank Secrecy Act (as defined herein). Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy.

While there has been no change in U.S. federal banking laws to account for the trend towards legalizing medical and recreational marijuana by U.S. states, FinCEN has issued guidance advising prosecutors of money laundering and other financial crimes not to focus their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses, so long as that business is legal in their state and none of the federal enforcement priorities are being violated (such as keeping marijuana away from children and out of the hands of organized crime). The "**FinCEN Guidance**" also clarifies how financial institutions can provide services to marijuana-related businesses consistent with the Bank Secrecy Act obligations, including thorough customer due diligence, but makes it clear that they are doing so at their own risk.

The customer due diligence steps include:

* verifying with the appropriate state authorities whether the business is duly licensed and registered;

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* reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;

* requesting from state licensing and enforcement authorities available information about the business and related parties;

* developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);

* ongoing monitoring of publicly available sources for adverse information about the business and related parties;

* ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and

* refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

Due to the fear by financial institutions of being implicated in or prosecuted for money laundering, cannabis businesses are often forced into becoming "cash-only" businesses. As banks and other financial institutions in the U.S. are generally unwilling to risk a potential violation of federal law without guaranteed immunity from prosecution, most refuse to provide any kind of services to cannabis businesses. Despite the attempt by FinCEN to legitimize cannabis banking, in practice its guidance has not made banks much more willing to provide services to cannabis businesses. This is because, as described above, the current law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence on each cannabis business they take on as a customer. Recently, some banks that have been servicing cannabis businesses have been closing accounts operated by cannabis businesses and are now refusing to open accounts for new cannabis businesses for the reasons enumerated above.

The few credit unions who have agreed to work with cannabis businesses are limiting those accounts to no more than 5% of their total deposits to avoid creating a liquidity risk. Since the federal government could change the banking laws as it relates to cannabis businesses at any time and without notice, these credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis businesses in a single day, while also servicing the need of their other customers. Those state-chartered banks and credit unions that do have customers in the cannabis industry charge marijuana businesses high fees to pass on the added cost of ensuring compliance with the FinCEN Guidance. Unlike the Cole Memo, however, the FinCEN Guidance from 2014 has not been rescinded.

The U.S. Treasury Department has publicly stated they were not informed of the then Attorney General Jeff Sessions' desire to rescind the Cole Memo and do not have a desire to rescind the FinCEN Guidance for financial institutions. The former Secretary of the U.S. Department of the Treasury, Stephen Mnuchin, publicly stated that he did not have a desire to rescind the FinCEN Guidance. The newly appointed Secretary of the Treasury, Janet Yellen, has not yet articulated an official Treasury Department position with regard to the FinCEN Guidance and thus as an industry best practice and consistent with its standard operating procedures, the Company adheres to all customer due diligence steps in the FinCEN Guidance.

Because the DOJ memorandums serve as discretionary agency guidance and do not constitute a force of law, cannabis related businesses have worked to continually renew the Rohrabacher-Blumenauer Amendment (originally the Rohrabacher-Farr Amendment) that has been included in federal annual spending bills since 2014. This amendment restricts the DOJ from using federals funds to prevent states with medical cannabis regulations from implementing laws that authorize the use, distribution, possession, or cultivation of medical cannabis. In 2017, Senator Patrick Leahy (D-Vermont) introduced a parity amendment to H.R.1625 - a vehicle for the Consolidated Appropriations Act of 2018, preventing federal prosecutors from using federal funds to impede the implementation of medical cannabis laws enacted at the state level, subject to Congress restoring such funding.

An additional challenge to cannabis-related businesses is that the provisions of Section 280E of the Code are being applied by the United States Internal Revenue Service ("**IRS**") to businesses operating in the medical and adult use cannabis industry. Section 280E of the Code prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be.

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Another aspect of federal law is that it provides that cannabis and cannabis products may not be transported across state lines in the United States. As a result, all cannabis consumed in a state must be grown and produced in that same state. This dynamic could make it more difficult for the Company, in the short term, to maintain a balance between supply and demand. If excess cultivation and production capacity is created in any given state and this is not matched by increased demand in that state, then this could exert downward pressure on the retail price for the products the Company sells. If too many retail licenses are offered by state authorities in any given state, then this could result in increased competition and exert downward pressure on the retail price for the products the Company sells. On the other hand, if cultivation and production in a state fails to match growing demand then, in the short term, there could be insufficient supply of product in a state to meet demand and while the Company may be able to raise its prices there could be inadequate product availability in the short term, causing the Company's revenue in that state to fall.

Progressive federal legislation has been both introduced in the U.S. House of Representatives ("**U.S. House**") and received positive votes in recent years. On September 26, 2019, the U.S. House passed the Secure and Fair Enforcement Banking Act of 2019 (commonly known as the "**SAFE Banking Act**"), which aims to provide safe harbor and guidance to financial institutions that work with legal U.S. cannabis businesses. On May 11, 2020, the U.S. House introduced the Health and Economic Recovery Omnibus Emergency Solutions Act (the "**HEROES Act**"), an economic stimulus package which included the language of the SAFE Banking Act. On September 28, 2020, the House introduced a revised version of the HEROES Act, including the text of the SAFE Act for a second time. The revised bill was passed by the U.S. House on October 1, 2020, before going to the Senate. On December 21, 2020, Congress reached a deal for a different $900 billion stimulus package. On April 19, 2021, the U.S. House again passed the SAFE Banking Act, but the Senate did not. Most recently, on July 14, 2022, the U.S. House voted to include the SAFE Banking Act in the must pass fiscal year 2023 defense budget bill (the 2023 National Defense Authorization Act - "NDAA"), but again, the U.S. Senate required the SAFE Act's removal from the NDAA. On April 23, 2023, Sen. Jeff Merkley (D-OR) and Sen. Steve Daines (R-MT), along with Rep. Dave Joyce (R-OH) and Rep. Earl Blumenauer (D-OR), reintroduced the SAFE Banking Act of 2023. All told, the SAFE Banking Act has passed the House six times but has yet to pass the Senate. A new version of the SAFE Banking Act known as the Secure and Fair Enforcement Regulation ("**SAFER Banking Act**") was introduced in the Senate on September 21, 2023, and subsequently approved by the Senate Committee on Banking. The SAFER Banking Act is still pending passage in the U.S. Senate and, if passed, will move on to the House where it faces an uncertain future. While Congress may introduce and consider this and other legislation in the future that may address issues that are important to the Company, there can be no assurance of the content of any proposed legislation or that any pending legislation will ever be passed.

Further, the Marijuana Opportunity Reinvestment and Expungement Act, also known as the "**MORE Act**", is a proposal to legalize cannabis and expunge prior cannabis related convictions. On November 20th, 2019, the MORE Act was passed by the House Judiciary Committee, and although the U.S. House voted to pass the MORE Act on December 4, 2020, it failed to pass in the Senate prior to the end of the 2020 legislative session. There can be no assurance that it will be passed in its current form or at all.

The Joseph R. Biden ("**Biden**") Administration and balance of power in U.S. Congress could still impact the likelihood of any legal developments regarding cannabis at the national level, including the passage of the SAFE Banking Act and the MORE Act, as well as potential executive action to clarify federal policy toward the industry, although it is uncertain whether and in what manner any such federal changes will occur. On a federal level, President Biden campaigned on a platform that included cannabis decriminalization. Democrats, who are generally more supportive of federal cannabis reform than Republicans, maintained their majority in the U.S. House, although at a smaller margin than initially expected, and have gained sufficient seats in the Senate to control a majority by a single vote. As of this writing, both the SAFE Banking and MORE Acts have yet to receive action in the U.S. Senate, however, in late 2020, incoming Senate Majority Leader Charles Schumer made comments on multipole occasions suggesting that passage of these bills and potential additional favorable federal legislation are on his agenda. The Company continues to monitor U.S. federal law and the law in all jurisdictions where it is active, with respect to (a) compliance with applicable state regulatory frameworks, and (b) potential exposure and implications arising from U.S. federal law.

On July 21, 2022, U.S. Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the Cannabis Administration and Opportunity Act ("**CAOA**"), a much-anticipated bill to federally legalize marijuana and promote social equity. On July 22, 2022, Assistant Democratic Leader Patty Murray (D-WA) and Sen. Gary Peters (D-MI) signed onto the CAOA. The CAOA would have legalized cannabis nationwide, ending federal prohibition and expunging records of some cannabis offenders, and it also lays out a framework to establish a federal cannabis tax and Federal Drug Administration ("**FDA**") regulations for cannabis products. The bill did not pass the U.S. Senate during the 2022 legislative session (i.e., the 117th Congress).

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On January 17, 2023, U.S. Representative Gregory Steube (R-FL) introduced H.R. 610, the Marijuana 1-to-3 Act of 2023 ("**1-to-3 Act**"), which would direct the DEA to transfer marijuana from Schedule I to Schedule III. A Schedule III controlled substance is a drug, substance, or chemical that has less potential for abuse than a Schedule I or II substance; that has a currently accepted medical use; and that has low or moderate risk of dependence if abused. The 1-to-3 Act bill was referred to the Committee on Energy and Commerce, and the Committee on the Judiciary, for further consideration.

On October 6, 2022, President Biden requested that the Secretary of Health and Human Services ("**HHS**") and the Attorney General initiate a review of cannabis scheduling pursuant to the Controlled Substances Act and federal law. On August 29, 2023, following a review by the FDA, the Assistant Secretary of HHS, Anne Milgram, issued a letter recommendation to the DEA that cannabis be rescheduled under the Controlled Substances Act to Schedule III. In December 2023, the DEA confirmed it was conducting its review.

On May 21, 2024, the DOJ published a "Notice of Proposed Rulemaking" to reschedule cannabis from Schedule I to Schedule III of the CSA in the Federal Register. In-person testimony in the DEA's upcoming hearing on marijuana rescheduling would not begin until January or February 2025, and it was later scheduled for January 21, 2025. On January 13, 2025, the hearing was canceled by Chief Administrative Law Judge ("ALJ") John Mulrooney, and the proceedings were stayed indefinitely pending an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied. The future of the rescheduling process remains uncertain under the new Donald J. Trump administration. If the rule is finalized, cannabis would be considered a drug with "moderate to low potential for physical and psychological dependence" and would be available for medical use only, not legalized at the federal level.

The following sections describe the legal and regulatory landscape in Nevada, where the Company operates. The Company believes that its operations are in full compliance with all applicable state laws, regulations and licensing requirements. Nonetheless, for the reasons described above and the risks further described under the heading "Risk Factors" herein, there are significant risks associated with the business of the Company. Readers are strongly encouraged to carefully read all of the risk factors contained under the heading "Risk Factors" herein.

NEVADA REGULATORY ENVIRONMENT

<u>Nevada Summary</u> 

Nevada has a medical marijuana program and passed an adult-use (21 and older) legalization through the ballot box in November 2016. In 2000, Nevada voters passed a medical marijuana initiative allowing physicians to recommend cannabis for an inclusive set of qualifying conditions, including severe pain and created a limited non-commercial medical marijuana patient/caregiver system. Senate Bill 374, which passed the legislature and was signed by the Governor in 2013, expanded this program and established a for-profit regulated medical marijuana industry.

The Nevada Division of Public and Behavioral Health licensed medical marijuana establishments up until July 1, 2017 when the state's medical marijuana program merged with adult-use marijuana enforcement under the Nevada Department of Taxation ("**NDOT**"). In 2014, Nevada accepted medical marijuana business applications and a few months later the Division approved 182 cultivation licenses, 118 licenses for the production of edibles and infused products, 17 independent testing laboratories, and 55 medical marijuana dispensary licenses. The number of dispensary licenses was then increased to 66 by legislative action in 2015. The application process is merit-based, competitive, and is currently closed. Nevada residency is not required to own or invest in a Nevada medical cannabis business. In addition, vertical integration is neither required nor prohibited. Nevada's medical law includes patient reciprocity, which permits medical patients from certain other states to purchase medical marijuana from Nevada dispensaries. Nevada also allows for dispensaries to deliver medical marijuana to patients.

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Under Nevada's adult-use marijuana law, the NDOT licensed marijuana cultivation facilities, product manufacturing facilities, distributors, retail stores and testing facilities. After merging medical and adult-use marijuana regulation and enforcement, the single regulatory agency is now known as the Marijuana Enforcement Division of the NDOT. Until November 2018, applications to the NDOT for adult-use establishment licenses were being accepted from existing medical marijuana establishments and existing liquor distributors for the adult-use distribution license.

In February 2017, the NDOT announced plans to issue "early start" adult use marijuana establishment licenses in the summer of 2017. These licenses, beginning on July 1, 2017, allowed marijuana establishments holding both a retail marijuana store and dispensary license to sell their existing medical marijuana inventory as either medical or adult-use marijuana, and expired 90 days after January 1, 2018 (per Sec. 24 of LCB File No. T002-17). Starting July 1, 2017, medical and adult-use marijuana have incurred a 15% excise tax on the first wholesale sale (calculated on the fair market value) and adult-use cannabis have incurred an additional 10% special retail marijuana sales tax in addition to any general state and local sales and use taxes.

On January 16, 2018, the Marijuana Enforcement Division of the NDOT issued final rules governing its adult-use marijuana program, pursuant to which up to sixty-six (66) permanent adult-use marijuana dispensary licenses will be issued. Existing adult-use marijuana licensees under the "early start" regulations must re-apply for licensure under the permanent rules in order to continue adult-use sales.

In May of 2019, Governor Steve Sisolak signed into law Senate Bill 32, that increased transparency in the licensing process by releasing certain information about license applicants, as well as methods used to issue licenses. In June 2019, Governor Sisolak approved Assembly Bill 132 making Nevada the first state to ban employers from refusing to hire job applicants who test positive for marijuana during the hiring process.

As of August 23, 2019, as a result of discrepancies discovered in the application process by the State of Nevada, a court issued a partial preliminary injunction against the State of Nevada from moving forward with the numerous holders of provisional licenses awarded under the December 5, 2018, provisional license awards. In addition to the preliminary injunction, the State of Nevada and various intervenors remain subject to ongoing litigation.

In early 2019, Nevada legislature passed Nevada Assembly Bill 533 ("**AB 533**"), which authorized the formation of the Cannabis Compliance Board (the "**CCB**") to be vested with the authority to license and regulate persons and establishments engaged in cannabis activities within Nevada. The CCB consists of an executive director and five board members appointed by the Governor Steve Sisolak. Board members must have expertise in a range of fields, including financial and accounting, law enforcement, medicine, regulatory and legal compliance, and cannabis. AB 533 also established the Cannabis Advisory Commission (the "**CAC**") which serves to study cannabis-related issues and make recommendations to the CCB. The CAC consists of 12-members appointed by the governor representing relevant state agencies and members of the cannabis industry and the public. Pursuant to AB 533, the CCB is mandated with studying the feasibility and safe implementation of licensing for lounges, in addition to their general authority and oversight of cannabis operations in Nevada. The CCB held its first meeting in July 2021, and regularly meets regarding public health and safety, license suspensions and held public workshops regarding, and moved forward with licensing, a limited number of cannabis consumption lounges.

<u>Nevada Regulatory Framework</u>

Nevada Revised Statues 678C and 678D regulate the Medical and Adult Use of cannabis in Nevada. Nevada Administrative Code 453D provides a regulatory framework that outlines the function of the CCB Marijuana program. Subsections of this chapter outline licensing and enforcement guidelines which guide the CCB.

<u>Nevada Licensing Requirements</u>

Licenses issued by CCB can be renewed annually so long as the licensee continues to demonstrate compliance with local and state law and pays the renewal fee. Dispensary/Retail store licenses have a set statutory "cap" (per NRS 453D.210 & NRS 453A.324), other license types do not. Moreover, statutory license caps can only be changed by the Nevada legislature, which meets bi-annually. Marijuana businesses in Nevada may also be governed by local ordinances, which can include caps on the number of marijuana businesses, zoning limitations, and additional screening of business owners and investors. Applicants must demonstrate (and license holders must maintain) that: (i) they are registered with the Nevada Secretary of State to do business in Nevada, (ii) they have contributed to the advancement of the State of Nevada via regular tax payments, (iii) they do not have interests in the Casino or Alcohol industries, (iv) they have the operational expertise required by the individual license type, demonstrated by submission of an operation plan, (v) they have the ability to secure the premises, resources, and personnel necessary to operate the license, (vi) they have the ability to maintain accountability of all cannabis and cannabinoid products and by-products via the state mandated "seed-to-sale" CTS to prevent diversion or unlawful access to these materials, (vii) they have the financial ability to maintain operations for the duration of the license, (viii) all owners have passed background screening, inclusive of fingerprinting, and (ix) all local land use, zoning, and planning notices have been followed in the development of the licensed site.

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<u>Nevada Security Requirements</u>

A licensee must maintain a fully operational alarm and video monitoring system at all times. The alarm system must secure all points of ingress and egress and be equipped with motion detectors. The 24-hour video surveillance system must record at a high-resolution format approved by the CCB and have camera coverage which covers all areas of the facility without any blind spots. Video footage must be backed-up for a minimum of 30 days in hard-form. Cultivation and product manufacturing sites are not open to the public.

<u>Nevada Transportation and Storage Requirements</u>

Cannabis and cannabis goods must be stored in a lockable safe or vault at any time that employees are not on location. Any storage container that is large enough to allow an employee to walk into it must have cameras placed inside. Goods to be transported to another licensee must be fully manifested via the state mandated "seed-to-sale" CTS prior to being transported.

<u>Nevada CCB Inspections</u>

The CCB conducts announced and unannounced inspections of all licensed facilities to determine compliance with laws and rules. The CCB will inspect a licensee in the event of a complaint indicating that the licensee has or is actively violating existing statute. The CCB will also inspect at the time of any modification, as well as at the time of annual renewal. As of June 13, 2023, the CCB is no longer allowed to bill a licensee for time and effort related to oversight of a cannabis establishment, including for inspections and audits.

<u>Nevada Product Testing and Packaging Requirements</u>

Both medical and adult-use marijuana and marijuana products are subject to stringent testing and packaging requirements. Before usable marijuana, concentrated marijuana, or marijuana products may be packaged for further processing or for transfer to a dispensary or retail store, an independent testing laboratory licensed by the CCB must collect samples from each homogenized lot or production run for testing. These samples are tested by the independent testing laboratory for compliance with specified limits on contaminants such as yeast and mold, heavy metals and pesticides, and microbes. Testing is also done to determine the potency of the sample. Cultivation and product manufacturing facilities are also subject to random quality assurance compliance testing at the discretion of the CCB. Generally, if a sample fails any of the tests conducted by the testing laboratory, the entire lot or production run must be destroyed.

All marijuana or marijuana products intended to be sold to consumers must be individually packaged, sealed, and labeled. Edible products must be packaged in opaque, child-resistant containers. Depending on the type of marijuana product, the CCB places limit on the amount of THC that a single package of marijuana may contain or the number of ounces of product a package may contain. All packages of marijuana or marijuana product sold to consumers must have detailed labels that include, inter alia, various warnings about the effects and risks of marijuana use; the name, license number, and contact information of the dispensary or retail store conducting the sale; the name and license number of the cultivation or product manufacturing facility that harvested or produced the marijuana or marijuana product; the potency levels of the marijuana or marijuana product; and the date the marijuana or marijuana product was harvested or produced.

PUBLIC OPINION

The increase in state legalization of cannabis use is largely a result of changing public opinion in the United States. According to an April 2017 Quinnipiac University Poll, 94% of U.S. voters support the medical use of cannabis if recommended by a physician. <u>https://poll.qu.edu/poll-results/</u> An April 2021 Pew Research Center poll found that 91% of U.S. voters support legal marijuana for either medical or recreational use; only 8% of U.S. voters say marijuana should not be legal for use by adults. <u>https://www.pewresearch.org/</u> As of July 21, 2022, by a margin of more than 2 to 1, Americans favor a federal mandate legalizing the adult use of marijuana nationwide, according to polling data compiled by The Economist and YouGov.com. <u>https://today.yougov.com/topics/politics/explore/topic/The_Economist_YouGov_polls</u> Based on a Pew Research Center survey conducted Oct 16-22, 2022, 88% of U.S. adults say either that marijuana should be legal for medical and recreational use by adults (59%) or that it should be legal for medical use only (30%). Based on a Pew Research Center survey conducted January 16-20, 2024, an overwhelming share of U.S. adults (88%) maintain that marijuana should be legal for medical or recreational use. Nearly six-in-ten Americans (57%) say that marijuana should be legal for medical and recreational purposes, while roughly a third (32%) say that marijuana should be legal for medical use only. Further Pew Research Center analysis finds: (a) 54% of Americans live in a state where the recreational use of marijuana is legal, (b) 74% of Americans live in a state where marijuana is legal for either recreational or medical use, and (c)79% of Americans live in a county with at least one cannabis dispensary.

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INDUSTRY OUTLOOK

Due to increases in state legalization and shifting public opinion, state-legal cannabis industry sales have grown substantially in recent years. According to an April 2023 study by MJBizDaily Research, a leading business-to-business industry resource, legal sales of marijuana are expected to reach $38 billion by the end of 2024, a 12% increase over 2023's total of $34 billion. By 2027, MJBizDaily Factbook estimates retail cannabis sales are projected to be upwards of $53.5 billion..

<u>https://insights.mjbizdaily.com/factbook-2024/</u>

**RISK FACTORS**

The following are certain factors relating to the business and securities of the Company. The Company may face a few challenges and significant risks in the development of its business due to the nature of and present stage of its business. Additional risks and uncertainties not presently known to the Company or currently deemed immaterial by the Company, may also impair the operations of or materially adversely affect the securities of the Company. If any such risks occur, the Company's shareholders could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of the Company could be materially adversely affected. Some of the risk factors described herein are interrelated and, consequently, readers should carefully review such risk factors together with other information in this MD&A. In addition to the risks described in the MD&A, refer to the "Risk Factors" section in the Company's Annual Report on Form 20-F.

The acquisition of any of the securities of the Company is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are enough to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of the Company should not constitute a major portion of a person's investment portfolio and should only be made by persons who can afford a total loss of their investment.

<u>*While certain U.S. states have enacted medical and/or adult-use cannabis legislation, cannabis continues to be illegal under U.S. federal law, which may subject us to regulatory or legal enforcement, litigation, increased costs and reputational harm.*</u>

Eighty percent (80%) of the U.S. states have enacted legislation to regulate the sale and use of cannabis on either a medical or adult- use level. However, notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a controlled substance under the CSA, and as such, activities within the cannabis industry are illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire to attempt to engage in such activities. Financing businesses in the cannabis industry may be deemed aiding and abetting an illegal activity under federal law. If such an action were brought, the Company may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

Individual U.S. state laws do not always conform to U.S. federal regulatory standards, or to other U.S. state laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalized and/or created medical marijuana exemptions. Several states have also legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized or created medical marijuana exemptions. For example, Oregon and Colorado have limits on the number of marijuana plants that can be home grown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of a medical marijuana license or that person's caregiver. Even in those states in which the use and commercialization of marijuana has been legalized, its use remains a violation of U.S. federal law.

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The Company is currently aware of 40 states of the United States, the District of Columbia, and four out of five U.S. territories, that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Additionally, the sale and adult-use of recreational cannabis is legal in 24 U.S. states and the District of Columbia, and 38 U.S. states and the District of Columbia, for medical use. At the federal level, however, cannabis currently remains a Schedule I controlled substance under the CSA. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, absent passage of the 1-to-3 Act, or equivalent bill into law, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law.

Although the Company's activities are in compliance with applicable state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may adversely affect the Company's operations and financial performance.

<u>*Proceeds from the Company's financings could be considered proceeds of crime which may restrict the Company's ability to pay dividends or effect other distributions to its shareholders.*</u>

Currently, the Company engages in the manufacture, distribution, possession and sale of cannabis in the U.S. medical and recreational cannabis markets, and therefore the enforcement of U.S. federal laws is a significant risk to the Company. Unless and until the U.S. Congress amends the CSA through the 1-to-3 Act, or otherwise, (or the DEA reschedules or de-schedules cannabis), there is a risk that U.S. federal authorities, including the United States Attorney's Office for the District of Nevada, may enforce current federal law, and the Company may be deemed to be possessing, manufacturing, and trafficking marijuana in violation of U.S. federal law. Such activities also may serve as the basis for the prosecution of other crimes, such as those prohibited by the money laundering statutes, the unlicensed money transmitter statute, and the Bank Secrecy Act. Additionally, the Company may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of U.S. federal law with respect to the Company's current or proposed business operations. As to the timing or scope of any such potential amendments to the CSA, there can be no assurances to when or if any potential amendments will be enacted. Active enforcement of the current federal statutory laws and regulatory rules regarding cannabis may thus directly and/or indirectly and adversely affect the Company's future operations, cash flows, earnings, and financial condition.

The Company could face (i) seizure of its cash and other assets used to support or derived from its cannabis subsidiaries; and (ii) the arrest of its employees, directors, officers, managers and investors, who could face charges of ancillary criminal violations of the CSA for aiding and abetting and conspiring to violate the CSA by virtue of providing financial support to state-licensed or permitted cultivators, processors, distributors, and/or retailers of cannabis. Additionally, as has recently been affirmed by U.S. Customs and Border Protection, employees, directors, officers, managers and investors of the Company who are not U.S. citizens face the risk of being barred from entry into the United States for life.

<u>*Management may not be able to predict all new emerging risks or how such risks may impact actual results of the Company in the highly regulated, highly competitive and rapidly evolving U.S. cannabis industry.*</u>

As a result of the conflicting views between individual state governments and the U.S. federal government regarding cannabis, investments in U.S. cannabis businesses are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then U.S. Deputy Attorney General, James Cole, authorized the Cole Memo addressed to all United States Attorneys acknowledging that, notwithstanding the designation of cannabis as a controlled substance at the federal level in the U.S., several U.S. states have enacted laws relating to cannabis for medical purposes. The Cole Memo outlined certain priorities for the U.S. Department of Justice relating to the prosecution of cannabis offenses. In particular, the Cole Memo noted that in jurisdictions that have enacted laws legalizing cannabis in some form, and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, that conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.

On January 4, 2018, Jeff Sessions, the U.S. Attorney General at the time, issued the Sessions Memo to all United States Attorneys, which rescinded the Cole Memo in its entirety. The Sessions Memo provided that in deciding which marijuana activities to prosecute under U.S. federal laws, prosecutors should follow the same well-established principles that govern all U.S. federal prosecutions. Following the release of the Sessions Memo, the fate of state-legal cannabis is uncertain, and the risk of prosecution varies from state to state based on the posture, priorities and resources of each United States Attorney's Office for each applicable state.

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Although the Cole Memo was rescinded, one legislative safeguard for the medical cannabis industry, appended to federal appropriations legislation, remains in place. Currently referred to as the "Rohrabacher-Blumenauer Amendment", this so-called "rider" provision has been appended to the Consolidated Appropriations Acts every year since fiscal year 2015. Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. On December 20, 2019, then President Donald Trump signed the Consolidated Appropriations Act, 2020 which included the Rohrabacher-Blumenauer Amendment, which prohibits the funding of federal prosecutions with respect to medical cannabis activities that are legal under state law. On December 27, 2020, the omnibus spending bill passed including the Rohrabacher-Blumenauer Amendment, extending its application until September 30, 2021. The Amendment was then renewed through a series of stopgap spending bills on September 30, 2021, December 3, 2021, February 18, 2022, and March 11, 2022. On March 15, 2022, the Amendment was renewed through the signing of the fiscal year 2022 omnibus spending bill, extending previous funding levels and riders, including the Rohrabacher-Blumenauer Amendment. There can be no assurances that the Rohrabacher-Blumenauer Amendment will be included in future appropriations bills to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.

On March 11, 2021, Merrick Garland was sworn in as the U.S. Attorney General. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during a February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memo or announce a substantive marijuana enforcement policy. Justice Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. It is unclear what impact, if any, the current administration will have on U.S. federal government enforcement policy on cannabis.

In October 2021, in a letter from U.S. Senators Corey Booker and Elizabeth Warren to Attorney General Garland, the Senators advocated the federal decriminalization of cannabis by removing cannabis from the CSA's list of controlled substances. To date, Attorney General Garland and the Department of Justice have not publicly responded to the Senators' letter. Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

Given the conflict of laws and regulations, there is no certainty as to how the DOJ, Federal Bureau of Investigation and other government agencies will handle cannabis matters in the future. There can be no assurance that the Biden Administration would not change the current enforcement policies, priorities and resources and choose to enforce the subject federal laws. The Company regularly monitors ongoing developments in this regard.

Violations of any laws and regulations could result in significant fines, penalties, administrative sanctions, forfeiture, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company, including its reputation and ability to conduct business, its title (directly or indirectly) to cannabis licenses in the United States, the listing of its securities on various stock exchanges, its financial position, its operating results, and profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or the final resolution of such matters because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested and degree of enforcement by the applicable authorities involved, and such time or resources could be substantial.

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As a company listed on the CSE, the Company accesses the Canadian capital markets on a public and private basis, and any capital raised may be utilized for the ongoing operations of its U.S. holdings that operate in the U.S. cannabis industry. There is no assurance that the Company will be successful, in whole or in part, in raising funds, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from residents, citizens, venture capital, private equity and banks in the United States may be limited due to their unwillingness to be associated with activities that violate U.S. federal laws. Notwithstanding the above, the SAFER Banking Act would be a positive development for the industry and access to move affordable banking and lending.

<u>*Changes to current laws and regulation may impose substantial costs on the Company.*</u>

Local, state and federal cannabis laws and regulations in the United States are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter certain aspects of its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company's business plan and result in a material adverse effect on certain aspects of the Company's planned operations. Furthermore, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of the Company's cannabis business. The Company cannot predict the nature of any future laws, rules, regulations, resolutions, declarations, policy positions, interpretations or applications, nor can it determine what affect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on the Company's business.

Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Company's business, results of operations, financial condition and prospects would be materially adversely affected.

The Company is aware that multiple states are considering special taxes or fees on businesses in the marijuana industry. It is a potential yet unknown risk at this time that other states are in the process of reviewing such additional fees and taxation. This could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.

Beginning in September 2019, the United States media began reporting on potential vape related illnesses and death based on conditions resembling pneumonia, that consumers of flavored nicotine and flavored THC vaping products were experiencing. Vaping product sales are a material source of revenue for the Company. Although there has been no conclusive medical or scientific determination as to the cause of the subject conditions, management believes that the Company's products do not contain any of the components or chemicals, including but not limited to vitamin E acetate, which were implicated as possible sources of the condition, and which were identified by the CDC based on laboratory findings released on November 8, 2019. Out of an abundance of caution, governors of certain US states took precautionary, short-term actions until a more conclusive link between vaping products and the condition is determined; as mentioned in the Company's previous filings, Oregon was one of those states until the State was forced to lift its ban by court order on January 16, 2020.

<u>*The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants, including the Company.*</u> 

The Company operates in a new industry which is highly regulated, highly competitive and evolving rapidly. As such, new risks may emerge, and management may not be able to predict all such risks. The Company incurs ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.

Further, the Company may be subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect its ability to conduct its business.

Litigation and other claims are subject to inherent uncertainties and management's view of these matters may change in the future. A material adverse impact on the Company's financial statements could also occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.

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The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the control of the Company and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings on investments and could make future capital investments or the Company's operations uneconomic.

The cannabis industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants in the industry, such as the Company, which cannot be readily predicted.

<u>*Regulatory scrutiny of the Company's industry may negatively impact its ability to raise additional capital.*</u> 

The Company's business activities rely on newly established and/or developing laws and regulations. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company's profitability or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the U.S. Food and Drug Administration, Securities and Exchange Commission, the DOJ, the Financial Industry Regulatory Authority or other federal, applicable state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States.

It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company's industry may adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, which could reduce, delay or eliminate any return on investment in the Company.

<u>*The Company's operations in the U.S. are subject to applicable anti-money laundering laws and regulations.*</u>

The Company is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial record keeping and proceeds of crime, including the U.S. Currency and Foreign Transactions Reporting Act of 1970 ("**Bank Secrecy Act**"), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

In the event that any of the Company's operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on C21's Common Shares in the foreseeable future, in the event that a determination was made that the Company's proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.

The Company's operations and any proceeds thereof may be considered proceeds of crime since cannabis remains illegal federally in the United States. This restricts the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while the Company has no current intention to declare or pay dividends on its shares in the foreseeable future, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time in response to factors outside of the Company's control.

The Company may have difficulty accessing the services of banks and processing credit card payments in the future, which may make it difficult to operate. To mitigate this risk, the Company has maintained banking relations with three private credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), Salal (Washington State) and Greater Nevada Credit Union (Nevada). Through these private credit unions, the Company is able to access bank services to support its Nevada cannabis operations and handle any remaining Oregon-based accounts payable or receivable.

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<u>*Losing access to traditional banking, including bank-specific liquidity risks, could have a significant effect on our ability to operate, conclude financings and achieve returns.*</u>

Since the use of cannabis is illegal under U.S. federal law, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the cannabis industry. Consequently, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain traditional bank accounts may make it difficult to operate the Company's cannabis business. To mitigate this risk, the Company has maintained banking relations with three private credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), Salal (Washington State) and Greater Nevada Credit Union (Nevada). Through these private credit union banks, the Company can access comprehensive banking services including cash management checking accounts, ACH transfer processing, cash pick-up and delivery services, debit card and credit card processing, online banking, and processing of bank wires and transfers.

The recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation ("**FDIC**") have identified bank-specific liquidity risks and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band Bank and Signature Bank would have access to their funds, even deposit amounts that exceed FDIC deposit insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.

The FinCEN Guidance sets forth certain circumstances whereby it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. However, as discussed above, most banks and other financial institutions do not feel comfortable providing banking services to cannabis-related businesses, or relying on the FinCEN Guidance which could be revoked at any time by the Biden Administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses.

Accordingly, the Company may have limited or no access to banking or other financial services in the U.S. in the future and may have to operate the Company's U.S. business on a cash-only basis. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the U.S. House passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company's inability, or limitations on the Company's ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments, may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently. The prospects of the SAFER Banking Act, or some permutation thereof, becoming law is uncertain as of the date of this MD&A.

<u>*The Company's operations in the United States may be subject to heightened scrutiny.*</u>

The Company's existing operations in the United States cannabis market, and any future interests, may become the subject of heightened scrutiny by regulators, stock exchanges, clearing agencies or other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Company's ability to invest in the United States or any other jurisdiction.

Given the heightened risk profile associated with cannabis in the United States, it was previously reported by certain publications in Canada that the Canadian Depository for Securities Limited may implement policies that would see its subsidiary, CDS Clearing and Depository Services Inc. ("**CDS**"), refuse to settle trades for cannabis issuers that have investments in the United States. The TMX Group, the owner and operator of CDS, subsequently issued a statement on August 17, 2017, reaffirming that there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States, despite media reports to the contrary, and that the TMX Group was working with regulators to arrive at a solution that will clarify this matter, which would be communicated at a later time.

On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (the "**TMX MOU**") with Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange and the TSX Venture Exchange (the "**TSXV**"). The TMX MOU outlines the parties' understanding of Canada's regulatory framework applicable to the rules, procedures and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the United States.

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The TMX MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, there can be no guarantee that this approach to regulation will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of Common Shares to make and settle trades. In particular, the Common Shares would become highly illiquid and until an alternative was implemented investors would have no ability to affect a trade of Common Shares through the facilities of a stock exchange.

Through its subsidiaries, the Company is licensed by the State of Nevada Department of Taxation to cultivate and distribute wholesale and retail recreational and medicinal cannabis products in Nevada.

The following table is a summary of C21's balance sheet exposure to U.S. cannabis-related activities as of March 31, 2025:

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| | | | |
|:---|:---|:---|:---|
| 2025 |  |  |  |
|  | **Subsidiaries** | **Investments** | **Total** |
| Current Assets | $7311360 | $- | $7311360 |
| Non-current Assets | 49495634 |  | 49495634 |
| **Total Assets** | $**56806994** | $**-** | $**56806994** |
| Current Liabilities | $7707106 | $- | $7707106 |
| Non-Current liabilities | 20339105 |  | 20339105 |
| **Total Liabilities** | $**28046211** | $**-** | $**28046211** |

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Goodwill and intangibles related to the acquisition of U.S. based subsidiaries are included within the noncurrent asset totals above.

The following represents the portion of certain assets on C21's consolidated balance sheet that pertain to U.S. Cannabis activity as of March 31, 2025:

* Inventory: 100%

* Property plant & equipment: 100%

* Intangible assets and goodwill: 100%

* Notes receivable and deposits: 76%

<u>*Unfavorable publicity or consumer perception of cannabis may have an adverse effect on the demand for our products.*</u>

The Company believes the adult-use and medical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a material adverse effect on the demand for adult-use or medical cannabis and on the business, results of operations, financial condition, cash flows or prospects of the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis in general, or associating the consumption of adult-use and medical cannabis with illness or other negative effects or events, could have such a material adverse effect. There is no assurance that such adverse publicity reports, findings or other media attention will not arise.

Public opinion may result in a significant influence over the regulation of the cannabis industry in Canada, the United States or elsewhere. A negative shift in the public's perception of cannabis in the United States, or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical cannabis, thereby limiting the number of new state jurisdictions into which the Company could expand. Any limits on future expansion may have a material adverse effect on the Company's business, financial condition, and results of operations.

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<u>*State and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company's current and proposed brands and products will remain or be approved for sale and distribution in any state.*</u>

States generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance notice of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products based on the form of the product and the concentration of the various cannabinoids in the product. While the Company will continue to follow the guidelines and regulations of each applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such future products will be approved to the extent necessary. For the products that are approved, there is a risk that any state or local jurisdiction may revoke its approval for such products based on changes in laws or regulations or based on its discretion or otherwise.

<u>*The business premises of the Company are a target for theft, which may have an adverse impact on its financial condition and results of operations.*</u>

The business premises of the Company are a target for theft. While the Company has implemented security measures and continues to monitor and improve its security measures, its cultivation, processing, distribution and dispensary facilities could be subject to break-ins, robberies and other breaches in security. If there was a breach in security and the Company fell victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers, cannabis products, cultivation and processing equipment, and cash could have a material adverse impact on the business, financial condition, results of operation and property of the Company.

As the Company's business involves the movement and transfer of cash which is collected from third parties or deposited into its bank, there is a risk of theft or robbery during the transport of cash. The Company engages security firms to provide armed guards and security in the transport and movement of large amounts of cash. While the Company has taken robust steps to prevent theft or robbery of cash during transport, there can be no assurance that there will not be a security breach during the transport and the movement of cash involving the theft of product or cash.

<u>*The Company has historically relied on access to both public and private capital in order to support its continuing operations, and the Company expects to continue to rely on the capital markets to finance its business.*</u>

Although such business carries a higher degree of risk, and despite the legal standing of cannabis businesses pursuant to U.S. federal laws, Canadian based issuers involved in the U.S. state-legal cannabis industry have been successful in raising substantial amounts of private and public financing. However, there is no assurance the Company will be successful, in whole or in part, in raising funds in the future, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from U.S. residents may be limited due to their unwillingness to be associated with activities which violate U.S. federal laws.

<u>*As consumer perceptions of cannabis evolve, the Company may face unfavorable publicity or consumer perception.*</u>

The state-legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and will continue to be, a controlled substance for the foreseeable future. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding cannabis in general or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medical and adult-use cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use cannabis, it remains a controversial issue subject to differing opinions surrounding the nature of legalization (for example, support for legalization of medical versus recreational cannabis). The Company's ability to maintain and increase market acceptance of its company and products may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure may have an adverse effect on the Company.

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<u>*Product liability claims or regulatory actions against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business.*</u>

As a manufacturer and distributor of products designed to be ingested by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. This is particularly true in light of the United States media news, beginning in September 2019, regarding potential vaporizer (vape) related illnesses and deaths. The Company closely monitors the news reports on this topic, including results from the investigations being conducted by the CDC, and put out a statement over its social media feed on September 11, 2019 confirming its commitment to consumer safety, discussing the rigorous quality control and testing of its products, and explaining that none of its vape products are manufactured with vitamin E acetate, or any other additives, thickeners or agents. The Company further disclosed its complete ingredient list for all of its vape products. In addition, the manufacture and sale of marijuana involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur. As a manufacturer, distributor and retailer of adult-use and medical marijuana, or in its role as an investor in or service provider to an entity that is a manufacturer, distributor and/or retailer of adult-use or medical marijuana, the Company may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business, results of operations, financial condition or prospects of the Company. There can be no assurances that the Company will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products or otherwise have a material adverse effect on the business, results of operations, financial condition or prospects of the Company.

<u>*As the cannabis industry is nascent, expectations regarding the development of the market may not be accurate and may change.*</u>

Due to the early stage of the state-legal cannabis industry, forecasts regarding the size of the industry and the sales of products are inherently subject to significant unreliability. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the Company.

<u>*The cultivation, extraction and processing of cannabis and derivative products is dependent on a number of key inputs and their related costs which relies on a health supply chain.*</u>

Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.

<u>*The Company's limited operating history makes evaluating its business and prospects difficult.*</u>

The Company has a limited operating history on which to base an evaluation of its business, financial performance and prospects. As such, the Company's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. As the Company is in an early stage and is introducing new products, the Company's revenues may be materially affected by the decisions, including timing decisions, of a relatively consolidated customer base. The Company has had limited experience in addressing the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving industries such as the cannabis industry. There can be no assurance that the Company will be successful in addressing these risks, and the failure to do so in any one area could have a material adverse effect on the Company's business, prospects, financial condition and results of operations.

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<u>*There is no assurance of the Company's profitability.*</u>

The Company cannot give assurances that it will not incur losses in the future. The limited operating history makes it difficult to predict future operating results. The Company is subject to the risks inherent in the operation of a new business enterprise in an emerging and uncertain business sector, and there can be no assurance that the Company will be able to successfully address these risks.

<u>*The Company Company's operations are impacted by general economic trends.*</u>

Any worldwide economic slowdown and tightening of credit in the financial markets may impact the business of the Company's customers, which could have an adverse effect on the Company's business, financial condition, or results of operations. Adverse changes in general economic or political conditions in the United States and elsewhere could adversely affect the Company's business, financial condition, results of operations and property.

<u>*The Company faces risks related to tax credits and deductions.*</u>

Currently, U.S. state licensed cannabis businesses are assessed at a comparatively high effective U.S. federal income tax rate due to Section 280E of the Internal Revenue Code of 1986, as amended (the "Code"), which prohibits businesses associated with trafficking in controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) from deducting certain expenses. The IRS has invoked Section 280E of the Code in tax audits against various cannabis businesses in the United States that are permitted under applicable U.S. state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted. In addition, on June 28, 2024, the IRS published a press release reminding taxpayers that cannabis remains a Schedule I controlled substance until a final rule is published that reschedules cannabis and, therefore, cannabis is still subject to the limitations of Section 280E of the Code, and stating that taxpayers that have filed amended returns seeking a refund of taxes paid related to Section 280E of the Code are not entitled to a refund or payment and that the IRS is taking steps to address these claims. While there are currently several pending cases before various U.S. administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E of the Code favorable to cannabis businesses. Given these facts, the impact of any such challenges cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the Company.

The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Code, including the planned refiling of amended U.S. federal income tax returns in the next few months. The refiling of tax returns will be for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and the two months ended March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Because the Company's tax positions could be (and, as discussed below, has been) challenged by the IRS and other taxing authorities and the Company may not be wholly successful in defending its tax positions, the Company records reserves for unrecognized tax benefits based on its assessment of the probability of successfully sustaining its tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount.

The Company may be at risk of increased scrutiny from the IRS on past and future tax filings and, in the normal course of business, the Company receives notices, from time to time, from various local, state, and federal tax agencies. If the IRS makes a determination that the Company is not in compliance with Section 280E of the Code, the Company may be required to pay any difference in the amounts owed, in addition to penalties and interest, which could equal or exceed the amounts reserved by the Company, exceed the amount of cash on hand and materially impact the Company's financial condition or results of operations.

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On October 6, 2022, President Joseph Biden requested that the Secretary of HHS and the Attorney General to initiate a review as to how cannabis is currently scheduled under federal law. In August 2023, following a review by the FDA, the Secretary of HHS issued a recommendation to the DEA that cannabis be moved to Schedule III under the Controlled Substances Act. In December 2023, the DEA confirmed that it is currently conducting its review. On May 21, 2024, the DOJ published a notice of proposed rulemaking with the Federal Register to initiate a formal rulemaking process to consider transferring cannabis to Schedule III under the Controlled Substances Act. The Controlled Substances Act requires formal rulemaking on the record after an opportunity for a hearing. The hearing has been postponed multiple times and is currently pending resolution of an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied. If cannabis is moved to Schedule III from Schedule I under the Controlled Substances Act, it could end the effect of Section 280E of the Code on some or all of the Company's operations. However, any such change from Schedule I to Schedule III is beyond the control of the Company and cannot be predicted.

<u>*Currency fluctuations may have a material adverse effect on the Company's business, financial condition and operating results.*</u>

Due to the Company's present operations in the United States, and its intention to continue future operations outside Canada, the Company is expected to be exposed to significant currency fluctuations. All or substantially all of the Company's revenue will be earned in U.S. dollars, but operating expenses are incurred in both U.S. and Canadian dollars. The Company does not have currency hedging arrangements in place, and there is no expectation that the Company will put any currency hedging arrangements in place in the future. Fluctuations in the exchange rate between the U.S. dollar and Canadian dollar may have a material adverse effect on the Company's business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.

<u>*Rising energy costs may have a material adverse effect on the Company's business, financial condition and operating results.*</u>

Adult-use and medical marijuana growing operations consume considerable energy, making the Company potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of the Company.

<u>*The Company faces risks related to supply chain issues and interruptions.*</u>

Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.

<u>*The Company may not be able to meet its obligations as they become due, and the Company may require additional funding to continue as a going concern.*</u>

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company's ability to continue as a going concern may be dependent on management's ability to raise required funding through future equity or debt issuances. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investment and financing activities. While the Company experiences positive cash flow from operations, such cash flow may not be sufficient on their own to fund payments to unsecured creditors. These material uncertainties cast doubt upon the Company's ability to continue as a going concern.

<u>*The Company may require additional financing, which may not be available.*</u>

The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.

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<u>*Company indebtedness could have a number of adverse impacts on the Company, including reducing the availability of cash flows to fund working capital and capital expenses.*</u>

Any indebtedness of the Company could have significant consequences on the Company, including: increase the Company's vulnerability to general adverse economic and industry conditions; require the Company to dedicate a substantial portion of its cash flow from operations to making interest and principal payments on its indebtedness, reducing the availability of the Company's cash flow to fund capital expenditures, working capital and other general corporate purposes; limit the Company's flexibility in planning for, or reacting to, changes in the business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have greater financial resources; and limit the Company's ability to complete fundamental corporate changes or transactions or to declare or pay dividends.

**FORWARD LOOKING STATEMENTS**

This MD&A includes "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities laws and United States securities laws. All information, other than statements of historical facts, included in this MD&A that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking information. Forward-looking information includes, among other things, information regarding: statements relating to the business and future activities of, and developments related to, the Company, including such things as the timing of the completion of contemplated acquisitions or dispositions, expectations whether such proposed transactions will be consummated on the current terms or otherwise and contemplated timing, expectations and effects of such proposed transactions, including the potential number and location of cultivation and production facilities and dispensaries or licenses therefor to be acquired or sold and markets to be entered into or exited by the Company as a result of completing such proposed transactions, the ability of the Company to successfully achieve its business objectives as a result of completing such proposed acquisitions or dispositions, estimates of future cultivation, manufacturing and extraction capacity, expectations as to the development and distribution of the Company's brands and products, the expansion into additional U.S. and international markets, any potential future legalization of adult-use and/or medical cannabis under U.S. federal law, expectations of market size and growth in the United States and the states in which the Company operates or contemplates future operations and the effect such growth will have on the Company's financial performance, expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally, and other events or conditions that may occur in the future.

Readers are cautioned that forward-looking information and statements are based on reasonable assumptions, estimates, analysis and opinions of management of the Company at the time they were provided or made in light of their experience and their perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements.

Forward-looking information and statements are not a guarantee of future performance and are based upon a number of estimates and assumptions of management at the date the statements are made including among other things assumptions about: the contemplated acquisitions and dispositions being completed on the current terms and current contemplated timeline; development costs remaining consistent with budgets; ability to manage anticipated and unanticipated costs; favorable equity and debt capital markets; the ability to raise sufficient capital to advance the business of the Company; favorable operating and economic conditions; political and regulatory stability; obtaining and maintaining all required licenses and permits; receipt of governmental approvals and permits; sustained labor stability; favorable production levels and costs related to the Company's operations; the pricing of various cannabis products; the level of demand for cannabis products; the availability of third party service providers and other inputs for the Company's operations; the Company's ability to conduct operations in a safe, efficient and effective manner; the ability of the Company to restructure and service its secured debt; the availability of securitized debt financing on terms acceptable to the Company, or at all. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive and other risks, uncertainties, contingencies and other factors that could cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking information and statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.

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Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, among others, risks relating to U.S. regulatory landscape and enforcement related to cannabis, including governmental and environmental regulation, public opinion and perception of the cannabis industry, risks related to the ability to consummate any proposed acquisitions or dispositions on the proposed terms and the ability to obtain requisite regulatory approvals and third party consents and the satisfaction of other conditions, risks related to reliance on third party service providers, the limited operating history of the Company, risks inherent in an agricultural business, risks related to proprietary intellectual property, risks relating to financing activities, risks relating to the management of growth, increasing competition in the cannabis industry, risks associated to cannabis products manufactured for human consumption including health risks, potential product recalls, reliance on key inputs, reliance on a healthy global supply chain, suppliers and skilled labor (the availability and retention of which is subject to uncertainty), cyber-security risks, ability and constraints on marketing products, fraudulent activity by employees, contractors and consultants, risk of litigation and conflicts of interest, and the difficulty of enforcement of judgments and effecting service outside of Canada, risks related to future acquisitions or dispositions, limited research and data relating to cannabis, and the continued impact it may have on the global economy and the retail sector, particularly the cannabis retail sector in the states in which the Company operates, as well as those risk factors discussed elsewhere herein, including under "**Risk Factors**".

Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The Company may elect to update such forward-looking information and statements at a future time, it assumes no obligation for doing so except to the extent required by applicable law.

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## Exhibit 15.3

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![](exhibit15-3xu001.jpg)

**CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

We consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-259093) of C21 Investments Inc. (the "Company") of our report dated June 23, 2025, relating to the consolidated financial statements of the Company as of and for the year ended March 31, 2025, included in this Annual Report on Form 20-F for the year ended March 31, 2025.

**/s/ DAVIDSON & COMPANY LLP**

Vancouver, Canada Chartered Professional Accountants

June 23, 2025

![](exhibit15-3xu002.jpg)

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