Document:

Exhibit
4.6

 

 

 

 

Ayr
Strategies Inc.

MANAGEMENT’S
DISCUSSION AND ANALYSIS

FOR
THE THREE AND NINE MONTHS SEPTEMBER 30, 2020 AND 2019

(EXPRESSED
IN UNITED STATES DOLLARS)

 

 

     

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Introduction

 

The
following management’s discussion and analysis (“MD&A”) of the financial condition and results of the operations
of Ayr Strategies Inc. (formerly Cannabis Strategies Acquisition Corp.) (“Ayr”, “the Corporation”, “we”,
 “our” or “us”) constitutes management’s review of the factors that affected the Corporation’s
financial and operating performance for the three and nine months ended September 30, 2020. This MD&A was written to comply
with the requirements of National Instrument 51-102 – Continuous Disclosure Obligations. This discussion should be read
in conjunction with the Corporation’s unaudited condensed interim consolidated financial statements as of September 30,
2020 and for the three and nine months ended September 30, 2020 (the “interim financials statements”) and audited
consolidated financial statements for the years ended December 31, 2019 and 2018, and the related notes thereto (the “financial
statements”). Results are reported in United States dollars, unless otherwise noted. In the opinion of management, all adjustments
(which consist only of normal recurring adjustments) considered necessary for a fair presentation have been included. Until it
completed its Qualifying Transaction (as defined below) on May 24, 2019, the Corporation was a special purpose acquisition corporation
(“SPAC”), and therefore the results presented for the year ended December 31, 2019 and nine months ended September
30, 2019 will not be indicative of the results that may be expected for any future period. The financial statements and the financial
information contained in this MD&A were prepared in accordance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations
Committee (“IFRIC”). Further information about the Corporation and its operations can be obtained on www.sedar.com.

 

The
effective date of this MD&A is November 18, 2020.

 

Cautionary
Note Regarding Forward-Looking Information

 

Certain
statements in this MD&A are forward-looking statements within the meaning of applicable securities laws, including, but not
limited to, those statements relating to the Corporation and their financial capacity and availability of capital and other statements
that are not historical facts. These statements are based upon certain material factors, assumptions and analyses that were applied
in drawing a conclusion or making a forecast or projection, including experience of the Corporation, as applicable, and perception
of historical trends, current conditions and expected future developments, as well as other factors that are believed to be reasonable
in the circumstances. Forward-looking statements are provided for the purpose of presenting information about management’s
current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for
other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition,
expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies
and outlook of the Corporation. Forward-looking statements include statements that are predictive in nature, depend upon or refer
to future events or conditions, or include words such as “pro forma”, “expects”, “anticipates”,
 “plans”, “believes”, “estimates”, “intends”, “targets”, “projects”,
 “forecasts”, “seeks”, “likely” or negative versions thereof and other similar expressions,
or future or conditional verbs such as “may”, “will”, “should”, “would” and “could”.

 

By
their nature, forward-looking statements are subject to inherent risks and uncertainties that may be general or specific and which
give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate,
that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of material
factors, many of which are beyond the parties’ control, could affect operations, business, financial condition, performance
and results of the parties that may be expressed or implied by such forward-looking statements and could cause actual results
to differ materially from current expectations of estimated or anticipated events or results. These factors include, but are not
limited to, the following:

 

		●	the
                                         extent of the impact of COVID-19, including government and/or regulatory responses to
                                         the outbreak;

 

    2 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		●	assumptions
                                         and expectations described in the Corporation’s critical accounting policies and
                                         estimates;

 

		●	the
                                         adoption and impact of certain accounting pronouncements;

 

		●	the
                                         number of users of cannabis or the size of the regulated cannabis market in the United
                                         States;

 

		●	the
                                         potential time frame for the implementation of legislation to legalize and regulate medical
                                         or adult-use cannabis (and the consumer products derived from each of the foregoing)
                                         in the United States, and the potential form the legislation and regulations will take;
                                         

 

		●	the
                                         Corporation’s future financial and operating performance and anticipated profitability;

 

		●	future
                                         performance, results and terms of strategic initiatives, strategic agreements and supply
                                         agreements;

 

		●	the
                                         market for the Corporation’s current and proposed products and services, as well
                                         as the Corporation’s ability to capture market share;

 

		●	the
                                         benefits and applications of the Corporation’s products and services and expected
                                         sales thereof;

 

		●	development
                                         of affiliated brands, product diversification and future corporate development;

 

		●	anticipated
                                         investment in and results of research and development;

 

		●	inventory
                                         and production capacity, including discussions of plans or potential for expansion of
                                         capacity at existing or new facilities;

 

		●	future
                                         expenditures, strategic investments and capital activities;

 

		●	the
                                         competitive landscape in which the Corporation operates and the Corporation’s market
                                         expertise;

 

		●	the
                                         Corporation’s ability to secure further equity or debt financing, if required;

 

		●	consistent
                                         or increasing pricing of various cannabis products;

 

		●	the
                                         level of demand for cannabis products, including the Corporation’s and third-party
                                         products sold by the Corporation;

 

		●	the
                                         Corporation’s ability to mitigate risks relating to the cannabis industry, the
                                         larger economy, breaches of and unauthorized access to the Corporation’s systems
                                         and related cybersecurity risks, money laundering, costly litigation, and health pandemics;

 

		●	the
                                         ability to gain appropriate regulatory approvals for announced acquisitions in the timeframe
                                         anticipated;

 

		●	the
                                         application for additional licenses and the grant of licenses or renewals of existing
                                         licenses that have been applied for;

 

		●	the
                                         rollout of new dispensaries, including as to the number of planned dispensaries to be
                                         opened in the future and the timing and location in respect of the same, and related
                                         forecasts; and

 

    3 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		●	other
                                         events or conditions that may occur in the future.

 

In
making these statements, in addition to those described above and elsewhere herein, the parties have made assumptions with respect
to expected cash provided by continuing operations, future capital expenditures, including the amount and nature thereof, trends
and developments in the industry, business strategy and outlook, expansion and growth of business and operations, accounting policies,
credit risks, anticipated acquisitions, opportunities available to or pursued by the parties, and other matters.

 

Definition
and Reconciliation of Non-IFRS Measures

 

The
Corporation reports certain non-IFRS measures that are used to evaluate the performance of such businesses and the performance
of their respective segments, as well as to manage their capital structure. As non-IFRS measures generally do not have a standardized
meaning, they may not be comparable to similar measures presented by other issuers. Securities regulations require such measures
to be clearly defined and reconciled with their most directly comparable IFRS measure.

 

The
Corporation references non-IFRS measures including cannabis industry metrics, in this document and elsewhere. These measures are
not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be
comparable to similar measures presented by other companies. Rather, these are provided as additional information to complement
those IFRS measures by providing further understanding of the results of the operations of the Corporation from management’s
perspective. Accordingly, these measures should not be considered in isolation, nor as a substitute for analysis of the Corporation’s
financial information reported under IFRS. Non-IFRS measures used to analyze the performance of the Corporation include “Adjusted
EBITDA”.

 

The
Corporation believes that these non-IFRS financial measures provide meaningful supplemental information regarding the Corporation’s
performances and may be useful to investors because they allow for greater transparency with respect to key metrics used by management
in its financial and operational decision-making. These financial measures are intended to provide investors with supplemental
measures of the Corporation’s operating performances and thus highlight trends in the Corporation’s core businesses
that may not otherwise be apparent when solely relying on the IFRS measures.

 

Adjusted
EBITDA

 

“Adjusted
EBITDA” represents income (loss) from operations, as reported, before interest, and tax, and is adjusted to exclude non-recurring
items, other non-cash items, including stock based compensation expense, depreciation, amortization, the adjustments for the accounting
of the fair value of biological assets, and further adjusted to remove acquisition related costs.

 

Reconciliations
are provided elsewhere in this MD&A.

 

Description
of Business

 

Ayr
is a vertically-integrated multi-state operator in the U.S. cannabis sector, with a portfolio in Massachusetts and Nevada. Through
its operating companies, Ayr is a leading cultivator, manufacturer and retailer of cannabis products and branded cannabis packaged
goods, including through operational and service agreements to licensed cannabis companies. The Corporation was previously a SPAC
which was incorporated for the purpose of effecting an acquisition of one or more businesses or assets, by way of a merger, amalgamation,
arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving
the Corporation, referred to as the Corporation’s Qualifying Transaction. The Corporation had only one operating segment,
cannabis sales, during the period ended September 30, 2020. As the Corporation has experienced rapid growth with the Qualifying
Transaction, operating segments will be further analyzed and are subject to future change. The Corporation is a reporting issuer
in each of the provinces and territories of Canada, other than Quebec.

 

    4 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

The
Corporation was incorporated on July 31, 2017 under the Business Corporations Act (Ontario) and continued on May 24, 2019
into British Columbia under the Business Corporations Act (British Columbia) in connection with its Qualifying Transaction.
The registered office of the Corporation is located at 666 Burrard Street, Suite 1700, Vancouver, British Columbia V6C 2X8. The
head office of the Corporation is located at 590 Madison Avenue, 26th Floor, New York, New York, 10022.

 

For
information on the Corporation’s initial public offering, please refer to the Corporation’s final non-offering prospectus
dated February 15, 2019 and the Corporation’s management information circular dated February 19, 2019.

 

On
September 12, 2018, the Corporation incorporated a wholly owned subsidiary in Nevada, United States, named CSAC Holdings Inc.,
to facilitate the proposed Qualifying Transaction. On September 17, 2018, CSAC Holdings Inc. incorporated a wholly owned subsidiary
in Nevada, United States, named CSAC Acquisition Inc. (“CSAC AcquisitionCo”). On May 24, 2019, the Corporation completed
its concurrent acquisitions, including through operational and service agreements, of the target businesses of Washoe Wellness,
LLC (“Washoe”), The Canopy NV, LLC (“Canopy”), Sira Naturals, Inc. (“Sira”), LivFree Wellness,
LLC (“LivFree”) and CannaPunch of Nevada LLC (“CannaPunch”), which collectively constituted its Qualifying
Transaction (collectively, the “Qualifying Transaction”). For more information regarding the Qualifying Transaction,
view the December 31, 2019 audited consolidated financial statements.

 

The
Corporation’s subordinate voting shares (“Subordinate Voting Shares”), warrants (“Warrants”), and
rights (“Rights”) are trading on the Canadian Stock Exchange (the “CSE”), under the symbols “AYR.A”,
 “AYR.WT” and “AYR.RT”, respectively. The Corporation’s Subordinate Voting Shares are also trading
on the Over-the-Counter Market (“OTC”) in the United States under the symbol “AYRSF”.

 

Acquisition
of Businesses

 

On
May 24, 2019 (the “acquisition date”), the Corporation completed its Qualifying Transaction. Any summary information
of certain material terms from definitive agreements in respect of the acquisitions of Washoe, Canopy, Sira, LivFree, and CannaPunch
(respectively, the “Washoe Agreement”, the “Canopy Agreement”, the “Sira Agreement”, the “LivFree
Agreement”, and the “CannaPunch Agreement”, collectively the “Definitive Agreements”) is not exhaustive
and is qualified in its entirety by reference to the terms of the Definitive Agreements, which may be found on Ayr’s profile
on SEDAR at www.sedar.com. 

 

Each
of the acquisitions are subject to specific terms relating to the satisfaction of the purchase price by the Corporation and its
wholly-owned subsidiary, CSAC AcquisitionCo, and incorporates payments in cash, shares, and debt as well as certain contingent
considerations. The shares issued as consideration are non-voting exchangeable shares of CSAC AcquisitionCo (“Exchangeable
Shares”) that are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares of the Corporation.
The Corporation treats the Exchangeable Shares as options with a value equal to a share of Subordinate Voting Shares, which represents
the holder’s claim on the equity of the Corporation. In order to comply with certain contractual requirements of the acquisition,
the Corporation and CSAC AcquisitionCo are required to maintain the economic equivalency of such Exchangeable Shares with the
publicly traded Subordinate Voting Shares of the Corporation. This means the Exchangeable Shares are required to share the same
economic benefits and retain the same proportionate ownership in the assets of the Corporation as the holders of the Corporation’s
publicly traded Subordinate Voting Shares. The Corporation has presented these Exchangeable Shares as a part of shareholders’
equity within these interim financial statements due to (i) the fact that they are economically equivalent to the Corporation’s
publicly traded Subordinate Voting Shares (ii) the holders of the Exchangeable Shares are subject to restrictions on transfer
under United States securities laws, but may dispose of the Exchangeable Shares without such restriction by exchanging them for
Subordinate Voting Shares of the Corporation. Changes in these assumptions would affect the presentation of the Exchangeable Shares
from shareholders’ equity to non-controlling interests; however, there would be no impact on (loss) earnings per share.

 

    5 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

The
details of the purchase price consideration are summarized as follows:

	 	 	Cash
    
 $	 	 	Debt
    Payable
 $	 	 	Shares
    Issued
 $	 	 	Other

    $	 	 	Total

    $	 
	Calculated
    Consideration	 	 	76,420,000	 	 	 	37,140,000	 	 	 	125,421,479	 	 	 	31,471,789	 	 	 	270,453,268	 

 

The
purchase consideration consists of cash, debt, Exchangeable Shares, and other consideration. The other consideration includes
a contingent cash payment based on certain milestones being met as detailed in the Sira Agreement, a payment for excess inventory
as outlined in the Sira Agreement, and make-whole provisions as outlined in the Canopy Agreement and the Washoe Agreement.

 

Ayr
obtained control, as defined in IFRS 10 for purposes of determining the consolidated basis of financial statement presentation,
of Washoe, Canopy, and LivFree through separate operational and service agreements. Each operational and service agreement provides
Ayr certain rights over the entities’ operations. Through these operational and service agreements, Ayr has the power to
control relevant activities which affect the returns Ayr receives. As a result of the control, as defined in IFRS 10 for purposes
of determining the consolidated basis of financial statement presentation, obtained through the operational and service agreements,
these entities are consolidated on Ayr’s interim financial statements. As of September 30, 2020, Washoe, Canopy, and LivFree
are awaiting state regulatory approval to transfer licenses to Ayr. See Note 3.1 for a breakout of the various management companies.

 

    6 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

The
fair value of the identifiable assets acquired and liabilities assumed as of the acquisition date are as follows:

	US$	 	Livfree

    $	 	 	Sira 

    $	 	 	Cannapunch 
$	 	 	Washoe 
 $	 	 	Canopy 
$	 	 	Total
 $	 
	ASSETS ACQUIRED	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	1,258,928	 	 	 	270,280	 	 	 	7,233	 	 	 	21,458	 	 	 	147,930	 	 	 	1,705,829	 
	Accounts receivable	 	 	–	 	 	 	600,151	 	 	 	625,143	 	 	 	87,617	 	 	 	–	 	 	 	1,312,911	 
	Inventory	 	 	2,670,057	 	 	 	9,671,814	 	 	 	552,040	 	 	 	4,500,213	 	 	 	1,618,639	 	 	 	19,012,763	 
	Biological assets	 	 	–	 	 	 	1,996,642	 	 	 	–	 	 	 	1,763,516	 	 	 	–	 	 	 	3,760,158	 
	Prepaid expenses and other assets	 	 	96,157	 	 	 	340,428	 	 	 	–	 	 	 	129,477	 	 	 	160,748	 	 	 	726,810	 
	Intangible assets	 	 	105,000,000	 	 	 	57,000,000	 	 	 	2,390,000	 	 	 	22,800,000	 	 	 	10,750,000	 	 	 	197,940,000	 
	Property, plant and equipment	 	 	1,640,418	 	 	 	9,090,090	 	 	 	486,100	 	 	 	9,070,645	 	 	 	1,217,736	 	 	 	21,504,989	 
	Right-of-use assets	 	 	2,894,076	 	 	 	5,239,201	 	 	 	1,119,826	 	 	 	–	 	 	 	2,057,681	 	 	 	11,310,784	 
	Due from related parties	 	 	–	 	 	 	–	 	 	 	–	 	 	 	–	 	 	 	784,733	 	 	 	784,733	 
	Deposits	 	 	90,147	 	 	 	149,251	 	 	 	–	 	 	 	91,574	 	 	 	9,983	 	 	 	340,955	 
	Total
    assets acquired at fair value	 	 	113,649,783	 	 	 	84,357,857	 	 	 	5,180,342	 	 	 	38,464,500	 	 	 	16,747,450	 	 	 	258,399,932	 
	LIABILITIES ASSUMED	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	387,500	 	 	 	475,193	 	 	 	251,829	 	 	 	506,073	 	 	 	–	 	 	 	1,620,595	 
	Accrued liabilities	 	 	1,176,088	 	 	 	970,418	 	 	 	46,972	 	 	 	100,412	 	 	 	520,453	 	 	 	2,814,343	 
	Deferred tax liabilities	 	 	25,796,726	 	 	 	13,611,222	 	 	 	567,507	 	 	 	2,153,131	 	 	 	2,841,746	 	 	 	44,970,332	 
	Advance from related parties	 	 	187,809	 	 	 	–	 	 	 	–	 	 	 	784,733	 	 	 	–	 	 	 	972,542	 
	Lease obligations	 	 	2,520,437	 	 	 	6,514,038	 	 	 	1,083,189	 	 	 	–	 	 	 	2,553,502	 	 	 	12,671,166	 
	Debts payable	 	 	120,000	 	 	 	13,054	 	 	 	–	 	 	 	9,180,808	 	 	 	421,128	 	 	 	9,734,990	 
	Total liabilities assumed at fair value	 	 	30,188,560	 	 	 	21,583,925	 	 	 	1,949,497	 	 	 	12,725,157	 	 	 	6,336,829	 	 	 	72,783,968	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Goodwill	 	 	39,779,584	 	 	 	16,399,143	 	 	 	13,971,953	 	 	 	8,121,569	 	 	 	6,565,055	 	 	 	84,837,304	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Calculated purchase price	 	 	123,240,807	 	 	 	79,173,075	 	 	 	17,202,798	 	 	 	33,860,912	 	 	 	16,975,676	 	 	 	270,453,268	 

  

The
goodwill recognized on acquisition is attributable mainly to the expected future growth potential and expanded customer base arising
as a result of completion of Qualifying Transaction as explained in Note 1 to the interim financial statements. Goodwill has been
allocated to the Cash Generating Units (“CGU” or “CGUs”) corresponding to each of the acquired businesses.
None of the goodwill is expected to be deductible for income tax purposes. The Corporation tests the
recoverability of its goodwill annually, or more frequently, if events or changes in circumstances indicate that they might be
impaired.

 

Sira
Acquisition

 

Sira
is a vertically-integrated cannabis company with cultivation, extraction, production, manufacturing, distribution and retail dispensary
operations in Massachusetts. Sira operates its dispensaries in the medical market in Massachusetts.

 

    7 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Purchase
consideration was comprised of the following:

 

	 	 	Shares	 	 	Value	 
	Cash	 	i	 	 	 	 	 	$	17,500,000	 
	Debt Payable	 	ii	 	 	 	 	 	 	5,000,000	 
	Shares Issued	 	iii	 	 	1,885,606	 	 	 	29,165,138	 
	Contingent Consideration	 	iv	 	 	 	 	 	 	21,820,132	 
	Inventory Payment	 	v	 	 	 	 	 	 	6,091,357	 
	Working Capital Receivable	 	vi	 	 	 	 	 	 	(403,552	)
	Total	 	 	 	 	1,885,606	 	 	 	79,173,075	 

  

Pursuant
to the terms of the Sira Agreement, Ayr satisfied the purchase price of $79.2 million for Sira through the following:

 

		i.	$17.5
                                         million of the Sira purchase price in the form of cash consideration;

 

		ii.	$5.0
                                         million of the Sira purchase price in the form of a promissory note payable;

 

		iii.	$29.2
                                         million of the Sira purchase price in the form of 1,885,606 Exchangeable Shares that
                                         are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares
                                         of the Corporation. These shares have restrictions on their ability to be sold for twelve
                                         months (the “Sira Lock-Up Provision”);

 

		iv.	A
                                         portion of the Sira purchase price is derived from an earn-out provision that may entitle
                                         the sellers to earn additional consideration, if certain milestones are achieved at Sira’s
                                         planned final cultivation facilities in Milford, MA over its first full year of operation;

 

		v.	An
                                         amount equal to the fair market value of Sira’s inventory above a target level
                                         set at $800,000 (the “Inventory Payment”), pursuant to a formula specified
                                         in the Sira Agreement; and

 

		vi.	Settlement
                                         following the final working capital adjustment.

 

One-third
of the Inventory Payment, subject to a cap of $2,500,000, was paid on the Closing Date, and is included in the cash consideration
listed above. The remaining two-thirds is part of the current portion of purchase consideration payable as set out on the interim
financial statements. On August 31, 2020, the outstanding balance of $6,091,357 was further amended to adopt a monthly payment
schedule ranging from 10-25 months based on certain milestones.

 

Canopy
Acquisition

 

Canopy
is an owner and operator of cannabis dispensaries in Nevada, with an established footprint in Reno, Nevada. Canopy operates its
dispensaries in both the medical and adult-use markets.

 

Purchase
consideration was comprised of the following:

	 	 	Shares	 	 	Value	 
	Cash	 	i	 	 	 	 	 	$	7,000,000	 
	Debt
    Payable	 	ii	 	 	 	 	 	 	4,500,000	 
	Shares
    Issued	 	iii,
    iv	 	 	265,360	 	 	 	4,349,003	 
	Make-Whole
    Provision		v
	 	 	 	 	 	 	1,389,182	 
	Working
    Capital Receivable	 	vi	 	 	 	 	 	 	(262,509	)
	Total	 	 	 	 	265,360	 	 	 	16,975,676	 

  

    8 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Pursuant
to the terms of the Canopy Agreement, Ayr satisfied the purchase price of $17.0 million for Canopy through the following:

 

		i.	$7.0
                                         million of the Canopy purchase price in the form of cash consideration;

 

		ii.	$4.5
                                         million of the Canopy purchase price in the form of a promissory note payable;

 

		iii.	$4.3
                                         million of the Canopy purchase price in the form of 250,000 Exchangeable Shares that
                                         are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares
                                         of the Corporation. These shares have restrictions on their ability to be sold for six
                                         to twelve months (the “Canopy Lock-Up Provision”);

 

		iv.	An
                                         additional 15,360 Exchangeable Shares to Canopy pursuant to certain make-whole provisions
                                         (the “Canopy Make-Whole Provisions”);

 

		v.	An
                                         additional 432,940 Exchangeable Shares to the Canopy sellers under the Canopy Make-Whole
                                         Provisions based on a formula specified therein relating to the market price of the Subordinate
                                         Voting Shares on certain specified dates; and

 

		vi.	Settlement
                                         of the final working capital adjustment.

 

Washoe
Acquisition

 

Washoe
is a Nevada-based cannabis company with cultivation, extraction, processing, manufacturing and distribution capabilities. Washoe
operates in both the medical and adult-use segments of the Nevada cannabis market.

 

Purchase
consideration was comprised of the following:

 

	 	 	 	 	Shares	 	 	Value	 
	Cash	 	i	 	 	 	 	 	$	21,670,000	 
	Debt
    Payable	 	ii	 	 	 	 	 	 	5,640,000	 
	Shares
    Issued	 	iii,
    iv	 	 	270,000	 	 	 	4,260,775	 
	Make-Whole
    Provision	 	v	 	 	 	 	 	 	1,424,536	 
	Working
    Capital Payable	 	vi	 	 	 	 	 	 	865,601	 
	Total	 	 	 	 	270,000	 	 	 	33,860,912	 

 

Pursuant
to the terms of the Washoe Agreement, Ayr satisfied the purchase price of $33.9 million for Washoe through the following:

 

		i.	$21.7
                                         million of the Washoe purchase price in the form of cash consideration;

 

		ii.	$5.6
                                         million of the Washoe purchase price in the form of a promissory note payable;

 

		iii.	$4.3
                                         million of the Washoe purchase price in the form of 256,364 Exchangeable Shares that
                                         are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares
                                         of the Corporation. These shares have restrictions on their ability to be sold for six
                                         to twelve months (the “Washoe Lock-Up Provision”);

 

		iv.	Pursuant
                                         to the terms of the Washoe Agreement, 13,636 Exchangeable Shares to a Washoe lender;

 

    9 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		v.	An
                                         additional 571,479 Exchangeable Shares to the Washoe
                                         sellers pursuant to certain make-whole provisions (the “Washoe
                                         Make-Whole Provisions”) in the Washoe Agreement based on a formula specified therein
                                         relating to the market price of the Subordinate Voting Shares on certain specified dates;
                                         and

 

		vi.	Settlement
                                         of the final working capital adjustment.

 

CSAC
AcquisitionCo agreed to fund a bonus payment in the amount of $5,000,000 to various employees and consultants of Washoe; this
amount is included in the cash consideration above.

 

LivFree
Acquisition

 

LivFree
is a leading Nevada-based cannabis company with retail dispensary operations in Las Vegas and Reno, Nevada. LivFree operates in
both the medical and adult-use segments of the Nevada cannabis market. LivFree operates three retail dispensaries where it sells
products purchased in the wholesale market. Livfree has licenses to operate medical marijuana dispensary, cultivation, and production
facilities, and adult-use marijuana retail dispensary and production facilities.

 

Purchase
consideration was comprised of the following:

	 	 	 	 	Shares	 	 	Value	 
	Cash	 	i	 	 	 	 	 	$	29,500,000	 
	Debt
    Payable	 	ii	 	 	 	 	 	 	20,000,000	 
	Shares
    Issued	 	iii,
    iv	 	 	4,664,182	 	 	 	73,525,577	 
	Working
    Capital Payable	 	v	 	 	 	 	 	 	215,230	 
	Total	 	 	 	 	4,664,182	 	 	 	123,240,807	 

 

Pursuant
to the terms of the LivFree Agreement, Ayr satisfied the purchase price of $123.2 million for LivFree through the following:

 

		i.	$29.5
                                         million of the LivFree purchase price in the form of cash consideration;

 

		ii.	$20.0
                                         million of the LivFree purchase price in the form of a promissory note payable;

 

		iii.	$69.1
                                         million of the LivFree purchase price in the form of 4,342,432 Exchangeable Shares that
                                         are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares
                                         of the Corporation. These shares have restrictions on their ability to be sold for six
                                         to twelve months (the “LivFree Lock-Up Provision”);

 

		iv.	$4.4
                                         million of the LivFree purchase price, pursuant to an amendment to the definitive agreement
                                         in respect of the LivFree Acquisition, in the form of an additional 321,750 Exchangeable
                                         Shares to the LivFree sellers; and

 

		v.	Settlement
                                         of the final working capital adjustment.

 

CannaPunch
Acquisition

 

CannaPunch
possesses trade name and brand value and extracts raw cannabis plant material through a license agreement to create processed
cannabis oil for use in vaporizer cartridges and pens or as an input into other infused products, as well as manufactures a variety
of cannabis-infused products, including beverages, gummies, chocolates, CBD cream, and vaporizer pens.

 

    10 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Purchase
consideration was comprised of the following:

	 	 	 	 	Shares	 	 	Value	 
	Cash	 	i	 	 	 	 	 	$	750,000	 
	Debt
    Payable	 	ii	 	 	 	 	 	 	2,000,000	 
	Shares
    Issued	 	iii,
    iv	 	 	898,739	 	 	 	14,120,986	 
	Working
    Capital Payable	 	v	 	 	 	 	 	 	331,812	 
	Total	 	 	 	 	898,739	 	 	 	17,202,798	 

 

Pursuant
to the terms of the CannaPunch Agreement, Ayr satisfied the purchase price of $17.2 million for CannaPunch through the following:

 

		i.	$0.8
                                         million of the CannaPunch purchase price in the form of cash consideration;

 

		ii.	$2.0
                                         million of the CannaPunch purchase price in the form of a promissory note payable;

 

		iii.	$13.7
                                         million of the CannaPunch purchase price in the form of 866,668 Exchangeable Shares that
                                         are exchangeable on a one-for-one basis into an equal number of Subordinate Voting Shares
                                         of the Corporation. These shares have restrictions on their ability to be sold for six
                                         to twelve months (the “CannaPunch Lock-Up Provision”, and collectively with
                                         the Sira Lock-Up Provision, Canopy Lock-Up Provision, Washoe Lock-Up Provision and LivFree
                                         Lock-Up Provision, the “Lock-Up Provisions”, and each, a “Lock-Up Provision”);

 

		iv.	$0.4
                                         million of the CannaPunch purchase price, pursuant to an amendment to the definitive
                                         agreement in respect of the CannaPunch acquisition, in the form of an additional 32,071
                                         Exchangeable Shares to the CannaPunch sellers; and

 

		v.	Settlement
                                         of the final working capital adjustment.

 

Fair
Value Considerations

 

The
consideration has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date
of acquisition. The purchases have been accounted for by the acquisition method, with the results included in the Corporation’s
net earnings from the date of acquisition.

 

The
Corporation used a
Monte-Carlo simulation model to estimate the fair value of the make-whole provision liability. The fair value as of the acquisition
date was $2,813,718. The earn-out provision in the Sira purchase agreement has been measured at fair value, which was $21,820,132,
by taking a probability-weighted average of possible outcomes, as estimated by management, and discounting the payment to the
acquisition date.

 

Goodwill
and Intangibles 

 

The
goodwill balance reflects the benefits of an assembled workforce, expected earnings and future market development. These benefits
were not recognized separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
Goodwill will not be amortized and will be reviewed for impairment on an annual basis. As of September
30, 2020, there are no such indicators that would necessitate a formal impairment assessment.

 

    11 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Outlook

 

Current
Markets

 

Massachusetts

 

In
Massachusetts, Sira is vertically integrated with cultivation, extraction, production, manufacturing, distribution, and medical
retail dispensary operations. Sira’s retail and wholesale products include premium cannabis flower and cannabis products,
including concentrates, edibles, and vaporizer products. Its top branded products include Entourage vape pens, Wicked Sour gummies,
Jimmy’s Choice flower, Nantucket Nuggets flower, and Root 90 flower. The Corporation sells cannabis products at its medical
dispensaries and is actively seeking licenses to operate adult-use cannabis retail establishments. For
the latest updates on the adult-use retail market refer to the “Recent Developments” section. 

 

Sira
currently operates two state of the art facilities encompassing approximately 50,000 square feet of cultivation and production
space. Sira is currently selling to 60 of the state’s 81 adult-use dispensary locations, representing a 74% market penetration.
According to BDS Analytics, from January to August 2020, the Sira Naturals brand was the top selling product brand represented
in the state.

 

Nevada

 

In
Nevada, Ayr provides operational services to licensed Nevada establishments engaging in retail, cultivation, production, and distribution
operations in Nevada, under Services and Operations Agreements. Ayr provides operational services to the some of the most productive
dispensaries in Nevada, with five dispensaries licensed to sell in both the medical and adult-use markets in Nevada. Three of
the dispensaries operate under the name “The Dispensary” with retail operations in the Greater Las Vegas markets (Clark
County and Henderson, Nevada) as well as Reno, Nevada, with annualized sales averaging over $5,000 per square foot. The two remaining
dispensaries are operating under the MYNT brand, with retail operations in Unincorporated Washoe County and Reno, Nevada, with
annualized sales averaging over $3,000 per square foot.

 

The
licensed cultivation and production facilities to which Ayr provides operational services produce premium cannabis products over
70,000 square feet of cultivation and production space. The top branded products in Nevada include Kynd flower, Tumbleweed vape
pens, Sun Valley extracts, CannaPunch beverages, Highly Edible and Kanji gummies, Dutch Girl edibles, and Nordic Goddess balm.
In Nevada, the licensed establishments to which Ayr provides operational support, sell their branded products through the wholesale
channel as well as the five dispensaries referenced above.

 

Brand
Strategy

 

The
level of products and brands across Ayr’s portfolio allows customers and patients the ability to select from a wide-ranging
selection of high-quality products. By sharing brands across Nevada and Massachusetts, Ayr has expanded the variety offered to
customers and patients while expanding brand visibility. The Corporation maintains strict brand and
quality assurance standards and implements standard operating procedures across its cultivation and production facilities to ensure
product continuity and customer experiences across operating markets. This includes the centrally managed procurement of equipment
and supplies.

 

Future
Markets

 

Ayr
leverages its human capital to drive improvements across all portfolios and divisions of the company. These synergies have driven
Ayr’s operational success. Building on the operational excellence, Ayr plans on bringing its winning strategy to capitalize
on expansion opportunities.

 

The
Corporation’s business strategy is to evaluate each market opportunity pursuant to the relevant local competitive and regulatory
landscape, supply/demand dynamics, and growth potential. The Corporation evaluates the economic viability of each opportunity
before making capital allocation decisions and may decide to participate in one or more facets of the supply chain based on the
dynamics mentioned above. The Corporation targets best-in-class assets in relevant markets with large addressable populations
in limited license states that are either currently or soon expected to be approved for adult-use. By establishing a substantial
presence in markets that have the greatest growth potential, the Corporation expects to be well-positioned to have a first-mover
advantage for future growth in adult-use cannabis as the market continues to expand.

 

    12 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

The
Corporation plans to implement its growth strategy by targeting acquisition opportunities in limited license jurisdictions, applying
for de novo licenses and expanding its presence in current markets.

 

COVID-19
Strategy

 

During
the pandemic, the Corporation was able to maintain operations and expand delivery options and curbside pick-up in both Massachusetts
and Nevada to provide additional fulfillment models that are safe and efficient for employees and customers. Although cannabis
has generally been deemed an ‘essential business’ throughout the pandemic in the United States, the regulators in
Massachusetts and Nevada, were among the few nationwide to place material restrictions on cannabis sales. In Nevada, cannabis
sales were limited to delivery only beginning March 21, 2020, with curbside pick-up approved on May 1, 2020 and in-store sales
returning on May 9, 2020. In Massachusetts, adult-use cannabis sales were restricted from March 24, 2020 through May 25, 2020.
The Corporation continues to generate operating cash flows to meet its short-term liquidity needs. While an impairment test has
not been performed, management has not observed any indicators of impairment to assets or a significant change in the fair value
of assets due to the COVID-19 pandemic.

 

The
Corporation evaluated risk of supply chain disruption as well as staffing disruption. While Ayr has not experienced any failure
to secure critical supplies or services, future disruptions in the supply chain are possible and may significantly increase cost
or delay production time. To mitigate this risk, bulk orders are being placed in advance with key vendors. To remediate the risk
of staffing disruption, the Corporation implemented new safety procedures in accordance with the guidance of the CDC, at all locations
to better protect the health and safety of both employees and customers. These changes include but are not limited to required
face masks for employees and customers, installed plexi-shields in customer facing areas, frequent cleaning and sanitizing of
surfaces and workstations and adequate spacing of staff and customers. The Corporation is re-assessing its response to the COVID-19
pandemic on an ongoing basis. Due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict
the impact of these developments on all aspects of the business.

 

Recent
Developments

 

Massachusetts

 

Sira
has received Host Community Agreement (“HCA”) approvals for all three of our Greater Boston locations in October,
which include Somerville and new locations in Watertown and the Back Bay in Boston. This development is a critical step required
to open adult-use retail stores in 2021.

 

Following
unanimous approval of the Town Council, on October 20, 2020, Sira successfully executed an HCA with the Town of Watertown approving
the Company to operate co-located medical and adult-use sales.

 

On
October 9, 2020, the City of Somerville Marijuana Advisory Committee recommended Sira be offered an HCA with the city of Somerville
to co-locate an adult-use dispensary with Sira’s existing medical-use dispensary in Davis Square, a popular neighborhood
in the city of Somerville.

 

On
November 16, 2020, Sira fully executed an HCA with the City of Boston’s Cannabis Board to operate an adult-use dispensary
at 829 Boylston Street in Boston.

 

    13 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Nevada

 

At
a meeting of the Nevada Cannabis Compliance Board on August 25, 2020, LivFree Wellness, LLC (“LivFree”), and entity
to whom Ayr provides administrative, consulting and operations services, was awarded two (2)
additional dispensary licenses in the greater Las Vegas market, one (1) in Clark County and one (1) in Henderson, and aims to
open the additional Clark County dispensary this year. The City of Henderson currently has a moratorium on new dispensaries.

 

Acquisitions
 – Definitive Agreements and Term Sheets 

 

Massachusetts

 

On
February 26, 2020, the Corporation entered a binding term sheet with Eskar Holdings, LLC, to acquire 100% of the membership interests
in Eskar Holdings LLC. Subsequent to the signing of the term sheet, the Corporation entered both a definitive membership interest
purchase agreement and purchase and sale agreement. Pursuant to the agreements, the Corporation will be acquiring rights to legally
open and operate a adult-use cannabis licensed retail store along with the purchase of the property located in the Town of Watertown,
Massachusetts. The Corporation has agreed to pay a purchase price consisting of $1 million cash and 4% non-voting interest in
the net profits of Eskar Holdings, LLC. In addition, for the purchase of the property, the Corporation has agreed to pay a purchase
price of $5 million cash. The closing of the acquisition is subject to, among other things, issuance of the Host Community Agreement
and regulatory approval.

 

Pennsylvania

 

On
August 25, 2020, the Corporation entered a binding term sheet to acquire 100% of the membership interests in CannTech PA, LLC.
Pursuant to the term sheet, the Corporation will be acquiring rights to legally operate six retail dispensaries along with a 143,000
square foot cultivation and production facility. CannTech PA, LLC operates in the medical cannabis market in Pennsylvania. The
Corporation has agreed to pay a purchase price consisting of cash, debt, Exchangeable Shares, and other consideration totaling
an aggregate value of approximately $57 million. The purchase price is inclusive of $2.4 million of bridge financing and a $600,000
deposit the Corporation has provided to the target company during the three months ended September 30, 2020. The term sheet is
a binding agreement with respect to the terms and conditions and intended to serve as an outline of the proposed principal terms
and conditions to be included in the final membership interest purchase agreement documents. In addition, the Corporation will
on closing receive an option to acquire certain real estate at its fair market value.

 

On
September 30, 2020, the Corporation entered a definitive purchase agreement to acquire 100% of the membership interests in DocHouse
LLC. Pursuant to the membership interest purchase agreement, the Corporation will be acquiring rights to operate a grower and
processer permit in the medical cannabis market in Pennsylvania. In addition, the real property where the partially completed
38,400 square foot licensed facility is to be operated will be assigned to DocHouse LLC immediately after closing by a related
party of DocHouse LLC. The Corporation has agreed to pay a purchase price of cash, deferred cash, debt and Subordinate Voting
Shares totaling an aggregate value of approximately $21 million, which includes the transfer of real property. The purchase price
is inclusive of bridge financing up to $3 million that the Corporation will provide to the target company.

 

Ohio

 

On
September 20, 2020, the Corporation entered a non-binding term sheet with Copperstate Farms, LLC to acquire 100% of the membership
interests in Greenlight Management, LLC. Pursuant to the term sheet, the Corporation will be acquiring rights to exclusively manage
the operations of Parma Wellness Center LLC, a recipient of a Tier 1 Cultivator Provisional License in the medical cannabis market
in Ohio.

 

    14 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
addition, the Corporation will be acquiring 100% of the membership interests in Greenlight Holdings, LLC which owns the land and
building where the 58,000 square foot facility in which the licensed entity operates. The Corporation has agreed to pay a purchase
price consisting of cash, an escrow deposit and convertible secured promissory note totaling an aggregate value of $17 million.
The escrow deposit of $500,000 was paid subsequent to the signing of the term sheet.

 

On
September 30, 2020, the Corporation entered an asset purchase agreement with Vireo Health International, Inc. and its affiliated
company, Ohio Medical Solutions, LLC, to acquire a 9,000 square foot medical marijuana processor facility that is licensed as
part of the Ohio medical cannabis program. The aggregate purchase price for the assets is approximately $1.2 million of cash.

 

Arizona

 

Subsequent
to September 30, 2020, the Corporation entered a binding term sheet to acquire 100% of the membership interests in Blue Camo,
LLC, a vertically integrated cannabis business in the state of Arizona (operating under the trade name “Oasis”). Pursuant
to the term sheet, the Corporation will be acquiring rights to legally operate three retail dispensaries along with a 10,000 square
feet licensed cultivation and processing facility as well as an 80,000 square foot cultivation facility currently under development.
The Corporation has agreed to pay upfront consideration of $81 million consisting of cash, debt and Exchangeable Shares. An additional
2 million Exchangeable Shares may be payable upon the achievement of established cultivation targets. Furthermore, additional
earn-out consideration in 2021 and 2022 may be paid in Exchangeable Shares, and is contingent on exceeding financial hurdles in
each year, calculated based on a set discount of market multiples (including non-IFRS measures) at the time of the earn out. The
term sheet is a binding agreement with respect to the terms and conditions and intended to serve as an outline of the proposed
principal terms and conditions to be included in the final membership interest purchase agreement documents. The closing of the
acquisition will be subject to, among other things, regulatory approval, customary closing conditions including definitive documentation
and the Corporation being satisfied with its due diligence investigations.

 

The
closing for all acquisitions is subject to, among other things, regulatory approval and due diligence. As of September 30, 2020,
the acquisitions have not closed.

 

    15 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Adjusted
EBITDA Reconciliation for the Three and Nine Months Ended September 30, 2020 and 2019

 

	 	 	Three
    Months Ended	 	 	Nine
    Months Ended	 
	 	 	September
    30	 	September
    30
	 	 	2020	 	 	2019	 	 	2020	 	 	2019	 
	Income
    (Loss) from operations	 	22,013,737	 	 	 	(10,734,451	)	 	 	18,169,432	 	 	 	(20,568,955	)
	Non-cash
    items accounting for biological assets and inventory	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fair
    value adjustment on sale of inventory	 	4,844,505	 	 	 	8,736,926	 	 	 	21,176,075	 	 	 	13,433,398	 
	Unrealized
    gain on biological asset transformation	 	(18,242,342	)	 	 	(5,862,775	)	 	 	(44,574,730	)	 	 	(8,342,578	)
	 	 	(13,397,837	)	 	 	2,874,151	 	 	 	(23,398,655	)	 	 	5,090,820	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest	 	262,602	 	 	 	–	 	 	 	728,793	 	 	 	–	 
	Depreciation
    and amortization (from statement of cash flows) 	 	4,644,067	 	 	 	4,159,252	 	 	 	13,419,383	 	 	 	5,798,503	 
	Acquisition
    costs	 	557,457	 	 	 	968,580	 	 	 	1,054,766	 	 	 	5,123,661	 
	Stock-based
    compensation expense, non-cash	 	4,700,795	 	 	 	11,062,444	 	 	 	25,949,556	 	 	 	15,582,582	 
	Other
    non-operating1	 	487,105	 	 	 	320,567	 	 	 	907,569	 	 	 	633,368	 
	 	 	10,652,026	 	 	 	16,510,843	 	 	 	42,060,067	 	 	 	27,138,114	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted
    EBITDA (non-IFRS)	 	19,267,926	 	 	 	8,650,543	 	 	 	36,830,844	 	 	 	11,659,979	 

 

Notes:

1
Other non-operating adjustments made to
exclude the impact of non-recurring items.

 

Review
of the Financial Results for the Three and Nine Months Ended September 30, 2020 and 2019

 

Selected
Financial Information

	 	 	Three
    Months Ended	 	 	Nine
    Months Ended	 
	 	 	September
    30	 	September
    30
	($
    in millions)	 	2020	 	 	2019	 	 	2020	 	 	2019	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	Revenues,
    net of discounts	 	45.5	 	 	 	32.1	 	 	 	107.4	 	 	 	42.9	 
	Cost
    of goods sold before biological asset adjustments	 	(18.1	)	 	 	(14.9	)	 	 	(46.3	)	 	 	(19.9	)
	Gross
    profit before fair value adjustments	 	27.4	 	 	 	17.2	 	 	 	61.1	 	 	 	23.1	 
	Fair
    value adjustment on sale of inventory	 	(4.8	)	 	 	(8.7	)	 	 	(21.2	)	 	 	(13.4	)
	Unrealized
    gain on biological asset transformation	 	18.2	 	 	 	5.9	 	 	 	44.6	 	 	 	8.3	 
	Gross
    profit	 	40.8	 	 	 	14.3	 	 	 	84.5	 	 	 	18.0	 
	Total
    expenses	 	(18.7	)	 	 	(25.1	)	 	 	(66.3	)	 	 	(38.5	)
	Income
    (Loss) from operations	 	22.0	 	 	 	(10.7	)	 	 	18.2	 	 	 	(20.6	)
	Total
    other (expense) income	 	(39.1	)	 	 	38.7	 	 	 	(31.6	)	 	 	(123.9	)
	(Loss)
    Income before income tax	 	(17.1	)	 	 	27.9	 	 	 	(13.4	)	 	 	(144.5	)
	Provision
    for income taxes	 	(9.7	)	 	 	(1.8	)	 	 	(19.3	)	 	 	(2.3	)
	Net
    (loss) income	 	(26.8	)	 	 	26.2	 	 	 	(32.8	)	 	 	(146.7	)
	Foreign
    currency translation adjustment	 	(1.4	)	 	 	0.3	 	 	 	(0.4	)	 	 	(0.6	)
	Net
    (loss) income and comprehensive (loss) income	 	(28.2	)	 	 	26.4	 	 	 	(33.2	)	 	 	(147.3	)

 

Revenue

 

Revenue
was $45.5 million and $32.1 million, respectively, increasing $13.4 million or 42%, for the three months ended September 30, 2020
and 2019. The increase in revenue was driven by organic growth and completed cultivation expansions in each of the two existing
markets. Revenue increases were a result of operational excellence in both states, with a focus on data driven key performance
indicators (KPI’s) and sharpening standard operating procedures (SOP’s), resulting in substantial improvements to
the business.

 

    16 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
Massachusetts, the wholesale market experienced gains as revenue increased $4 million over the comparable quarters due to the
strong sales pipeline as well as the successful cultivation expansion completed in the second quarter of 2020, resulting in more
sellable inventory. Massachusetts retail revenue increased $2.2 million over the prior year quarter. This significant increase
was driven by an improvement in the quantity and quality of flower demonstrated by consistent yields with THC averages of 25%+
along with the launch of new product brands such as “Entourage” and “Wicked Sour”. In Nevada, substantial
retail gains of $7.4 million were driven by a more efficient and modern ordering platform as well as additional fulfilment options
including delivery and curbside pickup. In addition, Nevada continued to source the highest quality products for their shelves
from both internal and externally procured products.

 

Revenue
was $107.4 million and $42.9 million, respectively, increasing $64.4 million or 150%, for the nine months ended September 30,
2020 and 2019. This increase was due to the comments above and a full period of operations in 2020 as compared to only eighteen
weeks of operations in 2019 as the Qualifying Transaction occurred in May 2019.

 

Gross
Profit Before Fair Value Adjustments

 

Gross
profit before the fair value adjustments was $27.4 million and $17.2 million, respectively, increasing $10.2 million or 59%, for
the three months ended September 30, 2020 and 2019. Gross profit percentage before the biological asset adjustment for the three
months ended September 30, 2020 and 2019 was 60.1% and 53.6%, respectively. The improvement
was due to the increase of internally sourced product sold through the Corporation’s retail channels in Nevada. In addition,
the cultivation expansions also led to operating leverage driving cultivation costs down.

 

Gross
profit before the fair value adjustments was $61.1 million and $23.1 million, respectively, increasing $38.0 million or 165%,
for the nine months ended September 30, 2020 and 2019. This increase was due to a full period of operations in 2020 as compared
to only eighteen weeks of operations in 2019 as the Qualifying Transaction occurred in May 2019.

 

Gross
Profit

 

Gross
profit for the three months ended September 30, 2020 and 2019 was $40.8 million and $14.3 million, respectively, an increase of
$26.4 million. Fluctuations are due to the change in fair value adjustments in inventory including biological asset transformation.

 

Gross
profit for the nine months ended September 30, 2020 and 2019 was $84.5 million and $18.0 million, respectively, an increase of
$66.5 million. This increase was due to a full period of operations in 2020 as compared to only eighteen weeks of operations in
2019 as the Qualifying Transaction occurred in May 2019.

 

Inventory
of plants under production is considered a biological asset. Under IFRS, biological assets are to be recorded at fair value at
the time of harvest, less costs to sell, which are transferred to inventory and the transfer becomes the deemed cost on a go-forward
basis. When the product is sold, the fair value is relieved from inventory and the transfer is booked to cost of sales. Cost of
sales also includes products and costs related to other products acquired from other producers and sold by the Corporation.

 

    17 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Total
Expenses 

 

Total
expenses were $18.7 million and $25.1 million, respectively, decreasing $6.3 million or 25%, for the three months ended September
30, 2020 and 2019. $6.4 million of the decrease in expense is due to a reduction in non-cash stock-based compensation of $6.4
million. Non-cash stock-based compensation is based on the Corporation’s share price on the date of the grant and are expensed
straight-line over the vesting period. Total expenses as a percent of revenue during the three months ended September 30, 2020
and 2019, were 41% and 78%, respectively. During the three months ended September 30, 2020 and 2019, total expenses excluding
non-cash stock-based compensation were flat period over period and were 31% and 44%, respectively, of revenue.

 

Total
expenses were $66.3 million and $38.5 million, respectively, increasing $27.8 million or 72%, for the nine months ended September
30, 2020 and 2019. This change was due to a full period of operations in 2020 as compared to only eighteen weeks of operations
in 2019 as the Qualifying Transaction occurred in May 2019.

 

Total
Other (Expense) Income

 

Total
other (expense) income for the three months ended September 30, 2020 and 2019 was ($39.1) million and $38.7 million, respectively.
This change was primarily driven by the changes in fair value of financial liabilities due to the fluctuation in share price of
Ayr’s publicly traded warrants.

 

Total
other (expense) income for the nine months ended September 30, 2020 was ($31.6) million and ($123.9) million, respectively. This
change was primarily driven by the changes in fair value of financial liabilities due to the fluctuation in share price of Ayr’s
publicly traded shares and warrants.

 

Income
Tax

 

Income
tax expense is recognized based on the expected tax payable on the taxable income for the period and the deferred tax, using tax
rates enacted or substantively enacted at period-end. The deferred tax is mainly driven by changes in the amortization of intangibles
and fair value adjustments to inventory including biological assets.

 

Total
income tax expense for the three months ended September 30, 2020 and 2019 was $9.7 million and $1.8 million, respectively. The
current tax expense was $6.7 million and $3.5 million, respectively, for the three months ended September 30, 2020 and 2019. The
increase in current tax expense was driven by operational improvements resulting in an increase in taxable income. The deferred
tax (expense) recovery was ($3.0) million and $1.7 million, respectively, for the three months ended September 30, 2020 and 2019.

 

Total
income tax expense for the nine months ended September 30, 2020 and 2019 was $19.3 million and $2.3 million, respectively. The
current tax expense was $14.9 million and $4.9 million, respectively, for the nine months ended September 30, 2020 and 2019. The
deferred tax (expense) recovery was ($4.4) million and $2.7 million, respectively, for the nine months ended September 30, 2020
and 2019. This change was due to a full period of operations in 2020 as compared to only eighteen weeks of operations in 2019
as the Qualifying Transaction occurred in May 2019.

 

Net
(Loss) Income

 

Net
(loss) income for the three months ended September 30, 2020 and 2019 was ($26.8) million and $26.2 million, respectively. The
decrease was primarily driven by the factors described above.

 

Net
(loss) income for the nine months ended September 30, 2020 and 2019 was ($32.8) million and ($146.7) million. The decrease was
primarily driven by the factors described above, specifically total other expense (income).

 

    18 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Liquidity
and Capital Resources as of September 30, 2020

 

Selected
Liquidity and Capital Resource Information

 

	($
    in millions)	 	September
    30, 2020	 	 	December
    31, 2019	 
	 	 	 	 	 	 	 
	Cash
    and cash equivalents	 	 	23.2	 	 	 	8.4	 
	Total
    current assets	 	 	75.7	 	 	 	29.9	 
	Total
    assets	 	 	395.9	 	 	 	355.1	 
	Total
    current liabilities	 	 	49.5	 	 	 	34.7	 
	Total
    long-term liabilities	 	 	181.0	 	 	 	151.8	 
	Total
    liabilities	 	 	230.6	 	 	 	186.5	 
	Total
    shareholders’ equity (deficiency)	 	 	165.4	 	 	 	168.6	 

 

As
of September 30, 2020, the Corporation had cash and cash equivalents of $23.2 million, other current assets of $52.5 million,
current liabilities of $49.5 million, and working capital of $26.2 million compared to December 31, 2019 which had cash and cash
equivalents of $8.4 million, other current assets of $21.5 million, current liabilities of $34.7 million, and negative working
capital of $4.8 million to meet its current obligations. The overall increase in net working capital is due to the company generating
positive cash flow from operations as well as the increase in inventory due to the cultivation expansions in Massachusetts and
Nevada.

 

The
Corporation, post Qualifying Transaction, is generating cash from sales and deploying its capital reserves to develop assets capable
of producing additional revenues and earnings over both the immediate and near term. Capital reserves are expected to be used
for capital expenditures and improvements to existing facilities, marketing, and product development, as well as acquisitions.

 

Selected
Cash Flow Information

 

	 	 	Nine
    Months Ended September 30,	 
	($
    in millions)	 	2020	 	 	2019	 
	 	 	 	 	 	 	 
	Net
    cash provided by (used in) operating activities	 	 	29.3	 	 	 	(0.4)	 
	Net
    cash (used in) provided by investing activities	 	 	(10.4	)	 	 	13.4	 
	Net
    cash (used in) provided by financing activities	 	 	(4.1	)	 	 	0.6	 
	Net
    increase in cash and cash equivalents	 	 	14.8	 	 	 	13.6	 
	Effect
    of foreign currency translation	 	 	0.0	 	 	 	1.0	 
	Cash
    and cash equivalents, beginning of period	 	 	8.4	 	 	 	0.1	 
	Cash
    and cash equivalents, end of period	 	 	23.2	 	 	 	14.7	 

 

Operating
Activities 

 

Net
cash provided by (used in) operating activities during the periods ended September 30, 2020 and 2019 was $29.3 million and ($0.4)
million, respectively, an increase of $29.7 million. The increase in net cash provided by operating activities was driven by a
full period of operations in 2020 as compared to only eighteen weeks of operations in 2019 as the Qualifying Transaction occurred
in May 2019. Furthermore, improved operational performance led to an increase in net cash provided by operating activities. This
was driven by the increase in gross profit before fair value adjustments percentage as well as the decrease in total expenses
as a percentage of revenue.

 

Investing
Activities 

 

Net
cash (used in) provided by investing activities during the periods ended September 30, 2020 and 2019 was ($10.4) million and $13.4
million, respectively, a decrease of $23.7 million. The cash used during the current period was due primarily to the purchase
of property, plant, and equipment while the increase in the previous period is due to the transfer of restricted cash in escrow
due to the close of the Qualifying Transaction.

 

    19 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Financing
Activities 

 

Net
cash (used in) provided by financing activities during the periods ended September 30, 2020 and 2019 was ($4.1) million and $0.6
million, respectively, a decrease of $4.7 million. The net cash used in financing activities was primarily due to the repayments
of debt and lease obligations.

 

Capital
Management 

 

The
Corporation’s objectives when managing capital are to ensure sufficient liquidity to support its financial obligations and
to execute its operating and strategic plans, managing healthy liquidity reserves and access to capital.

 

The
Corporation manages its capital structure and makes adjustments to it based on the funds available to the Corporation in order
to support business development. The directors do not establish quantitative return on capital criteria for management, but rather
rely on the expertise of the Corporation’s management to sustain future development of the business. In order to carry out
the planned business development and pay for administrative costs, the Corporation will spend its existing working capital and
seek to raise additional amounts, as needed. There were no changes in the Corporation’s approach to capital management during
the period ended September 30, 2020 and December 31, 2019. The Corporation is not subject to externally imposed capital requirements
apart from the need to maintain its listing in accordance with stock exchange requirements.

 

The
Corporation raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does
not have a numeric target for its capital structure. Management reviews its capital management approach on an ongoing basis and
believes that this approach, given the relative size of the Corporation, is reasonable. The Corporation plans to use existing
funds, as well as funds from the future sale of products, to fund operations and expansion activities. However, the Corporation
may attempt to issue new shares or issue new debt for acquisitions. There can be no assurance that the Corporation will be able
to continue raising capital in this manner.

 

Share
Capital

 

As
of September 30, 2020 and December 31, 2019, the Corporation had share capital of $386.5 million and $382.2 million, respectively.
The share capital as of September 30, 2020 was comprised of $1.8 million from Multiple Voting Shares, $298.4 million from Subordinate
Voting Shares, and $86.2 million from Exchangeable Shares, while the share capital as of December 31, 2019 was comprised of $1.8
million from Multiple Voting Shares, $251.7 million from Subordinate Voting Shares, and $128.7 million from Exchangeable Shares.

 

Outstanding
Shares

 

	 	 	September
    30, 2020	 	 	December
    31, 2019	 
	Issued
    and outstanding	 	 	 	 	 	 	 	 
	Multiple
    Voting Shares	 	 	3,696,486	 	 	 	3,696,486	 
	Subordinate
    Voting Shares	 	 	17,969,201	 	 	 	14,824,485	 
	Exchangeable
    Shares	 	 	6,047,970	 	 	 	8,373,792	 
	Treasury
    stock	 	 	(63,800)	 	 	 	(29,500)	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Total
    number of shares	 	 	27,649,857	 	 	 	26,865,263	 

 

    20 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

As
of September 30, 2020, the Corporation had 16,018,858 Subordinate Voting Shares issuable upon the exercise of Warrants, 4,237,150
restricted Exchangeable Share units, and 151,655 Subordinate Voting Shares issuable upon the exercise of rights reserved for issuance.
As of December 31, 2019, the Corporation had 16,060,858 Subordinate Voting Shares issuable upon the exercise of Warrants, 298,087
make-whole Exchangeable Shares, 3,837,150 restricted Exchangeable Share units, and 314,034 Subordinate Voting Shares issuable
upon the exercise of rights reserved for issuance.

 

Liquidity

 

As
of September 30, 2020, the Corporation had working capital of $26.2 million compared to December 31, 2019 when it had negative
working capital of $4.8 million.

 

Summary
of Future Commitments

 

	Year	 	 	Leases	 	 	Debt	 	 	Total	 
	2020	 	 	 	695,372	 	 	 	2,589,809	 	 	 	3,285,181	 
	2021	 	 	 	2,435,091	 	 	 	8,387,312	 	 	 	10,822,403	 
	2022	 	 	 	2,337,060	 	 	 	5,611,722	 	 	 	7,948,782	 
	2023	 	 	 	2,386,671	 	 	 	1,511,532	 	 	 	3,898,203	 
	2024	 	 	 	2,379,337	 	 	 	22,612,549	 	 	 	24,991,886	 
	Thereafter	 	 	 	16,202,767	 	 	 	–	 	 	 	16,202,767	 
	Total
    Commitments	 	 	 	26,436,298	 	 	 	40,712,924	 	 	 	67,149,222	 

 

Off-Balance
Sheet Arrangements

 

As
of the date of this filing, the Corporation does not have any off-balance sheet arrangements, with the exception of the definitive
agreements and term sheets referenced in Note 18 in the interim financial statements, that have, or are reasonably likely to have,
a current or future effect on the results of operations or financial condition of the Corporation including, without limitation,
such considerations as liquidity and capital resources that have not previously been discussed. 

 

Related
Party Transactions

 

Related
parties are defined as management and members of the Corporation and/or members of their immediate family and/or other companies
and/or entities in which a board member or senior officer is a principal owner or senior executive. Other than disclosed elsewhere
in the interim financial statements, related party transactions and balances are as follows:

 

Mercer
Park, L.P. entered into a management agreement with the Corporation dated May 24, 2019. As of September 30, 2020 and December
31, 2019, $58,083 and $48,008 was included in prepaid expenses as an advance for these services. Included in expenses for the
three and nine months ended September 30, 2020, are management fees of $1,157,679 and $3,479,939 that are included in general
and administrative expenses and embedded lease fees of $111,009 and $304,504 that are included in depreciation and interest expense,
respectively. The management fee is paid monthly and varies based on actual costs incurred by the related entity when providing
the Corporation administrative support, management services, office space, and utilities. In addition, the management fees pay
other corporate or centralized expenses based on actual cost, including but not limited to legal and professional fees, software,
and insurance. The agreement is a month-to-month arrangement.

 

As
of September 30, 2020 and December 31, 2019, Mercer Park Brand Acquisition Corp. (“Brand”), a SPAC that has limited
services shared with the Corporation, owed to Ayr $85,000. This amount is included in due from related parties.

 

During
the three and nine months ended September 30, 2020, the Corporation incurred fees from Panther Residential Management, LLC (“Panther”),
a company partially owned by a board member of Ayr. The total incurred fees were $25,500 and $76,500 of office expenses, $112,500
and $337,500 of rental fees, and $1,062 and $3,557 of interest expense and $5,332 and $15,996 of depreciation related to an office
lease, respectively.

 

    21 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

During
the three and nine months ended September 30, 2020, the Corporation incurred fees from JOCHCO Investments, LLC (JOCHCO), a company
owned by certain former owners of Washoe. The total incurred fees are $34,719 and $106,399 of interest expense and $23,773 and
$71,319 of depreciation related to a dispensary lease, respectively.

 

Directors
and officers of the Corporation are considered key members of management. Compensation for the directors and officers in the respective
periods were comprised of:

	 	 	Three
    Months Ended	 	 	Nine
    Months Ended	 
	 	 	September
    30, 2020	 	 	September
    30, 2019	 	 	September
    30, 2020	 	 	September
    30, 2019	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Compensation
    and benefits, included in management fee	 	 	656,250	 	 	 	369,148	 	 	 	1,655,000	 	 	 	471,504	 
	Stock-based
    compensation, non-cash	 	 	4,700,795	 	 	 	11,062,444	 	 	 	25,949,556	 	 	 	15,582,582	 
	Total
    compensation	 	 	5,357,045	 	 	 	11,431,592	 	 	 	27,604,556	 	 	 	16,054,086	 

 

In
connection with the Qualifying Transaction, the Corporation issued notes, on an arm’s length basis, to certain persons who
are now related parties including directors in their capacities as sellers. The balance of these notes as of September 30, 2020
was $37,929,745. Additional related party disclosures can be found in Note 12 to the interim financial statements.

 

Selected
Quarterly Information

 

A
summary of selected information for each of the previous eight quarters is as follows:

 

	Three
    Months Ended	 	 	Net
    Revenues	 	 	Net
    (Loss) Income	 	 	 (Loss)
    Earnings per Share1	 
	September
    30, 2020	 	 	 	45,486,365	 	 	 	(26,792,975	)	 	 	(0.96	)
	June
    30, 2020	 	 	 	28,310,633	2 	 	 	(7,513,708	)	 	 	(0.28	)
	March
    31, 2020	 	 	 	33,552,681	 	 	 	1,555,068	 	 	 	0.06	 
	December
    31, 2019	 	 	 	32,282,616	 	 	 	(17,464,233	)	 	 	(0.65	)
	September
    30, 2019	 	 	 	32,087,805	 	 	 	26,180,617	 	 	 	0.99	 
	June
    30, 2019	 	 	 	10,823,206	 	 	 	(35,785,825	)4	 	 	(2.18	)4
	March
    31, 2019	 	 	 	–	 	 	 	     (137,110,163	)
                                         3,4	 	 	(37.09	)4
	December
    31, 2018	 	 	 	–	 	 	 	(44,613,609	)3	 	 	(12.07	)

 

Notes:

 

1
Per share amounts are rounded to the nearest cent, therefore, aggregating quarterly amounts may not reconcile to year-to-date
per share amounts. Amounts are calculated using basic weighted average number of shares outstanding.

 

2
Revenue for the three months ended June 30, 2020 decreased from the prior quarter due to COVID-related closures in April
and May.

 

3
Prior to the Qualifying Transaction, Ayr was a special purpose acquisition corporation. Issues of seasonality have not had
an impact on the results or operations while a special purpose acquisition corporation. From July 31, 2017 to June 30, 2019, variations
in the quarterly net (loss) income were caused by fluctuations in the net unrealized (loss) gain on changes in the fair value
of financial liabilities, transaction costs and general and administrative expense. Fluctuations in the net unrealized (loss)
gain on changes in the fair value of financial liabilities has varied from quarter-to-quarter due primarily to changes in the
fair value of the Corporation’s Class A Restricted Voting Shares (prior to the Qualifying Transaction) and the liability
associated with the Warrants.

 

    22 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

4
Due to the reclassification disclosed on Note 3.22 on the interim financial statements for the periods ended June 30, 2020
and 2019, net loss and loss per share were affected by a reclassification between foreign exchange and foreign currency.

 

Accounting
Policies and Critical Accounting Estimates

 

The
application of the Corporation’s accounting policies requires management to use estimates and judgments that can have a
significant effect on the revenues, expenses, assets and liabilities recognized, and disclosures made in the interim financial
statements.

 

Management’s
best estimates concerning the future are based on the facts and circumstances available at the time estimates are made. Management
uses historical experience, general economic conditions and assumptions regarding probable future outcomes as the basis for determining
estimates. Estimates and their underlying assumptions are reviewed periodically, and the effects of any changes are recognized
at that time. Actual results could differ from the estimates used.

 

The
global pandemic outbreak of the novel strain of coronavirus (“COVID-19") has resulted in governments worldwide enacting
emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, store closures,
self-imposed quarantine periods and social distancing, may cause material disruption to businesses globally resulting in an economic
slowdown. COVID-19 has cast uncertainty on the assumptions used by management in making its judgments and estimates. The full
extent of the impact that COVID-19, including government and/or regulatory responses to the outbreak, will have on the Corporation
is highly uncertain and difficult to predict at this time. Accordingly, there is a higher level of uncertainty with respect to
management’s judgments and estimates.

 

The
following discusses the most significant accounting judgments, estimates and assumptions that the Corporation has made in the
preparation of its interim financial statements.

 

Business
combination

 

A
business combination is a transaction or event in which an acquirer obtains control of one or more businesses and is accounted
for using the acquisition method. The total consideration paid for the acquisition is the aggregate of the fair values of assets
acquired, liabilities assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date.
The acquisition date is the date when the Corporation obtains control of the acquiree. The identifiable assets acquired and liabilities
assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards, where
IFRS provides exceptions to recording the amounts at fair value.

 

Goodwill
represents the difference between total consideration paid and the fair value of the net identifiable assets acquired. Acquisition
costs incurred are expensed to total expenses. Contingent consideration is measured at its acquisition date fair value and is
included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions.

 

Contingent
consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted
for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting
dates in accordance with IFRS 9 with the corresponding gain or loss recognized in net (loss) income.

 

Based
on the facts and circumstances that existed at the acquisition date, management will perform a valuation analysis to allocate
the purchase price based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date.
Management has one year from the acquisition date to confirm and finalize the facts and circumstances that support the finalized
fair value analysis and related purchase price allocation. Until such time, these values are provisionally reported and are subject
to change. Changes to fair values and allocations are retrospectively adjusted in subsequent periods.

 

    23 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally
relate to contingent consideration and intangible assets. Management exercises judgment in estimating the probability and timing
of when earn-outs are expected to be achieved, which is used as the basis for estimating fair value. Identified intangible assets
are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net
cash flows of the acquiree. Valuations are highly dependent on the inputs used and assumptions made by management regarding the
future performance of these assets and any changes in the discount rate applied.

 

Biological
assets and inventory

 

In
calculating the value of the biological assets and inventory, management is required to make a number of estimates, including
estimating the stage of growth of the cannabis up to the point of harvest, harvesting costs, selling costs, average or expected
selling prices and list prices, expected yields for the cannabis plants, and oil conversion factors. In calculating final inventory
values, management compares the inventory costs to estimated net realizable value.

 

Estimated
useful lives and depreciation of property, plant and equipment 

 

Depreciation
of PPE is dependent upon estimates of useful lives, which are determined through the exercise of judgments. The assessment of
any impairment of these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic
and market conditions and the useful lives of assets. The assessment of any impairment of these assets is dependent upon estimates
of recoverable amounts that take into account factors such as economic and market conditions.

 

Valuation,
estimated life and impairment of intangible assets and goodwill

 

Management
uses significant judgment in determining the fair value of intangible assets and goodwill, estimating the useful lives and impairment.
Intangible assets that have indefinite useful lives are not subject to amortization and are tested annually for impairment, or
more frequently if events or changes in circumstances indicate that they might be impaired.

 

The
Corporation uses judgment in determining the grouping of assets by identifying CGUs for purposes of testing for impairment of
goodwill and intangible assets. The Corporation’s estimate of CGUs or a group of CGUs recoverable amount based on value
in use involves estimating future cash flows before taxes. Future cash flows are estimated based on multi-year extrapolation of
the most recent historical actual results and budgets calculated by discounting the final year in perpetuity.

 

Goodwill
impairment

 

When
determining the recoverable amount of the CGU or CGUs to which goodwill is allocated, the Corporation relies on a number of factors,
including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates
can significantly affect the recoverable amount.

 

Leases

 

Each
capitalized lease is evaluated to determine if the Corporation would exercise any of the renewal options offered. Several material
factors are considered in determining if the renewal options would be exercised, such as length of the renewal, renewal rate,
and ability to transfer locations. When measuring lease liabilities, the Corporation used discounted lease payments using a weighted-average
rate in the range of 9.8% to 11.6% per annum. The weighted-average rate is based on the internal borrowing rate, which relies
on judgments and estimates.

 

    24 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Provisions
and contingent liabilities

 

When
the Corporation is more likely than not to incur an outflow of resources to settle an obligation and the amount can be reasonably
estimated, a contingent liability is recorded. The contingent liability is recorded at management’s best estimates of the
expenditure required to settle the obligation at period end, discounted to the present value, if material.

 

Financial
instruments

 

To
determine the fair value of financial instruments, the Corporation develops assumptions and selects certain methods to perform
the fair value calculations. Various methods considered include but are not limited to: (a) assigning the value attributed to
the transaction at the time of origination; (b) re-measuring the instrument if it requires concurrent fair value measurement;
and (c) valuing the instrument at the issuance value less any amortized costs. As judgment is a factor in determining the value
and selecting a method, as well as, the inherent uncertainty in estimating the fair value, the valuation estimates may be different.

 

Application
of the option pricing model requires estimates in expected dividend yields, expected volatility in the underlying assets and the
expected life of the financial instruments. These estimates may ultimately be different from amounts subsequently realized, resulting
in an overstatement or understatement of net (loss) income and comprehensive (loss) income.

 

Expected
credit loss

 

Management
determines expected credit loss (“ECL”) by evaluating individual receivable balances and considering customers’
financial condition and current economic conditions. Accounts receivable are written off when deemed uncollectible. Recoveries
of accounts receivable previously written off are recorded as income when received. All receivables are expected to be collected
within one year of the year end.

 

Income
taxes

 

In
assessing the probability of realizing income tax assets, management makes estimates related to the expectation of future taxable
income, applicable tax planning opportunities, expected timing of reversals of existing temporary differences and the likelihood
that the tax positions taken will be sustained upon examination by applicable tax authorities.

 

Risk
Factors 

 

Please
refer to the Corporation’s final non-offering prospectus dated February 15, 2019, the Corporation’s management information
circular dated February 19, 2019, and the Corporation’s Annual Information Form for information on the risk factors to which
the Corporation is subject. In addition, see “Cautionary Note Regarding Forward-Looking
Information” above. 

 

    25 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Financial
Instruments, Financial Risk Management and Other Instruments 

 

The
Corporation does not utilize financial instruments such as derivatives to manage financial risks. The Corporation’s financial
instruments consist of cash and cash equivalents, deposits, short term investments, warrant liability, and make-whole provisions
and contingent consideration included as purchase consideration relating to business combinations. These financial instruments
are measured at fair value or are short-term in nature where fair value approximates their carrying value (see Note 19 to the
interim financial statements).

 

The
Corporation is exposed to credit risk, liquidity risk and interest rate risk. The Corporation’s management oversees the
management of these risks. The Corporation’s management is supported by the members that advises on financial risks and the appropriate
financial risk governance framework for the Corporation. The Corporation’s financial risk activities are governed by appropriate
policies and procedures and financial risks are identified, measured and managed in accordance with Corporation policies and Corporation
risk appetite.

 

Fair
value measurements 

 

Fair
value 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. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a
principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must
be accessible by the Corporation.

 

The
fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset
or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant’s ability to generate economic benefits from the asset’s highest and best
use or by selling it to another market participant that would utilize the asset in its highest and best use.

 

The
Corporation uses valuation techniques that are considered to be appropriate in the circumstances and for which there is sufficient
data are with unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the interim financial statements are categorized within
the fair value hierarchy. This is described, as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:

 

		●	Level
                                         1 inputs are quoted prices in active markets for identical assets or liabilities at the
                                         measurement date.

 

		●	Level
                                         2 inputs are observable inputs other than quoted prices included within Level 1, such
                                         as quoted prices for similar assets or liabilities in active markets, quoted prices for
                                         identical assets or liabilities in markets that are not active, or other inputs that
                                         are observable directly or indirectly.

 

		●	Level
                                         3 inputs are unobservable inputs for the asset or liability that reflect the reporting
                                         entity’s own assumptions and are not based on observable market data.

 

The
hierarchy used to fair value the financial instruments as of September 30, 2020 and December 31, 2019, were as follows:

 

		●	Level
                                         1: Cash and cash equivalents, deposits, and warrant liability

		●	Level
                                         2: None

		●	Level
                                         3: Make-whole provisions and contingent consideration issued as purchase consideration
                                         relating to business combinations

 

    26 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

There
were no transfers between levels in the hierarchy. For financial assets and liabilities not measured at fair value, their carrying
value is considered to approximate fair value due to their market terms.

 

	 	 	Carrying
    values	 	 	 	 
	Financial
    assets	 	FVTPL	 	 	AC	 	 	Total	 
	September
    30, 2020	 	$	 	 	$	 	 	$	 
	Cash
    and cash equivalents	 	 	23,180,198	 	 	 	–	 	 	 	23,180,198	 
	Deposits	 	 	1,158,367	 	 	 	–	 	 	 	1,158,367	 
	Accounts
    receivable	 	 	–	 	 	 	2,929,522	 	 	 	2,929,522	 
	Notes
    receivable	 	 	–	 	 	 	3,000,000	 	 	 	3,000,000	 
	 	 	 	24,338,565	 	 	 	5,929,522	 	 	 	30,268,087	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	December
    31, 2019	 	 	 	 	 	 	 	 	 	 	 	 
	Cash
    and cash equivalents	 	 	8,403,196	 	 	 	–	 	 	 	8,403,196	 
	Deposits	 	 	740,666	 	 	 	–	 	 	 	740,666	 
	Accounts
    receivable	 	 	–	 	 	 	2,621,239	 	 	 	2,621,239	 
	 	 	 	9,143,862	 	 	 	2,621,239	 	 	 	11,765,101	 

 

	 	 	Carrying
    values	 	 	 	 
	Financial
    liabilities	 	FVTPL	 	 	AC	 	 	Total	 
	September
    30, 2020	 	$	 	 	$	 	 	$	 
	Warrant
    liability	 	 	65,130,370	 	 	 	–	 	 	 	65,130,370	 
	Contingent
    consideration	 	 	23,744,258	 	 	 	–	 	 	 	23,744,258	 
	Trade
    payables	 	 	–	 	 	 	7,512,946	 	 	 	7,512,946	 
	Accrued
    liabilities	 	 	–	 	 	 	7,160,365	 	 	 	7,160,365	 
	Accrued
    interest payable	 	 	–	 	 	 	1,894,747	 	 	 	1,894,747	 
	Debts
    payable	 	 	–	 	 	 	40,712,924	 	 	 	40,712,924	 
	 	 	 	88,874,628	 	 	 	57,280,982	 	 	 	146,155,610	 
	 	 	 	 	 	 	 	 	 	 	 	 	 
	December
    31, 2019	 	 	 	 	 	 	 	 	 	 	 	 
	Warrant
    liability	 	 	36,874,124	 	 	 	–	 	 	 	36,874,124	 
	Contingent
    consideration	 	 	22,656,980	 	 	 	–	 	 	 	22,656,980	 
	Make-whole
    provision	 	 	3,540,803	 	 	 	–	 	 	 	3,540,803	 
	Trade
    payables	 	 	–	 	 	 	6,806,053	 	 	 	6,806,053	 
	Accrued
    liabilities	 	 	–	 	 	 	5,123,865	 	 	 	5,123,865	 
	Accrued
    interest payable	 	 	–	 	 	 	815,662	 	 	 	815,662	 
	Debts
    payable	 	 	–	 	 	 	43,995,661	 	 	 	43,995,661	 
	 	 	 	63,071,907	 	 	 	56,741,241	 	 	 	119,813,148	 

 

The
Corporation is exposed to credit risk, liquidity risk and interest rate risk. The Corporation’s management oversees the
management of these risks. The Corporation’s management is supported by the members of the Board of Directors that advise on financial
risks and the appropriate financial risk governance framework for the Corporation. The Corporation’s financial risk activities
are governed by policies and procedures and financial risks are identified, measured and managed in accordance with the Corporation’s
policies and the Corporation’s risk appetite.

 

The
Corporation quantified the sensitivity of inputs in relation to the contingent consideration as of September 30, 2020 and December
31, 2019, and would expect the following effect on fair value in the event of changes to the discount rate:

	Significant
    assumption	 	 	Inputs	 	 	 	Sensitivity	 	 	Value
    at period end	 
	 	 	 	 	 	 	 	 	 	 	 	September
                                         30, 2020

                                                                                $
	 	 	 	December
                                         31, 2019

                                         $	 
	 	 	 	 	 	 	 	Increase
                                         1%	 	 	 	23,407,146	 	 	 	22,169,349	 
	Discount
    rate	 	 	6.3%		 	 	Decrease
                                         1%	 	 	 	 24,092,304	 	 	 	 23,161,325	 

 

    27 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Credit
Risk

 

Credit
risk is the risk of unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations.
Financial instruments which potentially subject the Corporation to concentrations of credit risk consist of cash and cash equivalents,
deposits and accounts receivable. To address its credit risk arising from cash and cash equivalents and deposits, the Corporation
ensures to keep these balances with reputable financial institutions. The Corporation has not recorded an ECL as all amounts are
considered to be recoverable and are immaterial. The Corporation is not significantly exposed to its accounts receivable due to
its diversified customer base and a stringent collection policy. No ECL has been recorded by the Corporation as all receivables
are expected to be collected and are not significant. As of September 30, 2020 and December 31, 2019, the maximum amount exposed
to credit risks was $29,109,720 and $11,024,435, respectively. The components of accounts receivable as of September 30, 2020
and December 31, 2019 were:

 

	 	 	 	(In
                                         $) 	 	0-30
    days	 	 	31-90
    days	 	 	Over
    90 days	 	 	Total	 
	Balance,
    as at September 30, 2020	 	 	 	 	 	2,775,181	 	 	 	127,391	 	 	 	26,950	 	 	 	2,929,522	 
	Balance,
    as at December 31, 2019	 	 	 	 	 	2,456,226	 	 	 	115,808	 	 	 	49,205	 	 	 	2,621,239	 

 

Liquidity
Risk

 

Liquidity
risk is the risk that the Corporation is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Corporation’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Corporation manages liquidity risk through maintaining sufficient funds on hand and continuously
monitoring forecast and actual cash flows. As of September 30, 2020 and December 31, 2019, all trade payables and accrued liabilities
are due within a year. Refer to the Summary of Future Commitments table for future lease and debt commitments.

 

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 Corporation is exposed to interest rate risk on its cash and cash equivalents and long-term debts.
Cash and cash equivalents and deposits bear interest at market rates. The Corporation’s debts have fixed rates of interest.
The Corporation does not use any derivative instruments to hedge against interest rate risk and believes that the change in interest
rates will not have a significant impact on its financial results.

 

Currency
Risk

 

The
operating results and financial position of the Corporation are reported in United States dollars. As the Corporation operates
in an international environment, some of the Corporation’s financial instruments and transactions are denominated in currencies
other than the United States dollar. The results of the Corporation’s operations are subject to currency transaction and
translation risks.

 

As
of September 30, 2020 and December 31, 2019, the Corporation had no hedging agreements in place with respect to foreign exchange
rates. The Corporation has not entered into any agreements or purchased any instruments to hedge possible currency risks at this
time. The Corporation believes that a change in exchange rates will not have a significant impact on financial results. The Corporation
performed a sensitivity analysis on the conversion rate applied to Canadian balances: 

 

	Balance sheet
    account	 	Value at year
                                                                                                                              end
 Dr
(Cr.)
 CDN
                                         $ 
	 	 	Conversion
    rate	 	 	Sensitivity	 	Effect
    on fair value, as at 
 September 30, 2020 

    $	 
	Cash and cash equivalents	 	 	1,283,828	 	 	 	0,7474	 	 	Increase / Decrease 1%	 	 	9,595	 
	Warrants	 	 	(87,142,588	)	 	 	0,7474	 	 	Increase / Decrease 1%	 	 	(651,304	)

 

    28 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Federal
Regulatory Environment

 

The
federal government of the United States regulates controlled substances through the Controlled Substances Act (CSA), which places
controlled substances on one of five schedules. Currently, marijuana is classified as a Schedule I controlled substance. A Schedule
I controlled substance means the Drug Enforcement Agency considers it to have a high potential for abuse, no accepted medical
treatment, and a lack of accepted safety for the use of it even under medical supervision. Overall, the United States federal
government has specifically reserved the right to enforce federal law regarding the sale and disbursement of medical or adult-use
marijuana even if such sale and disbursement is sanctioned by State law. Accordingly, there are a number of significant risks
associated with the business of the Corporation and unless and until the United States Congress amends the CSA with respect to
medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance),
there is a significant risk that federal authorities may enforce current federal law, and the business of the Corporation may
be deemed to be producing, cultivating, extracting, or dispensing cannabis or aiding or abetting or otherwise engaging in a conspiracy
to commit such acts in violation of federal law in the United States.

 

The
Corporation’s operations, to the Corporation’s knowledge, are in compliance with applicable State laws, regulations
and licensing requirements. Additionally, the Corporation uses the same proprietary, best-practices policies and procedures in
its managed facilities as in its owned facilities in order to ensure systematic operations and, as such, to the Corporation’s
knowledge, the facilities that the Corporation operates are in compliance with applicable State laws, regulations and licensing
requirements. Nonetheless, for the reasons described above and risks described under the “Cautionary Note Regarding Forward-Looking
Information”, but not limited to these reasons, there are significant risks associated with the business of the Corporation.
Readers are strongly encouraged to carefully read all the risk factors contained in this Prospectus and the documents incorporated
herein by reference.

 

On
December 20, 2018, the U.S. Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) became law. The law legalizes
hemp as an agricultural commodity by removing hemp, its derivatives, cannabinoids, and extracts (including CBD and any part of
the cannabis plant which contains 0.3% THC or less on a dry weight basis) from the list of controlled substances in the U.S. Controlled
Substances Act.1 Each State can now develop a plan for the regulation of hemp production,
which will be administered subject to the approval and oversight of the United States Department of Agriculture (“USDA”).
The USDA will also develop its own regulatory scheme, which will govern in any State that does not develop its own approved regulatory
plan. With the passage of the 2018 Farm Bill, hemp and its derivatives cultivated and produced in compliance with federal and
state laws and regulations are now legal. However, cultivation is still subject to serious restrictions that, ultimately, may
vary greatly between different jurisdictions.

 

The following sections entitled “– Nevada” and “– Massachusetts” and “– Pennsylvania”
describe the legal and regulatory landscape in respect of the States in which the Corporation currently operates, in the cases
of Nevada and Massachusetts, and where it intends to operate, in the case of Pennsylvania.

 

While
the Corporation’s compliance controls have been developed to mitigate the risk of any violations of a license arising, there
is no assurance that the Corporation’s licenses will be renewed in the future in a timely manner. Any unexpected delays
or costs associated with the licensing renewal process could impede the ongoing or planned operations of the Corporation and have
a material adverse effect on the Corporation’s business, financial condition, results of operations or prospects.

 

 

1
Specifically, the law defines “hemp” as “the plant Cannabis sativa L. and any part of that plant, including
the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or
not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis”.

 

    29 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Depending
upon the results of the upcoming November 2020 U.S. federal election, it is possible that additional changes could occur. There
can be no assurance as to the position any new administration may take on marijuana and a new administration could decide to enforce
the federal laws strongly. Any enforcement of current federal laws could cause significant financial damage to the Corporation
and its shareholders. Further, future presidential administrations may treat marijuana differently and potentially enforce the
federal laws more aggressively.

 

U.S. Federal Enforcement Priorities

 

Due
to the current federal regulatory environment in the United States, as further described herein, Ayr may become the subject of
heightened scrutiny by regulators, stock exchanges and other authorities in Canada and the U.S. As a result, Ayr 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 Ayr’s ability to invest in the U.S. or any other jurisdiction.
See “Risk Factors – While legal under applicable U.S. State law, Ayr’s business activities are illegal under
U.S. federal law” and “Risk Factors – The approach to the enforcement of cannabis laws may be subject to change
or may not proceed as previously outlined” in the Annual Information Form (“AIF”), which can be found on SEDAR,
incorporated herein by reference.

 

Changes
in government policy or public opinion can significantly influence the regulation of the cannabis industry in Canada, the United
States and elsewhere. A negative shift in the public’s perception of cannabis in the U.S. 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 cannabis, thereby limiting the number of new State jurisdictions into which Ayr could expand. Any inability
to fully implement Ayr’s expansion strategy may have a material adverse effect on Ayr’s business, financial condition
and results of operations. See “Risk Factors” in the AIF, incorporated herein by reference.

 

Further,
violations of any U.S. federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions
or settlements arising from criminal charges or civil proceedings conducted by either the U.S. federal government or private citizens
(who have the right to seek private relief for Ayr’s “aiding and abetting” activities that violate U.S. federal
law), including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have
a material adverse effect on Ayr, including on its reputation and ability to conduct business, its holding (directly or indirectly)
of cannabis licenses in the U.S., the listing of its securities on various stock exchanges, its financial position, operating
results, profitability or liquidity, or the market price of its publicly-traded shares. In addition, it is difficult for Ayr to
estimate the time or resources that would be needed for the investigation or final resolution of any such matters because, in
part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable
authorities involved, and such time or resources could be substantial. See “Risk Factors – Risks Related to Legality
of Cannabis” in the AIF, incorporated herein by reference.

 

State
Regulatory Environment

 

Nevada

 

Regulatory
Landscape

 

The
use of medical marijuana was legalized in Nevada by a ballot initiative in 2000. Nevada has legislatively enacted the licensing
of medical marijuana business establishments since 2013. Adult-use cannabis was approved in November 2016, when voters in Nevada
passed an adult-use cannabis measure to allow for the licensing of business establishments to engage in the sale of adult-use
cannabis in the State. The first retail stores to sell adult-use marijuana began sales in July 2017. As of July 1, 2020, the Nevada
Cannabis Compliance Board (the successor to the Nevada Department of Taxation as the applicable regulatory agency) governs and
administers regulatory oversight for the medical and adult-use cannabis programs. Cities and counties in Nevada are allowed to
determine the number of local marijuana licenses they will issue up to the maximum number allocated by the statute. The Corporation
provides operational support for facilities in Nevada cities or counties with clearly defined marijuana programs. Currently, the
Corporation provides operational support to facilities located in the Clark County, Henderson, Reno and Washoe County jurisdictions.

 

    30 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Licenses

 

The
Corporation provides administrative, consulting and operations services to one (1) cultivation facility, two (2) production facilities,
and five (5) dispensaries in the State of Nevada. Under applicable laws, the licenses issued for these facilities permit the businesses
to cultivate, manufacture, process, package, sell, and purchase marijuana pursuant to the terms of the licenses and Nevada regulations.

 

State
issued licenses are renewed annually, and local business licenses are renewed quarterly or annually, and there is no ultimate
expiry after which no renewals are permitted. Additionally, in respect of the renewal process, provided that the requisite renewal
fees are paid, the renewal application is submitted in a timely manner along with the necessary supporting documents, including
requisite background investigations, and regulatory requirements are met, the licensee would expect to receive the applicable
renewed license in the ordinary course of business. One of the entities to whom Ayr provides administrative, consulting and operations
services, LivFree, was recently awarded two (2) additional dispensary licenses in the greater Las Vegas market, one (1) in Clark
County and one (1) in Henderson, and aims to open the additional Clark County dispensary this year. The City of Henderson currently
has a moratorium on new dispensaries.

 

Regulations

 

In
the State of Nevada, only marijuana that is grown/produced in the State by a licensed establishment may be sold in the State.
The companies to which the Corporation provides operational support are vertically-integrated and have the capabilities to cultivate,
harvest, process and sell/dispense/deliver adult-use and medical cannabis and cannabis products.

 

Reporting
Requirements

 

The
State of Nevada uses METRC solution (“METRC”) as the State’s computerized seed-to-sale tracking system used
to track commercial marijuana activity. Individual licensees whether directly or through third-party integration systems are required
to push data to the State to meet reporting requirements. The companies to which the Corporation provides operational support
each have a seed-to-sale system in the State which is designed to capture the required data points for cultivation, manufacturing
and retail as required in Nevada Revised Statutes sections 453A and 453D.

 

Storage
and Security

 

To
ensure the safety and security of cannabis business premises and to maintain adequate controls against diversion, theft, and loss
of cannabis and cannabis products, Nevada licensed cannabis establishments are required to do the following:

 

		1.	Maintain
                                         an enclosed, locked facility;

 

		2.	Have
                                         a single secure entrance;

 

		3.	Train
                                         employees in security measures and controls, emergency response protocol, confidentiality
                                         requirements, safe handling of equipment, procedures for handling products, as well as
                                         the differences in strains, methods of consumption, methods of cultivation, methods of
                                         fertilization and methods for health monitoring;

 

		4.	Implement
                                         and install, at a minimum, the following security equipment and practices to deter and
                                         prevent unauthorized entrances:

 

		a.	devices
                                         that detect unauthorized intrusion (which may include a signal system);

 

    31 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		b.	exterior
                                         lighting designed to facilitate surveillance;

 

		c.	electronic
                                         monitoring devices, further including (without limitation);

 

		i.		at
                                         least one call-up monitor that is at least 19 inches in size;

 

		ii.		a
                                         video printer that can immediately produce a clear still photo from any video camera
                                         image;

 

		iii.		video
                                         cameras with a recording resolution of at least 704 x 480 that full capture all of the
                                         building’s points of ingress and egress as well as all interior limited access
                                         areas such that such cameras capture and can identify any activity occurring in or adjacent
                                         to the building;

 

		iv.		a
                                         video camera at each point-of-sale location which allows for the identification of any
                                         person who holds a valid registry identification card, including, without limitation,
                                         a designated primary caregiver, purchasing medical marijuana;

 

		v.		a
                                         video camera in each grow room that can identify any activity occurring within the grow
                                         room in low light conditions;

 

		vi.		a
                                         method for storing video recordings from the video cameras for at least 30 calendar days;

 

		vii.		a
                                         failure notification system that provides an audible and visual notification of any failure
                                         in the electronic monitoring system;

 

		viii.		sufficient
                                         battery backup for video cameras and recording equipment to support at least five (5)
                                         minutes of recording in the event of a power outage; and

 

		ix.		a
                                         security alarm to alert local law enforcement of unauthorized breach of security; and

 

		5.	Implement
                                         security procedures that:

 

		a.	restrict
                                         access of the establishment to only those persons/employees authorized to be there;

 

		b.	deter
                                         and prevent theft;

 

		c.	provide
                                         identification (badge) for those persons/employees authorized to be in the establishment;

 

		d.	prevent
                                         loitering;

 

		e.	require
                                         and explain electronic monitoring; and

 

		f.	require
                                         and explain the use of automatic or electronic notifications to alert local law enforcement
                                         of any security breaches.

 

Massachusetts

 

Regulatory Landscape

 

The
use of cannabis for medical use was legalized in Massachusetts by a voter approval of the Massachusetts Marijuana Initiative in
2012. The law took effect on January 1, 2013, eliminating criminal and civil penalties for the possession and use of up to a 60-day
or ten (10) ounce supply of marijuana for medical use for patients possessing a State issued registration card.

 

    32 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

On
November 8, 2016, Massachusetts voters approved Question 4 or the Massachusetts Marijuana Legalization Initiative, which allowed
for adult-use cannabis in the Commonwealth. On September 12, 2017, the Cannabis Control Commission (“CCC”) was established
under Chapter 55 of the Acts of 2017 (the “Massachusetts Act”) to implement and administer laws enabling access to
medical and adult-use cannabis.

 

On
November 16, 2018, the CCC issued the first notices for retail marijuana establishments to commence adult-use operations in Massachusetts.

 

Under
the current program there are no State-wide limits on the total number of licenses permitted; however, no individual or entity
shall be a controlling person over more than three licenses in a particular class of license. Similarly, no individual, corporation
or other entity shall be in a position to control the decision making of more than three licenses in a particular class of license.
In addition, all marijuana establishments are required to enter into host community agreements with the municipality in which
they are located.

 

Licenses

 

The
Corporation maintains two (2) adult-use cultivation licenses, one (1) adult-use product manufacturer license and one (1) adult-use
transportation license in the Commonwealth of Massachusetts. In addition, the Corporation owns medical licenses that allow it
to maintain three (3) medical marijuana dispensaries in the Commonwealth. These licenses permit the Corporation to cultivate,
manufacture, process, package, sell, and purchase marijuana pursuant to the terms of the licenses.

 

Regulations

 

Under
the terms of the marijuana cultivator license, the licensee may cultivate, process and package marijuana, to transfer and deliver
marijuana products to marijuana establishments, but not to consumers. A marijuana product manufacturer is an entity authorized
to obtain, manufacture, process and package marijuana and marijuana products, to deliver marijuana and marijuana products to marijuana
establishments and to transfer marijuana and marijuana products to other marijuana establishments, but not to consumers. A marijuana
retailer is an entity authorized to purchase and deliver marijuana and marijuana products from marijuana establishments and to
sell or otherwise transfer marijuana and marijuana products to marijuana establishments and to consumers. A marijuana retailer
provides a retail location which may be accessed by consumers 21 years of age or older or, if the retailer is co-located with
a registered marijuana dispensary (“RMD”) by individuals who are registered qualifying patients with the Medical Use
of Marijuana Program with a registration card.

 

In
order for a customer to be dispensed marijuana, they must present a valid government issued photo ID immediately upon entry of
the retail facility. If the individual is younger than 21 years old but 18 years of age or older, he or she shall not be admitted
unless he or she produces an active medical registration card issued by the CCC. If the individual is younger than 18 years old,
he or she shall not be admitted unless he or she produces an active medical registration card and is accompanied by a personal
caregiver with an active medical registration card. In addition to the medical registration card, registered qualifying patients
18 years of age and older and personal caregivers must also produce proof of identification.

 

Each
adult-use customer may be dispensed no more than one ounce of marijuana or five grams of marijuana concentrate per transaction
as outlined in 935 CMR 500.140(4). Medical patients may be dispensed up to a 60-day supply of marijuana, or the equivalent amount
of marijuana in marijuana infused products (“MIPs”), that a registered qualifying patient would reasonably be expected
to need over a period of 60 calendar days for his or her personal medical use, which is ten ounces, subject to 105 CMR 725.010(I).

 

Allowable
forms of marijuana in Massachusetts include smokable dried flower, dried flower for vaporizing, cannabis derivative products (i.e.,
vape pens, gel caps, tinctures, etc.) and medical cannabis-infused products, including edibles.

 

    33 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
the Commonwealth of Massachusetts, only cannabis that is grown and manufactured in the Commonwealth can be sold in the State.
For adult-use, Massachusetts is not a vertically-integrated system. As a result, a marijuana retailer may purchase and transport
marijuana products from marijuana establishments and transport, sell or otherwise transfer marijuana products to marijuana establishments
and to consumers. Licensed cultivators and product manufacturers may cultivate, harvest, process, produce package and sell marijuana
products to marijuana establishments.

 

Reporting
Requirements

 

The
CCC has selected METRC as the State’s track-and-trace (“T&T”) system used to track commercial cannabis activity
and movement across the distribution chain (“seed-to-sale”). The system allows for other third-party system integration
via application program interface (“API”).

 

Pennsylvania

 

Regulatory
Landscape

 

The
Pennsylvania Medical Marijuana Act (the “PAMMA”) was signed into law on April 17, 2016 and originally provided access
to Pennsylvania residents with one of 17 qualifying conditions, including epilepsy, chronic pain, and post-traumatic stress disorder
(“PTSD”). Retail sales began in February 2018. The Commonwealth of Pennsylvania, which consists of nearly 13 million
residents and qualifies as the fifth largest population in the U.S., operates as a high-barrier market with very limited market
participation. The PAMMA authorizes only a maximum of 25 grower/processor permits and 50 dispensary permits. As part of “Phase
1” of the Commonwealth’s permitting process in 2017, the Pennsylvania Department of Health (the “PA DOH”)
which administers the Commonwealth’s Medical Marijuana Program, originally awarded only 12 grower/processor permits and 27 dispensary
permits. Subsequently, in 2018, PA DOH conducted “Phase 2” of the permitting process, during which it awarded the
remaining 13 grower/processor permits and 23 dispensary permits authorized under the PAMMA. In July of 2019, the PA DOH expanded
the list of qualifying medical conditions to include anxiety disorders and Tourette syndrome, increasing the number of qualifying
conditions to 23. As of May 2020, there were 297,317 patients registered in the Program.

 

Chapter
20 of the PAMMA established a marijuana research program whereby clinical registrants collaborate with medical schools and hospitals
to design and implement a research plan. Chapter 20 authorizes PA DOH to issue grower/processor and dispensary permits to up to
eight (8) clinical registrants. Under these permits, which are in addition to the 25 grower/processor and 50 dispensaries mentioned
above, clinical registrants effectively operate as vertically integrated entities. Furthermore, the dispensary permits authorize
clinical registrants to operate dispensaries at up to six (6) locations in any region of the Commonwealth. The dispensaries must
dispense marijuana for the purpose of conducting research. As of August 2020, PA DOH selected the eight and final clinical registrants.
PA DOH selected the first three clinical registrants in June 2019, and for more in February 2020.

 

Licenses

 

All
dispensaries must register with the PA DOH. Registration certificates are valid for a period of one year and are subject to annual
renewals after required fees are paid and the business remains in good standing. Renewal requests are typically communicated through
email and include a renewal form.

 

License
and Regulations

 

Each
retail dispensary license permits the holder to purchase marijuana and marijuana products from grower/processor facilities and
allows the sale of marijuana and marijuana products to registered patients.

 

    34 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Site-Visits
 & Inspections

 

All
licensed dispensary locations must be inspected and approved by the PA DOH before commencing live operations. Thereafter, dispensaries
are subject to PA DOH inspection, whether with or without notice.

 

Reporting
Requirements

 

The
Commonwealth of Pennsylvania uses MJ Freeway as a T&T system for seed-to-sale reporting. Individual permittees are required
to use MJ Freeway to push data to the Commonwealth to meet all reporting requirements. The Corporation intends to use MJ Freeway
as its in-house computerized seed-to-sale software, which integrates with the Commonwealth’s MJ Freeway program and captures
the required data points for cultivation, manufacturing and retail as required in the Pennsylvania medical marijuana laws and
regulations.

 

Storage
and Security

 

All
dispensaries are required to have a locked limited access area for the storage of medical marijuana that is expired, damaged,
deteriorated, mislabeled, contaminated, recalled or whose containers or packages have been opened or breached until such product
is returned to the grower/processor.

 

Ohio

 

Regulatory
Landscape

 

House
Bill 523, effective on September 8, 2016, legalized medical marijuana in Ohio. The Ohio Medical Marijuana Control Program (“MMCP”)
allows people with certain medical conditions, upon the recommendation of an Ohio-licensed physician certified by the State Medical
Board, to purchase and use medical marijuana. House Bill 523 required that the framework for the MMCP would be in place no later
than September 2018. This timeframe allowed for a deliberate process to ensure the safety of the public and to promote access
to a safe product. Sales of medical marijuana in Ohio began in January 2019.

 

The
following three state government agencies are responsible for the operation of the MMCP: (i) the Ohio Department of Commerce is
responsible for overseeing medical marijuana cultivators, processors and testing laboratories; (ii) the State of Ohio Board of
Pharmacy is responsible for overseeing medical marijuana retail dispensaries, the registration of medical marijuana patients and
caregivers, the approval of new forms of medical marijuana and coordinating the Medical Marijuana Advisory Committee; and (iii)
the State Medical Board of Ohio is responsible for certifying physicians to recommend medical marijuana and may add to the list
of qualifying conditions for which medical marijuana can be recommended. Qualifying medical conditions for medical marijuana include:
acquired immune deficiency syndrome, Amyotrophic lateral sclerosis (“ALS” also known as Lou Gehrig’s disease), Alzheimer’s
disease, cancer, chronic traumatic encephalopathy, Crohn’s disease, epilepsy or other seizure disorder, fibromyalgia, glaucoma,
hepatitis C, inflammatory bowel disease, multiple sclerosis (MS), pain (either chronic and severe, or intractable), Parkinson’s
disease, positive status for Human Immunodeficiency Virus (“HIV”), PTSD, sickle cell anemia, spinal cord disease or
injury, Tourette’s syndrome, traumatic brain injury, ulcerative colitis or any other disease or condition added by the state
medical board under section 4731.302 of the Ohio Revised Code. In order for a patient to be eligible to obtain medical marijuana,
a physician must make the diagnosis of one of these conditions. The State of Ohio Board of Pharmacy is in the process of revising
its regulations for dispensaries, for the forms and methods for administering medical marijuana, and for patients and caregivers.

 

Several
forms of medical marijuana are legal in Ohio, these include: inhalation of marijuana through a vaporizer (not direct smoking),
oils, tinctures, plant material, edibles, patches and any other forms approved by the State Board of Pharmacy (other than smoking
or combustion).

 

    35 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Licenses

 

Neither
the Corporation nor its subsidiaries currently hold any cannabis licenses in Ohio.

 

License and Regulations

 

To
be considered for approval of a processing license, the applicant must complete all mandated requirements. To obtain a Certificate
of Operation for a processing facility, the prospective licensee must be capable of operating in accordance with Chapter 3796
of the Ohio Revised Code, the Medical Marijuana Control Program. Certificates of Operation for a processing license must be renewed
annually. A certificate of operation will expire on the date identified on the certificate. Following issuance of a Certificate
of Operation, the Corporation will be authorized to manufacture and produce medical cannabis products. A processor licensee must
submit its renewal application at least 30 days prior to the expiration date of the certificate of operation. If a licensee’s
renewal application is not filed prior to the expiration date of the certificate of operation, the certificate of operation will
be suspended for a maximum of 30 days. After 30 days, if the licensee has not successfully renewed the certificate of operation,
including the payment of all applicable fees, the certificate of operations will be deemed expired.

 

Reporting

 

Ohio
uses the METRC system as its seed-to-sale tracking system. Licensees are required to use METRC to push data to the State to meet
all of the reporting requirements. The Corporation intends to implement its seed-to-sale tracking system to comply with the State’s
tracking and reporting requirements.

 

Storage
and Security

 

All
licensees must have a security system that remains operational at all times and that uses commercial grade equipment to prevent
and detect diversion, theft or loss of medical cannabis, including:

 

		●	Fencing
                                         and gates;

		●	A
                                         perimeter alarm;

		●	Approved
                                         safes, vaults, or any other approved equipment or areas used for processing or storing
                                         of plant material, medical marijuana extract, and medical marijuana products;

		●	Back-up
                                         alarm systems;

		●	Motion
                                         detectors; and

		●	Duress
                                         and panic alarms.

 

Video
cameras must be installed at the processing facility and directed at all approved safes, approved vaults, cannabis sales areas,
and any other area where plant material, medical cannabis extract, or medical cannabis products are being processed, stored or
handled. Live feed video surveillance with motion active recording capabilities must be in place 24 hours a day, seven days a
week. Recordings from all video cameras must be readily available for immediate review by regulating and law enforcement with
jurisdiction upon request and must be retained for at least six months.

 

The
Corporation is not aware of any specific risks associated with operating in Ohio.

 

    36 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Arizona

 

Regulatory
Landscape

 

In
2010, Arizona passed Ballot Proposition 203, which amended Title 36 to the Arizona Revised Statutes. This amendment added Chapter
28.1, titled the Arizona Medical Marijuana Act (the “AMMA”). The AMMA is codified in Arizona Revised Statutes (“ARS”)
 § 36-2801 et. seq. The AMMA also appointed the Arizona Department of Health Services (“ADHS”) as the regulator
for the program and authorized ADHS to promulgate, adopt and enforce regulations for the AMMA. These ADHS regulations are embodied
in the Arizona Administrative Code Title 9 Chapter 17 (the “Rules”). ARS § 36-2801(12) defines a “nonprofit
medical marijuana dispensary” as “a not-for-profit entity that acquires, possesses, cultivates, manufactures, delivers,
transfers, transports, supplies, sells or dispenses marijuana or related supplies and educational materials to cardholders.”

 

The
ADHS established the medical marijuana program. To operate within the medical marijuana program, an entity must apply for, and
receive from ADHS, a Medical Marijuana Dispensary Registration Certificate (“Certificate”). Each Certificate is vertically
integrated and authorizes the entity that holds the Certificate to dispense and cultivate medical cannabis. Each Certificate allows
the holding entity to operate one retail dispensary, one on-site cultivation facility located at the same location as the retail
dispensary, and one off-site cultivation facility located anywhere within the State of Arizona. Prior to opening its dispensary
and cultivation operations, the entity must apply for, and receive from ADHS, an Approval to Operate. The entity must then file
an application with ADHS to renew its Certificate every two years and must also submit audited annual financial statements. The
Rules prohibit an entity from transferring or assigning the Certificate; however, entities that hold a Certificate may contract
with third parties to provide various services related to the ongoing operation, maintenance, and governance of its dispensary
and/or cultivation facility, so long as such contracts do not violate the requirements of the AMMA or the medical marijuana program.

 

The
ADHS had until April 2012 to establish a registration application system for patients and nonprofit marijuana dispensaries, as
well as a web-based verification platform for use by officials and dispensaries to verify a patient’s status. It also specified
patients’ rights, qualifying medical conditions, and allowed out-of-state medical marijuana patients to maintain their patient
status (though not to purchase marijuana). To purchase medical marijuana, a patient must apply for, and receive from ADHS, a medical
marijuana patient card. On December 6, 2012, Arizona’s first licensed medical marijuana dispensary opened in Glendale, Arizona.

 

To
qualify to use medical marijuana under the AMMA, a patient must have a qualifying medical condition. Qualifying medical conditions
include HIV, cancer, glaucoma, Acquired Immune Deficiency Syndrome (“AIDS”), Hepatitis C, Crohn’s disease, agitation
of Alzheimer’s disease, ALS, PTSD, and a chronic or debilitating disease or medical condition, or the treatment for a chronic
or debilitating disease or medical condition, that causes cachexia or wasting syndrome, severe and chronic pain, severe nausea,
seizures, or severe or persistent muscle spasms.

 

In
2019, Arizona Governor Doug Ducey signed into law Senate Bill 1494, which, among other items, requires testing of medical marijuana
and establishes biannual renewal of patient cards. Senate Bill 1494 also authorizes the ADHS to adopt rules for inspecting medical
marijuana dispensaries and creates an independent testing regime for marijuana cultivated by a medical marijuana dispensary. Beginning
in November 2020, before marijuana is sold, the entity holding a Certificate must test the marijuana for unsafe levels of microbial
contamination, heavy metals, pesticides, herbicides, fungicides, growth regulators, and residual solvents. Senate Bill 1494 also
authorizes civil penalties of up to $1,000 per violation (not to exceed $5,000 in a 30-day period) on medical marijuana dispensaries.
Regulations implementing Senate Bill 1494 went into effect on August 27, 2019. In February 2020, the ADHS began an additional
round of rulemaking designed to improve the regulations regarding independent testing, which remains an ongoing process.

 

On
November 3, 2020, Arizona voters passed Proposition 207, known as the “Smart and Safe Arizona Act,” which permits
the lawful sale of marijuana to adults over 21 years old for adult-use use. Proposition 207 directs ADHS to establish additional
rules and regulations regarding the adult-use sale of marijuana. Entities that hold a Certificate to sell medical marijuana have
the right under Proposition 207 to obtain a Marijuana Establishment License to sell adult-use marijuana. If ADHS does not issue
Marijuana Establishment Licenses by April 5, 2021, entities that hold a Certificate may cultivate, produce, process, manufacture,
transport, and test marijuana and marijuana products, and may sell marijuana and marijuana products to adult consumers, until
ADHS issues Marijuana Establishment Licenses.

 

    37 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Licensing
Requirements 

 

In
order for an applicant entity to receive a Certificate, it must: (i) fill out an application on the form proscribed by ADHS, (ii)
submit the applicant’s articles of incorporation and by-laws, (iii) submit fingerprints for each principal officer and board
member of the applicant for a background check to exclude certain felonies, (iv) submit a business plan and policies and procedures
for inventory control, security, patient education, and patient recordkeeping that are consistent with the AMMA and the Rules
to ensure that the dispensary will operate in compliance, and (v) designate an Arizona licensed physician as the Medical Director
for the dispensary. Certificates are renewed every two years so long as the dispensary is in good standing with ADHS, pays the
renewal fee, and submits an independent third party financial audit.

 

Once
an applicant entity is issued a Certificate, it may establish one physical retail dispensary location, one cultivation location
which is co-located at the dispensary’s retail site (if allowed by local zoning), and one additional off-site cultivation
location. None of these sites can be operational, however, until the dispensary receives an Approval to Operate from ADHS for
the applicable site. This Approval to Operate requires: (i) an application on the ADHS form, (ii) demonstration of compliance
with local zoning regulations, (iii) a site plan and floor plan for the applicable property, and (iv) an in-person inspection
by ADHS of the applicable location to ensure compliance with the Rules and consistency with the dispensary’s applicable
policies and procedures.

 

With
the passage of Senate Bill 1494, Certificates are renewed biennially. Before expiry, an entity holding a Certificate must submit
a renewal application. While renewals are granted biennially, there is no ultimate expiry after which no renewals are permitted.

 

Security
Requirements for Dispensary Facilities 

 

Any
dispensary facility (both retail and cultivation) must abide by the following security requirements: (i) ensure that access to
the facilities is limited to authorized agents of the dispensary who are in possession of a dispensary agent identification card,
and (ii) equip the facility with: (a) intrusion alarms and surveillance equipment, (b) exterior and interior lighting to facilitate
surveillance, (c) at least one 19-inch monitor for surveillance and a video capable of printing a high resolution still image,
(d) high resolution video cameras at all points of sale, entrances, exits, and limited access areas, both in and around the building,
(e) 30 days’ video storage, (f) failure notifications and battery backups for the security system, and (g) panic buttons
inside each building.

 

Storage
Requirements 

 

Any
dispensary facility (both retail and cultivation) must abide by the following requirements for the storage of product: (i) product
must be stored in an area that is separate from areas used to store toxic and flammable materials, (ii) product must be stored
in a manner that is clean and sanitary, (iii) product must be protected from flies, dust, dirt, and any other contamination, and
(iv) surfaces and objects used in the handling and storage of product must be cleaned daily. Additionally, the Rules establish
strict inventory protocols for tracking product from “seed to sale,” which requires product to be traceable to the
original plants used to grow the cannabis used in the product.

 

    38 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Transportation
Requirements 

 

Dispensaries
may transport medical cannabis between their own sites, or between their sites and another dispensary’s site, and must comply
with the following Rules: (i) prior to transportation, the dispensary agent must complete a trip plan showing: (a) the name of
the dispensary agent in charge of transporting the cannabis, (b) the date and start time of the trip, (c) a description of the
cannabis, cannabis plants, or cannabis paraphernalia being transported, and (d) the anticipated route of transportation; (ii)
during transport the dispensary agent shall: (a) carry a copy of the trip plan at all times, (b) use a vehicle with no medical
cannabis identification, (c) carry a cell phone, and (d) ensure that no cannabis is visible; and (iii) dispensaries must maintain
trip plan records.

 

ADHS
Inspections and Enforcement 

 

ADHS
may inspect a facility at any time upon five (5) days’ notice to the dispensary. However, if ADHS receives a complaint that
a dispensary is not in compliance with the AMMA or the Rules, ADHS may conduct an unannounced inspection. ADHS will provide written
notice to the dispensary via a Statement of Deficiencies of any violations found during any inspection, after which the dispensary
has 20 working days to take corrective action and to provide ADHS with a written Plan of Correction.

 

ADHS
shall revoke a Certificate if a dispensary: (i) operates before obtaining Approval to Operate a dispensary from ADHS, (ii) dispenses,
delivers, or otherwise transfers cannabis to an entity other than another licensed dispensary, a qualifying patient with a valid
registry identification card, or a designated caregiver with a valid registry identification card, (iii) acquires usable cannabis
or mature cannabis plants from any entity other than another licensed dispensary, a qualifying patient with a valid registry identification
card, or a designated caregiver with a valid registry identification card, or (iv) if a principal officer or board member has
been convicted of an excluded felony offense.

 

Furthermore,
ADHS may revoke a Certificate if a dispensary does not: (i) comply with the requirements of the AMMA or the Rules, or (ii) implement
the policies and procedures or comply with the statements provided to ADHS with the dispensary’s application.

 

The
Corporation is not aware of any specific risks associated with operating in Arizona.

 

Compliance
with State Regulatory Frameworks

 

Nevada
Regulatory Compliance

 

Each
of the Nevada-based cannabis establishments for which the Corporation provides administrative, consulting and operations services
possesses licenses and operates cannabis facilities in compliance with applicable licensing requirements and the regulatory framework
enacted by the State of Nevada in all material respects, and maintains the appropriate licenses for the cultivation, production,
distribution and operation of dispensaries, as applicable.

 

None
of the Nevada-based cannabis businesses for which the Corporation provides operational support has experienced any non-compliance
which may have an impact on its licenses, business activities or operations which has not been remedied, nor are any of the Corporation’s
Nevada-based cannabis businesses subject to any outstanding notices of violation by the State of Nevada which may have an impact
on its licenses, business activities or operations. As noted under “Non-Compliance with State and Local Cannabis Laws”
below, on behalf of businesses for which it provides operational support, Ayr intends to promptly remedy any known occurrences
of non-compliance with applicable State and local cannabis rules and regulations and, on behalf of businesses for which it provides
operational support, Ayr intends to publicly disclose any non-compliance, citations or notices of violation which may have an
impact on its licenses, business activities or operations.

 

Each
of the Nevada-based cannabis businesses for which the Corporation provides operational support uses a seed-to-sale capable control
system for tracking and tracing cannabis plants and products. Each of Leaflogix and Metrc are in use among the Corporation’s
Nevada-based businesses for which it provides operational support. These solutions have been specifically designed to satisfy
the applicable reporting requirements associated with regulated cannabis activities.

 

    39 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
addition to these software-based control systems, each of the Nevada licensed cannabis establishments to which the Corporation
provides operational support has designated a set of operating procedures, including employee training in respect of such procedures,
to secure compliance.

 

Standard
operating procedures in respect of regulatory compliance were developed by each of the Nevada licensed cannabis establishments
to which the Corporation provides operational support and reviewed with the applicable regulators during each of the establishment’s
initial licensing processes and are reviewed on a continuous basis by virtue of ongoing inspections and reviews by the applicable
regulatory authorities. Managers and employees at each of the Nevada licensed cannabis establishments to which the Corporation
provides operational support are empowered to identify key business processes that should be formally documented to seek to assure
safety and regulatory compliance.

 

Each
of the Nevada licensed cannabis establishments to which the Corporation provides operational support has detailed standard operating
procedures in respect of building security, cash management, security of financial instruments, security monitoring systems, security
of information, and general security and safety.

 

Each
of the Nevada licensed cannabis establishments to which the Corporation provides operational support utilizes a security system
around the perimeter of each dispensary designed to prevent and detect diversion, theft or less of marijuana, utilizing commercial
grade security and surveillance equipment in compliance with State regulatory requirements.

 

Additionally,
each of the Nevada licensed cannabis establishments to which the Corporation provides operational support also has detailed standard
operating procedures and protocols for inventory and storage processes, including responsibility for management, inventory limits,
inventory counts and reviews, facility reporting, cannabis inventory receipts, a waste disposal plan, salvage and solid waste
disposal.

 

Inventory
Management Requirements: Each of the Nevada licensed cannabis establishments to which the Corporation provides operational support
maintains policies and procedures and employs industry-specific software to track inventory and to seek to ensure strict regulatory
compliance at both the retail and wholesale levels. These processes include:

 

		●	wholesale
                                         transfer;

		●	inventory
                                         intake;

		●	inventory
                                         management;

		●	retail
                                         transactions; and

		●	sales
                                         data tracking and reporting.

 

Procedures
exist to ensure each of the applicable Nevada licensed cannabis establishments to which the Corporation provides operational support
facility tracks its cumulative inventory of seeds, plants, and usable marijuana. Generally, these inventory control systems are
designed to:

 

		●	establish
                                         and maintain a perpetual inventory system which adequately documents the flow of materials
                                         through the manufacturing process;

		●	establish
                                         procedures which reconcile the raw material used to the finished product on the basis
                                         of each job; and

		●	seek
                                         to ensure the absence of significant variances between system outputs and physical inventory
                                         counts.

 

For
cultivation and production facilities, for each lot received at a facility, such inventory control systems are designed to document:

 

		●	the
                                         batch or lot number;

		●	the
                                         strain of the marijuana seeds or marijuana cuttings planted;

 

    40 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		●	the
                                         number of marijuana seeds or marijuana cuttings planted;

		●	the
                                         date on which the marijuana seeds or cuttings were planted;

		●	a
                                         log or schedule of chemical additives used in the cultivation, including nonorganic pesticides,
                                         herbicides and fertilizers;

		●	the
                                         number of marijuana plants grown to maturity;

		●	harvest
                                         information, including:

		○	the
                                         date of harvest;

		○	the
                                         final yield weight of processed usable marijuana; and

		○	the
                                         name and agent registration card number of the agents responsible for the harvest;

		●	marijuana
                                         flowers in process in all locations;

		●	marijuana
                                         in storage by location;

		●	marijuana
                                         in locked containers awaiting disposal; and

		●	an
                                         audit trail of all material inventory adjustments.

 

Retail
dispensaries maintain current and complete books and records and sales reports, including invoices that reflect all purchases
and sales of marijuana made to and by the applicable dispensary, that are available from an electronic verification systems, point
of sale systems, and/or inventory control systems (which may be separate systems or functionalities combined into a single system)
and are stored in secure safe rooms. Such records include:

 

		●	in
                                         respect of dispensary inventory:

		○	the
                                         date and time of delivery of each purchase or transfer from a cultivation or production
                                         facility;

		○	the
                                         quantity, type and form and price of marijuana and infused or edible products purchased
                                         from a cultivation or production facility in each purchase as well as related products;

		○	invoices
                                         and delivery documents, showing entry into the inventory control system; and

		○	the
                                         quantity of marijuana still available for sale at the dispensary; and

		●	in
                                         respect of dispensary retail sales:

		○	the
                                         date and time of each retail sale;

		○	the
                                         quantity, type, form, and price of marijuana distributed or dispensed;

		○	the
                                         price paid or consideration given for the marijuana;

		○	identifying
                                         information of the purchaser (i.e., name and address, and card number in the case of
                                         medical marijuana transactions); and

		○	identifying
                                         information of the employee conducting the transaction (i.e., the name, initials, or
                                         employee identification number of the person who dispensed or sold the marijuana).

 

All
invoices and delivery documents must be systematically filed and maintained for a period of five years from date of delivery and
must show a legible and complete statement of terms and conditions for each purchase.

 

Sales
records must be compliant with all of the applicable policies and procedures according to applicable documented plans of the Nevada
licensed cannabis establishments to which the Corporation provides operational support, State laws and regulations, and must include
for regulatory authority reporting and internal tracking purposes:

 

		●	the
                                         date and time of each sale;

		●	the
                                         method of distribution (on-site or delivery);

		●	the
                                         quantity, form, and price marijuana and any other products dispensed;

		●	the
                                         consideration given;

		●	the
                                         name, address, and identification number of the marijuana as recorded on the electronic
                                         verification system; and

		●	the
                                         names, initials, or employee identification numbers of the individuals who packaged,
                                         dispensed, delivered, and sold the marijuana.

 

    41 

     

    

 

Disposal
of Inventory: All marijuana waste, including waste composed of or containing finished marijuana, must be stored, secured, and
managed in accordance with applicable State and local statutes, ordinances, and regulations. All waste disposed by the applicable
Nevada licensed cannabis establishments to which the Corporation provides operational support is recorded in the relevant inventory
control system, including:

 

		●	a
                                         description of and reason for the marijuana being disposed of, including, if applicable,
                                         the number of failed or other unusable marijuana plants;

		●	the
                                         date of disposal;

		●	confirmation
                                         that the marijuana was rendered unusable before disposal;

		●	the
                                         method of disposal; and

		●	the
                                         name and card number of the agents responsible for the disposal.

 

Only
specifically authorized employees can destroy product. A list of authorized employees that may destroy product is required to
be maintained at each such Nevada-based business facility. Permissions are defined by agent and password protected. The destroyed
weight and the reason for destruction is required and recorded. The inventory control systems of the Nevada licensed cannabis
establishments to which the Corporation provides operational support can generate reports on destroyed material at any point in
the destruction process.

 

In
addition to controls over inventory, State regulatory frameworks specify guidelines in respect of general security.

 

General
Security Guidelines: The applicable Nevada-based business’ general security guidelines include:

 

		●	background
                                         checks for current/new employees, particularly if the employee is to be accessing restricted
                                         areas;

		●	maintaining
                                         video surveillance of facilities;

		●	maintaining
                                         visitor logs;

		●	providing
                                         for and maintaining secure perimeters for facilities;

		●	requesting
                                         employees to watch for suspicious activities;

		●	keeping
                                         all access system credentials, access codes, access cards, passwords, etc., in a way
                                         that is designed to be secure and accessible only to specifically authorized personnel;

		●	retrieving
                                         keys and employment identification cards from an employee and changing computer access
                                         passwords when their employment ends;

		●	arranging
                                         for prompt and safe disposal of materials;

		●	all
                                         employees being required to be trained on emergency procedures; and

		●	posting
                                         emergency response numbers, including fire, law enforcement, and executive team in several
                                         locations in each facility.

 

Cash
Management: As noted above, the Nevada licensed cannabis establishments to which the Corporation provides operational support
have detailed standard operating procedures and protocols for cash management, including internal controls and cash security procedures.
Examples of such standard operating procedures and protocols used by certain of the dispensaries of the Nevada licensed cannabis
establishments to which the Corporation provides operational support include, without limitation:

 

		●	random
                                         review of cash register drawers by dispensary supervisors;

		●	random
                                         removal of cash from cash register drawers by dispensary supervisors and placement of
                                         such cash into a secure vault;

		●	insertion
                                         of all cash from cash registers drawers into a secure vault at the end of each day;

		●	recording
                                         of daily cash intake by supervisors on a “Register Close” sheet and daily
                                         reconciliation of such values against daily sales reports and the prior day’s recording
                                         of total cash on-hand;

		●	recording
                                         of all disbursements on a disbursement form; and

 

    42 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		●	daily
                                         audits of total cash on hand and investigations in respect of any noted variances.

 

The
Nevada licensed cannabis establishments to which the Corporation provides operational support have worked with internal personnel
and advisors to help prescribe and/or implement measures designed to seek to ensure compliance with applicable State laws on an
ongoing basis, including:

 

		●	correspondence
                                         and updates with regulators;

		●	ongoing
                                         monitoring of compliance with operating procedures and regulations by on-site management;
                                         and

		●	appropriate
                                         employee training for all standard operating procedures.

 

The
Nevada licensed cannabis establishments to which the Corporation provides operational support enlist their internal compliance
personnel, whose responsibilities include monitoring the day-to-day activities, ensuring that the established standard operating
procedures are being adhered to, identifying any non-compliance matters and putting into place the necessary modifications to
seek to ensure compliance.

 

While
the Nevada licensed cannabis establishments to which the Corporation provides operational support are compliant with State and
local cannabis laws, their cannabis-related activities remain illegal under United States federal law. See “Risk Factors”
below and in the AIF, incorporated herein by reference.

 

Massachusetts
Regulatory Compliance

 

The
Corporation’s Massachusetts-based business is in compliance with applicable licensing requirements and the regulatory framework
enacted by the Commonwealth of Massachusetts, and maintains the appropriate licenses for the cultivation, production, distribution
and operation of dispensaries, as applicable.

 

The
Corporation’s Massachusetts-based business has not experienced any non-compliance which may have an impact on its licenses,
business activities or operations which has not been remedied, nor is such business subject to any outstanding notices of violation
by the Commonwealth of Massachusetts which may have an impact on its licenses, business activities or operations. As noted under
 “Non-Compliance with State and Local Cannabis Laws” below, Ayr intends to cause its businesses to promptly remedy
any known occurrences of non-compliance with applicable State and local cannabis rules and regulations and Ayr intends to publicly
disclose any non-compliance, citations or notices of violation which may have an impact on its licenses, business activities or
operations. Given the stage of business of the Corporation’s Massachusetts-based business, such business has, on an on-going
basis, internally reviewed applicable Massachusetts laws and regulations relating to the cultivation, manufacture, distribution
and sale of cannabis and cannabis products and has internally analyzed its exposure to U.S. federal law. The Corporation’s
Massachusetts-based business has enlisted internal compliance personnel to provide on-going advice on applicable U.S. federal
and Massachusetts laws.

 

The
Corporation’s Massachusetts-based business currently possesses three registered marijuana dispensary registrations which
allow the business to sell medical marijuana in Massachusetts directly to consumers, and which allow for the right to open three
adult-use dispensaries subject to local municipality and other marijuana regulatory approvals. The Massachusetts-based business
currently possesses licenses to cultivate, manufacture and transport to other marijuana establishments in Massachusetts. No
assurance can be given that the applicable regulatory approvals allowing for the opening of adult-use dispensaries will be received.

 

In
order to secure compliance with applicable regulatory frameworks, the Corporation’s Massachusetts-based business employs
a combination of software-based metric tracking and operational processes and procedures designed to comply with in-place regulatory
requirements.

 

The
Corporation’s Massachusetts-based business uses Leaflogix, a seed-to-sale capable control system, for tracking and tracing
cannabis plants and products. This solution has been specifically designed to satisfy the applicable reporting requirements associated
with regulated cannabis activities.

 

    43 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

In
addition to the software-based control systems, the Corporation’s Massachusetts-based business has designated a set of operating
procedures, including employee training with respect to such procedures, to secure compliance.

 

Standard
operating procedures for regulatory compliance were developed by the Massachusetts-based business and reviewed with the applicable
regulators during such business’ initial licensing processes and are reviewed on a continuous basis by virtue of ongoing
inspections and reviews by the applicable regulatory authorities. Managers and employees at the Corporation’s Massachusetts-based
business are empowered to identify key business processes that should be formally documented to assure safety and regulatory compliance.

 

The
Corporation’s Massachusetts-based business has detailed standard operating procedures for building security, cash management,
security of financial instruments, security monitoring systems, security of information, and general security and safety.

 

The
Corporation’s Massachusetts-based business utilizes a security system around the perimeter of each dispensary designed to
prevent and detect diversion, theft or less of marijuana, utilizing commercial grade security and surveillance equipment in compliance
with the Commonwealth’s regulatory requirements.

 

Additionally,
the Corporation’s Massachusetts-based business also has detailed standard operating procedures and protocols for inventory
and storage processes, including responsibility for management, inventory limits, inventory counts and reviews, facility reporting,
cannabis inventory receipts, a waste disposal plan, salvage and solid waste disposal.

 

Inventory
Management Requirements: The Corporation’s Massachusetts-based business maintains policies and procedures and employs industry-specific
software to track inventory and to seek to ensure strict regulatory compliance at both the retail and wholesale levels. These
processes include:

 

		●	wholesale
                                         transfer;

		●	inventory
                                         intake;

		●	inventory
                                         management;

		●	retail
                                         transactions; and

		●	sales
                                         data tracking and reporting.

 

Procedures
exist to ensure each applicable Massachusetts-based facility tracks its cumulative inventory of seeds, plants, and usable marijuana.
Generally, these inventory control systems are designed to:

 

		●	establish
                                         and maintain a perpetual inventory system which adequately documents the flow of materials
                                         through the manufacturing process;

		●	establish
                                         procedures which reconcile the raw material used to the finished product on the basis
                                         of each job; and

		●	seek
                                         to ensure the absence of significant variances between system outputs and physical inventory
                                         counts.

 

For
cultivation and production facilities, for each lot received at a facility, such inventory control systems are designed to document:

 

		●	the
                                         batch;

		●	the
                                         strain of the marijuana seeds or marijuana cuttings planted;

		●	the
                                         number of marijuana seeds or marijuana cuttings planted;

		●	the
                                         date on which the marijuana seeds or cuttings were planted;

		●	a
                                         log or schedule of chemical additives used in the cultivation, including nonorganic pesticides,
                                         herbicides and fertilizers;

 

    44 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

		●	the
                                         number of marijuana plants grown to maturity;

		●	harvest
                                         information, including:

		○	the
                                         date of harvest; and

		○	the
                                         final yield weight of processed usable marijuana;

		●	marijuana
                                         flowers in process in all locations;

		●	marijuana
                                         in storage by location;

		●	marijuana
in locked containers awaiting disposal; and

		●	an
audit trail of all material inventory adjustments.

 

Retail
dispensaries maintain current and complete books and records and sales reports, including invoices that reflect all purchases
and sales of marijuana made to and by the applicable dispensary, that are available from the Massachusetts-based business’
electronic verification systems, point of sale systems, and/or inventory control systems (which may be separate systems or functionalities
combined into a single system) and are stored in secure safe rooms. Such records include:

 

		●	in
                                         respect of dispensary inventory:

		○	the
                                         date and time of delivery of each purchase or transfer from a cultivation or production
                                         facility;

		○	the
                                         quantity, type and form of marijuana and infused or edible products purchased from a
                                         cultivation or production facility in each purchase as well as related products;

		○	invoices
                                         and delivery documents, showing entry into the inventory control system; and

		○	the
                                         quantity of marijuana still available for sale at the dispensary; and

 

		●	in
                                         respect of dispensary retail sales:

		○	the
                                         date and time of each retail sale;

		○	the
                                         quantity, type, form, and price of marijuana distributed or dispensed;

		○	the
                                         price paid or consideration given for the marijuana;

		○	identifying
                                         information of the purchaser (i.e., name and address, and card number in the case of
                                         medical marijuana transactions); and

		○	identifying
                                         information of the employee conducting the transaction (i.e., the name, initials, or
                                         employee identification number of the person who dispensed or sold the marijuana).

 

All
invoices and delivery documents must be systematically filed and must show a legible and complete statement of terms and conditions
for each purchase.

 

Sales
records must be compliant with all applicable Ayr policies and procedures according to applicable documented plans, State laws
and regulations, and must include for regulatory authority reporting and internal tracking purposes:

 

		●	the
                                         date and time of each sale;

		●	the
                                         method of distribution (on-site or delivery);

		●	the
                                         quantity, form, and price marijuana and any other products dispensed;

		●	the
                                         consideration given;

		●	the
                                         name, address, and identification number of the marijuana as recorded on the electronic
                                         verification system; and

		●	the
                                         names, initials, or employee identification numbers of the individuals who packaged,
                                         dispensed, delivered, and sold the marijuana.

 

    45 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

Disposal
of Inventory: All marijuana waste, including waste composed of or containing finished marijuana, must be stored, secured, and
managed in accordance with applicable State and local statutes, ordinances, and regulations. All waste disposed of by the Massachusetts-based
business is recorded in such business’ inventory control system, including:

 

		●	a
                                         description of and reason for the marijuana being disposed of, including, if applicable,
                                         the number of failed or other unusable marijuana plants;

		●	the
                                         date of disposal;

		●	confirmation
                                         that the marijuana was rendered unusable before disposal; and

		●	the
                                         method of disposal.

 

In
addition to controls over inventory, State regulatory frameworks specify guidelines in respect of general security.

 

General
Security Guidelines: The Massachusetts-based business’ general security guidelines include:

 

		●	background
                                         checks for current/new employees, particularly if the employee is to be accessing restricted
                                         areas;

		●	maintaining
                                         video surveillance of facilities;

		●	maintaining
                                         visitor logs;

		●	providing
                                         for and maintaining secure perimeters for facilities;

		●	requesting
                                         employees to watch for suspicious activities;

		●	keeping
                                         all access system credentials, access codes, access cards, passwords, etc., in a way
                                         that is designed to be secure and accessible only to specifically authorized personnel;

		●	retrieving
                                         keys and employment identification cards from an employee and changing computer access
                                         passwords when their employment ends;

		●	arranging
                                         for prompt and safe disposal of materials;

		●	all
                                         employees being required to be trained on emergency procedures; and

		●	posting
                                         emergency response numbers, including fire, law enforcement, and executive team in several
                                         locations in each facility.

 

Cash
Management: As noted above, the Corporation’s Massachusetts-based business has detailed standard operating procedures and
protocols for cash management, including internal controls and cash security procedures. Examples of such standard operating procedures
and protocols used by such business’ dispensaries include, without limitation:

 

		●	random
                                         review of cash register drawers by dispensary supervisors;

		●	random
                                         removal of cash from cash register drawers by dispensary supervisors and placement of
                                         such cash into a secure vault;

		●	insertion
                                         of all cash from cash registers drawers into a secure vault at the end of each day;

		●	recording
                                         of daily cash intake by supervisors on a “Register Close” sheet and daily
                                         reconciliation of such values against daily sales reports and the prior day’s recording
                                         of total cash on-hand;

		●	recording
                                         of all disbursements on a disbursement form; and

		●	daily
                                         audits of total cash on hand and investigations in respect of any noted variances.

 

The Corporation’s Massachusetts-based business has worked with an internal advisor to help prescribe and/or implement measures
designed to seek to ensure compliance with applicable State laws on an ongoing basis, including:

 

		●	correspondence
                                         and updates with regulators;

		●	ongoing
                                         monitoring of compliance with operating procedures and regulations by on-site management;
                                         and

		●	appropriate
                                         employee training for all standard operating procedures.

 

In Massachusetts, Ayr enlists its management and compliance personnel, whose responsibilities include monitoring the day-to-day
activities, ensuring that the established standard operating procedures are being adhered to, identifying any non-compliance matters
and putting into place the necessary modifications to seek to ensure compliance.

 

    46 

     

    

 

Ayr
Strategies Inc. 

Management’s
Discussion and Analysis

For the
Three and Nine Months Ended September 30, 2020 and 2019

 

 

While
the Corporation’s Massachusetts-based business is compliant with State and local cannabis laws, its cannabis-related activities
remain illegal under United States federal law. See “Risk Factors” below and in the AIF, incorporated herein by reference.

 

Non-Compliance
with State and Local Cannabis Laws

 

From
time to time, as with all businesses and all rules, it is anticipated that the Corporation, through its subsidiaries and establishments
to which the Corporation provides operational support, may experience incidences of non-compliance with applicable rules and regulations,
which may include minor matters such as:

 

		●	staying
                                         open slightly too late due to an excess of customers at stated closing time;

		●	minor
                                         inventory discrepancies with regulatory reporting software;

		●	missing
                                         fields in regulatory reports;

		●	cleaning
                                         schedules not available on display;

		●	educational
                                         materials and/or interpreter services not available in a sufficient number of languages;

		●	updated
                                         staffing plan not immediately available on site;

		●	improper
                                         illumination of external signage;

		●	marijuana
                                         infused product utensils improperly stored;

		●	labels
                                         out of compliance with most recent regulatory guidelines;

		●	partial
                                         obstruction of camera views; and

		●	onsite
                                         surveillance room used for any other function (i.e., storage).

 

In
addition, either on an inspection basis or in response to complaints, such as from neighbours, customers or former employees,
State or local regulators may among other things issue “show cause” letters, give warnings to or cite businesses which
Ayr operates or for which Ayr provides operational support for violations, including those listed above. Such regulatory actions
could lead to the requirement to remedy the situation, or, in more serious cases, lead to penalties and/or amendments, suspensions
or revocations of licenses or otherwise have an impact on Ayr’s licenses, business activities, operational support activities
or operations.

 

Ayr
has implemented regular compliance reviews to seek to ensure compliance with applicable State and local cannabis rules and regulations.
Ayr intends to promptly remedy any known occurrences of non-compliance with applicable State and local cannabis rules and regulations
and Ayr intends to publicly disclose any non-compliance, citations or notices of violation which may have an impact on its licenses,
business activities, operational support activities or operations.

 

    47Exhibit 4.7

 

AYR
STRATEGIES INC. (the “Corporation”)

 

Form
51-102f6V

 

STATEMENT
OF EXECUTIVE COMPENSATION 

 

For
the Financial Year Ended December 31, 2019

 

An
issuer’s “named executive officers” are comprised of its Chief Executive Officer and Chief Financial Officer
(or individuals who serve in similar capacities), and up to its three most highly compensated executive officers (other than the
Chief Executive Officer and Chief Financial Officer), whose total compensation for the financial year ended December 31, 2019
was, individually, more than C$150,000, as determined in accordance with applicable securities regulations (collectively, the
 “Named Executive Officers” or “NEOs”). The Named Executive Officers of the Corporation for
the financial year ended December 31, 2019 were Jonathan Sandelman as Chairman, Chief Executive Officer and Corporate Secretary,
Brad Asher as Chief Financial Officer, Jennifer Drake as Chief Operating Officer, Jamie Mendola, as Head of Strategy and M&A
and Jason Griffith as Chief Integration Officer.

 

The
primary objectives of the Corporation’s compensation strategy are (i) to provide fair compensation to the Corporation’s
executive officers, in light of their qualifications, experience and duties with the Corporation and compensation received by
their industry peers, (ii) to provide incentive to executive officers to sustain and improve corporate performance, and (iii)
generally to align the interests of the executive officers and senior employees with those of the Corporation’s securityholders.
The strategy is also intended to ensure that the Corporation has in place programs to attract, retain and develop management of
a high caliber and provide a process for the orderly succession of management.

 

The
process for determining executive compensation is as follows. Compensation is discussed and awarded by the Corporation’s
executive committee (the “Executive Committee”) without reference to any specific pre-determined goals, benchmarks,
peer groups or other criteria. As the Corporation’s Chief Executive Officer is a member of the Corporation’s Executive
Committee, executive officers have a degree of input into compensation issues considered by the Executive Committee. The primary
goal in making specific compensation awards is to reward performance, both individually and at the corporate level, and to provide
incentive for future performance.

 

The
Corporation’s executive compensation has two primary components: (i) cash compensation; and (ii) equity-based incentive
awards. Each of the Corporation’s Named Executive Officers receive cash compensation, which is determined by the Executive
Committee. The primary goal in setting cash compensation is to provide sufficient compensation to motivate the recipient to continue
with the Corporation. Otherwise, cash compensation is determined primarily on an ad hoc basis for both incumbent executive
officers and new hires. The amounts paid to Named Executive Officers for the year ended December 31, 2019 as disclosed in the
Summary Compensation Table below, were considered appropriate in meeting the Corporation’s compensation objectives for the
year. It is anticipated that the Corporation’s future compensation awards will continue to be influenced by the objectives
of the Corporation to reward performance and provide incentive, as set forth in the foregoing. Perquisites and personal benefits
are not a significant element of compensation of the Corporation’s NEOs.

 

Equity-based
incentive awards are granted by the Executive Committee on an ad hoc basis and are weighted more towards the incentive
element of the Corporation’s compensation strategy. The Corporation considers the use of equity-based incentive awards to
be significant in attracting, motivating and retaining employees at all levels. The Corporation has adopted a formal equity incentive
plan (the “Equity Incentive Plan”) under which specific grants of awards are made. In making specific grants
to individuals, a number of factors are considered including, but not limited to (i) the number of awards already held by the
individual, (ii) a fair balance between the number of awards held by the individual and the other executives and employees of
the Corporation, in light of their respective duties and responsibilities, and (iii) the value of the awards as a component of
the individual’s overall compensation package. Total grants are also limited by the number of awards available from time
to time under the Equity Incentive Plan and any other security-based compensation arrangements of the Corporation or any of its
subsidiaries. Equity-based incentive awards granted to a specific director are not voted on by that director.

 

     

     

    

 

Named
Executive Officer and Director Compensation 

 

Summary
Compensation Table

 

The
following table and notes thereto provide a summary of the compensation paid to the NEOs and directors of the Corporation for
the financial year ended December 31, 2019. As the Corporation was a special purpose acquisition corporation as defined under
Part X of the NEO Exchange Inc. Manual prior to completion of the qualifying transaction of the Corporation (the “Qualifying
Transaction”) (as the Corporation was previously listed on the NEO Exchange Inc.), there is no compensation information
to report with respect to years prior to the financial year ended December 31, 2019.

 

	
Table
of Compensation Excluding Equity-Based Incentive Awards

         

	Name

        and
        position

         
	Year	Salary,

        consulting

        fee,

        retainer
or

        commission
($)  
	Bonus

        ($)
	Committee

        or
meeting

        fees

        ($)
	Value
of

        perquisites

($)
	Value
of all

        other

        compensation
($)
	Total
compensation

        ($)

	Jonathan
                                         Sandelman(1)

                                         Chairman, Chief Executive Officer and Corporate Secretary 

         
	2019	$257,328	Nil	Nil	Nil	Nil	$257,328
	Brad
                                         Asher

                                         Chief Financial Officer

         
	2019	$131,113	Nil	Nil	Nil	Nil	$131,113
	Jennifer
Drake

        Chief
        Operating Officer

         
	2019	$227,055	Nil	Nil	Nil	Nil	$227,055
	Jamie
Mendola

        Head
        of Strategy and M&A

         
	2019	$211,917	Nil	Nil	Nil	Nil	$211,917
	Jason
Griffith

        Chief
        Integration Officer 

         
	2019	$48,287	Nil	Nil	Nil	Nil	$48,287
	Carmello
Marrelli(2)

        Former
        Chief Financial Officer

         
	2019	$30,131	Nil	Nil	Nil	Nil	$30,131
	Mark
                                         Smith

                                         Director

         
	2019	Nil	Nil	Nil	Nil	Nil	Nil
	Charles
                                         Miles

                                         Director

         
	2019	Nil	Nil	$35,118	Nil	Nil	$35,118
	Chris
                                         R. Burggraeve

                                         Director

         
	2019	Nil	Nil	$30,274	Nil	Nil	$30,274
	Louis
F. Karger

        Director

         
	2019	Nil	Nil	Nil	Nil	Nil	Nil
	Steve
                                         Menzies

                                         Director

         
	2019	Nil	Nil	Nil	Nil	Nil	Nil

 

Notes:

 

		(1)	Mr.
                                         Sandelman did not receive any additional compensation for his role as a director of the
                                         Corporation.

		(2)	Mr.
                                         Marrelli resigned as Chief Financial Officer on June 28, 2019

 

Equity-Based
Incentive Awards

 

The
following table and notes thereto provide a summary of the equity-based incentive awards outstanding for the NEOs and directors
of the Corporation for the financial year ended December 31, 2019.

 

     

     

    

 

	Equity-Based
    Incentive Awards
	Name

        and
        position

         
	Type
of

        compensation
security
	Number
of

        compensation
securities,

        number
of

        underlying

        securities,
and percentage of class
	Date

        of
issue or grant
	Issue,

        conversion
or exercise price

        ($)
	Closing

        price
of

        security
or

        underlying

        security
on

        date
of

        grant

        ($)
	Closing

        price
of

        security
or

        underlying

        security
at

        year
end

        ($) 
	Expiry

        date

         

	Jonathan
                                         Sandelman(1)

                                         Chairman, Chief Executive Officer and Corporate Secretary

         
	RSU	850,250	5/24/2019	Nil	C$24.79	C$11.72	Nil
	Brad
                                         Asher

                                         Chief Financial Officer

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Jennifer
Drake

        Chief
        Operating Officer

         
	RSU	1,700,750	5/24/19	Nil	C$24.79	C$11.72	Nil
	Jamie
Mendola

        Head
        of Strategy and M&A

         
	RSU	637,800	5/24/19	Nil	C$24.79	C$11.72	Nil
	Jason
                                         Griffith

        

        Chief
        Integration Officer 

         
	RSU	212,600	5/24/19	Nil	C$24.79	C$11.72	Nil
	Carmello
Marrelli(2)

        Former
        Chief Financial Officer

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Mark
                                         Smith

                                         Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Charles
                                         Miles

                                         Director

         
	RSU	2,750	5/24/19	Nil	C$24.79	C$11.72	Nil
	Chris
                                         R. Burggraeve

                                         Director

         
	RSU	2,750	5/24/19	Nil	C$24.79	C$11.72	Nil
	Louis
F. Karger

        Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Steve
                                         Menzies

                                         Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil

 

Notes:

 

		(1)	Mr.
                                         Sandelman did not receive any additional compensation for his role as a director of the
                                         Corporation.

		(2)	Mr.
                                         Marrelli resigned as Chief Financial Officer on June 28, 2019.

 

Exercise
of Equity-Based Incentive Awards

 

The
following table and notes thereto provides a summary of each exercise by a NEO or director of equity-based incentive awards during
the financial year ended December 31, 2019.

 

     

     

    

 

	

                                          

                                                                                              Exercise of Equity-Based Incentive Awards by NEOs and Directors

         

	Name
and

        position
	Type
of

        compensation
        security

         
	Number

        of

        underlying
        securities exercised

         
	Exercise

        price
per

        security
        ($)

         
	Date
of

        exercise
	Closing

        price
per

        security

        on
date

        of

        exercise

        ($)

         
	Difference

        between

        exercise

        price
and

        closing
price

        on
date of

        exercise

        ($)
	Total
value on exercise date

        ($)

         

	Jonathan
                                         Sandelman(1)

                                         Chairman, Chief Executive Officer and Corporate Secretary

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Brad
                                         Asher

                                         Chief Financial Officer

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Jennifer
Drake

        Chief
        Operating Officer

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Jamie
Mendola 

        Head
        of Strategy and M&A

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Jason
Griffith

        Chief
        Integration Officer 

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Carmello
                                         Marrelli(2)

        

        Former
        Chief Financial Officer

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Mark
                                         Smith

                                         Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Charles
                                         Miles

                                         Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Chris
                                         R. Burggraeve

                                         Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Louis
F. Karger 

        Director

         
	Nil	Nil	Nil	Nil	Nil	Nil	Nil
	Steve
Menzies

        Director
	Nil	Nil	Nil	Nil	Nil	Nil	Nil

 

Notes:

 

		(1)	Mr.
                                         Sandelman did not receive any additional compensation for his role as a director of the
                                         Corporation.

		(2)	Mr.
                                         Marrelli resigned as Chief Financial Officer on June 28, 2019.

 

Director Compensation

 

Independent
directors may be compensated by director’s fees in cash if approved by the Executive Committee and management of the Corporation.
The granting of equity-based incentive awards provides a link between director compensation and the price of the subordinate voting
shares of the Corporation (the “Subordinate Voting Shares”). Equity-based incentive awards may be awarded to
independent directors when they are first elected by shareholders or appointed by the Executive Committee and periodically thereafter.
Mr. Sandelman is not compensated for his membership on the Corporation’s board of directors (the “Board”)
or the Executive Committee.

 

     

     

    

 

In
making a determination as to whether a grant of equity-based incentive awards is appropriate, and if so, the number of awards
that should be granted, the Executive Committee as a whole gives consideration to: (i) the number and terms of outstanding equity-based
incentive awards held by the director; (ii) current and expected future contributions of the director; (iii) the potential dilution
to shareholders and the cost to the Corporation; (iv) general industry standards; and (v) the limits imposed by the terms of the
Equity Incentive Plan. The Corporation currently considers the granting of equity-based incentive awards to be the best method
of compensating independent directors as it allows the Corporation to reward each director’s efforts to increase value for
shareholders without requiring the Corporation to use cash from its treasury (subject to any required withholding tax payments).
Directors are reimbursed for any out-of-pocket travel expenses incurred in order to attend meetings of the Board, committees of
the Board or meetings of the Corporation’s securityholders. The Corporation has obtained customary director and officer
insurance and has entered into indemnification agreements with its directors pursuant to which the Corporation has agreed to indemnify
its directors to the extent permitted by applicable law.

 

Equity
Incentive Plan

 

The
Equity Incentive Plan received approval from the Corporation’s directors on December 10, 2018, and was ratified by the Corporation’s
shareholders on March 18, 2019. All capitalized terms used in this section that are not otherwise defined have the meanings ascribed
to them in the Equity Incentive Plan, which is available under the Corporation’s profile at www.sedar.com.

 

Purpose

 

The
purpose of the Equity Incentive Plan is to enable the Corporation and its affiliated companies to: (i) attract and retain employees,
officers, consultants, advisors and non-employee directors capable of assuring the future success of the Corporation, (ii) offer
such persons incentives to put forth maximum efforts for the success of the Corporation’s business, (iii) compensate such
persons through various stock-based arrangements and provide them with opportunities for stock ownership, thereby aligning the
interests of such persons and the Corporation’s securityholders.

 

The
Equity Incentive Plan permits the grant of (i) nonqualified stock options (“NQSOs”) and incentive stock options
(“ISOs”) (collectively, “Options”), (ii) restricted stock units (“RSUs”),
(iii) performance compensation awards, and (iv) unrestricted stock bonuses or purchases, which are referred to herein collectively
as “Awards”, all as more fully described below.

 

The
Executive Committee has the power to manage the Equity Incentive Plan and may delegate such power at its discretion to any other
committee of the Board, including the compensation, nominating and corporation governance committee (the “C&CG Committee”).

 

Eligibility

 

Any
non-employee director of the Corporation or any employee, officer, consultant, independent contractor or advisor providing services
to the Corporation or any affiliate of the Corporation, or any such person to whom an offer of employment or engagement with the
Corporation or any affiliate is extended, are eligible to participate in the Equity Incentive Plan if selected by the Executive
Committee (the “Participants”). The basis of participation of an individual under the Equity Incentive Plan,
and the type and amount of any Award that an individual is be entitled to receive under the Equity Incentive Plan, is be determined
by the Executive Committee based on its judgment as to the best interests of the Corporation and its securityholders.

 

The
maximum number of Subordinate Voting Shares that may be issued under the Equity Incentive Plan has been fixed by the Board to
be 12% of the Subordinate Voting Shares outstanding, on a Diluted Basis (excluding grants made pursuant to the Equity Incentive
Plan and any grants of non-voting exchangeable common stock (the “Exchangeable Shares”) made under any equity
plan of CSAC Acquisition Inc., a wholly-owned subsidiary of the Corporation (“CSAC AcquisitionCo”), as described
below), from time to time, subject to adjustment in the Equity Incentive Plan. For the purposes hereunder, “Diluted Basis”
shall mean the aggregate Subordinate Voting Shares and Multiple Voting shares of the Corporation issued and outstanding, including:
(i) the Subordinate Voting Shares issuable on exchange of the Exchangeable Shares; (ii) the Subordinate Voting Shares issuable
on exchange of the warrants of the Corporation (the “Warrants”) (excluding in respect of the cashless exercise
feature thereof and provided such Warrants are not determined to be “out of the money” by the Board as at the date
of grant of the applicable Award(s)); and (iii) the Subordinate Voting Shares issuable on conversion of the rights of the Corporation
(the “Rights”); but shall exclude the Subordinate Voting Shares issuable pursuant to Awards granted hereunder
and pursuant to any restricted Exchangeable Shares (or Shares issuable upon the exchange thereof) awarded by CSAC AcquisitionCo.
10% of such Subordinate Voting Shares, subject to adjustment in accordance with the Equity Incentive Plan, are available for time-based
vested Awards. In addition to the foregoing, 2% of such Subordinate Voting Shares, subject to adjustment in accordance with the
Equity Incentive Plan, are available for performance-based Awards (with the performance target being set as the market capitalization
of the Subordinate Voting Shares outstanding, on a Diluted Basis (excluding grants made pursuant to the Equity Incentive Plan
and any grants of restricted Exchangeable Shares made under any equity plan of CSAC AcquisitionCo), having reached or exceeded
C$1.0 billion for 20 out of 30 consecutive trading days in order for vesting of such Awards to occur). Notwithstanding the foregoing,
a maximum of 5,100,000 Subordinate Voting Shares may be issued as ISOs, subject to adjustment in the Equity Incentive Plan.

 

     

     

    

 

The
maximum number of Subordinate Voting Shares that may be issued under the Equity Incentive Plan to any one Related Person (as such
term, or the equivalent, is defined in the applicable securities exchange policies), or the number of securities that may be issuable
on exercise of the Options granted to any one Related Person, as compensation within any one-year period, excluding performance-based
Awards (with the performance target being set as the market capitalization of the Subordinate Voting Shares outstanding), shall
not exceed 5% of the outstanding Subordinate Voting Shares, on a Diluted Basis (excluding grants made under the Equity Incentive
Plan and any equity plan of CSAC AcquisitionCo), at the time of grant, subject to adjustment in the Equity Incentive Plan. The
maximum number of Subordinate Voting Shares that may be issued under the Equity Incentive Plan to the Corporation’s non-executive
directors, as a whole, or the number of securities that may be issuable on exercise of the Awards granted to the Corporation’s
non-executive directors, as a whole, as compensation within any one-year period, may not exceed 1% of the outstanding Subordinate
Voting Shares, on a Diluted Basis (excluding grants made under the Equity Incentive Plan and any equity plan of CSAC AcquisitionCo),
at the time of grant, subject to adjustment in the Equity Incentive Plan. The Executive Committee will not grant Options to any
one non-executive director in which the aggregate fair market value (determined as of the time the Options are granted) of such
Options during any calendar year (under the Equity Incentive Plan and all other plans of the Corporation and its affiliates) shall
exceed $100,000, or will not grant Awards in which the aggregate fair market value (determined as of the time the Awards are granted)
of the Subordinate Voting Shares in respect to which the Awards are exercisable by such non-executive director during any calendar
year (under the Equity Incentive Plan and all other plans of the Corporation and its affiliates) shall exceed C$150,000.

 

Any
shares subject to an Award under the Equity Incentive Plan that are not purchased or are forfeited, cancelled, expire unexercised,
are settled in cash, or are used or withheld to satisfy tax withholding obligations of a Participant shall again be available
for Awards under the Equity Incentive Plan. Financial assistance or support agreements may be provided by the Corporation or any
related entity to Participants in connection with grants under the Equity Incentive Plan, including full, partial or non-recourse
loans if approved by the Executive Committee (with interested persons abstaining, if applicable).

 

In
the event of any dividend (other than a regular cash dividend) or other distribution (whether in the form of cash, Subordinate
Voting Shares, other securities or other property), recapitalization, forward stock split, reverse stock split, reorganization,
plan of arrangement, merger, amalgamation, consolidation, split-up, spin-off, combination, repurchase or exchange of Subordinate
Voting Shares or other securities of the Corporation, issuance of Warrants, Rights or other rights to acquire Subordinate Voting
Shares or other securities of the Corporation, or other similar corporate transaction or event which affects the Subordinate Voting
Shares or unusual or nonrecurring events affecting the Corporation or the financial statements of the Corporation, or changes
in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer
quotation system, accounting principles or law, the Executive Committee may, subject to any required regulatory or Canadian Securities
Exchange (“CSE”) approvals, make such adjustment which it deems appropriate in its discretion in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be made available under the Equity Incentive Plan, to
(i) the number and kind of Subordinate Voting Shares (or other securities or other property) that may thereafter be issued in
connection with Awards, (ii) the number and kind of Subordinate Voting Shares (or other securities or other property) subject
to outstanding Awards, (iii) the purchase price or exercise price relating to any Award or, if deemed appropriate, make provision
for a cash payment with respect to any outstanding Award, and/or (iv) any share limit set forth in the Equity Incentive Plan.

 

     

     

    

 

CSAC
AcquisitionCo has also established an equity plan through which awards of restricted Exchangeable Shares may be granted to service
providers to CSAC AcquisitionCo and their affiliates (the “CSAC AcquisitionCo Plan”). To the extent any awards
of restricted Exchangeable Shares are granted by CSAC AcquisitionCo under the CSAC AcquisitionCo Plan or any other such equity
plan(s), the number of restricted Exchangeable Shares granted by CSAC AcquisitionCo will reduce the number of Subordinate Voting
Shares that may be awarded under the Equity Incentive Plan on a one-for-one basis. If any restricted Exchangeable Shares awarded
under a CSAC AcquisitionCo equity plan are forfeited, cancelled, or are used or withheld to satisfy tax withholding obligations
of an award recipient, any such Exchangeable Shares that are forfeited, cancelled, used or withheld will not be treated as reducing
the number of Subordinate Voting Shares that are available for Awards under the Equity Incentive Plan.

 

Awards

 

Options

 

The
Executive Committee is authorized to grant Options to purchase Subordinate Voting Shares that are either ISOs (meaning they are
intended to satisfy the requirements of Section 422 of the United States Internal Revenue Code of 1986, as amended (the
 “Code”)), or NQSOs (meaning they are not intended to satisfy the requirements of Section 422 of the Code).
Options granted under the Equity Incentive Plan are subject to the terms and conditions established by the Executive Committee.
Options granted under the Equity Incentive Plan are subject to such terms, including the exercise price and the conditions and
timing of exercise, as may be determined by the Executive Committee and specified in the applicable award agreement. The maximum
term of an Option granted under the Equity Incentive is ten years from the date of grant (or five years in the case of an ISO
granted to a 10% shareholder). Payment in respect of the exercise of an Option may be made in cash or by cheque, by surrender
of unrestricted shares (at their fair market value on the date of exercise) or by such other method as the Executive Committee
may determine to be appropriate.

 

RSUs

 

RSUs
are granted in reference to a specified number of Subordinate Voting Shares and entitle the holder to receive, on achievement
of specific performance goals established by the Executive Committee or after a period of continued service with the Corporation
or its affiliates or any combination of the above as set forth in the applicable award agreement, one Subordinate Voting Share
for each such Subordinate Voting Share covered by the RSU; provided, that the Executive Committee may elect to pay cash, or part
cash and part Subordinate Voting Shares in lieu of delivering only Subordinate Voting Shares. The Executive Committee may, in
its discretion, accelerate the vesting of RSUs. Unless otherwise provided in the applicable award agreement or as may be determined
by the Executive Committee upon a Participant’s termination of employment or service with the Corporation, the unvested
portion of the RSUs will be forfeited and re-acquired by the Corporation for cancellation at no cost.

 

Unrestricted
Stock Bonuses or Purchases

 

The
Executive Committee is authorized to grant unrestricted Subordinate Voting Shares as consideration for services rendered to the
Corporation or an affiliate in the prior calendar year, or may offer a Participant the opportunity to purchase unrestricted Subordinate
Voting Shares for cash consideration equal to the fair market value of the unrestricted Subordinate Voting Shares.

 

Dividend
Equivalents

 

The
Executive Committee is authorized to grant dividend equivalents, under which the holder shall be entitled to receive payments
(in cash, Subordinate Voting Shares, other securities or other property, as determined by the Executive Committee) equivalent
to the amount of cash dividends paid by the Corporation to holders of Subordinate Voting Shares with respect to a number of Subordinate
Voting Shares determined by the Executive Committee. Subject to the terms of the Equity Incentive Plan and any applicable award
agreement, such dividend equivalents may have such terms and conditions as the Executive Committee shall determine. Notwithstanding
the foregoing, (i) the Executive Committee may not grant dividend equivalents to Participants in connection with grants of
Options or other Awards, the value of which is based solely on an increase in the value of the Subordinate Voting Shares after
the date of grant of such Award, and (ii) dividend and dividend equivalent amounts may be accrued but shall not be paid unless
and until the date on which all conditions or restrictions relating to such Award have been satisfied, waived or lapsed.

 

     

     

    

 

Restricted
Exchangeable Shares 

 

Any
restricted Exchangeable Shares awarded under the CSAC AcquisitionCo Plan or any other such equity plan(s) will reduce the number
of Subordinate Voting Shares that may be awarded under the Equity Incentive Plan on a one-for-one basis. If any restricted Exchangeable
Shares so awarded are forfeited, cancelled, or are used or withheld to satisfy tax withholding obligations of an award recipient
thereunder, any such restricted Exchangeable Shares that are forfeited, cancelled, used or withheld will thereafter not be treated
as reducing the number of Subordinate Voting Shares that are available for Awards under the Equity Incentive Plan.

 

General

 

The
maximum term of the Awards to be granted under the Equity Incentive Plan is 10 years.

 

The
Executive Committee may impose restrictions on the vesting, exercise or payment of an Award as it determines appropriate. Generally,
no Awards (other than fully vested and unrestricted Subordinate Voting Shares issued pursuant to any Award) granted under the
Equity Incentive Plan shall be transferable except by will or by the laws of descent and distribution. No Participant shall have
any rights as a shareholder with respect to Subordinate Voting Shares covered by Options or RSUs, unless and until such Awards
are settled in Subordinate Voting Shares.

 

No
Option is exercisable, no Subordinate Voting Shares may be issued, no certificates, registration statements or electronic positions
for Subordinate Voting Shares may be delivered and no payment may be made under the Equity Incentive Plan except in compliance
with all applicable laws and CSE and any other regulatory requirements.

 

The
Executive Committee may amend, alter, suspend, discontinue or terminate the Equity Incentive Plan and the Executive Committee
may amend any outstanding Award at any time; provided that (i) such amendment, alteration, suspension, discontinuation, or termination
shall be subject to any applicable laws, rules, regulations and policies of any applicable governmental entity or stock exchange,
including receipt of any required approval from the governmental entity or stock exchange, including the CSE, and (ii) subject
to the following paragraph, no such amendment or termination may materially and adversely alter or impair the Awards then outstanding
without the Award holder’s written consent. The Executive Committee may, without prior approval of shareholders, correct
any defect, supply any omission or reconcile any inconsistency in the Equity Incentive Plan or in any Award or award agreement
in the manner and to the extent it shall deem desirable to implement or maintain the effectiveness of the Equity Incentive Plan.
The Equity Incentive Plan also provides for the issuance of Subordinate Voting Shares in lieu of bonuses.

 

In
the event of any reorganization, merger, amalgamation, consolidation, split-up, spin-off, combination, plan of arrangement, take-over
bid or tender offer, repurchase or exchange of Subordinate Voting Shares or other securities of the Corporation or any other similar
corporate transaction or event involving the change of control of the Corporation (or if the Corporation shall enter into a written
agreement to undergo such a transaction or event), the Executive Committee may, in its sole discretion, take such measures or
make such adjustments in regards to any securities granted pursuant to the Equity Incentive Plan, as it deems appropriate, as
further described in the Equity Incentive Plan. Notwithstanding the foregoing, upon a corporate transaction or event involving
the change of control of the Corporation, all securities granted pursuant to the Equity Incentive Plan shall immediately vest.

 

Awards
granted to U.S. persons under the Equity Incentive Plan will not be registered under the U.S. Securities Act of 1933, as
amended, and will be issued under an exemption from registration therefrom. Such securities may be subject to transfer restrictions
and a holding period imposed by applicable U.S. securities laws.

 

Tax
Withholding

 

The
Corporation may take such action as it deems appropriate to ensure that all applicable federal, state, provincial, local and/or
foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld
or collected from such Participant.

 

Employment,
Consulting and Management Agreements

 

The
Corporation had (i) no employment agreements with any of its NEOs, and (ii) no consulting agreements with any of its directors
or NEOs, other than as set out below for the financial year ended December 31, 2019.

 

     

     

    

 

Mercer
Park, L.P. (“Mercer”),
an affiliate of Mr. Sandelman, entered into a management agreement with the Corporation on May 24, 2019 (the “Management
Agreement”) to provide consulting and management advisory services to the Corporation.
The management fee is paid monthly and varied based on actual costs incurred by Mercer when providing the Corporation administrative
support, management services, office space and utilities. The Management Agreement is a month-to-month arrangement. Each of Jonathan
Sandelman, Brad Asher, Jennifer Drake, Jamie Mendola and Jason Griffith are employed and compensated directly by Mercer pursuant
to the Management Agreement, which compensation is reimbursed by the Corporation.

 

Termination
and Change of Control Benefits

 

Other
than as set out below, there are no contracts, agreements, plans or arrangements whereby any current NEO or director is entitled
to receive payments from the Corporation in the event of (i) the resignation, retirement or other termination of the NEO’s
or director’s services with the Corporation, (ii) a change of control of the Corporation, or (iii) a change in the NEO’s
responsibilities.

 

Under
the terms of the Management Agreement and Mercer’s change in control severance plan (the “Plan”), which
was approved by the Board on August 13, 2019, employees of Mercer, which includes Mr. Sandelman, Brad Asher, Jennifer Drake, Jamie
Mendola and Jason Griffith, are eligible to receive a lump sum cash payment payable by the Corporation equal to 150% of the sum
of (i) the employee’s annual base salary, plus (ii) the annual cash bonus paid or payable to the employee for the prior
calendar year in the event that such employees are subject to a “Qualifying Termination” (as such term is defined
in the Plan) by Mercer in connection with a change of control of the Corporation.

 

Compensation
Governance

 

The
Corporation has established the C&CG Committee, the members of which are Jonathan Sandelman, Charles Miles and Chris R. Burggraeve.
The members of the C&CG Committee are appointed annually by the Executive Committee, and each member of the C&CG Committee
serves at the pleasure of the Executive Committee until the member resigns, is removed, or ceases to be a member of the Executive
Committee.

 

To
fulfil its role in overseeing the Corporation’s approach to compensation issues, the C&CG Committee should:

 

		(i)	review
                                         and approve corporate goals and objectives relevant to the compensation of the Corporation’s
                                         Chief Executive Officer;

 

		(ii)	evaluate
                                         the performance of the Corporation’s Chief Executive Officer in light of those
                                         corporate goals and objectives, and make recommendations to the Executive Committee with
                                         respect to the compensation level of the Corporation’s Chief Executive Officer
                                         based on its evaluation;

 

		(iii)	review
                                         the recommendations to the C&CG Committee of the Corporation’s Chief Executive
                                         Officer respecting the appointment, compensation and other terms of employment of the
                                         Corporation’s Chief Financial Officer, all senior management reporting directly
                                         to the Corporation’s Chief Executive Officer and all other officers appointed by
                                         the Executive Committee and, if advisable, approve and recommend for Executive Committee
                                         approval, with or without modifications, any such appointment, compensation and other
                                         terms of employment;

 

		(iv)	administer
                                         and interpret the Corporation’s Award agreements and its policies respecting the
                                         grant of Awards or the sale of securities thereunder, and review and recommend for approval
                                         of the Executive Committee the grant of Awards thereunder and the terms thereof;

 

		(v)	review
                                         the Corporation’s pension and retirement transactions, if any, in light of the
                                         overall compensation policies and objectives of the Corporation;

 

		(vi)	review
                                         employment agreements, if any, between the Corporation and the Corporation’s Chief
                                         Executive Officer, and between the Corporation and executive officers, and amendments
                                         to the terms of such agreements shall be subject to review and recommendation by the
                                         C&CG Committee and approval by the Executive Committee;

 

     

     

    

 

		(vii)	review
                                         management’s policies and practices respecting the Corporation’s compliance
                                         with applicable legal prohibitions, disclosure requirements or other requirements on
                                         making or arranging for personal loans to senior officers or directors or amending or
                                         extending any such existing personal loans or transactions;

 

		(viii)	recommend
                                         to the Executive Committee for its approval the terms upon which directors shall be compensated,
                                         including the Chairman (if applicable) and those acting as committee chairs and committee
                                         members;

 

		(ix)	review
                                         on a periodic basis the terms of and experience with the Corporation’s executive
                                         compensation programs for the purpose of determining if they are properly coordinated
                                         and achieving the purpose for which they were designed and administered;

 

		(x)	review
                                         executive compensation disclosure before the Corporation publicly discloses such information;

 

		(xi)	submit
                                         a report to the Executive Committee on human resources matters at least annually; and

 

		(xii)	prepare
                                         an annual report for inclusion in the Corporation’s annual management information
                                         circular to shareholders respecting the process undertaken by the committee in its review
                                         of compensation issues and prepare a recommendation in respect of the compensation of
                                         the Corporation’s Chief Executive Officer.

 

Report
of C&CG Committee

 

Determination
of Compensation of Executive Directors

 

The
C&CG Committee believes that much of the Corporation’s success to date and future potential is directly attributable
to the efforts, unique skills and experience of Mr. Jonathan Sandelman, the Corporation’s Chairman, Chief Executive Officer
and Corporate Secretary. The C&CG Committee believes it is essential to the continued success of the Corporation,
both over the long and short-term, to retain and appropriately motivate valued executives and has designed their compensation
packages accordingly.

 

As
part of its mandate, the C&CG Committee reviewed trends in executive compensation and oversaw compliance with applicable laws.
The C&CG Committee reviewed and approved the Chief Executive Officer’s annual corporate goals and individual objectives,
assessed his performance in light of his goals and objectives, and recommended his compensation to the independent members of
the Executive Committee for approval. It also reviewed and approved the compensation structure and evaluation process for other
executive officers, assessed their performance and recommended their compensation to the Executive Committee for approval.

 

The
C&CG Committee also believes that it is essential to the continued success of the Corporation to retain and properly motivate
the other executive officers of the Corporation: Jennifer Drake as Chief Operating Officer, Brad Asher as Chief Financial Officer,
Jamie Mendola as Head of Strategy and M&A and Jason Griffith as Chief Integration Officer.

 

The
C&CG Committee believes that such salaries are comparable to the annual base salaries paid to executives of similar abilities
having similar duties in companies comparable in industry, size, complexity and revenues to the Corporation and, accordingly,
will be sufficient to retain the Corporation’s executive officers over the short-term.

 

Compensation
of the Chief Executive Director

 

Mr.
Sandelman’s compensation is summarized in the Summary Compensation table set out above.  Compensation matters relating
to the Chief Executive Officer are approved by the Executive Committee on the recommendation of the C&CG Committee.

 

Mr.
Sandelman’s base salary for fiscal 2019 was $425,000, of which $257,328 was paid from May 24, 2019, being the closing date
of the Qualifying Transaction, through the fiscal year-end of December 31, 2019.  This salary was set at a level necessary
to enable the Corporation to retain an executive with the appropriate experience and qualifications to lead the Corporation.

 

     

     

    

 

In
2019, 850,250 Exchangeable Shares were granted to Mr. Sandelman in conjunction with the Qualifying Transaction in accordance with
the Corporation’s Equity Incentive Plan and applicable regulatory requirements. The stock-based compensation expense is
based on the Corporation’s share price of C$24.79 on May 24, 2019, being the date of the grant. The Exchangeable Shares
granted to Mr. Sandelman and other key executives are consistent with the Corporation’s commitment to align the interests
of executives with the Corporation’s shareholders.

 

Submitted
by the C&CG Committee of the Board 

 

Pension
Plan Benefits

 

The
Corporation does not have a pension plan or provide any benefits following or in connection with retirement. In addition, the
Corporation does not have a deferred compensation plan.

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