Document:

Exhibit
4.8

 

Ayr
Strategies Inc.

(formerly,
Cannabis Strategies Acquisition Corp.)

 

Form
51-102F4

Business
Acquisition Report

 

		Item
                          1	Identity
                                         of Company 

 

		1.1	Name
and Address of Company

 

Ayr
Strategies Inc. (“Ayr” or the “Corporation”)

c/o 590 Madison Avenue, 26th Floor

New York, New York

10022

 

		1.2	Executive
Officer

 

Jonathan
Sandelman

Chief
Executive Officer, Chairman, Director and Corporate Secretary

Ayr Strategies Inc.

 

Chief
Executive Officer, Mercer Park CB, L.P.

590
Madison Avenue, 26th Floor, New York, New York, 10022

(212) 299-7666 or jsandelman@mercerparklp.com

 

		Item
                          2	Details
                                         of Acquisition 

 

		2.1	Nature
of Businesses Acquired

 

On
May 24, 2019, the Corporation completed its qualifying transaction under Part X of the Neo Exchange Inc. Listing Manual (the “Qualifying
Transaction”) in respect of its concurrent acquisitions of five target businesses. The Corporation, through its wholly-owned
subsidiary CSAC Acquisition Inc. (“CSAC AcquisitionCo”), acquired the 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” and together with Washoe, Canopy, Sira and LivFree, the “Acquired
Businesses”). The Acquired Businesses operate in the cultivation, manufacture, branding and/or retail, as applicable,
of cannabis products in the Corporation’s anchor states of Massachusetts and Nevada.

 

		2.2	Acquisition
Date

 

May
24, 2019 (the “Closing Date”).

 

		2.3	Consideration

 

Each
of the acquisitions is subject to specific terms relating to the satisfaction of the purchase price by the Corporation and its
wholly-owned subsidiary, CSAC Acquisition Inc. (“CSAC AcquisitionCo”), and incorporates payments in cash, shares and
debt as well as certain contingent consideration.

 

     

    - 2 - 

    

 

Sira
Acquisition 

 

The
different components of the consideration paid (in U.S. dollars) to acquire Sira in connection with the Qualifying Transaction
(the “Sira Purchase Price”) are summarized as follows:

 

	i.	 	$15.0 million of the Sira Purchase Price was paid in the form of cash consideration;

 

	ii.	 	$5.0
                                         million of the Sira Purchase Price was paid in the form of a promissory note payable;

 

	iii.	 	$30.0
                                         million of the Sira Purchase Price was paid in the form of 1,885,606 non-voting exchangeable
                                         common 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 (“Subordinate Voting Shares”); and

 

	iv.	 	the
                                         definitive agreement in respect of the Sira acquisition (the “Sira Agreement”)
                                         contained an earn-out provision that may entitle the sellers thereof to earn additional
                                         consideration in the amount of up to $27,500,000 if certain milestones are achieved in
                                         respect of Sira’s planned cultivation facility in Milford, MA.

 

Additionally,
CSAC AcquisitionCo must pay 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. One-third of this Inventory
Payment, in the amount of $2,500,000, was paid by CSAC AcquisitionCo on the Closing Date and the remaining two-thirds will be
paid within 120 days following the Closing Date.

 

Canopy
Acquisition 

 

The
different components of the consideration paid (in U.S. dollars) to acquire Canopy in connection with the Qualifying Transaction
(the “Canopy Purchase Price”) are summarized as follows:

 

	i.	 	$7.0
                                         million of the Canopy Purchase Price was paid in the form of cash consideration;

 

	ii.	 	$4.50
                                         million of the Canopy purchase price was paid in the form of a promissory note payable;

 

	iii.	 	$5.50
                                         million of the Canopy Purchase Price was paid in the form of 250,000 Exchangeable Shares;

 

	iv.	 	an
                                         additional 15,360 Exchangeable Shares were issued to Canopy pursuant to certain make-whole
                                         provisions (the “Canopy Make-Whole Provisions”) in the definitive
                                         agreement in respect of the Canopy acquisition (the “Canopy Agreement”);
                                         and

 

	v.	 	pursuant
                                         to the terms of the Canopy Agreement, CSAC AcquisitionCo assumed Canopy loans outstanding
                                         with total principal value of approximately $400,000.

 

Additional
Exchangeable Shares are also issuable 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.

 

Washoe
Acquisition

 

The
different components of the consideration paid (in U.S. dollars) to acquire Washoe in connection with the Qualifying Transaction
(the “Washoe Purchase Price”) are summarized as follows:

 

	i.	 	$16.670
                                         million of the Washoe Purchase Price was paid in the form of cash consideration; 

 

     

    - 3 - 

    

 

	ii.	 	$5.640
                                         million of the Washoe Purchase Price was paid in the form of a promissory note payable;

 

	iii.	 	$5.640
                                         million of the Washoe Purchase Price was paid in the form of 256,364 Exchangeable Shares;
                                         and

 

	iv.	 	pursuant
                                         to the terms of the definitive agreement in respect of the Washoe acquisition (the “Washoe
                                         Agreement”), CSAC AcquisitionCo assumed Washoe loans outstanding with total
                                         principal value of approximately $9,100,000 and issued 13,636 Exchangeable Shares to
                                         a Washoe lender.

 

In
addition, (i) CSAC AcquisitionCo agreed to fund a bonus plan in the amount of $5,000,000 that would be payable over two years
following the Closing Date to various employees and consultants of Washoe, and (ii) additional Exchangeable Shares are issuable
to the Washoe sellers under certain make-whole provisions of the Washoe Agreement based on a formula specified therein relating
to the market price of the Subordinate Voting Shares on certain specified dates.

 

LivFree
Acquisition

 

The
different components of the consideration paid (in U.S. dollars) to acquire LivFree in connection with the Qualifying Transaction
(the “LivFree Purchase Price”) are summarized as follows:

 

	i.	 	$29.50
                                         million of the LivFree Purchase Price was paid in the form of cash consideration;

 

	ii.	 	$20.0
                                         million of the LivFree Purchase Price was paid in the form of a promissory note payable;

 

	iii.	 	$70
                                         million of the LivFree Purchase Price was paid in the form of 4,342,432 Exchangeable
                                         Shares; and

 

	iv.	 	pursuant
                                         to an amendment to the definitive agreement in respect of the LivFree Acquisition, such
                                         amendment dated as of the Closing Date, CSAC AcquisitionCo issued an additional 321,750
                                         Exchange Shares to the LivFree sellers.

 

CannaPunch
Acquisition

 

The
different components of the consideration paid (in U.S. dollars) to acquire CannaPunch in connection with the Qualifying Transaction
(the “CannaPunch Purchase Price”) are summarized as follows:

 

	i.	 	$0.750
                                         million of the CannaPunch Purchase Price was paid in the form of cash consideration;

 

	ii.	 	$2.0
                                         million of the CannaPunch Purchase Price was paid in the form of a promissory note payable;

 

	iii.	 	$14.0
                                         million of the CannaPunch Purchase Price was paid in the form of 866,668 Exchangeable
                                         Shares; and

 

	iv.	 	pursuant
                                         to an amendment to the definitive agreement in respect of the CannaPunch acquisition,
                                         such amendment dated June 7, 2019, CSAC AcquisitionCo issued an additional 32,071 Exchangeable
                                         Shares to the CannaPunch sellers.

 

     

    - 4 - 

    

 

		2.4	Effect
on Financial Position

 

The
expected effect of the acquisitions of the Acquired Businesses on the assets and operations of the Corporation are set out in
detail in the Pro Forma Financial Statements (as defined below) attached hereto as Schedule “K”.

 

The
Corporation presently has no plans or proposals that would constitute a material change in the business or affairs of the Corporation
which may have a significant effect on the results of operations and financial position of the Corporation.

 

		2.5	Prior
Valuations

 

Not
applicable.

 

		2.6	Parties
to Transaction

 

Prior
to the closing of the Qualifying Transaction, Mark Smith, a director of the Corporation, held 50% of the issued and outstanding
shares of CannaPunch.

 

		2.7	Date
of Report

 

August
7, 2019.

 

		Item
                          3	Financial
                                         Statements and Other Information 

 

The
following financial statements and related notes thereto are attached to this business acquisition report as Schedules “A”,
 “B”, “C”, “D”, “E”, “F”, “G”, “H”, “I”,
 “J” and “K”, respectively, and form part of this business acquisition report:

 

	•	Audited
                                                                                                                                                                                               consolidated annual financial statements of Sira and related notes thereto as of and for the years ended December 31, 2018
                                                                                                                                                                                               and 2017 (the “Sira Annual Financial Statements”);

 

	•	Audited
                                                                                                                                                                                                      consolidated annual financial statements of Canopy and related notes thereto as of and for the years ended December 31, 2018
                                                                                                                                                                                                      and 2017 (the “Canopy Annual Financial Statements”);

 

	•	Audited
                                                          consolidated annual financial statements of Washoe and related notes thereto as of and for the years ended December 31, 2018
                                                          and 2017 (the “Washoe Annual Financial Statements”);

 

	•	Audited
                                                          consolidated annual financial statements of LivFree and related notes thereto as of and for the years ended December 31, 2018
                                                          and 2017 (the “LivFree Annual Financial Statements”);

 

	•	Audited
                                                          consolidated annual financial statements of CannaPunch and related notes thereto as of and for the year ended December 31,
                                                          2018 and for the period from March 30, 2017 (inception date) to December 31, 2017 (the “CannaPunch Annual Financial
                                                          Statements”);

 

	•	Unaudited
                                                                                                                                                                                               condensed consolidated interim financial statements of Sira and related notes thereto as of and for the three months ended
                                                                                                                                                                                               March 31, 2019 and March 31, 2018 (the “Sira Interim Financial Statements”);

 

	•	Unaudited
                                                                                                                                                                                                        condensed consolidated interim financial statements of Canopy and related notes thereto as of and for the three months ended
                                                                                                                                                                                                        March 31, 2019 and March 31, 2018 (the “Canopy Interim Financial Statements”);

 

     

    - 5 - 

    

 

	•	Unaudited
                                                                                                                                                                                                        condensed consolidated interim financial statements of Washoe and related notes thereto as of and for the three months ended
                                                                                                                                                                                                        March 31, 2019 and March 31, 2018 (the “Washoe Interim Financial Statements”);

 

	•	Unaudited
                                                                                                                                                                                                        condensed consolidated interim financial statements of LivFree and related notes thereto as of and for the three months ended
                                                                                                                                                                                                        March 31, 2019 and March 31, 2018 (the “LivFree Interim Financial Statements”);

 

	•	Unaudited
                                                                                                                                                                                                        condensed consolidated interim financial statements of CannaPunch and related notes thereto as of and for the three months
                                                                                                                                                                                                        ended March 31, 2019 and March 31, 2018 (the “CannaPunch Interim Financial Statements”); and

 

	•	A
(i) pro forma statement of financial position of Ayr as at March 31, 2019 and related notes thereto, (ii) pro forma income statement
of Ayr as of and for the 12 months ended December 31, 2018 and related notes thereto, and (iii) pro forma income statement of
Ayr as of and for the three months ended March 31, 2019 and related notes thereto (together, the “Pro Forma Financial
Statements”).

 

     

     

    

 

SCHEDULE
 “A”

SIRA
ANNUAL FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    
 

	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

                                                                              SIRA
                                         NATURALS, INC.

         

        Financial
        Statements

         

        As
        of and for the Years Ended

        December 31,2018 and 2017

         

        (EXPRESSED
IN UNITED STATES DOLLARS)

         

         

	 	 
	 	

                                    

                                    

	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 

     

     

    
 

 

SIRA
NATURALS, INC.

Financial
Statements

December 31, 2018 and 2017

 

Table
of Contents

 

	 	Page
	 	 
	Management’s Responsibility for Financial
    Reporting	1
	 	 
	Independent Auditor’s Report	2-3
	 	 
	Financial Statements	 
	 	 
	Statements of Financial
    Position	4
	 	 
	Statements of Operations	5
	 	 
	Statements of Changes
    in Shareholders’ Deficit	6
	 	 
	Statements of Cash
    Flows	7
	 	 
	Notes to the Financial Statements	8-27

 

     

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL REPORTING

 

Management’s
Responsibility

 

To
the Members of Sira Naturals, Inc.

 

The
accompanying financial statements and other financial information in this report were prepared by management of Sira Naturals,
Inc. (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the financial statements and believes that they fairly present the Company’s financial condition and results
of operations in conformity with International Financial Reporting Standards. Management has included in the Company’s financial
statements amounts based on estimates and judgments that it believes are reasonable, under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of financial statements. Consistent with the concept of reasonable
assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected benefits.
Management further assures the quality of the financial records through careful selection and training of personnel and through
the adoption and communication of financial and other relevant policies.

 

These
financial statements have been audited by the Company’s auditors, Macias Gini & O’Connell LLP, and their report is presented
herein.

 

August
2, 2019

 

	“Lou
    Karger” (’Signed’)	 	“Neil Sullivan”
    (Signed)
	Treasurer	 	Controller

 

    1 

     

    

 

 

Independent
Auditor’s Report

 

To
the Members of Sira Naturals, Inc.:

 

Opinion

 

We
have audited the financial statements of Sira Naturals, Inc. (“Sira” or the “Company”), which comprise
the statements of financial position as at December 31, 2018 and 2017, and the statements of operations, changes in shareholders’
deficit and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting
policies.

 

In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Emphasis
of Matter

 

Without
qualifying our opinion, we draw attention to Note 1 of the financial statements which describe matters and conditions that indicate
the existence of material uncertainties that may cast significant doubt about the Company’s ability to continue as a going
concern.

 

Responsibilities
of Management for the Financial Statements

 

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

 

In
preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

	Macias
    Gini & O’Connell LLP	 	 
	12264
    El Camino Real, Suite 402	 	 
	San
    Diego, CA 92130	 	www.mgocpa.com

 

    2 

     

    

 

Auditor’s
Responsibilities for the Audit of the Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

		•	Identify
                                         and assess the risks of material misstatement of the financial statements, whether due
                                         to fraud or error, design and perform audit procedures responsive to those risks, and
                                         obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

 

The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

		•	Obtain
                                         an understanding of internal control relevant to the audit in order to design audit procedures
                                         that are appropriate in the circumstances, but not for the purpose of expressing an opinion
                                         on the effectiveness of the Company’s internal control.

 

		•	Evaluate
                                         the appropriateness of accounting policies used and the reasonableness of accounting
                                         estimates and related disclosures made by management.

 

		•	Conclude
                                         on the appropriateness of management’s use of the going concern basis of accounting
                                         and, based on the audit evidence obtained, whether a material uncertainty exists related
                                         to events or conditions that may cast significant doubt on the entity’s ability
                                         to continue as a going concern. If we conclude that a material uncertainty exists, we
                                         are required to draw attention in our auditor’s report to the related disclosures
                                         in the financial statements or, if such disclosures are inadequate, to modify our opinion.
                                         Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
                                         report. However, future events or conditions may cause the Company to cease to continue
                                         as a going concern.

 

		•	Evaluate
                                         the overall presentation, structure and content of the financial statements, including
                                         the disclosures, and whether the financial statements represent the underlying transactions
                                         and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

 

 

San
Diego, California 

August
2, 2019

 

     3

     

    

 

 

SIRA
NATURALS, INC. 

Statements
of Financial Position 

At
December 31, 2018 and 2017

	 	 	2018	 	 	2017	 
		 	$	 	 	$	 
	ASSETS	 	 	 	 	 	 
	Current	 	 	 	 	 	 
	Cash and cash equivalents	 	 	2,607,676	 	 	 	201,697	 
	Inventory (Note 5]	 	 	6,197,598	 	 	 	11,579,070	 
	Biological assets [Note 6]	 	 	1,733,316	 	 	 	1,081,141	 
	Prepaid expenses
    and other assets	 	 	120,163	 	 	 	41,808	 
	 	 	 	10,658,753	 	 	 	12,903,716	 
	Property, plant and equipment [Note 7]	 	 	7,629,881	 	 	 	8,203,108	 
	Deferred tax assets [Note 8]	 	 	-	 	 	 	420,205	 
	Other long term assets	 	 	480,401	 	 	 	280,401	 
	Total assets	 	 	18,769,035	 	 	 	21,807,430	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	1,557,153	 	 	 	1,117,295	 
	Accrued liabilities	 	 	1,192,208	 	 	 	811,300	 
	Income tax payable	 	 	3,997,954	 	 	 	523,238	 
	Debts payable - current
    portion [Note 9]	 	 	7,572	 	 	 	17,383	 
	 	 	 	6,754,887	 	 	 	2,469,216	 
	Deferred tax liability [Note 8]	 	 	1,242,460	 	 	 	-	 
	Accrued interest payable [Note 9]	 	 	6,963,253	 	 	 	4,862,566	 
	Debts payable - Non-current
    portion [Note 9]	 	 	14,965,045	 	 	 	15,363,015	 
	Total liabilities	 	 	29,925,645	 	 	 	22,694,797	 
	 	 	 	 	 	 	 	 	 
	SHAREHOLDERS’ DEFICIT	 	 	 	 	 	 	 	 
	Accumulated deficit	 	 	(11,156,610	)	 	 	(887,367	)
	Total shareholders’
    deficit	 	 	(11,156,610	)	 	 	(887,367	)
	Total liabilities
    and shareholders’ deficit	 	 	18,769,035	 	 	 	21,807,430	 

 

Nature
of operations [Note 1] 

Commitments
and contingencies [Note 13] 

Subsequent
events [Note 16]

 

Approved
and authorized on behalf of the Board of Directors on August 2, 2019

 

	“Lou Karger” (Signed)	 	“Neil Sullivan” (Signed)
	Treasurer	 	Controller

 

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

 

     4

     

    

 

SIRA
NATURALS, INC. 

Statements
of Operations 

For
the Years Ended December 31, 2018 and 2017

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Revenues, net of discounts	 	 	16,398,127	 	 	 	6,293,763	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold before biological asset adjustment	 	 	3,823,025	 	 	 	4,906,883	 
	 	 	 	 	 	 	 	 	 
	Gross profit before biological asset adjustment	 	 	12,575,102	 	 	 	1,386,880	 
	 	 	 	 	 	 	 	 	 
	Realized fair value adjustments on inventory sold during the year [Note 6]	 	 	(18,470,531	)	 	 	(10,274,274	)
	Unrealized change in fair value of biological assets [Note 6]	 	 	11,287,162	 	 	 	12,015,641	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	5,391,733	 	 	 	3,128,247	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	General and administrative [Note 12]	 	 	6,988,439	 	 	 	3,134,182	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	323,495	 	 	 	303,852	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 7]	 	 	150,089	 	 	 	58,404	 
	 	 	 	 	 	 	 	 	 
	Management Fee [Note 10]	 	 	342,472	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	7,804,495	 	 	 	3,496,438	 
	 	 	 	 	 	 	 	 	 
	Loss from operations	 	 	(2,412,762	)	 	 	(368,191	)
	 	 	 	 	 	 	 	 	 
	Other expense (income)	 	 	 	 	 	 	 	 
	Interest expense	 	 	2,738,950	 	 	 	2,526,809	 
	Rental income and others	 	 	(19,850	)	 	 	(3,321	)
	Other expense (income)	 	 	2,719,100	 	 	 	2,523,488	 
	 	 	 	 	 	 	 	 	 
	Loss before provision for income taxes	 	 	(5,131,862	)	 	 	(2,891,679	)
	 	 	 	 	 	 	 	 	 
	Provision for income taxes [Note 8]	 	 	5,137,381	 	 	 	680,384	 
	 	 	 	 	 	 	 	 	 
	Net loss	 	 	(10,269,243	)	 	 	(3,572,063	)

 

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

 

     5

     

    

 

SIRA
NATURALS, INC. 

Statements
of Changes in Shareholders’ Deficit 

For
the Years Ended December 31, 2018 and 2017

	 	 	Retained Earnings
 (Accumulated
 deficit)
 $	 
	Balance as at December 31, 2016	 	 	2,684,696	 
	 	 	 	 	 
	Net loss	 	 	(3,572,063	)
	 	 	 	 	 
	Balance as at December 31, 2017	 	 	(887,367	)
	 	 	 	 	 
	Net loss	 	 	(10,269,243	)
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	(11,156,610	)

 

The
accompanying notes are in integral part of these financial statements.

 

     6

     

    

 

SIRA
NATURALS, INC.

Statements
of Cash Flows

For
the Years Ended December 31, 2018 and 2017

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net loss	 	 	(10,269,243	)	 	 	(3,572,063	)
	 	 	 	 	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation	 	 	965,936	 	 	 	843,159	 
	Fair value changes in biological assets included in cost of sales	 	 	(18,470,531	)	 	 	(10,274,274	)
	Unrealized gain on biological asset transformation	 	 	11,287,162	 	 	 	12,015,641	 
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Inventory	 	 	5,381,472	 	 	 	(11,220,921	)
	Biological assets	 	 	6,531,194	 	 	 	6,866,670	 
	Prepaid expenses and other assets	 	 	(278,355	)	 	 	(241,482	)
	Deferred taxes	 	 	1,662,665	 	 	 	157,602	 
	Trade payables	 	 	439,858	 	 	 	553,950	 
	Accrued liabilities	 	 	2,481,595	 	 	 	2,955,135	 
	Income tax payable	 	 	3,474,716	 	 	 	522,326	 
	Cash provided by (used in) operating activities	 	 	3,206,469	 	 	 	(1,394,257	)
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of property, plant and equipment	 	 	(392,709	)	 	 	(1,714,196	)
	Cash used in investing activities	 	 	(392,709	)	 	 	(1,714,196	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Proceeds from issuance of debt	 	 	-	 	 	 	3,282,774	 
	Repayment of debts	 	 	(407,781	)	 	 	-	 
	Cash (used in) provided by financing activities	 	 	(407,781	)	 	 	3,282,774	 
	 	 	 	 	 	 	 	 	 
	Net increase in cash	 	 	2,405,979	 	 	 	174,321	 
	Cash, beginning of year	 	 	201,697	 	 	 	27,376	 
	Cash, end of year	 	 	2,607,676	 	 	 	201,697	 
	 	 	 	 	 	 	 	 	 
	Supplemental cash flow information	 	 	 	 	 	 	 	 
	Interest paid	 	 	638,263	 	 	 	1,414	 

 

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

 

     7

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

		1.	NATURE
OF OPERATIONS

 

Sira
Naturals, Inc. (“Sira” or the “Company”) was incorporated as a not-for-profit Corporation on June 18,
2013 in the Commonwealth of Massachusetts, United States of America (“USA”). The Company changes its name from
time to time and its latest name change was from Sage Naturals, Inc. to Sira Naturals, Inc., effective November 27, 2017. The
Company’s registered address is 300 Trade Center, Suite 7700, Woburn, MA 01801.

 

On
January 23, 2018, the Company converted its status from a not-for-profit Corporation into a for-profit Corporation. The Company
applied the status change into a for-profit corporation to the financial statement’s presentation and the accompanying notes
retrospectively for all the periods presented consistently.

 

The
Company’s principal activities are the growing, processing and distribution of cannabis as regulated under the laws applicable
in the USA.

 

Going
Concern

 

These
financial statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of
presentation assumes that the Company will continue in operation for the foreseeable future and be able to realize its assets
and discharge its liabilities and commitments in the normal course of business. As at December 31, 2018, the Company has
incurred an accumulated deficit of $11,156,610. For the years ended December 31, 2018 and 2017, the Company has losses of
$10,269,243 and $3,572,063, respectively. Historically, the Company has used debt and equity financing from both related and
unrelated sources to supplement its operations. The Company anticipates additional debt and/or equity financing in order to
fully develop its business.

 

Although
the Company has been successful in raising funds to date, there can be no assurance that adequate or sufficient funding will be
available in the future or available under terms acceptable to the Company, or that the Company will be able to generate sufficient
returns from operations.

 

The
ability of the Company to continue as a going concern and to realize the carrying value of its assets and discharge its liabilities
and commitments when due is dependent on the Company generating revenue and debt and/or equity financing sufficient to fund its
cash flow needs.

 

These
circumstances indicate the existence of material uncertainty that casts significant doubt on the ability of the Company to meet
its business plan and its obligations as they come due, and accordingly the appropriateness of the use of the accounting principles
applicable to a going concern.

 

These
financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate.
If the going concern basis were not appropriate for these financial statements, then adjustments would be necessary in the carrying
value of the assets and liabilities, the reported revenue and expenses and the classifications used in the statement of financial
position. Such differences in amounts could be material.

 

     8

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

		2.	BASIS
OF PRESENTATION

 

2.1
Statement of Compliance

 

These
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued
by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting
Interpretations Committee (“IFRIC”).

 

These financial statements were approved and authorized for issue by the Board
of Directors of the Company on August 2, 2019.

 

2.2
Basis of Presentation

 

These
financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured
at fair value, as explained in the accounting policies set out in Note 3. The financial statements are presented in US dollars
which is the presentation and functional currency of the Company.

 

	3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1
Revenues

 

IFRS
15 specifies how and when revenues should be recognized based on a five-step model, which is applied to all contracts with customers.
The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional
adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition
under IFRS 15 is to follow a five-step model to determine the amount and timing of revenue to be recognized:

 

		•	Identifying
                                         the contract with a customer

		•	Identifying
                                         the performance obligations within the contract

		•	Determining
                                         the transaction price

		•	Allocating
                                         the transaction price to the performance obligations

		•	Recognizing
                                         revenue when/as performance obligation(s) are satisfied.

 

Revenue
from growing, processing and distribution of cannabis is recognized when the Company transfers control of the good to the customer.
In some cases, judgement is required in determining whether the customer is a business or the end consumer. This evaluation was
made on the basis of whether the business obtains control of the product before transferring to the end consumer. Control of the
product transfers at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms.

 

The
Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account
any variation that may result from rights of return.

 

The
pattern and timing of revenue recognition under the new standard is consistent with prior year practice. There were no adjustments
recognized on the adoption of IFRS 15 in the year ended December 31, 2018.

 

     9

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.2
Property, Plant and Equipment (“PPE”)

 

Property,
plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of
PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located.

 

Depreciation
is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight-line method
over the following expected useful lives:

 

		•	Buildings
                                         and leasehold improvements - the shorter of the useful life or life of the lease

		•	Furniture
                                         and fixtures – 5 years

		•	Office
                                         equipment – 3 years

		•	Machinery
                                         and equipment – 5 to 15 years

		•	Auto
                                         and Trucks – 5 years

 

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

 

Assets
in process are transferred to the appropriate asset class when available for use and depreciation of the assets commences at that
point of time.

 

The
Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any
changes arising from the assessment are applied by the Company prospectively.

 

Where
an item of property, plant and equipment comprises major components with different useful lives, the components are accounted
for as separate items of property, plant and equipment. Expenditures incurred to replace a component of an item of property, plant
and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

3.3
Taxation

 

As
the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary
business expenses deemed non-allowable under IRC Section 280E.

 

Income
tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in the statements of operations.

 

Current
tax is recognized and measured at the amount expected to be recovered from or payable to the taxation authorities based on the
income tax rates enacted or substantively enacted at the end of the reporting period and includes any adjustment to taxes payable
in respect of previous years.

 

     10

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.3
Taxation (Continued)

 

Deferred
tax is recognized on any temporary differences between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in the computation of taxable earnings. Deferred tax assets and liabilities are measured
at the tax rates that are expected to apply in the period when the asset is realized and the liability is settled. The effect
of a change in the enacted or substantively enacted tax rates is recognized in net earnings and income or in equity depending
on the item to which the adjustment relates.

 

Deferred
tax assets are recognized to the extent future recovery is probable. At each reporting period end, deferred tax assets are reduced
to the extent that it is no longer probable that sufficient taxable earnings will be available to allow all or part of the asset
to be recovered.

 

Provisions
for taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant
factors. The Company reviews the adequacy of these provisions at the end of the reporting period. However, it is possible that
at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these tax-related
matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period
in which such determination is made.

 

3.4
Financial Instruments

 

Recognition
and Initial Measurement

 

Financial
assets and financial liabilities, including derivatives, are recognized in the statements of financial position when the Company
becomes a party to the contractual provisions of a financial instrument or non-financial derivative contract. All financial instruments
are measured at fair value on initial recognition. Transaction costs that are directly attributable to the acquisition or issuance
of financial assets and financial liabilities, other than financial assets and financial liabilities classified as FVTPL, are
added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities classified as FVTPL are recognized immediately in net loss.

 

Classification
and Subsequent Measurement

 

The
Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing
the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement
categories:

 

a)
amortized cost (“AC”); 

b)
fair value through profit or loss (“FVTPL”); and 

c)
fair value through other comprehensive income (“FVTOCI”).

 

Financial
assets are subsequently measured at amortized cost if both the following conditions are met and they are not designated as FVTPL:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

 

     11

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.4
Financial Instruments (Continued)

 

These
assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and
losses recognized in net income in the period that the asset is derecognized or impaired. All financial assets not classified
as amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics.
The Company has no financial assets measured at FVTOCI.

 

Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized
in net income in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

 

Financial
instruments are classified into one of the following categories: FVTPL; financial assets at amortized cost, financial liabilities
at amortized cost, and financial assets at FVTOCI.

 

Impairment
of Financial Instruments

 

For
accounts receivable, the Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which requires the use of the lifetime expected loss provision for all accounts receivable, trade based on the Company’s
historical default rates over the expected life of the accounts receivable, trade and is adjusted for forward-looking estimates.
The methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

 

All
individually significant loan receivables are assessed for impairment. All individually significant loans receivable found not
to be specifically impaired are then collectively assessed for impairment. Loans receivables not individually significant are
collectively assessed for impairment by grouping together loans receivable with similar risk characteristics.

 

Derecognition

 

The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when
it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains
and losses on derecognition are recognized in the statements of operations.

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled
or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration
paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the statements of operations.

 

3.5
Impairment of Non-Financial Assets

 

At
each date of the statements of financial position, the Company reviews the carrying amounts of its tangible assets to determine
whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, or when annual
impairment testing for an asset is required, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash generating unit to which the assets belong.

 

     12

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.5
Impairment of Non-Financial Assets (Continued)

 

The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.

 

If
the recoverable amount of an asset (or cash generating unit) is estimated to be less than it’s carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately
in the statements of operations, unless the relevant asset is carried at a revalued amount, in which case the impairment loss
is treated as a revaluation decrease.

 

Where
an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount
that would have been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior
years. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to
determine the asset’s recoverable amount since the last impairment loss was recognised.

 

3.6
Biological Assets

 

The
Company measures biological assets consisting of cannabis plants at fair value less costs to sell up to the point of harvest,
which becomes the basis for the cost of internally produced work in process and finished goods inventories after harvest. Unrealized
gains or losses arising from changes in fair value less cost to sell during the year are included in the results of operations
of the related year.

 

3.7
Inventory

 

Inventories
of finished goods, work-in-process and raw materials are initially valued at cost and subsequently at the lower of cost and net
realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value at the point of
harvest, which becomes the initial deemed cost. Any subsequent post-harvest costs, including direct costs attributable to processing
and related overheads, are capitalized to inventory to the extent that cost is less than net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less the estimated costs to sell. The Company reviews
inventories for obsolete, redundant and slow-moving goods and any such inventories identified are written down to net realizable
value. At December 31, 2018 and 2017, there were no reserves for inventories required.

 

3.8
Cash and Cash Equivalents

 

The
Company considers all investments with original maturities of three months or less, that are highly liquid and readily convertible
into cash, to be cash equivalents.

 

     13

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.9
Provisions

 

Provisions
are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and
it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation.

 

Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision
due to passage of time is recognized as interest expense.

 

3.10
Significant Accounting Judgments and Estimates

 

The
application of the Company’s accounting policies requires management to use estimates and judgments that can have significant
effect on the revenues, expenses, other income (loss), assets and liabilities recognized and disclosures made in the 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
immediately. Actual results could differ from the estimates used.

 

Management’s
budget and strategic plans are fundamental information used as a basis for estimates necessary to prepare financial information.
Management tracks performance as compared to the budget and significant variances in actual performance are a key trigger to assess
whether certain estimates used in the preparation of financial information must be revised.

 

The
following areas require management’s critical estimates and judgments:

 

(a)
Biological assets and inventory

 

In
calculating the value of the 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.

 

(b)
Estimated useful lives and depreciation of property, plant and equipment

 

Depreciation
of property, plant and equipment is dependent upon estimates of useful lives, which are determined through the exercise of judgement.
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.

 

     14

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.10
Significant Accounting Judgments and Estimates (Continued)

 

(c)
Deferred taxes and income tax expense

 

Income
taxes and tax exposures recognized in the financial statements reflect management’s best estimate based on facts known at the
reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The
difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company
becomes aware of this difference. In addition, when the Company incurs losses for income tax purposes, it assesses the probability
of taxable income being available in the future based on its budgeted forecasts. These forecasts are adjusted to take into account
certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate
that sufficient future taxable income will be available to deduct the temporary differences; a deferred tax asset is recognized
for all deductible temporary differences.

 

3.11
Leases

 

The
determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified
in an arrangement.

 

A
lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Company is classified as a finance lease. An operating lease is a lease other
than a finance lease. Operating lease payments are recognised as an operating expense in the statements of operations on a straight-line
basis over the lease term.

 

3.12
Borrowing Costs

 

Borrowing
costs directly attributable to the acquisition or construction of a qualifying asset are capitalized. Qualifying assets are those
that require a minimum of three months to prepare for their intended use.

 

	4.	CHANGES
IN ACCOUNTING STANDARDS

 

Adoption
of New Accounting Pronouncements 

 

IFRS
9 - Financial Instruments

 

In
August 2014, the IASB issued the final version of IFRS 9 – Financial Instruments (“IFRS 9”), which brings together
the classification and measurement, impairment, and hedge-accounting phases of the LASB’s project to replace IAS 39 – Financial
Instruments: Recognition and Measurement (“IAS 39”).

 

Classification
and Measurement – Financial assets are classified and measured based on the business model under which they are managed and the
contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under
IAS 39, except that financial liabilities measured at fair value will have fair value changes resulting from changes in the entity’s
own credit risk recognized in Other Comprehensive Income (“OCI”) instead of Net Income, unless this would create an
accounting mismatch.

 

     15

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	4.	CHANGES
                                         IN ACCOUNTING STANDARDS (Continued)

 

Adoption
of New Accounting Pronouncements (Continued)

 

IFRS
9 contains three principal classification categories for financial assets: measured at amortized cost (“AC”), fair
value through other comprehensive income (“FVTOCI”) and FVTPL. The standard eliminates the previous IAS 39 categories
of held to maturity, loans and receivables, and available for sale.

 

Impairment
 – The measurement of impairment of financial assets is based on an expected credit loss model. It is no
longer necessary for a triggering event to have occurred before credit losses are recognized. IFRS 9 also includes new
disclosure requirements about expected credit losses and credit risk.

 

Hedge
Accounting – The new general hedge accounting model more closely aligns hedge accounting with risk management
activities undertaken by entities when hedging their financial and non-financial risk exposures. It will provide more
opportunities to apply hedge accounting to reflect actual risk management activities.

 

The
Company adopted IFRS 9 effective from January 1, 2018. The adoption did not result in any material change.

 

IFRS
15: Revenue from Contracts with Customers:

 

IFRS
15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs
of obtaining a contract and the costs directly related to fulfilling a contract. The Company has adopted IFRS 15 from incorporation
date.

 

IFRS
7. Financial Instruments: Disclosure

 

IFRS
7, Financial Instruments: Disclosure, was amended to require additional disclosures on transition from IAS 39 to IFRS 9. IFRS
7 is effective on adoption of IFRS 9, which is effective for annual periods commencing on or after January 1, 2018.

 

IAS
16 and IAS 41. Bearer Plants

 

The
Company has implemented amendments to IAS 16 and IAS 41, which became effective for annual periods beginning on January 1, 2016.
These amendments are summarized below.

 

		•	Bearer
                                         plants are accounted for as property, plant and equipment and measured at initial recognition
                                         at cost or revaluation basis.

 

		•	Bearer
                                         plants are defined as a living plant that are used in the production or supply of agricultural
                                         produce. Such plants are expected to bear produce for more than one period, and has a
                                         remote likelihood of being sold as agricultural produce, except for incidental scrap
                                         sales.

 

		•	Bearer
                                         plants remain within the scope of IAS 41.

 

The
amendments described above are consistent with the Company’s accounting practices.

 

     16

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	4.	CHANGES
                                         IN ACCOUNTING STANDARDS (Continued)

 

Changes
in Accounting Standards not yet Effective

 

IFRS
16 – Leases

 

In
January 2016, the IASB issued IFRS 16 – Leases (“IFRS 16”), which replaces IAS 17 – Leases, and
its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased.
For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by
lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with
limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current
accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early
application permitted for entities that apply IFRS 15. The Company is currently evaluating the impact the final standard is
expected to have on its consolidated financial statements and plans to adopt the requirements in 2019.

 

	5.	INVENTORY

 

The
Company’s inventory includes the following:

 

	 	 	2018	 	 	2017
	 	 	Capitalized
 cost	 	 	Fair value
 adjustment	 	 	Carrying
 value	 	 	Capitalized
 cost	 	 	Fair value
 adjustment	 	 	Carrying
 value	 
	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Raw Material	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accessories	 	 	152,976	 	 	 	-	 	 	 	152,976	 	 	 	-	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Harvested cannabis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Work in process	 	 	602,966	 	 	 	3,230,842	 	 	 	3,833,808	 	 	 	2,914,481	 	 	 	3,386,673	 	 	 	6301,154	 
	Finished goods	 	 	10,760	 	 	 	60,507	 	 	 	71,267	 	 	 	14,590	 	 	 	16,954	 	 	 	31,544	 
	 	 	 	613,726	 	 	 	3,291,349	 	 	 	3,905,075	 	 	 	2,929,071	 	 	 	3,403,627	 	 	 	6332,698	 
	Cannabis Oils	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Work in process	 	 	252,963	 	 	 	1,773,790	 	 	 	2,026,753	 	 	 	2,274,051	 	 	 	2,642,482	 	 	 	4,916,533	 
	Finished goods	 	 	14,078	 	 	 	98,716	 	 	 	112,794	 	 	 	152,561	 	 	 	177,278	 	 	 	329,839	 
	 	 	 	267,041	 	 	 	1,872,506	 	 	 	2,139,547	 	 	 	2,426,612	 	 	 	2,819,760	 	 	 	5346372	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	1,033,743	 	 	 	5,163,855	 	 	 	6,197,598	 	 	 	5355,683	 	 	 	6323387	 	 	 	11,579,070	 

 

Inventories
expensed as cost of goods sold during the years ended December 31, 2018 and 2017, were $909,645 and $156,708, respectively.

 

     17

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

		6.	BIOLOGICAL
                                         ASSETS

 

The
continuity of biological assets was as follows:

 

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Balance, beginning of year	 	 	1,081,141	 	 	 	9,689,178	 
	Changes in fair value less costs to sell due to biological transformation	 	 	11,287,162	 	 	 	12,015,641	 
	Transferred to inventory upon harvest	 	 	(10,634,987	)	 	 	(20,623,678	)
	Balance, at end	 	 	1,733,316	 	 	 	1,081,141	 

 

As
of December 31, 2018, and 2017, the weighted average fair value less cost to complete and cost to sell were $5.24 and $6.71 per
gram, respectively.

 

The
fair value of biological assets is categorized within Level 3 on the fair value hierarchy. The inputs and assumptions used in
determining the fair value of biological assets include:

 

	(a) Selling price per gram;	 	Level 3 input	 
	(b) Attrition rate;	 	Level 3 input	 
	(c) Average yield per plant;	 	Level 3 input	 
	(d) Standard cost per gram to compete production	 	Level 3 input	 
	(e) Cumulative stage of completion in production
    process	 	Level 3 input	 

 

Significant
unobservable assumptions used in the valuation of biological assets, including the sensitivities on changes in these assumptions
and their effect on the fair value of biological assets, are as follows:

 

	Significant inputs or as Range of inputs	 	Sensitivity	 	Effect on fair value	 
	 	 	 	 	2018	 	 	2017	 
	 	 	 	 	 	 	 	$	 	 	 	$	 
	Selling price per gram*	 	$6.61 to $7.62	 	Increase or decrease of $1 per gram	 	 	378,621	 	 	 	161,173	 
	Average yield per plant	 	150 to 162 grams	 	Increase or decrease by 5 grams per plant	 	 	9,771	 	 	 	41,032	 

 

*Selling
price per gram is based on average selling prices for the period.

 

These
inputs are level 3 on the fair value hierarchy and are subject to volatility and several uncontrollable factors, which could significantly
affect the fair value of biological assets in future periods.

 

As
of December 31, 2018, and 2017, the biological assets were on average 60% and 83% complete, respectively. During the years ended
December 31, 2018 and 2017, the Company’s biological assets produced 2,323,076 and 161,173 grams of dried cannabis, respectively.

 

     18

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	7.	PROPERTY,
PLANT AND EQUIPMENT

 

	 	 	Buildings &
 leasehold
 improvements	 	 	Furniture and
 fixtures	 	 	Office
 equipment	 	 	Machinery &
 equipment	 	 	Auto &
 trucks	 	 	Total	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	6,637,105	 	 	 	477,026	 	 	 	57,337	 	 	 	386,186	 	 	 	29,393	 	 	 	7,587,347	 
	Additions	 	 	1,463,396	 	 	 	144,014	 	 	 	-	 	 	 	106,786	 	 	 	-	 	 	 	1,714,196	 
	As
    at December 31, 2017	 	 	8,100,501	 	 	 	621,040	 	 	 	57,537	 	 	 	492,972	 	 	 	29,393	 	 	 	9,301,443	 
	Additions	 	 	189,747	 	 	 	118,750	 	 	 	9,154	 	 	 	54,558	 	 	 	20,300	 	 	 	392,709	 
	As
    at December 31, 2018	 	 	8,290,248	 	 	 	739,790	 	 	 	66,691	 	 	 	547,530	 	 	 	49,393	 	 	 	9,694,152	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	249,792	 	 	 	-	 	 	 	233	 	 	 	5,151	 	 	 	-	 	 	 	255,176	 
	Depreciation	 	 	793,729	 	 	 	19,511	 	 	 	700	 	 	 	23,830	 	 	 	5,389	 	 	 	843,159	 
	As
    at December 31, 2017	 	 	1,043,521	 	 	 	19,511	 	 	 	933	 	 	 	28,981	 	 	 	5,389	 	 	 	1,098,335	 
	Depreciation	 	 	701,387	 	 	 	162,378	 	 	 	16,358	 	 	 	79,393	 	 	 	6,220	 	 	 	965,936	 
	As
    at December 31, 2018	 	 	1,744,908	 	 	 	181,889	 	 	 	17,291	 	 	 	108,574	 	 	 	11,609	 	 	 	2,064,271	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2017	 	 	7,056,980	 	 	 	601,529	 	 	 	56,604	 	 	 	463,991	 	 	 	24,004	 	 	 	8,303,108	 
	As
    at December 31, 2018	 	 	6,545,340	 	 	 	557,901	 	 	 	49,400	 	 	 	438,956		 	 	38,384	 	 	 	7,629,881	 

 

As
at December 31, 2018 and 2017, buildings and leasehold improvements include borrowing costs of $7,032 and $478,767, capitalized
in connection with loan used for the construction of buildings.

 

Depreciation
expense for the years ended December 31, 2018 and 2017, of $815,847 and $784,755, respectively, is included in cost of goods sold.

 

	8.	INCOME
TAXES

 

Income
tax expense attributable to income from continuing operations consists of the following:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Current	 	 	 	 	 	 	 	 
	Federal	 	 	2,627,367	 	 	 	415,331	 
	State	 	 	847,349	 	 	 	107,451	 
	 	 	 	3,474,716	 	 	 	522,782	 
	Deferred	 	 	 	 	 	 	 	 
	Federal	 	 	1,223,583	 	 	 	170,506	 
	State	 	 	439,082	 	 	 	(12,904	)
	 	 	 	1,662,665	 	 	 	157,602	 
	Income tax expense	 	 	5,137,381	 	 	 	680,384	 

 

     19

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	8.	INCOME
                                         TAXES (Continued)

 

The
Company’s effective tax rate differs from the US federal statutory rate as follows:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Tax at Federal statutory rate	 	 	(1,077,691	)	 	 	(983,326	)
	State, net of Federal benefit	 	 	1,286,431	 	 	 	94,548	 
	Change in biological value	 	 	1,341,057	 	 	 	(592,065	)
	Prior year tax expense	 	 	1,361,227	 	 	 	-	 
	Disallowed 280E expenses	 	 	2,226,358	 	 	 	1,977,220	 
	Impact of Federal rate change	 	 	-	 	 	 	184,007	 
	Income tax expense	 	 	5,137,381	 	 	 	680,384	 
	 	 	 	 	 	 	 	 	 
	Net deferred tax assets are as follows:	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	2018	 	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Deferred tax asset - Non-current	 	 	 	 	 	 	 	 
	Property, plant and equipment	 	 	100,250	 	 	 	29,230	 
	Start up costs	 	 	616,881	 	 	 	390,975	 
	 	 	 	717,131	 	 	 	420,205	 
	Deferred tax liabilities - Non-current	 	 	 	 	 	 	 	 
	Biological asset fair value	 	 	(1,959,591	)	 	 	-	 
	Net deferred tax assets (liabilities)	 	 	(1,242,460	)	 	 	420,205	 

 

As
at December 31, 2018 and 2017, the Company has approximately $nil and $nil, of federal and state net operating loss carry forwards.
For tax reporting purposes, federal and state operating loss carry forwards are available to offset future taxable income. Such
carry forwards expire beginning in 2027 for both federal and state tax purposes.

 

Based
on available evidence during the year December 31, 2018, the Company determined it was more likely than not that the net deferred
tax assets will be utilized.

 

The
Company is subject to U.S. federal and Massachusetts income taxes. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require significant judgment to apply. The Company was incorporated
in 2013 and is subject to U.S. federal, state and local tax examinations by tax authorities for all prior years. All of the Company’s
tax returns remain subject to examination, and accordingly, net operating loss carry forward attributes may still be adjusted
upon examination by federal or state taxing authorities. The Company is not under examination in any jurisdiction.

 

     20

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	8.	INCOME
TAXES (Continued)

 

As
the Company operates in the cannabis industry, it is subject to the limits of the U.S. Internal Revenue Code Section 280E under
which the Company is only allowed to deduct expenses related to sales of product. This results in permanent differences between
ordinary and necessary business expenses deemed non-allowable under US IRC Section 280E.

 

On
December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was signed into law. The Tax Act contains significant
changes to corporate taxation, including; (i) the reduction of the corporate income tax rate from a maximum rate of 35% to 21%,
(ii) the acceleration of expensing for certain business assets, (iii) the one-time transition tax related to the transition of
U.S. international tax from a worldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction,
(v) additional limitations on the deductibility of interest expense, (vi) expanded limitations on executive compensation, (vii)
acceleration of tax revenue recognition, (viii) capitalization of research and development expenditures and (ix) creation of new
minimum taxes such as the base erosion anti-abuse tax (“BEAT”) and Global Intangible Low Taxed Income (“GILTI”)
tax.

 

After
the enactment of the Tax Act, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting
Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when an entity does not have
the necessary information available, prepared or analyzed (including computations) in reasonable details to complete the
accounting for certain income tax effects of the Act. The Company has made adjustments to reduce its deferred tax assets and
liabilities as of December 31, 2018, based on the reduction of the U.S. federal corporate rate from 34% to 21% and assessed
the reliability of its deferred tax assets based on its understanding of the provisions of the new law. As of December 31,
2018, the Company completed its assessment of the impact of the Tax Act and determined no additional adjustments are
required.

 

The
Company has considered required policy elections with respect to its treatment of potential base erosion anti-abuse tax (“BEAT”)
and Global Intangible Low Taxed Income (“GILTI”). Companies can either account for taxes on BEAT and GILTI as incurred
or recognize deferred taxes when basis differences exist that are expected to affect the amount of the BEAT and GILTI inclusion
upon reversal. The Company has considered the provisions of the Act associated with BEAT and GILTI and noted that these are not
applicable as of December 31, 2018. The Company expects to account for any taxes on BEAT and GILTI as incurred if applicable.

 

	9.	DEBTS
PAYABLE

 

The
details of debts payable were as follows:

 

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Promissory notes to a related party (a)	 	 	14,958,333	 	 	 	15,358,333	 
	Loan payable to a third party (b)	 	 	14,284	 	 	 	22,065	 
	Total debts payable	 	 	14,972,617	 	 	 	15,380,398	 
	Less: Current portion	 	 	(7,572	)	 	 	(17,383	)
	Debts payable - Non-current portion	 	 	14,965,045	 	 	 	15,363,015	 

 

     21

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	9.	DEBTS
                                         PAYABLE (Continued)

 

As
at December 31, 2018, the maturity profile of the principal amounts of debts are as follows:

 

	Year ending December 31	 	 	$	 
	2019	 	 	 	7,572	 
	2020	 	 	 	2,465,045	 
	2021	 	 	 	-	 
	2022	 	 	 	-	 
	2023	 	 	 	-	 
	2024 and thereafter	 	 	 	12,500,000	 
	 	 	 	 	14,972,617	 

 

	(a)	Promissory
                                         Notes Payable to a Related Party

 

The
outstanding balances at respective year ends represent long term debts obtained from 2013 to 2018 in the form of promissory notes.
These notes carry interest rate of 18% per annum to be paid monthly.

 

Promissory
notes amounting to $12,500,000 (2017: $12,500,000) are to be repaid along with any unpaid accrued interest by April 2025. As of
December 31, 2018, there was unpaid accrued interest of $6,277,500.

 

Promissory
notes amounting to $2,458,333 (2017: $2,458,333) are to be repaid on maturity date of June 2020. Monthly interest payments to
commence from March 2019. As of December 31, 2018 there was unpaid accrued interest of $147,900.

 

	(b)	Loan
                                         Payable to a Third Party

 

Effective
November 10, 2016, the Company obtained a loan of $29,393 for a term of four years from a third party for the purchase of a vehicle.
This loan carries interest at 5.49% per annum. The principal and interest are payable monthly until November 10, 2020.

 

	10.	RELATED
                                         PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Included
in expenses for the year ended December 31, 2018 is a management fee of $342,472 charged by a related Corporation (December 31,
2017 - $nil) under a management agreement. The management fee was paid monthly and varied based on actual costs incurred by the
related corporation when providing the Company administrative, support, and management services. The management agreement was
a month-to-month arrangement. As of December 31, 2018, there was unpaid services of $193,600 included in trade payables.

 

The
Company paid $291,500 to related party for unpaid accrued interest from prior periods during 2018.

 

The Company owes $538,625 in
accrued interest to a related party as of December 31, 2018.

 

No
compensation was paid to the key management for the years ended December 31, 2018 and 2017.

 

     22

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	11.	CAPITAL
                                         MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to
support business development. The Directors do not establish quantitative return on capital criteria for management, but
rather relies on the expertise of the Company’s management to sustain future development of the business. In order to carry
out the planned business development and pay for administrative costs, the Company will spend its existing working capital
and raise additional amounts as needed. There were no changes in the Company’s approach to capital management during the year
ended December 31, 2018. The Company is not subject to externally imposed capital requirements.

 

The
Company 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. Funds are primarily secured through loans from third parties and promissory notes.
There can be no assurance that the Company will be able to continue raising capital in this manner. Management reviews its capital
management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

	12.	GENERAL
                                         AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of:

 

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Salaries and benefits	 	 	2,670,613	 	 	 	1,143,480	 
	Rent [Note 13]	 	 	585,239	 	 	 	366,883	 
	Taxes and licenses	 	 	125,816	 	 	 	17,793	 
	Bank Service charges	 	 	208,273	 	 	 	109,962	 
	Professional and consulting fees	 	 	984,140	 	 	 	644,112	 
	Insurance	 	 	270,697	 	 	 	73,722	 
	Office expenses	 	 	295,853	 	 	 	125,123	 
	Community agreements	 	 	577,085	 	 	 	-	 
	Security	 	 	557,262	 	 	 	-	 
	Computer expenses	 	 	114,237	 	 	 	-	 
	Utilities	 	 	121,667	 	 	 	160,386	 
	Others	 	 	477,557	 	 	 	492,721	 
	 	 	 	6,988,439	 	 	 	3,134,182	 

 

     23

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	13.	COMMITMENTS
                                         AND CONTINGENCIES

 

Operating
Leases

 

The
Company conducts operations in facilities leased from various third parties. The Company also leases certain equipment. The leases
expire through 2025 and contain certain renewal provisions. Future minimum lease payments under non-cancelable operating leases
having an initial or remaining term of more than one year are as follows:

 

	Year ending
    December 31	 	 	$	 
	2019	 	 	 	764,938	 
	2020	 	 	 	770,551	 
	2021	 	 	 	751,052	 
	2022	 	 	 	522,740	 
	2023
    and thereafter	 	 	 	946,960	 
	 	 	 	 	3,756,241	 

 

Total
rent expensed for the years ended December 31, 2018 and 2017 were $936,042 and $720,598, respectively. For the years ended December
31, 2018 and 2017, rent included in general and administrative expenses in Note 12 were $585,239 and $366,883, respectively.

 

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at December 31, 2018, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

 

Claims
and Litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or
affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

     24

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	14.	FINANCIAL
                                         RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash and cash equivalents, trade payables, accrued liabilities and debts
payable.

 

(a)
Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised 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
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	 	 	 	 	Fair values	 
	Financial assets	 	 	FVTPL	 	 	 	FVTOCI	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	2,607,676	 	 	 	-	 	 	 	-	 	 	 	2,607,676	 	 	 	2,607,676	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	201,697	 	 	 	-	 	 	 	-	 	 	 	201,697	 	 	 	201,697	 

 

     25

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(a)
Fair Value (Continued)

 

	 	 	 	Carrying
                                         values	 	 	 	 	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	1,557,153	 	 	 	1,557,153	 	 	 	1,557,153	 
	Accrued liabilities	 	 	-	 	 	 	1,192,208	 	 	 	1,192,208	 	 	 	1,192,208	 
	Debts payable	 	 	-	 	 	 	14,972,617	 	 	 	14,972,617	 	 	 	14,972,617	 
	 	 	 	-	 	 	 	17,721,978	 	 	 	17,721,978	 	 	 	17,721,978	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	1,117,295	 	 	 	1,117,295	 	 	 	1,117,395	 
	Accrued liabilities	 	 	-	 	 	 	811,300	 	 	 	811,300	 	 	 	811,300	 
	Debts payable	 	 	-	 	 	 	15,380398	 	 	 	15,380,398	 	 	 	15,380,398	 
	 	 	 	-	 	 	 	17,308,993	 	 	 	17,308,993	 	 	 	17,308,993	 

 

The
Company’s financial instruments as at December 31, 2018 and 2017, classified as “Level 1 - quoted prices in active
markets” is cash and cash equivalents. The Company has determined that there have been no transfers between levels in the
hierarchy by re-assessing categorization at the reporting date.

 

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

 

(b)
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 Company to concentrations of credit risk consist of cash and cash equivalents.
The cash and cash equivalents consist mainly of checking and operating accounts, cash and security deposits. The Company has deposited
the cash equivalents with a major highly reputable US bank. As at December 31, 2018 and 2017, the maximum amount exposed to credit
risks was $2,607,676 and $201,697, respectively.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash or its equivalents in a cost-effective manner
to fund its obligations as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have
sufficient liquidity to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members
and third parties. As at December 31, 2018, all trade payables and accrued liabilities are due within a year, whereas, long term
debts over a period of over a longer period of time.

 

     26

     

    

 

SIRA
NATURALS, INC.

Notes to the Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(d)
Interest Rate Risk

 

Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is exposed to interest rate risk on its long-term debts.

 

	15.	SEGMENTED
                                         INFORMATION

 

Operating
and Geographical Segments

 

An
operating segment is defined as a component of the Company:

 

		•	that
                                         engages in business activities from which it may earn revenues and incur expenses;

		•	whose
                                         operating results are reviewed regularly by the entity’s chief operating decision
                                         maker; and;

		•	for
                                         which discrete financial information is available.

 

At
December 31, 2018 and 2017, the Company’s operations comprise a single reporting operating and geographical segment engaged
in the growing, processing and distribution of cannabis.

 

	16.	SUBSEQUENT
                                         EVENTS

 

The
Company’s management has evaluated subsequent events up to August 2, 2019, the date the financial statements were issued,
and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“AYR”), formerly CSAC, closed its previously announced Qualifying Transaction.
Through the qualifying transaction, AYR has created a vertically integrated Multi-State Operator in the U.S. cannabis sector,
with an initial anchor portfolio in the Eastern and Western United States.

 

     27

     

    

 

SCHEDULE
 “B” 

CANOPY
ANNUAL FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

 

	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	THE
    CANOPY NV, LLC	 
	 	 	 	 
	 	 	Consolidated
    Financial Statements	 
	 	 	 	 
	 	 	As
    of and for the Years Ended	 
	 	 	December
    31, 2018 and 2017	 
	 	 	 	 
	 	 	(EXPRESSED
    IN UNITED STATES DOLLARS)	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

 

     

     

    

 

THE
CANOPY NV, LLC 

Consolidated Financial Statements

December 31, 2018 and 2017

 

Table
of Contents

 

	 	 	Page
	 	 	 
	Management’s
    Responsibility for Financial Reporting	 	1
	 	 	 
	Independent
    Auditor’s Report	 	2-3
	 	 	 
	Financial
    Statements	 	 
	 	 	 
	Consolidated
    Statements of Financial Position	 	4
	 	 	 
	Consolidated
    Statements of Operations	 	5
	 	 	 
	Consolidated
    Statements of Changes in Members’ Equity	 	6
	 	 	 
	Consolidated
    Statements of Cash Flows	 	7
	 	 	 
	Notes to the
    Consolidated Financial Statements 	 	8-21

 

     

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL REPORTING

 

Management’s
Responsibility

 

To
the Members of The Canopy NV, LLC:

 

The
accompanying consolidated financial statements and other financial information in this report were prepared by management of The
Canopy NV, LLC (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the consolidated financial statements and believes that they fairly present the Company’s consolidated
financial condition and results of operations in conformity with International Financial Reporting Standards. Management has included
in the Company’s consolidated financial statements amounts based on estimates and judgments that it believes are reasonable,
under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of consolidated financial statements. Consistent with the concept
of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected
benefits. Management further assures the quality of the financial records through careful selection and training of personnel
and through the adoption and communication of financial and other relevant policies.

 

These
consolidated financial statements have been audited by the Company’s auditors, Macias Gini & O’Connell LLP, and
their report is presented herein.

 

August
2, 2019

 

	“Mark
    Pitchford” (Signed)	 	“Lilian
    Yohn” (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

    1 

     

    

 

 

 

Independent
Auditor’s Report

 

To
the Members of the Canopy NV, LLC:

 

Opinion

 

We
have audited the consolidated financial statements of Canopy NV, LLC (the “Company”), which comprise the consolidated
statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of operations, changes in members’
equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of
significant accounting policies.

 

In
our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Company as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards.

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our reports. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of
the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Responsibilities
of Management and Those Charged with Governance for the Financial Statements

 

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

 

In
preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s
Responsibilities for the Consolidated Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.

 

	Macias
Gini & O’Connell LLP 

        12264
El Camino Real, Suite 402 

        San
Diego, CA 92130
	 	www.mgocpa.com

 

    2 

     

    

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

		•	Identify
and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

		•	Obtain
an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 

		•	Evaluate
the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by
management.

 

		•	Conclude
on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future
events or conditions may cause the Company to cease to continue as a going concern.

 

		•	Evaluate
the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

 

 

San
Diego, California

August 2, 2019

 

    3 

     

    

 

THE
CANOPY NV, LLC

Consolidated Statements of Financial Position

At December 31, 2018 and 2017

	 	 	2018

$	 	 	2017

$	 
	ASSETS	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Cash	 	 	172,576	 	 	 	821,928	 
	Inventory [Note 5]	 	 	1,310,676	 	 	 	466,648	 
	Advance to a related corporation [Note 9]	 	 	690,461	 	 	 	150,190	 
	Prepaid expenses and other assets	 	 	122,167	 	 	 	328,703	 
	 	 	 	2,295,880	 	 	 	1,767,469	 
	Intangible assets [Note 6]	 	 	1,623,114	 	 	 	1,623,114	 
	Property, plant and equipment [Note 7]	 	 	1,235,993	 	 	 	253,097	 
	Total assets	 	 	5,154,987	 	 	 	3,643,680	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	130,127	 
	Accrued liabilities	 	 	268,156	 	 	 	233,426	 
	Debt payable - non-current portion [Note 12]	 	 	421,128	 	 	 	-	 
	Total liabilities	 	 	689,284	 	 	 	363,553	 
	 	 	 	 	 	 	 	 	 
	MEMBERS’ EQUITY [Note 8]	 	 	4,465,703	 	 	 	3,280,127	 
	 	 	 	 	 	 	 	 	 
	Total Liabilities and Members’ Equity	 	 	5,154,987	 	 	 	3,643,680	 

 

Nature
of operations [Note 1]

Commitments and contingencies [Note 13]

Subsequent events [Note 16]

 

Approved
and authorized by the Board of Directors on August 2, 2019

 

	“Mark
    Pitchford” (Signed)	 	“Lilian
    Yohn” (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

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

 

    4 

     

    

 

THE
CANOPY NV, LLC

Consolidated Statements of Operations

For the Years Ended December 31, 2018 and 2017

	 	 	2018

$	 	 	2017

$	 
	Revenues, net of discounts	 	 	11,748,244	 	 	 	7,135,024	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold [Note 5]	 	 	6,821,581	 	 	 	3,496,736	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	4,926,663	 	 	 	3,638,288	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 11]	 	 	867,613	 	 	 	1,455,043	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	310,863	 	 	 	190,850	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 7]	 	 	50,766	 	 	 	16,483	 
	 	 	 	 	 	 	 	 	 
	Management fees [Note 9]	 	 	546,848	 	 	 	201,000	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	1,776,090	 	 	 	1,863,376	 
	 	 	 	 	 	 	 	 	 
	Net income	 	 	3,150,573	 	 	 	1,774,912	 

 

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

 

    5 

     

    

 

THE
CANOPY NV, LLC

Consolidated Statements of Changes in Members’ Equity

For the Years Ended December 31, 2018 and 2017

	 	 	$	 
	 	 	 	 
	Balance as of December 31, 2016	 	 	1,746,661	 
	 	 	 	 	 
	Contribution - cash [Note 8]	 	 	60,554	 
	 	 	 	 	 
	Distributions	 	 	(302,000	)
	 	 	 	 	 
	Net income	 	 	1,774,912	 
	 	 	 	 	 
	Balance as at December 31, 2017	 	 	3,280,127	 
	 	 	 	 	 
	Distributions	 	 	(1,964,997	)
	 	 	 	 	 
	Net income	 	 	3,150,573	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	4,465,703	 

 

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

 

    6 

     

    

 

THE
CANOPY NV, LLC

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2018 and 2017

	 	 	2018

$	 	 	2017

$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	3,150,573	 	 	 	1,774,912	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation	 	 	50,766	 	 	 	16,483	 
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Inventory	 	 	(844,028	)	 	 	(460,903	)
	Prepaid expenses and other assets	 	 	206,536	 	 	 	(320,350	)
	Trade payables	 	 	(130,127	)	 	 	130,127	
	Advance to a related corporation	 	 	(540,271	)	 	 	(150,190	)
	Accrued liabilities	 	 	34,730	 	 	 	233,426	 
	Cash provided by operating activities	 	 	1,928,179	 	 	 	1,223,505	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of property, plant and equipment	 	 	(612,534	)	 	 	(160,131	)
	Cash used in investing activities	 	 	(612,534	)	 	 	(160,131	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Contribution	 	 	-	 	 	 	60,554	 
	Distributions	 	 	(1,964,997	)	 	 	(302,000	)
	Cash used in financing activities	 	 	(1,964,997	)	 	 	(241,446	)
	 	 	 	 	 	 	 	 	 
	Net (decrease) increase in cash	 	 	(649,352	)	 	 	821,928	 
	Cash, beginning of year	 	 	821,928	 	 	 	-	 
	Cash, end of year	 	 	172,576	 	 	 	821,928	 
	 	 	 	 	 	 	 	 	 
	Non-Cash Supplementary Information	 	 	 	 	 	 	 	 
	Debt acquired for construction	 	 	421,128	 	 	 	-	 

 

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

 

    7 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	1.	NATURE
                                         OF OPERATIONS

 

The
Canopy NV, LLC (“Canopy” or the “Company”) was incorporated as Domestic Limited Liability Company on April
1, 2016 in the State of Nevada, United States of America (“USA”). The Company’s head office is located at 1645
Crane Way, Sparks, Nevada 89431.

 

The
Company’s management, operations, structure and other matters are governed through an Operating Agreement entered
between the members and Managers of the Company on April 20, 2016. The Company’s principal activities, through its
subsidiaries, are the distribution and sale of cannabis as regulated under the laws applicable in the USA.

 

	2.	BASIS
OF PRESENTATION

 

2.1
Statement of Compliance

 

These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”).

 

These
consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 2,
2019.

 

2.2
Basis of Presentation

 

These
consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which
are measured at fair value, as explained in the accounting policies set out in Note 3. The consolidated financial statements are
presented in US dollars which is the presentation and functional currency of the Company and its subsidiaries.

 

	3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1
Basis of Consolidation

 

The
consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries - Kynd Strainz
LLC (“Kynd”) and Lemon Aide LLC (“Lemon”), Limited Liabilities Companies, incorporated in the state of
Nevada. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statements of operations
from the effective date of acquisition or up to the effective date of disposal, as appropriate. All inter-company transactions,
balances, income and expenses are eliminated on consolidation. Lemon started operations in 2018.

 

The
financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting
policies.

 

    8 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.2
Revenues

 

IFRS
15 specifies how and when revenues should be recognized based on a five-step model, which is applied to all contracts with customers.
The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional
adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition
under IFRS 15 is to follow a five-step model to determine the amount and timing of revenue to be recognized:

 

		•	Identifying
                                         the contract with a customer

		•	Identifying
                                         the performance obligations within the contract

		•	Determining
                                         the transaction price

		•	Allocating
                                         the transaction price to the performance obligations

		•	Recognizing
                                         revenue when/as performance obligation(s) are satisfied.

 

Revenue
from distribution and sale of cannabis is recognized when the Company transfers control of the good to the customer. In some cases,
judgement is required in determining whether the customer is a business or the end consumer. This evaluation was made on the basis
of whether the business obtains control of the product before transferring to the end consumer. Control of the product transfers
at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms.

 

The
Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account
any variation that may result from rights of return.

 

The
pattern and timing of revenue recognition under the new standard is consistent with prior year practice. There were no adjustments
recognized on the adoption of IFRS 15 in the year ended December 31, 2018.

 

3.3
Property, Plant and Equipment (“PPE”)

 

Property,
plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of
PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located.

 

Depreciation
is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight-line method
over the following expected useful lives:

 

		•	Leasehold
                                         improvements – the shorter of the useful life or life of the lease

		•	Furniture
                                         and fixtures – 5 to 7 years

		•	Office
                                         equipment – 5 years

		•	Vehicles
                                         – 7 years

 

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

 

Assets
in process are transferred to the appropriate asset class when available for use and depreciation of the assets commences at that
point of time.

 

    9 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.3
Property, Plant and Equipment (“PPE”) (Continued)

 

The
Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any
changes arising from the assessment are applied by the Company prospectively.

 

Where
an item of property, plant and equipment comprises major components with different useful lives, the components are accounted
for as separate items of property, plant and equipment. Expenditures incurred to replace a component of an item of property, plant
and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

3.4
Taxation

 

The
Company and its subsidiaries are considered Limited Liability Companies for income tax purposes, for the years ended December
31, 2018 and 2017. Therefore, the Company’s taxable income is allocated to the members for inclusion on their respective
income tax returns.

 

As
the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary
business expenses deemed non-allowable under IRC Section 280E.

 

3.5
Intangible Assets

 

Intangible
assets are recorded at cost, less accumulated amortization and impairment losses, if any. Intangible assets acquired in a business
combination are measured at fair value at the acquisition date. Amortization is recorded on a straight-line basis over their estimated
useful lives, which do not exceed the contractual period, if any. Intangible assets, which include medical cannabis licenses,
have indefinite useful lives and are not subject to amortization. Such assets are tested annually for impairment, or more frequently,
if events or changes in circumstances indicate that they might be impaired. The estimated useful lives, residual values, and amortization
methods are reviewed at each year-end, and any changes in estimates are accounted for prospectively. For the years ended December
31, 2018 and 2017, the Company did not recognize any impairment losses.

 

3.6
Financial Instruments

 

Recognition
and Initial Measurement

 

Financial
assets and financial liabilities, including derivatives, are recognized in the consolidated statements of financial position when
the Company becomes a party to the contractual provisions of a financial instrument or non-financial derivative contract. All
financial instruments are measured at fair value on initial recognition. Transaction costs that are directly attributable to the
acquisition or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified
as FVTPL, are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in net loss.

 

    10 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.6
Financial Instruments (Continued)

 

Classification
and Subsequent Measurement

 

The
Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing
the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement
categories:

 

a)
amortized cost (“AC”); 

b)
fair value through profit or loss (“FVTPL”); and 

c)
fair value through other comprehensive income (“FVTOCI”).

 

Financial
assets are subsequently measured at amortized cost if both the following conditions are met and they are not designated as FVTPL:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and b) the contractual tenns of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

 

These
assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and
losses recognized in net income in the period that the asset is derecognized or impaired. All financial assets not classified
as amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics.
The Company has no financial assets measured at FVTOCI.

 

Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized
in net income in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

 

Financial
instruments are classified into one of the following categories: FVTPL; financial assets at amortized cost, financial liabilities
at amortized cost, and financial assets at FVTOCI.

 

Impairment
of Financial Instruments

 

For
accounts receivable, the Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which requires the use of the lifetime expected loss provision for all accounts receivable, trade based on the Company’s
historical default rates over the expected life of the accounts receivable, trade and is adjusted for forward-looking estimates.
The methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

 

All
individually significant loan receivables are assessed for impairment. All individually significant loans receivable found not
to be specifically impaired are then collectively assessed for impairment. Loans receivables not individually significant are
collectively assessed for impairment by grouping together loans receivable with similar risk characteristics.

 

    11 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.6
Financial Instruments (Continued)

 

Derecognition

 

The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when
it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains
and losses on derecognition are recognized in the consolidated statements of operations.

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled
or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration
paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the consolidated statements
of operations.

 

3.7
Impairment of Non-Financial Assets

 

At
each date of the statements of financial position, the Company reviews the carrying amounts of its long lived assets to detennine
whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, or when annual
impairment testing for an asset is required, the recoverable amount of the asset is estimated in order to detennine the extent
of the impainnent loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash generating unit to which the assets belong.

 

The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.

 

If
the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (or cash generating unit) is reduced to its recoverable amount. An impainnent loss is recognized immediately in the
consolidated statements of operations, unless the relevant asset is carried at a revalued amount, in which case the impainnent
loss is treated as a revaluation decrease.

 

Where
an impainnent loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A previously recognised
impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognised.

 

    12 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.8
Inventory

 

Inventories
of purchased finished goods are initially at cost and subsequently at the lower of cost and net realizable value. Net realizable
value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and
the estimated costs necessary to make the sale. Cost is detennined using the specific identification basis. Products for resale
and supplies and consumables are valued at lower of cost and net realizable value. The company reviews inventory for obsolete,
redundant and slow-moving goods and any such inventory are written-down to the net realizable value. At December 31, 2018 and
2017, there were no reserves for inventories required.

 

3.9
Cash and Cash Equivalents

 

The
Company considers all investments with original maturities of three months or less, that are highly liquid and readily convertible
into cash, to be cash equivalents.

 

3.10
Provisions

 

Provisions
are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and
it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation.

 

Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision
due to passage of time is recognized as interest expense.

 

3.11
Significant Accounting Judgments and Estimates

 

The
application of the Company’s accounting policies requires management to use estimates and judgments that can have significant
effect on the revenues, expenses, assets and liabilities recognized and disclosures made in the consolidated 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
immediately. Actual results could differ from the estimates used.

 

Management’s
budget and strategic plans are fundamental information used as a basis for estimates necessary to prepare financial information.
Management tracks performance as compared to the budget and significant variances in actual performance are a key trigger to assess
whether certain estimates used in the preparation of financial information must be revised.

 

    13 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.11
Significant Accounting Judgments and Estimates (Continued)

 

The
following areas require management’s critical estimates and judgments:

 

(a)
Estimated useful lives and depreciation of property, plant and equipment

 

Depreciation
and depreciation of property, plant and equipment are dependent upon estimates of useful lives, which are determined through the
exercise of judgements. 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.

 

(b)
Valuation, estimated life and impairment of intangible assets

 

Management
used significant judgment in valuing the fair value of dispensary licenses and other intangible assets, 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.

 

3.12
Leases

 

The
determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified
in an arrangement.

 

A
lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Company is classified as a finance lease. An operating lease is a lease other
than a finance lease. Operating lease payments are recognised as an operating expense in the consolidated statements of operations
on a straight-line basis over the lease tenn.

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS

 

Adoption
of New Accounting Pronouncements

 

IFRS
9 - Financial Instruments

 

In
July 2014, the IASB issued the final version of IFRS 9 – Financial Instruments (“IFRS 9”), which brings together
the classification and measurement, impairment, and hedge-accounting phases of the IASB’s project to replace IAS 39 – Financial
Instruments: Recognition and Measurement (“IAS 39”).

 

Classification
and Measurement – Financial assets are classified and measured based on the business model under which they are managed and the
contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under
IAS 39, except that financial liabilities measured at fair value will have fair value changes resulting from changes in the entity’s
own credit risk recognized in Other Comprehensive Income (“OCI”) instead of Net Income, unless this would create an
accounting mismatch.

 

    14 

     

    

 

THE
CANOPY NV, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS (Continued)

 

Adoption
of New Accounting Pronouncements (Continued)

 

IFRS
9 - Financial Instruments (Continued)

 

IFRS
9 contains three principal classification categories for financial assets: measured at amortized cost (“AC”), fair
value through other comprehensive income (“FVTOCI”) and FVTPL. The standard eliminates the previous IAS 39 categories
of held to maturity, loans and receivables, and available for sale.

 

Impairment
 – The measurement of impairment of financial assets is based on an expected credit loss model. It is no longer necessary for a
triggering event to have occurred before credit losses are recognized. IFRS 9 also includes new disclosure requirements about
expected credit losses and credit risk.

 

Hedge
Accounting – The new general hedge accounting model more closely aligns hedge accounting with risk management activities undertaken
by entities when hedging their financial and non-financial risk exposures. It will provide more opportunities to apply hedge accounting
to reflect actual risk management activities.

 

The
Company adopted IFRS 9 effective from January 1, 2018. The adoption did not result in any material change.

 

IFRS
15: Revenue from Contracts with Customers:

 

IFRS
15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs
of obtaining a contract and the costs directly related to fulfilling a contract. The Company has adopted IFRS 15 from incorporation
date.

 

IFRS
7. Financial Instruments: Disclosure

 

IFRS
7, Financial Instruments: Disclosure, was amended to require additional disclosures on transition from IAS 39 to IFRS 9. IFRS
7 is effective on adoption of IFRS 9, which is effective for annual periods commencing on or after January 1, 2018. The adoption
did not result in any material change.

 

Changes
in Accounting Standards not yet Effective

 

IFRS
16 – Leases

 

In
January 2016, the IASB issued IFRS 16 - Leases (“IFRS 16”), which replaces IAS 17 - Leases, and its
associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a
lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined
to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single,
on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term
leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective
for annual periods beginning on or after January 1,2019, with early application permitted for entities that apply IFRS 15. The
Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements and
plans to adopt the requirements in 2019.

 

    15 

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		5.	INVENTORY

 

Inventory
is comprised of finished goods.

 

Inventories
expensed as cost of goods sold during the years ended December 31, 2018 and 2017, was $5,842,151 and $3,492,227, respectively.

 

		6.	INTANGIBLE
                                         ASSETS

 

Intangible
assets represent dispensary licenses obtained by the two subsidiaries, as of December 31, 2018, and 2017. Intangible assets of
$1,623,114 included $1,500,000 contribution from a member as explained in Note 8 to the consolidated financial statements.

 

		7.	PROPERTY,
                                         PLANT AND EQUIPMENT

 

	 	 	Leasehold
 improvements	 	 	Furniture &
 Fixtures	 	 	Office
 Equipment	 	 	Vehicle	 	 	Assets in
 process	 	 	Total	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	109,449	 	 	 	109,449	 
	Additions	 	 	32,184	 	 	 	76,059	 	 	 	17,904	 	 	 	-	 	 	 	33,984	 	 	 	160,131	 
	Transfers	 	 	68,008	 	 	 	41,441	 	 	 	-	 	 	 	-	 	 	 	(109,449	)	 	 	-	 
	As
    at December 31, 2017	 	 	100,192	 	 	 	117,500	 	 	 	17,904	 	 	 	-	 	 	 	33,984		 	 	269,580	 
	Additions	 	 	917,677	 	 	 	50,140	 	 	 	59,540	 	 	 	6,305	 	 	 	-	 	 	 	1,033,662	 
	Transfers	 	 	33,984	 	 	 	-	 	 	 	-	 	 	 			 	 	(33,984	)	 	 	-	 
	As
    at December 31, 2018	 	 	1,051,853	 	 	 	167,640	 	 	 	77,444	 	 	 	6,305	 	 	 	-	 	 	 	1,303,242	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	Depreciation	 	 	2,117	 	 	 	11,915	 	 	 	2,451	 	 	 	-	 	 	 	-	 	 	 	16,483	 
	As
    at December 31, 2017	 	 	2,117	 	 	 	11,915	 	 	 	2,451	 	 	 	-	 	 	 	-	 	 	 	16,483	 
	Depreciation	 	 	20,871	 	 	 	21,564	 	 	 	7,655	 	 	 	676	 	 	 	-	 	 	 	50,766	 
	As
    at December 31, 2018	 	 	22,988	 	 	 	33,479	 	 	 	10,106	 	 	 	676	 	 	 	-	 	 	 	67,249	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2018	 	 	1,028,865	 	 	 	134,161	 	 	 	67,338	 	 	 	5,629	 	 	 	-	 	 	 	1,235,993	 
	As at December 31,
    2017	 	 	98,075	 	 	 	105,585	 	 	 	15,453	 	 	 	-	 	 	 	33,984	 	 	 	253,097	 

 

Depreciation
expense for the years ended December 31, 2018 and 2017, of $50,766 and $0, respectively, is included in cost of goods sold.

 

	8.	MEMBERS’
                                                                                                                                                        EQUITY

 

During
the years ended December 31, 2018 and 2017, a member made a cash contribution of $nil and $60,554, respectively, to the Company.

 

     16

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		9.	RELATED
                                         PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the consolidated financial statements, related party transactions and balances are as follows:

 

The
Company purchases a substantial portion of its inventory from a related corporation. These purchases are made at arms-length rates,
in line with rates charged to third party customers of the related corporation.

 

Included
in expenses for the years ended December 31, 2018 and 2017, are management fees of $546,848 and $201,000, respectively. The management
fee started on January 1, 2017 and was paid monthly. The monthly fee varied based on an allocation of the related corporation’s
expenses and was a month-to-month arrangement.

 

Advances
to a related corporation of $690,461 and $ 150,190, respectively, were outstanding as at December 31, 2018 and 2017. These advances
are unsecured, interest free, and repayable on demand.

 

No
compensation was paid to key management for the years ended December 31, 2018 and 2017.

 

		10.	CAPITAL
                                         MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to
support business development. The members do not establish quantitative return on capital criteria for management, but rather
relies on the expertise of the Company’s management to sustain future development of the business. The Company defines
capital to include its members’ equity. In order to carry out the planned business development and pay for
administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. Management
reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the
Company, is reasonable. There were no changes in the Company’s approach to capital management during the year ended
December 31, 2018. The Company is not subject to externally imposed capital requirements. As at December 31, 2018 and 2017,
the capital of the Company was $4,465,703 and $3,280,127, respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

     17

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		11.	GENERAL
                                         AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of:

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Salaries and benefits	 	 	81,977	 	 	 	916,098	 
	Rent [Note 12]	 	 	263,909	 	 	 	184,068	 
	Taxes and licenses	 	 	168,148	 	 	 	123,386	 
	Professional and consulting fees	 	 	17,496	 	 	 	52,552	 
	Insurance	 	 	106,062	 	 	 	46,275	 
	Office expenses	 	 	80,966	 	 	 	41,097	 
	Computer expenses	 	 	74,274	 	 	 	21,223	 
	Repairs and maintenance	 	 	21,859	 	 	 	14,832	 
	Utilities	 	 	14,620	 	 	 	10,860	 
	Allocation to cost of goods sold	 	 	38,302	 	 	 	44,652	 
	 	 	 	867,613	 	 	 	1,455,043	 

 

		12.	DEBTS
PAYABLE

 

On
October 1, 2018, the Company borrowed $421,128 in connection with the construction of a dispensary. The loan bears interest at
a rate of 5% per annum and is due in 2020.

 

		13.	COMMITMENTS
                                         AND CONTINGENCIES

 

Operating
Leases

 

The
Company conducts operations in facilities leased from a related party. The leases expire through 2022 and contain certain renewal
provisions. Rent expense under these leases for the years ended December 31, 2018 and 2017, totaled $263,909 and $184,068, respectively.
Future minimum lease payments under non-cancelable operating leases having an initial or remaining term of more than one year
are as follows:

 

	Year ending December 31	 		$	 
	2019	 	 	370,296	 
	2020	 	 	381,398	 
	2021	 	 	392,844	 
	2022	 	 	41,236	 
	 	 	 	1,185,774	 

 

     18

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		13.	COMMITMENTS
                                         AND CONTINGENCIES (Continued)

 

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those
regulations could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the
Company ceasing operations. While management of the Company believes that the Company is in compliance with applicable local and
state regulation at December 31, 2018, cannabis regulations continue to evolve and are subject to differing interpretations. As
a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

 

Claims
and Litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of
business. At December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a
material effect on the results of the Company’s operations. There are also no proceedings in which any of the
Company’s directors, officers or affiliates is an adverse party or has a material interest adverse to the
Company’s interest.

 

		14.	FINANCIAL
                                         RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, advance to a related corporation, trade payables, accrued liabilities
and due to a related corporation

 

(a)
Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised
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.

 

     19

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(a)
Fair Value (Continued)

 

•
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
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	 	Carrying values	 	 	 	 	 	 	 		 	 	 	Fair values	 
	Financial assets	 	 	FVYPL	 	 	 	FVTOCI	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	172,576	 	 	 	-	 	 	 	-	 	 	 	172,576	 	 	 	172,576	 
	Advance to a related corporation	 	 	-	 	 	 	-	 	 	 	690,461	 	 	 	690,461	 	 	 	690,461	 
	 	 	 	172,576	 	 	 	-	 	 	 	690,461	 	 	 	863,037	 	 	 	863,037	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	821,928	 	 	 	-	 	 	 	-	 	 	 	821,928	 	 	 	821,928	 
	Advance to a related corporation	 	 	-	 	 	 	-	 	 	 	150,190	 	 	 	150,190	 	 	 	150,190	 
	 	 	 	821,928	 	 	 	-	 	 	 	150,190	 	 	 	972,118	 	 	 	972,118	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Carrying values	 	 	 		 	 	 	Fair values	 
	Financial liabilities	 	 	 	 	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	 	 	 	 	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accrued liabilities	 	 	 	 	 	 	-	 	 	 	268,156	 	 	 	268,156	 	 	 	268,156	 
	Debt payable	 	 	 	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	 	 	 	 	 	 	 	-	 	 	 	268,156	 	 	 	268,156	 	 	 	268,156	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	 	 	 	 	-	 	 	 	130,127	 	 	 	130,127	 	 	 	130,127	 
	Accrued liabilities	 	 	 	 	 	 	-	 	 	 	233,426	 	 	 	233,426	 	 	 	233,426	 
	 	 	 	 	 	 	 	-	 	 	 	363,553	 	 	 	363,553	 	 	 	363,553	 

 

The
Company’s financial instruments as at December 31, 2018 and 2017, classified as “Level 1 - quoted prices in active
markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy by re-assessing
categorization at the reporting date.

 

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

 

     20

     

    

 

THE
CANOPY NV, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(b)
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 Company to concentrations of credit risk consist of cash and advance to a
related corporation. As at December 31, 2018 and 2017, the maximum amount exposed to credit risks was $863,037 and $972,118, respectively.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members. As at December
31, 2018, all trade payables, accrued liabilities and due to a related corporation are due within a year.

 

		15.	SEGMENTED
                                         INFORMATION

 

Operating
and Geographical Segments

 

An
operating segment is defined as a component of the Company:

 

		•	that
                                         engages in business activities from which it may earn revenues and incur expenses;

		•	whose
                                         operating results are reviewed regularly by the entity’s chief operating decision
                                         maker; and;

		•	for
                                         which discrete financial information is available.

 

At
December 31, 2018 and 2017, the Company’s operations comprise a single reporting operating and geographical segment engaged
in the distribution and sale of cannabis.

 

		16.	SUBSEQUENT
                                         EVENTS

 

The
Company’s management has evaluated subsequent events up to August 2, 2019, the date the consolidated financial statements
were issued, and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“AYR”), formerly Cannabis Strategies Acquisition Corp., closed its previously
announced Qualifying Transaction. Through the qualifying transaction, AYR has created a vertically integrated Multi-State Operator
in the U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

 

     21

     

    

 

SCHEDULE
 “C” 

WASHOE
ANNUAL FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

 

	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	WASHOE
    WELLNESS, LLC	 
	 	 	 	 
	 	 	Consolidated
    Financial Statements	 
	 	 	 	 
	 	 	As
    of and for the Years Ended	 
	 	 	December
    31, 2018 and 2017	 
	 	 	 	 
	 	 	(EXPRESSED
    IN UNITED STATES DOLLARS)	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 		 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

 

     

     

    

 

WASHOE
WELLNESS, LLC 

Consolidated
Financial Statements 

December
31, 2018 and 2017

 

Table
of Contents

 

	 	 	Page
	 	 	 
	Management’s Responsibility for Financial
    Reporting	 	1
	 	 	 
	Independent Auditor’s Report	 	2-3
	 	 	 
	Financial Statements	 	 
	 	 	 
	Consolidated Statements
    of Financial Position	 	4
	 	 	 
	Consolidated Statements
    of Operations	 	5
	 	 	 
	Consolidated Statements
    of Changes in Members’ Equity	 	6
	 	 	 
	Consolidated Statements
    of Cash Flows	 	7
	 	 	 
	Notes to the Consolidated Financial Statements	 	8-27

 

     

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR 

FINANCIAL
REPORTING

 

Management’s
Responsibility

 

To
the Members of Washoe Wellness, LLC:

 

The
accompanying consolidated financial statements and other financial information in this report were prepared by management of Washoe
Wellness, LLC (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the consolidated financial statements and believes that they fairly present the Company’s consolidated
financial condition and results of operations in conformity with International Financial Reporting Standards. Management has included
in the Company’s consolidated financial statements amounts based on estimates and judgments that it believes are reasonable,
under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of consolidated financial statements. Consistent with the concept
of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected
benefits. Management further assures the quality of the financial records through careful selection and training of personnel
and through the adoption and communication of financial and other relevant policies.

 

These
consolidated financial statements have been audited by the Company’s auditors, Macias Gini & O’Connell LLP, and
their report is presented herein.

 

August
2, 2019

 

	“Mark
    Pitchford” (Signed)	 	“Lilian
    Yohn” (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

    1 

     

    

 

 

 

Independent
Auditor’s Report

 

To
the Members of the Washoe Wellness, LLC:

 

Opinion

 

We
have audited the consolidated financial statements of Washoe Wellness, LLC (the “Company”), which comprise the consolidated
statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of operations, changes in members’
equity and cash flows for the years then ended, and the notes to the consolidated financial statements, including a summary of
significant accounting policies.

 

In
our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Company as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for
the years then ended in accordance with International Financial Reporting Standards.

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our reports. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of
the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Responsibilities
of Management and Those Charged with Governance for the Consolidated Financial Statements

 

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

 

In
preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s
Responsibilities for the Consolidated Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.

 

	Macias Gini
    & O’Connell LLP	 	 
	12264
    El Camino Real, Suite 402	 	www.mgocpa.com
	San Diego, CA 92130	 	 

 

    2 

     

    

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

		•	Identify
                                         and assess the risks of material misstatement of the consolidated financial statements,
                                         whether due to fraud or error, design and perform audit procedures responsive to those
                                         risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
                                         for our opinion. The risk of not detecting a material misstatement resulting from fraud
                                         is higher than for one resulting from error, as fraud may involve collusion, forgery,
                                         intentional omissions, misrepresentations, or the override of internal control.

 

		•	Obtain
                                         an understanding of internal control relevant to the audit in order to design audit procedures
                                         that are appropriate in the circumstances, but not for the purpose of expressing an opinion
                                         on the effectiveness of the Company’s internal control.

 

		•	Evaluate
                                         the appropriateness of accounting policies used and the reasonableness of accounting
                                         estimates and related disclosures made by management.

 

		•	Conclude
                                         on the appropriateness of management’s use of the going concern basis of accounting
                                         and, based on the audit evidence obtained, whether a material uncertainty exists related
                                         to events or conditions that may cast significant doubt on the entity’s ability
                                         to continue as a going concern. If we conclude that a material uncertainty exists, we
                                         are required to draw attention in our auditor’s report to the related disclosures
                                         in the consolidated financial statements or, if such disclosures are inadequate, to modify
                                         our opinion. Our conclusions are based on the audit evidence obtained up to the date
                                         of our auditor’s report. However, future events or conditions may cause the Company
                                         to cease to continue as a going concern.

 

		•	Evaluate
                                         the overall presentation, structure and content of the consolidated financial statements,
                                         including the disclosures, and whether the financial statements represent the underlying
                                         transactions and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

 

San
Diego, California 

August
2, 2019

 

    3 

     

    

 

WASHOE
WELLNESS, LLC 

Consolidated
Statements of Financial Position

At December 31, 2018 and 2017

 

	 	 	2018
 $
	 	 	2017
 $
	 
	ASSETS	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Cash	 	 	345,987	 	 	 	1,435,345	 
	Accounts receivable, no allowance	 	 	350,974	 	 	 	130,890	 
	Inventory [Note 5]	 	 	2,035,578	 	 	 	1,144,188	 
	Biological assets [Note 6]	 	 	1,244,313	 	 	 	1,232,350	 
	Loans receivable [Note 7]	 	 	-	 	 	 	240,000	 
	Other receivables	 	 	11,532	 	 	 	-	 
	Prepaid expenses and other assets	 	 	211,923	 	 	 	749,466	 
	 	 	 	4,200,307	 	 	 	4,932,239	 
	Intangible assets [Note 8]	 	 	80,894	 	 	 	46,018	 
	Property, plant and equipment [Note 9]	 	 	8,846,196	 	 	 	5,783,992	 
	Investment in associate [Note 10]	 	 	1,664,347	 	 	 	1,200,651	 
	Total assets	 	 	14,791,744	 	 	 	11,962,900	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	861,240	 	 	 	213,856	 
	Accrued liabilities	 	 	107,472	 	 	 	92,368	 
	Advance from a related corporation [Note 13]	 	 	690,461	 	 	 	150,190	 
	Debts payable - current portion [Note 11]	 	 	-	 	 	 	70,156	 
	 	 	 	1,659,173	 	 	 	526,570	 
	Debts payable - Non-current portion [Note 11]	 	 	9,182,006	 	 	 	8,991,936	 
	Total liabilities	 	 	10,841,179	 	 	 	9,518,506	 
	 	 	 	 	 	 	 	 	 
	MEMBERS’ EQUITY [Note 12]	 	 	3,950,565	 	 	 	2,444,394	 
	 	 	 	 	 	 	 	 	 
	Total liabilities and members’ equity	 	 	14,791,744	 	 	 	11,962,900	 

 

Nature
of operations [Note 1] 

Commitments
and contingencies [Note 16] 

Subsequent
events [Note 19]

 

Approved
and authorized by the Board of Directors on August 2, 2019

 

	“Mark Pitchford”
    (Signed)	 	“Lilian Yohn”
    (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

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

 

    4 

     

    

 

WASHOE
WELLNESS, LLC 

Consolidated
Statements of Operations

For
the Years Ended December 31, 2018 and 2017

 

	 	 	2018
 $
	 	 	2017

                                                                                $
	 
	Revenues, net of discounts	 	 	7,017,779	 	 	 	6,054,620	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold before biological assets adjustment	 	 	4,636,341	 	 	 	3,281,125	 
	 	 	 	 	 	 	 	 	 
	Gross profit before biological assets adjustment	 	 	2,381,438	 	 	 	2,773,495	 
	 	 	 	 	 	 	 	 	 
	Fair value changes in biological assets included in cost of goods sold	 	 	(4,005,602	)	 	 	(1,061,462	)
	Unrealized gain on biological assets transformation	 	 	5,086,289	 	 	 	1,167,367	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	3,462,125	 	 	 	2,879,400	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 15]	 	 	825,863	 	 	 	842,739	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	189,074	 	 	 	139,000	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 9]	 	 	51,831	 	 	 	262,491	 
	 	 	 	 	 	 	 	 	 
	Management Fees [Note 13]	 	 	240,000	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	1,306,768	 	 	 	1,244,230	 
	 	 	 	 	 	 	 	 	 
	Income from operations	 	 	2,155,357	 	 	 	1,635,170	 
	 	 	 	 	 	 	 	 	 
	Other (income) expense	 	 	 	 	 	 	 	 
	Share of income on investment in associate [Note 10]	 	 	(1,642,415	)	 	 	(922,955	)
	Interest expense	 	 	343,344	 	 	 	470,564	 
	Interest income	 	 	(12,067	)	 	 	(15,000	)
	Management fee income [Note 13]	 	 	(125,000	)	 	 	(201,000	)
	Rental income and others	 	 	(91,368	)	 	 	(35,344	)
	Total other (income)	 	 	(1,527,506	)	 	 	(703,735	)
	 	 	 	 	 	 	 	 	 
	Net income	 	 	3,682,863	 	 	 	2,338,905	 

 

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

 

    5 

     

    

 

WASHOE
WELLNESS, LLC 

Consolidated
Statements of Changes in Members’ Equity 

For
the Years Ended December 31, 2018 and 2017

 

	 	 	$	 
	Balance as at December 31, 2016	 	 	185,489	 
	 	 	 	 	 
	Distributions	 	 	(80,000	)
	 	 	 	 	 
	Net income	 	 	2,338,905	 
	 	 	 	 	 
	Balance as at December 31, 2017	 	 	2,444,394	 
	 	 	 	 	 
	Contributions	 	 	1,100,000	 
	 	 	 	 	 
	Distributions	 	 	(3,276,692	)
	 	 	 	 	 
	Net income	 	 	3,682,863	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	3,950,565	 

 

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

 

    6 

     

    

 

WASHOE
WELLNESS, LLC 

Consolidated
Statements of Cash Flows 

For
the Years Ended December 31, 2018 and 2017

 

	 	 	2018
 $
	 	 	2017

                                                                                $
	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	3,682,863	 	 	 	2,338,905	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation	 	 	361,611	 	 	 	262,491	 
	Share of (income) on equity investments	 	 	(1,642,415	)	 	 	(922,955	)
	Unrealized gain on biological asset transformation	 	 	4,005,602	 	 	 	1,167,367	 
	Fair value changes in biological assets included in cost of sales	 	 	(5,086,289	)	 	 	(1,061,462	)
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	(220,084	)	 	 	(63,785	)
	Inventory	 	 	(891,390	)	 	 	584,239	 
	Biological assets	 	 	1,068,724	 	 	 	(295,214	)
	Prepaid expenses and other assets	 	 	537,543	 	 	 	(704,622	)
	Other receivables	 	 	(11,532	)	 	 	-	 
	Trade payables	 	 	647,384	 	 	 	150,654	 
	Accrued liabilities	 	 	15,104	 	 	 	60,137	 
	Advance from a related corporation	 	 	540,271	 	 	 	150,190	 
	Cash provided by operating activities	 	 	3,007,392	 	 	 	1,665,945	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of intangible assets	 	 	(34,876	)	 	 	-	 
	Changes in investment in associate, net	 	 	1,178,719	 	 	 	(60,554	)
	Receipts (issuance) of loans receivable	 	 	240,000	 	 	 	(240,000	)
	Purchase of property, plant and equipment	 	 	(3,423,815	)	 	 	(2,890,586	)
	Cash used in investing activities	 	 	(2,039,972	)	 	 	(3,191,140	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Proceeds from issuance of debts payable	 	 	190,000	 	 	 	2,981,103	 
	Repayments of debts payable	 	 	(70,086	)	 	 	(73,938	)
	Contributions	 	 	1,100,000	 	 	 	-	 
	Distributions	 	 	(3,276,692	)	 	 	(80,000	)
	Cash (used in) provided by financing activities	 	 	(2,056,778	)	 	 	2,827,165	 
	 	 	 	 	 	 	 	 	 
	Net (decrease) increase in cash	 	 	(1,089,358	)	 	 	1,301,970	 
	Cash, beginning of year	 	 	1,435,345	 	 	 	133,375	 
	Cash, end of year	 	 	345,987	 	 	 	1,435,345	 
	 	 	 	 	 	 	 	 	 
	Supplemental cash flow information	 	 	 	 	 	 	 	 
	Interest paid	 	 	455,590	 	 	 	319,963	 

 

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

 

    7 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		1.	NATURE
                                         OF OPERATIONS

 

Washoe
Wellness, LLC (“Washoe” or the “Company”) was incorporated as a Limited Liability Company on June 23,
2014 in the State of Nevada, United States of America (“USA”). The Company’s head office is located at 1645
Crane Way, Sparks, NV 89431.

 

The
Company’s management, operations, structure and other matters are governed through an Operating Agreement entered between
the Members and Managers of the Company on November 5, 2014. The Company’s principal activities, through its subsidiaries,
are the growing, processing and distribution of cannabis as regulated under the laws applicable in the USA.

 

		2.	BASIS
                                         OF PRESENTATION

 

2.1
Statement of Compliance

 

These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”). The consolidated financial statements of the Company as at and for
the years ended December 31, 2018 and 2017, comprise of the Company, and its wholly owned subsidiaries.

 

These
consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 2,
2019.

 

2.2
Basis of Presentation

 

These
consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which
are measured at fair value, as explained in the accounting policies set out in Note 3. The consolidated financial statements are
presented in US dollars which is the presentation and functional currency of the Company and its subsidiaries.

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1
Basis of Consolidation

 

The
consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries Tahoe-Reno
Extractions, LLC (“TRE”), Tahoe-Reno Botanicals, LLC (“TRB”) and DWC Investments, LLC, Limited Liabilities
Companies, and KLYMB Project Management, Inc., incorporated in the state of Nevada. The results of subsidiaries acquired or disposed
of during the year are included in the consolidated statements of operations from the effective date of acquisition or up to the
effective date of disposal, as appropriate. All inter-company transactions, balances, income and expenses are eliminated on consolidation.

 

The
financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting
policies.

 

    8 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.2
Property, Plant and Equipment (“PPE”)

 

Property,
plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of
PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located.

 

Depreciation
is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight-line method
over the following expected useful lives:

 

	 	•	Land  — Not depreciated
	 	•	Buildings and leasehold improvements - the shorter
    of the useful life or life of the lease
	 	•	Furniture and fixtures  —5 to 7 years
	 	•	Office equipment  —5 years
	 	•	Machinery and equipment  — 5
    years
	 	•	Auto and Trucks  — 5 years

  

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

 

Assets
under capital lease are amortized according to their asset category.

 

Assets
in process are transferred to the appropriate asset class when available for use and depreciation of the assets commences at that
point of time.

 

The
Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any
changes arising from the assessment are applied by the Company prospectively.

 

Where
an item of property, plant and equipment comprises major components with different useful lives, the components are accounted
for as separate items of property, plant and equipment. Expenditures incurred to replace a component of an item of property, plant
and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

3.3
Taxation

 

The
Company and its subsidiaries are considered Limited Liability companies for income tax purposes, for the years ended December
31, 2018 and 2017. Therefore, the Company’s taxable income is allocated to the members for inclusion on their respective
income tax returns.

 

As
the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary
business expenses deemed non-allowable under IRC Section 280E.

 

    9 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.4
Revenues

 

IFRS
15 specifies how and when revenues should be recognized based on a five-step model, which is applied to all contracts with customers.
The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional
adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition
under IFRS 15 is to follow a five-step model to determine the amount and timing of revenue to be recognized:

 

	 	•	Identifying the contract with a customer
	 	•	Identifying the performance obligations within
    the contract
	 	•	Determining the transaction price
	 	•	Allocating the transaction price to the performance
    obligations
	 	•	Recognizing revenue when/as performance obligation(s)
    are satisfied.

 

Revenue
from growing, processing and distribution of cannabis is recognized when the Company transfers control of the good to the customer.
In some cases, judgement is required in determining whether the customer is a business or the end consumer. This evaluation was
made on the basis of whether the business obtains control of the product before transferring to the end consumer. Control of the
product transfers at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms.

 

The
Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account
any variation that may result from rights of return.

 

The
pattern and timing of revenue recognition under the new standard is consistent with prior year practice. There were no adjustments
recognized on the adoption of IFRS 15 in the year ended December 31, 2018.

 

3.5
Intangible Assets

 

Intangible
assets are recorded at cost, less accumulated amortization and impairment losses, if any Amortization is recorded on a
straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. Intangible assets,
which include product rights, domain name and trademark, have indefinite useful lives and are not subject to amortization.
Such assets are tested annually for impairment, or more frequently, if events or changes in circumstances indicate that they
might be impaired. The estimated useful lives, residual values, and amortization methods are reviewed at each year-end, and
any changes in estimates are accounted for prospectively. For the years ended December 31, 2018 and 2017, the Company did not
recognize any impairment losses.

 

    10 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.6
Financial Instruments

 

Recognition
and Initial Measurement

 

Financial
assets and financial liabilities, including derivatives, are recognized in the statements of financial position when the Company
becomes a party to the contractual provisions of a financial instrument or non- financial derivative contract. All financial instruments
are measured at fair value on initial recognition. Transaction costs that are directly attributable to the acquisition or issuance
of financial assets and financial liabilities, other than financial assets and financial liabilities classified as FVTPL, are
added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition of
financial assets or financial liabilities classified as FVTPL are recognized immediately in net loss.

 

Classification
and Subsequent Measurement

 

The
Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing
the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement
categories:

 

a)
amortized cost (“AC”);

b)
fair value through profit or loss (“FVTPL”); and

c)
fair value through other comprehensive income (“FVTOCI”).

  

Financial
assets are subsequently measured at amortized cost if both the following conditions are met and they are not designated as FVTPL:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

 

These
assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and
losses recognized in net income in the period that the asset is derecognized or impaired. All financial assets not classified
as amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics.
The Company has no financial assets measured at FVTOCI.

 

Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized
in net income in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

 

Financial
instruments are classified into one of the following categories: FVTPL; financial assets at amortized cost, financial liabilities
at amortized cost, and financial assets at FVTOCI.

 

Impairment
of Financial Instruments

 

For
accounts receivable, the Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which requires the use of the lifetime expected loss provision for all accounts receivable, based on the Company’s historical
default rates over the expected life of the accounts receivable, trade and is adjusted for forward-looking estimates. The methodologies
and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

 

    11 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

  

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.6
Financial Instruments (Continued)

 

All
individually significant loan receivables are assessed for impairment. All individually significant loans receivable found not
to be specifically impaired are then collectively assessed for impairment. Loans receivables not individually significant are
collectively assessed for impairment by grouping together loans receivable with similar risk characteristics.

 

Derecognition

 

The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when
it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains
and losses on derecognition are recognized in the consolidated statements of operations.

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled
or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration
paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the consolidated statements
of operations.

 

3.7
Impairment of Non-Financial Assets

 

At
each date of the statements of financial position, the Company reviews the carrying amounts of its tangible assets to determine
whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, or when annual
impairment testing for an asset is required, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash generating unit to which the assets belong.

 

The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.

 

If
the recoverable amount of an asset (or cash generating unit) is estimated to be less than it’s carrying amount, the carrying
amount of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately
in the consolidated statements of operations, unless the relevant asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.

 

Where
an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A previously recognised
impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable
amount since the last impairment loss was recognised.

 

    12 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.8
Biological Assets

 

The
Company measures biological assets consisting of cannabis plants at fair value less costs to sell up to the point of harvest,
which becomes the basis for the cost of internally produced work in process and finished goods inventories after harvest. Unrealized
gains or losses arising from changes in fair value less cost to sell during the year are included in the results of operations
of the related year.

 

3.9
Inventory

 

Inventories
of finished goods, work-in-process and raw materials are initially valued at cost and subsequently at the lower of cost and net
realizable value. Inventories of harvested cannabis are transferred from biological assets at their fair value at the point of
harvest, which becomes the initial deemed cost. Any subsequent post-harvest costs, including direct costs attributable to processing
and related overheads, are capitalized to inventory to the extent that cost is less than net realizable value. Net realizable
value is the estimated selling price in the ordinary course of business, less the estimated costs to sell. The Company reviews
inventories for obsolete, redundant and slow-moving goods and any such inventories identified are written down to net realizable
value. At December 31, 2018 and 2017 there were no reserves for inventories required.

 

3.10
Cash

 

The
Company considers all investments with original maturities of three months or less, that are highly liquid and readily convertible
into cash, to be cash equivalents.

 

3.11
Provisions

 

Provisions
are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and
it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation.

 

Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision
due to passage of time is recognized as interest expense.

 

3.12
Significant Accounting Judgments and Estimates

 

The
application of the Company’s accounting policies requires management to use estimates and judgments that can have significant
effect on the revenues, expenses, assets and liabilities recognized and disclosures made in the consolidated 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
immediately. Actual results could differ from the estimates used. 

 

    13 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.12
Significant Accounting Judgments and Estimates (Continued)

 

Management’s
budget and strategic plans are fundamental information used as a basis for estimates necessary to prepare financial information.
Management tracks performance as compared to the budget and significant variances in actual performance are a key trigger to assess
whether certain estimates used in the preparation of financial information must be revised.

 

The
following areas require management’s critical estimates and judgments:

 

(a)
Biological assets and inventory

 

In
calculating the value of the 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.

 

(b)
Estimated useful lives and depreciation of property, plant and equipment

 

Depreciation
and depreciation of property, plant and equipment are dependent upon estimates of useful lives, which are determined through the
exercise of judgements. The assessment of any impairment of these assets is dependent upon estimates of recoverable amounts that
lake into account factors such as economic and market conditions and the useful lives of assets.

 

(c)
Valuation, estimated life and impairment of intangible assets

 

Management
used significant judgment in valuing the fair value of intangible assets, 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.

 

3.13
Leases

 

The
determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified
in an arrangement.

 

A
lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Company is classified as a finance lease. An operating lease is a lease other
than a finance lease. Operating lease payments are recognised as an operating expense in the consolidated statements of operations
on a straight-line basis over the lease term.

 

3.14
Borrowing Costs

 

Borrowing
costs directly attributable to the acquisition or construction of a qualifying asset are capitalized. Qualifying assets are those
that require a minimum of three months to prepare for their intended use. 

 

    14 

     

    

  

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.15 Investment in Associate

 

An
associate is an entity over which the Company exercises significant influence. Significant influence is the power to participate
in the financial and operating policy of the investee but without control or joint control over those policies. Interests in associates
are accounted for using the equity method, and are initially recognized at cost. Subsequent to initial recognition, the carrying
value of the Company’s interest in an associate is adjusted for the Company’s share of income and distributions of
the investee. The carrying value of the Company’s investment in associate is assessed for impairment at each statement of
financial position date. Significant influence is the power to participate in the financial and operating policy decisions of
the investee without control or joint control over those decisions. Significant influence is presumed if the Company holds between
20% and 50% of the voting rights, unless evidence exists to the contrary. The Company has assessed that it has joint control over
its investment in The Canopy NV LLC.

 

Joint
control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control. Investees in which the Company has joint control and
rights to the net assets thereof, are defined as joint ventures.

 

Investees
in which the Company has significant influence are accounted for using the equity method. The Company’s interest in an investee
is initially recorded at cost and is subsequently adjusted for the Company’s share of changes in net assets of the investee, less
any impairment in the value of individual investments, less any dividends paid. Where the Company transacts with an investee,
unrealized profits and losses are eliminated to the extent of the Company’s interest in that investee.

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS

 

Adoption
of New Accounting Pronouncements

 

IFRS
9 - Financial Instruments

 

In
July 2014, the IASB issued the final version of IFRS 9 — Financial Instruments (“IFRS 9”), which
brings together the classification and measurement, impairment, and hedge-accounting phases of the IASB’s project to
replace IAS 39 — Financial Instruments: Recognition and Measurement (“IAS 39”).

 

Classification
and Measurement  — Financial assets are classified and measured based on the business model under which they are
managed and the contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a
similar manner as under IAS 39, except that financial liabilities measured at fair value will have fair value changes
resulting from changes in the entity’s own credit risk recognized in Other Comprehensive Income (“OCI”)
instead of Net Income, unless this would create an accounting mismatch.

 

IFRS
9 contains three principal classification categories for financial assets: measured at amortized cost (“AC”), fair
value through other comprehensive income (“FVTOCI”) and FVTPL. The standard eliminates the previous IAS 39 categories
of held to maturity, loans and receivables, and available for sale.

 

Impairment
 — The measurement of impairment of financial assets is based on an expected credit loss model. It is no longer
necessary for a triggering event to have occurred before credit losses are recognized. IFRS 9 also includes new disclosure
requirements about expected credit losses and credit risk. 

 

    15 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		4.	CHANGES
IN ACCOUNTING STANDARDS (Continued)

 

Adoption of New Accounting Pronouncements (Continued)

 

IFRS
9 - Financial Instruments (Continued)

 

Hedge
Accounting  — The new general hedge accounting model more closely aligns hedge accounting with risk management
activities undertaken by entities when hedging their financial and non-financial risk exposures. It will provide more
opportunities to apply hedge accounting to reflect actual risk management activities.

 

The
Company adopted IFRS 9 effective from January 1, 2018. The adoption did not result in any material change.

 

IFRS
15: Revenue from Contracts with Customers:

 

IFRS
15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs
of obtaining a contract and the costs directly related to fulfilling a contract. The Company has adopted IFRS 15 from incorporation
date.

 

IFRS
7. Financial Instruments: Disclosure

 

IFRS
7, Financial Instruments: Disclosure, was amended to require additional disclosures on transition from IAS 39 to IFRS 9. IFRS
7 is effective on adoption of IFRS 9, which is effective for annual periods commencing on or after January 1, 2018.

 

IAS
16 and IAS 41, Bearer Plants

 

The
Company has implemented amendments to IAS 16 and IAS 41, which became effective for annual periods beginning In January 1, 2016.
These amendments are summarized below.

 

		•	Bearer
                                         plants are accounted for as property, plant and equipment and measured at initial recognition
                                         at cost or revaluation basis.

 

		•	Bearer
                                         plants are defined as a living plant that are used in the production or supply of agricultural
                                         produce. Such plants are expected to bear produce for more than one period, and has a
                                         remote likelihood of being sold as agricultural produce, except for incidental scrap
                                         sales.

 

		•	Bearer
                                         plants remain within the scope of IAS 41.

 

The
amendments described above are consistent with the Company’s accounting practices.

 

    16 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		4.	CHANGES
IN ACCOUNTING STANDARDS (Continued)

 

Changes in Accounting Standards not yet Effective

 

IFRS
16 — Leases

 

In
January 2016, the LASB issued IFRS 16 — Leases (“IFRS 16”), which replaces IAS 17 — Leases, and
its associated interpretative guidance. IFRS 16 applies a control model to the identification of leases,
distinguishing between a lease and a service contract on the basis of whether the customer controls the asset being leased.
For those assets determined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by
lessees, introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with
limited exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current
accounting practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early
application permitted for entities that apply IFRS 15. The Company is currently evaluating the impact the final standard is
expected to have on its consolidated financial statements and plans to adopt the requirements in 2019.

 

		5.	INVENTORY

 

The
Company’s inventory includes the following:

 

	 	 	 	2018	 	2017
	 	 	Capitalized

        cost
	 	Fair
                                         value

        adjustment
	 	Carrying

    value	 	Capitalized

        cost
	 	Fair
                                         value

        adjustment
	 	Carrying

    value
	 	 	$	 		$	 	$	 	$	 	$ 	 	$ 
	Harvested cannabis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Work in process	 	 	51,922	 	 	-	 	 	51,922	 	 	145,283	 	 	45	 	 	145,328
	Finished goods	 	 	268,340	 	 	(29,676	) 	 	238,664	 	 	29,348	 	 	26,493	 	 	55,841
	 	 	 	320,262	 	 	(29,676	) 	 	290,586	 	 	174,631	 	 	26,538	 	 	201,169
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Production Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Raw materials	 	 	130,409	 	 	31,713	 	 	162,122	 	 	168,328	 	 	65,352	 	 	233,680
	Work in process	 	 	1,384,047	 	 	102,105	 	 	1,486,152	 	 	298,196	 	 	111,815	 	 	410,011
	Finished goods	 	 	58,385	 	 	8,347	 	 	66,732	 	 	138,371	 	 	23,699	 	 	162,070
	 	 	 	1,572,841	 	 	142,165	 	 	1,715,006	 	 	604,895	 	 	200,866	 	 	805,761
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Accessories and supplies	 	 	29,986	 	 	-	 	 	29,986	 	 	137,258	 	 	-	 	 	137,258
	 	 	 	1,923,089	 	 	112,489	 	 	2,035,578	 	 	916,784	 	 	227,404	 	 	1,144,188

 

Inventories
expensed as cost of goods sold during the years ended December 31, 2018 and 2017, are $3,281,125 and $2,434,607, respectively.
These exclude the fair market value changes of biological assets.

 

Non-cash
expense relating to change in fair value of inventory sold recognized during the years ended December 31, 2018 and 2017, are $5,086,289
and $1,061,462, respectively.

 

    17 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		6.	BIOLOGICAL
ASSETS

 

The
continuity of biological assets was as follows: 

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Balance, at beginning of year	 	 	1,232,350	 	 	 	1,043,041	 
	Production costs	 	 	3,049,368	 	 	 	2,887,977	 
	Fair value change	 	 	968,197	 	 	 	1,167,367	 
	Transferred to inventory upon harvest	 	 	(4,005,602	)	 	 	(3,866,035	)
	Balance, at end of year	 	 	1,244,313	 	 	 	1,232,350	 

 

As
of December 31, 2018 and 2017, the weighted average fair value less cost to complete and cost to sell was $3.39 and $2.4 per gram,
respectively.

 

The
fair value of biological assets is categorized within Level 3 on the fair value hierarchy. The inputs and assumptions used in
determining the fair value of biological assets include:

 

	(a) Selling price per gram;	Level 3 input	 
	(b) Attrition rate;	Level 3 input	 
	(c) Average yield per plant;	Level 3 input	 
	(d) Standard cost per gram to compete production	Level 3 input	 
	(e) Cumulative stage of completion in production process	Level 3 input	 

 

Significant
unobservable assumptions used in the valuation of biological assets, including the sensitivities on changes in these assumptions
and their effect on the fair value of biological assets, are as follows:

 

	Significant inputs or as Range of inputs	 	Sensitivity	 	Effect on fair value	 
	 	 	 	 	 	 	2018	 	 	2017	 
	 	 	 	 	 	 	 	$	 	 	 	$	 
	Selling price per gram*	 	$3.90 to $4.16	 	Increase or decrease of $1 per gram	 	 	366,308	 	 	 	514,055	 
	Average yield per plant	 	369 to 358 gram	 	Increase or decrease by 5 grams per plant	 	 	21,299	 	 	 	27,121	 

 

*Selling
price per gram is based on average selling prices for the period.

 

The
Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected
in the gain or loss on biological assets in future periods.

 

As
of December 31, 2018, and 2017, the biological assets were on average 51% and 43% complete, respectively. During the years ended
December 31, 2018 and 2017, the Company’s biological assets produced 1,181,220 grams and 1,106,825 grams of dried cannabis,
respectively.

 

    18 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		7.	LOANS
RECEIVABLE

 

Loans
receivable includes two loans provided by the Company to third parties, amounting to $200,000 and $40,000 in 2017. In August 2017,
the Company made a short-term loan of $200,000 which carried an interest rate of 24% per annum, payable monthly and was secured
by real estate. This loan was initially due in December 2017 but was subsequently amended to extend the maturity date to February
2018 in exchange for additional fees and penalties. The Company received $15,000 in interest payments for the year ended December
31, 2017.

 

In
November 2017, the Company made a short-term loan of $40,000 to a vendor, which carried an interest rate of 2.5% and was due March
2018. The loan was secured by third party equipment. There are no principal amounts outstanding for both the loans as at December
31, 2018 (December 31, 2017: $200,000 and $40,000).

 

		8.	INTANGIBLE
ASSETS

 

As
at December 31, intangible assets having indefinite lives consisted of the following:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Product rights	 	 	59,894	 	 	 	25,018	 
	Domain name	 	 	16,000	 	 	 	16,000	 
	Trademarks	 	 	5,000	 	 	 	5,000	 
	 	 	 	80,894	 	 	 	46,018	 

 

		9.	PROPERTY,
PLANT AND EQUIPMENT

 

	 	 	 	Land	 	 	Buildings &
 leasehold
 improvements
	 	 	Furniture &
 fixtures
	 	 	Office
 equipment
	 	 	Machinery
 &
 equipment
	 	 	Auto & 
trucks	 	 	Total	 
	 	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2016	 	 	600,000	 	 	2,504,052	 	 	9,855	 	 	62,315	 	 	784,917	 	 	10,435	 	 	3,971,574	 
	Additions	 	 	 	 	 	2,199,625	 	 	12,340	 	 	8,857	 	 	69,764	 	 	-	 	 	2,290,586	 
	As at December 31, 2017	 	 	600,000	 	 	4,703,677	 	 	22,195	 	 	71,172	 	 	854,681	 	 	10,435	 	 	6,262,160	 
	Additions	 	 	296,444	 	 	2,743,634	 	 	40,489	 	 	33,039	 	 	286,322	 	 	23,887	 	 	3,423,815	 
	As at December 31, 2018	 	 	896,444	 	 	7,447,311	 	 	62,684	 	 	104,211	 	 	1,141,003	 	 	34,322	 	 	9,685,975	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 		 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2016	 	 	-	 	 	58,738	 	 	1,291	 	 	14,634	 	 	140,666	 	 	348	 	 	215,677	 
	Depreciation	 	 	-	 	 	83,048	 	 	1,662	 	 	12,934	 	 	162,760	 	 	2,087	 	 	262,491	 
	As at December 31, 2017	 	 	-	 	 	141,786	 	 	2,953	 	 	27,568	 	 	303,426	 	 	2,435	 	 	478,168	 
	Depreciation	 	 	-	 	 	144,107	 	 	5,181	 	 	18,868	 	 	188.183	 	 	5,272	 	 	361,611	 
	As at December 31, 2018	 	 	-	 	 	285,893	 	 	8,134	 	 	46,436	 	 	491,609	 	 	7,707	 	 	839,779	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2017	 	 	600,000	 	 	4,561,891	 	 	19,242	 	 	43,604	 	 	551,255	 	 	8,000	 	 	5,783,992	 
	As at December 31, 2018	 	 	896,444	 	 	7,161,418	 	 	54,550	 	 	57,775	 	 	649,394	 	 	26,615	 	 	8,846,196	 

 

As
at December 31, 2018, buildings and leasehold improvements include borrowing costs of $nil capitalized in connection with loan
used for the construction of buildings (December 31, 2017: $204,660).

 

Depreciation expense for the years ended December 31, 2018
and 2017, of $51,831 and $262,491, respectively, is included in cost of goods sold.

 

    19 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		10.	INVESTMENT
IN ASSOCIATE

 

The
Company has a 52% participating interest in one of its related corporations. Management has concluded that the current participating
interest does not provide control to the Company. Accordingly, the current investment has been accounted for as an investment
in associate using the equity method as detailed below:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Balance, at beginning of year	 	 	1,200,651	 	 	 	217,142	 
	Addition (deletions)	 	 	(1,178,719	)	 	 	60,554	 
	Share of income	 	 	1,642,415	 	 	 	922,955	 
	Balance, at end of year	 	 	1,664,347	 	 	 	1,200,651	 

 

The
following table presents a summary of statements of financial position and statements of operations of the investee:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Current assets	 	 	2,295,880	 	 	 	1,567,469	 
	Non-current assets	 	 	2,859,107	 	 	 	2,076,211	 
	Current liabilities	 	 	689,284	 	 	 	363,553	 
	Revenue	 	 	11,748,244	 	 	 	7,135,024	 
	Income	 	 	3,150,573	 	 	 	1,774,912	 

 

		11.	DEBTS
PAYABLE

 

The
details of debts payable were as follows:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Revolving line of credit promissory note (a)	 	 	6,561,749	 	 	 	6,561,818	 
	Loan payable to a third party (b) and (c)	 	 	2,620,257	 	 	 	2,500,274	 
	Total debts payable	 	 	9,182,006	 	 	 	9,062,092	 
	Less: Current portion	 	 	-	 	 	 	(70,156	)
	Debts payable - Non-current portion	 	 	9,182,006	 	 	 	8,991,936	 

 

Total
debt payable includes interest payable as of December 31, 2018 and 2017, of $961,818 and $961,818, respectively.

 

    20 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		11.	DEBTS
PAYABLE (Continued)

 

As
at December 31, 2018, the maturity profile of the principal amounts of debts outstanding are as follows:

 

	Year ending December 31	 	 	$	 
	2019	 	 	-	 
	2020	 	 	181,220	 
	2021	 	 	123,322	 
	2022	 	 	2,213,481	 
	2023	 	 	39,014	 
	Thereafter	 	 	6,624,969	 
	 	 	 	9,182,006	 

 

		(a)	Revolving
Line of Credit Promissory Note

 

Debt
under this arrangement represented financing obtained from a related corporation under an original Revolving Line of Credit Note
dated November 5, 2014 of a maximum borrowing limit of $2,500,000, which was revised from time to time. Effective January 1, 2017,
the Company entered into a Restated Revolving Line of Credit, which replaced the revolving line of credit note with a straight
promissory note of $5,600,000 with maturity date extended indefinitely.

 

The
promissory note carries an interest of 6% per annum to be paid monthly. If monthly payment of interest is not made timely, the
interest for the period of the missed payment shall accrue at the default interest rate of 12%. The Company granted a 5% membership
interest to the note holder due to the principal amount of note was not repaid by June 30, 2017 (First Repayment Date). Subsequently,
a further 5% membership interest was granted to the note holder when the principal amount of the note was not repaid by December
31, 2017 (Second Repayment Date).

 

As
at December 31, 2018, the entire principal amount remained outstanding. A 5% membership interest was granted to the note holder
subsequent to the First Repayment Date, and a further 5% membership interest was granted to the note holder subsequent to the
Second Repayment Date. In addition, as at that date, accrued interest, included in debts payable — non-current portion, the amount
of $961,818 has remained unpaid (December 31, 2017: $961,818). The principal amounts outstanding as at December 31, 2018 and 2017,
were $5,600,000 and $5,600,000, respectively.

 

		(b)	Loan
Payable to a Third Party

 

Effective
August 24, 2017, the Company obtained a loan of $2,525,000 for a term of five years from a third party. This loan carries
interest at 5% per annum with a monthly blended payment of $16,664, started from October 1, 2017 with a final payment of
$2,123,899 on September 1, 2022. The loan is secured by a deed of trust with assignment of rents on the Company’s land
and buildings in favour of the lender. The principal amounts outstanding as at December 31, 2018 and 2017, were $2,430,187
and $2,500,274, respectively.

 

		(c)	Loan
Payable to a Third Party

 

On
July 23, 2018, the Company borrowed $190,000 in connection with the purchase of land. The loan bears interest at a rate of
6% per annum and is due in 2023. Monthly installments of principal and interest in an amount of $3,673 beginning on July 23,
2020. The loan is secured by a deed of trust. Should the Company prepay this loan by July 23, 2019, the principal amount will
be reduced by $25,000.

 

The
principal amounts outstanding as at December 31, 2018 and 2017, were $190,000 and $nil, respectively.

 

    21 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		12.	MEMBERS’
EQUITY

 

In
a series of transaction in Q2 2018, the Company adjusted its capital structure. On May 31, 2018, the Company (i) added additional
members, granting them membership interests in exchange for services provided on a historical and ongoing basis, (ii) created
a revised membership class structure to reflect these new members and (iii) allowed an existing member to make an additional capital
contribution to the Company. On Jun 4, 2018, the aforementioned member increased the amount of the additional capital contribution
of $1,100,000.

 

		13.	RELATED
PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the consolidated financial statements, related party transactions and balances are as follows:

 

Included
in other income for the years ended December 31, 2018 and 2017, is management fees of $125,000 and $201,000, respectively,
received from a related corporation. The management fee is paid monthly. The monthly fee varied based on an allocation of the
Company’s expenses and was a month-to-month arrangement.

 

During
the year ended December 31, 2018, sales of $5,016,480 made to a related corporation is included in revenues and purchases of $830,221
from a related corporation is included in cost of goods sold.

 

Advance
from a related corporation of $690,461 and $150,190, respectively, was outstanding as at December 31, 2018 and 2017. The advance
from a related corporation is unsecured, interest free and is repayable on demand.

 

During
the years ended December 31, 2018 and 2017, management fees of $280,000 and $nil, respectively, were paid to a related party under
consulting agreements. TRE and TRB each pay $20,000 per month ($40,000 per month in total) under these agreements, which were
executed and were effective on June 1, 2018. These agreements have a three-year term and automatically renew every three years
unless any party gives notice of their intent to terminate the agreement. Any party may also terminate the agreement at any time
with 120 days notice.

 

The
following outlines the compensation of the Company’s key management personnel:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Salaries and benefits to key management personnel	 	 	127,124	 	 	 	179,754	 

 

		14.	CAPITAL
MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support
business development. The Members do not establish quantitative return on capital criteria for management, but rather relies on
the expertise of the Company’s management to sustain future development of the business.

 

    22 

     

    

  

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		14.	CAPITAL
MANAGEMENT (Continued)

 

The
Company defines capital to include its Members’ equity. In order to carry out the planned business development and pay
for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. There
were no changes in the Company’s approach to capital management during the year ended December 31, 2018. The Company is
not subject to externally imposed capital requirements. As at December 31, 2018 and 2017, the capital of the Company was
$3,950,565 and $2,444,394, respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

		15.	GENERAL
AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of:

 

	 	 	2018	 	 	2017	 
	 	 	 	$	 	 	 	$	 
	Salaries and benefits	 	 	393,464	 	 	 	531,962	 
	Rent [Note 16]	 	 	7,872	 	 	 	10,284	 
	Taxes and licenses	 	 	5,766	 	 	 	38,698	 
	Professional and consulting fees	 	 	112,281	 	 	 	47,494	 
	Insurance	 	 	6,679	 	 	 	31,044	 
	Office expenses	 	 	37,699	 	 	 	30,638	 
	Computer expenses	 	 	69,605	 	 	 	50,495	 
	Shipping expenses	 	 	51,682	 	 	 	62,021	 
	Utilities	 	 	5,381	 	 	 	4,111	 
	Others	 	 	135,434	 	 	 	35,992	 
	 	 	 	825,863	 	 	 	842,739	 

 

    23 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		16.	COMMITMENTS
AND CONTINGENCIES

 

Operating
Leases

 

Effective
March 1, 2017, the Company conducted operations in facilities leased from a related party. The leases expire through 2022 and
contain certain renewal provisions. Future minimum lease payments under non-cancelable operating leases having an initial or remaining
term of more than one year are as follows:

 

	Year ending December 31	 	 	S	 
	2019	 	 	 	243,336	 
	2020	 	 	 	250,634	 
	2021	 	 	 	258,156	 
	2022	 	 	 	41,236	 
	 	 	 	 	793,362	 

 

Total
rent expensed for the years ended December 31, 2018 and 2017, were $7,872 and $10,284, respectively.

 

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at December 31, 2018, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

 

Claims
and Litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or
affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

		17.	FINANCIAL
RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, accounts receivable, loans receivable, trade payables, accrued
liabilities, advance from a related corporation and debts payable.

 

(a)
Fair Value

 

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 Company.

 

    24 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		17.	FINANCIAL
RISK FACTORS (Continued)

 

(a)
Fair Value (Continued)

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised
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.

 

    25 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		17.	FINANCIAL
RISK FACTORS (Continued)

 

The
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	 	Carrying values	 	 	 	 	 	 	 		 	 	 	Fair
                                         values	 
	Financial assets	 	 	FVTPL	 	 	 	FVTOCI	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	December 31, 2018	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Cash	 	 	345,987	 	 	 	-	 	 	 	-	 	 	 	345,987	 	 	 	345,987	 
	Accounts receivable	 	 	-	 	 	 	-	 	 	 	350,974	 	 	 	350,974	 	 	 	350,974	 
	Other receivables	 	 	-	 	 	 	-	 	 	 	11,532	 	 	 	11,532	 	 	 	11,532	 
	 	 	 	345,987	 	 	 	-	 	 	 	362,506	 	 	 	708,493	 	 	 	708,493	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2017	 	 	 	 	 	 	-	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	1,435,345	 	 	 	-	 	 	 	-	 	 	 	1,435,345	 	 	 	1,435,345	 
	Accounts receivable	 	 	-	 	 	 	-	 	 	 	130,890	 	 	 	130,890	 	 	 	130,890	 
	Loans receivable	 	 	-	 	 	 	-	 	 	 	240,000	 	 	 	240,000	 	 	 	240,000	 
	 	 	 	1,435,345	 	 	 	-	 	 	 	370,890	 	 	 	1,806,235	 	 	 	1,806,235	 

  

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	December 31, 2018	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	861,240	 	 	 	861,240	 	 	 	861,240	 
	Accrued liabilities	 	 	-	 	 	 	107,472	 	 	 	107,472	 	 	 	107,472	 
	Advance from a related corporation	 	 	-	 	 	 	690,461	 	 	 	690,461	 	 	 	690,461	 
	Debts payable	 	 	-	 	 	 	9,182,006	 	 	 	9,182,006	 	 	 	9,182,006	 
	 	 	 	 	 	 	 	10,841,179	 	 	 	10,841,179	 	 	 	10,841,179	 
	December 31, 2017	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	213,856	 	 	 	213,856	 	 	 	213,856	 
	Accrued liabilities	 	 	-	 	 	 	92,368	 	 	 	92,368	 	 	 	92,368	 
	Advance from a related corporation	 	 	-	 	 	 	150,190	 	 	 	150,190	 	 	 	150,190	 
	Debts payable	 	 	-	 	 	 	9,062,092	 	 	 	9,062,092	 	 	 	9,062,092	 
	 	 	 	-	 	 	 	9,518,506	 	 	 	9,518,506	 	 	 	9,518,506	 

 

The
Company’s financial instruments as at December 31, 2018 and 2017 classified as “Level 1 - quoted prices in active
markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy by re-assessing
categorization at the reporting date.

 

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

 

    26 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		17.	FINANCIAL
RISK FACTORS (Continued)

 

(b)
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 Company to concentrations of credit risk consist of cash and accounts receivable.
For its accounts receivable, the Company ensures to deal with creditworthy customers. As at December 31, 2018 and 2017, the maximum
amount exposed to credit risks was $708,493 and $1,566,235 respectively.

 

During
the years ended December 31, 2018 and 2017, revenue from one customer is approximately 69% and 43%, respectively, of total revenues
and purchases of raw materials from two suppliers were approximately $nil% and 40%, respectively, of total purchases.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at December 31, 2018, all trade payables and accrued liabilities are due within a year, whereas, long term debts over a period
of seven years.

 

(d)
Interest Rate Risk

 

Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The Company is exposed to interest rate risk on its long-term debts.

 

		18.	SEGMENTED
INFORMATION

 

Operating
and Geographical Segments

 

An
operating segment is defined as a component of the Company:

 

•
that engages in business activities from which it may earn revenues and incur expenses;

•
whose operating results are reviewed regularly by the entity’s chief operating decision maker; and;

• for which discrete
financial information is available.

 

At
December 31, 2018 and 2017, the Company’s operations comprise a single reporting operation and geographical segment engaged
in the growing, processing and distribution of cannabis.

 

		19.	SUBSEQUENT
EVENTS

 

The
Company’s management has evaluated subsequent events up to August 2, 2019, the date the consolidated financial statements
were issued, and determined the following event:

 

On
May 24, 2019 — Ayr Strategies Inc. (“AYR”), formerly Cannabis Strategies Acquisition Corp. closed its previously announced
Qualifying Transaction. Through the qualifying transaction, AYR has created a vertically integrated Multi-State Operator in the
U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

 

    27 

     

    

 

SCHEDULE
 “D”

LIVFREE
ANNUAL FINANCIAL STATEMENTS

 

(see
attached)

 

    

     

    

	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	LIVFREE
                                         WELLNESS, LLC	 
	 	 	 	 
	 	 	Consolidated
    Financial Statements	 
	 	 	 	 
	 	 	As
    of and for the Years Ended	 
	 	 	December
    31, 2018 And 2017	 
	 	 	 	 
	 	 	(EXPRESSED
    IN UNITED STATES DOLLARS)	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 

 

    

     

    

 

LIVFREE
WELLNESS, LLC

Consolidated
Financial Statements

December
31, 2018 and 2017

 

Table
of Contents

 

	 	Page
	 	 
	Management’s Responsibility for Financial
    Reporting	1
	 	 
	Independent Auditor’s Report	2-3
	 	 
	Financial Statements	 
	 	 
	Consolidated Statements of Financial Position	4
	 	 
	Consolidated Statements of Operations	5
	 	 
	Consolidated Statements of Changes in Members’
    Equity	6
	 	 
	Consolidated Statements of Cash Flows	7
	 	 
	Notes to the Consolidated Financial Statements	8-22

 

    

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management’s
Responsibility

 

To
the Members of LivFree Wellness, LLC:

 

The
accompanying consolidated financial statements and other financial information in this report were prepared by management of LivFree
Wellness, LLC (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the consolidated financial statements and believes that they fairly present the Company’s financial condition
and results of operations in conformity with International Financial Reporting Standards. Management has included in the Company’s
consolidated financial statements amounts based on estimates and judgments that it believes are reasonable, under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of consolidated financial statements. Consistent with the concept
of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected
benefits. Management further assures the quality of the financial records through careful selection and training of personnel
and through the adoption and communication of financial and other relevant policies.

 

These
consolidated financial statements have been audited by the Company’s auditors, Macias Gini & O’Connell LLP, and
their report is presented herein.

 

August
2, 2019

 

	“Steve
    Menzies” (Signed)	 	“Timothy
    Harris” (Signed)
	Managing Member	 	Chief Financial Officer

 

    1

     

    
 

 

Independent
Auditor’s Report

 

To
the Members of LivFree Wellness, LLC:

 

Opinion

 

We
have audited the consolidated financial statements of LivFree Wellness, LLC (the “Company”), which comprises the consolidated
statements of financial position as at December 31, 2018 and 2017, and the consolidated statements of operations, changes in members’
equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.

 

In
our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as at December 31, 2018 and 2017, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards.

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of
our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the
consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Responsibilities
of Management for the Consolidated Financial Statements

 

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

 

In
preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s
Responsibilities for the Audit of the Consolidated Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing
standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.

 

	Macias
Gini & O’Connell LLP 

        12264
El Camino Real, Suite 402 

        San
Diego, CA 92130
	2
	www.mgocpa.com

     

     

    

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

		•	Identify
                                         and assess the risks of material misstatement of the consolidated financial statements,
                                         whether due to fraud or error, design and perform audit procedures responsive to those
                                         risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
                                         for our opinion.

The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

		•	Obtain
                                         an understanding of internal control relevant to the audit in order to design audit procedures
                                         that are appropriate in the circumstances, but not for the purpose of expressing an opinion
                                         on the effectiveness of the Company’s internal control.

		•	Evaluate
                                         the appropriateness of accounting policies used and the reasonableness of accounting
                                         estimates and related disclosures made by management.

		•	Conclude
                                         on the appropriateness of management’s use of the going concern basis of accounting
                                         and, based on the audit evidence obtained, whether a material uncertainty exists related
                                         to events or conditions that may cast significant doubt on the entity’s ability
                                         to continue as a going concern. If we conclude that a material uncertainty exists, we
                                         are required to draw attention in our auditor’s report to the related disclosures
                                         in the consolidated financial statements or, if such disclosures are inadequate, to modify
                                         our opinion. Our conclusions are based on the audit evidence obtained up to the date
                                         of our auditor’s report. However, future events or conditions may cause the Company
                                         to cease to continue as a going concern.

		•	Evaluate
                                         the overall presentation, structure and content of the consolidated financial statements,
                                         including the disclosures, and whether the consolidated financial statements represent
                                         the underlying transactions and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

 

San
Diego, California

August
2, 2019

 

    3

     

    

 

	LIVFREE
    WELLNESS, LLC
	Consolidated Statements
    of Financial Position
	At December 31, 2018
    and 2017

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	ASSETS	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	2,196,398	 	 	 	898,658	 
	Inventory [Note 5]	 	 	2,344,459	 	 	 	1,396,981	 
	Due from a related corporation	 	 	-	 	 	 	590,495	 
	Prepaid expenses and other assets	 	 	248,769	 	 	 	148,224	 
	 	 	 	4,789,626	 	 	 	3,034,358	 
	Property, plant and equipment [Note 6]	 	 	1,625,978	 	 	 	1,390,530	 
	Investment in associate [Note 7]	 	 	3,354,501	 	 	 	1,586,966	 
	Total assets	 	 	9,770,105	 	 	 	6,011,854	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	1,150,649	 	 	 	133,849	 
	Accrued liabilities	 	 	984,367	 	 	 	558,305	 
	Distributions payables	 	 	280,000	 	 	 	1,980,000	 
	Debt payable - current portion [Note 8]	 	 	220,000	 	 	 	220,000	 
	 	 	 	2,635,016	 	 	 	2,892,154	 
	Debt payable - Non-current portion [Note 81]	 	 	-	 	 	 	240,000	 
	Total liabilities	 	 	2,635,016	 	 	 	3,132,154	 
	 	 	 	 	 	 	 	 	 
	MEMBERS’ EQUITY [Note 9]	 	 	7,135,089	 	 	 	2,879,700	 
	 	 	 	 	 	 	 	 	 
	Total liabilities and members’ equity	 	 	9,770,105	 	 	 	6,011,854	 

 

Nature
of operations [Note 1]

Commitments
and contingencies [Note 13]

Subsequent
events [Note 16]

 

Approved
and authorized by the Board of Directors on August 2, 2019

 

	“Steve Menzies”
    (Signed)	 	“Timothy Harris”
    (Signed)
	Managing Member	 	Chief Financial Officer

 

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

 

    4

     

    

 

LIVFREE
WELLNESS, LLC

Consolidated
Statements of Operations

For
the Years Ended December 31, 2018 and 2017

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 
	Revenues, net of discounts	 	 	34,058,319	 	 	 	14,465,998	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold	 	 	22,142,020	 	 	 	9,254,267	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	11,916,299	 	 	 	5,211,731	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 12]	 	 	4,024,862	 	 	 	2,421,520	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	512,282	 	 	 	299,681	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 6]	 	 	191,301	 	 	 	145,099	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	4,728,445	 	 	 	2,866,300	 
	 	 	 	 	 	 	 	 	 
	Income from operations	 	 	7,187,854	 	 	 	2,345,431	 
	 	 	 	 	 	 	 	 	 
	Other (income) expense	 	 	 	 	 	 	 	 
	Share of income on investment in associate [Note 7]	 	 	(274,899	)	 	 	(586,966	)
	Loss on disposal of property, plant and equipment	 	 	-	 	 	 	4,043	 
	Total other income	 	 	(274,899	)	 	 	(582,923	)
	 	 	 	 	 	 	 	 	 
	Net income	 	 	7,462,753	 	 	 	2,928,354	 

 

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

 

    5

     

    

 

LIVFREE
WELLNESS, LLC

Consolidated Statements of Changes in Members’ Equity

For the Years Ended December 31, 2018 and 2017

 

	 	 	$	 
	Balance as at December 31, 2016	 	 	1,143,139	 
	 	 	 	 	 
	Contribution [Note 9]	 	 	788,207	 
	 	 	 	 	 
	Distributions	 	 	(1,980,000	)
	 	 	 	 	 
	Net income	 	 	2,928,354	 
	 	 	 	 	 
	Balance as at December 31, 2017	 	 	2,879,700	 
	 	 	 	 	 
	Contribution [Note 9]	 	 	92,636	 
	 	 	 	 	 
	Distributions	 	 	(3,300,000	)
	 	 	 	 	 
	Net income	 	 	7,462,753	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	7,135,089	 

 

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

 

    6

     

    

 

LIVFREE
WELLNESS, LLC

Consolidated
Statements of Cash Flows 

For
the Years Ended December 31, 2018 and 2017

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	7,462,753	 	 	 	2,928,354	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not
    affecting cash:	 	 	 	 	 	 	 	 
	Depreciation	 	 	191,301	 	 	 	145,099	 
	Share of income on equity investments	 	 	(274,899	)	 	 	(586,966	)
	Loss on disposal of property, plant and equipment	 	 	-	 	 	 	4,043	 
	Bad Debt Expenses	 	 	297,192	 	 	 	-	 
	Changes in working capital
    items:	 	 	 	 	 	 	 	 
	Inventory	 	 	(947,478	)	 	 	(1,198,265	)
	Due from (to) a related corporation	 	 	293,303	 	 	 	(563,518	)
	Prepaid expenses and other assets	 	 	(100,545	)	 	 	(12,105	)
	Trade payables	 	 	1,016,800	 	 	 	133,849	 
	Accrued liabilities	 	 	426,062	 	 	 	434,737	 
	Cash provided by operating activities	 	 	8,364,489	 	 	 	1,285,228	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Change in investment in associates, net	 	 	(1,492,636	)	 	 	(1,000,000	)
	Purchase of property, plant and equipment	 	 	(426,749	)	 	 	(248,481	)
	Cash used in investing activities	 	 	(1,919,385	)	 	 	(1,248,481	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Repayment of debt	 	 	(240,000	)	 	 	-	 
	Payment on distributions payables	 	 	(1,980,000	)	 	 	-	 
	Contribution	 	 	92,636	 	 	 	788,207	 
	Distributions	 	 	(3,020,000	)	 	 	-	 
	Cash (used in) provided by financing activities	 	 	(5,147,364	)	 	 	788,207	 
	 	 	 	 	 	 	 	 	 
	Net increase in cash	 	 	1,297,740	 	 	 	824,954	 
	Cash, beginning of year	 	 	898,658	 	 	 	73,704	 
	Cash, end of year	 	 	2,196,398	 	 	 	898,658	 
	 	 	 	 	 	 	 	 	 
	Non-Cash supplementary information	 	 	 	 	 	 	 	 
	Distributions payable	 	 	(280,000	)	 	 	(1,980,000	)

 

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

 

    7

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		1.	NATURE
                                         OF OPERATIONS

 

LivFree
Wellness, LLC (“LivFree” or the “Company”) [formerly LivFree Wellness Reno LLC (“Reno”)]
was incorporated as a Limited Liability Company on August 16, 2014 in the State of Nevada, United States of America
(“USA”). The Company’s head office is located at 5347 S. Decatur Blvd, Las Vegas, NV 89118.

 

The
Company’s principal activities are buying and selling of cannabis as regulated under the laws applicable in the USA.

 

		2.	BASIS
                                         OF PRESENTATION 

 

2.1
Statement of Compliance

 

These
consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”)
issued by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial
Reporting Interpretations Committee (“IFRIC”).

 

These
consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on August 2,
2019.

 

2.2
Basis of Presentation

 

These
consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which
are measured at fair value, as explained in the accounting policies set out in Note 3. The consolidated financial statements are
presented in US dollars which is the presentation and functional currency of the Company.

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES 

 

3.1
Basis of Consolidation

 

The
consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries Billco Holdings,
LLC (“Billco”) and BP Solutions LLC (“BP”), Limited Liabilities Companies, incorporated in the state of
Nevada. The results of subsidiaries acquired or disposed of during the year is included in the consolidated statements of operations
from the effective date of acquisition or up to the effective date of disposal, as appropriate. All inter-company transactions,
balances, income and expenses are eliminated on consolidation. The financial statements of the subsidiaries are prepared for the
same reporting period as the Company, using consistent accounting policies.

 

    8

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.2
Revenues

 

IFRS
15 specifies how and when revenues should be recognized based on a five-step model, which is applied to all contracts with customers.
The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional
adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition
under IFRS 15 is to follow a five-step model to detennine the amount and timing of revenue to be recognized:

 

		•	Identifying
                                         the contract with a customer

		•	Identifying
                                         the performance obligations within the contract

		•	Determining
                                         the transaction price

		•	Allocating
                                         the transaction price to the performance obligations

		•	Recognizing
                                         revenue when/as performance obligation(s) are satisfied.

 

Revenue
from buying and selling of cannabis is recognized when the Company transfers control of the good to the customer. In some cases,
judgement is required in determining whether the customer is a business or the end consumer. This evaluation was made on the basis
of whether the business obtains control of the product before transferring to the end consumer. Control of the product transfers
at a point in time either upon shipment to or receipt by the customer, depending on the contractual terms.

 

The
Company recognizes revenue in an amount that reflects the consideration that the Company expects to receive taking into account
any variation that may result from rights of return.

 

The
pattern and timing of revenue recognition under the new standard is consistent with prior year practice.

 

There
were no adjustments recognized on the adoption of IFRS 15 in the year ended December 31, 2018.

 

3.3
Property, Plant and Equipment (“PPE”)

 

Property,
plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of
PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located.

 

Depreciation
is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the straight-line method
over the following expected useful lives:

 

		•	Leasehold
                                         improvements – the shorter of the useful life or life of the lease

		•	Furniture
                                         and fixtures – 5-10 years

		•	Office
                                         and equipment – 3-5 years

 

An
item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the
continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal
proceeds and the carrying amount of the asset, is recognized in the statement of income (loss).

 

Assets
in process are transferred to the appropriate asset class when available for use and depreciation of the assets commences at that
point of time.

 

    9

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.3
Property, plant and equipment (“PPE”) (Continued)

 

The
Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any
changes arising from the assessment are applied by the Company prospectively.

 

Where
an item of property, plant and equipment comprises major components with different useful lives, the components are accounted
for as separate items of property, plant and equipment. Expenditures incurred to replace a component of an item of property, plant
and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

3.4
Taxation

 

The
Company is considered a Limited Liability Company for income tax purposes, for the years ended December 31, 2018 and 2017. Therefore,
the Company’s taxable income is allocated to the members for inclusion on their respective income tax returns.

 

As
the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in pennanent differences between ordinary and necessary
business expenses deemed non-allowable under IRC Section 280E.

 

3.5
Financial Instruments

 

Recognition
and Initial Measurement

 

Financial
assets and financial liabilities, including derivatives, are recognized in the consolidated statements of financial position when
the Company becomes a party to the contractual provisions of a financial instrument or non-financial derivative contract. All
financial instruments are measured at fair value on initial recognition. Transaction costs that are directly attributable to the
acquisition or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified
as FVTPL, are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities classified as FVTPL are recognized immediately in net loss.

 

Classification
and Subsequent Measurement

 

The
Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing
the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement
categories:

 

		a)	amortized
                                         cost (“AC”);

		b)	fair
                                         value through profit or loss (“FVTPL”); and

		c)	fair
                                         value through other comprehensive income (“FVTOCI”).

 

Financial
assets are subsequently measured at amortized cost if both the following conditions are met and they are not designated as FVTPL:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

 

    10

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.5
Financial Instruments (Continued)

 

These
assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and
losses recognized in net income in the period that the asset is derecognized or impaired. All financial assets not classified
as amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics.
The Company has no financial assets measured at FVTOCI.

 

Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized
in net income in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

 

Financial
instruments are classified into one of the following categories: FVTPL; financial assets at amortized cost, financial liabilities
at amortized cost, and financial assets at FVTOCI.

 

Impairment
of Financial Instruments

 

For
accounts receivable, the Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which requires the use of the lifetime expected loss provision for all accounts receivable, trade based on the Company’s
historical default rates over the expected life of the accounts receivable, trade and is adjusted for forward-looking estimates.
The methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

 

All
individually significant loan receivables are assessed for impairment. All individually significant loans receivable found not
to be specifically impaired are then collectively assessed for impairment. Loans receivables not individually significant are
collectively assessed for impairment by grouping together loans receivable with similar risk characteristics.

 

Derecognition

 

The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when
it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains
and losses on derecognition are recognized in the consolidated statements of operations.

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled
or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration
paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the consolidated statements
of operations.

 

    11

     

    

 

LIVFREE
WELLNESS, LLC 

Notes
to the Consolidated Financial Statements 

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.6
Impairment of Non-Financial Assets

 

At
each date of the consolidated statements of financial position, the Company reviews the carrying amounts of its long lived assets
to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists,
or when annual impairment testing for an asset is required, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset,
the Company estimates the recoverable amount of the cash generating unit to which the assets belong.

 

The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In detennining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.

 

If
the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the
consolidated statements of operations, unless the relevant asset is carried at a revalued amount, in which case the impairment
loss is treated as a revaluation decrease.

 

Where
an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A previously recognised
impairment loss is reversed only if there has been a change in the assumptions used to detennine the asset’s recoverable
amount since the last impairment loss was recognised.

 

3.7
Inventory

 

Inventories
purchased from third parties represent finished goods that are valued at the lower of cost and net realizable value. Cost is
determined using the weighted average costing method. Net realizable value is the estimated selling price in the ordinary
course of business, less the estimated costs to sell. The Company reviews inventories for obsolete, redundant and slow-moving
goods and any such inventories identified are written down to net realizable value. At December 31, 2018 and 2017, there were
no reserves for inventories required.

 

3.8
Cash and Cash Equivalents

 

The
Company considers all investments with original maturities of three months or less, that are highly liquid and readily convertible
into cash, to be cash equivalents.

 

    12

     

    

 

LIVFREE
WELLNESS, LLC 

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.9
Provisions

 

Provisions
are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and
it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation.

 

Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision
due to passage of time is recognized as interest expense.

 

3.10
Significant Accounting Judgments and Estimates

 

The
application of the Company’s accounting policies requires management to use estimates and judgments that can have significant
effect on the revenues, expenses, income (loss), assets and liabilities recognized and disclosures made in the consolidated 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
immediately. Actual results could differ from the estimates used.

 

Management’s
budget and strategic plans are fundamental information used as a basis for estimates necessary to prepare financial information.
Management tracks performance as compared to the budget and significant variances in actual performance are a key trigger to assess
whether certain estimates used in the preparation of financial information must be revised.

 

The
following areas require management’s critical estimates and judgments:

 

(a)       Estimated
useful lives and depreciation of property, plant and equipment.

 

Depreciation
and depreciation of property, plant and equipment are dependent upon estimates of useful lives, which are determined through the
exercise of judgements. 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.

 

3.11
Leases

 

The
determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception
of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific
asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified
in an arrangement.

 

A
lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the
risks and rewards incidental to ownership to the Company is classified as a finance lease. An operating lease is a lease other
than a finance lease. Operating lease payments are recognised as an operating expense in the consolidated statements of operations
on a straight-line basis over the lease term.

 

    13

     

    

 

LIVFREE
WELLNESS, LLC 

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 

 

3.12
Investment in Associates

 

An
associate is an entity over which the Company exercises significant influence. Significant influence is the power to participate
in the financial and operating policy of the investee but without control or joint control over those policies. Interests in associates
are accounted for using the equity method, and are initially recognized at cost. Subsequent to initial recognition, the carrying
value of the Company’s interest in an associate is adjusted for the Company’s share of income and distributions of
the investee. The carrying value of associates is assessed for impairment at each statement of financial position date. Significant
influence is the power to participate in the financial and operating policy decisions of the investee without control or joint
control over those decisions. Significant influence is presumed if the Company holds between 20% and 50% of the voting rights,
unless evidence exists to the contrary.

 

Joint
control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require the unanimous consent of the parties sharing control. Investees in which the Company has joint control and
rights to the net assets thereof, are defined as joint ventures. The Company has assessed that it has joint control over its investment
in JDSS Investments LLC.

 

Investees
in which the Company has significant influence are accounted for using the equity method. The Company’s interest in an investee
is initially recorded at cost and is subsequently adjusted for the Company’s share of profit or income of the investee,
less any impairment in the value of individual investments, less any dividends paid. Where the Company transacts with an investee,
unrealized profits and losses are eliminated to the extent of the Company’s interest in that investee.

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS 

 

Adoption
of New Accounting Pronouncements

 

IFRS
9 - Financial Instruments

 

In
August 2014, the IASB issued the final version of IFRS 9 – Financial Instruments (“IFRS 9”), which
brings together the classification and measurement, impairment, and hedge-accounting phases of the IASB’s project to
replace IAS 39 – Financial Instruments: Recognition and Measurement (“IAS 39”).

 

Classification
and Measurement Financial assets are classified and measured based on the business model under which they are managed and the
contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under
IAS 39, except that financial liabilities measured at fair value will have fair value changes resulting from changes in the entity’s
own credit risk recognized in Other Comprehensive Income (“OCI”) instead of Net Income, unless this would create an
accounting mismatch.

 

IFRS
9 contains three principal classification categories for financial assets: measured at amortized cost (“AC”), fair
value through other comprehensive income (“FVTOCI”) and FVTPL. The standard eliminates the previous IAS 39 categories
of held to maturity, loans and receivables, and available for sale.

 

Impairment
 – The measurement of impairment of financial assets is based on an expected credit loss model. It is no longer necessary for a
triggering event to have occurred before credit losses are recognized. IFRS 9 also includes new disclosure requirements about
expected credit losses and credit risk.

 

    14

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS (Continued)

 

IFRS
9 - Financial Instruments (Continued)

 

Hedge
Accounting – The new general hedge accounting model more closely aligns hedge accounting with risk management activities undertaken
by entities when hedging their financial and non-financial risk exposures. It will provide more opportunities to apply hedge accounting
to reflect actual risk management activities.

 

The
Company adopted IFRS 9 effective from January 1, 2018. The adoption did not result in any material change.

 

IFRS
15: Revenue from Contracts with Customers:

 

IFRS
15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs
of obtaining a contract and the costs directly related to fulfilling a contract. The Company has adopted IFRS 15 from incorporation
date.

 

IFRS
7. Financial Instruments: Disclosure

 

IFRS
7, Financial Instruments: Disclosure, was amended to require additional disclosures on transition from IAS 39 to IFRS 9. IFRS
7 is effective on adoption of IFRS 9, which is effective for annual periods commencing on or after January 1,2018. The adoption
did not result in any material change.

 

Changes
in Accounting Standards not yet Effective

 

IFRS
16 – Leases

 

In
January 2016, the IASB issued IFRS 16 - Leases (“IFRS 16”), which replaces IAS 17 - Leases, and its
associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a
lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets determined
to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees, introducing a single,
on-balance sheet accounting model that is similar to current finance lease accounting, with limited exceptions for short-term
leases or leases of low value assets. Lessor accounting remains similar to current accounting practice. The standard is effective
for annual periods beginning on or after January 1, 2019, with early application permitted for entities that apply IFRS 15. The
Company is currently evaluating the impact the final standard is expected to have on its consolidated financial statements and
plans to adopt the requirements in 2019.

 

		5.	INVENTORY

 

Inventory
is comprised of finished goods.

 

Inventories
expensed as cost of goods sold during the years ended December 31, 2018 and 2017, was $18,422,993 and $7,335,444, respectively.

 

    15

     

    

 

LIVFREE
WELLNESS, LLC

Notes to the Consolidated Financial Statements

For the Years Ended December 31, 2018 and 2017

 

 

	6.	PROPERTY,
                                         PLANT AND EQUIPMENT

 

	 	 	Leasehold

                                                                                improvements
	 	 	Furniture
                                         and

                                                                                fixtures
	 	 	Office
                                         &

                                                                                Equipment
	 	 	Total	 
	 	 	$	 	 	$	 	 	$	 	 	$	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	1,327,313	 	 	 	14,209	 	 	 	9,096	 	 	 	1,350,618	 
	Additions	 	 	187,446	 	 	 	15,052	 	 	 	45,983	 	 	 	248,481	 
	Disposals	 	 	-	 	 	 	-	 	 	 	(9,096	)	 	 	(9,096	)
	As
    at December 31, 2017	 	 	1,514,759	 	 	 	29,261	 	 	 	45,983	 	 	 	1,590,003	 
	Additions	 	 	321,454	 	 	 	27,344	 	 	 	77,951	 	 	 	426,749	 
	As
at December 31, 2018	 	 	1,836,213	 	 	 	56,605	 	 	 	123,934	 	 	 	2,016,752	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2016	 	 	56,746	 	 	 	408	 	 	 	2,274	 	 	 	59,428	 
	Depreciation	 	 	134,215	 	 	 	3,262	 	 	 	7,622	 	 	 	145,099	 
	Disposals	 	 	-	 	 	 	-	 	 	 	(5,054	)	 	 	(5,054	)
	As
    at December 31, 2017	 	 	190,961	 	 	 	3,670	 	 	 	4,842	 	 	 	199,473	 
	Depreciation	 	 	161,854	 	 	 	7,093	 	 	 	22,354	 	 	 	191,301	 
	As
    at December 31, 2018	 	 	352,815	 	 	 	10,763	 	 	 	27,196	 	 	 	390,774	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net
    book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As
    at December 31, 2017	 	 	1,323,798	 	 	 	25,591	 	 	 	41,141	 	 	 	1,390,530	 
	As
    at December 31, 2018	 	 	1,483,398	 	 	 	45,842	 	 	 	96,738	 	 	 	1,625,978	 

 

Depreciation
expense for the years ended December 31, 2018 and 2017, of $191,301 and $145,099, respectively, is included within operating expenses.

 

	7.	INVESTMENT
                                         IN ASSOCIATE

 

Pursuant
to Membership Interest Purchase and Sale Agreement dated July 1, 2017, the Company acquired a 50% membership interest in JDSS
Investments LLC. Per the purchase agreement section 2.0, the total purchase price was $2.4 million. Management has concluded that
the current investment is to be accounted for as an investment in associate using the equity method as detailed below:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Balance, at beginning of year	 	 	1,586,966	 	 	 	-	 
	Additions	 	 	1,492,636	 	 	 	1,000,000	 
	Share of income	 	 	274,899	 	 	 	586,966	 
	Balance, at end of year	 	 	3,354,501	 	 	 	1,586,966	 

 

    16 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	7.	INVESTMENT
                                         IN ASSOCIATE (Continued)

 

The
following table presents a summary of the statements of financial position and statements of operations of the investee:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Current assets	 	 	2,490,315	 	 	 	529,714	 
	Non-current assets	 	 	2,839,647	 	 	 	3,004,653	 
	Current liabilities	 	 	314,421	 	 	 	80,636	 
	Revenue	 	 	4,736,053	 	 	 	1,263,372	 
	Income	 	 	595,147	 	 	 	419,397	 

 

	8.	DEBT
                                         PAYABLE

 

Effective
December 12, 2014, the Company obtained a loan of $460,000 from a third party. The loan is unsecured, carries no interest, and
there is no repayment term.

 

On
January 16, 2018, the Company entered into Settlement Agreement (the “Agreement”) with the debt holder and one of
its existing members for the repayment of debt in accordance with an agreed repayment schedule. The Company agreed to pay $20,000
within 30 days from the execution of this Agreement and the remaining balance to be paid in 22 equal monthly payments of $20,000.
The current and non-current portion of the debt has been classified in accordance with the agreed repayment schedule. The Company
has provided a loan to the owner amounting to $280,000. The loan is interest free and repayable on demand.

 

The
details of debt payable were as follows:

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Debt payable to a third party	 	 	220,000	 	 	 	460,000	 
	Less: Current portion	 	 	(220,000	)	 	 	(220,000	)
	Debt payable - Non-current portion	 	 	-	 	 	 	240,000	 

 

	9.	MEMBERS’
                                         EQUITY

 

During
the years ended December 31, 2018 and 2017, contributions by the members of the Company amounted to $92,636 and $788,207, respectively.

 

During
the years ended December 31, 2018 and 2017, distributions to the members of the Company amounted to $3,300,000 and $1,980,000,
respectively.

 

As
at December 31, 2018 and 2017, distribution payable balance was $280,000 and $1,980,000, respectively.

 

    17 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	10.	RELATED
                                         PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the consolidated financial statements, related party transactions and balances are as follows:

 

Total
rent expense for the years ended December 31, 2018 and 2017, includes rent charged from a related corporation amounting to $68,260
and $nil, respectively.

 

During
the years ended December 31, 2018 and 2017, purchases of harvested cannabis totaling $440,310 and $474,440, respectively, from
a related party is included in cost of goods sold.

 

No
compensation was paid to key management for the years ended December 31, 2018 and 2017.

 

	11.	CAPITAL
                                         MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support
business development. The Members do not establish quantitative return on capital criteria for management, but rather relies on
the expertise of the Company's management to sustain future development of the business. The Company defines capital to include
its Members’ equity. In order to carry out the planned business development and pay for administrative costs, the Company
will spend its existing working capital and raise additional amounts as needed. There were no changes in the Company's approach
to capital management during the year ended December 31, 2018. The Company is not subject to externally imposed capital requirements.
As at December 31, 2018 and 2017, the capital of the Company was $7,135,089 and $2,879,700, respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

    18 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	12.	GENERAL
    AND ADMINISTRATIVE

 

	General and administrative
    expenses were comprised of:	 	 	 	 	 	 
	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Salaries and benefits	 	 	1,738,572	 	 	 	1,283,492	 
	Rent [Notes 10 & 13]	 	 	430,168	 	 	 	252,285	 
	Taxes and licenses	 	 	45,457	 	 	 	21,681	 
	Professional and consulting fees	 	 	796,701	 	 	 	323,340	 
	Insurance	 	 	152,455	 	 	 	94,686	 
	Office expenses	 	 	184,780	 	 	 	187,764	 
	Travel	 	 	107,529	 	 	 	76,716	 
	Utilities	 	 	98,963	 	 	 	45,228	 
	Others	 	 	470,237	 	 	 	136,328	 
	 	 	 	4,024,862	 	 	 	2,421,520	 

 

	13.	COMMITMENTS
    AND CONTINGENCIES
	 	 
	Operating
    Leases

 

Pursuant
to various lease agreements, the Company conducted operations in facilities leased from third parties and a related party. The
leases expire through 2022 and contain certain renewal provisions. Future minimum lease payments under non-cancelable operating
leases having an initial or remaining term of more than one year are as follows:

 

	Year ending December 31	 	 	$	 
	2019	 	 	 	483,094	 
	2020	 	 	 	501,595	 
	2021	 	 	 	463,664	 
	2022	 	 	 	348,649	 
	 	 	 	 	1,797,002	 

 

Total
rent expensed for the years ended December 31, 2018 and 2017, were $430,168 and $252,285, respectively.

 

Contingencies

 

The
Company's operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at December 31, 2018, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

  

    19 

     

    
 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	13.	COMMITMENTS
AND CONTINGENCIES (Continued) 

 

Claims
and Litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on the results of the Company's operations. There are also no proceedings in which any of the Company's directors, officers or
affiliates is an adverse party or has a material interest adverse to the Company's interest.

 

An
affiliate of the Company engaged a contractor to determine if a site met the requirements for a new grow facility. Based on the
survey done by the contractor, the Company proceeded with the purchase and incurred a loss when the site was subsequently determined
not to be suitable. The Company filed a claim with the contractor’s insurer to recover its losses and commenced litigation
when the insurer refused to pay any portion of the claim. In 2018, the Company’s legal counsel indicated they were not able
to collect the $250,000 paid by the Company. As a result, the Company recognized $250,000 of bad debt expense.

 

	14.	FINANCIAL
                                         RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, amounts due from a related corporation, trade payables, accrued
liabilities, distributions payable and debts payable.

 

(a)
Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised
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.

  

    20 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

• 
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
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	 	 	 	 	Fair values	 
	Financial assets	 	 	FVTPL	 	 	 	FVTOCI	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	December 31, 2018	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Cash	 	 	2,196,398	 	 	 	 	 	 	 	 	 	 	 	2,196,398	 	 	 	2,196,398	 
	Due from a related corporation	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	-	 
	 	 	 	2,196,398	 	 	 	-	 	 	 	-	 	 	 	2,196,398	 	 	 	2,196,398	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	898,658	 	 	 	-	 	 	 	-	 	 	 	898,658	 	 	 	898,658	 
	Due from a related corporation	 	 	590,495	 	 	 	-	 	 	 	-	 	 	 	590,495	 	 	 	590,495	 
	 	 	 	1,489,153	 	 	 	-	 	 	 	-	 	 	 	1,489,153	 	 	 	1,489,153	 

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	December 31, 2018	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	1,150,649	 	 	 	1,150,649	 	 	 	1,150,649	 
	Accrued liabilities	 	 	-	 	 	 	984,367	 	 	 	984,367	 	 	 	984,367	 
	Distributions payable	 	 	-	 	 	 	280,000	 	 	 	280,000	 	 	 	280,000	 
	Debt payable	 	 	-	 	 	 	220,000	 	 	 	220,000	 	 	 	220,000	 
	 	 	 	-	 	 	 	2,635,016	 	 	 	2,635,016	 	 	 	2,635,016	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	133,849	 	 	 	133,849	 	 	 	133,849	 
	Accrued liabilities	 	 	-	 	 	 	558,305	 	 	 	558,305	 	 	 	558,305	 
	Distributions payable	 	 	-	 	 	 	1,980,000	 	 	 	1,980,000	 	 	 	1,980,000	 
	Debt payable	 	 	-	 	 	 	460,000	 	 	 	460,000	 	 	 	460,000	 
	 	 	 	-	 	 	 	3,132,154	 	 	 	3,132,154	 	 	 	3,132,154	 

 

The
Company’s financial instruments as at December 31, 2018 and 2017, classified as “Level 1 - quoted prices in active
markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy by re-assessing
categorization at the reporting date.

 

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

 

    21 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Consolidated Financial Statements

For
the Years Ended December 31, 2018 and 2017

 

 

	14.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(b) 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 Company to concentrations of credit risk consist of cash and due from a related
corporation. As at December 31, 2018 and 2017, the maximum amount exposed to credit risks was $2,196,398 and $1,489,153, respectively.

 

(c) Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at December 31, 2018 and 2017, all trade payables and accrued liabilities are due within a year, whereas, long term debt over
a period of two years.

 

	15.	SEGMENTED
INFORMATION

 

Operating
and Geographical Segments

 

An
operating segment is defined as a component of the Company:

 

		•	that
                                         engages in business activities from which it may earn revenues and incur expenses;

		•	whose
                                         operating results are reviewed regularly by the entity’s chief operating decision
                                         maker; and;

		•	for
                                         which discrete financial information is available.

 

At
December 31, 2018 and 2017, the Company’s operations comprise a single reporting operating and geographical segment engaged
in buying and selling of cannabis.

 

	16.	SUBSEQUENT
EVENTS

 

The
Company’s management has evaluated subsequent events up to August 2, 2019, the date the consolidated financial statements
were issued, and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“AYR”), formerly Cannabis Strategies Acquisition Corp. closed its previously announced
Qualifying Transaction. Through the qualifying transaction, AYR has created a vertically integrated Multi-State Operator in the
U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

 

    22 

     

    

 

SCHEDULE
 “E”

CANNAPUNCH
ANNUAL FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    
 

	 	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	
         

        CANNAPUNCH OF NEVADA, LLC 

         

        Financial Statements

         

        As of and for the Years Ended

December 31, 2018 and 

As of and for the Period From 

        March 30, 2017 (Inception Date) To 

December
        31, 2017

         

        (EXPRESSED IN UNITED STATES DOLLARS)

         

	 	 
	 	
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 
	 	 	 

     

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Financial
Statements

December
31, 2018 and 2017

 

Table
of Contents

 

	 	Page
	 	 
	Management's Responsibility
    for Financial Reporting	1
	 	 
	Independent Auditor's Report	2-3
	 	 
	Financial Statements	 
	 	 
	Statements of Financial
    Position	4
	 	 
	Statements of Operations	5
	 	 
	Statements of Changes
    in Members’ Equity	6
	 	 
	Statements of Cash
    Flows	7
	 	 
	Notes to the Financial
    Statements	8-20

 

     

     

    

 

MANAGEMENT'S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management's
Responsibility

 

To
the Members of CannaPunch of Nevada, LLC:

 

The
accompanying financial statements and other financial information in this annual report were prepared by management of CannaPunch
of Nevada, LLC ("the Company"), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the financial statements and believes that they fairly present the Company's financial condition and results
of operations in conformity with International Financial Reporting Standards. Management has included in the Company's financial
statements amounts based on estimates and judgments that it believes are reasonable, under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of financial statements. Consistent with the concept of reasonable
assurance, the Company recognizes that the relative cost of maintaining these controls should not exceed their expected benefits.
Management further assures the quality of the financial records through careful selection and training of personnel and through
the adoption and communication of financial and other relevant policies.

 

These
financial statements have been audited by the Company's auditors, Macias Gini & O'Connell LLP, and their report is presented
herein.

 

August
2, 2019

 

	“Mark Smith” (Signed)	 

Chief
Executive Officer

 

    1 

     

    

 

 

 

Independent
Auditor’s Report

 

To
the Members of CannaPunch of Nevada, LLC:

 

Opinion

 

We
have audited the financial statements of CannaPunch of Nevada, LLC (the “Company”), which comprises the statements
of financial position as at December 31, 2018 and 2017, and the statements of operations, changes in members’ equity and
cash flows for the year ended December 31, 2018 and for the period from March 30, 2017 (inception date) to December 31, 2017,
and notes to the financial statements, including a summary of significant accounting policies.

 

In
our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2018 and 2017, and its financial performance and its cash flows for the year ended December 31, 2018 and for
the period from March 30, 2017 (inception date) to December 31, 2017 in accordance with International Financial Reporting Standards.

 

Basis
for Opinion

 

We
conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards
are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Responsibilities
of Management for the Financial Statements

 

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

 

In
preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

 

Auditor’s
Responsibilities for the Audit of the Financial Statements

 

Our
objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.

 

	Macias Gini
    & O’Connell LLP	 	 
	12264 El Camino Real, Suite
    402	 	 
	San Diego, CA 92130	 	www.mgocpa.com

 

    2 

     

    

 

As
part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

 

		•	Identify
                                         and assess the risks of material misstatement of the financial statements, whether due
                                         to fraud or error, design and perform audit procedures responsive to those risks, and
                                         obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

		•	Obtain
                                         an understanding of internal control relevant to the audit in order to design audit procedures
                                         that are appropriate in the circumstances, but not for the purpose of expressing an opinion
                                         on the effectiveness of the Company’s internal control.

		•	Evaluate
                                         the appropriateness of accounting policies used and the reasonableness of accounting
                                         estimates and related disclosures made by management.

		•	Conclude
                                         on the appropriateness of management's use of the going concern basis of accounting and,
                                         based on the audit evidence obtained, whether a material uncertainty exists related to
                                         events or conditions that may cast significant doubt on the entity’s ability to
                                         continue as a going concern. If we conclude that a material uncertainty exists, we are
                                         required to draw attention in our auditor's report to the related disclosures in the
                                         financial statements or, if such disclosures are inadequate, to modify our opinion. Our
                                         conclusions are based on the audit evidence obtained up to the date of our auditor's
                                         report. However, future events or conditions may cause the Company to cease to continue
                                         as a going concern.

		•	Evaluate
                                         the overall presentation, structure and content of the financial statements, including
                                         the disclosures, and whether the financial statements represent the underlying transactions
                                         and events in a manner that achieves fair presentation.

 

We
communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and
significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

 

 

San
Diego, California

August
2, 2019

 

    3 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Statements
of Financial Position

At
December 31, 2018 and 2017 

	 	 	2018	 	 	2017	 
		 	$	 	 	$	 
	ASSETS	 	 	 	 	 	 
	Current	 	 	 	 	 	 
	Cash	 	 	122,367	 	 	 	146,817	 
	Inventory [Note 5]	 	 	337,129	 	 	 	138,420	 
	Accounts receivable, trade, no allowance	 	 	374,649	 	 	 	81,483	 
	Prepaid expenses and other assets	 	 	-	 	 	 	22,645	 
	 	 	 	834,145	 	 	 	389,365	 
	Machinery and equipment [Note 6]	 	 	22,154	 	 	 	21,601	 
	Total assets	 	 	856,299	 	 	 	410,966	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	174,902	 	 	 	26,752	 
	Accrued liabilities	 	 	58,956	 	 	 	94,330	 
	Advance from a member	 	 	1,402	 	 	 	-	 
	Total liabilities	 	 	235,260	 	 	 	121,082	 
	 	 	 	 	 	 	 	 	 
	MEMBERS' EQUITY
    [Note 7]	 	 	621,039	 	 	 	289,884	 
	Total liabilities and members' equity	 	 	856,299	 	 	 	410,966	 

 

Nature
of operations [Note 1]

Commitments
and contingencies [Note 12]

Subsequent
events [Note 15]

 

Approved
and authorized on behalf of the Board of Directors on August 2, 2019

 

	“Mark Smith” (Signed)	 
	Chief Executive Officer	 

 

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

 

    4 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Statements
of Operations

For
the Year Ended December 31, 2018 and for the Period

from March 30, 2017 to December 31, 2017 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Revenues, net of discounts	 	 	6,658,021	 	 	 	2,668,521	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold	 	 	2,961,681	 	 	 	1,330,007	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	3,696,340	 	 	 	1,338,514	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 10]	 	 	924,650	 	 	 	277,982	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	77,198	 	 	 	53,494	 
	 	 	 	 	 	 	 	 	 
	Licensor profit share [Note 11]	 	 	1,123,212	 	 	 	423,501	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	2,125,060	 	 	 	754,977	 
	 	 	 	 	 	 	 	 	 
	Net income	 	 	1,571,280	 	 	 	583,537	 

 

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

 

    5 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Statements of Changes in Members’ Equity

For the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

	 	 	 	$	 
	Contribution [Note 7]	 	 	58,135	 
	 	 	 	 	 
	Distributions	 	 	(351,788	)
	 	 	 	 	 
	Net income	 	 	583,537	 
	 	 	 	 	 
	Balance as at
    December 31, 2017	 	 	289,884	 
	 	 	 	 	 
	Distributions	 	 	(1,240,125	)
	 	 	 	 	 
	Net income	 	 	1,571,280	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	621,039	 

 

The
accompanying notes are in integral part of these financial statements.

 

    6 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Statements
of Cash Flows

For
the Year Ended December 31, 2018 and for the Period

from March 30, 2017 to December 31, 2017

 

	 	 	2018	 	 	2017	 
	 	 	$	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	1,571,280	 	 	 	583,537	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not
    affecting cash:	 	 	 	 	 	 	 	 
	Depredation	 	 	5,027	 	 	 	745	 
	Changes in working capital
    items:	 	 	 	 	 	 	 	 
	Inventory	 	 	(198,709	)	 	 	(138,420	)
	Accounts receivable	 	 	(293,166	)	 	 	(81,483	)
	Prepaid expenses and other assets	 	 	22,645	 	 	 	(22,645	)
	Trade payables	 	 	148,150	 	 	 	26,752	 
	Accrued liabilities	 	 	(35,374	)	 	 	94,330	 
	Advance from a member	 	 	1,402	 	 	 	-	 
	Cash provided by operating activities	 	 	1,221,255	 	 	 	462,816	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of machinery and equipment	 	 	(5,580	)	 	 	(22,346	)
	Cash used in investing activities	 	 	(5,580	)	 	 	(22,346	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Contribution	 	 	-	 	 	 	58,135	 
	Distributions	 	 	(1,240,125	)	 	 	(351,788	)
	Cash used in financing activities	 	 	(1,240,125	)	 	 	(293,653	)
	 	 	 	 	 	 	 	 	 
	Net (decrease) increase in cash	 	 	(24,450	)	 	 	146,817	 
	Cash, beginning of the year/period	 	 	146,817	 	 	 	-	 
	Cash, end of year/period	 	 	122,367	 	 	 	146,817	 

 

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

 

    7 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		1.	NATURE
                                         OF OPERATIONS

 

CannaPunch
of Nevada, LLC (“CannaPunch” or the “Company”) was incorporated as a Limited Liability Company on March
30, 2017 in the State of Nevada, United States of America (“USA”). The Company’s head office is located at 5425
Polaris Ave, Las Vegas, NV 89118.

 

The
Company’s principal activities are the manufacture and distribution of cannabis infused products as regulated under the
laws applicable in the USA.

 

		2.	BASIS
                                         OF PRESENTATION

 

2.1
Statement of Compliance

 

These
financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued
by the International Accounting Standards Board (“IASB”) and Interpretations of the International Financial Reporting
Interpretations Committee (“IFRIC”).

 

These
financial statements were approved and authorized for issue by the Board of Directors of the Company on August 2, 2019.

 

2.2
Basis of Presentation

 

These
financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured
at fair value, as explained in the accounting policies set out in Note 3. The financial statements are presented in US dollars
which is the presentation and functional currency of the Company.

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1
Revenue

 

IFRS
15 specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts with customers.
The Company has applied IFRS 15 retrospectively and detennined that there is no change to the comparative periods or transitional
adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition
under IFRS 15 is to follow a five-step model to determine the amount and timing of revenue to be recognized:

 

		•	Identifying
                                         the contract with a customer

		•	Identifying
                                         the performance obligations within the contract

		•	Determining
                                         the transaction price

		•	Allocating
                                         the transaction price to the performance obligations

		•	Recognizing
                                         revenue when/as performance obligation(s) are satisfied.

  

    8 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.1
Revenue (Continued)

 

Revenue
from manufacturing and distribution of cannabis is recognized when the Company transfers control of the good to the
customer. In some cases, judgement is required in detennining whether the customer is a business or the end consumer. This
evaluation was made on the basis of whether the business obtains control of the product before transferring to the end
consumer. Control of the product transfers at a point in time either upon shipment to or receipt by the customer, depending
on the contractual terms. The Company recognizes revenue in an amount that reflects the consideration that the Company
expects to receive taking into account any variation that may result from rights of return. The pattern and timing of revenue
recognition under the new standard is consistent with prior year practice. There were no adjustments recognized on the
adoption of IFRS 15 in the year ended December 31, 2018.

 

3.2
Machinery and Equipment (“M&E”)

 

Machinery
and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of M&E
consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary
for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which
it is located.

 

Depreciation
is provided at rates calculated to write off the cost of M&E, less their estimated residual value, using the straight-line
method over the expected useful life of 5 years for M&E.

 

An
item of M&E is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from
the continued use of the asset. Any gain or loss arising on disposal of the asset, detennined as the difference between the net
disposal proceeds and the carrying amount of the asset, is recognized in the statement of income.

 

Assets
in process are transferred to the appropriate asset class when available for use and depreciation of the assets commences at that
point of time.

 

The
Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for M&E and
any changes arising from the assessment are applied by the Company prospectively.

 

Where
an item of machinery and equipment comprise of major components with different useful lives, the components are accounted for
as separate items of machinery and equipment. Expenditures incurred to replace a component of an item of machinery and equipment
that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

 

3.3
Taxation

 

The
Company is considered a Limited Liability Company for income tax purposes, for the year ended December 31, 2018 and for the period
from Match 30, 2017 (Date of inception) to December 31, 2017. Therefore, the Company’s taxable income is allocated to the
members for inclusion on their respective income tax returns.

  

    9 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

	3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.3
Taxation (Continued)

 

As
the Company operates in the cannabis industry, it is subject to the limits of IRC Section 280E under which the Company is only
allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary
business expenses deemed non-allowable under IRC Section 280E.

 

3.4
Financial Instruments

 

Recognition
and Initial Measurement

 

Financial
assets and financial liabilities, including derivatives, are recognized in the consolidated statements of financial position when
the Company becomes a party to the contractual provisions of a financial instrument or non-fmancial derivative contract. All financial
instruments are measured at fair value on initial recognition. Transaction costs that are directly attributable to the acquisition
or issuance of financial assets and financial liabilities, other than financial assets and financial liabilities classified as
FVTPL, are added to or deducted from the fair value on initial recognition. Transaction costs directly attributable to the acquisition
of financial assets or financial liabilities classified as FVTPL are recognized immediately in net loss.

 

Classification
and Subsequent Measurement

 

The
Company classifies financial assets, at the time of initial recognition, according to the Company’s business model for managing
the financial assets and the contractual terms of the cash flows. Financial assets are classified in the following measurement
categories:

 

		a)	amortized
                                         cost (“AC”);

		b)	fair
                                         value through profit or loss (“FVTPL”); and

		c)	fair
                                         value through other comprehensive income (“FVTOCI”).

 

Financial
assets are subsequently measured at amortized cost if both the following conditions are met and they are not designated as FVTPL:
a) the financial asset is held within a business model whose objective is to hold financial assets to collect contractual cash
flows; and b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding.

 

These
assets are subsequently measured at amortized cost using the effective interest rate method, less any impairment, with gains and
losses recognized in net income in the period that the asset is derecognized or impaired. All financial assets not classified
as amortized cost as described above are measured at FVTPL or FVTOCI depending on the business model and cash flow characteristics.
The Company has no financial assets measured at FVTOCI.

 

Financial
liabilities are subsequently measured at amortized cost using the effective interest rate method with gains and losses recognized
in net income in the period that the liability is derecognized, except for financial liabilities classified as FVTPL.

 

Financial
instruments are classified into one of the following categories: FVTPL; financial assets at amortized cost, financial liabilities
at amortized cost, and financial assets at FVTOCI.

 

    10 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.4
Financial Instruments (Continued)

 

Impairment
of Financial Instruments

 

For
accounts receivable, the Company applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,
which requires the use of the lifetime expected loss provision for all accounts receivable, trade based on the Company’s
historical default rates over the expected life of the accounts receivable, trade and is adjusted for forward-looking estimates.
The methodologies and assumptions, including any forecasts of future economic conditions, are reviewed regularly.

 

All
individually significant loan receivables are assessed for impairment. All individually significant loans receivable found not
to be specifically impaired are then collectively assessed for impairment. Loans receivables not individually significant are
collectively assessed for impairment by grouping together loans receivable with similar risk characteristics.

 

Derecognition

 

The
Company derecognizes financial assets only when the contractual rights to cash flows from the financial assets expire, or when
it transfers the financial assets and substantially all of the associated risks and rewards of ownership to another entity. Gains
and losses on derecognition are recognized in the statements of operations.

 

The
Company derecognizes financial liabilities only when its obligations under the financial liabilities are discharged, cancelled
or expired. Generally, the difference between the carrying amount of the financial liability derecognized and the consideration
paid and payable, including any non-cash assets transferred or liabilities assumed, is recognized in the statements of operations.

 

3.5
Impairment of Non-Financial Assets

 

At
each date of the statements of financial position, the Company reviews the carrying amounts of its long-lived assets to determine
whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, or when annual
impainnent testing for an asset is required, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company
estimates the recoverable amount of the cash generating unit to which the assets belong.

 

The
recoverable amount is the higher of fair value less costs to sell and value in use. In assessing the value in use, the estimated
future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market
transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These
calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair
value indicators.

  

    11 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.5
Impairment of Non-Financial Assets (Continued)

 

If
the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, the carrying amount
of the asset (or cash generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the
statements of operations, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated
as a revaluation decrease.

 

Where
an impairment loss subsequently reverses, the carrying amount of the asset (cash generating unit) is increased to the revised
estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have
been determined had no impairment loss been recognized for the asset (or cash generating unit) in prior years. A previously recognised
impairment loss is reversed only if there has been a change in the assumptions used to detennine the asset’s recoverable
amount since the last impairment loss was recognised.

 

3.6
Inventory

 

Inventories
purchased from third parties comprise of raw materials and finished goods, and are valued at the lower of cost and net realizable
value. Cost is determined using the weighted average costing method. Net realizable value is the estimated selling price in the
ordinary course of business, less the estimated costs to sell. The Company reviews inventories for obsolete, redundant and slow-moving
goods and any such inventories identified are written down to net realizable value. At December 31, 2018 and 2017, there were
no reserves for inventories required.

 

3.7
Cash and Cash Equivalents

 

The
Company considers all investments with original maturities of three months or less, that are highly liquid and readily convertible
into cash, to be cash equivalents.

 

3.8
Provisions

 

Provisions
are recognized when the Company has a present obligation (legal or constructive) that has arisen as a result of a past event and
it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate
can be made of the amount of the obligation.

 

Provisions
are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that
reflects current market assessments of the time value of money and the risk specific to the obligation. The increase in the provision
due to passage of time is recognized as interest expense.

 

3.9
Significant Accounting Judgments and Estimates

 

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

  

    12 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		3.	SUMMARY
                                         OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

3.9
Significant Accounting Judgments and Estimates (Continued)

 

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
immediately. Actual results could differ from the estimates used.

 

Management’s
budget and strategic plans are fundamental infonnation used as a basis for estimates necessary to prepare financial information.
Management tracks performance as compared to the budget and significant variances in actual perfonuance are a key trigger to assess
whether certain estimates used in the preparation of financial infonnation must be revised.

 

The
following area require management’s critical estimates and judgments:

 

(a)
Estimated useful lives and depreciation of machinery and equipment

 

Depreciation
of machinery and equipment are dependent upon estimates of useful lives, which are detennined through the exercise of judgements.
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.

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS

 

Adoption
of New Accounting Pronouncements

 

IFRS
9 - Financial Instruments

 

In
July 2014, the IASB issued the final version of IFRS 9 – Financial Instruments (“IFRS 9”), which brings together
the classification and measurement, impairment, and hedge-accounting phases of the LASB’s project to replace IAS 39 – Financial
Instruments: Recognition and Measurement (“IAS 39”).

 

Classification
and Measurement – Financial assets are classified and measured based on the business model under which they are managed and the
contractual cash flow characteristics of the financial assets. Financial liabilities are classified in a similar manner as under
IAS 39, except that financial liabilities measured at fair value will have fair value changes resulting from changes in the entity’s
own credit risk recognized in Other Comprehensive Income (“OCI”) instead of Net Income, unless this would create an
accounting mismatch.

 

IFRS
9 contains three principal classification categories for financial assets: measured at amortized cost (“AC”), fair
value through other comprehensive income (“FVTOCI”) and FVTPL. The standard eliminates the previous IAS 39 categories
of held to maturity, loans and receivables, and available for sale.

 

Impairment
 – The measurement of impairment of financial assets is based on an expected credit loss model. It is no longer necessary for a
triggering event to have occurred before credit losses are recognized. IFRS 9 also includes new disclosure requirements about
expected credit losses and credit risk.

  

    13 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		4.	CHANGES
                                         IN ACCOUNTING STANDARDS (Continued) 

  

Adoption
of New Accounting Pronouncements (Continued)

 

Hedge
Accounting The new general hedge accounting model more closely aligns hedge accounting with risk management activities undertaken
by entities when hedging their financial and non-financial risk exposures. It will provide more opportunities to apply hedge accounting
to reflect actual risk management activities.

 

The
Company adopted IFRS 9 effective from January 1, 2018. The adoption did not result in any material change.

 

IFRS
15: Revenue from Contracts with Customers:

 

IFRS
15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related Interpretations and it applies to all revenue arising
from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step
model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects
the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The
standard requires entities to exercise judgement, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers. The standard also specifies the accounting for the incremental costs
of obtaining a contract and the costs directly related to fulfilling a contract. The Company has adopted IFRS 15 from incorporation
date.

 

IFRS
7. Financial Instruments: Disclosure

 

IFRS
7, Financial Instruments: Disclosure, was amended to require additional disclosures on transition from IAS 39 to IFRS 9. IFRS
7 is effective on adoption of IFRS 9, which is effective for annual periods commencing on or after January 1, 2018.

 

Changes
in Accounting Standards not yet Effective

 

IFRS
16–Leases

 

In
January 2016, the IASB issued IFRS 16 – Leases (“IFRS 16”), which replaces IAS 17 – Leases, and its
associated interpretative guidance. IFRS 16 applies a control model to the identification of leases, distinguishing between a
lease and a service contract on the basis of whether the customer controls the asset being leased. For those assets
detennined to meet the definition of a lease, IFRS 16 introduces significant changes to the accounting by lessees,
introducing a single, on-balance sheet accounting model that is similar to current finance lease accounting, with limited
exceptions for short-term leases or leases of low value assets. Lessor accounting remains similar to current accounting
practice. The standard is effective for annual periods beginning on or after January 1, 2019, with early application
permitted for entities that apply IFRS 15. The Company is currently evaluating the impact the final standard is expected to
have on its financial statements and plans to adopt the requirements in 2019.

  

    14 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		5.	INVENTORY

 

The
Company’s inventory includes the following:

 

	 	 	December
    31,	 	December
    31,
	 	 	2018	 	2017
	 	 	$	 	$
	Raw
    materials	 	 	65,193	 	 	 	23,283	 
	Finished
    goods	 	 	271,936	 	 	 	115,137	 
	 	 	 	337,129	 	 	 	138,420	 

 

Inventories
expensed as cost of goods sold during the years ended December 31, 2018 and 2017, was $2,247,538 and $1,025,749, respectively.

 

		6.	MACHINERY
                                         AND EQUIPMENT

 

	 	 	Machinery
    &
	 	 	equipment
	 	 	$
	Cost	 	 
	Additions	 	 	 	22,346
	As
    at December 31,     2017	 	 	 	22,346
	Additions	 	 	 	5,580
	As at December 31,
    2018	 	 	 	27,926
	 	 	 	 	 
	Depreciation	 	 	 	 
	Depreciation	 	 	 	745
	As
    at December 31, 2017	 	 	 	745
	Depreciation	 	 	 	5,027
	As at December 31,
    2018 	 	 	 	5,772
	 	 	 	 	 
	Net book value	 	 	 	 
	As
    at December 31, 2017	 	 	 	21,601
	As
    at December 31, 2018	 	 	 	22,154

 

Depreciation
expense for the year ended December 31, 2018 and for the period from March 30, 2017 to December 31, 2017, of $5,027 and $745,
respectively, is included in cost of goods sold.

 

		7.	MEMBERS’
                                         EQUITY

 

During
the year ended December 31, 2018 and for the period from March 30, 2017 to December 31, 2017, the members of the Company contributed
cash of $nil and $58,135, respectively, to the Company.

  

    15 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		8.	RELATED
                                         PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the financial statements, related party transactions and balances are as follows:

 

During
the year ended December 31, 2018 and for the period from March 30, 2017 to December 31, 20107, sales of $110,811 and
$63,757, respectively, made to a related corporation is included in revenues and purchases of $120,681 and $51,358,
respectively, from a related corporation is included in cost of goods sold.

 

No
compensation was paid to key management for the year ended December 31, 2018 and for the period from March 30, 2017 to December
31, 2017.

 

Accounts
receivable as at December 31, 2018 and December 31, 2017 include $953 and $nil, respectively, representing amounts due from a
related corporation.

 

		9.	CAPITAL
                                         MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to
support business development. The Members do not establish quantitative return on capital criteria for management, but rather
relies on the expertise of the Company’s management to sustain future development of the business. The Company defines
capital to include its Members’ equity. In order to carry out the planned business development and pay for
administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company
is not subject to externally imposed capital requirements. As at December 31, 2018 and 2017, the capital of the Company was
$621,039 and $289,884, respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital (after dividend) that is surplus to its immediate operational needs in short-term, liquid and highly
rated financial instruments.

  

    16 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

	10.	GENERAL
    AND ADMINISTRATIVE

 

General and administrative expenses
were comprised of:

 

	 	 	2018	 	2017
	 	 	$	 	$
	Salaries
    and benefits	 	 	642,179	 	 	 	209,004	 
	Taxes
    and Licenses	 	 	109,948	 	 	 	22,383	 
	Travel	 	 	40,508	 	 	 	24,128	 
	Meals	 	 	9,452	 	 	 	7,648	 
	Office
    expenses	 	 	3,972	 	 	 	4.829	 
	Professional
    and consultmg fees	 	 	108,403	 	 	 	3.384	 
	Others	 	 	10,188	 	 	 	6,606	 
	 	 	 	924,650	 	 	 	277,982	 

 

	11.	LICENSOR
    PROFIT SHARE

 

Effective
March 31, 2017, the Company entered into a Licensing Agreement (the “Agreement”) with a Third Party (“Licensor”)
for use of Licensor’s medical (and subsequent adult use recreational) marijuana production establishment and equipment,
in order to produce wholesale and certain retail marijuana edible and infused products for a period of 5 years to be renewed annually
by mutual agreement.

 

Pursuant
to the terms of the Agreement, 50% of profits or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) generated
by sales, shall be paid as License Fee, along with any taxes and fees paid by the Licensor. On December 31, 2017, the Agreement
was amended by signing a subsequent license fee agreement memo (the “Memo”). In accordance with the Memo, license
fee payable by the Company would work as a credit netted against any amounts owed by Licensor for product purchases less any amounts
owed by the Company for reimbursement of taxes and utilities to the Licensor.

 

On
September 18, 2018, the Company entered into a Supply Agreement with the Licensor, which is contingent upon cancellation of the
license fee Agreement. Pursuant to this Supply Agreement, the Company agreed to offer a 20% discount on its lowest retail price
to the Licensor for a period of 5 years.

 

		12.	COMMITMENTS
                                         AND CONTINGENCIES 

  

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at December 31, 2018, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

  

    17 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		12.	COMMITMENTS
                                         AND CONTINGENCIES (Continued) 

 

Claims
and Litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the nonnal course of business.
At December 31, 2018, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect
on the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or
affiliates is an adverse party or has a material interest adverse to the Company’s interest.

 

		13.	FINANCIAL
                                         RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, account receivables, trade payables, accrued liabilities and advance
from a member.

 

(a)
Fair Value

 

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 Company.

 

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-fmancial
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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised 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.

 

    18 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		13.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(a)
Fair Value (Continued)

 

The
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	Carrying
    values	 	 	 	 	 	Fair
    values
	Financial assets	 	FVTPL	 	AC	 	Total	 	Total
	December 31, 2018	 	$	 	$	 	$	 	$
	Cash	 	 	122,367	 	 	 	–  	 	 	 	122,367	 	 	 	122,367	 
	Accounts
    receivable	 	 	–  	 	 	 	374,649	 	 	 	374,649	 	 	 	374,649	 
	 	 	 	122,367	 	 	 	374,649	 	 	 	497,016	 	 	 	497,016	 
	December 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	146,817	 	 	 	–  	 	 	 	146,817	 	 	 	146,817	 
	Accounts
    receivable	 	 	–  	 	 	 	81,483	 	 	 	81,483	 	 	 	81,483	 
	 	 	 	146,817	 	 	 	81,483	 	 	 	228,300	 	 	 	228,300	 

 

	 	 	Carrying
    values	 	 	 	 	 	Fair
    values
	Financial liabilities	 	FVTPL	 	AC	 	Total	 	Total
	December 31, 2018	 	$	 	$	 	$	 	$
	Trade
    payables	 	 	–  	 	 	 	174,902	 	 	 	174,902	 	 	 	174,902	 
	Accrued
    liabilities	 	 	–  	 	 	 	58,956		 	 	58,956	 	 	 	58,956	 
	Advance
    from a member	 	 	–  	 	 	 	1,402	 	 	 	1,402	 	 	 	1,402	 
	 	 	 	–  	 	 	 	235,260	 	 	 	235,260	 	 	 	235,260	 
	December
    31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade
    payables	 	 	–  	 	 	 	26,752	 	 	 	26,752	 	 	 	26,752	 
	Accrued
    liabilities	 	 	–  	 	 	 	94,330	 	 	 	94,330	 	 	 	94,330	 
	Advance
    from a member	 	 	–  	 	 	 	–  	 	 	 	–  	 	 	 	–  	 
	 	 	 	–  	 	 	 	121,082	 	 	 	121,082	 	 	 	121,082	 

 

The
Company’s financial instruments as at December 31, 2018 and 2017, classified as “Level 1 – quoted prices in active
markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy by re-assessing
categorization at the reporting date.

 

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

  

    19 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes
to the Financial Statements

For
the Year Ended December 31, 2018 and for the Period

from
March 30, 2017 to December 31, 2017

 

 

		13.	FINANCIAL
                                         RISK FACTORS (Continued)

 

(b)
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 Company to concentrations of credit risk consist of cash and account receivable
due from a related corporation. As at December 31, 2018 and 2017, the maximum amount exposed to credit risks was $497,016 and
$228,300, respectively.

 

During
the year ended December 31, 2018 and for the period from March 30, 2017 to December 31, 2017, revenue from one customer is approximately
30% and 36%, respectively, of total revenues and purchase of raw material from two suppliers were approximately nil and 33%, respectively,
of total purchases.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at December 31, 2018 and 2017, all trade payables and accrued liabilities are due within a year.

 

		14.	SEGMENTED
                                         INFORMATION

 

Operating
and Geographical Segments

 

An
operating segment is defined as a component of the Company:

 

		•	that
                                         engages in business activities from which it may earn revenues and incur expenses;

		•	whose
                                         operating results are reviewed regularly by the entity’s chief operating decision
                                         maker; and;

		•	for
                                         which discrete financial infonnation is available.

 

At
December 31, 2018 and 2017 the Company’s operations comprise a single reporting operating and geographical segment engaged
in the manufacture and distribution of cannabis infused products.

 

		15.	SUBSEQUENT
                                         EVENTS

 

The
Company’s management has evaluated subsequent events up to August 2, 2019, the date the financial statements were issued,
and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“AYR”), formerly Cannabis Strategies Acquisition Corp., closed its previously
announced Qualifying Transaction. Through the qualifying transaction, AYR has created a vertically integrated Multi-State Operator
in the U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

  

    20 

     

    

 

SCHEDULE
 “F” 

SIRA
INTERIM FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

SIRA
NATURALS, INC.

 

UNAUDITED
CONDENSED INTERIM FINANCIAL STATEMENTS

 

FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

(EXPRESSED
IN UNITED STATES DOLLARS)

 

Notice
to reader

 

The
accompanying unaudited condensed interim financial statements of Sira Naturals, Inc. (the Company) have been prepared by and are
the responsibility of management. The unaudited condensed interim financial statements have not been reviewed by the Company’s
auditors.

 

     

     

    

 

SIRA
NATURALS, INC.

UNAUDITED
CONDENSED INTERIM FINANCIAL STATEMENTS

 

MARCH
31, 2019 AND 2018

 

	Table of Contents
	 	Page
	 	 
	Management’s
    Responsibility for Financial Reporting	1
	Unaudited
    Condensed Interim Financial Statements	 
	Unaudited
    Condensed Interim Statements of Financial Position	2
	Unaudited
    Condensed Interim Statements of Operations	3
	Unaudited
    Condensed Interim Statements of Changes in Shareholder’s deficit	4
	Unaudited
    Condensed Interim Statements of Cash Flows	5
	Notes
    to the Unaudited Condensed Interim Financial Statements	6-15

 

     

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management’s
Responsibility

 

To
the Members of Sira Naturals, Inc.:

 

The
accompanying unaudited condensed interim financial statements and other financial information in this report were prepared by
management of Sira Naturals, Inc. (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management
is responsible for the unaudited condensed interim financial statements and believes that they fairly present the Company’s financial
condition and results of operation in conformity with International Financial Reporting Standards. Management has included in
the Company’s unaudited condensed interim financial statements amounts based on estimates and judgments that it believes are reasonable,
under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of the unaudited condensed interim financial statements. Consistent
with the concept of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not
exceed their expected benefits. Management further assures the quality of the financial records through careful selection and
training of personnel and through the adoption and communication of financial and other relevant policies.

 

August
5, 2019

 

	“Lou Karger” (Signed)	 	“Neil
    Sullivan” (Signed)
	Treasurer	 	Controller

 

    1 

     

    

 

SIRA
NATURALS, INC. 

Unaudited
Condensed Interim Statements of Financial Position

At
March 31, 2019 and December 31, 2018

 

	 	 	March 31,	 	December 31,
	 	 	2019	 	2018
	 	 	$	 	$
	ASSETS	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Cash and cash equivalents	 	 	3,315,782	 	 	 	2,607,676	 
	Accounts receivable, no allowance	 	 	1,026,229	 	 	 	-  	 
	Inventory [Note 5]	 	 	8,868,104	 	 	 	6,197,598	 
	Biological assets [Note 6]	 	 	2,417,379	 	 	 	1,733,316	 
	Prepaid expenses and other assets	 	 	132,789	 	 	 	120,163	 
	 	 	 	15,760,283	 	 	 	10,658,753	 
	Property, plant and equipment [Note 7]	 	 	7,521,303	 	 	 	7,629,881	 
	Right-of-use assets [Note 8]	 	 	5,434,999	 	 	 	-  	 
	Other long term assets	 	 	140,401	 	 	 	480,401	 
	Total assets	 	 	28,856,986	 	 	 	18,769,035	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	605,217	 	 	 	1,557,153	 
	Accrued liabilities	 	 	2,025,356	 	 	 	1,192,208	 
	Income tax payable	 	 	3,715,371	 	 	 	3,997,954	 
	Lease obligations - current portion [Note 8]	 	 	142,220	 	 	 	-  	 
	Debts payable - current portion [Note 9]	 	 	7,695	 	 	 	7,572	 
	 	 	 	6,495,859	 	 	 	6,754,887	 
	Deferred tax liabilities	 	 	2,402,770	 	 	 	1,242,460	 
	Accrued interest payable	 	 	7,627,157	 	 	 	6,963,253	 
	Lease obligations - Non-current portion [Note 8]	 	 	5,485,755	 	 	 	-  	 
	Debts payable - Non-current portion [Note 9]	 	 	14,963,691	 	 	 	14,965,045	 
	Total liabilities	 	 	36,975,232	 	 	 	29,925,645	 
	 	 	 	 	 	 	 	 	 
	SHAREHOLDERS’ DEFICIT	 	 	 	 	 	 	 	 
	Accumulated deficit	 	 	(8,118,246	)	 	 	(11,156,610	)
	Total shareholders’ deficit	 	 	(8,118,246	)	 	 	(11,156,610	)
	Total liabilities and shareholders’ deficit	 	 	28,856,986	 	 	 	18,769,035	 

 

	Nature of operations
    [Note 1]
	Contingencies [Note
    13]
	Subsequent events
    [Note 16]
	Approved and authorized
    by the Board of Directors on August 5, 2019

 

	“Lou Karger” (Signed)	 	“Neil Sullivan”
    (Signed)
	Treasurer	 	Controller

  

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    2 

     

    

 

SIRA
NATURALS, INC. 

Unaudited
Condensed Interim Statements of Operations

For
the Three Months Ended March 31, 2019 and 2018

 

  

	 	 	Three
    months	 	Three
    months
	 	 	ended	 	ended
	 	 	March
    31, 2019	 	March
    31, 2018
	 	 	$	 	$
	Revenues,
    net of discounts	 	 	6,670,180	 	 	 	2,976,969	 
	 	 	 	 	 	 	 	 	 
	Cost
    of goods sold before biological asset adjustment	 	 	(1,470,860	)	 	 	(1,025,728	)
	 	 	 	 	 	 	 	 	 
	Gross
    profit before biological asset adjustment	 	 	5,199,320	 	 	 	1,951,241	 
	 	 	 	 	 	 	 	 	 
	Fair
    value changes in biological assets included in cost of sales	 	 	(4,253,737	)	 	 	(8,337,585	)
	Unrealized
    gain on biological asset transformation [Note 6]	 	 	7,282,658	 	 	 	2,070,210	 
	 	 	 	 	 	 	 	 	 
	Gross
    profit (loss)	 	 	8,228,241	 	 	 	(4,316,134	)
	Expenses	 	 	 	 	 	 	 	 
	General
    and administrative [Note 12]	 	 	1,450,206	 	 	 	1,893,325	 
	Sales
    and marketing	 	 	62,315	 	 	 	123,889	 
	Depreciation
    [Note 7 & 8]	 	 	352,954	 	 	 	33,959	 
	Management
    Fee [Note 10]	 	 	49,500	 	 	 	49,500	 
	 	 	 	 	 	 	 	 	 
	Total
    expenses	 	 	1,914,975	 	 	 	2,100,673	 
	 	 	 	 	 	 	 	 	 
	Income
    (loss) from operations	 	 	6,313,266	 	 	 	(6,416,807	)
	 	 	 	 	 	 	 	 	 
	Other
    expense (income)	 	 	 	 	 	 	 	 
	Interest
    expense	 	 	824,668	 	 	 	684,493	 
	Rental
    income and others	 	 	(3,000	)	 	 	(82,716	)
	Other
    expense	 	 	821,668	 	 	 	601,777	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Income
    (loss) before income tax	 	 	5,491,598	 	 	 	(7,018,584	)
	 	 	 	 	 	 	 	 	 
	Income
    tax expense	 	 	2,453,234	 	 	 	1,492,438	 
	 	 	 	 	 	 	 	 	 
	Net
    income (loss)	 	 	3,038,364	 	 	 	(8,511,022	)

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    3 

     

    

SIRA
NATURALS, INC.

Unaudited
Condensed Interim Statements of Changes in Shareholder’s deficit 

For
the Three Months Ended March 31, 2019 and 2018

 

  

	 	 	Accumulated
    deficit
	 	 	$
	Balance
    as at December 31, 2017	 	 	(887,367	)
	 	 	 	 	 
	Net
    loss	 	 	(8,511,022	)
	 	 	 	 	 
	Balance
    as at March 31, 2018	 	 	(9,398,389	)
	 	 	 	 	 
	Balance
    as at December 31, 2018	 	 	(11,156,610	)
	 	 	 	 	 
	Net
    income	 	 	3,038,364	 
	 	 	 	 	 
	Balance
    as at March 31, 2019	 	 	(8,118,246	)

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    4 

     

    

 

SIRA
NATURALS, INC.

Unaudited
Condensed Interim Statements of Cash Flows

For
the Three Months Ended March 31, 2019 and 2018

 

  

	 	 	Three
    months	 	Three
    months
	 	 	ended	 	ended
	 	 	March
    31, 2019	 	March
    31, 2018
	 	 	$	 	$
	Operating
    activities	 	 	 	 	 	 	 	 
	Net
    income (loss)	 	 	3,038,364	 	 	 	(8,511,022	)
	 	 	 	 	 	 	 	 	 
	Adjustments
    for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation
    of property, plant and equipment and right-of-use assets	 	 	352,954	 	 	 	236,443	 
	Fair
    value changes in biological assets included in cost of sales	 	 	(4,253,737	)	 	 	(8,337,585	)
	Unrealized
    gain on biological asset transformation	 	 	7,282,658	 	 	 	2,070,210	 
	Changes
    in working capital items:	 	 	 	 	 	 	 	 
	Accounts
    Receivable	 	 	(1,026,229	)	 	 	(8,990	)
	Inventory	 	 	(2,670,506	)	 	 	6,622,734	 
	Biological
    assets	 	 	(3,712,984	)	 	 	5,892,693	 
	Prepaid
    expenses and other assets	 	 	327,374	 	 	 	(269,552	)
	Deferred
    tax assets	 	 	-  	 	 	 	420,205	 
	Deferred
    Tax Liability	 	 	1,160,310	 	 	 	1,065,460	 
	Trade
    payables	 	 	(951,936	)	 	 	535,497	 
	Accrued
    liabilities	 	 	1,619,032	 	 	 	591,735	 
	Income
    tax payable	 	 	(282,583	)	 	 	7,582	 
	Cash
    provided by operating activities	 	 	882,717	 	 	 	315,410	 
	 	 	 	 	 	 	 	 	 
	Investing
    activities	 	 	 	 	 	 	 	 
	Net
    purchase of property, plant and equipment	 	 	(140,699	)	 	 	(187,894	)
	Cash
    used in investing activities	 	 	(140,699	)	 	 	(187,894	)
	 	 	 	 	 	 	 	 	 
	Financing
    activities	 	 	 	 	 	 	 	 
	Repayment
    of lease obligations	 	 	(32,681	)	 	 	-  	 
	Repayment
    of debts	 	 	(1,231	)	 	 	(7,574	)
	Cash
    used in financing activities	 	 	(33,912	)	 	 	(7,574	)
	 	 	 	 	 	 	 	 	 
	Net
    increase in cash	 	 	708,106	 	 	 	119,942	 
	Cash,
    beginning of period	 	 	2,607,676	 	 	 	201,697	 
	Cash,
    end of period	 	 	3,315,782	 	 	 	321,639	 
	 	 	 	 	 	 	 	 	 
	Supplemental
    cash flow information	 	 	 	 	 	 	 	 
	Interest
    paid	 	 	160,764	 	 	 	59,743	 

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    5 

     

    

 

SIRA NATURALS, INC.

 Notes to the Unaudited Condensed
Interim Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

1. NATURE OF OPERATIONS

 

Sira Naturals, Inc. (“Sira”
or the “Company”) was incorporated as a not-for-profit Corporation on June 18, 2013 in the Commonwealth of Massachusetts,
United States of America (“USA”). The Company changed its name from time to time and its latest name change was from
Sage Naturals, Inc. to Sira Naturals, Inc., effective December 27, 2017. The Company’s registered address is 300 TradeCenter,
Suite 7700, Woburn, MA 01801.

 

On January 23, 2018, the Company converted
its status from a not-for-profit Corporation into a for-profit Corporation. The company applied the status change into a for-profit
corporation to the financial statement’s presentation and the accompanying notes retrospectively for all the periods presented
consistently.

 

The Company’s principal activities are the growing, processing
and distribution of cannabis as regulated under the laws applicable in the USA.

 

2. 
BASIS OF PRESENTATION 

 

2.1 Statement of compliance

 

These unaudited condensed interim financial
statements for the three months ended March 31, 2019 (and comparative results for the three months ended March 31, 2018) have been
prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting
and therefore do not contain all disclosures required by International Financial Reporting Standards (“IFRS”). These
unaudited condensed interim financial statements should be read in conjunction with the Company’s 2018 financial statements
and notes and have been prepared using the same accounting policies with the exception of significant accounting policy adopted
as a result of initial application of IFRS 16 - Leases (“IFRS 16”) effective from January 1, 2019.

 

These unaudited condensed interim financial
statements were approved and authorized for issue by the Board of Directors of the Company on August 5, 2019.

 

2.2 Basis of presentation

 

These unaudited condensed interim financial
statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair
value. The unaudited condensed interim financial statements are presented in US dollars which is the presentation and functional
currency of the Company.

 

3.          
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

 

3.1 Leases

 

The Company assesses whether a contract
is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use asset and corresponding liability at
the commencement date. Each lease payment included in the lease liability is apportioned between the repayment of the liability
and a finance cost. The finance cost is recognized in net finance costs in the statements of operations over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Lease liabilities
include the net present value of fixed payments (including in-substance fixed payments), variable lease payments that are based
on an index or a rate or subject to a fair market value renewal, amounts expected to be payable by the lessee under residual value
guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and payments of
penalties for terminating the lease, if the lease term reflects the lessee exercising that option. The Company allocates the consideration
in the contract to each lease component on the basis of the relative standalone price of the lease component and the aggregate
stand-alone price of the non-lease components.

 

     6

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

3.          
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 

 

3.1 Leases (continued)

 

The lease liability is net of lease incentives
receivable. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined,
the lessee’s incremental borrowing rate. The period over which the lease payments are discounted is the reasonably certain
lease term, including renewal options that the Company is reasonably certain to exercise. Renewal options are included in a number
of leases across the Company. Payments associated with short-term leases and leases of low-value assets are recognized as an expense
on a straight-line basis in selling, general and administrative expenses in the statements of operations. Short-term leases are
leases with a lease term of 12 months or less. Variable lease payments that do not depend on an index or a rate or subject to a
fair market value renewal are expensed as incurred and recognized in selling, general and administrative expenses in the statements
of operations.

 

Right-of-use assets are measured at cost
which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement
date, any initial direct costs and related restoration costs. The right-of-use asset is depreciated over the lease term on a straight-line
basis. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life
of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects
that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.

 

4.     
CHANGES IN ACCOUNTING STANDARDS 

 

Adoption of New Accounting Pronouncement

 

Adoption of IFRS 16 – Leases

 

The Company adopted IFRS 16 - Leases (“IFRS
16”) on January 1, 2019. IFRS 16 introduced a single on-balance sheet accounting model for lessees which replaced IAS 17
- Leases (“IAS 17”). Leasing activity for the Company typically involves the leases of land or buildings to operate
cannabis dispensaries, processing or cultivation facilities or corporate offices.

 

The Company previously classified leases
as either operating or finance leases from the perspective of the lessee. Under IFRS 16, the Company recognizes right-of-use assets
and lease liabilities for most leases. The Company adopted IFRS 16 using the modified retrospective cumulative catch-up approach
beginning on January 1, 2019. Under this approach, the Company did not restate its comparative amounts and recognized a right-of-use
asset equal to the present value of the future lease payments. The Company elected to apply the practical expedient to only transition
contracts which were previously identified as leases under IAS 17, and also elected to not recognize right-of-use assets and lease
liabilities for leases of low-value assets.

 

Changes in Accounting Standards not yet Effective

 

Insurance Contracts

 

In May 2017, the International Accounting
Standards Board (“IASB”) issued IFRS 17 - Insurance Contracts (“IFRS 17”), that replaces IFRS 4 - Insurance
Contracts and establishes a new model for recognizing insurance policy obligations, premium revenue and claims-related expenses.
IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however, based on recent IASB meetings, an upcoming
amendment to IFRS 17 and a deferral of the transition date by one year is anticipated. Early adoption is permitted. The Company
is assessing the potential impact of this standard.

 

     7

     

    

  

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

5. INVENTORY

 

The Company’s inventory includes the following:

 

	 	March 31, 2019	 	December 31, 2018
	 	Capitalized	Fair value	Carrying	 	Capitalized	Fair value	Carrying
	 	cost	adjustment	value	 	cost	adjustment	value
	 	$	$	$	 	$	$	$
	Raw Material	 	 	 	 	 	 	 
	Accessories	-	-	-	 	152,976	-	152,976
	 	 	 	 	 	 	 	 
	Harvested cannabis	 	 	 	 	 	 	 
	Work in process	274,789	5,485,619	5,760,408	 	602,966	3,230,842	3,833,808
	Finished goods	9,499	100,343	109,842	 	10,760	60,507	71,267
	 	284,288	5,585,962	5,870,250	 	613,726	3,291,349	3,905,075
	Cannabis Oils	 	 	 	 	 	 	 
	Work in process	198,587	2,737,245	2,935,832	 	252,963	1,773,790	2,026,753
	Finished goods	4,642	57,380	62,022	 	14,078	98,716	112,794
	 	203,229	2,794,625	2,997,854	 	267,041	1,872,506	2,139,547
	 	 	 	 	 	 	 	 
	 	487,517	8,380,587	8,868,104	 	1,033,743	5,163,855	6,197,598
	 	 	 	 	 	 	 	 

 

Inventories expensed as cost of goods sold
during the three months ended March 31, 2019 and 2018 are $548,541 and $115,235, respectively.

 

6. BIOLOGICAL ASSETS

 

The continuity of biological assets was as follows:

	 	March 31,	December
	 	2019	31, 2018
	 	$	$
	Balance, beginning of year	1,733,316	 	1,081,141	 
	Changes in fair value less costs to sell due to biological transformation	7,282,658	 	11,287,162	 
	Transferred to inventory upon harvest	(6,598,595	)	(10,634,987	)
	Balance, at end	2,417,379	 	1,733,316	 

 

As of March 31, 2019, and December 31,
2018, the weighted average fair value less cost to complete and cost to sell was $5.97 and $5.24 per gram, respectively.

 

The fair value of biological assets is
categorized within Level 3 on the fair value hierarchy. The inputs and assumptions used in determining the fair value of biological
assets include:

 

	(a) Selling price per gram;	Level 3 input
	(b) Attrition rate;	Level 3 input
	(c) Average yield per plant;	Level 3 input
	(d) Standard cost per gram to compete production	Level 3 input
	(e) Cumulative stage of completion in production process	Level 3 input

 

     8

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

6. BIOLOGICAL ASSETS (continued)

 

Significant unobservable assumptions used
in the valuation of biological assets, including the sensitivities on changes in these assumptions and their effect on the fair
value of biological assets, are as follows:

 

	Significant inputs or as Range of inputs	Sensitivity	Effect on fair value
	 	 	 	March 31,	December 31,
	 	 	 	2019	2018
	 	 	 	$	$
	Selling price per gram*	$6.61 to $7.62	Increase or decrease of $1 per gram	456,382	378,621
	Average yield per plant	150 to 162 grams	Increase or decrease by 5 grams per plant	90,430	9,771

 

*Selling price per gram is based on average selling prices for
the period.

 

The Company’s estimates are, by their
nature, subject to change and differences from the anticipated yield will be reflected in the gain or loss on biological assets
in future periods.

 

As of March 31, 2019, and year ended December
31, 2018, the biological assets were on average 53% and 60% complete, respectively. During the three months ended March 31, 2019
and year ended December 31, 2018, the Company’s biological assets produced 980,002 grams and 2,323,076 grams of dried cannabis,
respectively.

 

7. PROPERTY, PLANT AND EQUIPMENT

	 	Buildings &

leasehold 

improvements	Furniture and 

fixtures	 	Office 

equipment	Machinery 

&

equipment	Auto &

trucks	Total	 
	 	$	$	 	$	$	$	$	 
	Cost	 	 	 	 	 	 	 	 
	As at December 31, 2018	8,290,248	739,790	 	66,691	547,530	49,893	9,694,152	 
	Additions	144,349	-	 	-	-	-	144,349	 
	Disposals	-	(3,650	)	-	-	-	(3,650	)
	As at March 31, 2019	8,434,597	736,140	 	66,691	547,530	49,893	9,834,851	 
	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 
	As at December 31, 2018	1,744,908	181,889	 	17,291	108,574	11,609	2,064,271	 
	Depreciation	200,068	30,695	 	1,621	14,398	2,495	249,277	 
	As at March 31, 2019	1,944,976	212,584	 	18,912	122,972	14,104	2,313,548	 
	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 
	As at December 31, 2018	6,545,340	557,901	 	49,400	438,956	38,284	7,629,881	 
	As at March 31, 2019	6,489,621	523,556	 	47,779	424,558	35,789	7,521,303	 

 

As at March 31, 2019 and December 31, 2018,
buildings and leasehold improvements include borrowing costs of $505,799, capitalized in connection with loan used for the construction
of buildings.

 

Depreciation expense for the three months
ended March 31, 2019 and 2018 of $Nil and $202,484, respectively, is included in cost of goods sold.

 

    9 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

8. RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS

 

	 	Right-of-use	Lease
	 	assets	obligations
	 	 	 
	Net book value at January 1, 2019	5,538,676	5,660,656
	Depreciation and repayment	103,677	32,681
	Net book value at March 31, 2019	5,434,999	5,627,975

 

Right-of-use assets and lease obligations
of $5,538,676 and $5,660,656, respectively were recorded as at January 1, 2019, with no net impact on retained earnings. When measuring
lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average
rates applied were in the range of 10.06% to 11.62%.

 

As at March 31, 2019, the current and non-current
portion of the lease obligations were $142,220 and $5,485,755, respectively.

 

9. DEBTS PAYABLE

 

The details of debts payable were as follows:

	 	March 31,

    2019	December 31, 

2018	 
	 	$	$	 
	Promissory notes (a)	14,958,333	14,958,333	 
	Loan payable to a third party (b)	13,053	14,284	 
	Total debts payable	14,971,386	14,972,617	 
	Less: Current portion	(7,695)	(7,572	)
	Debts Payable - Non-current portion	14,963,691	14,965,045	 

 

As at March 31, 2019, the maturity profile of the debts
are as follows:

	Year ending December 31	$
	2019 (9 months)	7,695
	2020	2,455,996
	2021	-
	2022	-
	2023	-
	2024 and thereafter	12,500,000
	 	14,963,691

 

    10 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

		9.	DEBTS PAYABLE (continued)

 

(a) Promissory notes

 

The outstanding balances at respective
year ends represent long term debts obtained from 2013 to 2018 in the form of promissory notes. These notes carry interest rate
of 18% per annum to be paid monthly.

 

Promissory notes amounting to $12,500,000
(December 31, 2018: $12,500,000) are to be repaid along with any unpaid accrued interest by April 2025. As of March 31, 2019, and
December 31, 2019, there was unpaid accrued interest of $6,832,294 and $6,277,500, respectively.

 

Promissory notes amounting to
$2,458,333 (December 31, 2018: $2,458,333) are to be repaid on maturity date of June 2020. As of March 31, 2019, and December
31, 2018, there was unpaid accrued interest of $257,014 and $147,900, respectively.

 

(b) Loan payable to a third party

 

Effective November 10, 2016, the Company
obtained a loan of $29,393 for a term of four years from a third party for purchase of a vehicle. This loan carries interest at
5.49% per annum. The principal and interest are payable monthly until November 10, 2020.

 

10. RELATED PARTY TRANSACTIONS AND BALANCES

 

Related parties are defined as management
and members of the Company and/or members of their immediate family and/or other companies and/or entities in which a member or
senior officer is a principal owner or senior executive.

 

Included in expenses for the three
months ended March 31, 2019 is a management fee of $49,500 charged by a related Corporation (March 31, 2018 - $49,500) under
a management agreement. The management fee was paid monthly and varied based on actual costs incurred by the related
corporation when providing the Company administrative, support, and management services. The management agreement was a
month-to-month arrangement. As of March 31, 2019, and December 31, 2018, there was unpaid services of $16,500 and $193,600,
respectively included in trade payables.

 

The Company paid $nil to related party
for unpaid accrued interest from prior periods during the three months March 31, 2019.

 

The Company owes $7,083,308 in accrued interest to a related
party as of March 31, 2019.

 

No compensation was paid to the key management for the three
months ended March 31, 2019 and 2018.

 

11. CAPITAL MANAGEMENT

 

The Company manages its capital structure
and makes adjustments to it, based on the funds available to the Company, in order to support business development. The Directors
do not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management
to sustain future development of the business. In order to carry out the planned business development and pay for administrative
costs, the Company will spend its existing working capital and raise additional amounts as needed. There were no changes in the
Company’s approach to capital management during the three months ended March 31, 2019. The Company is not subject to externally
imposed capital requirements.

 

    11 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

11. CAPITAL MANAGEMENT (continued)

 

The Company 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. Funds are primarily secured through loans from third parties and promissory notes. There can be no assurance that the
Company will be able to continue raising capital in this manner. Management reviews its capital management approach on an ongoing
basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The Company invests all capital that is
surplus to its immediate operational needs in short-term, liquid and highly rated financial instruments.

 

12. GENERAL AND ADMINISTRATIVE

 

General and administrative expenses were comprised of:

	 	March
    31, 

2019	 	March
    31, 

2018	 
	 	$	 	$	 
	Salaries
    and benefits	598,833	 	672,660	 
	Rent	26,112	 	573,171	 
	Taxes
    and licenses	4,626	 	15,959	 
	Bank
    Service charges	39,225	 	55,073	 
	Professional
    and consulting fees	260,310	 	121,628	 
	Insurance	65,648	 	49,669	 
	Office
    expenses	65,504	 	72,101	 
	Community
    agreements	133,674	 	163,247	 
	Security	121,540	 	66,830	 
	Computer
    expenses	76,260	 	31,971	 
	Utilities	(1,483	)	14,975	 
	Others	59,957	 	56,041	 
	 	1,450,206	 	1,893,325	 

 

13. 
CONTINGENCIES

 

Contingencies

 

The Company’s operations are subject to
a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions
on its operations, or losses of permits and/or licenses that could result in the Company ceasing operations. While management of
the Company believes that the Company is in compliance with applicable local and state regulation at March 31, 2019, cannabis regulations
continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties,
or restrictions in the future.

 

    12 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

13. 
CONTINGENCIES (continued)

 

Claims and litigation

 

From time to time, the Company may be involved
in litigation relating to claims arising out of operations in the normal course of business. At March 31, 2019, there were no pending
or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material
interest adverse to the Company’s interest.

 

14. FINANCIAL RISK FACTORS

 

The Company’s financial instruments
mainly comprise of cash and cash equivalents, accounts receivable, trade payables, accrued liabilities, debts payable and lease
obligations.

 

(a) Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The Company uses valuation techniques that
are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All assets and liabilities for which fair
value is measured or disclosed in the unaudited condensed interim financial statements are categorised 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.

 

    13 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

14. FINANCIAL RISK FACTORS (continued)

 

		(a)	Fair Value (continued)

 

The classification of financial instruments at their carrying
and fair values is as follows:

 

	 	Carrying values	 	 	Fair values	 
	Financial assets	FVTPL	FVTOCI	AC	Total	Total	 
	March 31, 2019	$	$	$	$	$	 
	Cash and cash equivalents	3,315,782	-	-	3,315,782	3,315,782	 
	Account receivables	-	-	1,026,229	1,026,229	1,026,229	 
	 	3,315,782	-	1,026,229	4,342,011	4,342,011	 
	December 31, 2018	 	 	 	 	 	 
	Cash and cash equivalents	2,607,676	-	-	2,607,676	2,607,676	 
	 	 	 	 	 	 

 

	 	 	Carrying values	 	Fair values	 
	Financial liabilities	 	FVTPL	AC	Total	Total	 
	March 31, 2019	 	$	$	$	$	 
	Trade payables	 	-	605,217	605,217	605,217	 
	Accrued liabilities	 	-	2,025,356	2,025,356	2,025,356	 
	Debts payable	 	-	14,971,386	14,971,386	14,971,386	 
	Lease obligations	 	-	5,627,975	5,627,975	5,627,975	 
	 	 	-	23,229,934	23,229,934	23,229,934	 
	December 31, 2018	 	$	$	$	$	 
	Trade payables	 	-	1,557,153	1,557,153	1,557,153	 
	Accrued liabilities	 	-	1,192,208	1,192,208	1,192,208	 
	Debts payable	 	-	14,972,617	14,972,617	14,972,617	 
	 	 	-	17,721,978	17,721,978	17,721,978	 

 

The Company’s financial instruments
as at March 31, 2019 and December 31, 2018 classified as “Level 1 - quoted prices in active markets” is cash. The Company
has determined that there have been no transfers between levels in the hierarchy by re-assessing categorization at the reporting
date.

 

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

 

(b) 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 Company to concentrations of credit risk consist of cash and cash equivalents, and accounts receivable.

 

    14 

     

    

 

SIRA NATURALS, INC.

Notes to the Unaudited Condensed Interim
Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

14. FINANCIAL RISK FACTORS (continued)

 

		(b)	Credit Risk (continued)

 

The cash and cash equivalents consist mainly
of checking and operating accounts, cash and security deposits. The Company has deposited the cash equivalents with a major highly
reputable US bank. For its accounts receivable, the Company ensures to deal with creditworthy customers. As at March 31, 2019 and
December 31, 2018 the maximum amount exposed to credit risks was $4,342,011 and $2,607,676, respectively.

 

(c) Liquidity Risk

 

Liquidity risk is the risk that the Company
is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations as they come due. The Company’s
approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company
manages liquidity risk through obtaining financing from its members and third parties. As at March 31, 2019, all trade payables
and accrued liabilities are due within a year, whereas, long term debts over a period of five years.

 

(d) Interest Rate Risk

 

Interest rate risk is the risk that the
fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company
is exposed to interest rate risk on its long-term debts.

 

15. SEGMENTED INFORMATION

 

Operating and geographical segments

 

An operating segment is defined as a component of the Company:

 

		•	that engages in business activities from which it may earn revenues and incur expenses;

		•	whose operating results are reviewed regularly by the entity’s chief operating decision
maker; and;

		•	for which discrete financial information is available.

 

As at March 31, 2019 and December 31, 2018,
the Company’s operations comprise a single reporting operating and geographical segment engaged in the growing, processing
and distribution of cannabis.

 

16. SUBSEQUENT EVENTS

 

The Company’s management has evaluated
subsequent events up to August 5, 2019, the date the unaudited condensed interim financial statements were issued, and determined
the following event:

 

On May 24, 2019 – Ayr Strategies
Inc. (“Ayr”), formerly Cannabis Strategies Acquisition Corp., closed its previously announced Qualifying Transaction.
Through the qualifying transaction, Ayr has created a vertically integrated Multi-State Operator in the U.S. cannabis sector, with
an initial anchor portfolio in the Eastern and Western United States.

 

    15 

     

    

 

SCHEDULE
 “G”

CANOPY
INTERIM FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

 

 

THE CANOPY NV, LLC

 

UNAUDITED CONDENSED INTERIM CONSOLIDATED
FINANCIAL

STATEMENTS

 

FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

(EXPRESSED IN UNITED STATES DOLLARS)

 

Notice to reader

 

The accompanying unaudited condensed
interim consolidated financial statements of Canopy NV, LLC (the Company) have been prepared by and are the responsibility of management.
The unaudited condensed interim consolidated financial statements have not been reviewed by the Company’s auditors.

 

     

     

    

 

	THE CANOPY NV, LLC	 
	 	 
	Unaudited Condensed Interim Consolidated Financial Statements	 
	 	 
	March 31, 2019 and 2018	 
	 	 
	Table of Contents	 
	 	Page
	 	 
	Management’s Responsibility for Financial Reporting	1
	 	 
	Unaudited Condensed Interim Consolidated Financial Statements	 
	 	 
	Unaudited Condensed Interim Consolidated Statements of Financial Position	2
	 	 
	Unaudited Condensed Interim Consolidated Statements of Operations	3
	 	 
	Unaudited Condensed Interim Consolidated Statements of Changes in Members’ Equity	4
	 	 
	Unaudited Condensed Interim Consolidated Statements of Cash Flows	5
	 	 
	Notes to the Unaudited Condensed Interim Consolidated Financial Statements	6-14

 

     

     

    

 

 

MANAGEMENT’S RESPONSIBILITY FOR

FINANCIAL REPORTING

 

Management’s Responsibility

 

To the Members of The Canopy NV, LLC:

 

The accompanying unaudited condensed interim
consolidated financial statements and other financial information in this report were prepared by management of The Canopy NV,
LLC (“the Company”), reviewed by the Audit Committee and approved by the Board of Directors.

 

Management is responsible for the unaudited
condensed interim consolidated financial statements and believes that they fairly present the Company’s financial condition and
results of operation in conformity with International Financial Reporting Standards. Management has included in the Company’s unaudited
condensed interim consolidated financial statements amounts based on estimates and judgments that it believes are reasonable, under
the circumstances.

 

To discharge its responsibilities for financial
reporting and safeguarding of assets, management believes that it has established appropriate systems of internal accounting control
which provide reasonable assurance that the financial records are reliable and form a proper basis for the timely and accurate
preparation of unaudited condensed interim consolidated financial statements. Consistent with the concept of reasonable assurance,
the Company recognizes that the relative cost of maintaining these controls should not exceed their expected benefits. Management
further assures the quality of the financial records through careful selection and training of personnel and through the adoption
and communication of financial and other relevant policies.

 

August 5, 2019

 

	“Mark Pitchford” (Signed)	 	“Lilian Yohn” (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

    1 

     

    

 

THE CANOPY NV, LLC

Unaudited Condensed Interim Consolidated
Statements of Financial Position

At March 31, 2019 and December 31, 2018

 

	 	March 31,	December 31,
	 	2019	2018
	 	$	$
	ASSETS	 	 
	Current	 	 
	Cash	222,626	172,576
	Inventory [Note 5]	1,163,196	1,310,676
	Advance to a related corporation [Note 10]	1,217,830	690,461
	Prepaid expenses and other assets	153,353	122,167
	 	2,757,005	2,295,880
	Intangible assets [Note 6]	1,623,114	1,623,114
	Property plant and equipment [Note 7]	1,220,641	1,235,993
	Right-of-use assets [Note 8]	2,427,320	-
	Total assets	8,028,080	5,154,987
	 	 	 
	LIABILITIES	 	 
	Current	 	 
	Accrued liabilities	349,301	268,156
	Lease obligations - current portion [Note 8]	62,841	-
	 	412,142	268,156
	Debt payable [Note 13]	421,128	421,128
	Lease obligations - non-current portion [Note 8]	2,397,955	-
	Total liabilities	3,231,225	689,284
	 	 	 
	MEMBERS’ EQUITY [Note 9]	4,796,855	4,465,703
	 	 	 
	Total liabilities and members’ equity	8,028,080	5,154,987

 

Nature of operations [Note 1]

Contingencies [Note 14]

Subsequent events [Note 17]

 

Approved and authorized by the Board of Directors on August
5, 2019

 

	“Mark Pitchford” (Signed)	 	“Lilian Yohn” (Signed)
	Chief Executive Officer	 	Chief Financial Officer

 

The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.

 

    2 

     

    

 

THE CANOPY NV, LLC

Unaudited Condensed Interim Consolidated
Statements of Operations

For the Three Months Ended March 31,
2019 and 2018

 

	 	 	 	 
	 	For the Three	For the Three	 
	 	months ended	months ended	 
	 	March 31, 2019	March 31, 2018	 
	 	$	$	 
	 	 	 	 
	Revenues, net of discounts	3,627,129	2,589,630	 
	 	 	 	 
	Cost of goods sold [Note 5]	(2,113,680)	(1,320,141	)
	 	 	 	 
	Gross profit	1,513,449	1,269,489	 
	 	 	 	 
	Expenses	 	 	 
	General and administrative [Note 12]	590,157	396,004	 
	 	 	 	 
	Sales and marketing	95,198	62,643	 
	 	 	 	 
	Depreciation [Note 7 & 8]	77,596	7,158	 
	 	 	 	 
	Management fee [Note 10]	180,000	60,000	 
	 	 	 	 
	Total expenses	942,951	525,805	 
	 	 	 	 
	Income from operations	570,498	743,684	 
	 	 	 	 
	Other expense	 	 	 
	Net finance costs	78,446	-	 
	 	 	 	 
	Net income	492,052	743,684	 

 

The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.

 

    3 

     

    

 

THE CANOPY NV, LLC

Unaudited Condensed Interim Consolidated
Statements of Changes in Members’ Equity

For the Three Months Ended March 31,
2019 and 2018

 

	 	Members’	 
	 	Equity	 
	 	$	 
	 	 	 
	Balance as of December 31, 2017	3,280,127	 
	 	 	 
	Distributions	(444,000)	 
	 	 	 
	Net income for the period	743,684	 
	 	 	 
	Balance as at March 31, 2018	3,579,811	 
	 	 	 
	Balance as of December 31, 2018	4,465,703	 
	 	 	 
	Distributions	(160,900)	 
	 	 	 
	Net income for the period	492,052	 
	 	 	 
	Balance as at March 31, 2019	4,796,855	 

 

The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.

 

    4 

     

    

 

THE CANOPY NV, LLC

Unaudited Condensed Interim Consolidated
Statements of Cash Flows

For the Three Months Ended March 31,
2019 and 2018

 

	 	Three months	 	Three months	 
	 	ended	 	ended	 
	 	March 31, 2019	 	March 31, 2018	 
	 	$	 	$	 
	Operating activities	 	 	 	 
	Net income	492,052	 	743,684	 
	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 
	Depreciation of property plant and equipment and right-of-use assets	77,596	 	7,158	 
	Changes in working capital items:	 	 	 	 
	Inventory	147,480	 	(27,170	)
	Prepaid expenses and other assets	(31,186)	 	157,977	 
	Advance to a related corporation	(527,369)	 	97,251	 
	Trade payables	-	 	67,435	 
	Accrued liabilities	81,145	 	(35,991	)
	Cash provided by operating activities	239,718	 	1,010,344	 
	 	 	 	 	 
	Investing activities	 	 	 	 
	Purchase of property, plant and equipment	(8,491)	 	(665,795	)
	Cash used in investing activities	(8,491)	 	(665,795	)
	 	 	 	 	 
	Financing activities	 	 	 	 
	Distributions	(160,900)	 	(444,000	)
	Repayment of lease obligations	(20,277)	 	-	 
	Cash used in financing activities	(181,177)	 	(444,000	)
	Net increase (decrease) in cash	50,050	 	(99,451	)
	Cash, beginning of period	172,576	 	821,928	 
	Cash, end of period	222,626	 	722,477	 

 

The accompanying notes are an integral part of these unaudited
condensed interim consolidated financial statements.

 

    5 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

		1.	NATURE OF OPERATIONS

 

The CANOPY NV, LLC (“Canopy”
or the “Company”) was incorporated as Domestic Limited Liability Company on April 1, 2016 in the State of Nevada, United
States of America (“USA”). The Company’s head office is located at 1645 Crane Way, Sparks, Nevada 89431.

 

The Company’s management, operations,
structure and other matters are governed through an Operating Agreement entered between the members and Managers of the Company
on April 20, 2016. The Company’s principal activities, through its subsidiaries, are the distribution and sale of cannabis
as regulated under the laws applicable in the USA.

 

2.    BASIS OF PRESENTATION 2.1 Statement of compliance

 

These unaudited condensed interim consolidated
financial statements for the three months ended March 31, 2019 (and comparative results for the three months ended March 31, 2018)
have been prepared in accordance with International Accounting Standard (“IAS”) 34 – Interim Financial Reporting
and therefore do not contain all disclosures required by International Financial Reporting Standards (“IFRS”). These
unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s 2018 consolidated
financial statements and notes and have been prepared using the same accounting policies with the exception of significant accounting
policy adopted as a result of initial application of IFRS 16 - Leases (“IFRS 16”) effective from January 1, 2019.

 

These unaudited condensed interim consolidated
financial statements were approved and authorized for issue by the Board of Directors of the Company on August 5, 2019.

 

2.2 Basis of presentation

 

These unaudited condensed interim consolidated
financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured
at fair value, as explained in the accounting policies set out in Note 3. The unaudited condensed interim consolidated financial
statements are presented in US dollars which is the presentation and functional currency of the Company and its subsidiaries.

 

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1 Basis of consolidation

 

The unaudited condensed interim consolidated
financial statements include the unaudited condensed interim financial statements of the Company and its wholly owned subsidiaries
 – Kynd Strainz LLC (“Kynd”) and Lemon Aide LLC (“Lemon”), Limited Liabilities Companies, incorporated
in the state of Nevada. The results of subsidiaries acquired or disposed of during the period are included in the unaudited condensed
interim consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal, as
appropriate. All inter-company transactions, balances, income and expenses are eliminated on consolidation. Lemon started operations
in 2018.

 

The unaudited condensed interim financial
statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies.

  

    6 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

3.      
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

3.2 Leases

 

The Company assesses whether a contract
is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use asset and corresponding liability at
the commencement date. Each lease payment included in the lease liability is apportioned between the repayment of the liability
and a finance cost. The finance cost is recognized in net finance costs in the unaudited condensed interim consolidated statements
of operations over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability
for each period. Lease liabilities include the net present value of fixed payments (including in-substance fixed payments), variable
lease payments that are based on an index or a rate or subject to a fair market value renewal, amounts expected to be payable by
the lessee under residual value guarantees, the exercise price of a purchase option if the lessee is reasonably certain to exercise
that option, and payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.
The Company allocates the consideration in the contract to each lease component on the basis of the relative standalone price of
the lease component and the aggregate stand-alone price of the non-lease components. The lease liability is net of lease incentives
receivable. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined,
the lessee’s incremental borrowing rate. The period over which the lease payments are discounted is the reasonably certain
lease term, including renewal options that the Company is reasonably certain to exercise. Renewal options are included in a number
of leases across the Company.

 

Payments associated with short-term leases
and leases of low-value assets are recognized as an expense on a straight-line basis in selling, general and administrative expenses
in the unaudited condensed interim consolidated statements of operations. Short-term leases are leases with a lease term of 12
months or less. Variable lease payments that do not depend on an index or a rate or subject to a fair market value renewal are
expensed as incurred and recognized in Selling, general and administrative expenses in the unaudited condensed interim consolidated
statements of operations.

 

Right-of-use assets are measured at cost
which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement
date, any initial direct costs and related restoration costs. The right-of-use asset is depreciated over the lease term on a straight-line
basis. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life
of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects
that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.

 

4.      
CHANGES IN ACCOUNTING STANDARDS

 

Adoption of New Accounting Pronouncement

 

Adoption of IFRS 16 – Leases

 

The Company adopted IFRS 16 - Leases (“IFRS
16”) on January 1, 2019. IFRS 16 introduced a single on-balance sheet accounting model for lessees which replaced IAS 17
- Leases (“IAS 17”). Leasing activity for the Company typically involves the leases of land or buildings to operate
cannabis dispensaries, processing or cultivation facilities or corporate offices.

 

    7 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

4.     
CHANGES IN ACCOUNTING STANDARDS (continued)

 

Adoption of New Accounting Pronouncement (continued)

 

Adoption of IFRS 16 – Leases (continued)

 

The Company previously classified leases
as either operating or finance leases from the perspective of the lessee. Under IFRS 16, the Company recognizes right-of-use assets
and lease liabilities for most leases. The Company adopted IFRS 16 using the modified retrospective cumulative catch-up approach
beginning on January 1, 2019. Under this approach, the Company did not restate its comparative amounts and recognized a right-of-use
asset equal to the present value of the future lease payments. The Company elected to apply the practical expedient to only transition
contracts which were previously identified as leases under IAS 17, and also elected to not recognize right-of-use assets and lease
liabilities for leases of low-value assets.

 

Changes in Accounting Standards not yet Effective

 

Insurance Contracts

 

In May 2017, the International Accounting
Standards Board (“IASB”) issued IFRS 17 - Insurance Contracts (“IFRS 17”), that replaces IFRS 4 - Insurance
Contracts and establishes a new model for recognizing insurance policy obligations, premium revenue and claims-related expenses.
IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however, based on recent IASB meetings, an upcoming
amendment to IFRS 17 and a deferral of the transition date by one year is anticipated. Early adoption is permitted. The Company
is assessing the potential impact of this standard.

 

5.       INVENTORY

 

Inventory comprised of finished goods.

 

Inventories expensed as cost of goods sold
during the three months ended March 31, 2019 and 2018 is $2,113,680 and $1,320,141, respectively.

 

6.       INTANGIBLE
ASSETS

 

Intangible assets represent dispensary
licenses obtained by the two subsidiaries. Intangible assets of $1,623,114 include $1,500,000 contribution from a member.

 

    8 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

7.  PROPERTY,
PLANT AND EQUIPMENT

 

	 	Leasehold	Furniture &	Office	 	 
	 	improvements	Fixtures	Equipment	Vehicle	Total
	Cost	$	$	$	 	$
	As at December 31, 2018	1,051,853	167,640	77,444	6,305	1,303,242
	Additions	-	7,788	703	-	8,491
	As at March 31, 2019	1,051,853	175,428	78,147	6,305	1,311,733
	 	 	 	 	 	 
	Depreciation	 	 	 	 	 
	As at December 31, 2018	22,988	33,479	10,106	676	67,249
	Depreciation	13,149	6,597	3,872	225	23,843
	As at March 31, 2019	36,137	40,076	13,978	901	91,092
	 	 	 	 	 	 
	Net book value	 	 	 	 	 
	As at December 31, 2018	1,028,865	134,161	67,338	5,629	1,235,993
	As at March 31, 2019	1,015,716	135,352	64,169	5,404	1,220,641

 

Depreciation expense for the three months ended March 31, 2019
and 2018 of $Nil, is included in cost of goods sold.

 

8. RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS

 

	 	Right-of-	Lease
	 	use
    assets	obligations
	 	$	$
	 	 	 
	Net
    book value at January 1, 2019	2,481,073	2,481,073
	Depreciation
    and repayment	53,753	20,277
	Net
    book value at March 31, 2019	2,427,320	2,460,796

 

Right-of-use assets and lease obligations
of $2,481,073 were recorded as at January 1, 2019, with no net impact on retained earnings. When measuring lease liabilities, the
Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rates applied were
in the range of 9.84% to 11.62%.

 

As at March 31, 2019, the current and non-current
portion of the lease obligations were $62,841 and $2,397,955, respectively.

 

9.       MEMBERS’
EQUITY

 

During the three months ended March 31, 2019 and 2018, members
made cash contributions of $nil to the Company.

 

    9 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

10.    RELATED PARTY
TRANSACTIONS AND BALANCES

 

Related parties are defined as management
and members of the Company and/or members of their immediate family and/or other companies and/or entities in which a member or
senior officer is a principal owner or senior executive.

 

Other than disclosed elsewhere in the unaudited
condensed interim consolidated financial statements, related party transactions and balances are as follows:

 

The Company purchases a substantial portion
of its inventory from a related corporation. These purchases are made at arms-length rates, in line with rates charged to third
party customers of the related corporation.

 

Included in expenses for the three months
ended March 31, 2019 and 2018 is management fees of $180,000 and $60,000, respectively. The management fee started on January 1,
2017 and was paid monthly. The monthly fee varied based on an allocation of the related corporation’s expenses and was a
month-to-month arrangement.

 

Advance to a related corporation of $1,217,830
and $690,461 were outstanding as at March 31, 2019 and December 31, 2018, respectively. These advances are unsecured, interest
free and repayable on demand.

 

No compensation was paid to key management for the three months
ended March 31, 2019 and 2018.

 

11.    CAPITAL
MANAGEMENT

 

The Company manages its capital structure
and makes adjustments to it, based on the funds available to the Company, in order to support business development. The members
do not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management
to sustain future development of the business. The Company defines capital to include its members’ equity. In order to carry
out the planned business development and pay for administrative costs, the Company will spend its existing working capital and
raise additional amounts as needed. Management reviews its capital management approach on an ongoing basis and believes that this
approach, given the relative size of the Company, is reasonable. There were no changes in the Company’s approach to capital management
during the three ended March 31, 2019. The Company is not subject to externally imposed capital requirements. As at March 31, 2019
and December 31, 2018, the capital of the Company was $4,796,855 and $4,465,703, respectively.

 

The Company 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. Funds are primarily secured through cash injection by the members of the Company. There can be no assurance that the
Company will be able to continue raising equity capital in this manner. Management reviews its capital management approach on an
ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

 

The Company invests all capital that is
surplus to its immediate operational needs in short-term, liquid and highly rated financial instruments.

 

    10 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

12.   GENERAL AND
ADMINISTRATIVE

 

General and administrative expenses were comprised of:

	 	March 31,

    2019	March 31, 

2018
	 	$	$
	Salaries and benefits	292,372	268,412
	Rent	58,120	55,981
	Taxes and licenses	129,102	23,718
	Professional and consulting fees	24,840	2,350
	Insurance	27,354	14,713
	Office expenses 	15,550	5,793
	Computer expenses	13,663	6,043
	Repair and maintenance	4,850	3,551
	Utilities	4,838	3,419
	Others	19,468	12,024
	 	590,157	396,004

 

13.   DEBTS PAYABLE

 

On October 1, 2018, the Company borrowed $421,128 in connection
with the construction of a dispensary. The loan bears interest at a rate of 5% per annum and is due in 2020.

 

14.   CONTINGENCIES

 

Contingencies

 

The Company’s operations are subject to
a variety of local and state regulation. Failure to comply with one or more of those regulations could result in fines, restrictions
on its operations, or losses of permits and/or licenses that could result in the Company ceasing operations. While management of
the Company believes that the Company is in compliance with applicable local and state regulation at March 31, 2019, cannabis regulations
continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties,
or restrictions in the future.

 

Claims and litigation

 

From time to time, the Company may be involved
in litigation relating to claims arising out of operations in the normal course of business. At March 31, 2019, there were no pending
or threatened lawsuits that could reasonably be expected to have a material effect on the results of the Company’s operations.
There are also no proceedings in which any of the Company’s directors, officers or affiliates is an adverse party or has a material
interest adverse to the Company’s interest.

 

    11 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

15.   FINANCIAL
RISK FACTORS

 

The Company’s financial instruments
mainly comprise of cash, advance to a related corporation, trade payables, accrued liabilities, due to related corporation and
lease obligations.

 

(a) Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The Company uses valuation techniques that
are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All assets and liabilities for which fair
value is measured or disclosed in the unaudited condensed interim consolidated financial statements are categorised 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 classification of financial instruments at their carrying
and fair values is as follows:

		Carrying values	 	 	Fair values
	Financial assets	FVTPL	FVTOCI	AC	Total	Total
	March 31, 2019	$	$	$	$	$
	Cash	222,626	-	-	222,626	222,626
	Advance to a related corporation	-	-	1,217,830	1,217,830	1,217,830
	 	222,626	-	1,217,830	1,440,456	1,440,456
	 	 	 	 	 	 
	December 31, 2018	 	 	 	 	 
	Cash	172,576	-	-	172,576	172,576
	Advance to a related corporation	 	-	690,461	690,461	690,461
	 	172,576	-	690,461	863,037	863,037

 

    12 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

15.   FINANCIAL RISK
FACTORS (continued)

 

(a) Fair Value (continued)

 

	 	Carrying values	 	Fair values
	Financial liabilities	FVTPL	AC	Total	Total
	March 31, 2019	$	$	$	$
	Accrued liabilities	-	349,301	349,301	349,301
	Lease obligations	-	2,460,796	2,460,796	2,460,796
	Debt payable	-	421,128	421,128	421,128
	 	-	3,231,225	3,231,225	3,231,225
	December 31, 2018	 	 	 	 
	Accrued liabilities	-	268,156	268,156	268,156
	Debt payable	-	421,128	421,128	421,128
	 	-	689,284	689,284	689,284

 

The Company’s financial instruments
as at March 31, 2019 and December 31, 2018 classified as “Level 1 - quoted prices in active markets” is cash. The Company
has determined that there have been no transfers between levels in the hierarchy by re-assessing categorization at the reporting
date.

 

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

 

(b) 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 Company to concentrations of credit risk consist of cash and advance to a related corporation. As at March 31, 2019
and December 31, 2018, the maximum amount exposed to credit risks was $1,440,456 and $863,037, respectively.

 

(c) Liquidity Risk

 

Liquidity risk is the risk that the Company
is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations as they come due. The Company’s
approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. The Company
manages liquidity risk through obtaining financing from its members. As at March 31, 2019, all trade payables and accrued liabilities
are due within a year.

 

    13 

     

    

 

THE CANOPY NV, LLC

Notes to the Unaudited Condensed Interim
Consolidated Financial Statements

For the Three Months Ended March 31,
2019 and 2018

 

 

16. SEGMENTED INFORMATION

 

Operating and geographical segments

 

An operating segment is defined as a component of the Company:

 

		•	that engages in business activities from which it may earn revenues and incur expenses;

		•	whose operating results are reviewed regularly by the entity’s chief operating decision
maker; and;

		•	for which discrete financial information is available.

 

As at March 31, 2019 and December 31, 2018,
the Company’s operations comprise a single reporting operating and geographical segment engaged in the distribution and sale
of cannabis.

 

17.       SUBSEQUENT EVENTS

 

The Company’s management has evaluated
subsequent events up to August 5, 2019, the date the unaudited condensed interim consolidated financial statements were issued,
and determined the following event:

 

On May 24, 2019 – Ayr Strategies
Inc. (“Ayr”), formerly Cannabis Strategies Acquisition Corp., closed its previously announced Qualifying Transaction.
Through the qualifying transaction, Ayr has created a vertically integrated Multi-State Operator in the U.S. cannabis sector, with
an initial anchor portfolio in the Eastern and Western United States.

 

    14 

     

    

 

 

SCHEDULE
 “H” 

WASHOE
INTERIM FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

  

WASHOE
WELLNESS, LLC

 

UNAUDITED
CONDENSED INTERIM CONSOLIDATED

FINANCIAL
STATEMENTS

 

FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

  

(EXPRESSED
IN UNITED STATES DOLLARS)

  

Notice
to reader

 

The
accompanying unaudited condensed interim consolidated financial statements of Washoe Wellness, LLC (the Company) have been prepared
by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed
by the Company’s auditors.

 

     

     

    

 

WASHOE
WELLNESS, LLC

 

Unaudited
Condensed Interim Consolidated Financial Statements

 

March
31, 2019 and 2018

 

Table of Contents  

 

	 	Page
	 	 
	Management’s Responsibility for Financial
    Reporting	1
	 	 
	Unaudited Condensed Interim Consolidated
    Financial Statements	 
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Financial Position	2
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Operations	3
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Changes in Members’ Equity	4
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Cash Flows	5
	 	 
	Notes to the Unaudited Condensed Interim
    Consolidated Financial Statements	6-18

 

     

     

    

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management’s
Responsibility

 

To
the Members of Washoe Wellness, LLC:

 

The
accompanying unaudited condensed interim consolidated financial statements and other financial information in this report were
prepared by management of Washoe Wellness, LLC (“the Company”), reviewed by the Audit Committee and approved by the
Board of Directors.

 

Management
is responsible for the unaudited condensed interim consolidated financial statements and believes that they fairly present the
Company’s financial condition and results of operation in conformity with International Financial Reporting Standards. Management
has included in the Company’s unaudited condensed interim consolidated financial statements amounts based on estimates and judgments
that it believes are reasonable, under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of unaudited condensed interim consolidated financial statements.
Consistent with the concept of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls
should not exceed their expected benefits. Management further assures the quality of the financial records through careful selection
and training of personnel and through the adoption and communication of financial and other relevant policies.

 

August
5, 2019

  

	“Mark Pitchford” (Signed)	 	“Lilian Yohn” (Signed)
	Chief
    Executive Officer	 	Chief
    Financial Officer

 

    1 

     

    

 

WASHOE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Financial Position 

At
March 31, 2019 and December 31, 2018

 

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	ASSETS	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Cash	 	 	722,273	 	 	 	345,987	 
	Accounts receivable, no allowance	 	 	133,075	 	 	 	350,974	 
	Inventory [Note 5]	 	 	2,519,505	 	 	 	2,035,578	 
	Biological assets [Note 6]	 	 	1,646,000	 	 	 	1,244,313	 
	Other receivables	 	 	-	 	 	 	11,532	 
	Prepaid expenses and other assets	 	 	197,933	 	 	 	211,923	 
	 	 	 	5,218,786	 	 	 	4,200,307	 
	Intangible assets [Note 7]	 	 	80,894	 	 	 	80,894	 
	Property, plant and equipment [Note 8]	 	 	8,961,601	 	 	 	8,846,196	 
	Investment in associate [Note 9]	 	 	1,939,517	 	 	 	1,664,347	 
	Total assets	 	 	16,200,798	 	 	 	14,791,744	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	577,458	 	 	 	861,240	 
	Accrued liabilities	 	 	162,209	 	 	 	107,472	 
	Advance from a related corporation [Note 12]	 	 	1,217,830	 	 	 	690,461	 
	 	 	 	1,957,497	 	 	 	1,659,173	 
	Debts payable - non-current portion [Note 10]	 	 	9,162,306	 	 	 	9,182,006	 
	Total liabilities	 	 	11,119,803	 	 	 	10,841,179	 
	 	 	 	 	 	 	 	 	 
	MEMBERS’ EQUITY [Note 11]	 	 	5,080,995	 	 	 	3,950,565	 
	 	 	 	 	 	 	 	 	 
	Total liabilities and members’ equity	 	 	16,200,798	 	 	 	14,791,744	 

 

Nature
of operations [Note 1]

Commitment
and contingencies [Note 15]

Subsequent
events [Note 18]

 

Approved
and authorized by the Board of Directors on August 5, 2019.

  

	“Mark Pitchford” (Signed)	 	“Lilian Yohn” (Signed)
	Chief
    Executive Officer	 	Chief
    Financial Officer
	 	 	 

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    2 

     

    

 

WASHOE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Operations 

For
the Three Months Ended March 31, 2019 and 2018

 

	 	 	Three months
 ended
 March 31, 2019
 $
	 	 	Three months 
ended 
March 31, 2018 
$	 
	 	 	 	 	 	 	 	 	 
	Revenues, net of discounts	 	 	1,972,925	 	 	 	1,707,193	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold before biological asset adjustment	 	 	(1,017,328	)	 	 	(865,140	)
	 	 	 	 	 	 	 	 	 
	Gross profit before biological asset adjustment	 	 	955,597	 	 	 	842,053	 
	 	 	 	 	 	 	 	 	 
	Fair value changes in biological assets included in cost of sales	 	 	(804,650	)	 	 	(551,056	)
	Unrealized gain on biological asset transformation	 	 	1,227,204	 	 	 	1,003,455	 
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	1,378,151	 	 	 	1,294,452	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 14]	 	 	160,492	 	 	 	257,079	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	55,369	 	 	 	33,258	 
	 	 	 	 	 	 	 	 	 
	Management fees [Note 15]	 	 	120,000	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 8]	 	 	95,266	 	 	 	67,488	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	431,127	 	 	 	357,825	 
	 	 	 	 	 	 	 	 	 
	Income from operations	 	 	947,024	 	 	 	936,627	 
	 	 	 	 	 	 	 	 	 
	Other income (expense)	 	 	 	 	 	 	 	 
	Share of income on equity investments [Note 9]	 	 	275,170	 	 	 	807,121	 
	Interest expense	 	 	(94,888	)	 	 	(84,720	)
	Interest income	 	 	-	 	 	 	12,067	 
	Management fee income [Note 12]	 	 	-	 	 	 	60,000	 
	Rental income and others	 	 	23,124	 	 	 	23,124	 
	Total other income	 	 	203,406	 	 	 	817,592	 
	 	 	 	 	 	 	 	 	 
	Net income	 	 	1,150,430	 	 	 	1,754,219	 

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    3 

     

    

 

WASHOE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Changes in Members’ Equity 

For
the Three Months Ended March 31, 2019 and 2018

 

	 	 	Members’
 Equity
 $
	 
	Balance as at December 31, 2017	 	 	2,444,394	 
	 	 	 	 	 
	Distributions	 	 	-	 
	 	 	 	 	 
	Net income for the period	 	 	1,754,219	 
	 	 	 	 	 
	Balance as at March 31, 2018	 	 	4,198,613	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	3,950,565	 
	 	 	 	 	 
	Distributions	 	 	(20,000	)
	 	 	 	 	 
	Net income for the period	 	 	1,150,430	 
	 	 	 	 	 
	Balance as at March 31, 2019	 	 	5,080,995	 

 

The
accompanying notes are in integral part of these unaudited condensed interim consolidated financial statements.

 

 

    4 

     

    

 

WASHOE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Cash Flows 

For
the Three Months Ended March 31, 2019 and 2018

 

	 	 	Three months
 ended
 March 31, 2019
 $
	 	 	Three months 
ended 
March 31, 2018 
$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	1,150,430	 	 	 	1,754,219	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation of property, plant and equipment	 	 	110,774	 	 	 	78,475	 
	Share of income on equity investments	 	 	(275,170	)	 	 	(807,121	)
	Unrealized gain on biological asset transformation	 	 	(1,227,204	)	 	 	(1,003,455	)
	Fair value changes in biological assets included in cost of sales	 	 	804,650	 	 	 	551,056	 
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Accounts receivable	 	 	217,899	 	 	 	121,649	 
	Other receivables	 	 	11,532	 	 	 	-	 
	Inventory	 	 	(483,927	)	 	 	(459,889	)
	Biological assets	 	 	20,867	 	 	 	(64,994	)
	Prepaid expenses and other assets	 	 	13,990	 	 	 	524,202	 
	Trade payables	 	 	(283,782	)	 	 	2,539,556	 
	Accrued liabilities	 	 	54,737	 	 	 	(11,454	)
	Advance from a related corporation	 	 	527,369	 	 	 	(97,251	)
	Cash provided by operating activities	 	 	642,165	 	 	 	3,124,993	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Investment in associate	 	 	-	 	 	 	(10	)
	Purchase of property, plant and equipment	 	 	(226,179	)	 	 	(311,762	)
	Receipts of loans receivable	 	 	-	 	 	 	13,309	 
	Cash used in investing activities	 	 	(226,179	)	 	 	(298,463	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Repayments of debts payable	 	 	-	 	 	 	(2,361,998	)
	Proceeds from issuance of debts payable	 	 	(19,700	)	 	 	-	 
	Distributions	 	 	(20,000	)	 	 	-	 
	Cash used in financing activities	 	 	(39,700	)	 	 	(2,361,998	)
	 	 	 	 	 	 	 	 	 
	Net increase in cash	 	 	376,286	 	 	 	464,532	 
	Cash, beginning of period	 	 	345,987	 	 	 	1,435,345	 
	Cash, end of period	 	 	722,273	 	 	 	1,899,877	 
	 	 	 	 	 	 	 	 	 
	Supplemental cash flow information	 	 	 	 	 	 	 	 
	Interest paid	 	 	94,888	 	 	 	58,944	 

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    5 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		1.	NATURE
OF OPERATIONS

 

Washoe
Wellness, LLC (“Washoe” or the “Company”) was incorporated as a Limited Liability Company on June 23,
2014 in the State of Nevada, United States of America (“USA”). The Company’s head office is located at 1645
Crane Way, Sparks, NV 89431.

 

The
Company’s management, operations, structure and other matters are governed through an Operating Agreement entered between
the Members and Managers of the Company on November 5, 2014. The Company’s principal activities, through its subsidiaries,
are the growing, processing and distribution of cannabis as regulated under the laws applicable in the USA.

 

		2.	BASIS
OF PRESENTATION

 

2.1 Statement of compliance

 

These
unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019 (and comparative results
for the three months ended March 31, 2018) have been prepared in accordance with International Accounting Standard (“IAS”)
34 – Interim Financial Reporting and therefore do not contain all disclosures required by International Financial
Reporting Standards (“IFRS”). These unaudited condensed interim consolidated financial statements should be read in
conjunction with the Company’s 2018 consolidated financial statements and notes and have been prepared using the same accounting
policies with the exception of significant accounting policy adopted as a result of initial application of IFRS 16 - Leases (“IFRS
16”) effective from January 1, 2019.

 

These
unaudited condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors
of the Company on August 5, 2019.

 

2.2
Basis of presentation

 

These
unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain
financial instruments, which are measured at fair value. The unaudited condensed interim consolidated financial statements are
presented in US dollars which is the presentation and functional currency of the Company and its subsidiaries.

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1 Basis of Consolidation

 

The
unaudited condensed interim consolidated financial statements include the unaudited condensed interim financial statements of
the Company and its wholly owned subsidiaries – Tahoe-Reno Extractions, LLC (“TRE”), Tahoe-Reno Botanicals, LLC
(“TRB”) and DWC Investments, LLC, Limited Liabilities Companies, and KLYMB Project Management, Inc., incorporated in
the state of Nevada. The results of subsidiaries acquired or disposed of during the period are included in the unaudited condensed
interim consolidated statements of operations from the effective date of acquisition or up to the effective date of disposal,
as appropriate. All inter-company transactions, balances, income and expenses are eliminated on consolidation.

 

The
unaudited condensed interim financial statements of the subsidiaries are prepared for the same reporting period as the Company,
using consistent accounting policies.

 

    6 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

3.2 Leases

 

The
Company assesses whether a contract is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use
assets and corresponding liability at the commencement date. Each lease payment included in the lease liability is apportioned
between the repayment of the liability and a finance cost. The finance cost is recognized in net finance costs in the unaudited
condensed interim consolidated statement of operations over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. Lease liabilities include the net present value of fixed payments (including
in-substance fixed payments), variable lease payments that are based on an index or a rate or subject to a fair market value renewal,
amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee
is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising that option. The Company allocates the consideration in the contract to each lease component on the basis
of the relative standalone price of the lease component and the aggregate stand-alone price of the non-lease components. The lease
liability is net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease
or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments
are discounted is the reasonably certain lease term, including renewal options that the Company is reasonably certain to exercise.
Renewal options are included in a number of leases across the Company.

 

Payments
associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis in Selling,
general and administrative expenses in the unaudited condensed interim consolidated statement of operations. Short-term leases
are leases with a lease term of 12 months or less. Variable lease payments that do not depend on an index or a rate or subject
to a fair market value renewal are expensed as incurred and recognized in selling, general and administrative expenses in the
unaudited condensed interim consolidated statement of operations.

 

Right-of-use
assets are measured at cost which is calculated as the amount of the initial measurement of lease liability plus any lease payments
made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use asset is depreciated
over the lease term on a straight-line basis. The right-of-use assets are depreciated on a straight-line basis over the shorter
of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost
of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

		4.	CHANGES
IN ACCOUNTING STANDARDS

 

Adoption of New Accounting Pronouncement

 

Adoption
of IFRS 16 – Leases

 

The
Company adopted IFRS 16 - Leases (“IFRS 16”) on January 1, 2019. IFRS 16 introduced a single on-balance sheet accounting
model for lessees which replaced IAS 17 - Leases (“IAS 17”). The adoption of IFRS 16 did not result in any recognition
of right-of-use assets and the related lease obligations as none of the leases met the criteria of capitalization.

 

    7 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		4.	CHANGES
IN ACCOUNTING STANDARDS (continued)

 

Changes in Accounting Standards not yet Effective

 

Insurance
Contracts

 

In
May 2017, the International Accounting Standards Board (“IASB”) issued IFRS 17 - Insurance Contracts (“IFRS
17”), that replaces IFRS 4 - Insurance Contracts and establishes a new model for recognizing insurance policy obligations,
premium revenue and claims-related expenses. IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however,
based on recent IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the transition date by one year is anticipated.
Early adoption is permitted. The Company is assessing the potential impact of this standard.

 

		5.	INVENTORY

 

The
Company’s inventory includes the following:

 

	 	 	March 31, 2019	 	 	December 31, 2018	 
	 	 	Capitalized
 cost
	 	 	Fair value
 adjustment
	 	 	Carrying
 value
	 	 	Capitalized 
cost	 	 	Fair value 
adjustment	 	 	Carrying 
value	 
	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Harvested cannabis	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Work in process	 	 	329,856	 	 	 	24,073	 	 	 	353,929	 	 	 	51,922	 	 	 	-	 	 	 	51,922	 
	Finished goods	 	 	177,676	 	 	 	121,040	 	 	 	298,716	 	 	 	268,340	 	 	 	(29,676	)	 	 	238,664	 
	 	 	 	507,532	 	 	 	145,113	 	 	 	652,645	 	 	 	320,262	 	 	 	(29,676	)	 	 	290,586	 
	Cannabis oils	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Raw materials	 	 	83,669	 	 	 	10,909	 	 	 	94,578	 	 	 	130,409	 	 	 	31,713	 	 	 	162,122	 
	Work in process	 	 	575,355	 	 	 	49,031	 	 	 	624,386	 	 	 	1,384,047	 	 	 	102,105	 	 	 	1,486,152	 
	Finished goods	 	 	75,284	 	 	 	4,121	 	 	 	79,405	 	 	 	58,385	 	 	 	8,347	 	 	 	66,732	 
	 	 	 	734,308	 	 	 	64,061	 	 	 	798,369	 	 	 	1,572,841	 	 	 	142,165	 	 	 	1,715,006	 
	Accessories and supplies	 	 	1,068,491	 	 	 	-	 	 	 	1,068,491	 	 	 	29,986	 	 	 	-	 	 	 	29,986	 
	 	 	 	2,310,331	 	 	 	209,174	 	 	 	2,519,505	 	 	 	1,923,089	 	 	 	112,489	 	 	 	2,035,578	 

 

Inventories
expensed as cost of goods sold during the three months ended March 31, 2019 and 2018 are $70,852 and $283,753, respectively. These
exclude the fair market value changes of biological assets.

 

Non-cash
expense relating to change in fair value of inventory sold recognized during the three months ended March 31, 2019 and 2018 are
$804,650 and $551,056, respectively.

 

    8 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		6.	BIOLOGICAL
ASSETS

 

The
continuity of biological assets was as follows:

 

	 	 	March 31,
 2019
	 	 	December 31, 
2018	 
	 	 	$	 	 	$	 
	Balance, at beginning	 	 	1,244,313	 	 	 	1,232,350	 
	Production costs	 	 	334,824	 	 	 	3,049,368	 
	Fair value change	 	 	1,294,067	 	 	 	968,197	 
	Transferred to inventory upon harvest	 	 	(1,227,204	)	 	 	(4,005,602	)
	Balance, at end	 	 	1,646,000	 	 	 	1,244,313	 

 

As
of March 31, 2019, and December 31, 2018, the weighted average fair value less cost to complete and cost to sell was $3.14 and
$3.39 per gram, respectively.

 

The
fair value of biological assets is categorized within Level 3 on the fair value hierarchy. The inputs and assumptions used in
determining the fair value of biological assets include:

 

	(a) Selling price per gram;	Level 3 input
	(b) Attrition rate;	Level 3 input
	(c) Average yield per plant;	Level 3 input
	(d) Standard cost per gram to compete production	Level 3 input
	(e) Cumulative stage of completion in production
    process	Level 3 input

 

Significant
unobservable assumptions used in the valuation of biological assets, including the sensitivities on changes in these assumptions
and their effect on the fair value of biological assets, are as follows:

 

	Significant
inputs or assumptions
	 	Range of inputs	 	Sensitivity	 	Effect on fair value	 
	 	 	 	 	 	 	March 31, 2019	 	 	December 31, 2018	 
	 	 	 	 	 	 	$	 	 	$	 
	Selling price per gram*	 	$3.83 to $4.16	 	Increase or decrease of $1 per gram	 	 	617,716	 	 	 	366,308	 
	Average yield per plant**	 	302 to 370 grams	 	Increase or decrease by 5 grams per plant	 	 	37,191	 	 	 	21,299	 

*Selling
price per gram is based on average selling prices for the period.

 

The
Company’s estimates are, by their nature, subject to change and differences from the anticipated yield will be reflected
in the gain or loss on biological assets in future periods.

 

As
of March 31, 2019, and December 31, 2018, the biological assets were on average 55% and 51% complete, respectively. During the
three months ended March 31, 2019 and year ended December 31, 2018, the Company’s biological assets produced 390,345 grams
and 1,181,220 grams of dried cannabis, respectively. 

 

    9 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		7.	INTANGIBLE
ASSETS

 

Intangible
assets having indefinite lives consisted of the following:

  

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	Product rights	 	 	59,894	 	 	 	59,894	 
	Domain name	 	 	16,000	 	 	 	16,000	
	Trademarks	 	 	5,000	 	 	 	5,000	 
		 	 	80,894	 	 	 	80,894	 

 

		8.	PROPERTY,
PLANT AND EQUIPMENT

 

 

	 	 	 	Land

                                                                                $
	 	 	Buildings &

                                                                                leasehold

                                                                                improvements

                                                                                $
	 	 	Furniture &

                                                                               fixtures
 $
	 	 	Office
 equipment
 $
	 	 	Machinery &
 equipment
 $
	 	 	Auto &
 trucks
 $
	 	 	Total
 $
	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	896,444	 	 	7,447,311	 	 	62,684	 	 	104,211	 	 	1,141,003	 	 	34,322	 	 	9,685,975	 
	Additions	 	 	-	 	 	165,673	 	 	1,150	 	 	3,848	 	 	55,508	 	 	-	 	 	226,179	 
	As at March 31, 2019	 	 	896,444	 	 	7,612,984	 	 	63,834	 	 	108,059	 	 	1,196,511	 	 	34,322	 	 	9,912,154	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	-	 	 	285,893	 	 	8,134	 	 	46,436	 	 	491,609	 	 	7,707	 	 	839,779	 
	Depreciation	 	 	-	 	 	48,473	 	 	2,241	 	 	5,210	 	 	53,134	 	 	1,716	 	 	110,774	 
	As at March 31, 2019	 	 	-	 	 	334,366	 	 	10,375	 	 	51,646	 	 	544,743	 	 	9,423	 	 	950,553	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	896,444	 	 	7,161,418	 	 	54,550	 	 	57,775	 	 	649,394	 	 	26,615	 	 	8,846,196	 
	As at March 31, 2019	 	 	896,444	 	 	7,278,618	 	 	53,459	 	 	56,413	 	 	651,768	 	 	24,899	 	 	8,961,601	 

 

As
at March 31, 2019 and December 31, 2018, buildings and leasehold improvements include borrowing costs of $204,660 capitalized
in connection with loan used for the construction of buildings.

 

Depreciation
expense for the three months ended March 31, 2019 and 2018 of $15,508 and $10,987, respectively, is included in cost of goods
sold.

 

    10 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		9.	INVESTMENT
IN ASSOCIATE

 

The
Company has a 52% participating interest in one of its related corporations. Management has concluded that the current participating
interest does not provide control to the Company. Accordingly, the current investment has been accounted for as investment in
associate using the equity method as detailed below:

 

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	Balance, at beginning	 	 	1,664,347	 	 	 	1,200,651	 
	Dividends	 	 	-	 	 	 	(1,178,719	)
	Share of income	 	 	275,170	 	 	 	1,642,415	 
	Balance, at end	 	 	1,939,517	 	 	 	1,664,347	 

 

The
following table presents a summary of statement of financial position and statement of operations of the investee:

 

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	Current assets	 	 	2,757,005	 	 	 	2,295,880	 
	Non-current assets	 	 	5,271,075	 	 	 	2,859,107	 
	Current liabilities	 	 	412,128	 	 	 	689,284	 
	Revenue	 	 	3,627,129	 	 	 	11,748,244	 
	Income	 	 	570,498	 	 	 	3,150,573	 

 

		10.	DEBTS
PAYABLE

 

The
details of debts payable were as follows:

 

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	Revolving line of credit  promissory note (a)	 	 	6,561,819	 	 	 	6,561,749	 
	Loan payable to a third party (b) and (c)	 	 	2,600,487	 	 	 	2,620,257	 
	Total debts payable	 	 	9,162,306	 	 	 	9,182,006	 
	Less: Current portion	 	 	-	 	 	 	-	 
	Debts payable - Non-current portion	 	 	9,162,306	 	 	 	9,182,006	 

 

Total
debt payable includes interest payable as at March 31, 2019 and December 31, 2018 of $961,818 and $961,818 respectively.

 

    11 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		10.	DEBTS
PAYABLE (continued)

 

As
at March 31, 2019, the maturity profile of the principal amounts of debts outstanding are as follows:

 

	Year ending December 31	 	 	$	 
	2019 (9 months)	 	 	 	-	 
	2020	 	 	 	161,590	 
	2021	 	 	 	123,322	 
	2022	 	 	 	2,213,481	 
	Thereafter	 	 	 	6,663,913	 
	 	 	 	 	9,162,306	 

 

		(a)	Revolving
line of credit promissory note

 

Debt
under this arrangement represented financing obtained from a related corporation under an original Revolving Line of Credit Note
dated November 5, 2014 of a maximum borrowing limit of $2,500,000, which was revised from time to time. Effective January 1, 2017,
the Company entered into a Restated Revolving Line of Credit, which replaced the revolving line of credit note with a straight
promissory note of $5,600,000 with maturity date extended indefinitely.

 

The
promissory note carries an interest of 6% per annum to be paid monthly. If monthly payment of interest is not made timely, the
interest for the period of the missed payment shall accrue at the default interest rate of 12%. The Company granted a 5% membership
interest to the note holder due to the principal amount of note was not repaid by June 30, 2017 (First Repayment Date). Subsequently,
a further 5% membership interest was granted to the note holder when the principal amount of the note was not repaid by December
31, 2017 (Second Repayment Date).

 

As
at March 31, 2019, the entire principal amount remained outstanding. A 5% membership interest was granted to the note holder subsequent
to the First Repayment Date, and a further 5% membership interest was granted to the note holder subsequent to the Second Repayment
Date. In addition, as at March 31, 2019 and December 31, 2018, accrued interest, included in debts payable – non-current
portion, the amount of $961,818 has remained unpaid. The principal amounts outstanding as at March 31, 2019 and December 31, 2018
were $5,600,000.

 

		(b)	Loan
Payable to a Third Party

 

Effective
August 24, 2017, the Company obtained a loan of $2,525,000 for a term of five years from a third party. This loan carries interest
at 5% per annum with a monthly blended payment of $16,664, started from October 1, 2017 with a final payment of $2,123,899 on
September 1, 2022. The loan is secured by a deed of trust with assignment of rents on the Company’s land and buildings in
favour of the lender. The principal amounts outstanding as at March 31, 2019 and December 31, 2018, were $2,410,487 and $2,430,187,
respectively.

 

		(c)	Loan
Payable to a Third Party

 

On
July 23, 2018, the Company borrowed $190,000 in connection with the purchase of land. The loan bears interest at a rate of 6%
per annum and is due in 2023. Monthly installments of principal and interest in an amount of $3,673 beginning on July 23, 2020.The
loan is secured by a deed of trust. Should the Company prepay this loan by July 23, 2019, the principal amount will be reduced
by $25,000. The principal amounts outstanding as at March 31, 2019 and December 31, 2018, were $190,000.

 

 

    12 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		11.	MEMBERS’
EQUITY

 

In
a series of transaction in Q2 2018, the Company adjusted its capital structure. On May 31, 2018, the Company (i) added additional
members, granting them membership interests in exchange for services provided on a historical and ongoing basis, (ii) created
a revised membership class structure to reflect these new members and (iii) allowed an existing member to make an additional capital
contribution to the Company. On June 4, 2018, the aforementioned member increased the amount of the additional capital contribution
of $1,100,000.

 

		12.	RELATED
PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the unaudited condensed interim consolidated financial statements, related party transactions and
balances are as follows:

 

Included
in other income for the three months ended March 31, 2019 is management fee of $nil, received from a related corporation (March
31, 2018 - $60,000). The management fee started on January 1, 2018 and was paid monthly. The monthly fee varied based on an allocation
of the Company’s expenses and was a month-to-month arrangement.

 

During
the three months ended March 31, 2019, sales of $1,576,525 made to a related corporation is included in revenue and purchase of
$259,772 from a related corporation is included in cost of goods sold.

 

Advance
from a related corporation of $1,217,830 and $690,461 was outstanding as at March 31, 2019 and December 31, 2018, respectively.
The advance from a related corporation is unsecured, interest free and is repayable on demand.

 

During
the three months ended March 30, 2019 and 2018, management fees of $120,000 and $nil, respectively, were paid to a related party
under consulting agreements. TRE and TRB each pay $20,000 per month ($40,000 per month in total) under these agreements, which
were executed and were effective on June 1, 2018. These agreements have a three-year term and automatically renew every three
years unless any party gives notice of their intent to terminate the agreement. Any party may also terminate the agreement at
any time with 120 days notice.

 

The
following outlines the compensation of the Company’s key management personnel:

 

	 	 	March 31,
 2019
 $
	 	 	March 31, 
2018 
$	 
	Salaries and benefits to key management personnel	 	 	6,000	 	 	 	43,754	 

  

    13 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		13.	CAPITAL
MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support
business development. The Members do not establish quantitative return on capital criteria for management, but rather relies on
the expertise of the Company’s management to sustain future development of the business. The Company defines capital to include
its Members’ equity. In order to carry out the planned business development and pay for administrative costs, the Company
will spend its existing working capital and raise additional amounts as needed. There were no changes in the Company’s approach
to capital management during the three months ended March 31, 2019. The Company is not subject to externally imposed capital requirements.
As at March 31, 2019, and December 31, 2018, the capital of the Company was $5,080,995 and $3,950,565 respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable. The Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly
rated financial instruments.

 

The
Company invest all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

		14.	GENERAL
AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of:

  

	 	 	March 31,
 2019
 $
	 	 	March 31, 
2018 
$	 
	Salaries and benefits	 	 	78,133	 	 	 	161,623	 
	Professional and consulting fees	 	 	17,666	 	 	 	13,502	 
	Computer expenses	 	 	11,854	 	 	 	27,496	 
	Shipping expenses	 	 	11,434	 	 	 	13,600	 
	Office expenses	 	 	7,133	 	 	 	9,389	 
	Utilities	 	 	3,475	 	 	 	2,870	 
	Insurance	 	 	2,793	 	 	 	(9,128	)
	Taxes and licenses	 	 	1,506	 	 	 	1,185	 
	 	 	 	-	 	 	 	4,712	 
	Others	 	 	26,498	 	 	 	31,830	 
	 	 	 	160,492	 	 	 	257,079	 

 

		15.	COMMITMENTS
AND CONTINGENCIES

 

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulation. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations.

 

    14 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

  

 

 

		15.	COMMITMENTS
AND CONTINGENCIES (continued)

 

Contingencies
(continued)

 

While
management of the Company believes that the Company is in compliance with applicable local and state regulation at March 31, 2019,
cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject
to regulatory fines, penalties, or restrictions in the future.

 

Claims
and litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At March 31, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on
the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates
is an adverse party or has a material interest adverse to the Company’s interest.

 

Management
Fees

 

On
June 1, 2018 the Company entered into consulting agreements with a related party. Under these agreements TRE and TRB each pay
$20,000 per month ($40,000 per month in total) for administrative, support, and management services. These agreements have a three-year
term and automatically renew every three years unless any party gives notice of their intent to terminate the agreement. Any party
may also terminate the agreement at any time with 120 days notice.

  

Future
minimum payments under this agreement, assuming no party terminates the agreements prior to the three-year initial term, are as
follows:

 

	Year ending December 31	 	 	$	 
	2019 (9 months)	 	 	 	360,000	 
	2020	 	 	 	480,000	 
	2021	 	 	 	200,000	 
	 	 	 	 	1,040,000	 

 

		16.	FINANCIAL
RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, accounts receivable, other receivables, trade payables, accrued
liabilities, advance from a related corporation and debts payable.

 

(a)
Fair Value

 

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 Company.

 

    15 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		16.	FINANCIAL
RISK FACTORS (continued)

 

(a) 
Fair Value (continued)

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the unaudited condensed interim consolidated financial
statements are categorised 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
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	Carrying values	 	 	 	 	 	 	 	 	Fair values	 
	Financial assets	 	FVTPL	 	 	FVTOCI	 	 	AC	 	 	Total	 	 	Total	 
	March 31, 2019	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Cash	 	 	722,273	 	 	 	-	 	 	 	-	 	 	 	722,273	 	 	 	722,273	 
	Accounts receivable	 	 	-	 	 	 	-	 	 	 	133,075	 	 	 	133,075	 	 	 	133,075	 
	 	 	 	722,273	 	 	 	-	 	 	 	133,075	 	 	 	855,348	 	 	 	855,348	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	345,987	 	 	 	-	 	 	 	-	 	 	 	345,987	 	 	 	345,987	 
	Accounts receivable	 	 	-	 	 	 	-	 	 	 	350,974	 	 	 	350,974	 	 	 	350,974	 
	Other receivables	 	 	-	 	 	 	-	 	 	 	11,532	 	 	 	11,532	 	 	 	11,532	 
	 	 	 	345,987	 	 	 	-	 	 	 	362,506	 	 	 	708,493	 	 	 	708,493	 

  

    16 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		16.	FINANCIAL
RISK FACTORS (continued)

 

(a) 
Fair Value (continued)

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	March 31, 2019	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	577,458	 	 	 	577,458	 	 	 	577,458	 
	Accrued liabilities	 	 	-	 	 	 	162,209	 	 	 	162,209	 	 	 	162,209	 
	Advance from a related corporation	 	 	-	 	 	 	1,217,830	 	 	 	1,217,830	 	 	 	1,217,830	 
	Debts payable	 	 	-	 	 	 	9,162,306	 	 	 	9,162,306	 	 	 	9,162,306	 
	 	 	 	-	 	 	 	11,119,803	 	 	 	11,119,803	 	 	 	11,119,803	 
	December 31, 2018	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	861,240	 	 	 	861,240	 	 	 	861,240	 
	Accrued liabilities	 	 	-	 	 	 	107,472	 	 	 	107,472	 	 	 	107,472	 
	Advance from a related corporation	 	 	-	 	 	 	690,461	 	 	 	690,461	 	 	 	690,461	 
	Debts payable	 	 	-	 	 	 	9,182,006	 	 	 	9,182,006	 	 	 	9,182,006	 
	 	 	 	-	 	 	 	10,841,179	 	 	 	10,841,179	 	 	 	10,841,179	 

 

The
Company’s financial instruments as at March 31, 2019 and December 31, 2018 classified as “Level 1 - quoted prices
in active markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy
by re-assessing categorization at the reporting date.

 

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

 

(b)
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 Company to concentrations of credit risk consist of cash, accounts receivable
and other receivables. For its accounts receivable, the Company ensures to deal with creditworthy customers. As at March 31, 2019
and 31 December 2018, the maximum amount exposed to credit risks was $855,348 and $708,493 respectively.

 

During
the three months ended March 31, 2019, revenue from one customer is approximately 41% (March 31, 2018: 41%) of total revenue
and none for purchases of raw materials from suppliers (March 31, 2018: none).

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at March 31, 2019, all trade payables and accrued liabilities are due within a year, whereas, long term debts over a period
of seven years.

 

    17 

     

    

 

WASHOE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

		17.	SEGMENTED
INFORMATION

 

Operating
and geographical segments

 

An
operating segment is defined as a component of the Company:

 

•
that engages in business activities from which it may earn revenues and incur expenses;

•
whose operating results are reviewed regularly by the entity’s chief operating decision maker; and;

•
for which discrete financial information is available.

 

As
at March 31, 2019 and December 31, 2018, the Company’s operations comprise a single reporting operation and geographical
segment engaged in the growing, processing and distribution of cannabis.

 

18.
SUBSEQUENT EVENTS

 

The
Company’s management has evaluated subsequent events up to August 5, 2019, the date the unaudited condensed interim consolidated
financial statements were issued, and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“Ayr”), formerly Cannabis Strategies Acquisition Corp., closed its previously
announced Qualifying Transaction. Through the qualifying transaction, Ayr has created a vertically integrated Multi-State Operator
in the U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

 

    18 

     

    

 

SCHEDULE
 “I” 

LIVFREE
INTERIM FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

  

LIVFREE
WELLNESS, LLC

 

UNAUDITED
CONDENSED INTERIM CONSOLIDATED 

FINANCIAL
STATEMENTS

  

FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018 

 

(EXPRESSED
IN UNITED STATES DOLLARS) 

 

Notice
to reader

 

The
accompanying unaudited condensed interim consolidated financial statements of Livfree Wellness, LLC (the Company) have been prepared
by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed
by the Company’s auditors

 

     

     

    

  

LIVFREE
WELLNESS, LLC

 

Unaudited
Condensed Interim Consolidated Financial Statements

 

March 31, 2019 and 2018  

 

Table of Contents  

 

	 	Page
	 	 
	Management’s Responsibility for Financial
    Reporting	1
	 	 
	Unaudited Condensed Interim Consolidated
    Financial Statements	 
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Financial Position	2
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Operations	3
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Changes in Equity	4
	 	 
	Unaudited Condensed Interim Consolidated Statements
    of Cash Flows	5
	 	 
	Notes to the Unaudited Condensed Interim
    Consolidated Financial Statements	6-15

 

     

     

    

 

 

MANAGEMENT’S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management’s
Responsibility

 

To
the Members of Livfree Wellness, LLC:

 

The
accompanying unaudited condensed interim consolidated financial statements and other financial information in this report were
prepared by management of Livfree Wellness, LLC (“the Company”), reviewed by the Audit Committee and approved by the
Board of Directors.

 

Management
is responsible for the unaudited condensed interim consolidated financial statements and believes that they fairly present the
Company’s financial condition and results of operation in conformity with International Financial Reporting Standards. Management
has included in the Company’s unaudited condensed interim consolidated financial statements amounts based on estimates and judgments
that it believes are reasonable, under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of unaudited condensed interim consolidated financial statements.
Consistent with the concept of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls
should not exceed their expected benefits. Management further assures the quality of the financial records through careful selection
and training of personnel and through the adoption and communication of financial and other relevant policies.

 

August
5, 2019

  

	“Steve
    Menzies” (Signed)	 	“Timothy
    Harris” (Signed)
	Managing Member	 	Chief Financial Officer

  

    1 

     

    

 

LIVFREE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Financial Position 

At
March 31, 2019 and December 31, 2018

 

	 	 	March 31,
 2019
 $
	 	 	December 31, 
2018 
$	 
	ASSETS	 	 	 	 	 	 
	Current	 	 	 	 	 	 
	Cash	 	 	2,182,938	 	 	 	2,196,398	 
	Inventory [Note 5]	 	 	2,557,557	 	 	 	2,344,459	 
	Due from a related corporation [Note 11]	 	 	89,389	 	 	 	-	 
	Prepaid expenses and other assets	 	 	123,589	 	 	 	248,769	 
	 	 	 	4,953,473	 	 	 	4,789,626	 
	Property, plant and equipment [Note 6]	 	 	1,673,445	 	 	 	1,625,978	 
	Investment in associate [Note 8]	 	 	3,331,885	 	 	 	3,354,501	 
	Right-of-use assets [Note 7]	 	 	2,230,783	 	 	 	-	 
	Total assets	 	 	12,189,586	 	 	 	9,770,105	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	849,613	 	 	 	1,150,649	 
	Accrued liabilities	 	 	1,426,638	 	 	 	984,367	 
	Distributions payables [Note 11]	 	 	-	 	 	 	280,000	 
	Lease obligations - current portion [Note 7]	 	 	231,379	 	 	 	-	 
	Debt payable - current portion [Note 9]	 	 	160,000	 	 	 	220,000	 
	 	 	 	2,667,630	 	 	 	2,635,016	 
	Lease obligations - Non-current portion [Note 7]	 	 	1,985,735	 	 	 	-	 
	Total liabilities	 	 	4,653,365	 	 	 	2,635,016	 
	 	 	 	 	 	 	 	 	 
	MEMBERS’ EQUITY [Note 10]	 	 	7,536,221	 	 	 	7,135,089	 
	 	 	 	 	 	 	 	 	 
	Total liabilities and members’ equity	 	 	12,189,586	 	 	 	9,770,105	 

 

Nature of operations [Note 1]

Contingencies [Note 14]

Subsequent events [Note 17]

 

Approved and authorized by the Board of Directors on August 5, 2019                

 

	“Steve
    Menzies” (Signed)	 	“Timothy
    Harris” (Signed)
	Managing Member	 	Chief Financial Officer

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    2 

     

    

 

LIVFREE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Operations 

For
the Three Months Ended March 31, 2019 and 2018

 

	 	 	Three months
 ended
 March 31, 2019
 $
	 	 	Three months 
ended 
March 31, 2018 
$	 
	 	 	 	 	 	 	 	 	 
	Revenues, net of discounts	 	 	11,935,852	 	 	 	7,238,675	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold	 	 	(7,651,562	)	 	 	(4,637,085	)
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	4,284,290	 	 	 	2,601,590	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 13]	 	 	961,988	 	 	 	726,196	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	220,044	 	 	 	59,792	 
	 	 	 	 	 	 	 	 	 
	Depreciation [Note 6 & 7]	 	 	137,156	 	 	 	45,048	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	1,319,188	 	 	 	831,036	 
	 	 	 	 	 	 	 	 	 
	Net income from operations	 	 	2,965,102	 	 	 	1,770,554	 
	 	 	 	 	 	 	 	 	 
	Other expenses (income)	 	 	 	 	 	 	 	 
	Net finance costs	 	 	41,354	 	 	 	-	 
	Share of loss (income) on investment in associate [Note 8]	 	 	22,616	 	 	 	(68,725	)
	 	 	 	 	 	 	 	 	 
	Total other expenses (income)	 	 	63,970	 	 	 	(68,725	)
	 	 	 	 	 	 	 	 	 
	Net income	 	 	2,901,132	 	 	 	1,839,279	 

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    3 

     

    

 

LIVFREE
WELLNESS, LLC

Unaudited
Condensed Interim Consolidated Statements of Changes in Equity

For
the Three Months Ended March 31, 2019 and 2018

 

	 	 	Members’
 Equity
 $
	 
	Balance as at December 31, 2017	 	 	2,879,700	 
	 	 	 	 	 
	Distributions	 	 	-	 
	 	 	 	 	 
	Net income for the period	 	 	1,839,279	 
	 	 	 	 	 
	Balance as at March 31, 2018	 	 	4,718,979	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	7,135,089	 
	 	 	 	 	 
	Distributions	 	 	(2,500,000	)
	 	 	 	 	 
	Net income for the period	 	 	2,901,132	 
	 	 	 	 	 
	Balance as at March 31, 2019	 	 	7,536,221	 

 

The
accompanying notes are in integral part of these unaudited condensed interim consolidated financial statements.

 

    4 

     

    

 

LIVFREE
WELLNESS, LLC

Unaudited Condensed Interim Statements of Cash Flows

For the Three Months Ended March 31, 2019 and 2018

 

	 	 	Three months
 ended
 March 31, 2019
 $
	 	 	Three months 
ended 
March 31, 2018 
$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	2,901,132	 	 	 	1,839,279	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation of property, plant and equipment and right-of-assets	 	 	137,156	 	 	 	45,048	 
	Share of loss in investment in associate	 	 	22,616	 	 	 	(68,725	)
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Inventory	 	 	(213,098	)	 	 	(85,276	)
	Due from a related corporation	 	 	(89,389	)	 	 	(430,392	)
	Prepaid expenses and other assets	 	 	67,820	 	 	 	(32,417	)
	Trade payables	 	 	(301,036	)	 	 	1,097,844	 
	Accrued liabilities	 	 	442,271	 	 	 	207,413	 
	Distributions payables	 	 	(280,000	)	 	 	(1,980,000	)
	Cash provided by operating activities	 	 	2,687,472	 	 	 	592,774	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Change in investment in associate, net	 	 	-	 	 	 	(400,000	)
	Net purchase of property, plant and equipment	 	 	(100,905	)	 	 	(102,941	)
	Cash used in investing activities	 	 	(100,905	)	 	 	(502,941	)
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Repayment of debts	 	 	(60,000	)	 	 	(60,000	)
	Distributions	 	 	(2,500,000	)	 	 	-	 
	Repayment of lease obligations	 	 	(40,027	)	 	 	-	 
	Cash used in financing activities	 	 	(2,600,027	)	 	 	(60,000	)
	 	 	 	 	 	 	 	 	 
	Net (decrease) increase in cash	 	 	(13,460	)	 	 	29,833	 
	Cash, beginning of period	 	 	2,196,398	 	 	 	898,658	 
	Cash, end of period	 	 	2,182,938	 	 	 	928,491	 

 

The
accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements.

 

    5 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		1.	NATURE
OF OPERATIONS

 

Livfree
Wellness, LLC (“LivFree” or the “Company”) [formerly LivFree Wellness Reno LLC (“Reno”)] was
incorporated as a Limited Liability Company on July 16, 2014 in the State of Nevada, United States of America (“USA”).
The Company’s head office is located at 5347 S. Decatur Blvd Las Vegas NV 89118.

 

The
Company’s principal activities are buying and selling of cannabis as regulated under the laws applicable in the USA.

 

		2.	BASIS
OF PRESENTATION

 

2.1 Statement of compliance

 

These
unaudited condensed interim consolidated financial statements for the three months ended March 31, 2019 (and comparative results
for the three months ended March 31, 2018) have been prepared in accordance with International Accounting Standard (“IAS”)
34 – Interim Financial Reporting and therefore do not contain all disclosures required by International Financial Reporting
Standards (“IFRS”). These unaudited condensed interim consolidated financial statements should be read in conjunction
with the Company’s 2018 consolidated financial statements and notes and have been prepared using the same accounting policies
with the exception of significant accounting policy adopted as a result of initial application of IFRS 16 - Leases (“IFRS
16”) effective from January 1, 2019.

 

These
unaudited condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors
of the Company on August 5, 2019.

 

2.2
Basis of presentation

 

These
unaudited condensed interim consolidated financial statements have been prepared on the historical cost basis except for certain
financial instruments, which are measured at fair value, as explained in the accounting policies set out in Note 3. The unaudited
condensed interim consolidated financial statements are presented in US dollars which is the presentation and functional currency
of the Company and its subsidiaries.

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1 Basis of consolidation

 

The
unaudited condensed interim consolidated financial statements include the financial statements of the Company and its wholly owned
subsidiaries Billco Holdings, LLC (“Billco”) and BP Solutions LLC (“BP”), Limited Liabilities Companies,
incorporated in the state of Nevada. The results of subsidiaries acquired or disposed of during the period is included in the
unaudited condensed interim consolidated financial statements from the effective date of acquisition or up to the effective date
of disposal, as appropriate. All inter-company transactions, balances, income and expenses are eliminated on consolidation. The
unaudited condensed interim financial statements of the subsidiaries are prepared for the same reporting period as the Company,
using consistent accounting policies.

  

    6 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

3.2 Leases

 

The
Company assesses whether a contract is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use
assets and corresponding liability at the commencement date. Each lease payment included in the lease liability is apportioned
between the repayment of the liability and a finance cost. The finance cost is recognized in net finance costs in the unaudited
condensed interim consolidated statement of operations over the lease period so as to produce a constant periodic rate of interest
on the remaining balance of the liability for each period. Lease liabilities include the net present value of fixed payments (including
in-substance fixed payments), variable lease payments that are based on an index or a rate or subject to a fair market value renewal,
amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee
is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising that option. The Company allocates the consideration in the contract to each lease component on the basis
of the relative standalone price of the lease component and the aggregate stand-alone price of the non-lease components. The lease
liability is net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease
or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments
are discounted is the reasonably certain lease term, including renewal options that the Company is reasonably certain to exercise.
Renewal options are included in a number of leases across the Company.

 

Payments
associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis in selling,
general and administrative expenses in the unaudited condensed interim consolidated statement of operations. Short-term leases
are leases with a lease term of 12 months or less. Variable lease payments that do not depend on an index or a rate or subject
to a fair market value renewal are expensed as incurred and recognized in Selling, general and administrative expenses in the
unaudited condensed interim consolidated statement of operations.

 

Right-of-use
assets are measured at cost which is calculated as the amount of the initial measurement of lease liability plus any lease payments
made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use asset is depreciated
over the lease term on a straight-line basis. The right-of-use assets are depreciated on a straight-line basis over the shorter
of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost
of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

		4.	CHANGES
IN ACCOUNTING STANDARDS

 

Adoption of New Accounting Pronouncement

 

Adoption
of IFRS 16 – Leases

 

The
Company adopted IFRS 16 - Leases (“IFRS 16”) on January 1, 2019. IFRS 16 introduced a single on-balance sheet accounting
model for lessees which replaced IAS 17 - Leases (“IAS 17”). Leasing activity for the Company typically involves the
leases of land or buildings to operate cannabis dispensaries, processing or cultivation facilities or corporate offices.

 

    7 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		4.	CHANGES
IN ACCOUNTING STANDARDS (continued)

 

Adoption of New Accounting Pronouncement (continued)

 

Adoption
of IFRS 16 – Leases (continued)

 

The
Company previously classified leases as either operating or finance leases from the perspective of the lessee. Under IFRS 16,
the Company recognizes right-of-use assets and lease liabilities for most leases. The Company adopted IFRS 16 using the modified
retrospective cumulative catch-up approach beginning on January 1, 2019. Under this approach, the Company did not restate its
comparative amounts and recognized a right-of-use asset equal to the present value of the future lease payments. The Company elected
to apply the practical expedient to only transition contracts which were previously identified as leases under IAS 17, and also
elected to not recognize right-of-use assets and lease liabilities for leases of low-value assets.

 

Changes
in Accounting Standards not yet Effective

 

Insurance
Contracts

 

In
May 2017, the International Accounting Standards Board (“IASB”) issued IFRS 17 - Insurance Contracts (“IFRS
17”), that replaces IFRS 4 - Insurance Contracts and establishes a new model for recognizing insurance policy obligations,
premium revenue and claims-related expenses. IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however,
based on recent IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the transition date by one year is anticipated.
Early adoption is permitted. The Company is assessing the potential impact of this standard.

 

		5.	INVENTORY

 

Inventory
comprised of finished goods.

 

Inventories
expensed as cost of goods sold for the three months ended March 31, 2019 and 2018 are $6,402,651 and $3,897,134, respectively.

 

    8 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		6.	PROPERTY,
PLANT AND EQUIPMENT

 

	 	 	 	Leasehold	 	 	Furniture and	 	 	Office &	 	 	Total	 
	 	 	 	improvements	 	 	fixtures	 	 	Equipment	 	 	 	 
	 	 	 	$	 	 	$	 	 	$	 	 	$	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cost	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	 	1,836,213	 	 	 	56,605	 	 	 	123,934	 	 	 	2,016,752	 
	Additions	 	 	 	85,090	 	 	 	-	 	 	 	20,105	 	 	 	105,195	 
	Disposals	 	 	 	(4,290	)	 	 	-	 	 	 	-	 	 	 	(4,290	)
	As at March 31, 2019	 	 	 	1,917,013	 	 	 	56,605	 	 	 	144,039	 	 	 	2,117,657	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Depreciation	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	 	352,815	 	 	 	10,763	 	 	 	27,196	 	 	 	390,774	 
	Depreciation	 	 	 	44,016	 	 	 	2,144	 	 	 	7,278	 	 	 	53,438	 
	As at March 31, 2019	 	 	 	396,831	 	 	 	12,907	 	 	 	34,474	 	 	 	444,212	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Net book value	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	As at December 31, 2018	 	 	 	1,483,398	 	 	 	45,842	 	 	 	96,738	 	 	 	1,625,978	 
	As at March 31, 2019	 	 	 	1,520,182	 	 	 	43,698	 	 	 	109,565	 	 	 	1,673,445	 

 

Depreciation
expense for the three months ended March 31, 2019 and 2018 of $53,438 and $45,048, is included within operating expenses.

 

7.
RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS

  

	 	 	Right-of-use
 assets
	 	 	Lease
 obligations
	 
	 	 	$	 	 	$	 
	Net book value at January 1, 2019	 	 	2,314,501	 	 	 	2,257,141	 
	Depreciation and repayment	 	 	83,718	 	 	 	40,027	 
	Net book value at March 31, 2019	 	 	2,230,783	 	 	 	2,217,114	 

 

Right-of-use
assets and lease obligations of $2,314,501 were recorded as at January 1, 2019, with no net impact on retained earnings. When
measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The
weighted-average rates applied were in the range of 10.29% to 10.90%.

 

As
at March 31, 2019, the current and non-current portion of the lease obligations were $231,379 and $1,985,735, respectively.

 

    9 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		8.	INVESTMENT
IN ASSOCIATE

 

Pursuant
to Membership Interest Purchase and Sale Agreement dated July 1, 2017, the Company acquired 50% membership interest in JDSS Investments
LLC. Per the purchase agreement section 2.0. total purchase price shall be $2.4 million. Management has concluded that the current
investment is to be accounted for as an investment in associate using the equity method as detailed below:

 

	 	 	March 31,
 2019
	 	 	December 31, 
2018	 
	 	$	 	 	$	 
	Balance, at beginning	 	 	3,354,501	 	 	 	1,586,966	 
	Additions	 	 	-	 	 	 	1,492,636	 
	Share of (loss) income	 	 	(22,616	)	 	 	274,899	 
	Balance, at end	 	 	3,331,885	 	 	 	3,354,501	 

 

The
following table presents a summary of statement of financial position and statement of operations of the investee:

 

	 	 	March 31,
 2019
	 	 	December 31, 
2018	 
	 	 	$	 	 	$	 
	Current assets	 	 	2,569,874	 	 	 	2,490,315	 
	Non-current assets	 	 	2,771,490	 	 	 	2,839,647	 
	Current liabilities	 	 	368,361	 	 	 	314,421	 
	Revenue	 	 	1,230,192	 	 	 	4,736,053	 
	(Loss) income	 	 	(42,539	)	 	 	595,147	 

 

		9.	DEBT
PAYABLE

 

Effective
December 12, 2014, the Company obtained a loan of $460,000 from a third party. The loan was unsecured, carried no interest and
there was no repayment term.

 

On
January 16, 2018, the Company entered into Settlement Agreement (the “Agreement”) with the debt holder and one of
its existing members for the repayment of debt in accordance with an agreed repayment schedule. The Company agreed to pay $20,000
within 30 days from the execution of this Agreement and the remaining balance to be paid in 22 equal monthly payments of $20,000.
The current and non-current portion of the debt has been classified in accordance with the agreed repayment schedule.

 

The
details of debt payable were as follows:

 

	 	 	March 31,
 2019
	 	 	December 31, 
2018	 
	 	 	$	 	 	$	 
	Loan payable to a third party	 	 	160,000	 	 	 	220,000	 
	Less: Current portion	 	 	(160,000	)	 	 	(220,000	)
	Debt payable - Non-current portion	 	 	-	 	 	 	-	 

 

    10 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		10.	MEMBERS’
EQUITY

 

During
the three months ended March 31, 2019 and March 31, 2018, the members of the Company contributed in cash amounting to $nil.

 

During
the three months ended March 31, 2019 and March 31, 2018, the distributions to the members of the Company in cash amounted to
$2,500,000 and $nil, respectively.

 

As
at March 31, 2019 and December 31, 2018, distributions payables balance was $nil and $280,000.

 

		11.	RELATED
PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the unaudited condensed interim consolidated financial statements, related party transactions and
balances are as follows:

 

Total
rent expense for three months ended March 31, 2019 and 2018, include rent charged from a related corporation amounting to $17,458
and $nil, respectively.

 

During
the three months ended March 31, 2019 and 2018, purchases of harvested cannabis totaling $118,188 and $56,412, respectively, from
a related party is included in cost of goods sold.

 

Due
from a related corporation of $80,389 and $nil were outstanding as at March 31, 2019 and December 31, 2018, respectively. These
advances are unsecured, interest free and repayable on demand.

 

No
compensation was paid to key management for the three months ended March 31, 2019 and 2018.

 

		12.	CAPITAL
MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support
business development. The Members do not establish quantitative return on capital criteria for management, but rather relies on
the expertise of the Company’s management to sustain future development of the business. The Company defines capital to include
its Members’ equity. In order to carry out the planned business development and pay for administrative costs, the Company
will spend its existing working capital and raise additional amounts as needed. There were no changes in the Company’s approach
to capital management during the three months ended March 31, 2019. The Company is not subject to externally imposed capital requirements.
As at March 31, 2019 and December 31, 2018, the capital of the Company was $7,536,221 and $7,135,089 respectively.

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

  

    11 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		13.	GENERAL
AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of:

  

	 	 	Three months
 ended March
 31, 2019
	 	 	Three months 
ended March 
31, 2018	 
	 	 	$	 	 	$	 
	Salaries and benefits	 	 	683,943	 	 	 	468,197	 
	Insurance	 	 	80,188	 	 	 	38,907	 
	Office expenses	 	 	64,988	 	 	 	31,385	 
	Utilities	 	 	19,518	 	 	 	18,288	 
	Travel	 	 	17,906	 	 	 	15,817	 
	Taxes and licenses	 	 	8,885	 	 	 	2,475	 
	Professional and consulting fees	 	 	4,551	 	 	 	61,733	 
	Rent	 	 	3,000	 	 	 	75,000	 
	Others	 	 	79,009	 	 	 	14,394	 
	 	 	 	961,988	 	 	 	726,196	 

 

		14.	CONTINGENCIES

 

Contingencies

 

The
Company’s operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at March 31, 2019, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

 

Claims
and litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At March 31, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on
the results of the Company’s operations. There are also no proceedings in which any of the Company’s directors, officers or affiliates
is an adverse party or has a material interest adverse to the Company’s interest.

 

An
affiliate of the Company engaged a contractor to determine if a site met the requirements for a new grow facility. Based on the
survey done by the contractor, the Company proceeded with the purchase and incurred a loss when the site was subsequently determined
not to be suitable. The Company filed a claim with the contractor’s insurer to recover its losses and commenced litigation
when the insurer refused to pay any portion of the claim. In 2018, the Company’s legal counsel indicated they were not able
to collect the $250,000 paid by the Company. As a result, the Company recognized $250,000 of bad debt expense.

 

    12 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		15.	FINANCIAL
RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, due from a related corporation, trade payables, accrued liabilities,
distributions payable, debts payable and lease obligations.

 

(a)
Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the unaudited condensed interim consolidated financial
statements are categorised 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
classification of financial instruments at their carrying and fair values is as follows:

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial assets	 	 	FVTPL	 	 	 	FVTOCI	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	March 31, 2019	 	$	 	 	$	 	 	$	 	 	$	 	 	$	 
	Cash	 	 	2,182,938	 	 	 	-	 	 	 	-	 	 	 	2,182,938	 	 	 	2,182,938	 
	Due from a related corporation	 	 	-	 	 	 	-	 	 	 	89,389	 	 	 	89,389	 	 	 	89,389	 
	 	 	 	2,182,938	 	 	 	-	 	 	 	89,389	 	 	 	2,272,327	 	 	 	2,272,327	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	2,196,398	 	 	 	-	 	 	 	-	 	 	 	2,196,398	 	 	 	2,196,398	 
	 	 	 	2,196,398	 	 	 	-	 	 	 	-	 	 	 	2,196,398	 	 	 	2,196,398	 

  

    13 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		15.	FINANCIAL
RISK FACTORS (continued)

 

(a) 
Fair Value (continued)

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	March 31, 2019	 	$	 	 	$	 	 	$	 	 	$	 
	Trade payables	 	 	-	 	 	 	849,613	 	 	 	849,613	 	 	 	849,613	 
	Accrued liabilities	 	 	-	 	 	 	1,426,638	 	 	 	1,426,638	 	 	 	1,426,638	 
	Debt payable	 	 	-	 	 	 	160,000	 	 	 	160,000	 	 	 	160,000	 
	Lease obligations	 	 	-	 	 	 	2,217,114	 	 	 	2,217,114	 	 	 	2,217,114	 
	 	 	 	-	 	 	 	4,653,365	 	 	 	4,653,365	 	 	 	4,653,365	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	1,150,649	 	 	 	1,150,649	 	 	 	1,150,649	 
	Accrued liabilities	 	 	-	 	 	 	984,367	 	 	 	984,367	 	 	 	984,367	 
	Distributions payable	 	 	-	 	 	 	280,000	 	 	 	280,000	 	 	 	280,000	 
	Debt payable	 	 	-	 	 	 	220,000	 	 	 	220,000	 	 	 	220,000	 
	 	 	 	-	 	 	 	2,635,016	 	 	 	2,635,016	 	 	 	2,635,016	 

 

The
Company’s financial instruments as at March 31, 2019 and December 31, 2018, classified as “Level 1 - quoted prices
in active markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy
by re-assessing categorization at the reporting date.

 

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

 

(b)
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 Company to concentrations of credit risk consist of cash and due from a related
corporation. As at March 31, 2019 and December 31, 2018, the maximum amount exposed to credit risks was $2,272,327 and $2,196,398,
respectively.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at March 31, 2019 and December 31, 2018, all trade payables, accrued liabilities, distributions payable and debt payable are
due within a year.

 

    14 

     

    

 

LIVFREE
WELLNESS, LLC

Notes
to the Unaudited Condensed Interim Consolidated Financial Statements

For
the Three Months Ended March 31, 2019 and 2018

 

 

		16.	SEGMENTED
INFORMATION

 

Operating
and geographical segments

 

An
operating segment is defined as a component of the Company:

 

•
that engages in business activities from which it may earn revenues and incur expenses;

•
whose operating results are reviewed regularly by the entity’s chief operating decision maker; and;

•
for which discrete financial information is available.

 

As
at March 31, 2019 and December 31, 2018, the Company’s operations comprise a single reporting operating and geographical
segment engaged in buying and selling of cannabis.

 

17.
SUBSEQUENT EVENTS

 

The
Company’s management has evaluated subsequent events up to August 5, 2019, the date the unaudited condensed interim consolidated
financial statements were issued, and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“Ayr”), formerly Cannabis Strategies Acquisition Corp., closed its previously
announced Qualifying Transaction. Through the qualifying transaction, Ayr has created a vertically integrated Multi-State Operator
in the U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

 

    15 

     

    

 

SCHEDULE
 “J” 

CANNAPUNCH
INTERIM FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

 

CANNAPUNCH
OF NEVADA, LLC

 

UNAUDITED
CONDENSED INTERIM FINANCIAL STATEMENTS

 

FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018

 

(EXPRESSED
IN UNITED STATES DOLLARS)

 

Notice
to reader

 

The
accompanying unaudited condensed interim financial statements of CannaPunch of Nevada LLC. (the Company) have been prepared by
and are the responsibility of management. The unaudited condensed interim financial statements have not been reviewed by the Company's
auditors.

 

     

     

    

 

CANNAPUNCH
OF NEVADA, LLC

UNAUDITED
CONDENSED INTERIM FINANCIAL STATEMENTS

 

March
31, 2019 and 2018

 

	Table of Contents
	 
	 	Page
	Management's Responsibility for Financial
    Reporting	1
	 	 
	Unaudited Condensed Interim Financial Statements	 
	 	 
	Unaudited Condensed
    Interim Statement of Financial Position	2
	 	 
	Unaudited Condensed
    Interim Statement of Operations	3
	 	 
	Unaudited Condensed
    Interim Statement of Changes in Members’ Equity	4
	 	 
	Unaudited Condensed
    Interim Statement of Cash Flows	5
	 	 
	Notes to the Unaudited Condensed Interim
    Financial Statements	6-13

 

     

     

    

 

MANAGEMENT'S
RESPONSIBILITY FOR

FINANCIAL
REPORTING

 

Management's
Responsibility

 

To
the Members of CannaPunch of Nevada, LLC:

 

The
accompanying unaudited condensed interim financial statements and other financial information in this report were prepared by
management of CannaPunch of Nevada LLC. ("the Company"), reviewed by the Audit Committee and approved by the Board of
Directors.

 

Management
is responsible for the unaudited condensed interim financial statements and believes that they fairly present the Company's financial
condition and results of operation in conformity with International Financial Reporting Standards. Management has included in
the Company's unaudited condensed interim financial statements amounts based on estimates and judgments that it believes are reasonable,
under the circumstances.

 

To
discharge its responsibilities for financial reporting and safeguarding of assets, management believes that it has established
appropriate systems of internal accounting control which provide reasonable assurance that the financial records are reliable
and form a proper basis for the timely and accurate preparation of the unaudited condensed interim financial statements. Consistent
with the concept of reasonable assurance, the Company recognizes that the relative cost of maintaining these controls should not
exceed their expected benefits. Management further assures the quality of the financial records through careful selection and
training of personnel and through the adoption and communication of financial and other relevant policies.

 

August
5, 2019

 

	“Mark Smith” (Signed)	 
	Chief Executive Officer	 

 

    1 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Unaudited Condensed Interim Statement of Financial
Position 

At March 31, 2019 and December 31, 2018

 

 

	 	 	March 31,	 	 	December 31,	 
	 	 	2019	 	 	2018	 
	 	 	$	 	 	$	 
	ASSETS	 	 	 	 	 	 
	Current	 	 	 	 	 	 
	Cash	 	 	193,329	 	 	 	122,367	 
	Inventory [Note 5]	 	 	369,761	 	 	 	337,129	 
	Accounts receivable, trade, no allowance	 	 	533,871	 	 	 	374,649	 
	 	 	 	1,096,961	 	 	 	834,145	 
	Property, plant and equipment [Note 6]	 	 	460,823	 	 	 	22,154	 
	Right-of-use assets [Note 7]	 	 	593,978	 	 	 	-	 
	Total assets	 	 	2,151,762	 	 	 	856,299	 
	 	 	 	 	 	 	 	 	 
	LIABILITIES	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 
	Trade payables	 	 	247,445	 	 	 	174,902	 
	Accrued liabilities	 	 	255,968	 	 	 	58,956	 
	Advance from a member	 	 	1,402	 	 	 	1,402	 
	Lease obligations - current portion [Note 7]	 	 	116,879	 	 	 	-	 
	Total liabilities	 	 	621,694	 	 	 	235,260	 
	Advance from related party	 	 	285,000	 	 	 	-	 
	Lease obligations - non-current portion [Note 7]	 	 	486,035	 	 	 	-	 
	Total liabilities	 	 	1,392,729	 	 	 	235,260	 
	 	 	 	 	 	 	 	 	 
	MEMBERS' EQUITY [Note 8]	 	 	759,033	 	 	 	621,039	 
	 	 	 	 	 	 	 	 	 
	Total liabilities and members' equity	 	 	2,151,762	 	 	 	856,299	 

 

Nature
of operations [Note 1] 

Contingencies
[Note 13] 

Subsequent
events [Note 16] 

 

Approved
and authorized on behalf of the Board of Directors on August 5, 2019

 

	“Mark
    Smith” (Signed) 	 
	Chief Executive Officer	 

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    2 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Unaudited Condensed Interim Statement of Operations

For the Three Months Ended March 31, 2019 and 2018

 

 

	 	 	Three months	 	 	Three months	 
	 	 	ended	 	 	ended	 
	 	 	March 31, 2019	 	 	March 31, 2018	 
	 	 	 	$	 	 	 	$	 
	Revenues, net of discounts	 	 	1,598,666	 	 	 	1,540,443	 
	 	 	 	 	 	 	 	 	 
	Cost of goods sold	 	 	(805,234	)	 	 	(816,833	)
	 	 	 	 	 	 	 	 	 
	Gross profit	 	 	793,432	 	 	 	723,610	 
	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 
	General and administrative [Note 11]	 	 	211,050	 	 	 	189,740	 
	 	 	 	 	 	 	 	 	 
	Sales and marketing	 	 	22,932	 	 	 	40,517	 
	 	 	 	 	 	 	 	 	 
	Licensor profit share [Note 12]	 	 	224,730	 	 	 	339,542	 
	 	 	 	 	 	 	 	 	 
	Total expenses	 	 	458,712	 	 	 	569,799	 
	 	 	 	 	 	 	 	 	 
	Net income from operations	 	 	334,720	 	 	 	153,811	 
	 	 	 	 	 	 	 	 	 
	Other expense	 	 	 	 	 	 	 	 
	Net finance costs	 	 	15,969	 	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Net income	 	 	318,751	 	 	 	153,811	 

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

    3 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Statement of Changes in Members’ Equity

 For the Three Months Ended March 31, 2019 and 2018

 

 

 

	 	 	Members’	 
	 	 	Equity	 
	 	 	$	 
	 	 	 	 
	Balance as at December 31, 2017	 	 	289,884	 
	 	 	 	 	 
	Distributions	 	 	(178,044	)
	 	 	 	 	 
	Net income for the period	 	 	153,811	 
	 	 	 	 	 
	Balance as at March 31, 2018	 	 	265,651	 
	 	 	 	 	 
	Balance as at December 31, 2018	 	 	621,039	 
	 	 	 	 	 
	Contributions [Note 8]	 	 	47,180	 
	 	 	 	 	 
	Distributions	 	 	(227,937	)
	 	 	 	 	 
	Net income for the period	 	 	318,751	 
	 	 	 	 	 
	Balance as at March 31, 2019	 	 	759,033	 

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

  

    4 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Statement
of Cash Flows

For
the Three Months Ended March 31, 2019 and 2018

 

 

 

	 	 	Three months	 	 	Three months	 
	 	 	ended March	 	 	ended March	 
	 	 	31, 2019	 	 	31, 2018	 
	 	 	$	 	 	$	 
	Operating activities	 	 	 	 	 	 	 	 
	Net income	 	 	318,751	 	 	 	153,811	 
	 	 	 	 	 	 	 	 	 
	Adjustments for items not affecting cash:	 	 	 	 	 	 	 	 
	Depreciation on property, plant and equipment and right-of-use assets	 	 	47,821	 	 	 	1,117	 
	Changes in working capital items:	 	 	 	 	 	 	 	 
	Inventory	 	 	(32,632	)	 	 	(8,594	)
	Accounts receivable, trade, no allowance	 	 	(159,222	)	 	 	(106,148	)
	Prepaid expenses	 	 	-	 	 	 	22,645	 
	Trade payables	 	 	72,543	 	 	 	127,258	 
	Accrued liabilities	 	 	197,012	 	 	 	(70,721	)
	Advance from a member	 	 	-	 	 	 	1,402	 
	Cash provided by operating activities	 	 	444,273	 	 	 	120,770	 
	 	 	 	 	 	 	 	 	 
	Investing activities	 	 	 	 	 	 	 	 
	Purchase of machinery and equipment	 	 	(450,851	)	 	 	-	 
	Cash used in investing activities	 	 	(450,851	)	 	 	-	 
	 	 	 	 	 	 	 	 	 
	Financing activities	 	 	 	 	 	 	 	 
	Advance from a related party - Non current	 	 	285,000	 	 	 	-	 
	Repayment of lease obligations	 	 	(26,703	)	 	 	-	 
	Contributions	 	 	47,180	 	 	 	-	 
	Distributions	 	 	(227,937	)	 	 	(178,044	)
	Cash provided by (used in) financing activities	 	 	77,540	 	 	 	(178,044	)
	 	 	 	 	 	 	 	 	 
	Net increase (decrease) in cash	 	 	70,962	 	 	 	(57,274	)
	Cash, beginning of the period	 	 	122,367	 	 	 	146,817	 
	Cash, end of period	 	 	193,329	 	 	 	89,543	 

 

The
accompanying notes are an integral part of these unaudited condensed interim financial statements.

 

    5 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Notes to the Unaudited Condensed Interim Financial Statements

 For the Three Months Ended March 31, 2019 and 2018

 

 

		1.	NATURE
                                         OF OPERATIONS

 

CannaPunch
of Nevada LLC (“CannaPunch” or the “Company”) was incorporated as a Limited Liability Company on March
30, 2017 in the State of Nevada, United States of America (“USA”). The Company’s head office is located at 5425
Polaris Ave, Las Vegas, NV 89118.

 

The
Company’s principal activities are the manufacture and distribution of cannabis infused products as regulated under the
laws applicable in the USA.

 

		2.	BASIS
OF PRESENTATION

 

2.1 Statement of compliance

 

These
unaudited condensed interim financial statements for the three months ended March 31, 2019 (and comparative results for the three
months ended March 31, 2018) have been prepared in accordance with International Accounting Standard (“IAS”) 34 –
Interim Financial Reporting and therefore do not contain all disclosures required by International Financial Reporting
Standards (“IFRS”). These unaudited condensed interim financial statements should be read in conjunction with the
Company’s 2018 financial statements and notes and have been prepared using the same accounting policies with the exception
of significant accounting policy adopted as a result of initial application of IFRS 16 - Leases (“IFRS 16”) effective
from January 1, 2019.

 

These
unaudited condensed interim financial statements were approved and authorized for issue by the Board of Directors of the Company
on August 5, 2019.

 

		2.2	Basis
of presentation

 

These
unaudited condensed interim financial statements have been prepared on the historical cost basis except for certain financial
instruments, which are measured at fair value. The unaudited condensed interim financial statements are presented in US dollars
which is the presentation and functional currency of the Company.

 

		3.	SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1 Leases

 

The
Company assesses whether a contract is or contains a lease, at inception of a contract. Leases are recognized as a right-of-use
asset and corresponding liability at the commencement date. Each lease payment included in the lease liability is apportioned
between the repayment of the liability and a finance cost. The finance cost is recognized in net finance costs in the unaudited
condensed interim statements of operations over the lease period so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. Lease liabilities include the net present value of fixed payments (including
in-substance fixed payments), variable lease payments that are based on an index or a rate or subject to a fair market value renewal,
amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if the lessee
is reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising that option. The Company allocates the consideration in the contract to each lease component on the basis
of the relative standalone price of the lease component and the aggregate stand-alone price of the non-lease components. The lease
liability is net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease
or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments
are discounted is the reasonably certain lease term, including renewal options that the Company is reasonably certain to exercise.
Renewal options are included in a number of leases across the Company.

  

    6 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Notes to the Unaudited Condensed Interim Financial Statements 

For the Three Months Ended March 31, 2019 and 2018

 

 

 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

3.1 Leases (continued)

 

Payments
associated with short-term leases and leases of low-value assets are recognized as an expense on a straight-line basis in selling,
general and administrative expenses in the unaudited condensed interim statements of operations. Short-term leases are leases
with a lease term of 12 months or less. Variable lease payments that do not depend on an index or a rate or subject to a fair
market value renewal are expensed as incurred and recognized in Selling, general and administrative expenses in the unaudited
condensed interim statements of operations.

 

Right-of-use
assets are measured at cost which is calculated as the amount of the initial measurement of lease liability plus any lease payments
made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use asset is depreciated
over the lease term on a straight-line basis. The right-of-use assets are depreciated on a straight-line basis over the shorter
of the lease term and the useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost
of the right-of-use asset reflects that the Company expects to exercise a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

 

 4. CHANGES IN ACCOUNTING STANDARDS

 

Adoption of New Accounting Pronouncements

 

Adoption
of IFRS 16 – Leases

 

The
Company adopted IFRS 16 - Leases (“IFRS 16”) on January 1, 2019. IFRS 16 introduced a single on-balance sheet accounting
model for lessees which replaced IAS 17 - Leases (“IAS 17”). Leasing activity for the Company typically involves the
leases of land or buildings to operate cannabis dispensaries, processing or cultivation facilities or corporate offices.

 

The
Company previously classified leases as either operating or finance leases from the perspective of the lessee. Under IFRS 16,
the Company recognizes right-of-use assets and lease liabilities for most leases. The Company adopted IFRS 16 using the modified
retrospective cumulative catch-up approach beginning on January 1, 2019. Under this approach, the Company did not restate its
comparative amounts and recognized a right-of-use asset equal to the present value of the future lease payments. The Company elected
to apply the practical expedient to only transition contracts which were previously identified as leases under IAS 17, and also
elected to not recognize right-of-use assets and lease liabilities for leases of low-value assets.

 

Changes
in Accounting Standards not yet Effective

 

Insurance
Contracts

 

In
May 2017, the International Accounting Standards Board (“IASB”) issued IFRS 17 - Insurance Contracts (“IFRS
17”), that replaces IFRS 4 - Insurance Contracts and establishes a new model for recognizing insurance policy obligations,
premium revenue and claims-related expenses. IFRS 17 is effective for annual periods beginning on or after January 1, 2021; however,
based on recent IASB meetings, an upcoming amendment to IFRS 17 and a deferral of the transition date by one year is anticipated.
Early adoption is permitted. The Company is assessing the potential impact of this standard.

 

    7 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

Notes to the Unaudited Condensed Interim Financial Statements

For the Three Months Ended March 31, 2019 and 2018

 

 

 

		5.	INVENTORY

 

The
Company’s inventory includes the following:

 

	 	 	March 31,	 	 	December 31,	 
	 	 	2019	 	 	2018	 
	 	 	 	$	 	 	 	$	 
	Raw materials	 	 	44,486	 	 	 	65,193	 
	Finished goods	 	 	325,275	 	 	 	271,936	 
	 	 	 	369,761	 	 	 	337,129	 

 

Inventories
expensed as cost of goods sold during the three months ended March 31, 2019 and 2018 is $545,844 and $661,327 respectively.

 

		6.	MACHINERY
                                         AND EQUIPMENT

 

	 	 	 	Machinery and	 
	 	 	 	equipment	 
	 	 	 	$	 
	Cost	 	 	 	 
	As at December 31, 2018	 	 	 	27,926	 
	Additions	 	 	 	450,851	 
	As at March 31, 2019	 	 	 	478,777	 
	 	 	 	 	 	 
	Depreciation	 	 	 	 	 
	As at December 31, 2018	 	 	 	5,772	 
	Depreciation	 	 	 	12,182	 
	As at March 31, 2019	 	 	 	17,954	 
	 	 	 	 	 	 
	Net book value	 	 	 	 	 
	As At December 31, 2018	 	 	 	22,154	 
	As at March 31, 2019	 	 	 	460,823	 

 

Depreciation
expense for the three months period ended March 31, 2019 and 2018 of $12,182 and $1,117 is included in cost of goods sold.

 

    8 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Notes to the Unaudited Condensed Interim Financial
Statements

For the Three Months Ended March 31, 2019 and 2018

 

 

		7.	RIGHT
                                         OF-USE ASSETS AND LEASE OBLIGATIONS

  

	 	 	Right-of-use	 	 	Lease	 
	 	 	assets	 	 	obligations	 
	 	 	 	$	 	 	 	$	 
	Net book value at January 1, 2019	 	 	629,617	 	 	 	629,617	 
	Depreciation and repayment	 	 	35,639	 	 	 	26,703	 
	Net Book value at March 31, 2019	 	 	593,978	 	 	 	602,914	 

 

Right-of-use
assets and lease liabilities of $629,617 were recorded as at January 1, 2019, with no net impact on retained earnings. When measuring
lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average
rate applied was 10.29%.

 

As
at March 31, 2019, the current and the non-current portion of the lease obligations were $116,879 and $486,035 respectively.

 

		8.	MEMBERS’
                                         EQUITY

 

During
the three months ended March 31, 2019 and 2018, the members of the Company contributed cash of $47,180 and $nil, respectively,
to the Company.

 

		9.	RELATED
                                         PARTY TRANSACTIONS AND BALANCES

 

Related
parties are defined as management and members of the Company and/or members of their immediate family and/or other companies and/or
entities in which a member or senior officer is a principal owner or senior executive.

 

Other
than disclosed elsewhere in the unaudited condensed interim financial statements, related party transactions and balances are
as follows:

 

During
the three months ended March 31, 2019 and 2018, sales of $86,058 and $9,565, respectively, made to a related corporation is included
in revenue and purchase of $17,915 and $13,653, respectively, from a related corporation is included in cost of goods sold.

 

No
compensation was paid to key management for the three months ended March 31, 2019 and 2018.

 

Accounts
receivable as at March 31, 2019 and December 31, 2018 include $nil and $953, respectively, representing amounts due from a related
corporation.

 

		10.	CAPITAL
                                         MANAGEMENT

 

The
Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support
business development. The Members do not establish quantitative return on capital criteria for management, but rather relies on
the expertise of the Company's management to sustain future development of the business. The Company defines capital to include
its Members’ equity. In order to carry out the planned business development and pay for administrative costs, the Company
will spend its existing working capital and raise additional amounts as needed. The Company is not subject to externally imposed
capital requirements. As at March 31, 2019 and December 31, 2018, the capital of the Company was $759,033 and $621,039, respectively.

  

    9 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Notes to the Unaudited Condensed Interim Financial
Statements

For the Three Months Ended March 31, 2019 and 2018

 

 

		10.	CAPITAL
                                         MANAGEMENT (continued)

 

The
Company 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. Funds are primarily secured through cash injection by the Members of the Company.
There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews
its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is
reasonable.

 

The
Company invests all capital that is surplus to its immediate operational needs in short-term, liquid and highly rated financial
instruments.

 

		11.	GENERAL
AND ADMINISTRATIVE

 

General
and administrative expenses were comprised of: 

 

	 	 	March 31,	 	 	March 31,	 
	 	 	2019	 	 	2018	 
	 	 	 	$	 	 	 	$	 
	Salaries and benefits	 	 	130,967	 	 	 	128,113	 
	Taxes and Licenses	 	 	41,061	 	 	 	22,551	 
	Travel	 	 	18,488	 	 	 	5,631	 
	Meals	 	 	2,327	 	 	 	-	 
	Office expenses	 	 	1,754	 	 	 	1,591	 
	Professional and consulting fees	 	 	14,327	 	 	 	29,658	 
	Others	 	 	2,126	 	 	 	2,196	 
	 	 	 	211,050	 	 	 	189,740	 

 

		12.	LICENSOR
                                         PROFIT SHARE

 

Effective
March 31, 2017, the Company entered into a Licensing Agreement (the “Agreement”) with a Third Party (“Licensor”)
for use of Licensor’s medical (and subsequent adult use recreational) marijuana production establishment and equipment,
in order to produce wholesale and certain retail marijuana edible and infused products for a period of 5 years to be renewed annually
by mutual agreement.

 

Pursuant
to the terms of the Agreement, 50% of profits or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) generated
by sales, shall be paid as License Fee, along with any taxes and fees paid by the Licensor. On December 31, 2017, the Agreement
was amended by signing a subsequent license fee agreement memo (the “Memo”). In accordance with the Memo, license
fee payable by the Company would work as a credit netted against any amounts owed by Licensor for product purchases less any amounts
owed by the Company for reimbursement of taxes and utilities to the Licensor.

 

On
September 18, 2018, the Company entered into a Supply Agreement with the Licensor, which is contingent upon cancellation of the
license fee Agreement. Pursuant to this Supply Agreement, the Company agreed to offer a 20% discount on its lowest retail price
to the Licensor for a period of 5 years.

 

    10 

     

    

 

CANNAPUNCH
OF NEVADA, LLC Notes to the

Notes to the Unaudited Condensed Interim Financial
Statements

For the Three Months Ended March 31, 2019 and 2018

 

 13. CONTINGENCIES

 

Contingencies

 

The
Company's operations are subject to a variety of local and state regulations. Failure to comply with one or more of those regulations
could result in fines, restrictions on its operations, or losses of permits and/or licenses that could result in the Company ceasing
operations. While management of the Company believes that the Company is in compliance with applicable local and state regulation
at March 31, 2019, cannabis regulations continue to evolve and are subject to differing interpretations. As a result, the Company
may be subject to regulatory fines, penalties, or restrictions in the future.

 

Claims
and litigation

 

From
time to time, the Company may be involved in litigation relating to claims arising out of operations in the normal course of business.
At March 31, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on
the results of the Company's operations. There are also no proceedings in which any of the Company's directors, officers or affiliates
is an adverse party or has a material interest adverse to the Company's interest.

 

		14.	FINANCIAL
                                         RISK FACTORS

 

The
Company’s financial instruments mainly comprise of cash, account receivable, trade payables, accrued liabilities, advance
from a member, advance from related party and lease obligations.

 

(a)
Fair Value

 

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 Company.

 

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 utilise the asset in its highest and best use.

 

The
Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are unobservable inputs.

 

All
assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised 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.

 

    11 

     

    

 

CANNAPUNCH
OF NEVADA, LLC

 Notes to the Unaudited Condensed Interim Financial Statements 

For the Three Months Ended March 31, 2019 and 2018

 

  

		14.	FINANCIAL
                                         RISK FACTORS (continued)

 

		(a)	Fair
                                         Value (continued)

 

• 
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
classification of financial instruments at their carrying and fair values is as follows: 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial assets	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	March 31, 2019	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Cash	 	 	193,329	 	 	 	-	 	 	 	193,329	 	 	 	193,329	 
	Accounts receivable	 	 	-	 	 	 	533,871	 	 	 	533,871	 	 	 	533,871	 
	 	 	 	193,329	 	 	 	533,871	 	 	 	727,200	 	 	 	727,200	 
	Deceber 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	 	 	122,367	 	 	 	-	 	 	 	122,367	 	 	 	122,367	 
	Accounts receivable	 	 	-	 	 	 	374,649	 	 	 	374,649	 	 	 	374,649	 
	 	 	 	122,367	 	 	 	374,649	 	 	 	497,016	 	 	 	497,016	 

 

	 	 	 	Carrying values	 	 	 	 	 	 	 	Fair values	 
	Financial liabilities	 	 	FVTPL	 	 	 	AC	 	 	 	Total	 	 	 	Total	 
	March 31, 2019	 	 	$	 	 	 	$	 	 	 	$	 	 	 	$	 
	Trade payables	 	 	-	 	 	 	247,445	 	 	 	247,445	 	 	 	247,445	 
	Accrued liabilities	 	 	-	 	 	 	255,968	 	 	 	255,968	 	 	 	255,968	 
	Advance from a member	 	 	-	 	 	 	1,402	 	 	 	1,402	 	 	 	1,402	 
	Advance from related party	 	 	-	 	 	 	285,000	 	 	 	285,000	 	 	 	285,000	 
	Lease obligations	 	 	-	 	 	 	602,914	 	 	 	602,914	 	 	 	602,914	 
	 	 	 	-	 	 	 	1,392,729	 	 	 	1,392,729	 	 	 	1,392,729	 
	December 31, 2018	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Trade payables	 	 	-	 	 	 	174,902	 	 	 	174,902	 	 	 	174,902	 
	Accrued liabilities	 	 	-	 	 	 	58,956	 	 	 	58,956	 	 	 	58,956	 
	Advance from a member	 	 	-	 	 	 	1,402	 	 	 	1,402	 	 	 	1,402	 
	 	 	 	-	 	 	 	235,260	 	 	 	235,260	 	 	 	235,260	 

 

The
Company’s financial instruments as at March 31, 2019 and December 31, 2018, classified as “Level 1 - quoted prices
in active markets” is cash. The Company has determined that there have been no transfers between levels in the hierarchy
by re-assessing categorization at the reporting date.

 

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

 

    12 

     

    

 

CANNAPUNCH
OF NEVADA, LLC 

Notes to the Unaudited Condensed Interim Financial
Statements

For the Three Months Ended March 31, 2019 and 2018

 

 

		14.	FINANCIAL
                                         RISK FACTORS (continued)

 

(b)
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 Company to concentrations of credit risk consist of cash and accounts receivable
due from a related corporation. As at March 31, 2019 and December 31, 2018, the maximum amount exposed to credit risks was $727,200
and $497,016 respectively.

 

During
the three months ended March 31, 2019 and 2018, revenue from one customer is approximately nil% and 32%, respectively, of total
revenue and purchase of raw material from one supplier were approximately 29% and nil%, respectively, of total purchases.

 

(c)
Liquidity Risk

 

Liquidity
risk is the risk that the Company is unable to generate or obtain sufficient cash in a cost-effective manner to fund its obligations
as they come due. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity
to meet liabilities when due. The Company manages liquidity risk through obtaining financing from its members and third parties.
As at March 31, 2019 and December 31, 2018, all trade payables and accrued liabilities are due within a year.

 

		15.	SEGMENTED
INFORMATION

 

Operating
and geographical segments

 

An
operating segment is defined as a component of the Company:

 

		•	that
                                         engages in business activities from which it may earn revenues and incur expenses;

		•	whose
                                         operating results are reviewed regularly by the entity’s chief operating decision
                                         maker; and;

		•	for
                                         which discrete financial information is available.

 

As
at March 31, 2019 and December 31, 2018 the Company’s operations comprise a single reporting operating and geographical
segment engaged in the manufacture and distribution of cannabis infused products.

 

16.
SUBSEQUENT EVENTS

 

The
Company’s management has evaluated subsequent events up to August 5, 2019, the date the unaudited condensed interim financial
statements were issued, and determined the following event:

 

On
May 24, 2019 – Ayr Strategies Inc. (“Ayr”), formerly Cannabis Strategies Acquisition Corp., closed its previously
announced Qualifying Transaction. Through the qualifying transaction, Ayr has created a vertically integrated Multi-State Operator
in the U.S. cannabis sector, with an initial anchor portfolio in the Eastern and Western United States.

  

    13 

     

    

 

SCHEDULE
 “K” 

PRO
FORMA FINANCIAL STATEMENTS

 

(see
attached)

 

     

     

    

 

Ayr
Strategies Inc.

(formerly,
Cannabis Strategies Acquisition Corp.)

 

UNAUDITED
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

 

AS
AT AND FOR THE THREE MONTHS ENDED MARCH 31, 2019 

AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2018

 

(EXPRESSED
IN UNITED STATES DOLLARS)

 

     

     

    

 

Ayr
Strategies Inc.

(formerly,
Cannabis Strategies Acquisition Corp.)

 

	Unaudited Pro Forma Consolidated
    Financial Statements	 
	 	 
	Unaudited Pro Forma
    Consolidated Statement of Financial Position	1
	 	 
	Unaudited Pro Forma
    Consolidated Statements of Operations	2 - 3
	 	 
	Notes to the Unaudited Pro Forma Consolidated
    Financial Statements	4 -18

 

     

     

    

 

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Pro Forma Consolidated Statement of Financial Position

As
at March 31, 2019

 

	US$	AYR	Sira	Canopy	Washoe	LivFree	CannaPunch	Subtotal	Notes	Acquisition	Notes	Pro-Forma
    	Total
    
	 	March
    31,

    2019

    $	March
    31,

    2019

    $	March
    31,

    2019

    $	March
    31,

    2019

    $	March
    31,

    2019

    $	March
    31,

    2019

    $	$ 		$		Adjustments

    

    $	March
    31,

    2019

    $
	ASSETS	 	 	 	 	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 	 	 	 	 
	Cash	36,355	3,315,782	222,626	722,273	2,182,938	193,329	6,673,303	8a,e,f	30,566,737	8h	(3,529,170)	33,710,870
	Accounts
    receivable, trade, no allowance	-	1,026,229	-	133,075	-	533,871	1,693,175	 	-	6a	(93,211)	1,599,964
	Deposit	15,096	-	-	-	-	-	15,096	 	-	 	-	15,096
	Inventory	-	8,868,104	1,163,196	2,519,505	2,557,557	369,761	15,478,123	8i	15,163,525	 	-	30,641,648
	Biological
    assets	-	2,417,379	-	1,646,000	-	-	4,063,379	 	-	 	-	4,063,379
	Prepaid
    expenses and other assets	-	132,789	153,353	197,933	123,589	-	607,664	 	 	 	-	607,664
	Advance
    to a related corporation	-	-	1,217,830	-	89,389	-	1,307,219	8i	(1,307,219)	 	-	-
	 	51,451	15,760,283	2,757,005	5,218,786	4,953,473	1,096,961	29,837,959	 	44,423,043	 	(3,622,381)	70,638,621
	Restricted
    cash and short-term	 	 	 	 	 	 	 	 	 	 	 	 
	investments
    held in escrow	101,986,737	-	-	-	-	-	101,986,737	8e	(101,986,737)	 	-	-
	Intangible
    assets	-	-	1,623,114	80,894	-	-	1,704,008	8b	57,816,886	 	-	59,520,894
	Property,
    plant and equipment	-	7,521,303	1,220,641	8,961,601	1,673,445	460,823	19,837,813	 	-	 	-	19,837,813
	Right-of-use
    assets	-	5,434,999	2,427,320	-	2,230,783	593,978	10,687,080	 	-	 	-	10,687,080
	Goodwill	-	-	-	-	-	-	-	8c	148,164,731	 	-	148,164,731
	Investment
in associate	-	-	-	1,939,517	3,331,885	-	5,271,402	 	-	 	-	5,271,402
	Deferred
    tax assets	-	-	-	-	-	-	-	 	-	 	-	-
	Other
    long term assets	-	140,401	-	-	-	-	140,401	 	-	 	-	140,401
	Total
    assets	102,038,188	28,856,986	8,028,080	16,200,798	12,189,586	2,151,762	169,465,400	 	148,417,923	 	(3,622,381)	314,260,942
	LIABILITIES	 	 	 	 	 	 	 	 	 	 	 	 
	Current	 	 	 	 	 	 	 	 	 	 	 	 
	Trade
    payables	3,650,804	605,217	-	577,458	849,613	247,445	5,930,537	 	-	6a	(93,211)	5,837,326
	Accrued
    liabilities	-	2,025,356	349,301	162,209	1,426,638	255,968	4,219,472	 	-	 	-	4,219,472
	Advance
    from a related corporation	612,385	-	-	1,217,830	-	-	1,830,215	8i	(1,307,219)	6a	-	522,996
	Income
    tax payable	-	3,715,371	-	-	-	-	3,715,371	 	-	 	-	3,715,371
	Distributions
    payables	-	-	-	-	-	-	-	 	-	 	-	-
	Lease
    liabilities - current portion	-	142,220	62,841	-	231,379	116,879	553,319	 	-	 	-	553,319
	Debts/notes
    payable - current portion	-	7,695	-	-	160,000	-	167,695	 	-	 	-	167,695
	Advance
    from a member	-	-	-	-	 	1,402	1,402	 	-	 	-	1,402
	 	4,263,189	6,495,859	412,142	1,957,497	2,667,630	621,694	16,418,011	 	(1,307,219)	 	(93,211)	15,017,581
	Deferred
    underwriters’ commission	3,529,170	-	-	-	-	-	3,529,170	 	-	8h	(3,529,170)	-
	Class
    A restricted voting shares subject to redemption	201,666,850	-	-	-	-	-	201,666,850	 	-	8g	(201,666,850)	-
	Warrant
    liability	106,623,318	-	 	-	-	-	106,623,318	 	-	 	-	106,623,318
	Deferred
    tax liability	-	2,402,770	-	-	-	-	2,402,770	 	-	 	-	2,402,770
	Accrued
    interest payable	-	7,627,157	-	-	-	-	7,627,157	 	-	 	-	7,627,157
	Advances
    from related party	-	-	-	-	-	285,000	285,000	 	-	 	-	285,000
	Lease
    liabilities - Non-current portion	-	5,485,755	2,397,555	-	1,985,735	486,035	10,355,480	 	-	 	-	10,355,480
	Debts
    payable - Non-current portion	-	14,963,691	421,128	9,162,306	-	-	24,547,125	8a	37,140,000	 	-	61,687,125
	Total
    liabilities	316,082,527	36,975,232	3,231,225	11,119,803	4,653,365	1,392,729	373,454,881	 	35,832,781	 	(205,289,231)	203,998,431
	Members’
    equity	-	(8,118,246)	4,796,855	5,080,995	7,536,221	759,033	10,054,858	8d	(10,054,858)	 	-	-
	Shares
    capital	1,711.826	-	-	-	-	-	1,711,826	8a	125,140,000	8g	201,666,850	328,518,676
	Accumulated
    deficit	(215,756,165)	-	-	-	-	-	(215,756,165)	8f	(2,500,000)	 	-	(218,256,165)
	Contributed
    surplus	-	-	-	-	-	-	-	 	-	 	-	-
	 	(214,044,339)	(8,l18,246)	4,796,855	5,080,995	7,536,221	759,033	(203,989,481)	 	112,585,142	 	201,666,850	110,262,511
	Total
    liabilities and members’ equity	102,038,188	28,856,986	8,028,080	16,200,798	12,189,586	2,151,762	169,465,400	 	148,417,923	 	(3,622,381)	314,260,942

 

The
accompanying notes are an integral part of these unaudited pro forma consolidated financial statements. 

 

     1

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Pro Forma Consolidated Statement of Operations

For
the Three Months Ended March 31, 2019

 

	us$	AYR	Sira	Canopy	Washoe	LivFree	CannaPunch	Subtotal	Notes	Pro-Forma

        
	Consolidated
	 	March
    31,	March
    31,	March
    31,	March
    31,	March
    31,	March
    31,	March
    31,	 	Adjustments 	March
    31,
	 	2019	2019	2019	2019	2019	2019	2019	 	 	2019
	 	$	$	$	$	$	$	$	 	$	$
	 	 	 	 	 	 	 	 	 	 	 
	Revenues,
    net of discounts	-	6,670,180	3,627,129	1,972,925	11,935,852	1,598,666	25,804,752	6b	(2,080,660)	23,724,092
	 	 	 	 	 	 	 	 	 	 	 
	Cost
    of goods sold before biological asset adjustment	-	1,470,860	2,113,680	1,017,328	7,651,562	805,234	13,058,664	6b	(2,080,660)	10,978,004
	 	-	5,199,320	1,513,449	955,597	4,284,290	793,432	12,746,088	 	-	12,746,088
	Fair
    value changes in biological assets included in cost of sales	-	(4,253,737)	-	(804,650)	-	-	(5,058,387)	 	-	(5,058,387)
	Unrealized
    gain on biological asset transformation	-	7,282,658	-	1,227,204	-	-	8,509,862	 	-	8,509,862
	Gross
    profit (loss)	-	8,228,241	1,513,449	1,378,151	4,284,290	793,432	16,197,563	 	-	16,197,563
	 	 	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 	 	 
	Transaction
    Costs	-	-	-	-	-	-	-	6c	2,500,000	2,500,000
	General
    and Administrative	1,540,740	1,450,206	590,157	160,492	961,988	211,050	4,914,633	 	-	4,914,633
	Sales
    and Marketing	-	62,315	95,198	55,369	220,044	22,932	455,858	 	-	455,858
	Depreciation	-	352,954	77,596	95,266	137,156	-	662,972	 	-	662,972
	Licensor
    profit share	-	-	-	-	-	224,730	224,730	 	-	224,730
	Management
    fee	-	49,500	180,000	120,000	-	-	349,500	 	 	349,500
	Net
    unrealized loss on changes in the fair value of financial liabilities	135,781,900	-	-	-	-	-	135,781,900	 	-	135,781,900
	Total
    Expenses	137,322,640	1,914,975	942,951	431,127	1,319,188	458,712	142,389,593	 	2,500,000	144,889,593
	 	 	 	 	 	 	 	 	 	 	 
	Net
    income (loss) from operations	(137,322,640)	6,313,266	570,498	947,024	2,965,102	334,720	(126,192,030)	 	(2,500,000)	(128,692,030)
	 	 	 	 	 	 	 	 	 	 	 
	Other
    (income) expense	 	 	 	 	 	 	 	 	 	 
	Share
    of (income) loss on equity investments	-	-	-	(275,170)	22,616	-	(252,554)	 	-	(252,554)
	Interest
    expense / Finance cost	-	824,668	78,446	94,888	41,354	15,969	1,055,325	 	-	1,055,325
	Interest
    income	(227,164)	-	-	-	-	-	(227,164)	 	-	(227,164)
	Foreign
    exchange gain	(16,745)	-	-	-	-	-	(16,745)	 	-	(16,745)
	Management
    fee income	-	-	-	-	-	-	-	 	-	-
	Rental
    income and others	-	(3,000)	-	(23,124)	-	-	(26,124)	 	-	(26,124)
	Total
    other (income) expense	(243,909)	821,668	78,446	(203,406)	63,970	15,969	532,738	 	-	532,738
	 	 	 	 	 	 	 	 	 	 	 
	Income
    tax (recovery) expense	-	2,453,234	-	-	-	-	2,453,234	 	-	2,453,234
	 	 	 	 	 	 	 	 	 	 	 
	Net
    income (loss) and comprehensive income (loss)	(137,078,731)	3,038,364	492,052	1,150,430	2,901,132	318,751	(129,178,002)	 	(2,500,000)	(131,678,002)
	 	 	 	 	 	 	 	 	 	 	 
	Loss
    per share - basic and diluted	 	 	 	 	 	 	 	9	 	(7.23)
	Weighted
    average number of shares outstanding	 	 	 	 	 	 	 	9	 	18,214,341
	For
    adjusted EBITDA refer to Note 10	 	 	 	 	 	 	 	 	 	 

 

The
accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

  

     2

     

    

 

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

Unaudited Pro Forma Consolidated Statement of Operations

For
the Twelve Months Ended December 31, 2018

 

	US$	AYR	Sira	Canopy	Washoe	LiveFree	CannaPunch	Subtotal	Notes	Pro-Forma	Consolidated
	 	December
    31,	December
    31,	December
    31,	December
    31,	December
    31,	December
    31,	 	 	Adjustments	December
    31,
	 	2018	2018	2018	2018	2018	2018	 	 	 	2018
	 	$	$	$	$	$	$	$	 	$	$
	Revenues,
    net of discounts	-	16,398,127	11,748,244	7,017,779	34,058,319	6,658,021	75,880,490	6b	(5,016,480)	70,864,010
	Cost
    of goods sold before biological asset adjustment	-	3,823,025	6,821,581	4,636,341	22,142,020	2,961,681	40,384,648	6b	(5,016,480)	35,368,168
	 	-	12,575,102	4,926,663	2,381,438	11,916,299	3,696,340	35,495,842	 	-	35,495,842
	Fair
    value changes in biological assets included in cost of	-	(18,470,531)	-	(4,005,602)	-	-	(22,476,133)	 		(22,476,133)
	Unrealized
    gain on biological asset transformation	-	11,287,162	-	5,086,289	-	-	16,373,451	 		16,373,451
	Gross
    profit (loss)	-	5,391,733	4,926,663	3,462,125	11,916,299	3,696,340	29,393,160	 	-	29,393,160
	 	 	 	 	 	 	 	 	 	 	 
	Expenses	 	 	 	 	 	 	 	 	 	 
	Transaction
    costs	392
    467	-	-	-	-	-	392,467	6c	2,500,000	2,892,467
	General  and
    administrative	3,244,682	6,988,439	867,613	825,863	4,024,862	924,650	16,876,109	 	 	16,876,109
	Sales
    and marketing	-	323,495	310,863	189,074	512,282	77,198	1,412,921	 	 	1,412,912
	Depreciation	-	150,089	50,766	51,831	191,301	-	443,987	 	 	443,987
	Licensor
    profit share	-	-	-	-	-	1,123,212	1,123,212	 	 	1,123,212
	Management
    fee	-	342,472	546,848	240,000	-	-	1,129,320	6b	(125,000)	1,004,320
	Net
    unrealized loss on changes in the fair value of financial liabilities	72,449,316	-	-	-	-	-	72,449,316	 	 	72,449,316
	Total
    expenses	76,086,465	7,804,495	1,776,090	1,306,768	4,728,445	2,125,060	93,827,323	 	2,375,000	96,202,323
	 	 	 	 	 	 	 	 	 	 	 
	Net
    income (loss) from operations	(76,086,465)	(2,412,762)	3,150,573	2,155,357	7,187,854	1,571,280	(64,434,163)	 	(2,375,000)	(66,809,163)
	 	 	 	 	 	 	 	 	 	 	 
	Other
    (income) expense	 	 	 	 	 	 	 	 	 	 
	Share
    of (income) loss on equity investments	-	-	-	(1,642,415)	(274,899)	-	(1,917,314)	 	 	(1,917,314)
	Interest
    expense	-	2,738,950	-	343,344	-	-	3,082,294	 	 	3,082,294
	Interest
    income	(934,831)	-	-	(12,067)	-	-	(946,898)	 	 	(946,898)
	Foreign
    exchange loss	20,212	-	-	-	-	-	20,212	 	 	20,212
	Management
    fee income	-	-	-	(125,000)	-	-	(125,000)	6b	125,000	- 
	Rental
    income and others	-	(19,850)	-	(91,368)	-	-	(111,218)	 	 	(111,218)
	Total
    other (income) expense	(914,619)	2,719,100	-	(1,527,506)	(274,899)	-	2,076	 	125,000	127,076
	 	 	 	 	 	 	 	 	 	 	 
	Income
    tax (recovery) expense	-	5,137,381	-	-	-	-	5,137,381	 	 	5,137,381
	 	 	 	 	 	 	 	 	 	 	 
	Net
    income (loss) and comprehensive income (loss)	(75,171,846)	(10,269,243)	3,152,573	3,682,863	7,462,753	1,571,280	(69,573,620)	 	(2,500,000)	(72,073,620)
	 	 	 	 	 	 	 	 	 	 	 
	Loss
    per share - basic and diluted	 	 	 	 	 	 	 	9	 	(3.96)
	Weighted
    average number of share outstanding	 	 	 	 	 	 	 	9	 	18,214,341
	For
    Adjusted EBITDA refer to Note 10	 	 	 	 	 	 	 	 	 	 

 

The
accompanying notes are an integral part of these unaudited pro forma consolidated financial statements.

 

     3

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

1)       Description
of Transactions

 

On
October 17, 2018, Ayr Strategies Inc. (“Ayr” or the “Corporation” – formerly Cannabis Strategies
Acquisition Corp. – “CSAC”) and its wholly-owned subsidiary, CSAC Acquisition Inc. (“CSAC AcquisitionCo”),
entered into the following definitive agreements to acquire five (5) businesses (the “Target Businesses”):

 

 

 

		●	Equity
Exchange Agreement dated as of October 17, 2018, among Green Partners Investor LLC and Green Partners Sponsor I, LLC as the shareholders
of Sira Naturals, Inc. (“Sira”), Louis Karger as sellers’ representative, Sira, CSAC AcquisitionCo and Ayr,
as amended and restated (the “Sira Agreement”);

 

		●	Equity
Purchase Agreement dated as of October 17, 2018, among The Canopy NV, LLC (“Canopy”), Lemon Aide, LLC, Kynd-Strainz,
LLC, CSAC AcquisitionCo and Ayr, as amended (the “Canopy Agreement”);

  

		●	Equity
Purchase Agreement dated as of October 17, 2018, among the members of Washoe, Mark E. Pitchford as sellers’ representative,
Washoe Wellness, LLC (“Washoe”), CSAC AcquisitionCo and Ayr, as amended (the “Washoe Agreement”);

  

		●	Equity
Purchase Agreement, dated as of October 17, 2018, among the members of LivFree Wellness, LLC (“LivFree”), Steve Menzies
as sellers’ representative, LivFree, CSAC AcquisitionCo and Ayr, as mended (the “LivFree Agreement”); and

  

		●	Equity
Purchase Agreement dated as of October 17, 2018, among Mark Smith and Daniel Griffin as the members of CannaPunch of Nevada LLC
(“CannaPunch”), CannaPunch, Mark Smith as sellers’ representative, CSAC AcquisitionCo and Ayr, as amended (the
 “CannaPunch Agreement”, and together with the Sira Agreement, the Canopy Agreement, the Washoe Agreement and the LivFree
Agreement, the “Definitive Agreements”).

  

 The description of the Definitive Agreements, both below and in Ayr’s final non-offering prospectus dated February 15, 2019 (the “Prospectus”), is a summary only, 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.

  

Subsequent
to March 31, 2019 and pursuant to the above mentioned Definitive Agreements, on May 24, 2019, the Corporation completed its concurrent
acquisitions of the target businesses of Sira, Canopy (by acquisition of its two operating subsidiaries, Kynd-Strainz, LLC and
Lemon Aide, LLC), Washoe, LivFree and CannaPunch, which collectively constituted its qualifying transaction (collectively, the
 “Qualifying Transaction”). In connection with the closing of the Qualifying Transaction, all non-redeemed Class A
Restricted Voting shares of the Corporation (the “Class A Restricted Voting Shares”) were automatically converted
into subordinate voting shares of the Corporation (the “Subordinate Voting Shares”), and all Class B shares of the
Corporation (the “Class B Shares”) were automatically converted into multiple voting shares of the Corporation (the
 “Multiple Voting Shares”). Following the closing of the Qualifying Transaction, the Subordinate Voting Shares, the
share purchase warrants of the Corporation and the rights of the Corporation began trading on the Neo Exchange Inc. (the “Exchange”)
under the symbols “AYR.A”, “AYR.WT” and “AYR.RT”, respectively. The Multiple Voting Shares
are not listed on the Exchange.

  

     4

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

Acquisition
of Sira

  

Pursuant
to the Sira Agreement, the shareholders of Sira agreed to contribute all of the issued and outstanding securities of Sira to CSAC
AcquisitionCo in exchange for (i) a note in the amount of $5,000,000 (the “Sira Promissory Note”) to a lender of Sira
that will be secured by a first-priority security interest over all of the assets of Sira, (ii) the issuance of an aggregate of
1,885,606 non-voting common stock of CSAC AcquisitionCo (such shares of CSAC AcquisitionCo, the “Exchangeable Shares”)
that are exchangeable on a  one-for-one basis into Subordinate Voting Shares with a deemed value of $15.91, and (iii) a cash
payment of $15,000,000 to pay existing indebtedness of Sira. All of the Exchangeable Shares issuable under the Sira Agreement
will be subject to a twelve-month post-closing lock-up period. Exchange of the Exchangeable Shares for Subordinate Voting Shares
is also subject to applicable restrictions under applicable U.S. securities laws. Additionally, CSAC AcquisitionCo will pay by
wire transfer to the shareholders of Sira, each shareholder’s pro rata share of the fair market value of Sira’s inventory
above a target level set at $800,000 (the “Inventory Payment”), pursuant to a formula to be agreed to between Sira
and CSAC AcquisitionCo. One-third of this Inventory Payment will be paid by CSAC AcquisitionCo following the closing date of the
Qualifying Transaction and the remaining two-thirds within 90 days following the closing.

  

The
Sira Agreement also contains an earn-out provision that may entitle the sellers to earn additional consideration, if certain milestones
(as defined in the Sira Agreement) are achieved at Sira’s planned cultivation facility in Milford, MA over its first full
year of operation. Such facility may not be financed with third-party debt that exceeds 50% of the cost of construction and a
first priority mortgage (which would be subordinated to any third-party construction lender) on such facility will provide further
security for the Sira Promissory Note. Ayr may set off indemnification claims against any payments to be made by it under the
earn-out provision and/or the Sira Promissory Note, except the total amount set off against earn-out payments and the Sira Promissory
Note may not exceed $5,000,000 in the aggregate.

  

Acquisition
of Canopy

  

Pursuant
to the Canopy Agreement: (i) Canopy agreed to contribute all of the assets of its two operating companies, Lemon Aide, LLC and
Kynd-Strainz, LLC (together, the “Canopy Target Businesses”), except for certain retained licenses and associated
inventory, the transfer of which is subject to consent from regulatory authorities (the “Canopy Consents”), to a “NewCo”
entity (the “Canopy NewCo”) (the “Canopy Reorganization”); (ii) CSAC AcquisitionCo agreed to acquire all
of the equity interests of Canopy NewCo in exchange for (A) a promissory note in the amount of $4,500,000 to Canopy that will
be secured by a first-priority security interest over all of the assets of Canopy NewCo, (B) the issuance to Canopy of an aggregate
of 250,000 Exchangeable Shares with a deemed value of $5,500,000 and (C) cash consideration in the amount of $7,000,000, some
of which will be used to pay debt and expenses of Canopy, as well as applicable taxes; (iii) CSAC AcquisitionCo agreed to assume
a loan in the amount of approximately $400,000; and (iv) Canopy agreed to take all reasonable measures in good faith to secure
the Canopy Consents and once obtained, agreed to convey the retained assets to Ayr via the transfer of the equity interests in
the Canopy Target Businesses or the retained assets to CSAC AcquisitionCo for nominal consideration. 102,273 Exchangeable Shares
issuable under the Canopy Agreement will be subject to a six-month post-closing lock-up period, a further 102,273 Exchangeable
Shares will be subject to a twelve-month post-closing lock-up period, and 45,454 Exchangeable Shares will not be subject to any
lock-up period. On closing, Canopy granted to Ayr or its affiliates a five-year option to purchase the real property owned by
affiliates of Canopy and used in the business of the Canopy Target Businesses at fair market value.

  

     5

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

  

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

Exchange
of the Exchangeable Shares for Subordinate Voting Shares is also subject to applicable restrictions under applicable U.S. securities
laws. The sellers have no obligation to indemnify for losses incurred by Ayr as a result of the Canopy Reorganization except for
certain obligations with respect to obtaining necessary regulatory approval.

  

Additionally,
Ayr agreed to issue additional Exchangeable Shares up to a year following the closing date in certain circumstances, subject to
certain limitations. More specifically, if the trailing 3-day volume-weighted average trading price of the Subordinate Voting
Shares (the “Closing Price”) is less than C$29.00 on: (i) the closing date of the Canopy acquisition, a number of
additional Exchangeable Shares may be issued to Canopy so that the cumulative market value of the Exchangeable Shares issued to
Canopy on the closing date with no lock-up period is equal to $999,998; (ii) the date that is 180 days after the closing date
of the Canopy acquisition, a number of additional Exchangeable Shares may be issued to Canopy so that the cumulative market value
of the Exchangeable Shares issued to Canopy with a 6-month lock-up period is equal to $2,250,006; or (iii) the date that is 360
days after the closing date of the Canopy acquisition, a number of additional Exchangeable Shares may be issued to Canopy so that
the cumulative market value of the Exchangeable Shares issued to Canopy with a 12-month lock-up period is equal to $ 2,250,006.
Under no circumstances may the total number of additional Exchangeable Shares to be issued under this make-whole provision exceed
10% of the total number of issued and outstanding Class B Shares as of the closing date of the Qualifying Transaction.

 

Acquisition
of Washoe

 

Pursuant
to the Washoe Agreement: (i) Washoe and the members of Washoe agreed to contribute all of the assets of Washoe and its subsidiaries
(including certain parcels of real property owned by Washoe or a subsidiary), except for certain retained licenses and associated
inventory, the transfer of which is subject to consent from regulatory authorities (the “Washoe Consents”), to a “NewCo”
entity (the “Washoe NewCo”) (the “Washoe Reorganization”); (ii) CSAC AcquisitionCo agreed to acquire all
of the equity interests of the Washoe NewCo in exchange for (A) a promissory note in the amount of $5,640,000 to the members of
Washoe that will be secured by a first-priority security interest over all of the assets of Washoe NewCo, (B)  the issuance
to the members of Washoe of an aggregate of 256,364 Exchangeable Shares with a deemed value of $5,640,000 and (C) cash consideration
in the amount of $16,670,000, some of which will be used to pay debt and expenses of Washoe, as well as applicable taxes; (iii)
Washoe and its members agreed to take all reasonable measures in good faith to secure the Washoe Consents, and once obtained,
agreed to convey the retained assets to Ayr via the transfer of the equity interests in Washoe or the retained assets to CSAC
AcquisitionCo for nominal consideration; (iv) CSAC AcquisitionCo agreed to assume a member loan in the amount of approximately
$6.5 million and issue 13,636 Exchangeable Shares in the name of such member (the “Washoe Lender”); and (v) CSAC AcquisitionCo
agreed to assume mortgage debt of approximately $2.6 million in the aggregate, secured by real property owned by Washoe or its
subsidiaries. 128,182 Exchangeable Shares issuable under the Washoe Agreement will be subject to a six-month post-closing lock-up
period, and the other 128,182 Exchangeable Shares will be subject to a twelve-month post-closing lock-up period.

 

Exchange
of the Exchangeable Shares for Subordinate Voting Shares is also subject to applicable restrictions under applicable U.S. securities
laws. The sellers have no obligation to indemnify for losses incurred by Ayr as a result of the Washoe Reorganization except for
certain obligations with respect to obtaining necessary regulatory approval.

 

     6

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

Additionally,
Ayr agreed to issue additional Exchangeable Shares up to a year following the closing date in certain circumstances, subject to
certain limitations. More specifically, if the Closing Price is less than C$29.00
on: (i) the date that is 180 days after the closing date of the Washoe acquisition, a number of additional Exchangeable Shares
may be issued to the sellers of Washoe so that the cumulative market value of the Exchangeable Shares issued to such persons with
a 6-month lock-up period is equal to $2,820,000 and a number of additional Exchangeable Shares may be issued to the Washoe Lender
so that the cumulative market value of the Exchangeable Shares issued to the Washoe Lender with a 6-month lock-up period is equal
to $150,000 or (ii) the date that is 360 days after the closing date of the Washoe acquisition, a number of additional Exchangeable
Shares may be issued to the sellers of Washoe so that the cumulative market value of the Exchangeable Shares issued to such persons
with a 12-month lock-up period is equal to $2,820,006 and a number of additional Exchangeable Shares may be issued to the Washoe
Lender so that the cumulative market value of the Exchangeable Shares issued to the Washoe Lender with a 12-month lock-up period
is equal to $150,000. Under no circumstances may the total number of additional Exchangeable Shares to be issued under this make-whole
provision exceed 10% of the total number of issued and outstanding Class B Shares as of closing date of the Qualifying Transaction.
On closing, Washoe granted to Ayr or its affiliates a five-year option to purchase the real property owned by affiliates of Washoe
and used in the business of Washoe at fair market value.

  

Acquisition
of LivFree

  

Pursuant
to the LivFree Agreement: (i) LivFree and the members of LivFree agreed to contribute all of the assets of LivFree and its subsidiaries,
except for certain retained licenses and associated inventory, the transfer of which is subject to consent from regulatory authorities
(the “LivFree Consents”), to a “NewCo” entity (“LivFree NewCo”) (the “LivFree Reorganization”);
(ii) CSAC AcquisitionCo agreed to acquire all of the equity interests of LivFree NewCo in exchange for (A) a promissory note in
the amount of $20,000,000 to the members of LivFree that will be secured by a first-priority security interest over all of the
assets of LivFree NewCo, (B) the issuance to the members of LivFree of an aggregate of 4,342,432 Exchangeable Shares with a deemed
value of $70,000,000 (approximately $16.10 per Exchangeable Share) and (C) cash consideration in the amount of $29,500,000, some
of which will be used to pay debt and expenses of LivFree, as well as applicable taxes; and (iv) LivFree and its members agreed
to take all reasonable measures in good faith to secure the LivFree Consents, and once obtained, agreed to convey the retained
assets to Ayr via the transfer of the equity interests in LivFree or the retained assets to CSAC AcquisitionCo for nominal consideration.
3,038,986 Exchangeable Shares issuable under the LivFree Agreement will be subject to a six-month post-closing lock-up period,
and the other 1,303,446 Exchangeable Shares will be subject to a twelve-month post- closing lock-up period. Exchange of the Exchangeable
Shares for Subordinate Voting Shares is also subject to applicable restrictions under applicable U.S. securities laws. The sellers
have no obligation to indemnify for losses incurred by Ayr as a result of the LivFree Reorganization except for certain obligations
with respect to obtaining necessary regulatory approval. On closing, LivFree granted to Ayr or its affiliates a five-year option
to purchase the real property owned by affiliates of LivFree and used in the business of LivFree at fair market value.

  

Acquisition
of CannaPunch

  

Pursuant
to the CannaPunch Agreements: (i) CSAC AcquisitionCo agreed to acquire all of the equity interests of CannaPunch NewCo in exchange
for (A) a promissory note in the amount of $ 2,000,000 to the members of CannaPunch that will be secured by a first-priority security
interest over all of the assets of CannaPunch NewCo, (B) the issuance to the members of CannaPunch of an aggregate of 866,668
Exchangeable Shares with a deemed value of $14,000,000 and (C) cash consideration in the amount of $750,000, some of which will
be used to pay debt and expenses of CannaPunch, as well as applicable taxes. 433,334 Exchangeable Shares will be subject to a
twelve-month post-closing lock-up period. Exchange of the Exchangeable Shares for Subordinate Voting Shares is also subject to
applicable restrictions under applicable
U.S. securities laws. On closing, CannaPunch granted to Ayr or its affiliates (i) a five-year option to purchase the real property
owned by affiliates of CannaPunch and used in the business of CannaPunch at fair market value and (ii) a license to use the CannaPunch
name in all jurisdictions other than in the State of Colorado.

  

     7

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements

As
at March 31, 2019 (Expressed in US$)

 

  

		2)	Basis
of Presentation

 

The
unaudited pro forma consolidated statement of financial position (“Pro Forma Statement of Financial Position”) as
at March 31, 2019 has been prepared by Ayr to give effect to the Acquisitions comprising the Qualifying Transactions, as if they
had occurred on March 31, 2019. The unaudited Pro Forma Consolidated Statement of Operations for the three month period ended
March 31, 2019 and for the twelve months ended December 31, 2018 have been prepared by AYR to give effect to the acquisitions
comprising the Qualifying Transaction, as if they had occurred on January 1, 2018.

  

Ayr
financial statements have been translated per the Bank of Canada exchange rates as detailed below:

  

		●	Statement
of financial position as at March 31, 2019 has been translated at period end rate of CAD/USD of 0.7483.

 

 

		●	Statement
of operations for the three months period ended March 31, 2019 has been translated at 3 month (January to March 2019) average
rate of CAD/USD of 0.7522.

 

 

		●	Statement
of operations for the twelve months ended September 30, 2018 (for the purpose of constructed statement of operations for the twelve
months ended December 31, 2018) has been translated at 12 month (October 2017 to September 2018) average rate of CAD/USD of 0.7793.

		●	Statement
of operations for three months ended December 31, 2017 (for the purpose of constructed statement of operations for the twelve
months ended December 31, 2018) has been translated at 3 month (October to December 2017) average rate of CAD/USD of 0.7867.

 

 

		●	Statement
of operations for three months ended December 31, 2018 (for the purpose of constructed statement of operations for the twelve
months ended December 31, 2018) has been translated at 3 month (October to December 2018) average rate of CAD/USD of 0.7575.

  

The
Unaudited Pro Forma Consolidated Financial Statements are derived from the following:

  

		●	The
unaudited condensed interim financial statements of Ayr, Sira, Canopy, Washoe, LivFree and CannaPunch for the three months period
ended March 31, 2019.

 

 

		●	The
audited financial statements of Sira, Canopy, Washoe, LivFree and CannaPunch for the twelve months ended December 31, 2018.

 

 

		●	The
audited financial statements of Ayr for the twelve months ended September 30, 2018 (for the purpose of constructed statement of
operations for the twelve months ended December 31, 2018).

 

 

		●	The
audited financial statements of AYR for the short period (three months) ended December 31, 2018 (for the purpose of constructed
statement of operations for the twelve months ended December 31, 2018).

		●	The
unaudited condensed interim financial statements of AYR for the three months period ended December 31, 2017 (for the purpose of
constructed statement of operations for the twelve months ended December 31, 2018).

 

     8

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

  

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

  

The
unaudited Pro Forma Consolidated Financial Statements were prepared using the acquisition method of accounting in accordance with
IFRS 3, Business Combinations, with Ayr being the accounting and legal acquirer. It uses the fair value concepts defined
in IFRS 13, Fair Value Measurement, and was based on the historical financial statements of Ayr, Sira, Canopy, Washoe,
LivFree and CannaPunch. All financial data in the unaudited Pro Forma Consolidated Financial Statements are presented in United
States Dollars, unless stated otherwise.

  

Under
the acquisition method of accounting, the assets acquired and liabilities assumed are recorded as of the completion of the acquisitions
comprising the Qualifying Transaction at their respective fair values. Under IFRS 3, acquisition-related transaction costs (i.e.,
advisory, legal, valuation, other professional fees) and certain acquisition-related restructuring charges are not included as
a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred.

  

The
accounting for the acquisitions comprising the Qualifying Transaction is dependent upon valuations, where available, that are
provisional and are subject to change. Management will finalize the acquisition accounting for the acquisitions comprising the
Qualifying Transaction no later than one year from the date of the respective acquisition dates as required under IFRS 3. Accordingly,
certain pro forma adjustments are preliminary and have been prepared solely for the purpose of these unaudited Pro Forma Consolidated
Financial Statements. Differences between these provisional estimates and the final acquisition accounting may occur and these
differences could have a material impact on Ayr future financial performance. In addition, the unaudited Pro Forma Consolidated
Statements of Operations do not reflect any cost savings, operating synergies or revenue enhancements that the consolidated businesses
may achieve, the costs to integrate the operations of Ayr and the acquisitions comprising the Qualifying Transaction, or any costs
necessary to achieve these cost savings, operating synergies and revenue enhancements.

  

		3)	Accounting
Policies

  

The
accounting policies used in the preparation of these unaudited Pro Forma Consolidated Financial Statements are consistent with
those described in the audited financial statements of Ayr for the year ended March 31, 2019. Ayr has conducted a review of the
acquisitions’ accounting policies and has not identified any differences in accounting policies that were applied historically
by these entities. Additional accounting policies related to the Target Businesses companies will be included in the Ayr consolidated
financial statements after acquisition on going forward basis. For purposes of these unaudited Pro Forma Consolidated Financial
Statements, certain reclassifications have been made to the acquisitions’ historical financial statements (as described
in notes 6 and 8) to conform to the classifications adopted by Ayr.

  

		4)	Preliminary
Purchase Price Consideration

  

Each
of the acquisitions comprising the Qualifying Transaction is subject to specific terms relating to satisfaction of the purchase
price by Ayr and incorporates payments in cash, notes payables and shares. In addition, the purchase prices may be adjusted for
consideration of acquisition date working capital. No working capital adjustments have been reflected in the unaudited Pro Forma
Consolidated Financial Statements. IFRS 3 requires that contingent consideration be estimated and recorded at the acquisition
date with subsequent changes to estimates reflected in earnings. For purposes of the unaudited Pro Forma Consolidated Financial
Statements, all estimates of contingent consideration are preliminary and subject to change. In addition, the purchase prices
may be adjusted for consideration of acquisition date working capital. No working capital adjustments have been reflected in the
unaudited Pro Forma Financial Statements. The purchase prices do not include any assumed debt of the Target Businesses.

  

     9

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

  

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

  

The
total purchase price consideration is summarized as follows:

 

 

	 	Cash	Note Payable	Share Capital	Total
	 	$	$	$	$
	Sira	15,000,000	5,000,000	30,000,000	50,000,000
	Canopy	7,000,000	4,500,000	5,500,000	17,000,000
	Washoe	16,670,000	5,640,000	5,640,000	27,950,000
	Livfree	29,500,000	20,000,000	70,000,000	119,500,000
	Cannapunch	750,000	2,000,000	14,000,000	16,750,000
	Total Consideration	68,920,000	37,140,000	125,140,000	231,200,000

 

Sira
Acquisition

  

Pursuant
to the terms of the Sira Agreement, Ayr satisfied the purchase price of $50 million for Sira through the following:

  

		i.	$15.0
                                         million of the Sira purchase price was paid in the form of cash consideration.

  

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

  

		iii.	$30.0
                                         million of the Sira purchase price was paid 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.

  

		iv.	The
                                         Sira Agreement also contains an earn-out provision that may entitle the sellers to earn
                                         additional consideration, if certain Adjusted EBITDA (as defined in the Sira Agreement)
                                         milestones are achieved at Sira’s planned cultivation facility in Milford, MA over
                                         its first full year of operation, which is expected to be 2020. See “Description
                                         of Transactions – Acquisition of Sira.”

  

Additionally,
CSAC AcquisitionCo must pay 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. One- third of this Inventory Payment,
in the amount of $ 2,500,000, was paid by CSAC AcquisitionCo on the Closing Date and the remaining two-thirds will be paid within
120 days following the Closing Date.

  

Canopy
Acquisition

  

Pursuant
to the terms of the Sira Agreement, Ayr satisfied the purchase price of $17 million for Canopy through the following:

  

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

  

		ii.	$4.50
                                         million of the Canopy purchase price was paid in the form of a promissory note payable.

  

		iii.	$5.50
                                         million of the Canopy purchase price was paid 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.

  

     10

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements

As
at March 31, 2019 (Expressed in US$)

 

  

		iv.	an
                                         additional 15,360 Exchangeable Shares were issued to Canopy pursuant to certain make-whole
                                         provisions (the “Canopy Make-Whole Provisions”) in the definitive agreement
                                         in respect of the Canopy acquisition (the “Canopy Agreement”); and

  

		v.	Pursuant
                                         to the terms of the Canopy Agreement, Ayr assumed Canopy loans outstanding with total
                                         principal value of approximately $400,000.

  

Additional
Exchangeable Shares are also issuable 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.

  

Washoe
Acquisition

  

Pursuant
to the terms of the Washoe Agreement, Ayr satisfied the purchase price of $27.950 million for Washoe through the following:

  

		i.	$16.670
                                         million of the Washoe purchase price was paid in the form of cash consideration.

  

		ii.	$5.640
                                         million of the Washoe purchase price was paid in the form of a promissory note payable.

  

		iii.	$5.640
                                         million of the Washoe purchase price was paid 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.

  

		iv.	Pursuant
                                         to the terms of the Washoe Agreement, Ayr assumed Washoe loans outstanding with total
                                         principal value of approximately $9,100,000 and issued 13,636 Exchangeable Shares to
                                         a Washoe lender.

 

 

 

In
addition, (i) CSAC AcquisitionCo agreed to fund a bonus plan in the amount of $5,000,000 that would be payable over two years
following the Closing Date to various employees and consultants of Washoe, and (ii) additional Exchangeable Shares are issuable
to the Washoe sellers under certain make-whole provisions of the Washoe Agreement based on a formula specified therein relating
to the market price of the Subordinate Voting Shares on certain specified dates.

  

LivFree
Acquisition

  

Pursuant
to the terms of the LivFree Agreement, Ayr satisfied the purchase price of $119.50 million for LivFree through the following:

  

		i.	$29.50
                                         million of the LivFree purchase price was paid in the form of cash consideration.

  

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

  

		iii.	$70
                                         million of the LivFree purchase price was paid 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.

  

		iv.	Pursuant
                                         to an amendment to the definitive agreement in respect of the LivFree Acquisition, such
                                         amendment dated as of the Closing Date, CSAC AcquisitionCo issued an additional 321,750
                                         Exchange Shares to the LivFree sellers.

  

     11

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

  

CannaPunch
Acquisition

 

Pursuant
to the terms of the CannaPunch Agreement, Ayr satisfied the purchase price of $16.75 million for CannaPunch through the following:

  

		i.	$0.750
                                         million of the CannaPunch purchase price was paid in the form of cash consideration.

  

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

 

		iii.	$14.0
                                         million of the CannaPunch purchase price was paid 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.

  

		iv.	Pursuant
                                         to an amendment to the definitive agreement in respect of the CannaPunch acquisition,
                                         such amendment dated June 7, 2019, CSAC AcquisitionCo issued an additional 32,071 Exchangeable
                                         Shares to the CannaPunch sellers.

 

		5)	Preliminary
                                         Acquisition Accounting

  

Assuming
an acquisition date of January 1, 2018, a preliminary estimate of the fair values of the assets to be acquired and the liabilities
to be assumed by Ayr in connection with the proposed acquisitions is as follows:

 

	US$	Ref	Sira	Canopy	Washoe	Livfree	Cannapunch	Total
	 	 	$	$	$	$	$	$
	ASSETS ACQUIRED	 	 	 	 	 	 	 
	Cash and cash equivalents	a	3,315,782	222,626	722,273	2,182,938	193,329	6,636,948
	Accounts receivable,
    trade, no allowance	a	1,026,229	-	133,075	-	533,871	1,693,175
	Inventory	f	15,470,123	4,252,023	5,686,129	4,239,362	994,011	30,641,648
	Biological assets	f	2,417,379	-	1,646,000	-	-	4,063,379
	Advance to a related
    corporation	 	-	1,217,830	-	89,389	-	1,307,219
	Prepaid expenses
    and other assets	a	132,789	153,353	197,933	123,589	-	607,664
	Intangible assets	c	19,109,000	8,789,000	6,080,894	25,542,000	-	59,520,894
	Property, plant and
    equipment	f	7,521,303	1,220,641	8,961,601	1,673,445	460,823	19,837,813
	Right-of-use assets	 	5,434,999	2,427,320	-	2,230,783	593,978	10,687,080
	Investment
in associate	a	-	-	1,939,517	3,331,885	-	5,271,402
	Other long term assets	 	140,401	-	-	-	-	140,401
	Total assets acquired
    at fair value	 	54,568,005	18,282,793	25,367,422	39,413,391	2,776,012	140,407,623
	LIABILITIES
    ASSUMED	 	 	 	 	 	 	 
	Trade payables	b	605,217	-	577,458	849,613	247,445	2,279,733
	Accrued liabilities	b	2,025,356	349,301	162,209	1,426,638	255,968	4,219,472
	Income tax payable	b	3,715,371	-	-	-	-	3,715,371
	Deferred tax liabilities	 	2,402,770	-	-	-	-	2,402,770
	Accrued interest
    payable	b	7,627,157	-	-	-	-	7,627,157
	Advance from a related
    corporation - current	b	-	-	1,217,830	-	-	1,217,830
	Advance from a related
    corporation - non-current	b	-	-	-	-	285,000	285,000
	Advance from a member	 	-	-	-	-	1,402	1,402
	Lease liabilities
    - current portion	 	142,220	62,841	-	231,379	116,879	553,319
	Lease liabilities
    - non-current portion	 	5,485,755	2,397,955	-	1,985,735	486,035	10,355,480
	Debts payable - current
    portion	b	7,695	-	-	160,000	-	167,695
	Debts payable - non-current
    portion	b,d	14,963,691	421,128	9,162,306	-	-	24,547,125
	Total liabilities
    assumed at fair value	 	36,975,232	3,231,225	11,119,803	4,653,365	1,392,729	57,372,354
	Goodwill	e	32,407,227	1,948,432	13,702,381	84,739,974	15,366,717	148,164,731
	Total Purchase
    Price	 	50,000,000	17,000,000	27,950,000	119,500,000	16,750,000	231,200,000

  

		a)	The
                                         carrying values of the assets acquired, including cash and equivalents, accounts receivable,
                                         prepaid expenses and other assets, investment in associates and deferred tax assets are
                                         all assumed to be representative of their estimated fair values given the short timeframe
                                         until settlement.

  

     12

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

  

		b)	The
                                         carrying values of the liabilities assumed, including trade payables, accrued liabilities,
                                         advance from a related corporation, income tax payable, accrued interest payable and
                                         debts payable are all assumed to be representative of their estimated fair values given
                                         the short timeframe until settlement.

  

		c)	A
                                         preliminary fair value estimate of $59,520,894 has been assigned to intangible assets
                                         representing licenses and intellectual properties. The assumptions used to determine
                                         the fair value of the acquired licenses and intellectual properties may change as Ayr
                                         finalises valuations of the acquired intangible assets following the completion of the
                                         acquisitions comprising the Qualifying Transaction.

  

		d)	The
                                         carrying value of long term borrowings approximates the fair value of these liabilities.
                                         The value is preliminary and subject to change.

  

		e)	Goodwill
                                         represents the difference between the acquisition date fair value of the consideration
                                         transferred and the values assigned to the assets acquired and liabilities assumed. Goodwill
                                         is not amortized and is not deductible for tax purposes.

  

		f)	Assets
                                         acquired at their fair market values include inventory, biological assets and property,
                                         plant and equipment.

  

		6)	Pro
Forma adjustments to the statement of operations in connection with acquisitions

  

The
following summarizes the pro forma adjustments in connection with the acquisitions of the Target Businesses to give effect to
the acquisitions as if they had occurred on April 1, 2019 for purposes of the unaudited Pro Forma Consolidated Statements of Operations
for the three months ended March 31, 2019 and twelve months ended December 31, 2018:

  

		a)	Intercompany
                                         balances were eliminated on consolidation consequent to acquisitions of the Target Businesses
                                         by Ayr.

  

		b)	Intercompany
                                         transactions in the nature of sales, purchases and management fee were eliminated on
                                         consolidation consequent to the acquisitions of the Target Businesses by Ayr.

  

		c)	To
                                         incorporate additional estimated transaction cost of $2,500,000 to be incurred in connection
                                         of acquisition of the Target Businesses by Ayr.

  

		d)	The
                                         tax rate is expected to be approximately 23% as a result of acquisitions. However, no
                                         impact of tax other than what is reflected historically on the financial statements of
                                         Ayr and the entities being acquired, has been shown in the unaudited Pro Forma statements.
                                         As the target businesses operate in the cannabis industry, they are subject to the limitations
                                         of the U.S. Internal Revenue Code Section 280E.

  

		7)	Constructed/calculated
statements of operations

  

The
financial statements of the businesses used to prepare the unaudited Pro Forma Consolidated Financial Statements, were prepared
for the purpose of the unaudited Pro Forma Consolidated Financial Statements and do not conform with the financial statements
for the businesses included elsewhere in the Prospectus.

  

     13

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

 

For
the purpose of the unaudited Pro Forma Consolidated Financial Statements, the Ayr unaudited Pro Forma Consolidated Statements
of Operations for the twelve months ended December 31, 2018 were calculated as follows:

	US$	AYR
    (USD)
	 	12M
    Ended 

    September 30,

    2018

    $	Less:
    3M     Ended 
     December 31,
     2017
     $	Plus:
    3M     Ended 
     December 31,
     2018
     $	12M
    Ended 

    December 31,

    2018

    $
	Revenues,
    net of discounts	-	-	-	-
	 	 	 	 	 
	Cost
    of goods sold before biological asset adjustment   	-	-	-	-
	 	-	-	-	-
	Fair
    value changes in biological assets included in cost of sales	 -	-	-	-
	Unrealized
    gain on biological asset transformation	-	-	-	-
	Gross
    profit (loss)	-	-	-	-
	Expenses	 	 	 	 
	Transaction
    costs	7,115,646	6,723,178	-	392,467
	General
    and administrative	916,469	13,391	2,341,604	3,244,682
	Sales
    and marketing	-	-	-	-
	Depreciation	-	-	-	-
	Licensor
    profit share	-	-	-	-
	Management
    fee	-	-	-	-
	Foreign
    exchange	-	-	20,212	20,212
	Net
    unrealized loss on changes in the fair value of financial liabilities	29,454,070	(491,688)	42,503,558	72,449,316
	Total
    expenses 	37,486,185	6,244,882	44,865,374	76,106,677
	 	 	 	 	 
	Income
    (loss) from operations	(37,486,185)	(6,244,882)	(44,865,374)	(76,106,677)
	 	 	 	 	 
	Òther
    (income) expense	 	 	 	 
	Share
    of (income) loss on equity investments	-	-	-	-
	Interest
    expense	-	-	-	-
	Interest
    income	(727,526)	(24,248)	(231,553)	(934,831)
	Management
    fee income	-	-	-	-
	Rental
    income and others	-	-	-	-
	Total
    other (income) expense	(727,526)	(24,248)	(231,553)	(934,831)
	 	 	 	 	 
	Income
    tax (recovery) expense	-	-	-	-
	 	 	 	 	 
	Net
    income (loss)	(36,758,658)	(6,220,634)	(44,633,822)	(75,171,846)

     14

     

    

 

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements

As
at March 31, 2019 (Expressed in US$)

 

 

		8)	Pro
                                         Forma adjustments to the unaudited Pro Forma Consolidated Statement of Financial Position
                                         in connection with the Acquisitions of the Target Businesses

  

The
following summarizes the pro forma adjustments in connection with the acquisitions of the Target Businesses to give effect to
the acquisitions as if they had occurred on January 1, 2018 for purposes of the unaudited Pro Forma Consolidated Statement of
Financial Position as at December 31, 2018:

 

		a)	Cash,
                                         shares and notes payable totaling $231,200,000 is paid/issued on the acquisitions.

  

		b)	To
                                         reflect the fair value adjustment to the licenses and intellectual property as discussed
                                         under “Preliminary Acquisition Accounting” section above (refer to note 5(c)).

  

		c)	Goodwill
                                         represents the excess of the preliminary estimated purchase price over the estimated
                                         fair value of the tangible and identifiable intangible assets acquired and liabilities
                                         assumed by Ayr. Goodwill represents the value of intangible assets that do not qualify
                                         for separate recognition.

  

		d)	All
                                         members’ equity relating to the Target Businesses were eliminated upon each respective
                                         acquisition thereof by Ayr.

  

		e)	Upon
                                         the acquisition of each of the Target Businesses, the restricted cash and short-term
                                         investments held in escrow was transferred to cash.

  

		f)	To
                                         incorporate additional estimated transaction cost of $2,500,000 to be incurred in connection
                                         of acquisition of the Target Businesses by Ayr.

  

		g)	This
                                         adjustment relates to the closing of the Qualifying Transaction. This adjustment has
                                         been presented based on the redemption of 1,000 Class A Restricted Voting Shares. The
                                         adjustment includes the following elements: (i) release of $101 million from restricted
                                         cash held in the form of flexible guaranteed investment certificates to cash, and (ii)
                                         release of $3.5 million to pay deferred underwriters commission.

  

		h)	To
                                         show the repayment of the deferred underwriters’ commission as a reduction of the
                                         liability and cash.

  

		i)	To
                                         adjust for the fair market value of assets taken over by Ayr on acquisition as disclosed
                                         in Note 5.

  

		9)	Pro
Forma Earnings per Share (“Pro Forma EPS”)

  

The
Pro Forma EPS have been adjusted to reflect the unaudited Pro Forma Consolidated Statement of Operations for the three months
period ended March 31, 2019 and the twelve months ended December 31, 2018. In addition, the number of shares used in calculating
the unaudited Pro Forma Consolidated Basic and Diluted Earnings Per Share has been adjusted to reflect the estimated total number
of shares of Ayr that would be outstanding as of the closing of the acquisitions of the Target Businesses.

  

The
pro forma total number of shares of stock of the consolidated corporation that would be outstanding after the expected closing
of the acquisitions of the Target Businesses noted below in the table.

  

The
following is a breakdown of the Pro Forma EPS calculation:

 

	 	 	Three
    Months Ended 
 March 31, 2019	 	 	Twelve
    Months Ended 
 December 31, 2018	 
	Net
    loss	 	$	(131,678,002	)	 	$	(72,073,620	)
	 	 	 	 	 	 	 	 	 
	Ayr Strategies Inc.
    shares:	 	 	 	 	 	 	 	 
	Multiple voting shares	 	 	3,696,486	 	 	 	3,696,486	 
	Subordinate voting shares	 	 	14,517,855	 	 	 	14,517,855	 
	Weighted average number
    of shares outstanding	 	 	18,214,341	 	 	 	18,214,341	 
	 	 	 	 	 	 	 	 	 
	Loss
    per share - basic and diluted	 	$	(7.23	)	 	$	(3.96	)

  

     15

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.) 

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements 

As
at March 31, 2019 (Expressed in US$)

 

 

		10)	Reconciliation
                                         of Non-IFRS Measures

  

The
Company 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
Company references non-IFRS measures and 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 Company from management’s perspective. Accordingly,
these measures should not be considered in isolation, nor as a substitute for analysis of the Company’s financial information
reported under IFRS. Non-IFRS measures used to analyze the performance of the Target Businesses include “Adjusted EBITDA”.

  

The
Company believes that these non-IFRS financial measures provide meaningful supplemental information regarding the Company’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 Company’s operating performances and thus highlight trends in the Company’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, tax, and adjusted to exclude extraordinary
items, non-recurring items, other non-cash items, including stock based compensation expense, depreciation, and the non-cash effects
of accounting for biological assets and inventories, and further adjusted to remove acquisition related costs.

  

The
following is a reconciliation of how Ayr calculates Adjusted EBITDA and reconciles it to IFRS figures, based on figures derived
from the financial statements of Ayr and the respective Target Businesses.

  

     16

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements

As
at March 31, 2019 (Expressed in US$)

 

 

Adjusted
EBITDA Reconciliation for the twelve months ended December 31, 2018

 

	Period	 	12 mo ended
12/31/2018
As
    Reported	 	12 mo ended
12/31/2018
As
    Reported	 	12 mo ended
12/31/2018
As
    Reported	 	12 mo ended
12/31/2018
As
    Reported	 	12 mo ended
12/31/2018
As
    Reported	 	 	12 mo ended
12/31/2018
Pro
    forma	 	 	12 mo ended
12/31/2018
As
    Reported	 	 	12 mo ended
12/31/2018
Pro
    forma	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Washoe	 	Canopy	 	LivFree	 	Sira	 	CannaPunch	 	 	Total
    Anchor Portfolio	 	 	Ayr2	 	 	Combined	 
	Net income (loss) from operations	 	3,682,863	 	3,150,573	 	7,462,753	 	(10,269,243)	 	1,571,280	 	 	5,598,226	 	 	(77,671,846)	 	 	(72,073,620)	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-cash items accounting for biological assets
    and inventories	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fair value changes in biological assets	 	5,086,289	 	–	 	–	 	18,470,531	 	–	 	 	23,556,820	 	 	–	 	 	23,556,820	 
	Unrealized gain on changes in fair
    value of biological assets	 	(4,005,602)	 	–	 	–	 	(11,287,162)	 	–	 	 	(15,292,764)	 	 	–	 	 	(15,292,764)	 
	 	 	1,080,687	 	–	 	–	 	7,183,369	 	–	 	 	8,264,056	 	 	–	 	 	8,264,056	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest	 	331,277	 	–	 	–	 	2,738,950	 	–	 	 	3,070,227	 	 	(934,831)	 	 	2,135,396	 
	Depreciation and amortization	 	51,831	 	50,766	 	191,301	 	965,936	 	5,027	 	 	1,264,861	 	 	–	 	 	1,264,861	 
	Acquisition costs	 	 	 	 	 	324,299	 	318,448	 	20,883	 	 	 	 	 	3,045,800	 	 	3,045,800	 
	Share-based compensation expense	 	–	 	–	 	–	 	–	 	–	 	 	–	 	 	–	 	 	–	 
	Other1	 	(1,858,783)	 	546,848	 	(274,899)	 	5,117,531	 	1,123,212	 	 	4,653,909	 	 	75,560,877	 	 	80,214,786	 
	 	 	(1,475,675)	 	597,614	 	240,701	 	9,140,865	 	1,149,122	 	 	9,652,627	 	 	77,671,846	 	 	84,824,473	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted EBITDA	 	3,287,875	 	3,748,187	 	7,703,454	 	6,054,991	 	2,720,402	 	 	23,514,909	 	 	(0)	 	 	23,514,909	 

 

 

1
Other adjustments made to exclude the impact of management fees, profit sharing arrangements, transaction fees, and the
net unrealized loss on changes in the fair value of financial liabilities

 

2
Includes pro forma adjustments as outlined in the notes to the Unaudited Pro Forma Consolidated Financial Statements

 

     17

     

    

Ayr
Strategies Inc. (formerly, Cannabis Strategies Acquisition Corp.)

 

 

Notes
to the Unaudited Pro Forma Consolidated Financial Statements

As
at March 31, 2019 (Expressed in US$)

 

  

Adjusted
EBITDA Reconciliation for the three months ended March 31, 2019

 

 

	Period	 	3
    mo ended
3/31/2019
As Reported	 	3
    mo ended
3/31/2019
As Reported	 	3
    mo ended
3/31/2019
As Reported	 	3
    mo ended
3/31/2019
As Reported	 	3
    mo ended
3/31/2019
As Reported	 	 	3
    mo ended
3/31/2019
Pro forma	 	 	3
    mo ended
3/31/2019
As Reported	 	 	3
    mo ended
3/31/2019
Pro forma	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Washoe	 	Canopy	 	LivFree	 	Sira	 	CannaPunch	 	 	Total
    Anchor

    Portfolio	 	 	Ayr2	 	 	Combined	 
	Net
    income (loss) from operations	 	1,150,430	 	492,052	 	2,901,132	 	3,038,364	 	318,751	 	 	7,900,729	 	 	(139,578,731	) 	 	(131,678,002)	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Non-cash
    items accounting for biological assets and inventories	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Fair
    value changes in biological assets	 	804,650	 	 –	 	–	 	4,253,838	 	–	 	 	5,058,488	 	 	–	 	 	5,058,488	 
	Unrealized
    gain on changes in fair value of biological assets	 	(1,227,204	) 	–	 	–	 	(7,282,658	) 	–	 	 	(8,509,862)	 	 	–	 	 	(8,509,862)	 
	 	 	(422,554)	 	–	 	–	 	(3,028,820)	 	–	 	 	(3,451,374)	 	 	–	 	 	(3,451,374)	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Interest	 	94,888	 	78,446	 	41,354	 	824,668	 	15,969	 	 	1,055,325	 	 	(227,164	) 	 	828,161	 
	Depreciation
    and amortization	 	95,266	 	77,596	 	137,156	 	352,954	 	47,821	 	 	710,793	 	 	 	 	 	710,793	 
	Acquisition
    costs	 	5,362	 	11,200	 	 	 	122,438	 	 	 	 	 	 	 	3,012,026	 	 	3,012,026	 
	Share-based
    compensation expense	 	–	 	–	 	–	 	–	 	–	 	 	–	 	 	–	 	 	–	 
	Other1	 	(178,294	) 	180,000	 	22,616	 	2,499,734	 	224,730	 	 	2,748,786	 	 	136,793,869	 	 	139,542,655	 
	 	 	17,222	 	347,242	 	201,126	 	3,799,794	 	288,520	 	 	4,653,904	 	 	139,578,731	 	 	144,093,635	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Adjusted
    EBITDA	 	745,098	 	839,294	 	3,102,258	 	3,809,338	 	607,271	 	 	9,103,259	 	 	0	 	 	9,103,259	 

 

     18Exhibit 4.9

 

No
securities regulatory authority has in any way passed upon the merits of the transactions described in this management information
circular.

 

AYR STRATEGIES INC.

 

NOTICE
OF ANNUAL GENERAL and SPECIAL MEETING OF SHAREHOLDERS

scheduled to be held on November 4, 2020

 

and

 

MANAGEMENT
INFORMATION CIRCULAR 

 

     

     

    

 

NOTICE
OF ANNUAL GENERAL AND SPECIAL MEETING OF SHAREHOLDERS

 

NOTICE
IS HEREBY GIVEN that the annual general and special meeting of shareholders (the “Meeting”) of Ayr Strategies
Inc. (“Ayr”, the “Corporation” or “we”) will be held via live audio webcast
on Wednesday, November 4, 2020 at 11:00 a.m. (Eastern time), for the purposes of:

 

		1.	receiving
                                         the consolidated financial statements of the Corporation for the fiscal year ended December 31,
                                         2019, together with the auditors’ report thereon;

 

		2.	electing
                                         directors for the ensuing year;

 

		3.	appointing
                                         auditors for the ensuing year;

 

		4.	considering,
                                         and if thought advisable, adopting a special resolution (the full text of which is reproduced
                                         as Appendix “A” to the accompanying management information circular dated
                                         September 30, 2020 (the “Circular”)) to approve the proposed amendment
                                         of the articles of Ayr (the “Amendment Resolution”), the whole as
                                         described in the Circular, to, among other things:

 

		•	create
                                         and set the terms of two new share classes of Ayr, being the restricted voting shares
                                         of Ayr (the “Restricted Voting Shares”) and the limited voting shares
                                         of Ayr (the “Limited Voting Shares”), including applying coattail
                                         terms to such shares similar to those applicable to the existing Subordinate Voting Shares;
                                         and

		•	amend
                                         the terms of the existing multiple voting shares of Ayr (the “Multiple Voting
                                         Shares”) and the existing subordinate voting shares of Ayr (the “Subordinate
                                         Voting Shares”, and together with the Multiple Voting Shares, the “Ayr
                                         Shares”), including without limitation, by amending the requirements on who
                                         may hold Subordinate Voting Shares; and

 

		5.	transacting
                                         such other business as may properly come before the Meeting or any adjournment(s) or
                                         postponement(s) thereof.

 

The
Amendment Resolution will be required to be approved by: (i) an ordinary resolution of all holders of the Multiple Voting Shares
and the Subordinate Voting Shares (collectively, the “Ayr Shareholders”), voting together as if they were a single
class of shares; (ii) a special resolution of all Ayr Shareholders, voting together as if they were a single class; (iii) an ordinary
and special resolution of the holders of Subordinate Voting Shares (voting as a separate class); (iv) a special resolution of
the holders of Multiple Voting Shares (voting as a separate class), which may be obtained in writing; and (v) an ordinary resolution
of the minority holders of Subordinate Voting Shares (i.e., other than those held by holders of Multiple Voting Shares and other
persons not permitted to vote thereon under Ontario Securities Commission Rule 56-501 – Restricted Shares).

 

The
Amendment Resolution will, upon adoption (and at anytime thereafter), result in (i) the holders of all Multiple Voting Shares
continuing to hold Multiple Voting Shares (subject to their existing conversion rights), (ii) subject to certain exceptions, the
holders of all Subordinate Voting Shares held by “Non-U.S. Persons” (as defined in the Circular) continuing to hold
Subordinate Voting Shares, (iii) subject to certain exceptions, the holders of all Subordinate Voting Shares if and when held
by “U.S. Persons” (as defined in the Circular) being automatically converted on a one-for-one basis into Restricted
Voting Shares, and (iv) the holders of Restricted Voting Shares being converted on a one-for-one basis into Limited Voting Shares,
as applicable, in order to seek to maintain the Corporation’s “foreign private issuer” status under U.S. securities
laws and thereby reduce compliance costs.

 

This
year, out of an abundance of caution, to proactively deal with the unprecedented public health impact of the novel coronavirus
disease, also known as COVID-19, and to mitigate risks to the health and safety of our communities, shareholders, employees and
other stakeholders, we will hold the Meeting in a virtual only format, which will be conducted via live audio webcast. All shareholders,
regardless of their geographic location, will have an equal opportunity to participate in the Meeting and engage with directors
and management of Ayr as well as with other shareholders. Shareholders will not be able to virtually attend the Meeting in person.
At the Meeting, if you virtually attend, you will have the opportunity to ask questions and vote on a number of important matters.
Alternatively, you may vote by proxy (if you are a registered shareholder) or by following the instructions on the voting information
form (if you are a beneficial shareholder), in each case, by following the applicable directions.

 

    (ii)

     

    

 

The
record date for the determination of registered shareholders of Ayr entitled to receive notice of, and to vote at, the Meeting
is the close of business on September 28, 2020 (the “Record Date”). Only shareholders whose names are entered
in the Corporation’s register of shareholders as of the close of business on the Record Date will be entitled to receive
notice of, and to vote their shares at, the Meeting. Registered shareholders of Ayr and duly appointed proxyholders will be able
to virtually attend, participate, vote and ask questions at the Meeting online at web.lumiagm.com/223355962. Beneficial shareholders
of Ayr (being shareholders who hold their shares through a securities dealer or broker, bank, trust company or trustee, custodian,
nominee or other intermediary), who have not duly appointed themselves as their proxy will be able to virtually attend the Meeting
only as guests and to listen to the webcast but not be able to participate, ask questions or vote at the Meeting.

 

This
notice of annual general and special meeting of shareholders is accompanied by the Circular and a form of proxy (for registered
shareholders) or a voting instruction form (for beneficial shareholders). As a shareholder of the Corporation, it is very important
that you read these documents carefully, as they contain important information and detailed instructions about how to vote your
shares and participate in the Meeting.

 

Dated
at New York, New York on September 30, 2020.

 

	 	By order of the Board of
    Directors,
	 	 
	 	
	 	 
	 	Jonathan Sandelman
	 	 
	 	Chairman, Chief Executive Officer and Corporate
    Secretary

 

    (iii)

     

    

  

Shareholders
may exercise their rights by virtually attending the Meeting online or by completing a form of proxy or voting instruction form.
If you are unable to virtually attend the Meeting, please complete, date and sign the enclosed form of proxy or voting instruction
form and deal with it as directed. A shareholder who wishes to appoint a person other than the management nominees identified
in the form of proxy or voting instruction form (the “Ayr proxyholders”) to represent such shareholder at the
Meeting may do so by inserting such person’s name in the blank space provided in the form of proxy or voting instruction
form and following the instructions for submitting such form of proxy or voting instruction form. This must be completed prior
to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy or voting
instruction form. If you wish that a person other than the Ayr proxyholders virtually attend and participate in the Meeting as
your proxy and vote your shares, including if you are a non-registered shareholder and wish to appoint yourself as your proxy
to virtually attend, participate and vote at the Meeting, you MUST register such proxyholder after having submitted your
form of proxy or voting instruction form identifying such proxyholder. Failure to register the proxyholder will result in the
proxyholder not receiving a Username to participate in the Meeting. Without a Username, proxyholders will not be able to virtually
attend, participate or vote at the Meeting. To register a proxyholder, shareholders MUST send an email to ayr@odysseytrust.com
and provide Odyssey Trust Company (“Odyssey”), the transfer agent and registrar of the Corporation, with their
proxyholder’s contact information, amount of shares appointed, name in which the shares are registered if they are a registered
shareholder, or name of broker where the shares are held if a beneficial shareholder, so that Odyssey may provide the proxyholder
with a Username via email.

 

Proxies
must be received by Odyssey (Odyssey Trust Company, Attn: Proxy Department, 67 Yonge St, Suite 702, Toronto, Ontario M5E 1J8)
no later than 11:00 a.m. (Eastern time) on the second business day preceding the day of the Meeting (being Monday, November
2, 2020) or any adjournment(s) or postponement(s) thereof. Your shares will be voted in accordance with your instructions as indicated
on the proxy.

 

If
you are a registered shareholder, contact Odyssey at www.odysseycontact.com for any voting questions you may have.

 

    (iv)

     

    

 

INVITATION
TO SHAREHOLDERS

 

Dear
Shareholders:

 

On
behalf of the board of directors and management of the Corporation, we are pleased to invite you to virtually attend the annual
general and special meeting of shareholders that will be held this year on Wednesday, November 4, 2020 at 11:00 a.m. (Eastern
time), which will be conducted in a virtual only format via live audio webcast at web.lumiagm.com/223355962. Shareholders will
not be able to attend the meeting in person. A summary of the information shareholders will need to virtually attend the meeting
online is provided below in the section entitled “General Proxy Information”.

 

This
year, out of an abundance of caution, to proactively deal with the unprecedented public health impact of the novel coronavirus
disease, also known as COVID-19, and to mitigate risks to the health and safety of our communities, shareholders, employees and
other stakeholders, we will hold the annual general and special meeting in a virtual only format, which will be conducted via
live audio webcast. All shareholders, regardless of their geographic location, will have an equal opportunity to participate in
the meeting and engage with directors and management of the Corporation as well as other shareholders.

 

The
annual general and special meeting is your opportunity to vote on a number of important matters as well as hear first-hand about
our performance and strategic plans for the future. The enclosed management information circular describes the business to be
conducted at the meeting and should be read in conjunction with the Corporation’s Form 51-102F6V – Statement of
Executive Compensation for the financial year ended December 31, 2019, which can be found on SEDAR at www.sedar.com
under the Corporation’s profile and which provides information on the Corporation’s executive compensation. Registered
shareholders and duly appointed proxyholders will be able to virtually attend, participate, vote and ask questions at the meeting
online at web.lumiagm.com/223355962. Non-registered shareholders who have not duly appointed themselves as their proxy will be
able to virtually attend the Meeting only as guests and to listen to the webcast but not be able to participate, ask questions
or vote at the Meeting.

 

Your
participation in the meeting is important to us and we value your input as shareholders. You can vote by virtually attending the
meeting online and voting, or alternatively via the Internet or by completing and returning the enclosed form of proxy or voting
instruction form.

 

We
look forward to welcoming you at the meeting and thank you for your continued support.

 

	Sincerely,	 
	 	 
		 
	Jonathan Sandelman	 
	President, Chief Executive Officer and Chairman
    of the Board of Directors	 

 

    (v)

     

    

 

FREQUENTLY
ASKED QUESTIONS

 

The
following questions and answers about the Meeting, including voting thereat and participating therein, as applicable, are designed
to help you understand such matters in more detail. All capitalized terms not otherwise defined have the meanings ascribed to
them in the Circular.

 

About
the Meeting

 

Why
did I receive this package of information?

 

The
matters described in the Circular are subject to, among other things, obtaining Ayr Shareholder approval, as further described
below. As an Ayr Shareholder as of the close of business on September 28, 2020, you are entitled to receive notice of and vote
at the Meeting.

 

What
is this document?

 

This
document is a management information circular (the “Circular”) furnished to Ayr Shareholders in connection
with the solicitation of proxies by and on behalf of the management of Ayr for use at the Meeting or at any adjournment(s) or
postponement(s) thereof. References in this Circular to the Meeting include any adjournment(s) or postponement(s) thereof that
may occur.

 

Who
is soliciting my proxy? 

 

Your
proxy is being solicited by and on behalf of Ayr’s management for use at the Meeting or any adjournment(s) or postponement(s)
thereof. While it is expected that the solicitation will be primarily by mail, proxies may be solicited personally or by telephone
by the regular employees of Ayr at nominal cost. All costs of solicitation by management will be borne by Ayr, other than the
cost of solicitation of the Objecting Beneficial Holders. See the sections entitled “Solicitation of Proxies”
and “Advice to Beneficial Shareholders”.

 

See
 “How do I appoint a third party as proxy?” for instructions on how to appoint a proxy.

 

When
and where is the Meeting?

 

The
Meeting is scheduled to be held virtually will be held via live audio webcast on Wednesday, November 4, 2020 at 11:00 a.m.
(Eastern time).

 

Who
is entitled to vote at the Meeting and how will votes be counted?

 

All
Ayr Shareholders as of the close of business on September 28, 2020 (the “Record Date”) are entitled to vote
on the items of business for the Meeting, including the Amendment Resolution.

 

Odyssey,
the Corporation’s transfer agent and registrar, will count the votes.

 

What
if I acquired ownership of Ayr Shares after September 28, 2020, 2020?

 

Only
registered Ayr Shareholders as of the close of business on the Record Date are entitled to receive notice of, virtually attend,
participate and vote at the Meeting online at web.lumiagm.com/223355962. Beneficial shareholders of Ayr (meaning that your Ayr
Shares are held beneficially on your behalf, or for your account, by a broker, investment dealer, bank, trust company or other
intermediary), who have not duly appointed themselves as their proxy will be able to virtually attend the Meeting only as guests
and to listen to the webcast but not be able to participate, ask questions or vote at the Meeting.

 

    (vi)

     

    

 

When
is voting recommended?

 

In
order to ensure that your proxy is received in time for the Meeting, to be held on Wednesday, November 4, 2020, we recommend that
you vote as soon as possible.

 

What
am I being asked to vote on?

 

You
are being asked to vote on the election of directors, the appointment of auditors and the Amendment Resolution to approve the
proposed amendments to the Corporation’s articles, to, among other things, (i) create and set the terms of two new share
classes of Ayr, being the Restricted Voting Shares and the Limited Voting Shares, including applying coattail terms to such shares
similar to those applicable to the existing Subordinate Voting Shares; and (ii) amend the terms of the existing Multiple Voting
Shares and the existing Subordinate Voting Shares, including by amending the requirements on who may hold Subordinate Voting Shares
(collectively, the “Amendment”). See the section entitled “Description of Share Capital”
for more information.

 

Does
the board of directors of Ayr (the “Board”) support the Amendment Resolution?

 

Yes.
After careful consideration and in order to seek to maintain Ayr’s foreign private issuer (FPI) status and reduce compliance
costs, the Board has unanimously concluded that the Amendment Resolution is in the best interests of the Corporation. Accordingly,
the Board has unanimously approved the Amendment and unanimously recommends that Ayr Shareholders vote FOR the Amendment
Resolution.

 

What
is the quorum for the Meeting?

 

For
all purposes contemplated by this Circular, the quorum for the transaction of business at the Meeting shall be at least two registered
or beneficial Ayr Shareholders holding or representing by proxy at least 25% of the issued and outstanding AYR Shares entitled
to be voted at the Meeting.

 

How
many Ayr Shares are entitled to vote?

 

The
authorized capital of the Corporation consists of an unlimited number of Multiple Voting Shares and Subordinate Voting Shares.
Each holder of Multiple Voting Shares is entitled to 25 votes per share, and each holder of Subordinate Voting Shares is entitled
to one vote per share, in each case registered in his, her or its name at the close of business on the Record Date. At the close
of business on the Record Date, there were 3,696,486 Multiple Voting Shares outstanding and 17,324,089 Subordinate Voting Shares
outstanding.

 

What
if amendments are made to these matters or other business is brought before the Meeting?

 

The
accompanying form of proxy or voting instruction form confers discretionary authority on the persons named therein as proxies
with respect to any amendments or variations to the matters identified in each of the Notice of Meeting contained in this Circular,
or other matters that may properly come before the Meeting, and the named proxies in your properly executed proxy or voting instruction
form will vote on such matters in accordance with their judgment. At the date of this Circular, management of Ayr is not aware
of any such amendments, variations or other matters which are to be presented for action at the Meeting.

 

How
do I vote at the Meeting?

 

Registered
shareholders may vote at the Meeting by completing a ballot online during the Meeting, as further described below. See “How
do I virtually attend and participate at the Meeting?”.

 

Beneficial
shareholders who have not duly appointed themselves as proxyholder will be able to virtually attend the Meeting only as guests
and to listen to the webcast but not be able to participate, ask questions or vote at the Meeting. This is because the Corporation
and its transfer agent do not have a record of the beneficial shareholders of the Corporation, and, as a result, will have no
knowledge of your shareholdings or entitlement to vote, unless you appoint yourself as proxyholder. If you are a beneficial shareholder
and wish to vote at the Meeting, you have to appoint yourself as proxyholder, by inserting your own name in the space provided
on the voting instruction form sent to you and must follow all of the applicable instructions provided by your intermediary. See
 “How do I appoint a third party as proxy” and “How do I virtually attend and participate at the Meeting?”.

 

    (vii)

     

    

 

How
do I appoint a third party as proxy?

 

The
following applies to Ayr Shareholders who wish to appoint a person (a “third party proxyholder”) other than
the management nominees set forth in the form of proxy or voting instruction form as proxyholder, including beneficial shareholders
who wish to appoint themselves as proxyholder to participate or vote at the Meeting.

 

Ayr
Shareholders who wish to appoint a third party proxyholder to vote at the Meeting as their proxy and vote their Ayr Shares MUST
submit their proxy or voting instruction form (as applicable) appointing such third party proxyholder AND register
the third party proxyholder, as described below. Registering your proxyholder is an additional step to be completed AFTER
you have submitted your proxy or voting instruction form. Failure to register the proxyholder will result in the proxyholder
not receiving a Username to virtually attend, participate or vote at the Meeting.

 

		•	Step
                                         1: Submit your proxy or voting instruction form: To appoint a third party proxyholder,
                                         insert such person’s name in the blank space provided in the form of proxy or voting
                                         instruction form and follow the instructions for submitting such form of proxy or voting
                                         instruction form. This must be completed prior to registering such proxyholder, which
                                         is an additional step to be completed once you have submitted your form of proxy or voting
                                         instruction form.

 

		•	Step
                                         2: Register your proxyholder: To register a proxyholder, shareholders MUST
                                         send an email to ayr@odysseytrust.com by 11:00 a.m. (Eastern time) on Monday, November
                                         2, 2020, and provide Odyssey with the required proxyholder contact information, amount
                                         of shares appointed, name in which the shares are registered if they are a registered
                                         shareholder, or name of broker where the shares are held if a beneficial shareholder,
                                         so that Odyssey may provide the proxyholder with a Username via email. Without a Username,
                                         proxyholders will not be able to virtually attend, participate or vote at the Meeting.

 

If
you are a beneficial shareholder and wish to virtually participate or vote at the Meeting, you have to insert your own name in
the space provided on the voting instruction form sent to you by your intermediary, follow all of the applicable instructions
provided by your intermediary AND register yourself as your proxyholder, as described above. By doing so, you are instructing
your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided
by your intermediary. Please also see further instructions below under the heading “How do I virtually attend and participate
at the Meeting?”.

 

Am
I entitled to dissent rights?

 

No,
Ayr Shareholders are not entitled to exercise dissent rights in respect of any of the items of business at the Meeting, including
the Amendment Resolution. See the heading entitled “Dissent Rights”.

 

How
do I virtually attend and participate at the Meeting? 

 

The
Corporation is holding the Meeting in a virtual only format, which will be conducted via live audio webcast. Ayr Shareholders
will not be able to attend the Meeting in person. In order to participate or vote at the Meeting (including for voting and asking
questions at the Meeting), shareholders must have a valid Username. Registered shareholders and duly appointed proxyholders will
be able to virtually attend, participate and vote at the Meeting online at web.lumiagm.com/223355962. Such persons may then enter
the Meeting by clicking “I have a login” and entering a Username and Password before the start of the Meeting.

 

		•	Registered
                                         shareholders: The 12-digit control number located on the form of proxy is the Username.
                                         The Password to the Meeting is “ayr2020” (case sensitive). If, as a registered
                                         shareholder, you are using your control number to login to the Meeting and have previously
                                         voted, you do not need to vote again when the polls are opened. Should you choose to
                                         vote at the meeting, you will be revoking any and all previously submitted votes.

 

    (viii)

     

    

 

		•	Duly
                                         appointed proxyholders: Odyssey will provide the proxyholder with a Username by e-mail
                                         after the voting deadline has passed. The Password to the Meeting is “ayr2020”
                                         (case sensitive). Only registered shareholders and duly appointed proxyholders will be
                                         entitled to participate and vote at the Meeting. Beneficial shareholders who have not
                                         duly appointed themselves as proxyholder will be able to virtually attend the Meeting
                                         only as guests and to listen to the webcast but not be able to participate, ask questions
                                         or vote at the Meeting. Ayr Shareholders who wish to appoint a third party proxyholder
                                         to represent them at the Meeting (including beneficial shareholders who wish to appoint
                                         themselves as proxyholder to participate or vote at the Meeting) MUST submit their
                                         duly completed proxy or voting instruction form AND register the proxyholder.
                                         See “How do I appoint a third party as proxy?”.

 

Shareholders
will be allowed to log in as early as 30 minutes before the start time on November 4, 2020. The virtual Meeting platform is supported
across internet browsers (e.g Edge, Firefox, Chrome, and Safari) and devices (e.g., desktops, laptops, tablets, and cell phones).
If you intend to join the live audio webcast, you should ensure that you have a strong WiFi or Internet connection from wherever
you intend to join and participate in the virtual Meeting. We encourage you to access the virtual Meeting before it begins, and
you should give yourself plenty of time to log in and ensure that you can hear streaming audio prior to the start of the Meeting.

 

How
do I ask questions prior to or at the Meeting? 

 

If
you want to ask questions during the Meeting, log into the virtual meeting platform at web.lumiagm.com/223355962, click on the
double chat bubble icon, type your question into the chat field, and click the send arrow button.

 

Questions
pertinent to Meeting matters will be answered during the Meeting, subject to time constraints of two-minute limits per question
and two questions per shareholder. Questions that are unrelated to the proposals under discussion, use blatantly offensive language
or are regarding personal matters, including those related to employment, product or service issues, or suggestions for product
innovations, will not be answered by the Chair or management.

 

What
do I do as a U.S. Beneficial Shareholder? 

 

If
you are a beneficial shareholder located in the United States and wish to participate or vote at the Meeting or, if permitted,
appoint a third party as your proxyholder, in addition to the steps described above under “How do I virtually attend
and participate at the Meeting?”, you must obtain a valid legal proxy from your intermediary. Follow the instructions
from your intermediary included with the legal proxy form and the voting information form sent to you or contact your intermediary
to request a legal proxy form or a legal proxy if you have not received one. After obtaining a valid legal proxy from your intermediary,
you must then submit such legal proxy to Odyssey. Requests for registration from beneficial shareholders located in the United
States that wish to participate or vote at the Meeting or, if permitted, appoint a third party as their proxyholder must be sent
by e-mail to ayr@odysseytrust.com and received by no later than 11:00 a.m. (Eastern time) on the second business day preceding
the day of the Meeting (being Monday, November 2, 2020) or any adjournment(s) or postponement(s) thereof.

 

About
the Amendment

 

Why
is the Corporation proposing the Amendment?

 

The
Corporation is proposing this expanded share structure and the introduction of Restricted Voting Shares and Limited Voting Shares
in order to seek to maintain its foreign private issuer (FPI) status and reduce compliance costs. This is somewhat similar to
other Canadian-listed issuers which have adopted variable voting share structures for airline and telecommunications regulatory
purposes.

 

    (ix)

     

    

 

I
am a holder of Subordinate Voting Shares. What will happen to my shares?

 

The
Amendment Resolution will, upon adoption (and at anytime thereafter), result in (i) the holders of all Multiple Voting Shares
continuing to hold Multiple Voting Shares (subject to their existing conversion rights), (ii) subject to certain exceptions, the
holders of all Subordinate Voting Shares held by “Non-U.S. Persons” (as defined in the Circular) continuing to hold
Subordinate Voting Shares, (iii) subject to certain exceptions, the holders of all Subordinate Voting Shares if and when held
by “U.S. Persons” (as defined in the Circular) being automatically converted on a one-for-one basis into Restricted
Voting Shares, and (iv) the holders of Restricted Voting Shares being converted on a one-for-one basis into Limited Voting Shares,
as applicable, in order to seek to maintain the Corporation’s foreign private issuer status under U.S. securities laws and
thereby reduce compliance costs.

 

About
Approval of the Amendment

 

What
approvals are required for the Amendment to become effective?

 

Adoption
of the Amendment will be subject to, among other things, the receipt of (A) the requisite shareholder vote, as herein described,
(B) the approval of the Canadian Securities Exchange, and (C) the approval of the Ontario Securities Commission (failing which,
the Restricted Voting Shares will be known as “Class A Restricted Voting Shares” and the Limited Voting Shares will
be known as “Class B Restricted Voting Shares”). In particular, the Amendment Resolution will be required to be approved
by: (i) an ordinary resolution of all Ayr Shareholders, voting together as if they were a single class of shares; (ii) a special
resolution of all Ayr Shareholders, voting together as if they were a single class; (iii) an ordinary and special resolution of
the holders of Subordinate Voting Shares (voting as a separate class); (iv) a special resolution of the holders of Multiple Voting
Shares (voting as a separate class), which may be obtained in writing; and (v) an ordinary resolution of the minority holders
of Subordinate Voting Shares (i.e., other than those held by holders of Multiple Voting Shares and other persons not permitted
to vote thereon under Ontario Securities Commission Rule 56-501 – Restricted Shares).

 

Tax
Consequences to Ayr Shareholders

 

What
are the tax consequences of the Amendment to Ayr Shareholders?

 

This
Circular contains a summary of the principal Canadian federal income tax considerations relevant to Ayr Shareholders. Please see
the discussions under the heading “Certain Federal Income Tax Considerations - Certain Canadian Federal Income Tax Considerations”.
This summary is of a general nature only and is not, and is not intended to be, nor should it be construed to be, legal or
tax advice or representations to any particular Ayr Shareholder. This summary is not exhaustive of all income tax considerations.
Accordingly, Ayr Shareholders are urged to consult their own legal and tax advisors with respect to the tax consequences to them
having regard to their particular circumstances, including the application and effect of the income and other tax laws of any
country, state, province or other jurisdiction that may be applicable to the Ayr Shareholder, including those in the United States.

 

Who
to Call with Questions

 

Who
can I contact if I have questions?

 

If
you have any questions or require any assistance in executing your proxy or voting instruction form, please call Odyssey, Ayr’s
transfer agent, at 1-587-885-0960, or your tax, financial, legal or other professional advisors.

 

    (x)

     

    

 

TABLE
OF CONTENTS

 

	About
    the Meeting	vi
	 	 
	FORWARD-LOOKING
    STATEMENTS	1
	 	 
	SUMMARY	4
	 	 
	GENERAL
    PROXY INFORMATION	6
	 	 
	Solicitation
    of Proxies	6
	Appointment
    of Proxies	7
	Voting
    of Proxies	9
	Virtual
    Attendance and Participation in the Meeting	10
	 	 
	BUSINESS
    OF THE MEETING	12
	1.         PRESENTATION
    OF FINANCIAL STATEMENTS	12
	2.         ELECTION
    OF DIRECTORS	12
	3.         APPOINTMENT
    OF AUDITORS	20
	4.         AMENDMENT
    TO ARTICLES	21
	 	 
	DISSENT
    RIGHTS	31
	 	 
	OTHER
    BUSINESS	31
	 	 
	COMPENSATION
    DISCUSSION AND ANALYSIS	31
	 	 
	STATEMENT
    OF CORPORATE GOVERNANCE PRACTICES	31
	 	 
	Board	32
	Directorships	32
	Orientation
    and Continuing Education	32
	Ethical
    Business Conduct	32
	Assessments	35
	 	 
	NORMAL
    COURSE ISSUER BID	35
	 	 
	CERTAIN
    FEDERAL INCOME TAX CONSIDERATIONS	35
	 	 
	OTHER
    INFORMATION	40

 

ADDENDA

 

	APPENDIX
    “A”	AMENDMENT
    RESOLUTION
	APPENDIX
    “B”	PROPOSED
    AMENDED ARTICLES
	APPENDIX
    “C”	AUDIT
    COMMITTEE CHARTER

 

    (xi)

     

    

 

MANAGEMENT
INFORMATION CIRCULAR

(All
dollar amounts herein are in United States dollars, unless indicated otherwise)

 

INTRODUCTION

 

This
management information circular (the “Circular”) is furnished in connection with the solicitation by management
of Ayr Strategies Inc. (“Ayr”, the “Corporation” or “we”) of proxies
for use at the annual general and special meeting of shareholders of the Corporation to be held on November 4, 2020 at 11:00 a.m.
(Eastern time), or any postponement(s) or adjournment(s) thereof (the “Meeting”), for the purposes set forth
in the accompanying notice of the annual general and special meeting of shareholders (the “Notice of Meeting”).

 

Unless
otherwise noted, references to “Ayr” and the “Corporation” refer to Ayr Strategies Inc. and its direct
and indirect subsidiaries, predecessors and other entities controlled by them. Unless otherwise indicated, all references to “$”
or “dollars” in this Circular refer to U.S. dollars. Certain totals, subtotals and percentages throughout this Circular
may not reconcile due to rounding. Where applicable, references herein to the “Board” may also refer to the executive
committee of the Corporation (the “Executive Committee”), as several of the Board’s functions are delegated
to the Executive Committee. This Circular is dated September 30, 2020, and all information, unless indicated otherwise, is as
at that date.

 

Due
to the COVID-19 pandemic, the Meeting will be held as a completely virtual meeting conducted via live audio webcast. Shareholders
will not be able to attend the Meeting in person. A summary of the information shareholders will need to virtually attend the
Meeting online is provided below.

 

Ayr
derives a substantial portion of its revenues from the cannabis industry in certain states of the United States, which industry
is illegal under United States federal law. Ayr is directly involved (through its licensed subsidiaries) in the cannabis industry
in the United States where local state laws permit such activities. Currently, its subsidiaries and managed entities are directly
engaged in the manufacture, possession, use, sale or distribution of cannabis and/or holds licenses in the adult-use and/or medicinal
cannabis marketplace in the States of Nevada and Massachusetts.

 

FORWARD-LOOKING
STATEMENTS

 

This
Circular and the documents incorporated by reference herein contain certain “forward-looking statements” and “forward-looking
information” within the meaning of applicable securities laws, including Canadian securities laws and United States securities
laws (collectively, “forward-looking statements”). All information, other than statements of historical facts,
included in this Circular and the documents incorporated by reference herein, including estimates, plans, expectations, opinions,
forecasts, projections, targets and guidance, constitutes forward-looking information. 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;

 

		•	the
                                         business and future activities of, and developments related to, the Corporation after
                                         the date hereof, including such things as future business strategy, financial and operating
                                         performance, results and terms of strategic initiatives, strategic agreements and supply
                                         agreements, competitive strengths, goals, expansion and growth of the Corporation’s
                                         business, and anticipated profitability including new revenue streams;

 

    1

     

    

 

		•	the
                                         completion and integration of contemplated acquisitions by the Corporation or other possible
                                         acquisitions or dispositions (directly or indirectly) of businesses or assets which may
                                         or may not be material and/or investment opportunities;

 

		•	the
                                         application for additional licenses and the grant of licenses and other regulatory approvals
                                         that have been applied for;

 

		•	the
                                         renewal of licenses held by the Corporation;

 

		•	the
                                         potential time frame for the implementation of legislation to legalize and regulate medical
                                         or recreational cannabis (and the consumer products derived from each of the foregoing)
                                         in the United States, if any, and the potential form any such legislation and regulations
                                         may take; 

 

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

 

		•	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;

 

		•	consistent
                                         or increasing pricing of various cannabis products;

 

		•	the
                                         level of demand for cannabis products, including the Corporation’s products 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
                                         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;

 

		•	other
                                         events or conditions that may occur in the future; and

 

		•	management’s
                                         success in anticipating and managing the foregoing factors, as well as the risks described
                                         in the Corporation’s annual information form for the financial year ended December
                                         31, 2019 and dated as at June 30, 2020.

 

No
assurance can be given that these expectations will prove to be correct and such forward-looking information included in this
Circular should not be unduly relied upon, and the Corporation does not undertake any obligation to revise or update any forward-looking
information or statements other than as required by applicable law. In making these statements, in addition to those described
above and elsewhere herein, the parties have made assumptions with respect to, without limitation, receipt of requisite regulatory
approvals on a timely basis, receipt and/or maintenance of required licenses and third-party consents in a timely manner, successful
integration of the Corporation’s and its subsidiaries’ operations, and no unplanned materially adverse changes to
its facilities, assets, customer base and the economic conditions affecting the Corporation’s current and proposed operations.
These assumptions, although considered reasonable by the Corporation at the time of preparation, may prove to be incorrect. In
addition, the Corporation has assumed that there will be no material adverse change to the current regulatory landscape affecting
the cannabis industry and has also assumed that the Corporation will remain compliant in the future with all state and local laws,
regulations and rules imposed upon it by law. The Corporation’s forward-looking information is expressly qualified in its
entirety by this cautionary statement.

 

    2

     

    

 

Definition
and Reconciliation of Non-IFRS Measures

 

The
Corporation reports certain non-IFRS measures that are used to evaluate the performance of its businesses and the performance
of their respective segments, as well as to manage their capital structures. 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 International Financial Reporting Standards (“IFRS”)
measure.

 

The
Corporation references non-IFRS measures including cannabis industry metrics in certain of its publicly filed documents, including
the 2019 Financial Statements (as defined in this Circular). Non-IFRS 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’s businesses 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.

 

    3

     

    

 

 

SUMMARY

 

The
following is a summary of certain information contained in this Circular. This summary is not intended to be complete and is qualified
in its entirety by the more detailed information and financial statements, including the notes thereto contained elsewhere in
this Circular and the attached Appendices all of which are important and should be reviewed carefully. All dollar amounts refer
to U.S. dollars unless indicated otherwise.

 

Date,
Time and Place of the Meeting

 

The
Meeting is scheduled to be held virtually via live audio webcast on Wednesday, November 4, 2020 at 11:00 a.m. (Eastern time).
Only Ayr Shareholders of record at 5:00 pm (Eastern time) on September 28, 2020 will be entitled to receive notice of and vote
at the Meeting, or any adjournment(s) or postponement(s) thereof.

 

Business
of the Meeting

 

The
Meeting will be held for the purposes of:

 

		1.	receiving
                                         the consolidated financial statements of the Corporation for the fiscal year ended December 31,
                                         2019, together with the auditors’ report thereon;

 

		2.	electing
                                         directors for the ensuing year;

 

		3.	appointing
                                         auditors for the ensuing year;

 

		4.	considering,
                                         and if thought advisable, adopting a special resolution (the full text of which is reproduced
                                         as Appendix “A” to the accompanying management information circular dated
                                         September 30, 2020 (the “Circular”)) to approve the proposed amendment
                                         of the articles of Ayr (the “Amendment Resolution”), the whole as
                                         described in the Circular, to, among other things:

 

		•	create
                                         and set the terms of two new share classes of Ayr, being the restricted voting shares
                                         of Ayr (the “Restricted Voting Shares”) and the limited voting shares
                                         of Ayr (the “Limited Voting Shares”); and

		•	amend
                                         the terms of the existing multiple voting shares of Ayr (the “Multiple Voting
                                         Shares”) and the existing subordinate voting shares of Ayr (the “Subordinate
                                         Voting Shares”, and together with the Multiple Voting Shares, the “Ayr
                                         Shares”), including without limitation, by amending the requirements on who
                                         may hold Subordinate Voting Shares; and

 

		5.	transacting
                                         such other business as may properly come before the Meeting or any adjournment(s) or
                                         postponement(s) thereof.

 

The
Amendment Resolution will be required to be approved by: (i) an ordinary resolution of all holders of the Multiple Voting Shares
and the Subordinate Voting Shares (collectively, the “Ayr Shareholders”), voting together as if they were a single
class of shares; (ii) a special resolution of all Ayr Shareholders, voting together as if they were a single class; (iii) an ordinary
and special resolution of the holders of Subordinate Voting Shares (voting as a separate class); (iv) a special resolution of
the holders of Multiple Voting Shares (voting as a separate class), which may be obtained in writing; and (v) an ordinary resolution
of the minority holders of Subordinate Voting Shares (i.e., other than those held by holders of Multiple Voting Shares and other
persons not permitted to vote thereon under Ontario Securities Commission Rule 56-501 – Restricted Shares).

 

See
 “Business of the Meeting – Amendment to Articles”.

 

 

    4

     

    

 

 

Recommendation
of the Board

 

The
Board has unanimously determined that the Amendment is in the best interests of the Corporation. Accordingly, the Board has
unanimously approved the Amendment and unanimously recommends that the Ayr Shareholders vote FOR the Amendment Resolution.

 

Dissent
Rights

 

Ayr
Shareholders do not have dissent rights under the Corporations Act (British Columbia) (“BCBCA”) in respect
of the Amendment Resolution. See “Dissent Rights”.

 

Certain
Canadian Federal Income Tax Considerations

 

The
amendments to the terms of the Multiple Voting Shares and Subordinate Voting Shares will not, in and of themselves, result in
a Holder (as defined in the Circular) realizing a capital gain or loss. Upon the adoption of the Amendment Resolution (the “Adoption”),
all of the Subordinate Voting Shares held by U.S. Persons (subject to certain exceptions) will be automatically converted to Restricted
Voting Shares. Upon such conversion, a Holder of such Subordinate Voting Shares will be deemed under the Income Tax Act
(Canada) (the “Tax Act”) to have (i) disposed of its Subordinate Voting Shares for proceeds of disposition
equal to the adjusted cost base of such shares immediately before the Adoption and (ii) acquired the Restricted Voting Shares
at a cost equal to the adjusted cost base to such Holder of its Subordinate Voting Shares immediately before the Adoption. Accordingly,
Holders will not realize a gain or loss on the conversion under the Tax Act. The conversion of shares of a class of Equity Shares
into shares of a different class of Equity Shares (other than the conversion of Subordinate Voting Shares to Restricted Voting
Shares upon the Adoption, as discussed above) will be deemed not to constitute a disposition of property for purposes of the Tax
Act and, accordingly, will not give rise to a capital gain or capital loss. For more information, see “Certain Canadian
Federal Income Tax Considerations”.

 

Other
Tax Considerations

 

This
Circular does not address any tax considerations of the Amendment other than Canadian federal income tax considerations, nor does
it address the particular circumstances of any shareholder. Ayr Shareholders who are resident in jurisdictions other than Canada,
including those in the United States, should consult their tax advisors with respect to the tax implications of the Amendment,
including any associated filing requirements, in such jurisdictions and with respect to the tax implications in such jurisdictions
of owning Ayr Shares after the Amendment. Ayr Shareholders should also consult their own tax advisors regarding Canadian federal,
provincial or territorial, and United States federal, state and local tax considerations of the Amendment or of holding Ayr Shares.

 

 

    5

     

    

 

GENERAL
PROXY INFORMATION

 

Virtual
Only Meeting

 

This
year, out of an abundance of caution, to proactively deal with the unprecedented public health impact of the novel coronavirus
disease, also known as COVID-19, and to mitigate risks to the health and safety of our communities, shareholders, employees and
other stakeholders, we will hold our Meeting in a virtual only format, which will be conducted via live audio webcast. All shareholders,
regardless of their geographic location, will have an equal opportunity to participate in the Meeting and engage with directors
and management of the Corporation as well as with other shareholders.

 

Solicitation
of Proxies

 

This
Circular is sent in connection with the solicitation by the management of the Corporation of proxies to be used at the annual
general and special meeting of shareholders of the Corporation to be held on Wednesday, November 4, 2020 (the “Meeting”),
from 11:00 a.m. (Eastern time), in a virtual only format which will be conducted via live audio webcast at web.lumiagm.com/223355962,
and for the purposes set forth in the Notice of Annual Meeting of Shareholders (the “Notice of Meeting”),
and at any adjournment(s) or postponement(s) thereof. The solicitation is being made primarily by mail, but proxies may also be
solicited by telephone, facsimile or other personal contact by officers or other employees of the Corporation. The cost of the
solicitation will be borne by the Corporation other than the cost of solicitation of the Objecting Beneficial Shareholders (as
defined herein). See the section entitled “Advice to Beneficial Shareholders” below.

 

A
form of proxy is a document that authorizes someone to virtually attend the Meeting and cast your vote(s) for you. If you are
a registered Ayr Shareholder, the Corporation has included a form of proxy with this Circular. It should be used to appoint a
proxyholder. The contents and the sending of this Circular have been approved by the Board.

 

The
Corporation does not intend to pay for intermediaries to forward to Objecting Beneficial Shareholders under National Instrument
54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”)
the proxy-related materials and Form 54-101F7 - Request for Voting Instructions Made by Intermediary, so in the case of
an Objecting Beneficial Shareholder, the Objecting Beneficial Shareholder will not receive the materials unless the Objecting
Beneficial Shareholder’s intermediary assumes the cost of delivery.

 

Voting
Shares and Principal Ayr Shareholders

 

The
authorized capital of the Corporation consists of an unlimited number of Subordinate Voting Shares and Multiple Voting Shares,
all without par or nominal value. As of September 30, 2020, there were 3,696,486 Multiple Voting Shares and 17,366,629 Subordinate
Voting Shares issued and outstanding. Each Multiple Voting Share entitles its holder to 25 votes (subject in the case of Mercer,
to the terms of the Voting Agreement (as defined herein)) and each Subordinate Voting Share entitles its holder to one vote with
respect to the matters voted at the Meeting. As of September 30, 2020, there were 16,018,858 Warrants (each exercisable on a one-for-one
basis into Subordinate Voting Shares) and 151,655 Rights (each convertible on a one-for-one-tenth basis into Subordinate Voting
Shares) issued and outstanding.

 

Holders
of Multiple Voting Shares and Subordinate Voting Shares whose names are registered on the respective lists of shareholders of
the Corporation as at the close of business (Toronto time) on the Record Date will be entitled to exercise the voting rights attached
to the Multiple Voting Shares and Subordinate Voting Shares, respectively, in respect of which they are so registered at the Meeting,
or any adjournment(s) or postponement(s) thereof, if virtually present or represented by proxy thereat. As of September 28, 2020,
there were an aggregate of 17,324,089 votes attached to the Subordinate Voting Shares and 92,412,150 votes attached to the Multiple
Voting Shares entitled to be voted at the Meeting or any adjournment(s) or postponement(s) thereof.

 

At
the Meeting, Ayr Shareholders will be asked to consider, and if deemed advisable, approve the Amendment Resolution and the other
matters of business outlined in the Notice of Meeting. The Amendment Resolution will be required to be approved by: (i) an ordinary
resolution of all Ayr Shareholders, voting together as if they were a single class of shares; (ii) a special resolution of all
Ayr Shareholders, voting together as if they were a single class; (iii) an ordinary and special resolution of the holders of Subordinate
Voting Shares (voting as a separate class); (iv) a special resolution of the holders of Multiple Voting Shares (voting as a separate
class), which may be obtained in writing; and (v) an ordinary resolution of the minority holders of Subordinate Voting Shares
(i.e., other than those held by holders of Multiple Voting Shares and other persons not permitted to vote thereon under Ontario
Securities Commission Rule 56-501 – Restricted Shares, to the best knowledge of the Corporation, being an aggregate
of 208,631 Subordinate Voting Shares).

 

    6

     

    

 

To
the knowledge of the directors and officers of the Corporation, other than as set forth below, no person owns beneficially, directly
or indirectly, or exercises control or direction over, voting securities carrying 10% or more of the voting rights attached to
any class of voting securities of the Corporation, as at September 30, 2020 (unless otherwise as of a date specified below).

 

	Name
    of Shareholder	Number
    and Type of 

Shares	Percentage
    of Class 

of Outstanding Shares	Percentage
    of All

 Outstanding Shares
	Mercer
    Park CB, L.P.(1)	3,677,626
    Multiple Voting Shares	Approximately
    99.49% of all issued and outstanding Multiple Voting Shares	Approximately
    17.46% of all issued and outstanding Ayr Shares
	Scoggin
    Management LP, Scoggin International Fund Ltd., CJS Partners LP, Carolyn Partners LP, Craig Effron, Curtis Schenker and Dev
    Chodry, acting jointly and in concert	2,318,440
    Subordinate Voting Shares(2)	Approximately
    13.35% of all issued and outstanding Subordinate Voting Shares	Approximately
    11.01% of all issued and outstanding Ayr Shares

 

		(1)	Mercer
                                         Park CB, L.P. (“Mercer”), Ayr’s former sponsor, is an affiliate
                                         of the Corporation. Jonathan Sandelman beneficially owns such securities of Ayr, as Mercer
                                         is a limited partnership of which Mercer Park CB GP, LLC is the general partner, and
                                         which is indirectly controlled by Mr. Sandelman. Mercer may be considered a control person
                                         pursuant to applicable Canadian securities laws.

		(2)	Also
                                         own 1,428,800 Warrants of Ayr.

 

Participation
in the Meeting

 

Registered
shareholders and duly appointed proxyholders who participate in the Meeting online will be able to listen to the Meeting, ask
questions and vote, all in real time, provided they are connected to the Internet and comply with all of the requirements set
out in the sections below entitled “Voting of Proxies”, “Virtual attendance and Participation in the
Meeting” and “Asking Questions”. Beneficial shareholders who have not duly appointed themselves as
their proxy will be able to virtually attend the Meeting only as guests and to listen to the webcast but not be able to participate,
ask questions or vote at the Meeting.

 

Appointment
of Proxies

 

The
persons named as proxyholders in the enclosed form of proxy are directors and officers of the Corporation (the “Ayr proxyholders”).
Each shareholder has the right to appoint a person other than the Ayr proxyholders to represent such shareholder at the Meeting
(including beneficial shareholders who wish to appoint themselves as proxyholder to participate or vote at the Meeting). In
order to appoint such other person (a “third party proxyholder”), the Ayr Shareholder must submit his, her
or its proxy or voting instruction form (as applicable) appointing such third party proxyholder and register the third party proxyholder,
as described below. Registering your proxyholder is an additional step to be completed after you have submitted your proxy or
voting instruction form.

 

    7

     

    

 

Failure to register the proxyholder will result in the proxyholder not receiving a Username to virtually
attend, participate or vote at the Meeting.

 

		•	Step
                                         1: Submit your proxy or voting instruction form:

 

To
appoint a third party proxyholder, insert such person’s name in the blank space provided in the form of proxy or voting
instruction form and follow the instructions for submitting such form of proxy or voting instruction form. This must be completed
prior to registering such proxyholder, which is an additional step to be completed once you have submitted your form of proxy
or voting instruction form.

 

If
you are a beneficial shareholder and wish to virtually participate or vote at the Meeting, you have to insert your own name in
the space provided on the voting instruction form sent to you by your intermediary, follow all of the applicable instructions
provided by your intermediary and register yourself as your proxyholder, as described below. By doing so, you are instructing
your intermediary to appoint you as proxyholder. It is important that you comply with the signature and return instructions provided
by your intermediary.

 

If
you are a beneficial shareholder located in the United States and wish to participate or vote at the Meeting or, if permitted,
appoint a third party as your proxyholder, in addition to the steps described below under the section entitled “Virtual
Attendance and Participation in the Meeting”, you must obtain a valid legal proxy from your intermediary. Follow the
instructions from your intermediary included with the legal proxy form and the voting information form sent to you or contact
your intermediary to request a legal proxy form or a legal proxy if you have not received one. After obtaining a valid legal proxy
from your intermediary, you must then submit such legal proxy to Odyssey Trust Company (“Odyssey”), Ayr’s
transfer agent and registrar. Requests for registration from beneficial shareholders located in the United States that wish to
participate or vote at the Meeting or, if permitted, appoint a third party as their proxyholder must be sent by e-mail to ayr@odysseytrust.com
and received by no later than 11:00 a.m. (Eastern time) on the second business day preceding the day of the Meeting (being
Monday, November 2, 2020) or any adjournment(s) or postponement(s) thereof.

 

A
proxy will not be valid unless the completed form of proxy is received by Odyssey (Odyssey Trust Company, Attn: Proxy Department,
67 Yonge St, Suite 702, Toronto, Ontario M5E 1J8) not less than 48 hours (excluding Saturdays, Sundays and holidays) before the
time for holding the Meeting or any adjournment(s) or postponement(s) thereof. Proxies delivered after that time will not be accepted.
The deadline for deposit of proxies may be waived or extended by the Chair of the Meeting at his or her discretion, without notice.

 

		•	Step
                                         2: Register your proxyholder:

 

To
register a proxyholder, shareholders must send an email to ayr@odysseytrust.com by 11:00 a.m. (Eastern time) on Monday, November
2, 2020, and provide Odyssey with the required proxyholder contact information, amount of shares appointed, name in which the
shares are registered if they are a registered shareholder, or name of broker where the shares are held if a beneficial shareholder,
so that Odyssey may provide the proxyholder with a Username via email. Without a Username, proxyholders will not be able to virtually
attend, participate or vote at the Meeting.

 

Exercise
of Discretion by Proxies

 

The
persons named in the enclosed form of proxy will, on any ballot that may be called for, vote (or withhold from voting) the Ayr
Shares in respect of which they are appointed as proxies in accordance with the instructions of the Ayr Shareholders appointing
them. If an Ayr Shareholder specifies a choice with respect to any matter to be acted upon, the Ayr Shares will be voted accordingly.
If no instructions are given as to how to vote on a particular issue to be decided at the Meeting, or if both choices have
been specified by the Ayr Shareholder, the Ayr Shares will be voted FOR the election of the nominees of the Board as directors,
FOR the appointment of MNP LLP as auditors and FOR the Amendment Resolution (as set out in Appendix “A”).

 

    8

     

    

 

The
enclosed form of proxy confers discretionary authority upon the persons named therein with respect to amendments or variations
to matters identified in the Notice of Meeting, and with respect to other business which may properly come before the Meeting
or any adjournment(s) or postponement(s) thereof. If any such amendment or other business properly comes before the Meeting,
or any postponement(s) or adjournment(s) thereof, the persons named in the enclosed form of proxy will vote in accordance with
their best judgment on such matters or business. As of the date hereof, management of the Corporation knows of no such amendment,
variation or other business to come before the Meeting.

 

Voting
of Proxies

 

Ayr
Shareholders may vote by proxy before the Meeting or vote at the Meeting, as described below:

 

		1.	Voting
                                         by proxy before the Meeting

 

You
may vote before the Meeting by completing your form of proxy or voting instruction form in accordance with the instructions provided
therein. Beneficial shareholders should also carefully follow all instructions provided by their intermediaries to ensure that
their Ayr Shares are voted at the Meeting. Voting by proxy is the easiest way to vote. It means you are giving someone else the
authority to virtually attend the Meeting and vote on your behalf.

 

The
Ayr proxyholders named in the enclosed form of proxy will vote (or withhold from voting) the Ayr Shares in respect of which they
are appointed as proxies in accordance with your instructions, including on any ballot that may be called. If there are changes
to the items of business or new items properly come before the Meeting, or any adjournment(s) or postponement(s) thereof, a proxyholder
can vote as he or she sees fit.

 

You
can appoint someone else to be your proxy. This person does not need to be an Ayr Shareholder. See the section above entitled
 “Appointment of Proxies”.

 

There
are two ways for registered shareholders to vote by proxy before the Meeting:

 

		(a)	Internet
                                         voting - You may vote by logging on to the website indicated on the form of proxy
                                         (https://odysseytrust.com/login/ and clicking VOTE). Please follow the website
                                         prompts that allow you to vote your Multiple Voting Shares and Subordinate Voting Shares,
                                         as applicable, and confirm that your instructions have been properly recorded.

 

		(b)	Return
                                         your form of proxy by mail - You may vote by completing, signing and returning the
                                         form of proxy in the postage-paid envelope provided.

 

Proxies,
whether submitted through the Internet or by mail as described above, must be received by Odyssey (Odyssey Trust Company, Attn:
Proxy Department, 67 Yonge St, Suite 702, Toronto, Ontario M5E 1J8) no later than 11:00 a.m. (Eastern time) on the second
business day preceding the day of the Meeting (being Monday, November 2, 2020) or any adjournment(s) thereof or postponement(s).
Your Ayr Shares will be voted in accordance with your instructions as indicated on the proxy. The deadline for the deposit of
proxies may be waived or extended by the Chair of the Meeting at his or her discretion, without notice.

 

		2.	Voting
                                         at the Meeting

 

Registered
Ay Shareholders may vote at the Meeting by completing a ballot online during the Meeting, as further described below. See the
section entitled “Virtual Attendance and Participation in the Meeting”.

 

Beneficial
shareholders who have not duly appointed themselves as their proxy will be able to virtually attend the Meeting only as guests
and to listen to the webcast but not be able to participate, ask questions or vote at the Meeting. This is because the Corporation
and Odyssey, our transfer agent, do not have a record of the beneficial shareholders of the Corporation, and, as a result, will
have no knowledge of your shareholdings or entitlement to vote unless you appoint yourself as your proxy. If you are a beneficial
shareholder and wish to vote at the Meeting, you have to appoint yourself as your proxy, by inserting your own name in the space
provided on the voting instruction form sent to you and you must follow all of the applicable instructions, including the deadline,
provided by your intermediary. See the sections entitled “Appointment of Proxies” and “Virtual Attendance
and Participation in the Meeting”.

 

    9

     

    

 

Virtual
Attendance and Participation in the Meeting

 

The
Corporation is holding the Meeting in a virtual only format, which will be conducted via live audio webcast. Ayr Shareholders
will not be able to virtually attend the Meeting in person. Virtually attending the Meeting online enables registered Ayr Shareholders
and duly appointed proxyholders, including beneficial shareholders who have duly appointed themselves as their proxy, to participate
in the Meeting and ask questions, all in real time. Registered Ayr Shareholders and duly appointed proxyholders can vote at the
appropriate times during the Meeting.

 

In
order to participate or vote at the Meeting (including for voting and asking questions at the Meeting), Ayr Shareholders must
have a valid Username. Registered Ayr Shareholders and duly appointed proxyholders will be able to virtually attend, participate
and vote at the Meeting online at web.lumiagm.com/223355962. Such persons may then enter the Meeting by clicking “I have
a login” and entering a Username and Password before the start of the Meeting.

 

		•	Registered
                                         shareholders: The 12-digit control number located on the form of proxy is the Username.
                                         The Password to the Meeting is “ayr2020” (case sensitive). If, as
                                         a registered shareholder, you are using your control number to login to the Meeting and
                                         you have previously voted prior to voting cutoff, you do not need to vote again at the
                                         meeting. Should you wish to vote at the meeting, you will be revoking any and all previously
                                         submitted proxies for the Meeting.

 

		•	Duly
                                         appointed proxyholders: Odyssey will provide the proxyholder with a Username by e-mail
                                         after the voting deadline has passed. The Password to the Meeting is “ayr2020”
                                         (case sensitive). Only registered shareholders and duly appointed proxyholders will be
                                         entitled to participate and vote at the Meeting. Beneficial shareholders who have not
                                         duly appointed themselves as proxyholder will be able to virtually attend the Meeting
                                         only as guests and to listen to the webcast but not be able to participate, ask questions
                                         or vote at the Meeting. Ayr Shareholders who wish to appoint a third party proxyholder
                                         to represent them at the Meeting (including beneficial shareholders who wish to appoint
                                         themselves as proxyholder to participate or vote at the Meeting) MUST submit their
                                         duly completed proxy or voting instruction form AND register the proxyholder.
                                         See “How do I appoint a third party as proxy?”.

 

Shareholders
will be allowed to log in as early as 30 minutes before the start time on November 4, 2020. The virtual Meeting platform is supported
across internet browsers (e.g Edge, Firefox, Chrome, and Safari) and devices (e.g., desktops, laptops, tablets, and cell phones).
If you intend to join the live audio webcast, you should ensure that you have a strong WiFi or Internet connection from wherever
you intend to join and participate in the virtual Meeting. We encourage you to access the virtual Meeting before it begins, and
you should give yourself plenty of time to log in and ensure that you can hear streaming audio prior to the start of the Meeting.

 

Asking
Questions

 

If
you want to ask questions during the Meeting, log into the virtual meeting platform at web.lumiagm.com/223355962, click on the
double chat bubble icon, type your question into the chat field, and click the send arrow button.

 

Questions
pertinent to Meeting matters will be answered during the Meeting, subject to time constraints of two-minute limits per question
and two questions per shareholder. Questions that are unrelated to the proposals under discussion, use blatantly offensive language
or are regarding personal matters, including those related to employment, product or service issues, or suggestions for product
innovations, will not be answered by the Chair or management.

 

    10

     

    

 

Advice
to Beneficial Shareholders

 

You
are a registered shareholder if your Subordinate Voting Shares are registered directly in your name with the Corporation’s
transfer agent. You may hold your Subordinate Voting Shares in the form of a physical share certificate or through the direct
registration system (DRS) on the records of the Corporation’s transfer agent in electronic form. You are a beneficial shareholder
if the Subordinate Voting Shares you beneficially own are registered either: (i) in the name of an intermediary that you
deal with in respect of your Subordinate Voting Shares, such as securities dealers or brokers, banks, trust companies and trustees
or administrators of self-administered RRSPs, TFSAs, RRIFs, RESPs and similar plans, or (ii) in the name of a clearing agency
of which the intermediary is a participant. In accordance with NI 54-101, the Corporation has distributed copies of the Notice
of Meeting, this Circular and the form of proxy to the clearing agencies and intermediaries for onward distribution to beneficial
shareholders. Intermediaries are required to forward such notices to beneficial shareholders, and often use a service company
(such as Broadridge in Canada) for this purpose.

 

Only
registered shareholders or the persons they appoint as their proxies are permitted to vote at the Meeting. If you receive
more than one Notice of Meeting, form of proxy or voting instruction form, it means that you have multiple accounts with brokers
or other nominees or with the Corporation’s transfer agent, as applicable, through which you hold Subordinate Voting Shares.
The voting process is different for registered shareholders and beneficial shareholders. Every intermediary has its own mailing
procedures and provides its own return instructions, which should be carefully followed by beneficial shareholders in order to
ensure that their Subordinate Voting Shares are voted at the Meeting. Please follow the instructions carefully and vote or provide
voting instructions for all of the Subordinate Voting Shares you own. In all cases, beneficial shareholders should carefully
follow the instructions of their intermediary, including those regarding when, where and by what means the voting instruction
form or proxy form must be delivered.

 

Applicable
regulatory policy requires intermediaries to seek voting instructions from beneficial shareholders in advance of meetings unless
the beneficial shareholders have waived the right to receive Meeting materials. Management of the Corporation does not intend
to pay for an Intermediary to deliver the Meeting Materials to beneficial shareholders who have objected to their Intermediary
disclosing ownership information about them to the Corporation (“Objecting Beneficial Shareholders”). Objecting
Beneficial Shareholders will not receive the Meeting Materials unless the Objecting Beneficial Shareholder’s intermediary
assumes the costs of delivery.

 

Revocation
of Proxies

 

If
you are a registered shareholder, you may revoke your proxy by delivering an instrument in writing executed by the shareholder
(or by his or her attorney authorized in writing or, where the shareholder is a corporation, by a duly authorized officer or attorney
of the corporation) to the offices of Odyssey at (Odyssey Trust Company, Attn: Proxy Department, 67 Yonge St, Suite 702, Toronto,
Ontario M5E 1J8) at any time up to and including the last business day preceding the day of the Meeting (or, if adjourned or postponed,
any reconvening thereof), or in any other manner provided by law. Your new instructions will revoke your earlier instructions.

 

If,
as a registered shareholder, you are using your Username to log in to the Meeting, you will be provided the opportunity to vote
by online ballot at the appropriate time on the matters put forth at the Meeting. If you have already voted by proxy and you vote
again during the online ballot during the Meeting, your online vote during the Meeting will revoke your previously submitted proxy. 
If you have already voted by proxy and do not wish to revoke your previously submitted proxy, do not vote again during the online
ballot.

 

If
you are a beneficial shareholder and wish to revoke previously provided voting instructions, you should carefully follow the instructions
provided by your intermediary. Intermediaries may set deadlines for the receipt of revocation notices that are farther in advance
of the Meeting than those set out above and, accordingly, any such revocation should be completed well in advance of the deadline
prescribed in the proxy card or voting instruction form to ensure it is given effect at the Meeting.

 

Voting
Deadline

 

If
voting by proxy, your proxy must be received by the transfer agent (Odyssey Trust Company, Attn: Proxy Department, 67 Yonge St,
Suite 702, Toronto, Ontario M5E 1J8) no later than 11:00 a.m. (Eastern time) on the second business day preceding the day
of the Meeting (being Monday, November 2, 2020) or any adjournment(s) or postponement(s) thereof. The deadline for the deposit
of proxies may be waived or extended by the Chair of the Meeting at his or her discretion, without notice.

 

    11

     

    

 

The
Corporation reminds Ayr Shareholders that only the most recently dated voting instructions will be counted and any prior dated
instructions will be disregarded.

 

Voting
Questions

 

Registered
shareholders may contact Odyssey, the transfer agent, at www.odysseycontact.com or 1-587-885-0960, for any voting questions.

 

BUSINESS
OF THE MEETING

 

The
Meeting will cover the following items of business:

 

		1.	PRESENTATION
                                         OF FINANCIAL STATEMENTS

 

The
Corporation’s audited consolidated financial statements for the years ended December 31, 2019 and 2018, together with the
notes thereto and the independent auditor’s report thereon (collectively, the “2019 Financial Statements”)
can be found on SEDAR at www.sedar.com under the Corporation’s profile.

 

		2.	ELECTION
                                         OF DIRECTORS

 

The
articles of the Corporation provide that the Board shall consist of a minimum of three and a maximum of fifteen directors, with
the number between such limits to be determined by the Board from time to time. All of the nominees are currently members of the
Board and have been members since the dates indicated below. If prior to the Meeting, any of the nominees shall be unable or,
for any reason, become unwilling to serve as a director, it is intended that the discretionary power granted by the form of proxy
or voting instruction form shall be used to vote for any other person or persons as directors. Each director is elected for
a one-year term ending at the next annual meeting of shareholders or when his successor is elected, unless he resigns or his office
otherwise becomes vacant. The Board and management of the Corporation have no reason to believe that any of the said nominees
will be unable or will refuse to serve, for any reason, if elected to office.

 

The
tables found in the section entitled “Nominees for Election” provide the profile of the nominees proposed for election
to the Board. Included in these tables is information relating to each nominee’s experience, qualifications, areas of expertise,
attendance at Board and committee meetings, ownership of Ayr securities, as well as other public company board memberships. As
you will note from the enclosed form of proxy or voting instruction form, shareholders may vote for each director individually.

 

The
Board recommends that you vote FOR the election as director of each nominee whose name is set out below.

 

Unless
a proxy specifies that the Ayr Shares it represents should be withheld from voting for the election of a particular nominee as
director, the management appointees named in the accompanying form of proxy and voting instruction form intend to vote FOR
such election.

 

    12

     

    

 

Nominees
for Election

 

	Jonathan
                                         Sandelman

         
	Chairman,
    Chief Executive Officer, Director and Corporate Secretary
	 	Jonathan
    (Jon) Sandelman is the Chief Executive Officer of Mercer Park, L.P., the parent of Mercer, Ayr’s former sponsor. Prior
    to this role, he was Chief Executive Officer and Chief Investment Officer of Sandelman Partners, LP. Previously, he was the
    President of Bank of America Securities and former Head of Debt and Equities at Banc of America Securities. While at Banc
    of America Securities, he served as a member of the company’s Operating Committee, Banc of America Securities Leadership
    Committee and The Global Corporate and Investment Banking Compensation Committee. As Head of Debt and Equities, Mr. Sandelman
    was responsible for all of market risk and the strategic direction of the firm’s trading, distribution and new
    products development efforts. He oversaw the firm’s capital markets function in coordination with the head of banking.
    Mr. Sandelman began his career with Banc of America Securities in 1998 as head of the Equity Financial Products business,
    and he became head of Equities in 2002. He was appointed President of Banc of America Securities in early 2004. Prior to joining
    Banc of America, he was deputy head of Global Equities and Managing Director of equity derivatives and proprietary trading
    at Salomon Brothers and a member of the firm’s Risk Management Committee and Compensation Committee. Mr. Sandelman has
    been honored with Risk Magazine’s prestigious “Derivative Superstar” award and Derivative Magazine’s
    “Derivative Person of the Year.” Mr. Sandelman earned a Bachelor of Science (BS) from Adelphi University and earned
    a law degree (Juris Doctor) from Cardozo School of Law.
	 	 
	Age:
    62	Board/Committee	Attendance1	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive
    Committee	10/10	100%	Entity	Since
	Residence:
    New York, USA		 	 	 	 
	 	Audit
    Committee	4/4	100%	Mercer
    Park Brand Acquisition Corp.	May
    2019
	 	 	 	 	 	 
	Not
    Independent	Compensation,
    Nominating and Corporation Governance Committee	1/1	100%	 	 
	Director
    since:

    September 25, 2017	 	 	 	 	 
	 	Acquisition
    Committee	N/A	N/A	 	 
	 	 	 	 	 	 
	 	Disclosure
    Policy Committee	N/A	N/A	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director2	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$257,328	 	 	 

 

 

1
Reflects Board committee meeting attendance in respect of the previous 12-month period from the date hereof.

2
Excluding equity-based incentive awards.

 

    13

     

    

 

	Securities Held as of September 30, 20203 4	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple Voting Shares (#)	Market Value of Subordinate Voting Shares   / Multiple Voting Shares ($)	Awards (#)	Value of Vested In-the-Money Awards ($)	Warrants (#)	Market Value of Warrants ($)	Rights (#)	Market Value of Rights ($)
	3,677,626 Multiple Voting Shares  	C$61,416,354      	850,250 Restricted Exchangeable Shares	C$11,899,443    	2,894,058        	C$15,689,276    	262,188      	C$437,854      

 

	Charles
                                         Miles

         
	Director
	 	Charles
    (Charlie) Miles is a Managing Director at Recapture Partners, which is a venture capital company that advises, invests and
    raises money in early stage Fintech companies. Prior to this role, he worked at Bloomberg LLP as an equity option trader.
    Prior to his tenure at Bloomberg, he was a volatility arbitrage hedge fund portfolio manager and Managing Director at Deutsche
    Bank. He also was a portfolio manager at Del Mar Asset Management, and started his own hedge fund, Claris Capital Management.
    He began his career at Salomon Brothers, where he was involved in equity research, quantitative portfolio management and equity
    derivatives sales and management. As a Managing Director at Salomon Brothers and Citibank, he ran one of the most successful
    equity derivatives sales teams on Wall Street during a time of unprecedented growth in the product. Mr. Miles received his
    Bachelor of Arts in Economics and Political Science from Middlebury College.
	 	 
	Age:
    59	Board/Committee	Attendance5	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive
    Committee	10/10	100%	Entity	Since
	Residence:
    New York, USA		 	 	 	 
	 	Audit
    Committee	4/4	100%	Mercer
    Park Brand Acquisition Corp.	May
    2019
	 	 	 	 	 	 
	Independent	Compensation,
    Nominating and Corporation Governance Committee	1/1	100%	 	 
	Director
    since:

    September 25, 2017	 	 	 	 	 
	 	Acquisition
    Committee	N/A	N/A	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director6	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$35,118	 	 	 

 

 

3
The securities attributed to Mr. Sandelman in the following table include securities held by Mercer, over which Mr. Sandelman
exercises direction or control.

4
Market values of securities held calculated as at September 30, 2020.

5
Reflects Board committee meeting attendance in respect of the previous 12-month period from the date hereof.

6
Excluding equity-based incentive awards.

 

    14

     

    

 

	Securities Held as of September 30, 20207	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple Voting Shares (#)	Market Value of Subordinate Voting Shares  / Multiple Voting Shares ($)	Awards (#)	Value of Vested In-the-Money Awards ($)	Warrants (#)	Market Value of Warrants ($)	Rights (#)	Market Value of Rights ($)
	9,430 Multiple Voting Shares

                                                                       
	C$908,981	2,750 Restricted Exchangeable Shares	C$38,487	Nil	N/A	Nil	N/A
	45,000 Subordinate Voting Shares

 

	Chris
                                         R. Burggraeve

         
	Director
	 	Chris
                                         R. Burggraeve is the founder and chief executive officer of Vicomte LLC, which is a brand
                                         management company that advises corporations, start-ups, private equity firms and family
                                         offices. Prior to founding Vicomte, Mr. Burggraeve spent five years as the Global Chief
                                         Marketing Office of Anheuser-Busch InBev SA/NV. He has also served in a number of senior
                                         marketing and general management roles with The Coca-Cola Company throughout Europe and
                                         Eurasia, and as a brand manager at Procter and Gamble Company. Mr. Burggraeve is a global
                                         business marketer turned investor, entrepreneur, advisor, board member and adjunct faculty
                                         member of the NYU School of Business, and has nearly 30 years of expertise merging brand
                                         management, societal context, and profit and loss statements. As one of the early consumer
                                         packaged goods industry leaders to have actively recognized the importance and potential
                                         of the cannabis industry, he co-founded Toast Holdings in 2016, the parent company of
                                         Aspen-born cannabis pre-roll brand ToastTM. Mr. Burggraeve is also the Chairman of greenRush,
                                         an online marketplace for legally purchasing cannabis in the United States. He holds
                                         a Master’s degree in Economics and Business from KU Leaven, a Master’s degree
                                         in European Economics from the Centre Européen Universitaire de Nancy and a TRIUM
                                         Global Executive Master’s degree in Business Administration from (collectively)
                                         New York University – Stern School of Business, the London School of Economics
                                         and HEC Paris.

	 	 
	Age:
    55	Board/Committee	Attendance8	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive
    Committee	10/10	100%	Entity	Since
	Residence:
    New York, NY		 	 	 	 
	 	Audit
    Committee	4/4	100%	None.	 
	Independent	 	 	 	 	 
	Director
    since:

    December 17, 2018	Compensation,
    Nominating and Corporation Governance Committee	1/1	100%	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director9	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$30,274	 	 	 

 

 

7
Market values of securities held calculated as at September 30, 2020.

8
Reflects Board committee meeting attendance in respect of the previous 12-month period from the date hereof.

9
Excluding equity-based incentive awards.

 

    15

     

    

 

	Securities Held as of September 30, 202010	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple Voting Shares (#)	Market Value of Subordinate Voting Shares  / Multiple Voting Shares ($)	Awards (#)	Value of Vested In-the-Money Awards ($)	Warrants (#)	Market Value of Warrants ($)	Rights (#)	Market Value of Rights ($)
	6,000 Subordinate Voting Shares	C$100,200	2,750 Restricted Exchangeable Shares	C$38,487	Nil	N/A	Nil	N/A

 

	Louis F. Karger

         
	Director
	 	Louis F. Karger is the sole Manager and founder of Panther Residential Investments LLC and Panther Residential
Management LLC. Both companies focus on the acquisition,
development, management and sale of multi-family apartment properties in the Southeast United States. Panther Residential Investments
LLC also serves as the Manager of many affiliated real estate entities (collectively with Panther Residential Investments LLC and
Panther Residential Management LLC, the “PRM Group Companies”). Mr. Karger is responsible for the overall direction,
vision and leadership of the PRM Group Companies with a focus on investment strategies, capital and debt financings, and determining
new development objectives. In addition, he oversees the PRM Group Companies’ day-to-day operations and the execution of
its overall business, management and development strategy. To date, the PRM Group Companies has acquired over 9,000 residential
apartment units with a total transaction value of over $2 billion. Mr. Karger is also a Director and the Treasurer of Sira Naturals,
Inc. (“Sira”) and is a co-founder of (i) Compass Realty Associates, LLC, a private equity real estate firm that
owns and manages approximately one million square feet of property throughout the New England region, and (ii) Compass Realty Partners,
LLC, a $72 million real estate investment fund. Mr. Karger holds a Bachelor of Science degree from the Boston University School
of Hospitality Administration.

	 	 
	Age:
    48	Board/Committee	Attendance11	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive Committee	10/10	100%	Entity	Since
	Residence:
    Needham, MA		 	 	 	 
	 	 	 	 	None.	 
	Not Independent	 		 	 	 
	 	 	 	 	 	 
	Director
    since

    May 24, 2019	 	 	 	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director12	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$Nil	 	 	 

 

 

10
Market values of securities held calculated as at September 30, 2020.

11
Reflects Board committee meeting attendance in respect of the previous 12-month period from the date hereof.

12
Excluding equity-based incentive awards.

 

    16

     

    

 

	Securities Held as of September 30, 202013	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple Voting Shares (#)	Market Value of Subordinate Voting Shares  / Multiple Voting Shares ($)	Awards (#)	Value of Vested In-the-Money Awards ($)	Warrants (#)	Market Value of Warrants ($)	Rights (#)	Market Value of Rights ($)
	16,742 Subordinate Voting Shares14	C$279,591	Nil	N/A	Nil	N/A	Nil	N/A

 

	Steve Menzies

         
	Director
	 	Steve Menzies
is the founder of LivFree Wellness, LLC (“LivFree”).
Mr. Menzies has over 40 years of experience in construction, home building and land development. He is a master electrician and
a master plumber, and is certified by the National Association of Home Builders. As an entrepreneur, Mr. Menzies started and acquired
several subcontractor companies in order to offer a “one stop shop” for Las Vegas homebuilders with highly efficient
and streamlined administrative and accounting management. In 2006, he sold two of these companies, Efficient Electric and United
Plumbing, along with McGwire Supply, an electrical distributor, to Stock Building Supply (“SBS”) where he continued
to work as West Coast Manager, supporting SBS’ role as a major supplier of subcontracting services for homebuilders in the
Las Vegas valley until SBS was wound up in 2009. Mr. Menzies is currently a majority owner of Focus Plumbing, Focus Electric,
Focus Framing Door & Trim, Green Image LLC dba GTI, Focus Concrete and Focus Fire Protection. 

	 	 
	Age:
    58	Board/Committee	Attendance15	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive Committee	10/10	100%	Entity	Since
	Residence:
    Las Vegas, Nevada, USA		 	 	 	 
	 	 	 	 	None.	 
	Not Independent	 		 	 	 
	 	 	 	 	 	 
	Director
    since:

    May 24, 2019	 	 	 	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director16	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$Nil	 	 	 

 

 

13
Market values of securities held calculated as at September 30, 2020.

14
Mr. Karger also indirectly owns 332,809 Exchangeable Shares held through Green Partners Investor LLC and Green Partners
Sponsor I, LLC.

15
Reflects Board committee meeting attendance in respect of the previous 12-month period from the date hereof.

16
Excluding equity-based incentive awards.

 

    17

     

    

 

	Securities Held as of September 30, 202017	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple Voting Shares (#)	Market Value of Subordinate Voting Shares  / Multiple Voting Shares ($)	Awards (#)	Value of Vested In-the-Money Awards ($)	Warrants (#)	Market Value of Warrants ($)	Rights (#)	Market Value of Rights ($)
	500 Subordinate Voting Shares18	C$8,350	Nil	N/A	Nil	N/A	Nil	N/A

 

 

	Glenn
Isaacson

                                                           
	Director
	 	Glenn is currently
a Vice Chairman in the mid-town offices of Cushman & Wakefield. He was an executive Vice President at CBRE, Inc. from 1992-2016
and prior to that he spent 11 years at Newmark and Company. He has worked in commercial real estate for over 37 years and divides
his time equally with non-profit and for-profit companies. Glenn joined the board of amfAR, the American Foundation for Aids Research,
in October 2019. He graduated from Florida Southern College with a B.S. in Finance and a minor in economics.

	 	 
	Age:
    62	Board/Committee	Attendance	 	Other
    Public Board	 
	 	Membership	 	 	Memberships	 
	 	 	 	 	 	 
	 	Executive Committee	1/1	100%	Entity	Since
	Residence:
    New York, NY		 	 	 	 
	 	 	 	 	None.	 
	Independent	 		 	 	 
	 	 	 	 	 	 
	Director
since:

August 25, 2020	 	 	 	 	 
	 	 	 	 	 	 
	 	Value
    of Total Compensation Received as Director19	 
	 	 	 	 	 	 
	 	Year
    ended December 31, 2019	$Nil	 	 	 

 

 

17
Market values of securities held calculated as at September 30, 2020.

18
Mr. Menzies also holds 2,238,807 Exchangeable Shares.

19
Excluding equity-based incentive awards. 

 

    18

     

    

 

	Securities Held as of September 30, 202020	 	 	 
	 	 	 	 
	Subordinate Voting Shares / Multiple
        Voting Shares

        (#)
	Market Value of Subordinate Voting
        Shares / Multiple Voting Shares

        ($)
	Awards

        (#)
	Value of Vested In-the-Money Awards

        ($)
	Warrants

        

        (#)
	Market Value of Warrants

        ($)
	Rights

        (#)
	Market Value of Rights

        ($)

	101,539 Subordinate Voting Shares	C$1,695,701	Nil	N/A	Nil	N/A	Nil	N/A

 

Cease Trade Orders, Bankruptcies,
Penalties or Sanctions

 

To the knowledge of the Corporation and
based upon information provided by the proposed director nominees, none of the Corporation’s proposed director nominees is,
as at the date of this Circular, or has been, within the 10 years prior to the date of this Circular: (a) a director, chief executive
officer or chief financial officer of any company (including the Corporation) that, while such person was acting in that capacity
(or within a year of that person ceasing to act in that capacity but resulting from an event that occurred while that person was
acting in such capacity), (i) was subject of a cease trade order, an order similar to a cease trade order, or an order that denied
the company access to any exemption under securities legislation, in each case, for a period of more than 30 consecutive days,
or (ii) became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted
any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its
assets; or (b) a director or executive of a company that, while that person was acting in that capacity or within a year of that
person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency,
or was subject to or instituted any proceedings, transaction or compromise with creditors or had a receiver, receiver manager or
trustee appointed to hold its assets.

 

To the knowledge of the Corporation and
based upon information provided by the proposed director nominees, except for the following, none of the Corporation’s proposed
director nominees has (a) been subject to any penalties or sanctions imposed by a court relating to securities legislation or by
a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority, or (b) been
subject to any penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable
securityholder in deciding whether to vote for a proposed director nominee.

 

On February 17, 2017, a purported shareholder
of SITO Mobile Ltd. (“SITO”) commenced a class action against SITO and certain former officers and directors,
in the United States District Court for the District of New Jersey, alleging violations of the Securities Exchange Act of 1934
and SEC regulations promulgated thereunder. On June 22, 2017, after being appointed lead plaintiffs, Red Oak Fund, L.P. and certain
affiliated funds filed an amended complaint adding defendant Jonathan Sandelman, along with the other directors and officers who
signed the registration statement and supplement for the September 16, 2016 offering of SITO stock, alleging violations of the
Securities Exchange Act of 1934 and SEC regulations promulgated thereunder, and the U.S. Securities Act, claiming that the registration
statement and prospectus failed to contain certain material facts about SITO’s business, and that other statements made between
August 15, 2016 and January 2, 2017, were materially false or misleading. On September 1, 2017, defendants moved to dismiss the
amended complaint. That motion is pending. Discovery has not commenced and no trial date is set in this action.

  

 

20
Market values of securities held calculated as at September 30, 2020.

 

    19

     

    

 

 

Conflicts
of Interest

 

To
the best of the Corporation’s knowledge, other than as disclosed below and elsewhere in this Circular, there are no known
existing or potential material conflicts of interest among the Corporation or a subsidiary of the Corporation and a director or
officer of the Corporation or a subsidiary of the Corporation as a result of their outside business interests except that:
(i) certain of the Corporation’s or its subsidiaries’ directors and officers serve as directors and officers of
other companies, and therefore it is possible that a conflict may arise between their duties to the Corporation and their duties
as a director or officer of such other companies, and (ii) certain of the Corporation’s or its subsidiaries’ directors
and officers have portfolio investments consisting of minority stakes in businesses that may compete directly or indirectly with
the Corporation or act as a customer of, or supplier to, the Corporation. The BCBCA requires, among other things, that the directors
and executive officers of the Corporation act honestly and in good faith with a view to the best interest of the Corporation,
to disclose any personal interest which they may have in any material contract or transaction which is proposed to be entered
into with the Corporation and, in the case of directors, to abstain from voting as a director for the approval of any such contract
or transaction. To the extent that conflicts of interest arise, such conflicts are required to be resolved in accordance with
the provisions of the BCBCA.

 

Certain
of the directors of the Corporation are formerly vendors of certain of the Corporation’s businesses, namely Louis Karger
for Sira and Steve Menzies for LivFree, and so while it is possible that a dispute may arise pursuant to the respective definitive
agreement in connection with such acquisition, there are no current material disputes or claims.

 

Pursuant
to the strategic opportunities agreement entered into among Ayr, Mercer Park Brand Acquisition Corp. (a special purpose acquisition
corporation with a sponsor that is an affiliate of Mercer, for which Jonathan Sandelman is an officer and director, Charles Miles
is a director and Louis Karger is an officer) and Mercer Park, L.P. (the parent of Mercer), regarding the allocation of corporate
opportunities, the parties thereto granted rights of first refusal in an established order to the parties thereto for certain
corporate opportunities involving businesses with a value, in the opinion of Mercer, of more than $20 million, that are in alignment
with either Mercer Park Brand Acquisition Corp.’s priority business focus (being cannabis-related brands, trade marks and/or
service marks and ancillary businesses) or Ayr’s priority business focus (being cultivation, manufacturing, wholesale, retail
operations and/or licenses in respect of cannabis, not mainly attributable to brand value). For greater certainty, the rights
of first refusal are not intended to apply to: (i) acquisition opportunities with respect to businesses with a value, in the opinion
of Mercer, of less than $20 million; or (ii) acquisition opportunities in respect of non-controlling interests.

 

Directors’
and Officers’ Liability Insurance

 

The
Corporation maintains directors’ and officers’ liability insurance for its directors, officers and the Corporation.
The current policies have an aggregate limit of $5,000,000 for the term May 24, 2020 to May 24, 2021. Protection is provided to
directors and officers with no deductible for any actual or alleged neglect, misstatement, errors, omissions, or other wrongful
acts during the course of their duties or capacity as such. Under the insurance coverage, the Corporation is reimbursed for payments
which it is required or permitted to make to its directors and officers for indemnification, subject to a $2,500,000 deductible
for securities and non-securities related claims.

 

		3.	APPOINTMENT
                                         OF AUDITORS

 

At
the Meeting, Ayr Shareholders will be asked to appoint MNP LLP (“MNP”) to hold office as the Corporation’s
auditor until the close of the next annual meeting of shareholders and to authorize the Board to fix the auditor’s remuneration.
MNP has served as the auditor of the Corporation (including its predecessor) since 2017. The Board adopted an updated Audit Committee
charter attached as Appendix “C” to this Circular.

 

    20

     

    

 

The
Board recommends that you vote FOR the appointment of MNP as auditor and the authorization of the Board to fix the auditor’s
remuneration. 

 

Unless
a proxy specifies that the Ayr Shares it represents should be withheld from voting for the appointment of the auditor, the management
appointees named in the accompanying form of proxy and voting instruction form intend to vote FOR the appointment
of MNP as auditor of the Corporation and authorizing the Board to fix the auditor’s remuneration.

 

Auditors’
Fees

 

The
aggregate fees billed for professional services by MNP for each of the last two fiscal periods were as follows:

 

Audit
Fees - The aggregate audit fees billed by MNP were approximately $530,000 for fiscal 2019 and $32,750 for fiscal 2018. These
services consisted of professional services rendered for the annual audit of the Corporation’s consolidated financial statements
(including for the Corporation’s final prospectus dated February 15, 2019 in connection with the Corporation’s qualifying
transaction) and the quarterly reviews of the Corporation’s interim financial statements, consultation concerning financial
reporting and accounting standards, and services provided in connection with statutory and regulatory filings or engagements.

 

		4.	AMENDMENT
                                         TO ARTICLES

 

Pursuant
to the Amendment Resolution, Ayr proposes to approve the Amendment, which amends and restates its articles (the “Amended
Articles”), as further described in this Circular, in order to, among other things:

 

		•	create
                                         and set the terms of two new share classes of Ayr, being the Restricted Voting Shares
                                         and the Limited Voting Shares, including applying coattail terms to such shares similar
                                         to those applicable to the existing Subordinate Voting Shares;

 

		•	amend
                                         the terms of the existing Multiple Voting Shares and the existing Subordinate Voting
                                         Shares, including without limitation, by amending the requirements on who may hold Subordinate
                                         Voting Shares (collectively, the “Amendment”).

 

The
Corporation is proposing this expanded share structure and the introduction of Restricted Voting Shares and Limited Voting Shares
in order to seek to maintain its foreign private issuer (FPI) status and reduce compliance costs. This is somewhat similar to
other Canadian-listed issuers which have adopted variable voting share structures for airline and telecommunications regulatory
purposes.

 

The
Board has unanimously determined that the Amendment is in the best interests of the Corporation and has unanimously approved the
Amendment. The Board recommends that you vote FOR the Amendment Resolution.

 

Unless
a proxy specifies that the Ayr Shares it represents should be voted against the Amendment Resolution, the management appointees
named in the accompanying form of proxy and voting instruction form intend to vote FOR the Amendment Resolution.

 

Description
of Share Capital

 

Summary
of the Rights, Privileges, Restrictions and Conditions of the Restricted Voting Shares and Limited Voting Shares 

 

Following
the Amendment, the share capital of the Corporation will consist of Multiple Voting Shares, Subordinate Voting Shares, Restricted
Voting Shares and Limited Voting Shares (collectively, the “Equity Shares”). To seek to maintain Ayr’s
foreign private issuer (FPI) status and reduce compliance costs, it is desirable to implement a conversion mechanism in the share
capital to decrease the number of shares eligible to be voted for directors held, beneficially owned or controlled by U.S. Persons
in respect of the election of directors of the Board if the FPI threshold is exceeded, as further described below.

 

    21

     

    

 

A
 “U.S. Person” has the meaning ascribed thereto in Rule 903(k) of Regulation S under the United States Securities Act
of 1933, as amended, and a “Non-U.S. Person” is any person who is not a U.S. Person. Where Equity Shares are held,
beneficially owned or controlled, directly or indirectly, or jointly by (i) one or more U.S. Persons and (ii) one or more Non-U.S.
Persons, such Equity Shares shall be deemed to be held, beneficially owned or controlled by a U.S. Person. The Compliance Provisions
that are currently contained in the Corporation’s Articles would continue to apply, but to all Equity Shares. See “Compliance
Provisions” below. At the request of Ayr, beneficial shareholders and actual or proposed transferees will be required
to respond to enquiries regarding their statuses as U.S. Persons or Non-U.S. Persons, and shall be required to provide declarations
or other documents with respect thereto, as may be necessary or desirable, in the discretion of Ayr, failing which they would,
in Ayr’s discretion, be deemed to be U.S. Persons.

 

Subject
to the Specified Exceptions (as defined below), the Subordinate Voting Shares will only be held, beneficially owned or controlled
by Non-U.S. Persons and carry one vote per share. The Subordinate Voting Shares would be automatically converted, without further
act or formality, on a one-for one basis into Restricted Voting Shares if they become held, beneficially owned or controlled by
a U.S. Person.

 

Subject
to the Specified Exceptions, (i) the Restricted Voting Shares will be held, beneficially owned or controlled by U.S. Persons and
will carry one vote per share, and (ii) the Limited Voting Shares will be held, beneficially owned or controlled by U.S. Persons
and will carry one vote per share, except that the holders of Limited Voting Shares shall not have any entitlement to vote in
respect of the election for directors of the Board. Notwithstanding the foregoing, if, at any given time, the total number of
Equity Shares represents a number equal to or in excess of the formulaic threshold set forth below, then the minimum number of
Restricted Voting Shares required to stay within the threshold will be automatically converted, without further act or formality,
on a pro-rata basis across all registered holders of Restricted Voting Shares (rounded up to the next nearest whole number of
shares), on a one-for-one basis, into Limited Voting Shares.

 

	(0.50
    x Aggregate Number of Multiple Voting Shares, Subordinate Voting Shares and Restricted Voting Shares) – (Aggregate Number
    of Multiple Voting Shares held, beneficially owned or controlled by U.S. Persons) (the “FPI Threshold”)

 

If, at any given time, the total number of Limited Voting Shares represents a number below the FPI Threshold, then the number
of Limited Voting Shares will be automatically converted, without further act or formality, on a pro-rata basis across all registered
holders of Limited Voting Shares (rounded down to the next nearest whole number of shares), on a one-for-one basis, into Restricted
Voting Shares, to the maximum extent possible such that the Limited Voting Shares then represent a number of Equity Shares that
is one share less than the FPI Threshold.

 

If,
at any given time, the Restricted Voting Shares or the Limited Voting Shares are held, beneficially owned or controlled by Non-U.S.
Persons, they will be automatically converted, without further act or formality, on a one-for-one basis into Subordinate Voting
Shares.

 

The
 “Specified Exceptions” are (i) Equity Shares held, beneficially owned or controlled by one or more underwriters
for the purposes of a distribution to the public or (ii) Equity Shares held, beneficially owned or controlled by a person acting
solely in the capacity of an intermediary in connection with either the payment of funds and/or the delivery of securities and
that provides centralized facilities for the deposit, clearing or settlement of trades in securities (including CDS Clearing and
Depositary Services Inc., or any successor or assign) without general discretionary authority over the voting or disposition of
such Equity Shares.

 

The
Multiple Voting Shares may be held, beneficially owned or controlled, directly or indirectly, by U.S. Persons and/or Non-U.S.
Persons, and each Multiple Voting Share carries 25 votes per share (subject in the case of Mercer, to the terms the Voting Agreement).
Each Multiple Voting Share will be convertible at the holder’s option, on a one-for-one basis, into (i) a Subordinate Voting
Share, if such Multiple Voting Share is held, beneficially owned or controlled by a Non-U.S. Person, and (ii) a Restricted Voting
Share, if such Multiple Voting Share is held, beneficially owned or controlled by a U.S. Person.

 

    22

     

    

 

All
Equity Shares shall rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or
distinction, except that stock dividends or distributions may be declared by the Board that are payable in Multiple Voting Shares
on the Multiple Voting Shares, in Subordinate Voting Shares on the Subordinate Voting Shares, in Restricted Voting Shares on the
Restricted Voting Shares, and in Limited Voting Shares on the Limited Voting Shares, provided an equal number of shares is declared
as a dividend or distribution on a per-share basis in each case. All Equity Shares will rank pari passu on a per-share basis in
the event of the Corporation’s liquidation, dissolution or winding-up, or a distribution of assets of the Corporation for
the purposes of a dissolution or winding-up of the Corporation. All holders of Equity Shares will be entitled to receive notice
of, to attend (if applicable, virtually) and vote at all meetings of Ayr Shareholders, except that they will not be able to vote
(but will be entitled to receive notice of, to attend (if applicable, virtually) and to speak) at those meetings at which the
holders of a specific class are entitled to vote separately as a class under the BCBCA and holders of the Limited Voting Shares
will not be entitled to vote on the election of directors.

 

The
Corporation has applied to the CSE to have the Subordinate Voting Shares, Restricted Voting Shares and Limited Voting Shares listed
under a single symbol on the CSE, if applicable, whereas the Multiple Voting Shares would remain unlisted.

 

The
summary below describes the rights, privileges, restrictions and conditions attached to the Restricted Voting Shares, the Limited
Voting Shares, the Multiple Voting Shares and the Subordinate Voting Shares, which is qualified in its entirety by the proposed
Amended Articles, a copy of which is attached hereto as Appendix “B”. In the event that the Ontario Securities Commission
and/or CSE request amendments to the Amended Articles prior to completion of the Amendment, the Amended Articles will be amended
as necessary in order to satisfy such request. For the purposes of the descriptions below, “Ayr Shareholders” shall
mean the holders of the Multiple Voting Shares, Subordinate Voting Shares, Restricted Voting Shares and Limited Voting Shares,
collectively.

 

Restricted
Voting Shares

 

Exercise
of Voting Rights

 

The
holders of Restricted Voting Shares will be entitled to receive notice of, to attend (if applicable, virtually) and to vote at
all meetings of Ayr Shareholders, except that they will not be able to vote (but will be entitled to receive notice of, to attend
(if applicable, virtually) and to speak) at those meetings at which the holders of a specific class are entitled to vote separately
as a class under the BCBCA. The Restricted Voting Shares will carry one vote per share.

 

In
connection with any Change of Control Transaction (as defined below) requiring approval of the holders of all Equity Shares under
the BCBCA, holders of the Equity Shares shall be treated equally and identically, on a per share basis, unless different treatment
of the shares of each such class is approved by a majority of the votes cast by the holders of outstanding Restricted Voting Shares
or their proxyholders in respect of a resolution approving such Change of Control Transaction, voting separately as a class at
a meeting of the holders of that class called and held for such purpose.

 

Notwithstanding
the foregoing, in connection with a formal bid for all Equity Shares on identical terms made in compliance with Canadian securities
laws that results in the bidder owning or controlling more than fifty percent (50%) of the total voting power of the voting securities
of the Corporation for the election of directors (assuming the Limited Voting Shares each have one vote per share for the election
of directors), the bidder may elect, by way of written notice to the Corporation, that the Restricted Voting Shares it so acquires
not be automatically converted into Limited Voting Shares, in accordance with their terms.

 

For
the purpose of the Corporation’s Articles, a “Change of Control Transaction” means an amalgamation, arrangement,
recapitalization, business combination or similar transaction of the Corporation, other than an amalgamation, arrangement, recapitalization,
business combination or similar transaction that would result in (i) the voting securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the continuing
entity or its direct or indirect parent) more than fifty percent (50%) of the total voting power of the voting securities of the
Corporation, the continuing entity or its direct or indirect parent, and more than fifty percent (50%) of the total number of
outstanding shares of the Corporation, the continuing entity or its direct or indirect parent, in each case as outstanding immediately
after such transaction, and (ii) the shareholders of the Corporation immediately prior to the transaction owning voting securities
of the Corporation, the continuing entity or its direct or indirect parent immediately following the transaction in substantially
the same proportions (vis-a-vis each other) as such shareholders owned the voting securities of the Corporation immediately prior
to the transaction (provided that in neither event shall the exercise of any exchangeable shares of a subsidiary of the Corporation
that are exchangeable into shares of the Corporation be taken into account in such determination).

 

    23

     

    

 

Notwithstanding
the foregoing, the holders of Restricted Voting Shares shall be entitled to vote as a separate class, in addition to any other
vote of shareholders that may be required, in respect of any alteration, repeal or amendment of the Corporation’s Articles
which would: (i) adversely affect the rights or special rights of the holders of Restricted Voting Shares (including an amendment
to the terms of the Corporation’s Articles which provide that any Multiple Voting Shares sold or transferred to a person
that is not a Permitted Holder (as defined in the Corporation’s Articles) shall be automatically converted into Subordinate
Voting Shares and/or Restricted Voting Shares, as applicable); (ii) affect the holders of the Equity Shares differently, on a
per share basis; or (iii) except as otherwise set forth in the Corporation’s Articles, create any class or series of shares
ranking equal to or senior to the Restricted Voting Shares; and in each case such alteration, repeal or amendment shall not be
effective unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding Restricted
Voting Shares.

 

Dividends

 

Holders
of Restricted Voting Shares shall be entitled to receive, as and when declared by the Board, dividends in cash or property of
the Corporation. No dividend will be declared or paid on any other class of Equity Shares unless the Corporation simultaneously
declares or pays, as applicable, equivalent dividends (on a per share basis) on the Restricted Voting Shares. The Restricted Voting
Shares shall rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction.
In the event of the payment of a dividend in the form of shares, holders of Restricted Voting Shares shall receive Restricted
Voting Shares, unless otherwise determined by the Board, provided an equal number of shares is declared as a dividend or distribution
on a per-Equity Share basis, without preference or distinction, in each case.

 

Subdivision
or Consolidation

 

No
subdivision or consolidation of the Restricted Voting Shares shall occur unless simultaneously, the other Equity Shares are subdivided
or consolidated or otherwise adjusted in the same manner so as to maintain and preserve the relative rights of the holders of
each of the classes of Equity Shares.

 

Liquidation,
Dissolution or Winding-Up 

 

In
the case of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Corporation for the purposes of a dissolution or winding-up of the Corporation, the holders
of Restricted Voting Shares are entitled, subject to the prior rights of the holders of any shares of the Corporation ranking
in priority to the Restricted Voting Shares, to receive the Corporation’s remaining property and are entitled to share equally,
on a share for share basis, with the other Equity Shares in all distributions of such assets.

 

Rights
to Subscribe; Pre-Emptive Rights

 

The
holders of Restricted Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Corporation now or in the future.

 

Conversion

 

If
the issued and outstanding Restricted Voting Shares are or become owned or controlled by a Non-U.S. Person, subject to the Specified
Exceptions, such Restricted Voting Shares shall be automatically converted, without further act or formality, on a one-for-one
basis, into Subordinate Voting Shares. Subject to the Specified Exceptions, if the total number of Equity Shares is equal to or
exceeds the FPI Threshold, the minimum number of Restricted Voting Shares required to stay within the FPI Threshold shall be automatically
converted, without further act or formality, on a pro-rata basis across all registered holders of Restricted Voting Shares (rounded
up to the next nearest whole number of shares), on a one-for-one basis, into Limited Voting Shares.

 

    24

     

    

 

If
an offer is made to purchase a certain class of Equity Shares (other than Restricted Voting Shares) and such offer is one which
is required, pursuant to applicable securities legislation or the rules of a stock exchange on which such Equity Shares that are
subject to the offer are then listed, to be made to all or substantially all the holders of such Equity Shares in a given province
of Canada to which these requirements apply (assuming that the offeree was a resident in Ontario), each Restricted Voting Share
shall become convertible, at the option of the holder, on a one-for-one basis, into such class of Equity Shares that are subject
to the offer, at any time while such offer is in effect until the date prescribed by applicable securities legislation for the
offeror to take up and pay for such shares as are to be acquired pursuant to such offer. The conversion right may only be exercised
in respect of Restricted Voting Shares for the purpose of depositing the resulting Equity Shares pursuant to the offer, and for
no other reason, including with respect to voting rights attached thereto, which are deemed to remain subject to the provisions
concerning voting rights for Restricted Voting Shares, notwithstanding their conversion. The transfer agent is required to deposit
the resulting Equity Shares pursuant to such offer on behalf of such holder.

 

Should
the applicable Equity Shares issued upon such conversion and tendered in response to such offer be withdrawn by Ayr Shareholders
or not taken up by the offeror, or should the offer be abandoned or withdrawn, then each Equity Share resulting from such conversion
shall be automatically reconverted, without any further act on the part of the Corporation or on the part of the holder, into
one Restricted Voting Share.

 

Constraints
on Share Ownership

 

Subject
to the Specified Exceptions, the Restricted Voting Shares may only be held, beneficially owned or controlled by U.S. Persons.

 

Limited
Voting Shares

 

Exercise
of Voting Rights 

 

The
holders of Limited Voting Shares will be entitled to receive notice of, to attend (if applicable, virtually) and to vote at all
meetings of Ayr Shareholders, except that they will not be entitled to vote (but will be entitled to receive notice of, to attend
(if applicable, virtually) and to speak) (i) at any time in respect of the election for directors of the Board, or (ii) at those
meetings at which the holders of a specific class are entitled to vote separately as a class under the BCBCA. The Limited Voting
Shares will carry one vote per share.

 

In
connection with any Change of Control Transaction requiring approval of the holders of all Equity Shares under the BCBCA, holders
of the Equity Shares shall be treated equally and identically, on a per share basis, unless different treatment of the shares
of each such class is approved by a majority of the votes cast by the holders of outstanding Limited Voting Shares or their proxyholders
in respect of a resolution approving such Change of Control Transaction, voting separately as a class at a meeting of the holders
of that class called and held for such purpose.

 

Notwithstanding
the foregoing, in connection with a formal bid for all Equity Shares on identical terms made in compliance with Canadian securities
laws that results in the bidder owning or controlling more than fifty percent (50%) of the total voting power of the voting securities
of the Corporation for the election of directors (assuming the Limited Voting Shares each have one vote per share for the election
of directors), the bidder may elect, by way of written notice to the Corporation, that the Limited Voting Shares it so acquires
not be automatically converted into Restricted Voting Shares, in accordance with their terms.

 

Notwithstanding
the foregoing, the holders of Limited Voting Shares shall be entitled to vote as a separate class, in addition to any other vote
of shareholders that may be required, in respect of any alteration, repeal or amendment of the Corporation’s Articles which
would: (i) adversely affect the rights or special rights of the holders of Limited Voting Shares; (ii) affect the holders of the
Equity Shares differently, on a per share basis (including an amendment to the terms of the Corporation’s Articles which
provide that any Multiple Voting Shares sold or transferred to a person that is not a Permitted Holder (as defined in the Articles)
shall be automatically converted into Subordinate Voting Shares and/or Restricted Voting Shares, as applicable); or (iii) except
as otherwise set forth in the Corporation’s Articles, create any class or series of shares ranking equal to or senior to
the Limited Voting Shares; and in each case such alteration, repeal or amendment shall not be effective unless a resolution in
respect thereof is approved by a majority of the votes cast by holders of outstanding Limited Voting Shares.

 

    25

     

    

 

Dividends

 

Holders
of Limited Voting Shares shall be entitled to receive, as and when declared by the Board, dividends in cash or property of the
Corporation. No dividend will be declared or paid on the other Equity Shares unless the Corporation simultaneously declares or
pays, as applicable, equivalent dividends (on a per share basis) on the Limited Voting Shares. The Limited Voting Shares shall
rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction. In the
event of the payment of a dividend in the form of shares, holders of Limited Voting Shares shall receive Limited Voting Shares,
unless otherwise determined by the Board, provided an equal number of shares is declared as a dividend or distribution on a per-Equity
Share basis, without preference or distinction, in each case.

 

Subdivision
or Consolidation

 

No
subdivision or consolidation of the Limited Voting Shares shall occur unless simultaneously, the other Equity Shares are subdivided
or consolidated or otherwise adjusted in the same manner so as to maintain and preserve the relative rights of the holders of
each of the classes of Equity Shares.

 

Liquidation,
Dissolution or Winding-Up 

 

In
the case of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Corporation for the purposes of a dissolution or winding-up of the Corporation, the holders
of Limited Voting Shares are entitled, subject to the prior rights of the holders of any shares of the Corporation ranking in
priority to the Limited Voting Shares, to receive the Corporation’s remaining property and are entitled to share equally,
on a share for share basis, with the other Equity Shares in all distributions of such assets.

 

Rights
to Subscribe; Pre-Emptive Rights

 

The
holders of Limited Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part of
any issue of shares, or bonds, debentures or other securities of the Corporation now or in the future.

 

Conversion

 

Subject
to the Specified Exceptions, if, at any given time, the total number of Restricted Voting Shares represents a number below the
FPI Threshold, then the number of Limited Voting Shares will be automatically converted, without further act or formality, on
a pro-rata basis across all registered holders of Limited Voting Shares (rounded down to the next nearest whole number of shares),
on a one-for-one basis, into Restricted Voting Shares, to the maximum extent possible such that the Limited Voting Shares then
represent a number of Equity Shares that is one share less than the FPI Threshold.

 

If,
at any given time, the Limited Voting Shares or the Restricted Voting Shares are held, beneficially owned or controlled by Non-U.S.
Persons, they will be automatically converted, without further act or formality, on a one-for-one basis into Subordinate Voting
Shares.

 

If
an offer is made to purchase a certain class of Equity Shares (other than Limited Voting Shares) and such offer is one which is
required, pursuant to applicable securities legislation or the rules of a stock exchange on which such Equity Shares that are
subject to the offer are then listed, to be made to all or substantially all the holders of such Equity Shares in a given province
of Canada to which these requirements apply (assuming that the offeree was a resident in Ontario), each Limited Voting Share shall
become convertible, at the option of the holder, on a one-for-one basis, into such class of Equity Shares that are subject to
the offer, at any time while such offer is in effect until the date prescribed by applicable securities legislation for the offeror
to take up and pay for such shares as are to be acquired pursuant to such offer. The conversion right may only be exercised in
respect of Limited Voting Shares for the purpose of depositing the resulting Equity Shares pursuant to the offer, and for no other
reason, including with respect to voting rights attached thereto, which are deemed to remain subject to the provisions concerning
voting rights for Limited Voting Shares, notwithstanding their conversion. The transfer agent is required to deposit the resulting
Equity Shares pursuant to such offer on behalf of such holder.

 

    26

     

    

 

Should
the applicable Equity Shares issued upon such conversion and tendered in response to such offer be withdrawn by Ayr Shareholders
or not taken up by the offeror, or should the offer be abandoned or withdrawn, then each Equity Share resulting from such conversion
shall be automatically reconverted, without any further act on the part of the Corporation or on the part of the holder, into
one Limited Voting Share.

 

Constraints
on Share Ownership

 

Subject
to the Specified Exceptions, the Limited Voting Shares may only be held, beneficially owned or controlled by U.S. Persons.

 

Renamed
as Non-Voting Shares

 

The
Limited Voting Shares shall be named “Limited Voting Shares” subject to regulatory approval, failing which they shall
be named and referred to as “Non-Voting Shares”.

 

Summary
of the Rights, Privileges, Restrictions and Conditions of the Multiple Voting Shares and Subordinate Voting Shares

 

Multiple
Voting Shares 

 

Exercise
of Voting Rights

 

The
holders of Multiple Voting Shares will be entitled to receive notice of, to attend (if applicable, virtually) and to vote at all
meetings of Ayr Shareholders, except that they will not be able to vote (but will be entitled to receive notice of, to attend
(if applicable, virtually) and to speak) at those meetings at which the holders of a specific class are entitled to vote separately
as a class under the BCBCA. The Multiple Voting Shares carry 25 votes per share (subject in the case of Mercer, to the terms of
a voting agreement with the Corporation dated as of June 26, 2019 (the “Voting Agreement”), which may be found
on Ayr’s profile on SEDAR at www.sedar.com).

 

In
connection with any Change of Control Transaction requiring approval of the holders of all Equity Shares under the BCBCA, holders
of the Equity Shares shall be treated equally and identically, on a per share basis, unless different treatment of the shares
of each such class is approved by a majority of the votes cast by the holders of outstanding Multiple Voting Shares or their proxyholders
in respect of a resolution approving such Change of Control Transaction, voting separately as a class at a meeting of the holders
of that class called and held for such purpose.

 

Notwithstanding
the foregoing, the holders of Multiple Voting Shares shall be entitled to vote as a separate class, in addition to any other vote
of shareholders that may be required, in respect of any alteration, repeal or amendment of the Corporation’s Articles which
would: (i) adversely affect the rights or special rights of the holders of Multiple Voting Shares (including an amendment to the
terms of the Corporation’s Articles which provide that any Multiple Voting Shares sold or transferred to a person that is
not a Permitted Holder (as defined in the Corporation’s Articles) shall be automatically converted into Restricted Voting
Shares and/or Subordinate Voting Shares, as applicable) ; or (ii) affect the holders of the Equity Shares differently, on a per
share basis; or (iii) except as otherwise set forth in the Corporation’s Articles, create any class or series of shares
ranking equal to or senior to the Multiple Voting Shares; and in each case such alteration, repeal or amendment shall not be effective
unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding Multiple Voting Shares.

 

    27

     

    

 

Dividends

 

Holders
of Multiple Voting Shares shall be entitled to receive, as and when declared by the Board, dividends in cash or property of the
Corporation. No dividend will be declared or paid on the other Equity Shares unless the Corporation simultaneously declares or
pays, as applicable, equivalent dividends (on a per share basis) on the Multiple Voting Shares. The Multiple Voting Shares shall
rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction. In the
event of the payment of a dividend in the form of shares, holders of Multiple Voting Shares shall receive Multiple Voting Shares,
unless otherwise determined by the Board, provided an equal number of shares is declared as a dividend or distribution on a per-Equity
Share basis, without preference or distinction, in each case.

 

Subdivision
or Consolidation

 

No
subdivision or consolidation of the Multiple Voting Shares shall occur unless simultaneously, the other Equity Shares are subdivided
or consolidated or otherwise adjusted in the same manner so as to maintain and preserve the relative rights of the holders of
each of the classes of Equity Shares.

 

Liquidation,
Dissolution or Winding-Up 

 

In
the case of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Corporation for the purposes of a dissolution or winding-up of the Corporation, the holders
of Multiple Voting Shares are entitled, subject to the prior rights of the holders of any shares of the Corporation ranking in
priority to the Multiple Voting Shares, to receive the Corporation’s remaining property and are entitled to share equally,
on a share for share basis, with the other Equity Shares in all distributions of such assets.

 

Rights
to Subscribe; Pre-Emptive Rights

 

The
holders of Multiple Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Corporation now or in the future.

 

Conversion

 

At
the holder’s option, the Multiple Voting Shares will be convertible, on a one-for-one basis, into (i) Subordinate Voting
Shares in the event the Multiple Voting Shares are held, beneficially owned or controlled by a Non-U.S. Person, and (ii) Restricted
Voting Shares in the event the Multiple Voting Shares are held, beneficially owned or controlled by a U.S. Person. In addition,
the Multiple Voting Shares will be automatically converted, without further act or formality, into Subordinate Voting Shares or
Restricted Voting Shares, as applicable, on the earliest of (i) the fifth anniversary of May 24, 2019, (ii) the date on which
such Multiple Voting Shares are held or controlled by a person who is not a Permitted Holder (as defined in the Corporation’s
Articles) under the Corporation’s Articles, and (iii) the date on which the aggregate number of Multiple Voting Shares issued
and outstanding represents less than one-third of the number of Multiple Voting Shares issued and outstanding at the close of
business on the first date of issuance, being May 24, 2019.

 

Constraints
on Share Ownership 

 

The
Multiple Voting Shares may be held, beneficially owned or controlled by U.S. Persons and Non-U.S. Persons.

 

Subordinate
Voting Shares

 

Exercise
of Voting Rights

 

The
holders of Subordinate Voting Shares will be entitled to receive notice of, to attend (if applicable, virtually) and to vote at
all meetings of Ayr Shareholders, except that they will not be able to vote (but will be entitled to receive notice of, to attend
(if applicable, virtually) and to speak) at those meetings at which the holders of a specific class are entitled to vote separately
as a class under the BCBCA. The Subordinate Voting Shares carry one vote per share.

 

    28

     

    

 

In
connection with any Change of Control Transaction requiring approval of the holders of all Equity Shares under the BCBCA, holders
of the Equity Shares shall be treated equally and identically, on a per share basis, unless different treatment of the shares
of each such class is approved by a majority of the votes cast by the holders of outstanding Subordinate Voting Shares or their
proxyholders in respect of a resolution approving such Change of Control Transaction, voting separately as a class at a meeting
of the holders of that class called and held for such purpose.

 

Notwithstanding
the foregoing, the holders of Subordinate Voting Shares shall be entitled to vote as a separate class, in addition to any other
vote of shareholders that may be required, in respect of any alteration, repeal or amendment of the Corporation’s Articles
which would: (i) adversely affect the rights or special rights of the holders of Subordinate Voting Shares (including an amendment
to the terms of the Corporation’s Articles which provide that any Multiple Voting Shares sold or transferred to a person
that is not a Permitted Holder (as defined in the Corporation’s Articles) shall be automatically converted into Restricted
Voting Shares and/or Subordinate Voting Shares, as applicable); or (ii) affect the holders of the Equity Shares differently, on
a per share basis; or (iii) except as otherwise set forth in the Corporation’s Articles, create any class or series of shares
ranking equal to or senior to the Subordinate Voting Shares; and in each case such alteration, repeal or amendment shall not be
effective unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding Subordinate
Voting Shares.

 

Dividends

 

Holders
of Subordinate Voting Shares shall be entitled to receive, as and when declared by the Board, dividends in cash or property of
the Corporation. No dividend will be declared or paid on the other Equity Shares unless the Corporation simultaneously declares
or pays, as applicable, equivalent dividends (on a per share basis) on the Subordinate Voting Shares. The Subordinate Voting Shares
shall rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction.
In the event of the payment of a dividend in the form of shares, holders of Subordinate Voting Shares shall receive Subordinate
Voting Shares, unless otherwise determined by the Board, provided an equal number of shares is declared as a dividend or distribution
on a per-Equity Share basis, without preference or distinction, in each case.

 

Subdivision
or Consolidation

 

No
subdivision or consolidation of the Subordinate Voting Shares shall occur unless simultaneously, the other Equity Shares are subdivided
or consolidated or otherwise adjusted in the same manner so as to maintain and preserve the relative rights of the holders of
each of the classes of Equity Shares.

 

Liquidation,
Dissolution or Winding-Up 

 

In
the case of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Corporation for the purposes of a dissolution or winding-up of the Corporation, the holders
of Subordinate Voting Shares are entitled, subject to the prior rights of the holders of any shares of the Corporation ranking
in priority to the Subordinate Voting Shares, to receive the Corporation’s remaining property and are entitled to share
equally, on a share for share basis, with the other Equity Shares in all distributions of such assets.

 

Rights
to Subscribe; Pre-Emptive Rights

 

The
holders of Subordinate Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Corporation now or in the future.

 

    29

     

    

 

Conversion

 

If
the issued and outstanding Subordinate Voting Shares are or become owned and controlled by a U.S. Person, such Subordinate Voting
Shares shall be automatically converted, without further act or formality, on a one-for-one basis, into Restricted Voting Shares.

 

If
an offer is made to purchase a certain class of Equity Shares (other than Subordinate Voting Shares) and such offer is one which
is required, pursuant to applicable securities legislation or the rules of a stock exchange on which such Equity Shares that are
subject to the offer are then listed, to be made to all or substantially all the holders of such Equity Shares in a given province
of Canada to which these requirements apply (assuming that the offeree was a resident in Ontario), each Subordinate Voting Share
shall become convertible, at the option of the holder, on a one-for-one basis, into such class of Equity Shares that are subject
to the offer, at any time while such offer is in effect until the date prescribed by applicable securities legislation for the
offeror to take up and pay for such shares as are to be acquired pursuant to such offer. The conversion right may only be exercised
in respect of Subordinate Voting Shares for the purpose of depositing the resulting Equity Shares pursuant to the offer, and for
no other reason, including with respect to voting rights attached thereto, which are deemed to remain subject to the provisions
concerning voting rights for Subordinate Voting Shares, notwithstanding their conversion. The transfer agent is required to deposit
the resulting Equity Shares pursuant to such offer on behalf of such holder.

 

Should
the applicable Equity Shares issued upon such conversion and tendered in response to such offer be withdrawn by Ayr Shareholders
or not taken up by the offeror, or should the offer be abandoned or withdrawn, then each Equity Share resulting from such conversion
shall be automatically reconverted, without any further act on the part of the Corporation or on the part of the holder, into
one Subordinate Voting Share.

 

Constraints
on Share Ownership

 

Subject
to the Specified Exceptions, the Subordinate Voting Shares may only be owned or controlled by Non-U.S. Persons.

 

Renamed
as Common Shares

 

At
the effective time that there are no Multiple Voting Shares issued and outstanding (by the conversion of all Multiple Voting Shares,
in accordance with their terms, into Subordinate Voting Shares or Restricted Voting Shares, as applicable), the Subordinate Voting
Shares will henceforth be named and referred to as “Common Shares”.

 

Exchangeable
Shares

 

The
Class B common stock (the “Exchangeable Shares”) of CSAC Acquisition Inc., a subsidiary of Ayr, will be exchangeable,
at the option of the holder, in accordance with their terms and the terms specified in the applicable exchange Rights Agreement
into Subordinate Voting Shares, following which the share terms set forth above would apply, and if the Subordinate Voting Shares
are held, beneficially owned or controlled (or become held, beneficially owned or controlled) by a U.S. Person, such Subordinate
Voting Shares would be automatically converted, without further act or formality, on a one-for one basis into Restricted Voting
Shares. The Exchangeable Shares are not entitled to vote at meetings of Ayr Shareholders.

 

The
Warrants

 

The
Warrants are exercisable, in accordance with their terms and the terms of the warrant agency agreement dated December 21, 2017,
between the Corporation and Odyssey, as the warrant agent (the “Warrant Agent”), as amended, on a one-for-one
basis into Subordinate Voting Shares, following which the share terms set forth above would apply.

 

    30

     

    

 

The
Rights

 

The
Rights are convertible, in accordance with their terms and the terms of the right agreement dated December 21, 2017 between the
Corporation and Odyssey, as the rights agent (the “Rights Agent”), as amended, on a one-for-one-tenth basis
into Subordinate Voting Shares, following which the share terms set forth above would apply.

 

Compliance
Provisions

 

In
order to seek to ensure the compliance of Ayr and its subsidiaries with applicable regulatory and/or licensing regulations, the
Corporation’s Articles include certain provisions (the “Compliance Provisions”), including a combination
of certain remedies such as an automatic suspension of voting and/or dividend rights, a discretionary right to force a share transfer
to a third party and/or a discretionary redemption right in favour of Ayr.

 

The
purpose of the Compliance Provisions, as they are proposed to be amended to extend to Restricted Voting Shares and Limited Voting
Shares, is to provide Ayr with a means of protecting itself from having a shareholder, or as determined by the Board, a group
of shareholders acting jointly or in concert, with an ownership interest of, whether of record or beneficially (or having the
power to exercise control or direction over) (“Owning or Controlling”), five percent (5%) or more of the issued
and outstanding shares of Ayr, or such other number as is determined by the Board from time to time, and: (i) who a governmental
authority granting licenses to, or otherwise governing the operations of, Ayr or its subsidiaries has determined to be unsuitable
to own any of the Equity Shares, as applicable; (ii) whose ownership of any of the Equity Shares, as applicable, may reasonably
result in the loss, suspension or revocation (or similar action) with respect to any licenses or permits relating to Ayr’s
or its subsidiaries’ conduct of business (being the conduct of any activities relating to the cultivation, manufacturing
and dispensing of cannabis and cannabis-derived products in the United States, which include the owning and operating of cannabis
licenses) or in Ayr being unable to obtain any new licenses or permits in the normal course, all as determined by the Board; or
(iii) who have not been determined by the applicable regulatory authority to be an acceptable person or otherwise have not received
the requisite consent of such regulatory authority to own the applicable Equity Shares, in each case within a reasonable time
period acceptable to the Board or prior to acquiring any Equity Shares, as applicable.

 

For
a full description of the Compliance Provisions, see the proposed Amended Articles, a copy of which is attached hereto as Appendix
 “B”.

 

DISSENT
RIGHTS

 

Ayr
Shareholders are not entitled to exercise dissent rights in respect of any of the items of business at the Meeting, including
the Amendment Resolution.

 

OTHER
BUSINESS

 

Management
of the Corporation knows of no other matters to come before the Meeting other than those referred to in the Notice of Meeting
accompanying this Circular. However, if any other matters properly come before the Meeting, it is the intention of the persons
named in the form of proxy accompanying this Circular to vote on the same in accordance with their best judgment of such matters.

 

COMPENSATION
DISCUSSION AND ANALYSIS

 

Please
see the Corporation’s Form 51-102F6V – Statement of Executive Compensation for the financial year ended December
31, 2019, which can be found on SEDAR at www.sedar.com under the Corporation’s profile, which provides information
on the Corporation’s executive compensation practices.

 

STATEMENT
OF CORPORATE GOVERNANCE PRACTICES

 

Under
the Canadian Securities Administrators’ National Instrument 58-101 – Disclosure of Corporate Governance Practices
(“NI 58-101”), the Corporation is required to disclose certain information relating to its corporate governance
practices, as set forth below.

 

    31

     

    

 

Board

 

The
Corporation currently has three non-executive directors who the Corporation believes to be independent within the meaning of NI
58-101. The three independent directors of the Corporation are Charlies Miles, Chris R. Burggraeve and Glenn Isaacson. Each of
Jonathan Sandelman, who serves as Chairman, Chief Executive Officer, Director and Corporate Secretary of the Corporation, Louis
Karger, who was formerly a vendor of, and serves as director and the treasurer of Sira, one of the Corporation’s businesses,
and Steve Menzies, who was formerly a vendor, and is a founder of LivFree, one of the Corporation’s businesses, are not
considered to be independent given their current or recent status as executive officers of the Corporation or former vendors of
certain of the Corporation’s businesses.

 

Directorships

 

The
following directors of the Corporation currently serve on the board of directors of other issuers that are reporting issuers (or
the equivalent) which are set out below:

 

	DIRECTOR	REPORTING
    ISSUER (EXCHANGE)
	 	 
	Jonathan
    Sandelman	Mercer
    Park Brand Acquisition Corp. (NEO:BRND.U)
	 	 
	Charles
    Miles	Mercer
    Park Brand Acquisition Corp. (NEO:BRND.U)

 

Orientation
and Continuing Education

 

Following
appointment, new directors of the Corporation are provided with an initial orientation regarding the nature and orientation of
the Corporation’s business and the affairs of the Corporation and as to the role of the Board and its committees. As part
of such orientation, new directors are provided with historic information, current strategic plans for the Corporation and information
summarizing issues relating to the Corporation. New directors are also briefed by the Chief Executive Officer, the Chief Financial
Officer and/or the Chief Operating Officer of the Corporation and by the Chair of the committees of the Board to which they are
appointed, if any. In addition, the Corporation will make available any documents or personnel as may be requested by a new director
in order to assist with the orientation and onboarding to the Board.

 

Although
the Corporation has not adopted formal policies respecting continuing education for Board members, new directors are encouraged
to communicate with the Corporation’s management and auditors to keep themselves current with industry trends and developments
with management’s assistance, and to attend related industry seminars and visit the Corporation’s operations. In addition,
the Board and its committees receive periodic updates from management and external advisors, as applicable, as to new developments
in regard to corporate governance, industry trends, changes in legislation and other issues affecting the Corporation.

 

Ethical
Business Conduct

 

The
Board has adopted an insider trading policy (the “Insider Trading Policy”) and a disclosure policy (the “Disclosure
Policy”).

 

The
Insider Trading Policy applies to all directors, managers, officers and employees of the Corporation and its subsidiaries, and
other person engaged in business of professional activity with or on behalf of the Corporation and its subsidiaries (including
consultants, independent contractors and advisors, and family members, spouses or dependent children of such individuals, and
seeks to inform such individuals, and reinforce the Corporation’s prohibition against insider trading, tipping, speculating,
short-selling, puts and calls. It also outlines restrictions on trading of the Corporation’s securities, including without
limitation, during black-out periods to allow for appropriate dissemination of the Corporation’s financial statements, as
well as reporting requirements for insiders.

 

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The
Disclosure Policy seeks to reinforce the Corporation’s commitment to compliance with the continuous disclosure obligations
imposed by applicable Canadian securities law and regulations and the rules of the CSE, with an aim to seeking to ensure that
all communications to the investing public about the business and affairs of the Corporation are informative, timely, factual
and accurate, and consistent and disseminated in accordance with all applicable legal and regulatory requirements. It also seeks
to promote effective communication with securityholders and encourage their participation at general meetings or during investor
conference calls. The Disclosure Policy applies to all directors, managers, officers, employees, and contractors of, and consultants
to, the Corporation or its subsidiaries, including of Mercer Park L.P., who have access to confidential corporate information
of the Corporation, as well as those persons designated from time to time by the Chief Executive Officer to communicate on behalf
of the Corporation.

 

The
Board expects its directors, officers and employees to act ethically at all times. Each director of the Corporation must disclose
all actual or potential conflicts of interest and refrain from voting on matters in which such director has a conflict of interest.
In addition, the director must excuse himself or herself from any discussion or decision on any matter in which the director is
precluded from voting as a result of a conflict of interest. The Corporation’s compensation, nominating and corporate governance
committee (the “C&CG Committee”) is responsible for reviewing investigations and any resolutions of complaints
received under any policies of the Corporation on conflicts of interest and ethics and report periodically to the Board thereon.

 

Further,
the Corporation’s businesses are subject to a variety of laws, regulations and guidelines relating to the manufacture, management,
transportation, storage and disposal of marijuana, including laws and regulations relating to health and safety, the conduct of
operations and the protection of the environment. Achievement of the Corporation’s business objectives is contingent, in
part, upon compliance with applicable regulatory requirements and obtaining all requisite regulatory approvals. The Corporation,
through its management and with the assistance of its various advisors, seeks to remain abreast of the evolving environmental
rules, regulations and protocols applicable to the Corporation’s businesses in order to ensure that its internal practices
and policies are following applicable standards.

 

Nomination
of Directors

 

The
C&CG Committee’s role, in consultation with the Chairman of the Board and the Chief Executive Officer, is to recruit
and identify individuals qualified to become new Board members and to recommend to the Board candidates for election as directors
and candidates for appointment to Board committees, as set out in the C&CG Committee’s mandate. The Chairman may also
consult with the C&CG Committee regarding candidates for nomination or appointment to the Board.

 

Diversity

 

Board

 

The
Corporation recognizes the benefits that diversity brings to the Corporation. The Board aims to be comprised of directors who
have a range of perspectives, insights and views in relation to the issues affecting the Corporation. This belief in diversity
is reflected in the Corporation’s diversity policy (the “Diversity Policy”). The Diversity Policy states
that the Board should include individuals from diverse backgrounds, having regard to, among other things, skills, regional and
industry experience, professional expertise, personal skills, background, race, gender, status, age, education, nationality, culture,
language and geographic background. Accordingly, consideration of whether the diverse attributes highlighted in the Diversity
Policy are sufficiently represented on the Board is an important component of the selection process for new Board members.

 

None
of the six proposed directors is female. The Corporation recognizes the value of the contribution of members with diverse attributes
on the Board and is committed to ensuring that there is representation of women on the Board. However, the Corporation has not
and does not intend to establish a target or adopt specific policies regarding the number of women on the Board. The Corporation
believes a target would not be the most effective way of ensuring the Board is comprised of individuals with diverse attributes
and backgrounds. The Corporation will, however, evaluate the appropriateness of adopting targets in the future. Selection of female
candidates to join the Board will be, in part, dependent on the pool of female candidates with the necessary skills, knowledge
and experience, and the ultimate decision will be based on merit and the contribution the chosen candidate(s) will bring to the
Board.

 

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Management

 

The
Corporation believes that a diversity of backgrounds, opinions and perspectives and a culture of inclusion helps to create a healthy
and dynamic workplace, which improves overall business performance. The Corporation recognizes the value of ensuring that the
Corporation has leaders who are women. The Corporation has and intends to work to develop its employees internally and provide
them with opportunities to advance their careers. The Corporation has developed a strategy and execution plan to work towards
increasing the representation of women in leadership roles at all levels of the organization. One of the objectives of this initiative
is to ensure that there are highly qualified women within the Corporation available to fill vacancies in executive officer and
other leadership positions. In appointing individuals to its leadership team, both at the corporate level and business vertical
level, the Corporation weighs a number of factors, including the skills and experience required for the position and the personal
attributes of the candidates.

 

Jennifer
Drake is currently the Chief Operating Officer of the Corporation. The Corporation does not intend to establish a target regarding
the number of women in executive officer or senior leadership positions. The Corporation believes that the most effective way
to achieve its goal of increasing the representation of women in leadership roles at all levels of the organization is to identify
high-potential women within the Corporation and work with them to ensure they develop the skills, acquire the experience and have
the opportunities necessary to become effective leaders. The Corporation will, however, evaluate the appropriateness of adopting
targets in the future.

 

Compensation

 

See
the Corporation’s Form 51-102F6V – Statement of Executive Compensation for the financial year ended December
31, 2019, which can be found on SEDAR at www.sedar.com under the Corporation’s profile, which provides information
on the Corporation’s director and executive compensation practices.

 

Board
Committees

 

The
standing committees of Board are the audit committee (the “Audit Committee”), the C&CG Committee, the Executive
Committee, the acquisition committee (the “Acquisition Committee”) and the disclosure policy committee (the
 “Disclosure Policy Committee”).

 

The
Audit Committee is authorized and empowered to provide assistance to the Board in fulfilling its responsibility to the Ayr Shareholders,
potential shareholders and the investment community, including without limitation, to recommend to the Board the appointment and
compensation of the external auditors of the Corporation, to oversee the work and review the qualifications and independence of
the external auditors of the Corporation, to review the financial statements of the Corporation and public disclosure documents
containing financial information, to pre-approve all non-audit services to be provided by the external auditors of the Corporation
and to establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting,
internal controls or auditing matters. The Audit Committee is comprised of Jonathan Sandelman, Charles Miles and Chris R. Burggraeve.
The Board adopted an updated Audit Committee charter attached as Appendix “C” to this Circular.

 

The
C&CG Committee is authorized and empowered to exercise a wide range of roles in respect of compensation, nomination and corporate
governance matters, and its primary mandate includes, without limitation, assessing the effectiveness of the Board as a whole,
the committees of the Board and the contribution of individual directors, determining and making recommendations with respect
to all forms of compensation to be granted to the Chief Executive Officer of the Corporation, reviewing the Chief Executive Officer’s
recommendations respecting compensation of the other senior executives of the Corporation, recommending to the Board candidates
for election as directors and candidates for appointment to Board committees and advising the Board on enhancing the Corporation’s
corporate governance through a continuing assessment of the Corporation’s approach to corporate governance. The C&CG
Committee is comprised of Jonathan Sandelman, Charles Miles and Chris R. Burggraeve.

 

The
Executive Committee is authorized and empowered to undertake, and in the interests of efficiency, has been delegated with, all
of the powers of the Board, to the maximum extent permitted under the BCBCA and the Corporation’s Articles. The Executive
Committee is comprised of Jonathan Sandelman, Charles Miles, Chris R. Burggraeve, Steve Menzies, Louis Karger and Glenn Isaacson.

 

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The
Acquisition Committee is authorized and empowered to manage and do all things in connection with smaller acquisitions, being acquisitions
with an enterprise value less than the greater of 1% of the then market capitalization of Ayr (taking into account all exchangeable
shares then issued and all in-the-money warrants then issued) and $10 million (provided that no member of the Acquisition Committee
has any material conflict of interest in connection therewith), including authorizing share or debt issuances and/or payment of
cash as consideration for such acquisitions and approving the terms of acquisition-related agreements. The Acquisition Committee
is comprised of Jonathan Sandelman, Charles Miles and Jennifer Drake.

 

The
Disclosure Policy Committee is authorized and empowered to assist in determining whether information is material information,
to seek to ensure the timely disclosure of material information in accordance with applicable securities laws, to supervise the
preparation of the disclosures contained in the Corporation’s disclosure documents, to oversee the Corporation’s disclosure
practices, and to monitor and evaluate the effectiveness of, and compliance with, its corresponding policy. The Disclosure Policy
Committee consists of the Chairman and Chief Executive Officer, the Chief Financial Officer and the Chief Operating Officer (COO)
of the Corporation. Each member of the committee may appoint a designate.

 

Assessments

 

Based
upon the Corporation’s size, its current state of development and the number of individuals on the Board, the Board considers
a formal process for accessing the effectiveness and contribution of the Board as a whole, its committees or individual directors
to be unnecessary at this time. Given that the Board and its committees meet on several occasions each year, each director has
regular opportunity to assess the Board as a whole, its committees and other directors in relation to the Board and such director’s
assessment of the competencies and skills that the Board and its committees should possess. The Board plans to continue to evaluate
its own effectiveness and the effectiveness of its committees and individual directors in such manner for the foreseeable future.

 

NORMAL
COURSE ISSUER BID

 

On
September 24, 2019, the Corporation announced a normal course issuer bid (the “NCIB”) to purchase, through
the facilities of the CSE and in accordance with the requirements of the CSE, a maximum of 5% of the Corporation’s issued
and outstanding Subordinate Voting Shares during any 12-month period, which as at the announcement of the program for the 12-month
period thereafter, represented 725,892 Subordinate Voting Shares. Ayr appointed Canaccord Genuity Corp. to purchase the Subordinate
Voting Shares pursuant to the NCIB.

 

The
NCIB commenced on October 1, 2019 (the “NCIB Commencement Date”) and will terminate on the earliest of: (i)
the date that is 12 months following the NCIB Commencement Date; (ii) the date on which the 5% maximum is purchased pursuant to
the NCIB; and (iii) the date on which Ayr provides written notice to Odyssey, its transfer agent, that the NCIB is terminated.

 

As
at September 30, 2020, the Corporation had repurchased 71,500 of its outstanding Subordinate Voting Shares under the NCIB, of
which 7,400 Subordinate Voting Shares have been cancelled, and 64,100 Subordinate Voting Shares are being held as treasury shares
by Ayr, which are not entitled to dividends or voting rights.

 

CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS

 

Certain
Canadian Federal Income Tax Considerations

 

The
following is, as of the date of this Circular, a summary of the principal Canadian federal income tax considerations in respect
of the Amendment that are generally applicable under the Income Tax Act (Canada) (the “Tax Act”) to
a beneficial owner of Multiple Voting Shares or Subordinate Voting Shares who, at all relevant times, for purposes of the Tax
Act, deals at arm’s length with, and is not affiliated with, the Corporation and who holds such shares (or, in conjunction
with and following the Amendment, any class of Equity Shares) as capital property (a “Holder”), all within
the meaning of the Tax Act. An Equity Share will generally be considered to be capital property to a Holder unless the Holder
holds (or will hold) such Equity Share in the course of carrying on a business of trading or dealing in securities or has acquired
(or will acquire) them in a transaction or transactions considered to be an adventure or concern in the nature of trade.

 

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This
summary is not applicable to a Holder: (a) that is a “financial institution” for purposes of the “mark-to-market
rules” in the Tax Act; (b) an interest in which is a “tax shelter investment” as defined in the Tax Act; (c)
that is a “specified financial institution” as defined in the Tax Act; (d) that has made a “functional currency”
election under the Tax Act to determine its “Canadian tax results”, as defined in the Tax Act, in a currency other
than the Canadian currency; or (e) who enters into, or has entered into, a “derivative forward agreement” as such
term is defined in the Tax Act, with respect to an Equity Share. Any such Holder to which this summary does not apply should consult
its own tax advisor.

 

This
summary does not address the possible application of the “foreign affiliate dumping” rules in section 212.3 of the
Tax Act to a Holder that (i) is a corporation resident in Canada and (ii) is or becomes (or does not deal at arm’s length
for purposes of the Tax Act with a corporation resident in Canada that is or becomes), as part of a transaction or event or series
of transactions or events that includes the acquisition of an Equity Share, controlled by a non-resident corporation, non-resident
individual, non-resident trust, or group of any of the foregoing who do not deal at arm’s length with each other for purposes
of such rules. Such Holders should consult their own tax advisors with respect to the possible application of these rules.

 

This
summary is of a general nature only, is based upon the current provisions of the Tax Act, all specific proposals to amend the
Tax Act which have been announced by or on behalf the Minister of Finance (Canada) prior to the date hereof (the “Tax
Proposals”), and counsel’s understanding of the current published administrative policies and assessing practices
of the Canada Revenue Agency. This summary assumes that the Tax Proposals will be enacted in the form proposed and does not take
into account or anticipate any other changes in law, whether by way of judicial, legislative or governmental decision or action,
nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ from
the Canadian federal income tax considerations discussed herein. No assurances can be given that the Tax Proposals will be enacted
as proposed or at all, or that legislative, judicial or administrative changes will not modify or change the statements expressed
herein.

 

This
summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an investment in Equity Shares
and is not intended to be, nor should it be construed to be, legal or income tax advice to any particular Holder. Holders are
urged to consult their own income tax advisors with respect to the tax consequences of the Amendment based on their own particular
circumstances.

 

The
Amendment 

 

Amendments
to Share Terms

 

The
amendments to the terms of the Multiple Voting Shares and Subordinate Voting Shares will not, in and of themselves, result in
a Holder realizing a capital gain or loss.

 

Conversion
of Subordinate Voting Shares to Restricted Voting Shares upon Adoption of the Amendment 

 

Upon
the adoption of the Amendment Resolution (the “Adoption”), all of the Subordinate Voting Shares held by U.S.
Persons (subject to certain exceptions) will be automatically converted to Restricted Voting Shares. Upon such conversion, a Holder
of such Subordinate Voting Shares will be deemed under the Tax Act to have (i) disposed of its Subordinate Voting Shares for proceeds
of disposition equal to the adjusted cost base of such shares immediately before the Adoption and (ii) acquired the Restricted
Voting Shares at a cost equal to the adjusted cost base to such Holder of its Subordinate Voting Shares immediately before the
Adoption. Accordingly, Holders will not realize a gain or loss under the Tax Act on the conversion.

 

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Residents
of Canada 

 

The
following portion of this summary applies to a Holder who, for the purposes of the Tax Act and any applicable income tax treaty
or convention, is resident in Canada (a “Resident Holder”).

 

Certain
Resident Holders who might not otherwise be considered to hold their Equity Shares as capital property may, in certain circumstances,
be entitled to have such shares, and all other “Canadian securities” owned or subsequently owned by such Resident
Holder, treated as capital property by making an irrevocable election in accordance with the Tax Act. Resident Holders should
consult their own tax advisors to determine whether an election is available and advisable in their particular circumstances.

 

Dividends
on Equity Shares

 

Dividends
received on Equity Shares by a Resident Holder who is an individual (and certain trusts) will be included in the Resident Holder’s
income and be subject to the gross-up and dividend tax credit rules applicable to taxable dividends received by an individual
from taxable Canadian corporations, including the enhanced gross-up and dividend tax credit for “eligible dividends”
properly designated as such by the Corporation.

 

Dividends
received on Equity Shares by a Resident Holder that is a corporation will be included in the Resident Holder’s income and
will generally be deductible in computing such Resident Holder’s taxable income. In certain circumstances, subsection 55(2)
of the Tax Act will treat a taxable dividend received by a Resident Holder that is a corporation as proceeds of disposition or
a capital gain. Resident Holders that are corporations should consult their own tax advisors having regard to their own circumstances.

 

A
Resident Holder that is a “private corporation” (as defined in the Tax Act) or any other corporation resident in Canada
and controlled, whether by reason of a beneficial interest in one or more trusts or otherwise, by or for the benefit of an individual
(other than a trust) or a related group of individuals (other than trusts), may be liable to pay a refundable tax under Part IV
of the Tax Act on dividends received on the Equity Shares to the extent that such dividends are deductible in computing the Resident
Holder’s taxable income. Dividends received by a Resident Holder that is an individual or a trust, other than certain specified
trusts, may give rise to minimum tax under the Tax Act.

 

A
Resident Holder may be subject to United States withholding tax on dividends received on the Equity Shares. Any United States
withholding tax paid by or on behalf of a Resident Holder in respect of dividends received on the Equity Shares by a Resident
Holder may be eligible for foreign tax credit or deduction treatment where applicable under the Tax Act. Generally, a foreign
tax credit in respect of a tax paid to a particular foreign country is limited to the Canadian tax otherwise payable in respect
of income sourced in that country. Dividends received on the Equity Shares by a Resident Holder may not be treated as income sourced
in the United States for these purposes. Resident Holders should consult their own tax advisors with respect to the availability
of any foreign tax credits or deductions under the Tax Act in respect of any United States withholding tax applicable to dividends
on the Equity Shares.

 

Dispositions
of Equity Shares

 

A
Resident Holder who disposes of or is deemed to have disposed of an Equity Share (other than a disposition arising on the conversion
of Subordinate Voting Shares to Restricted Voting Shares upon the Adoption) will generally realize a capital gain (or incur a
capital loss) in the year of disposition equal to the amount by which the proceeds of disposition in respect of such Equity Share
exceed (or are exceeded by) the aggregate of the adjusted cost base of such Equity Share and any reasonable expenses associated
with the disposition. The tax treatment of capital gains and capital losses is discussed below under “Taxation of Capital
Gains and Capital Losses”.

 

Taxation
of Capital Gains and Capital Losses 

 

Generally,
one-half of any capital gain (a “taxable capital gain”) realized by a Resident Holder must be included in computing
the Resident Holder’s income for the taxation year in which the disposition occurs. Subject to and in accordance with the
provisions of the Tax Act, one-half of any capital loss incurred by a Resident Holder (an “allowable capital loss”)
may be used to offset taxable capital gains realized by the Resident Holder in the taxation year of disposition. Allowable capital
losses in excess of taxable capital gains for the taxation year of disposition may be applied to reduce net taxable capital gains
realized by the Resident Holder in the three preceding taxation years or in any subsequent year in the circumstances and to the
extent provided in the Tax Act.

 

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The
amount of any capital loss realized on the disposition of an Equity Share by a Resident Holder that is a corporation may, in certain
circumstances, be reduced by the amount of dividends which have been previously received or deemed to have been received by the
Resident Holder on such share. Similar rules may apply where a corporation is, directly or through a trust or partnership, a member
of a partnership or a beneficiary of a trust that owns Equity Shares.

 

A
Resident Holder that is, throughout the relevant taxation year, a “Canadian-controlled private corporation” (as defined
in the Tax Act) may be subject to pay a refundable tax on its “aggregate investment income”, which is defined in the
Tax Act to include capital gains.

 

In
general terms, a Holder who is an individual (other than certain trusts) that realizes a capital gain on the disposition or deemed
disposition of Equity Shares may be liable for alternative minimum tax under the Tax Act.

 

Conversion
of Equity Shares 

 

The
conversion of shares of a class of Equity Shares into shares of a different class of Equity Shares (other than the conversion
of Subordinate Voting Shares to Restricted Voting Shares upon the Adoption, as discussed above) will be deemed not to constitute
a disposition of property for purposes of the Tax Act and, accordingly, will not give rise to a capital gain or capital loss.
The cost to a Resident Holder of the Equity Shares received on such conversion will be deemed to be equal to the Resident Holder’s
adjusted cost base of the converted shares immediately before the conversion. For the purpose of computing the adjusted cost base
to a Holder of each Equity Share of a particular class acquired on such conversion, the cost of such Equity Share must be averaged
with the adjusted cost base to such Holder of all other shares of that class (if any) held by the Holder as capital property immediately
prior to the conversion.

 

Non-Residents
of Canada 

 

The
following portion of this summary is applicable to a Holder who, for the purposes of the Tax Act and at all relevant times, is
not resident nor deemed to be resident in Canada and does not use or hold, and is not deemed to use or hold, the Equity Shares
in connection with carrying on a business in Canada (a “Non-Resident Holder”). Special rules which are not
discussed in this summary may apply to a non-resident that is an insurer carrying on business in Canada and elsewhere.

 

Dividends
on Equity Shares

 

Any
dividends on Equity Shares paid or credited or deemed to be paid or credited to a Non-Resident Holder will be subject to Canadian
withholding tax at the rate of 25% of the gross amount of the dividends, subject to any reduction in the rate of withholding to
which the Non-Resident Holder is entitled under any applicable income tax treaty or convention between Canada and the country
in which the Non-Resident Holder is resident. For example, where a Non-Resident Holder is a resident of the United States, is
fully entitled to the benefits under the Canada-United States Income Tax Convention (1980), as amended, and is the beneficial
owner of the dividend, the applicable rate of Canadian withholding tax is generally reduced to 15% of the amount of such dividend.

 

Dispositions
of Equity Shares

 

A
Non-Resident Holder generally will not be subject to tax under the Tax Act in respect of a capital gain realized on the disposition
or deemed disposition of an Equity Share, nor will capital losses arising therefrom be recognized under the Tax Act, unless the
Equity Share constitutes “taxable Canadian property” to the Non-Resident Holder for purposes of the Tax Act, and the
gain is not exempt from tax pursuant to the terms of an applicable income tax treaty or convention between Canada and the country
in which the Non-Resident Holder is resident.

 

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As
long as the Equity Share is listed on a designated stock exchange (which currently includes the Canadian National Stock Exchange
(operating as the Canadian Securities Exchange)), such share generally will not constitute taxable Canadian property of a Non-Resident
Holder, unless: (a) at any time during the 60-month period immediately preceding the disposition or deemed disposition of such
share: (i) 25% or more of the issued shares of any class or series of the share capital of the Corporation was owned by, or belonged
to, one or any combination of (x) the Non-Resident Holder, (y) persons with whom the Non-Resident Holder did not deal at arm’s
length (within the meaning of the Tax Act) and (z) partnerships in which the Non-Resident Holder or a person referred to in (y)
holds a membership interest directly or indirectly through one or more partnerships; and (ii) more than 50% of the fair market
value of the share was derived directly or indirectly from one or any combination of: (A) real or immovable property situated
in Canada; (B) Canadian resource property (as defined in the Tax Act); (C) timber resource property (as defined in the Tax Act);
or (D) options in respect of, or interests in, or for civil law rights in, property described in any of (A) through (C) above,
whether or not such property exists; or (b) the share is otherwise deemed under the Tax Act to be taxable Canadian property.

 

If
an Equity Share is taxable Canadian property to a Non-Resident Holder, any capital gain realized on the disposition or deemed
disposition of such share may not be subject to Canadian federal income tax pursuant to the terms of an applicable income tax
treaty or convention between Canada and the country of residence of the Non-Resident Holder. Non-Resident Holders whose Equity
Shares are taxable Canadian property should consult their own tax advisors.

 

Conversion
of Equity Shares 

 

The
tax consequences of the conversion of shares of a class of Equity Shares into shares of a different class of Equity Shares (other
than the conversion of Subordinate Voting Shares to Restricted Voting Shares upon the Adoption, as discussed above) are the same
as those described above under “Residents of Canada – Conversion of Equity Shares”.

 

Other
Tax Considerations

 

This
Circular does not address any tax considerations of the Amendment other than Canadian federal income tax considerations, nor does
it address the particular circumstances of any shareholder. Ayr Shareholders who are resident in jurisdictions other than Canada,
including those in the United States, should consult their tax advisors with respect to the tax implications of the Amendment,
including any associated filing requirements, in such jurisdictions and with respect to the tax implications in such jurisdictions
of owning Ayr Shares after the Amendment. Ayr Shareholders should also consult their own tax advisors regarding Canadian federal,
provincial or territorial, and United States federal, state and local tax considerations of the Amendment or of holding Ayr Shares.

 

    39

     

    

 

OTHER
INFORMATION

 

Indebtedness
of Directors and Executive Officers

 

None
of the directors, executive officers, employees, former directors, former executive officers or former employees of the Corporation
or any of its subsidiaries, and none of their respective associates, is or has within 30 days before the date of this Circular
or at any time since the beginning of the most recently completed financial year been indebted to the Corporation or any of its
subsidiaries or another entity whose indebtedness is the subject of a guarantee, support agreement, letter of credit or other
similar agreement or understanding provided by the Corporation or any of its subsidiaries.

 

Management
Contracts

 

Mercer
Park, L.P. entered into a management agreement with the Corporation dated May 24, 2019, governing a month-to-month arrangement.
In exchange for a monthly management fee, the related entity provides the Corporation with 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. Jonathan Sandelman and certain of the
executive officers are employed and compensated directly by Mercer Park, L.P. pursuant to the management agreement, which compensation
is reimbursed by the Corporation. For the three and six months ended June 30, 2020, the Corporation incurred management fees of
$1,193,206 and $2,322,258, respectively.

 

Interests
of Certain Persons and Companies in Matters to be Acted Upon

 

No
director, proposed director nominee or officer of the Corporation, or any person who has been a director or officer of the Corporation
at any time since the beginning of the Corporation’s last fiscal year, nor any associate or affiliate of any such person,
has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be
acted upon at the Meeting, other as set forth herein.

 

Interests
of Informed Persons in Material Transactions

 

No
director, proposed director nominee or officer of the Corporation, or any person who has been a director or officer of the Corporation
at any time since the beginning of the Corporation’s last fiscal year, nor any associate or affiliate of any such person,
has any material interests, direct or indirect, by way of beneficial ownership of securities or otherwise, in any proposed transaction
which has materially affected or would materially affect the Corporation or any of its subsidiaries other than as disclosed in
this Circular or under “Related Party Transactions and Balances” in the 2019 Financial Statements.

 

Additional
Information

 

The
Corporation’s financial information for the year ended December 31, 2019 is contained in the 2019 Financial Statements and
the management’s discussion and analysis for the three months and year ended December 31, 2019 and 2018 (the “2019
MD&A”). Additional information about the Corporation, including the 2019 Financial Statements and the 2019 MD&A
are accessible on SEDAR at www.sedar.com under the Corporation’s profile or on the Corporation’s website at
www.ayrstrategies.com. Shareholders may, upon request made via email at IR@ayrstrategies.com, receive a copy of
the 2019 Financial Statements and the 2019 MD&A. Shareholders may also obtain a hard copy of the Circular by following the
instructions on the notice of availability of proxy materials sent to their attention.

 

Approval
of Circular

 

The
contents and sending of this Circular have been approved by the Board.

 

DATED
at New York, New York on this 30th day of September, 2020.

 

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AYR
STRATEGIES INC.

 

“Jonathan
Sandelman”

 

Chairman, Chief Executive Officer and Corporate Secretary

 

    41

     

    

 

APPENDIX
 “A”

AMENDMENT
RESOLUTION

 

(See
attached)

 

    A - 1

     

    

 

AMENDMENT
RESOLUTION 

of

AYR
STRATEGIES INC.

(the
 “Corporation”)

 

RESOLVED
AS A SPECIAL RESOLUTION THAT: 

 

Amendment
of Articles

 

		1.	The
                                         articles of the Corporation dated July 31, 2017, as amended by the articles of amendment
                                         dated December 14, 2017, and as further amended by the articles of amendment dated May
                                         24, 2019 (the “Articles”) are authorized to be altered (collectively,
                                         the “Amendment”):

 

		(a)	to
                                         create two new share classes of the Corporation, being the restricted voting shares of
                                         the Corporation and the limited voting shares of the Corporation (or such other name
                                         designation as determined by the Chief Executive Officer of the Corporation), each without
                                         par value and having the special rights and restrictions substantially set out in Appendix
                                         “B” attached hereto; and

 

		(b)	to
                                         amend the terms of the existing multiple voting shares of the Corporation and the existing
                                         subordinate voting shares of the Corporation, each having the special rights and restrictions
                                         substantially set out in Appendix “B” attached hereto;

 

		2.	The
                                         Corporation shall adopt the amended articles substantially in the form set out in Appendix
                                         “B” hereto (the “Amended Articles”), with such amendments
                                         as any one director or officer of the Corporation may approve, and all amendments to
                                         the aforesaid Amended Articles, as amended, reflected therein are approved.

 

		3.	Amended
                                         Articles altering the Articles to reflect the effect of this resolution and the Amendment
                                         shall be filed by or on behalf of the Corporation.

 

		4.	The
                                         directors of the Corporation are authorized, in their discretion, by resolution, to abandon
                                         the Amendment and the Amended Articles without further approval, ratification or confirmation
                                         by the shareholders of the Corporation.

 

General

 

		5.	Any
                                         one or more of the directors or officers of the Corporation is hereby authorized and
                                         directed, acting for, in the name of and on behalf of the Corporation, to execute or
                                         cause to be executed, under the seal of the Corporation or otherwise, and to deliver
                                         or cause to be delivered, such other documents and instruments, and to do or cause to
                                         be done all such other acts and things, as may in the opinion of such director or officer
                                         of the Corporation be necessary or desirable to carry out the intent of the foregoing
                                         resolution (including, without limitation, the execution and filing of the aforementioned
                                         Amended Articles, and any applications, documents, filings or certificates in connection
                                         therewith), the execution of any such application, document, filing or certificate or
                                         the doing of any such other act or thing by any director or officer of the Corporation
                                         being conclusive evidence of such determination.

 

    A - 2

     

    

 

APPENDIX
 “B” 

PROPOSED AMENDED ARTICLES

 

(See
attached)

 

    B - 1

     

    

 

Article
1

Interpretation

 

		Section
                            1.1	Definitions

 

In
these Articles amended and restated articles (the “Articles”),
the following words and phrases have the meanings set out beside them:

 

“appropriate
person” has the meaning assigned in the Securities Transfer Act;

 

“board
of directors”, “directors” and “board” mean the directors or sole director of
the Company for the time being;

 

“Business
Corporations Act” means the Business Corporations Act (British Columbia) from time to time in force and all amendments
thereto and includes all regulations and amendments thereto made pursuant to that Act;

 

“Change
of Control Transaction” means an amalgamation, arrangement, recapitalization, business combination or similar transaction
of the Company, other than an amalgamation, arrangement, recapitalization, business combination or similar transaction that would
result in (i) the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the continuing entity or its direct or indirect parent) more than
fifty percent (50%) of the total voting power of the voting securities of the Company, the continuing entity or its direct or
indirect parent, and more than fifty percent (50%) of the total number of outstanding shares of the Company, the continuing entity
or its direct or indirect parent, in each case as outstanding immediately after such transaction, and (ii) the shareholders of
the Company immediately prior to the transaction owning voting securities of the Company, the continuing entity or its direct
or indirect parent immediately following the transaction in substantially the same proportions (vis-a-vis each other) as such
shareholders owned the voting securities of the Company immediately prior to the transaction (provided that in neither event shall
the exercise of any exchangeable shares of a subsidiary of the Company that are exchangeable into shares of the Company be taken
into account in such determination);

 

“Coattail
Agreement” has the meaning ascribed thereto in Section 25.2(1)(h);

 

“Company”
means the company whose name is set out at the top of page 1, being the company which has adopted these Articles;

 

“courts”
has the meaning ascribed thereto in Section 27.1(1);

 

“Covered
Persons” has the meaning ascribed thereto in Section 28.1;

 

“Equity
Shares” means collectively, the Multiple Voting Shares, the Subordinate Voting Shares, the Restricted Voting Shares
and the Limited Voting Shares, and “Equity Share” shall mean any of them;

 

“enforcement
action” has the meaning ascribed to such term in Section 27.1(2);

 

“Exchange”
means the Canadian Securities Exchange (including any successor stock exchange), or any other stock exchange on which the Subordinate
Voting Shares are then listed;

 

“Excluded
Opportunity” has the meaning ascribed to such term in Section 28.1;

 

“Foreign
Action” has the meaning ascribed to such term in Section 27.1(2);

 

“FPI
Threshold” has the meaning ascribed to such term in Section 25.3(1)(g)(2);

 

    B - 2

     

    

 

“Interpretation
Act” means the Interpretation Act (British Columbia) from time to time in force and all amendments thereto and
includes all regulations and amendments thereto made pursuant to that Act;

 

“legal
personal representative” means the personal or other legal representative of the shareholder;

 

“Limited
Voting Shares” means the limited voting shares of the Company, subject to regulatory approval, failing which, means
the non-voting shares of the Company and all references in these Articles to “Limited Voting Share” shall thereinafter
refer to “Non-Voting Share”;

 

“Multiple
Voting Shares” means the multiple voting shares of the Company;

 

“Nominating
Shareholder” has the meaning ascribed thereto in Section 26.1(1)(c);

 

“Non-U.S.
Person” means any Person or entity that is not a U.S. Person;

 

“Notice
Date” has the meaning ascribed thereto in Section 26.3(1)(a);

 

“Person”
means any individual, partnership, corporation, company, association, trust, joint venture or limited or unlimited liability company,
and for greater certainty, shall include any U.S. Person or Non-U.S. Person;

 

“protected
purchaser” has the meaning assigned in the Securities Transfer Act;

 

“registered
address” of a shareholder means the shareholder’s address as recorded in the central securities register;

 

“Restricted
Voting Shares” means the restricted voting shares of the Company;

 

“seal”
means the seal of the Company, if any;

 

“Securities
Act” means the Securities Act (British Columbia) from time to time in force and all amendments thereto and includes
all regulations and amendments thereto made pursuant to that Act;

 

“securities
legislation” means statutes concerning the regulation of securities markets and trading in securities and the regulations,
rules, forms and schedules under those statutes, all as amended from time to time, and the blanket rulings and orders, as amended
from time to time, issued by the securities commissions or similar regulatory authorities appointed under or pursuant to those
statutes; “Canadian securities legislation” means the securities legislation in any applicable province or
territory of Canada and includes the Securities Act; and “U.S. securities legislation” means the securities
legislation in the federal jurisdiction of the United States and in any state of the United States and includes the Securities
Act of 1933 and the Securities Exchange Act of 1934;

 

“Securities
Transfer Act” means the Securities Transfer Act (British Columbia) from time to time in force and all amendments
thereto and includes all regulations and amendments thereto made pursuant to that Act; and

 

“Specified
Exceptions” has the meaning ascribed thereto in Section 25.1(1)(g)(3);

 

“Subordinate
Voting Shares” means the subordinate voting shares of the Company.;

 

“U.S.
Person” has the meaning ascribed thereto in Rule 903(k) of Regulation S under the U.S. Securities Act (as may be amended
or replaced from time to time);

 

“U.S.
Securities Act” means the United States Securities Act of 1933, as amended.

 

    B - 3

     

    

 

		Section
                            1.2	Business
Corporations Act and Interpretation Act Definitions Applicable

 

The
definitions in the Business Corporations Act and the definitions and rules of construction in the Interpretation Act, with the
necessary changes, so far as applicable, and unless the context requires otherwise, apply to these Articles as if they were an
enactment. If there is a conflict between a definition in the Business Corporations Act and a definition or rule in the Interpretation
Act relating to a term used in these Articles, the definition in the Business Corporations Act will prevail in relation to the
use of the term in these Articles. If there is a conflict between these Articles and the Business Corporations Act, the Business
Corporations Act will prevail.

 

		Section
                                         1.3	Deeming
                                         Provision – Directly or Indirectly

  

For
purposes of these Articles, any reference to any of the Equity Shares that is “held” or “beneficially owned
or controlled” by a Person shall refer to and include such Equity Shares held, beneficially owned or controlled, directly
or indirectly, by such Person.

 

Article
2

SHARES AND SHARE CERTIFICATES

 

		Section
                            2.1	Authorized
Share Structure

 

The
authorized share structure of the Company consists of shares of the kinds, classes and, if any, series described in the Notice
of Articles of the Company.

 

		Section
                            2.2	Form
of Share Certificate

 

Each
share certificate issued by the Company must comply with, and be signed as required by, the Business Corporations Act.

 

		Section
                            2.3	Shareholder
Entitled to Certificate or Acknowledgment

 

Unless
the shares of which the shareholder is the registered owner are uncertificated shares within the meaning of the Business Corporations
Act, each shareholder is entitled, without charge, to (a) one share certificate representing the shares of each class or series
of shares registered in the shareholder’s name or (b) a non-transferable written acknowledgment of the shareholder’s
right to obtain such a share certificate, provided that in respect of a share held jointly by several personsPersons,
the Company is not bound to issue more than one share certificate or acknowledgment and delivery of a share certificate or an
acknowledgment to one of several joint shareholders or to a duly authorized agent of one of the joint shareholders will be sufficient
delivery to all.

 

		Section
                            2.4	Delivery
by Mail

 

Any
share certificate or non-transferable written acknowledgment of a shareholder’s right to obtain a share certificate may
be sent to the shareholder by mail at the shareholder’s registered address and neither the Company nor any director, officer
or agent of the Company (including the Company’s legal counsel or transfer agent) is liable for any loss to the shareholder
because the share certificate or acknowledgement is lost in the mail or stolen.

 

		Section
                            2.5	Replacement
of Worn Out or Defaced Certificate or Acknowledgement

 

		(1)	If
                                         the Company is satisfied that a share certificate or a non-transferable written acknowledgment
                                         of the shareholder’s right to obtain a share certificate is worn out or defaced,
                                         it must, on production to it of the share certificate or acknowledgment, as the case
                                         may be, and on such other terms, if any, as it thinks fit:

 

		(a)	order
                                         the share certificate or acknowledgment, as the case may be, to be cancelled; and

 

		(b)	issue
                                         a replacement share certificate or acknowledgment, as the case may be.

 

    B - 4

     

    

 

		Section
                            2.6	Replacement
of Lost, Destroyed or Wrongfully Taken Certificate

 

		(1)	If
                                         a person Person
                                         entitled to a share certificate claims that the share certificate has been lost, destroyed
                                         or wrongfully taken, the Company must issue a new share certificate, if that person
                                         Person:

 

		(a)	so
                                         requests before the Company or its transfer agent has notice that the share certificate
                                         has been acquired by a protected purchaser;

 

		(b)	provides
                                         the Company and its transfer agent with an indemnity bond sufficient in the Company and
                                         its transfer agent’s judgement judgment
                                         to protect the Company and its transfer agent from any loss that the Company
                                         or its transfer agent may suffer by issuing a new certificate; and

 

		(c)	satisfies
                                         any other reasonable requirements imposed by the Company or its transfer agent.

 

A
person Person entitled to a share certificate may not
assert against the Company a claim for a new share certificate where a share certificate has been lost, apparently destroyed or
wrongfully taken if that person Person fails to notify
the Company of that fact within a reasonable time after that person Person
has notice of it and the Company registers a transfer of the shares represented by the certificate before receiving
a notice of the loss, apparent destruction or wrongful taking of the share certificate.

 

		Section
                            2.7	Recovery
of New Share Certificate

 

If,
after the issue of a new share certificate, a protected purchaser of the original share certificate presents the original share
certificate for the registration of transfer, then in addition to any rights under any indemnity bond, the Company may recover
the new share certificate from a person Person to whom
it was issued or any person Person taking under that
person Person other than a protected purchaser.

 

		Section
                            2.8	Splitting
Share Certificates

 

If
a shareholder surrenders a share certificate to the Company with a written request that the Company issue in the shareholder’s
name two or more share certificates, each representing a specified number of shares and in the aggregate representing the same
number of shares as represented by the share certificate so surrendered, the Company must cancel the surrendered share certificate
and issue replacement share certificates in accordance with that request.

 

		Section
                            2.9	Certificate
Fee

 

There
must be paid to the Company, in relation to the issue of any share certificate under Sections 2.5, 2.6 or 2.8, the amount, if
any and which must not exceed the amount prescribed under the Business Corporations Act, determined by the directors.

 

		Section
                            2.10	Recognition
of Trusts

 

Except
as required by law or statute or these Articles, no person Person
will be recognized by the Company as holding any share upon any trust, and the Company is not bound by or compelled
in any way to recognize (even when having notice thereof) any equitable, contingent, future or partial interest in any share or
fraction of a share or (except as required by law or statute or these Articles or as ordered by a court of competent jurisdiction)
any other rights in respect of any share except an absolute right to the entirety thereof in the shareholder.

 

Article
3

ISSUE OF SHARES

 

		Section
                            3.1	Directors
Authorized

 

Subject
to the Business Corporations Act and the rights of the holders of issued shares of the Company, the Company may allot, sell, issue
and otherwise dispose of the unissued shares, and issued shares held by the Company, at the times, to the personsPersons,
including directors, in the manner, on the terms and conditions and for the issue prices (including any premium at which shares
with par value may be issued) that the directors may determine. The issue price for a share with par value must be equal to or
greater than the par value of the share.

 

    B - 5

     

    

 

		Section
                            3.2	Commissions
and Discounts

 

The
Company may pay at any time a reasonable commission or allow a reasonable discount to any person Person
in consideration of that person Person purchasing
or agreeing to purchase shares of the Company from the Company or any other person Person
or procuring or agreeing to procure purchasers for shares of the Company.

 

		Section
                            3.3	Brokerage

 

The
Company may pay such brokerage fee or other consideration as may be lawful for or in connection with the sale or placement of
its securities.

 

		Section
                            3.4	Conditions
of Issue

 

		(1)	Except
                                         as provided for by the Business Corporations Act, no share may be issued until it is
                                         fully paid. A share is fully paid when:

 

		(a)	consideration
                                         is provided to the Company for the issue of the share by one or more of the following:

 

		(i)	past
                                         services performed for the Company;

 

		(ii)	property;

 

		(iii)	money;
                                         and

 

		(b)	the
                                         value of the consideration received by the Company equals or exceeds the issue price
                                         set for the share under Section 3.1.

 

		Section
                            3.5	Share
Purchase Warrants and Rights

 

Subject
to the Business Corporations Act, the Company may issue share purchase warrants, options and rights upon such terms and conditions
as the directors determine, which share purchase warrants, options and rights may be issued alone or in conjunction with debentures,
debenture stock, bonds, shares or any other securities issued or created by the Company from time to time.

 

Article
4

SHARE REGISTERS

 

		Section
                            4.1	Central
Securities Register

 

		(1)	The
                                         Company must maintain in British Columbia a central securities register as required by
                                         the Business Corporations Act. The directors may appoint:

 

		(a)	an
                                         agent to maintain the central securities register; and

 

		(b)	one
                                         or more agents, including the agent which keeps the central securities register, as transfer
                                         agent for its shares or any class or series of its shares, as the case may be, and the
                                         same or another agent as registrar for its shares or such class or series of its shares.

 

The
directors may terminate such appointment of any agent at any time and may appoint another agent in its place.

 

    B - 6

     

    

 

		(2)	So
                                         long as they are publicly listed and subject to the Business Corporations Act, the Subordinate
                                         Voting Shares, Restricted Voting Shares and Limited Voting Shares may, in the Company’s
                                         discretion, be subject to a single securities register (with appropriate notations to
                                         indicate the applicable class where applicable). 

 

		Section
                            4.2	Closing
Register

 

The
Company must not at any time close its central securities register.

 

Article
5

SHARE TRANSFERS

 

		Section
                            5.1	Registering
Transfers

 

		(1)	The
                                         Company must register a transfer of a share of the Company if either:

 

		(a)	the
                                         Company or the transfer agent or registrar for the class or series of share to be transferred
                                         has received:

 

		(i)	in
                                         the case where the Company has issued a share certificate in respect of the share to
                                         be transferred, that share certificate and a written instrument of transfer (which may
                                         be on a separate document or endorsed on the share certificate) made by the shareholder
                                         or other appropriate person Person
                                         or by an agent who has actual authority to act on behalf of that person
                                         Person;

 

		(ii)	in
                                         the case of a share that is not represented by a share certificate (including an uncertificated
                                         share within the meaning of the Business Corporations Act and including the case where
                                         the Company has issued a non-transferable written acknowledgement of the shareholder’s
                                         right to obtain a share certificate in respect of the share to be transferred), a written
                                         instrument of transfer, made by the shareholder or other appropriate person Person
                                         or by an agent who has actual authority to act on behalf of that person
                                         Person; and

 

		(iii)	such
                                         other evidence, if any, as the Company or the transfer agent or registrar for the class
                                         or series of share to be transferred may require to prove the title of the transferor
                                         or the transferor’s right to transfer the share, that the written instrument of
                                         transfer is genuine and authorized and that the transfer is rightful or to a protected
                                         purchaser (which may include a medallion or similar signature guarantee); or

 

		(b)	all
                                         the preconditions for a transfer of a share under the Securities Transfer Act have been
                                         met and the Company is required under the Securities Transfer Act to register the transfer.

 

		Section
                            5.2	Waivers
of Requirements for Transfer

 

The
Company may waive any of the requirements set out in Section 5.1(1)(a) and any of the preconditions referred to in Section 5.1(1)(b).

 

		Section
                            5.3	Form
of Instrument of Transfer

 

The
instrument of transfer in respect of any share of the Company must be either in the form, if any, on the back of the Company’s
share certificates or in any other form that may be approved by the Company or the transfer agent for the class or series of shares
to be transferred.

 

    B - 7

     

    

 

		Section
                            5.4	Transferor
Remains Shareholder

 

Except
to the extent that the Business Corporations Act otherwise provides, the transferor of shares is deemed to remain the holder
of the shares until the name of the transferee is entered in a securities register of the Company in respect of the transfer.

 

		Section
                            5.5	Signing
of Instrument of Transfer

 

If
a shareholder or other appropriate person Person or
an agent who has actual authority to act on behalf of that personPerson,
signs an instrument of transfer in respect of shares registered in the name of the shareholder, subject to the Company or its
transfer agent requiring a medallion or similar signature guarantee and/or other evidence of authority, the signed instrument
of transfer constitutes a complete and sufficient authority to the Company and its directors, officers and agents to register
the number of shares specified in the instrument of transfer or specified in any other manner, or, if no number is specified but
share certificates are deposited with the instrument of transfer, all the shares represented by such share certificates:

 

		(a)	in
                                         the name of the person Person
                                         named as transferee in that instrument of transfer; or

 

		(b)	if
                                         no person Person is
                                         named as transferee in that instrument of transfer, in the name of the person
                                         Person on whose behalf
                                         the instrument is deposited for the purpose of having the transfer registered.

 

		Section
                            5.6	Enquiry
as to Title Not Required

 

Neither
the Company nor any director, officer or agent of the Company is bound to inquire into the title of the person Person
named in the instrument of transfer as transferee or, if no person Person
is named as transferee in the instrument of transfer, of the person Person
on whose behalf the instrument is deposited for the purpose of having the transfer registered or is liable for any
claim related to registering the transfer by the shareholder or by any intermediate owner or holder of the shares, of any interest
in the shares, of any share certificate representing such shares or of any written acknowledgment of a right to obtain a share
certificate for such shares.

 

Article
6

TRANSMISSION OF SHARES

 

		Section
                            6.1	Legal
Personal Representative Recognized on Death

 

In
the case of the death of a shareholder, the legal personal representative of the shareholder, or in the case of shares registered
in the shareholder’s name and the name of another person Person
in joint tenancy, the surviving joint holder, will be the only person Person
recognized by the Company as having any title to the shareholder’s interest in the shares. Before recognizing
a person Person as a legal personal representative of
a shareholder, the directors may require the original grant of probate or letters of administration or a court certified copy
of them or the original or a court certified or authenticated copy of the grant of representation, will, order or other instrument
or other evidence of the death under which title to the shares or securities is claimed to vest.

 

		Section
                            6.2	Rights
of Legal Personal Representative

 

The
legal personal representative of a shareholder has the rights, privileges and obligations that attach to the shares held by the
shareholder, including the right to transfer the shares in accordance with these Articles and applicable securities legislation,
if appropriate evidence of appointment or incumbency within the meaning of the Securities Transfer Act has been deposited with
the Company. This Section 6.2 does not apply in the case of the death of a shareholder with respect to shares registered in the
shareholder’s name and the name of another person Person
in joint tenancy.

 

    B - 8

     

    

 

Article
7

PURCHASE OF SHARES

 

		Section
                            7.1	Company
Authorized to Purchase or Otherwise Acquire Shares

 

Subject
to Section 7.2, the special rights or restrictions attached to the shares of any class or series of shares, the Business Corporations
Act and applicable securities legislation, the Company may, if authorized by the directors, purchase or otherwise acquire any
of its shares at the price and upon the terms determined by the directors.

 

		Section
                            7.2	No
Purchase, Redemption or Other Acquisition When Insolvent

 

		(1)	The
                                         Company must not make a payment or provide any other consideration to purchase, redeem
                                         or otherwise acquire any of its shares if there are reasonable grounds for believing
                                         that:

 

		(a)	the
                                         Company is insolvent; or

 

		(b)	making
                                         the payment or providing the consideration would render the Company insolvent.

 

		Section
                            7.3	Sale
and Voting of Purchased, Redeemed or Otherwise Acquired Shares

 

		(1)	If
                                         the Company retains a share redeemed, purchased or otherwise acquired by it, the Company
                                         may sell or otherwise dispose of the share, but, while such share is held by the Company,
                                         it:

 

		(a)	is
                                         not entitled to vote the share at a meeting of its shareholders;

 

		(b)	must
                                         not pay a dividend in respect of the share; and

 

		(c)	must
                                         not make any other distribution in respect of the share.

 

Article
8

BORROWING POWERS

 

		(1)	The
                                         Company, if authorized by the directors, may:

 

		(a)	borrow
                                         money in the manner and amount, on the security, from the sources and on the terms and
                                         conditions that they consider appropriate;

 

		(b)	issue
                                         bonds, debentures and other debt obligations either outright or as security for any liability
                                         or obligation of the Company or any other person Person
                                         and at such discounts or premiums and on such other terms as they consider
                                         appropriate;

 

		(c)	guarantee
                                         the repayment of money by any other person Person
                                         or the performance of any of any other personPerson;
                                         and

 

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

 

    B - 9

     

    

 

Article
9

ALTERATIONS

 

		Section
                            9.1	Alteration
of Authorized Share Structure

 

		(1)	Subject
                                         to Section 9.2, the Company may by:

 

		(a)	a
                                         resolution of its board of directors:

 

		(i)	increase,
                                         reduce or eliminate the maximum number of shares that the Company is authorized to issue
                                         out of any class or series of shares or establish a maximum number of shares that the
                                         Company is authorized to issue out of any class or series of shares for which no maximum
                                         is established;

 

		(ii)	change
                                         all or any of its unissued, or fully paid issued, shares with par value into shares without
                                         par value or any of its unissued shares without par value into shares with par value;

 

		(iii)	alter
                                         the identifying name of any of its shares; and

 

		(iv)	subdivide
                                         or consolidate all or any of its unissued, or fully paid issued, shares.

 

		(b)	an
                                         ordinary resolution:

 

		(i)	create
                                         one or more classes or series of shares or, if none of the shares of a class or series
                                         of shares are allotted or issued, eliminate that class or series of shares; and

 

		(ii)	if
                                         the Company is authorized to issue shares of a class of shares with par value:

 

		(A)	decrease
                                         the par value of those shares; and

 

		(B)	if
                                         none of the shares of that class of shares are allotted or issued, increase the par value
                                         of those shares.

 

		(c)	a
                                         special resolution, otherwise alter its shares or authorized share structure when required
                                         or permitted to do so by the Business Corporations Act.

 

		Section
                            9.2	Special
Rights and Restrictions

 

		(1)	The
                                         Company may by ordinary resolution:

 

		(a)	create
                                         special rights or restrictions for, and attach those special rights or restrictions to,
                                         the shares of any class or series of shares, unless any of those shares have been issued
                                         in which case the Company may do so only by special resolution; or

 

		(b)	vary
                                         or delete any special rights or restrictions attached to the shares of any class or series
                                         of unless any of those shares have been issued in which case the Company may do so only
                                         by special resolution.

 

		Section
                            9.3	Change
of Name

 

The
Company may by a resolution of its board of directors or ordinary resolution authorize an alteration of its Notice of Articles
to change its name or adopt or change any translation of that name.

 

		Section
                            9.4	Other
Alterations

 

If
the Business Corporations Act does not specify the type of resolution and these Articles do not specify another type of
resolution, the Company may by ordinary resolution alter these Articles.

 

    B - 10

     

    

 

Article
10

MEETINGS OF SHAREHOLDERS

 

		Section
                            10.1	Annual
General Meetings

 

The
Company must, unless an annual general meeting is deferred or waived in accordance with the Business Corporations Act, hold its
first annual general meeting following incorporation, amalgamation or continuation within 18 months after the date on which it
was incorporated or otherwise created and recognized, and after that must hold an annual general meeting at least once in each
calendar year and not more than 15 months after the last annual reference date at such time and place, either in or outside British
Columbia, as may be determined by the directors.

 

		Section
                            10.2	Resolution
Instead of Annual General Meeting

 

If
all the shareholders entitled to vote at an annual general meeting consent by a unanimous resolution under the Business Corporations
Act to all of the business required to be transacted at that annual general meeting, the meeting is deemed to have been held on
the date of the unanimous resolution. The shareholders must, in any unanimous resolution passed under this Section 10.2, select
as the Company’s annual reference date a date that would be appropriate for the holding of the applicable annual general
meeting.

 

		Section
                            10.3	Calling
and Location of Meetings of Shareholders

 

The
directors may, whenever they think fit, call a meeting of shareholders to be held at such time and place, either in or outside
British Columbia, as may be determined by the directors.

 

		Section
                            10.4	Notice
for Meetings of Shareholders

 

The
Company must send notice of the date, time and location of any meeting of shareholders (including, without limitation, any notice
specifying the intention to propose a resolution as an exceptional resolution, a special resolution or a special separate resolution,
and any notice to consider approving an amalgamation into a foreign jurisdiction, an arrangement or the adoption of an amalgamation
agreement, and any notice of a general meeting, class meeting or series meeting), in the manner provided in these Articles, or
in such other manner, if any, as may be prescribed by ordinary resolution (whether previous notice of the resolution has been
given or not), to each shareholder entitled to attend the meeting, to each director and to the auditor of the Company, unless
these Articles otherwise provide, at least the following number of days before the meeting:

 

		(a)	if
                                         and for so long as the Company is a public company, 21 days; and

 

		(b)	otherwise,
                                         10 days.

 

		Section
                            10.5	Record
Date for Notice

 

The
directors may set a date as the record date for the purpose of determining shareholders entitled to notice of any meeting of shareholders.
The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general
meeting requisitioned by shareholders under the Business Corporations Act, by more than four months. The record date must not
precede the date on which the meeting is held by fewer than:

 

		(a)	if
                                         and for so long as the Company is a public company, 21 days; and

 

		(b)	otherwise,
                                         10 days.

 

If
no record date is set, it is 5:00 p.m. (Vancouver time) on the business day immediately preceding the first date on which the
notice is sent or, if no notice is sent, the beginning of the meeting.

 

    B - 11

     

    

 

		Section
                            10.6	Record
Date for Voting

 

The
directors may set a date as the record date for the purpose of determining shareholders entitled to vote at any meeting of shareholders.
The record date must not precede the date on which the meeting is to be held by more than two months or, in the case of a general
meeting requisitioned by shareholders under the Business Corporations Act, by more than four months. If no record date is set,
the record date is 5:00 p.m. (Vancouver time) on the day immediately preceding the first date on which the notice is sent or,
if no notice is sent, the beginning of the meeting.

 

		Section
                            10.7	Failure
to Give Notice and Waiver of Notice

 

The
accidental omission to send notice of any meeting to, or the non-receipt of any notice by, any of the persons Persons
entitled to notice does not invalidate any proceedings at that meeting. Any person Person
entitled to notice of a meeting of shareholders may, in writing or otherwise, waive or reduce the period of notice
of such meeting. Attendance of a person Person at a
meeting of shareholders is a waiver of entitlement to notice of the meeting unless that person Person
attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the
meeting is not lawfully called.

 

		Section
                            10.8	Notice
of Special Business at Meetings of Shareholders

 

		(1)	If
                                         a meeting of shareholders is to consider special business within the meaning of Section
                                         11.1, the notice of meeting must:

 

		(a)	state
                                         the general nature of the special business; and

 

		(b)	if
                                         the special business includes considering, approving, ratifying, adopting or authorizing
                                         any document or the signing of or giving of effect to any document, have attached to
                                         it a copy of the document or state that a copy of the document will be available for
                                         inspection by shareholders:

 

		(i)	at
                                         the Company’s records office, or at such other reasonably accessible location in
                                         British Columbia as is specified in the notice; and

 

		(ii)	during
                                         statutory business hours on any one or more specified days before the day set for the
                                         holding of the meeting.

 

		Section
                            10.9	Class
Meetings and Series Meetings of Shareholders

 

Unless
otherwise specified in these Articles, the provisions of these Articles relating to a meeting of shareholders will apply, with
the necessary changes and so far as they are applicable, to a class meeting or series meeting of shareholders holding a particular
class or series of shares.

 

		Section
                            10.10	Electronic
Meetings

 

The
directors may determine that a meeting of shareholders shall be held entirely by means of telephonic, electronic or other communication
facilities that permit all participants to communicate with each other during the meeting. A meeting of shareholders may also
be held at which some, but not necessarily all, persons Persons
entitled to attend may participate by means of such communications facilities, if the directors determine to make them
available. A person Person participating in a meeting
by such means is deemed to be present at the meeting.

 

    B - 12

     

    

 

Article
11

PROCEEDINGS AT MEETINGS OF SHAREHOLDERS

 

		Section
                            11.1	Special
Business

 

		(1)	At
                                         a meeting of shareholders, the following business is special business:

 

		(a)	at
                                         a meeting of shareholders that is not an annual general meeting, all business is special
                                         business except business relating to the conduct of or voting at the meeting;

 

		(b)	at
                                         an annual general meeting, all business is special business except for the following:

 

		(i)	business
                                         relating to the conduct of or voting at the meeting;

 

		(ii)	consideration
                                         of any financial statements of the Company presented to the meeting;

 

		(iii)	consideration
                                         of any reports of the directors or auditor;

 

		(iv)	the
                                         setting or changing of the number of directors;

 

		(v)	the
                                         election or appointment of directors;

 

		(vi)	the
                                         appointment of an auditor;

 

		(vii)	the
                                         setting of the remuneration of an auditor;

 

		(viii)	business
                                         arising out of a report of the directors not requiring the passing of a special resolution
                                         or an exceptional resolution; and

 

		(ix)	any
                                         other business which, under these Articles or the Business Corporations Act, may be transacted
                                         at a meeting of shareholders without prior notice of the business being given to the
                                         shareholders.

 

		Section
                            11.2	Special
Majority

 

The
majority of votes required for the Company to pass a special resolution at a meeting of shareholders is two-thirds of the votes
cast on the resolution.

 

		Section
                            11.3	Quorum

 

Subject
to the special rights and restrictions attached to the shares of any class or series of shares and to Section 11.4, the quorum
for the transaction of business at a meeting of shareholders is two shareholders who are present in person Person
or represented by proxy and who represent at least 25% of the applicable class or series of shares.

 

		Section
                            11.4	One
Shareholder May Constitute Quorum

 

		(1)	If
                                         there is only one shareholder entitled to vote at a meeting of shareholders:

 

		(a)	the
                                         quorum is one person Person
                                         who is, or who represents by proxy, that shareholder, and

 

		(b)	that
                                         shareholder, present in person Person
                                         or by proxy, may constitute the meeting.

 

		Section
                            11.5	Other
Persons May Attend

 

The
directors, the president (if any), the corporate secretary (if any),
the assistant secretary (if any), any lawyer for the Company, the auditor of the Company and any other persons Persons
invited by the directors are entitled to attend any meeting of shareholders, but if any of those persons Persons
does attend a meeting of shareholders, that person Person
is not to be counted in the quorum and is not entitled to vote at the meeting unless that person Person
is a shareholder or proxy holder entitled to vote at the meeting.

 

    B - 13

     

    

 

		Section
                            11.6	Requirement
of Quorum

 

No
business, other than the election of a chair of the meeting and the adjournment of the meeting, may be transacted at any meeting
of shareholders unless a quorum of shareholders entitled to vote is present at the commencement of the meeting, but such quorum
need not be present throughout the meeting.

 

		Section
                            11.7	Lack
of Quorum

 

		(1)	If,
                                         within one-half hour from the time set for the holding of a meeting of shareholders,
                                         a quorum is not present:

 

		(a)	in
                                         the case of a general meeting requisitioned by shareholders, the meeting is dissolved,
                                         and

 

		(b)	in
                                         the case of any other meeting of shareholders, the meeting stands adjourned to the same
                                         day in the next week at the same time and place.

 

		Section
                            11.8	Lack
of Quorum at Succeeding Meeting

 

If,
at the meeting to which the meeting referred to in Section 11.7(1)(b) was adjourned, a quorum is not present within one-half hour
from the time set for the holding of the meeting, the person or persons Person
or Persons present and being, or representing by proxy, one or more shareholders entitled to attend and vote at the
meeting constitute a quorum.

 

		Section
                            11.9	Chair

 

		(1)	The
                                         following individuals are entitled to preside as chair at a meeting of shareholders:

 

		(a)	the
                                         chair of the board, if any; or

 

		(b)	if
                                         the chair of the board is absent or unwilling to act as chair of the meeting, the first
                                         of the following individuals to agree to act as chair: the chief
                                         executive officer or the president, if any.

 

		Section
                            11.10	Selection
of Alternate Chair

 

If,
at any meeting of shareholders, the chair of the board or president are not present within 15 minutes after the time set for holding
the meeting, or if the chair of the board and the president are unwilling to act as chair of the meeting, or if the chair of the
board and the president have advised the corporate secretary, if any,
or any director present at the meeting, that they will not be present at the meeting, one of the chief executive officer, the
chief financial officer, a vice-president, the corporate secretary or
the Company’s legal counsel may act as chair of the meeting and, failing them, the directors present must choose one of
their number to be chair of the meeting or if all of the directors present decline to take the chair or fail to so choose or if
no director is present, the shareholders entitled to vote at the meeting who are present in person Person
or by proxy may choose any person Person present
at the meeting to chair the meeting.

 

		Section
                            11.11	Adjournments

 

The
chair of a meeting of shareholders may, and if so directed by the meeting must, adjourn the meeting from time to time and from
place to place, but no business may be transacted at any adjourned meeting other than the business left unfinished at the meeting
from which the adjournment took place.

 

		Section
                            11.12	Notice
of Adjourned Meeting

 

It
is not necessary to give any notice of an adjourned meeting or of the business to be transacted at an adjourned meeting of shareholders
except that, when a meeting is adjourned for 30 days or more, notice of the adjourned meeting must be given as in the case of
the original meeting.

 

    B - 14

     

    

 

		Section
                            11.13	Electronic
Voting

 

Any
vote at a meeting of shareholders may be held entirely or partially by means of telephonic, electronic or other communications
facilities, if the directors determine to make them available, whether or not persons Persons
entitled to attend participate in the meeting by means of communications facilities.

 

		Section
                            11.14	Decisions
by Show of Hands or Poll

 

		(1)	Subject
                                         to the Business Corporations Act:

 

		(a)	for
                                         so long as any Multiple Voting Shares are outstanding, every motion put to a vote at
                                         a meeting of shareholders will be decided by a poll, unless the chair determines otherwise;

 

		(b)	if
                                         no Multiple Voting Shares are outstanding, every motion put to a vote at a meeting of
                                         shareholders will be decided on a show of hands or the functional equivalent of a show
                                         of hands by means of electronic, telephonic or other communications facility, unless
                                         a poll, before or on the declaration of the result of the vote by show of hands or the
                                         functional equivalent of a show of hands, is directed by the chair or demanded by at
                                         least one shareholder entitled to vote who is present in person Person
                                         or by proxy.

 

		Section
                            11.15	Declaration
of Result

 

The
chair of a meeting of shareholders must declare to the meeting the decision on every question in accordance with the result of
the show of hands (or its functional equivalent) or the poll, as the case may be, and that decision must be entered in the minutes
of the meeting. A declaration of the chair that a resolution is carried by the necessary majority or is defeated is, unless a
poll is directed by the chair or demanded under Section 11.14, conclusive evidence without proof of the number or proportion of
the votes recorded in favour of or against the resolution.

 

		Section
                            11.16	Motion
Need Not be Seconded

 

No
motion proposed at a meeting of shareholders need be seconded unless the chair of the meeting rules otherwise, and the chair of
any meeting of shareholders is entitled to propose or second a motion.

 

		Section
                            11.17	Casting
Vote

 

In
case of an equality of votes, the chair of a meeting of shareholders does not, either on a show of hands or on a poll, have a
second or casting vote in addition to the vote or votes to which the chair may be entitled as a shareholder.

 

		Section
                            11.18	Manner
of Taking Poll

 

		(1)	Subject
                                         to Section 11.19, if a poll is duly demanded at a meeting of shareholders:

 

		(a)	the
                                         poll must be taken:

 

		(i)	at
                                         the meeting, or within seven days after the date of the meeting, as the chair of the
                                         meeting directs; and

 

		(ii)	in
                                         the manner, at the time and at the place that the chair of the meeting directs;

 

		(b)	the
                                         result of the poll is deemed to be the decision of the meeting at which the poll is demanded;
                                         and

 

		(c)	the
                                         demand for the poll may be withdrawn by the person Person
                                         who demanded it.

 

    B - 15

     

    

 

		Section
                            11.19	Demand
for Poll on Adjournment

 

A
poll demanded at a meeting of shareholders on a question of adjournment must be taken immediately at the meeting.

 

		Section
                            11.20	Chair
Must Resolve Dispute

 

In
the case of any dispute as to the admission or rejection of a vote given on a poll, the chair of the meeting must determine the
dispute, and their determination made in good faith is final and conclusive.

 

		Section
                            11.21	Casting
of Votes

 

On
a poll, a shareholder entitled to more than one vote need not cast all the votes in the same way.

 

		Section
                            11.22	No
Demand for Poll on Election of Chair

 

No
poll may be demanded in respect of the vote by which a chair of a meeting of shareholders is elected.

 

		Section
                            11.23	Demand
for Poll Not to Prevent Continuance of Meeting

 

The
demand for a poll at a meeting of shareholders does not, unless the chair of the meeting so rules, prevent the continuation of
a meeting for the transaction of any business other than the question on which a poll has been demanded.

 

		Section
                            11.24	Retention
of Ballots and Proxies

 

The
Company must, for at least three months after a meeting of shareholders, keep each ballot cast on a poll and each proxy voted
at the meeting at its records office, and, during that period, make them available for inspection during normal business hours
by any shareholder or proxyholder entitled to vote at the meeting. At the end of such three -month
period, the Company may destroy such ballots and proxies.

 

Article
12

VOTES OF SHAREHOLDERS

 

		Section
                            12.1	Number
of Votes by Shareholder or by Shares

 

		(1)	Subject
                                         to Section 25.2(1) and any other special rights or restrictions attached to any shares
                                         and to the restrictions imposed on joint shareholders under Section 12.3:

 

		(a)	on
                                         a vote by show of hands, every person Person
                                         present who is a shareholder or proxy holder and entitled to vote on the matter
                                         has one vote; and

 

		(b)	on
                                         a poll, every shareholder entitled to vote on the matter is entitled, in respect of each
                                         share entitled to be voted on the matter and held by that shareholder, to that number
                                         of votes provided by these Articles or the Business Corporations Act and may exercise
                                         that vote either in person Person
                                         or by proxy.

 

		Section
                            12.2	Votes
of Persons in Representative Capacity

 

A
person Person who is not a shareholder may vote at a
meeting of shareholders, whether on a show of hands or on a poll, and may appoint a proxy holder to act at the meeting, if, before
doing so, the person Person satisfies the chair of the
meeting, or the directors, that the person Person is
a legal personal representative or a trustee in bankruptcy for a shareholder who is entitled to vote at the meeting.

 

    B - 16

     

    

 

		Section
                            12.3	Votes
by Joint Holders

 

		(1)	If
                                         there are joint shareholders registered in respect of any share:

 

		(a)	any
                                         one of the joint shareholders may vote at any meeting of shareholders, either personally
                                         or by proxy, in respect of the share as if that joint shareholder were solely entitled
                                         to it; or

 

		(b)	if
                                         more than one of the joint shareholders is present at any meeting of shareholders, personally
                                         or by proxy, and more than one of them votes in respect of that share, then only the
                                         vote of the joint shareholder present whose name stands first on the central securities
                                         register in respect of the share will be counted.

 

		Section
                            12.4	Legal
Personal Representatives as Joint Shareholders

 

Two
or more legal personal representatives of a shareholder in whose sole name any share is registered are, for the purposes of Section
12.3, deemed to be joint shareholders.

 

		Section
                            12.5	Representative
of a Corporate Shareholder

 

		(1)	If
                                         a corporation, that is not a subsidiary of the Company, is a shareholder, that corporation
                                         may appoint a person Person
                                         to act as Its its representative at any meeting of shareholders
                                         of the Company, and:

 

		(a)	for
                                         that purpose, the instrument appointing a representative must:

 

		(i)	be
                                         received at the registered office of the Company or at any other place specified, in
                                         the notice calling the meeting, for the receipt of proxies, at least the number of business
                                         days specified in the notice for the receipt of proxies, or if no number of days is specified,
                                         two business days before the day set for the holding of the meeting; or

 

		(ii)	be
                                         provided, at the meeting, to the chair of the meeting or to a person Person
                                         designated by the chair of the meeting;

 

		(b)	if
                                         a representative is appointed under this Section 12.5:

 

		(i)	the
                                         representative is entitled to exercise in respect of and at that meeting the same rights
                                         on behalf of the corporation that the representative represents as that corporation could
                                         exercise if it were a shareholder who is an individual, including, without limitation,
                                         the right to appoint a proxy holder; and

 

		(ii)	the
                                         representative, if present at the meeting, is to be counted for the purpose of forming
                                         a quorum and is deemed to be a shareholder present in person Person
                                         at the meeting.

 

Evidence
of the appointment of any such representative may be sent to the Company by written instrument, fax or any other method of transmitting
legibly recorded messages.

 

		Section
                            12.6	When
Proxy Provisions Do Not Apply to the Company

 

Sections
12.9 and 12.12 do not apply to the Company if and for so long as it is a public company.

 

		Section
                            12.7	Appointment
of Proxy Holders

 

Every
shareholder of the Company, including a corporation that is a shareholder but not a subsidiary of the Company, entitled to vote
at a meeting of shareholders of the Company may, by proxy, appoint one or more (but not more than five) proxy holders to attend
and act at the meeting in the manner, to the extent and with the powers conferred by the proxy.

 

    B - 17

     

    

 

		Section
                            12.8	Alternate
Proxy Holders

 

A
shareholder may appoint one or more alternate proxy holders to act in the place of an absent proxy holder.

 

		Section
                            12.9	When
Proxy Holder Need Not Be Shareholder

 

		(1)	Subject
                                         to Section 12.6 a person Person
                                         must not be appointed as a proxy holder unless the person Person
                                         is a shareholder, although a person Person who is not a shareholder
                                         may be appointed as a proxy holder if:

 

		(a)	the
                                         person Person appointing
                                         the proxy holder is a corporation or a representative of a corporation appointed under
                                         Section 12.5;

 

		(b)	the
                                         Company has at the time of the meeting for which the proxy holder is to be appointed
                                         only one shareholder entitled to vote at the meeting;

 

		(c)	the
                                         shareholders present in person Person
                                         or by proxy at and entitled to vote at the meeting for which the proxy holder
                                         is to be appointed, by a resolution on which the proxy holder is not entitled to vote
                                         but in respect of which the proxy holder is to be counted in the quorum, permit the proxy
                                         holder to attend and vote at the meeting.

 

		Section
                            12.10	Deposit
of Proxy

 

		(1)	A
                                         proxy for a meeting of shareholders must:

 

		(a)	be
                                         received at the registered office of the Company or at any other place specified, in
                                         the notice calling the meeting, for the receipt of proxies, at least the number of business
                                         days specified in the notice, or if no number of days is specified, two business days
                                         before the day set for the holding of the meeting; or

 

		(b)	unless
                                         the notice provides otherwise, be provided, at the meeting, to the chair of the meeting
                                         or to a person Person
                                         designated by the chair of the meeting. A proxy may be sent to the Company
                                         by written instrument, fax or any other method of transmitting legibly recorded messages.

 

		Section
                            12.11	Validity
of Proxy Vote

 

		(1)	A
                                         vote given in accordance with the terms of a proxy is valid notwithstanding the death
                                         or incapacity of the shareholder giving the proxy and despite the revocation of the proxy
                                         or the revocation of the authority under which the proxy is given, unless notice in writing
                                         of that death, incapacity or revocation is received:

 

		(a)	at
                                         the registered office of the Company, at any time up to and including the last business
                                         day before the day set for the holding of the meeting at which the proxy is to be used;
                                         or

 

		(b)	by
                                         the chair of the meeting, before the vote is taken.

 

		Section
                            12.12	Form
of Proxy

 

		(1)	Subject
                                         to Section 12.6, a proxy, whether for a specified meeting or otherwise, must be either
                                         in the following form or in any other form approved by the directors or the chair of
                                         the meeting:

 

[name
of company]

(the
 “Company”)

 

    B - 18

     

    

 

The
undersigned, being a shareholder of the Company, hereby appoints [name] or, failing that personPerson,
[name], as proxy holder for the undersigned to attend, act and vote for and on behalf of the undersigned at the meeting
of shareholders of the Company to be held on [month, day, year] and at any adjournment of that meeting.

 

Number
of shares in respect of which this proxy is given (if no number is specified, then this proxy if given in respect of all shares
registered in the name of the shareholder):

 

	 	Signed
    [month, day, year]
	 	[Signature
    of shareholder]
	 	[Name
    of shareholder-printed]

 

		Section
                            12.13	Revocation
of Proxy

 

		(1)	Every
                                         proxy may be revoked by an instrument in writing that is:

 

		(a)	received
                                         at the registered office of the Company at any time up to and including the last business
                                         day before the day set for the holding of the meeting at which the proxy is to be used;
                                         or

 

		(b)	provided,
                                         at the meeting, to the chair of the meeting.

 

		Section
                            12.14	Revocation
of Proxy Must Be Signed

 

		(1)	An
                                         instrument referred to in Section 12.13 must be signed as follows:

 

		(a)	if
                                         the shareholder for whom the proxy holder is appointed is an individual, the instrument
                                         must be signed by the shareholder or their legal personal representative or trustee in
                                         bankruptcy;

 

		(b)	if
                                         the shareholder for whom the proxy holder is appointed is a corporation, the instrument
                                         must be signed by the corporation or by a representative appointed for the corporation
                                         under Section 12.5.

 

		Section
                            12.15	Production
of Evidence of Authority to Vote

 

The
chair of any meeting of shareholders may, but need not, inquire into the authority of any person Person
to vote at the meeting and may, but need not, demand from that person Person
production of evidence as to the existence of the authority to vote.

 

		Section
                            12.16	Chair
May Determine Validity of Proxy.

 

The
chair of any meeting of shareholders may determine whether or not a proxy deposited for use at the meeting, which may not strictly
comply with the requirements of this Article 12 as to form, execution, accompanying documentation, time of filing or otherwise,
shall be valid for use at the meeting, and any such determination made in good faith shall be final, conclusive and binding upon
the meeting.

 

Article
13

DIRECTORS

 

		Section
                            13.1	First
Directors; Number of Directors

 

The
Company shall have a minimum of three and a maximum of 15 directors. The number of directors initially is equal to the number
of first directors after the Company is first recognized under the Business Corporations Act and thereafter is the number within
the minimum and maximum determined by the directors from time to time. If the number of directors has not been determined as provided
in this section, the number of directors is the number of directors holding office immediately following the most recent election
or appointment of directors, whether at an annual or special general meeting of the shareholders, or by the directors pursuant
to Section 14.7.

 

    B - 19

     

    

 

		Section
                            13.2	Change
in Number of Directors

 

		(1)	If
                                         the number of directors is set under Section 13.1:

 

		(a)	the
                                         shareholders may elect the directors needed to fill any vacancies in the board of directors
                                         up to that number; or

 

		(b)	the
                                         directors, subject to Section 14.7, may appoint directors to fill those vacancies.

 

No
decrease in the number of directors will shorten the term of an incumbent director.

 

		Section
                            13.3	Directors’
Acts Valid Despite Vacancy

 

An
act or proceeding of the directors is not invalid merely because fewer than the number of directors set or otherwise required
under these Sections is in office.

 

		Section
                            13.4	Qualifications
of Directors

 

A
director is not required to hold a share in the capital of the Company as qualification for their office but must be qualified
as required by the Business Corporations Act to become, act or continue to act as a director.

 

		Section
                            13.5	Remuneration
of Directors

 

The
directors are entitled to the remuneration for acting as directors, if any, as the directors may from time to time determine.
If they so decide, the remuneration, if any, of the directors will be determined by the shareholders. That remuneration may be
in addition to any salary or other remuneration paid to any officer or employee of the Company as such, who is also a director.

 

		Section
                            13.6	Reimbursement
of Expenses of Directors

 

The
Company must reimburse each director for the reasonable expenses they may incur in and about the business of the Company.

 

		Section
                            13.7	Special
Remuneration for Directors

 

If
any director performs any professional or other services for the Company that ,
in the opinion of the directors 
, are
outside the ordinary duties of a director, or if any director is otherwise specially occupied in or about the Company’s
business, they may be paid remuneration fixed by the directors, or, at the option of that director, fixed by ordinary resolution,
and such remuneration may be either in addition to, or in substitution for, any other remuneration that they may be entitled to
receive.

 

		Section
                            13.8	Gratuity,
Pension or Allowance on Retirement of Director

 

Unless
otherwise determined by ordinary resolution, the directors on behalf of the Company may pay a gratuity or pension or allowance
on retirement to any director who has held any salaried office or place of profit with the Company or to their spouse or dependants
and may make contributions to any fund and pay premiums for the purchase or provision of any such gratuity, pension or allowance.

 

    B - 20

     

    

 

Article
14

ELECTION AND REMOVAL OF DIRECTORS

 

		Section
                            14.1	Election
at Annual General Meeting

 

		(1)	At
                                         every annual general meeting and in every unanimous resolution contemplated by Section
                                         10.2:

 

		(a)	the
                                         shareholders entitled to vote at the annual general meeting for the election of directors
                                         must elect, or in the unanimous resolution appoint, a board of directors consisting of
                                         the number of directors for the time being set by the directors under these Articles;
                                         and

 

		(b)	the
                                         directors cease to hold office immediately before upon
                                         the termination of the next annual general meeting at which the election or
                                         appointment of directors under paragraph (a) occurs
                                         but are eligible for re-election or re-appointment, subject to being nominated
                                         in accordance with Article 26.

 

		Section
                            14.2	Consent
to be a Director

 

		(1)	No
                                         election, appointment or designation of an individual as a director is valid unless:

 

		(a)	that
                                         individual consents to be a director in the manner provided for in the Business Corporations
                                         Act;

 

		(b)	that
                                         individual is elected or appointed at a meeting at which the individual is present and
                                         the individual does not refuse, at the meeting, to be a director; or

 

		(c)	with
                                         respect to first directors, the designation is otherwise valid under the Business Corporations
                                         Act.

 

		Section
                            14.3	Failure
to Elect or Appoint Directors

 

		(1)	If:

 

		(a)	the
                                         Company fails to hold an annual general meeting, and all the shareholders who are entitled
                                         to vote at an annual general meeting fail to pass the unanimous resolution contemplated
                                         by Section 10.2, on or before the date by which the annual general meeting is required
                                         to be held under the Business Corporations Act; or

 

		(b)	the
                                         shareholders fail, at the annual general meeting or in the unanimous resolution contemplated
                                         by Section 10.2, to elect or appoint any directors;

 

		(c)	then
                                         each director then in office continues to hold office until the earlier of:

 

		(i)	the
                                         date on which their successor is elected or appointed; and

 

		(ii)	the
                                         date on which they otherwise cease to hold office under the Business Corporations Act
                                         or these Articles.

 

		Section
                            14.4	Directors
May Fill Casual Vacancies

 

Any
casual vacancy occurring in the board of directors may be filled by the directors.

 

		Section
                            14.5	Remaining
Directors Power to Act

 

The
directors may act notwithstanding any vacancy in the board of directors, but if the Company has fewer directors in office than
the number set pursuant to these Articles as the quorum of directors, the directors may only act for the purpose of appointing
directors up to that number or of calling a meeting of shareholders for the purpose of filling any vacancies on the board of directors
or, subject to the Business Corporations Act, for any other purpose.

 

    B - 21

     

    

 

		Section
                            14.6	Shareholders
May Fill Vacancies

 

If
the Company has no directors or fewer directors in office than the number set pursuant to these Articles as the quorum of directors,
the shareholders may elect or appoint directors to fill any vacancies on the board of directors.

 

		Section
                            14.7	Additional
Directors

 

		(1)	Notwithstanding
                                         Section 13.2, between annual general meetings or unanimous resolutions contemplated by
                                         Section 10.2, the directors may appoint one or more additional directors, but the number
                                         of additional directors appointed under this Section 14.7 must not at any time exceed:

 

		(a)	one-third
                                         of the number of first directors, if, at the time of the appointments, one or more of
                                         the first directors have not yet completed their first term of office; or

 

		(b)	in
                                         any other case, one-third of the number of the current directors who were elected or
                                         appointed as directors other than under this Section 14.7.

 

Any
director so appointed ceases to hold office immediately before following
the next annual general meeting at which the election or appointment
of directors under Section 14.1(1)(a) occurs, but is eligible for re-election
or re-appointment, subject to being nominated in accordance with Article 26.

 

		Section
                            14.8	Ceasing
to be a Director

 

		(1)	A
                                         director ceases to be a director when:

 

		(a)	the
                                         term of office of the director expires;

 

		(b)	the
                                         director dies;

 

		(c)	the
                                         director resigns as a director by notice in writing provided to the Company or a lawyer
                                         for the Company; or

 

		(d)	the
                                         director is removed from office pursuant to Sections 14.9 or 14.10.

 

		Section
                            14.9	Removal
of Director by Shareholders

 

The
Company may remove any director before the expiration of their term of office by special resolution. In that event, the shareholders
may elect, or appoint by ordinary resolution, a director to fill the resulting vacancy. If the shareholders do not elect or appoint
a director to fill the resulting vacancy contemporaneously with the removal, then the directors may appoint or the shareholders
may elect, or appoint by ordinary resolution, a director to fill that vacancy.

 

		Section
                            14.10	Removal
of Director by Directors

 

The
directors may remove any director before the expiration of their term of office if the director is convicted of an indictable
offence, convicted by a court of an offence under or found in breach and sanctioned by a securities regulatory authority of any
Canadian or United States securities legislation or U.S. securities
legislation, or if the director ceases to be qualified to act as a director of a company and does not promptly resign, and the
directors may appoint a director to fill the resulting vacancy.

 

    B - 22

     

    

 

Article
15

POWERS AND DUTIES OF DIRECTORS

 

		Section
                            15.1	Powers
of Management

 

The
directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business
and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations
Act or by these Articles, required to be exercised by the shareholders of the Company.

 

		Section
                            15.2	Appointment
of Attorney of Company

 

The
directors may from time to time, by power of attorney or other instrument, under seal if so required by law, appoint any person
Person to be the attorney of the Company for such purposes,
and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the directors under these Articles
and excepting the power to fill vacancies in the board of directors, to remove a director, to change the membership of, or fill
vacancies in, any committee of the directors, to appoint or remove officers appointed by the directors and to declare dividends)
and for such period, and with such remuneration and subject to such conditions as the directors may think fit. Any such power
of attorney may contain such provisions for the protection or convenience of persons Persons
dealing with such attorney as the directors think fit. Any such attorney may be authorized by the directors to sub-delegate
all or any of the powers, authorities and discretions for the time being vested in them.

 

Article
16

DISCLOSURE OF INTEREST OF DIRECTORS

 

		Section
                            16.1	Obligation
to Account for Profits

 

A
director or senior officer who holds a disclosable interest (as that term is used in the Business Corporations Act) in a contract
or transaction into which the Company has entered or proposes to enter is liable to account to the Company for any profit that
accrues to the director or senior officer under or as a result of the contract or transaction only if and to the extent provided
in the Business Corporations Act.

 

		Section
                            16.2	Restrictions
on Voting by Reason of Interest

 

A
director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter
is not entitled to vote on any directors’ resolution to approve that contract or transaction, unless all the directors have
a disclosable interest in that contract or transaction, in which case any or all of those directors may vote on such resolution.

 

		Section
                            16.3	Interested
Director Counted in Quorum

 

A
director who holds a disclosable interest in a contract or transaction into which the Company has entered or proposes to enter
and who is present at the meeting of directors at which the contract or transaction is considered for approval may be counted
in the quorum at the meeting whether or not the director votes on any or all of the resolutions considered at the meeting.

 

		Section
                            16.4	Disclosure
of Conflict of Interest or Property

 

A
director or senior officer who holds any office or possesses any property, right or interest that could result, directly or indirectly,
in the creation of a duty or interest that materially conflicts with that individual’s duty or interest as a director or
senior officer, must disclose the nature and extent of the conflict as required by the Business Corporations Act.

 

    B - 23

     

    

 

		Section
                            16.5	Director
Holding Other Office in the Company

 

A
director may hold any office or place of profit with the Company, other than the office of auditor of the Company, in addition
to their office of director for the period and on the terms (as to remuneration or otherwise) that the directors may determine.

 

		Section
                            16.6	No
Disqualification

 

No
director or intended director is disqualified by their office from contracting with the Company either with regard to the holding
of any office or place of profit the director holds with the Company or as vendor, purchaser or otherwise, and no contract or
transaction entered into by or behalf of the Company in which a director is in any way interested is liable to be voided for that
reason.

 

		Section
                            16.7	Professional
Services by Director or Officer

 

A
director or officer, or any person Person in which a
director or officer has an interest, may act in a professional capacity for the Company, except as auditor of the Company, and
the director or officer or such person Person is entitled
to remuneration for professional services as if that director or officer were not a director or officer.

 

		Section
                            16.8	Director
or Officer in Other Corporations

 

A
director or officer may be or become a director, officer or employee of, or otherwise interested in, any person Person
in which the Company may be interested as a shareholder or otherwise, and the director or officer is not accountable
to the Company for any remuneration or other benefits received by them as director, officer or employee of, or from their interest
in, such other personPerson.

 

Article
17

PROCEEDINGS OF DIRECTORS

 

		Section
                            17.1	Meetings
of Directors

 

The
directors may meet together for the conduct of business, adjourn and otherwise regulate their meetings as they think fit, and
meetings of the directors held at regular intervals may be held at the place, at the time and on the notice, if any, as the directors
may from time to time determine.

 

		Section
                            17.2	Voting
at Meetings

 

Questions
arising at any meeting of directors are to be decided by a majority of votes and, in the case of an equality of votes, the chair
of the meeting does not have a second or casting vote.

 

		Section
                            17.3	Chair
of Meetings

 

		(1)	The
                                         following individual is entitled to preside as chair at a meeting of directors:

 

		(a)	the
                                         chair of the board, if any;

 

		(b)	in
                                         the absence of the chair of the board, the president, if any, if the president is a director;
                                         or

 

		(c)	any
                                         other director chosen by the directors if:

 

		(i)	neither
                                         the chair of the board nor the president, if a director, is present at the meeting within
                                         15 minutes after the time set for holding the meeting;

 

		(ii)	neither
                                         the chair of the board nor the president, if a director, is willing to chair the meeting;
                                         or

 

    B - 24

     

    

 

		(iii)	the
                                         chair of the board and the president, if a director, have advised the corporate
                                         secretary, if any, or any other director, that they will not be present at
                                         the meeting.

 

		Section
                            17.4	Meetings
by Telephone or Other Communications Medium

 

A
director may participate in a meeting of the directors or of any committee of the directors in person Person
or by telephone if all directors participating in the meeting, whether in person Person
or by telephone or other communications medium, are able to communicate with each other. A director may participate
in a meeting of the directors or of any committee of the directors by a communications medium other than telephone if all directors
participating in the meeting, whether in person Person or
by telephone or other communications medium, are able to communicate with each other and if all directors who wish to participate
in the meeting agree to such participation. A director who participates in a meeting in a manner contemplated by this Section
17.4 is deemed for all purposes of the Business Corporations Act and these Articles to be present at the meeting and to have agreed
to participate in that manner.

 

		Section
                            17.5	Calling
of Meetings

 

A
director may, and the corporate secretary or an assistant secretary of
the Company, if any, on the request of a director must, call a meeting of the directors at any time.

 

		Section
                            17.6	Notice
of Meetings

 

Other
than for meetings held at regular intervals as determined by the directors pursuant to Section 17.1, not less than 48 hours-'
notice of each meeting of the directors, specifying the place, day and time of that meeting must be given to each of
the directors by any method set out in Section 23.1.

 

		Section
                            17.7	When
Notice Not Required

 

		(1)	It
                                         is not necessary to give notice of a meeting of the directors to a director if:

 

		(a)	the
                                         meeting is to be held immediately following a meeting of shareholders at which that director
                                         was elected or appointed, or is the meeting of the directors at which that director is
                                         appointed; or

 

		(b)	the
                                         director, as the case may be, has waived notice of the meeting.

 

		Section
                            17.8	Meeting
Valid Despite Failure to Give Notice

 

The
accidental omission to give notice of any meeting of directors to, or the non-receipt of any notice by, any director, does not
invalidate any proceedings at that meeting.

 

		Section
                            17.9	Waiver
of Notice of Meetings

 

		(1)	Any
                                         director may send to the Company a document signed by them waiving notice of any past,
                                         present or future meeting or meetings of the directors and may at any time withdraw that
                                         waiver with respect to meetings held after that withdrawal. After sending a waiver with
                                         respect to all future meetings and until that waiver is withdrawn, no notice of any meeting
                                         of the directors need be given to that director and, unless the director otherwise requires
                                         by notice in writing to the Company, and all meetings of the directors so held are deemed
                                         not to be improperly called or constituted by reason of notice not having been given
                                         to such director.

 

		(2)	Attendance
                                         of a director at a meeting of the directors is a waiver of notice of the meeting, unless
                                         that director attends the meeting for the express purpose of objecting to the transaction
                                         of any business on the grounds that the meeting is not lawfully called.

 

    B - 25

     

    

 

		Section
                            17.10	Quorum

 

The
quorum necessary for the transaction of the business of the directors shall be a majority of the board of directors or such other
number as the directors may determine from time to time. If the number of directors is set at one or two, quorum is deemed to
be set at one director, and that director may constitute a meeting.

 

		Section
                            17.11	Validity
of Acts Where Appointment Defective

 

Subject
to the Business Corporations Act, an act of a director or officer is not invalid merely because of an irregularity in the election
or appointment or a defect in the qualification of that director or officer.

 

		Section
                            17.12	Consent
Resolutions in Writing

 

		(1)	A
                                         resolution of the directors or of any committee of the directors may be passed without
                                         a meeting:

 

		(a)	in
                                         all cases, if each of the directors entitled to vote on the resolution consents to it
                                         in writing; or

 

		(b)	in
                                         the case of a resolution to approve a contract or transaction in respect of which a director
                                         has disclosed that they have or may have a disclosable interest, if each of the other
                                         directors who are entitled to vote on the resolution consents to it in writing.

 

A
consent in writing under this Section may be by signed document, fax, e-mail or any other method of transmitting legibly recorded
messages. A consent in writing may be in two or more counterparts which together are deemed to constitute one consent in writing.
A resolution of the directors or of any committee of the directors passed in accordance with this Section 17.12 is effective on
the date stated in the consent in writing or on the latest date stated on any counterpart and is deemed to be a proceeding at
a meeting of directors or of the committee of the directors and to be as valid and effective as if it had been passed at a meeting
of the directors or of the committee of the directors that satisfies all the requirements of the Business Corporations Act and
all the requirements of these Articles relating to meetings of the directors or of a committee of the directors.

 

Article
18

EXECUTIVE AND OTHER COMMITTEES

 

		Section
                            18.1	Appointment
and Powers of Executive Committee

 

		(1)	The
                                         directors may, by resolution, appoint an executive committee consisting of the director
                                         or directors that they consider appropriate, and this committee has, during the intervals
                                         between meetings of the board of directors, all of the directors’ powers, except:

 

		(a)	the
                                         power to fill vacancies in the board of directors;

 

		(a)	the
                                         power to remove a director;

 

		(b)	the
                                         power to change the membership of, or fill vacancies in, any committee of the directors;
                                         and

 

		(c)	such
                                         other powers, if any, as may be set out in the resolution or any subsequent directors’
                                         resolution.

 

		Section
                            18.2	Appointment
and Powers of Other Committees

 

		(1)	The
                                         directors may, by resolution:

 

		(a)	appoint
                                         one or more committees (other than the executive committee) consisting of the director
                                         or directors and, if applicable, officer or officers that they consider appropriate;

 

    B - 26

     

    

 

		(b)	delegate
                                         to a committee appointed under paragraph (a) any of the directors’ powers, except:

 

		(i)	the
                                         power to fill vacancies in the board of directors;

 

		(ii)	the
                                         power to remove a director;

 

		(iii)	the
                                         power to change the membership of, or fill vacancies in, any committee; and

 

		(iv)	the
                                         power to appoint or remove officers appointed by the directors; and

 

		(c)	make
                                         any delegation referred to in paragraph (b) subject to the conditions set out in the
                                         resolution or any subsequent directors’ resolution.

 

		Section
                            18.3	Obligations
of Committees

 

		(1)	In
                                         the exercise of the powers delegated to a committee appointed under Sections 18.1 or
                                         18.2, the committee must:

 

		(a)	conform
                                         to any rules that may from time to time be imposed on it by the directors; and

 

		(b)	report
                                         every act or thing done in exercise of those powers at such times as the directors may
                                         require.

 

		Section
                            18.4	Powers
of Board

 

		(1)	The
                                         directors may, at any time, with respect to a committee appointed under Sections 18.1
                                         or 18.2:

 

		(a)	revoke
                                         or alter the authority given to the committee, or override a decision made by the committee,
                                         except as to acts done before such revocation, alteration or overriding;

 

		(b)	terminate
                                         the appointment of, or change the membership of, the committee; and

 

		(c)	fill
                                         vacancies in the committee.

 

		Section
                            18.5	Committee
Meetings

 

		(1)	Subject
                                         to Section 18.3(1)(a) and unless the directors otherwise provide in the resolution appointing
                                         the committee or in any subsequent resolution, with respect to a committee appointed
                                         under Sections 18.1 or 18.2:

 

		(a)	the
                                         committee may meet and adjourn as it thinks proper;

 

		(b)	the
                                         committee may elect a chair of its meetings but, if no chair of a meeting is elected,
                                         or if at a meeting the chair of the meeting is not present within 15 minutes after the
                                         time set for holding the meeting, the directors present who are members of the committee
                                         may choose one of their number to chair the meeting;

 

		(c)	a
                                         majority of the members of the committee constitutes a quorum of the committee; and

 

		(d)	questions
                                         arising at any meeting of the committee are determined by a majority of votes of the
                                         members present, and in case of an equality of votes, the chair of the meeting does not
                                         have a second or casting vote.

 

    B - 27

     

    

 

Article
19

OFFICERS

 

		Section
                            19.1	Directors
May Appoint Officers

 

The
directors may, from time to time, appoint such officers, if any, as the directors determine and the directors may, at any time,
terminate any such appointment.

 

		Section
                            19.2	Functions,
Duties and Powers of Officers

 

		(1)	The
                                         directors may, for each officer:

 

		(a)	determine
                                         the functions and duties of the officer;

 

		(b)	entrust
                                         to and confer on the officer any of the powers exercisable by the directors on such terms
                                         and conditions and with such restrictions as the directors think fit; and

 

		(c)	revoke,
                                         withdraw, alter or vary all or any of the functions, duties and powers of the officer.

 

		Section
                            19.3	Qualifications

 

An
officer is not required to hold a share in the capital of the Company as qualification for their office but must be qualified
as required by the Business Corporations Act to become, act or continue to act as an officer. One person Person
may hold more than one position as an officer of the Company. Any person Person
appointed as the chair of the board or as a managing director must be a director. Any other officer need not be a director.

 

		Section
                            19.4	Remuneration
and Terms of Appointment

 

All
appointments of officers are to be made on the terms and conditions and at the remuneration (whether by way of salary, fee, commission,
participation in profits or otherwise) that the directors think fit and are subject to termination at the pleasure of the directors,
and an officer, in addition to such remuneration, may receive, after they cease to hold such office or leaves the employment of
the Company, a pension or gratuity.

 

Article
20

INDEMNIFICATION

 

		Section
                            20.1	Definitions

 

		(1)	In
                                         this Article 2120:

 

		(a)	“eligible
                                         penalty” means a judgment, penalty or fine awarded or imposed in, or an amount
                                         paid in settlement of, an eligible proceeding;

 

		(b)	“eligible
                                         proceeding” means a legal proceeding or investigative action, whether current,
                                         threatened, pending or completed, in which a director or former director of the Company
                                         (an “eligible party”) or any of the heirs and legal personal representatives
                                         of the eligible party, by reason of the eligible party being or having been a director
                                         of the Company:

 

		(i)	is
                                         or may be joined as a party; or

 

		(ii)	is
                                         or may be liable for or in respect of a judgment, penalty or fine in, or expenses related
                                         to, the proceeding;

 

		(c)	“expenses”
                                         has the meaning set out in the Business Corporations Act.

 

    B - 28

     

    

 

		Section
                            20.2	Mandatory
Indemnification of Directors and Officers and Former Directors and Officers

 

The
Company must indemnify a director, officer, former director or officer of the Company and their heirs and legal personal representatives,
as set out in the Business Corporations Act, against all eligible penalties to which such person Person
is or may be liable, and the Company must, after the final disposition of an eligible proceeding, pay the expenses
actually and reasonably incurred by such person Person in
respect of that proceeding. Each director, officer, former director and officer is deemed to have contracted with the Comp any
on the terms of the indemnity contained in this Section 20.2.

 

		Section
                            20.3	Mandatory
Advancement of Expenses

 

The
Company must pay, as they are incurred in advance of the final disposition of an eligible proceeding, the expenses actually and
reasonably incurred by an eligible party in respect of that proceeding but the Company must first receive from the eligible party
a written undertaking that, if it is ultimately determined that the payment of expenses is prohibited by the Business Corporations
Act, the eligible party will repay the amounts advanced.

 

		Section
                            20.4	Indemnification
of Other Persons

 

The
Company may indemnify any other person Person in accordance
with the Business Corporations Act.

 

		Section
                            20.5	Non-Compliance
with the Business Corporations Act

 

The
failure of a director or officer of the Company to comply with the Business Corporations Act or these Articles does not invalidate
any indemnity to which they are entitled under this Part.

 

		Section
                            20.6	Company
May Purchase Insurance

 

		(1)	The
                                         Company may purchase and maintain insurance for the benefit of any person Person
                                         (or their heirs or legal personal representatives) who:

 

		(a)	is
                                         or was a director, officer, employee or agent of the Company;

 

		(b)	is
                                         or was a director, officer, employee or agent of a corporation at a time when the corporation
                                         is or was an affiliate of the Company;

 

		(c)	at
                                         the request of the Company, is or was a director, officer, employee or agent of a corporation
                                         or of a partnership, trust, joint venture or other unincorporated entity;

 

		(d)	at
                                         the request of the Company, holds or held a position equivalent to that of a director
                                         or officer of a partnership, trust, joint venture or other unincorporated entity;

 

against
any liability incurred by them as such director, officer, employee or agent or person Person
who holds or held such equivalent position.

 

Article
21

DIVIDENDS

 

		Section
                            21.1	Payment
of Dividends Subject to Special Rights

 

The
provisions of this Article 21 are subject to the rights, if any, of shareholders holding shares with special rights as to dividends.

 

    B - 29

     

    

 

		Section
                            21.2	Declaration
of Dividends

 

The
directors may from time to time declare and authorize payment of such dividends as they may deem advisable.

 

		Section
                            21.3	No
Notice Required

 

The
directors need not give notice to any shareholder of any declaration under Section 21.2.

 

		Section
                            21.4	Record
Date

 

The
directors may set a date as the record date for the purpose of determining shareholders entitled to receive payment of a dividend.
The record date must not precede the date on which the dividend is to be paid by more than two months. If no record date is set,
the record date is 5:00 p.m. (Vancouver time) on the date on which the directors pass the resolution declaring the dividend.

 

		Section
                            21.5	Manner
of Paying Dividend

 

A
resolution declaring a dividend may direct payment of the dividend wholly or partly by the distribution of specific assets or
of fully paid shares or of bonds, debentures or other securities of the Company, or in any one or more of those ways.

 

		Section
                            21.6	Settlement
of Difficulties

 

		(1)	If
                                         any difficulty arises in regard to a distribution under Section 21.5, the directors may
                                         settle the difficulty as they deem advisable, and, in particular, may:

 

		(a)	set
                                         the value for distribution of specific assets;

 

		(b)	determine
                                         that cash payments in substitution for all or any part of the specific assets to which
                                         any shareholders are entitled may be made to any shareholders on the basis of the value
                                         so fixed in order to adjust the rights of all parties; and

 

		(c)	vest
                                         any such specific assets in trustees for the persons Persons
                                         entitled to the dividend.

 

		Section
                            21.7	When
Dividend Payable

 

Any
dividend may be made payable on such date as is fixed by the directors.

 

		Section
                            21.8	Dividends
to be Paid in Accordance with Number of Shares

 

All
dividends on shares of any class or series of shares must be declared and paid according to the number of such shares held.

 

		Section
                            21.9	Receipt
by Joint Shareholders

 

If
several persons Persons are joint shareholders of any
share, any one of them may give an effective receipt for any dividend, bonus or other money payable in respect of the share.

 

		Section
                            21.10	Dividend
Bears No Interest

 

No
dividend bears interest against the Company.

 

    B - 30

     

    

 

		Section
                            21.11	Fractional
Dividends

 

If
a dividend to which a shareholder is entitled includes a fraction of the smallest monetary unit of the currency of the dividend,
that fraction may be disregarded in making payment of the dividend and that payment represents full payment of the dividend.

 

		Section
                            21.12	Payment
of Dividends

 

Any
dividend or other distribution payable in cash in respect of shares may be paid by electronic transfer, if so authorized by the
shareholder, or by cheque, made payable to the order of the person Person
to whom it is sent, and mailed to the address of the shareholder, or in the case of joint shareholders, to the address
of the joint shareholder who is first named on the central securities register, or to the person Person
and to the address the shareholder or joint shareholders may direct in writing. The mailing of such cheque or the forwarding
by electronic transfer will, to the extent of the sum represented by the cheque (plus the amount of the tax required by law to
be deducted), discharge all liability for the dividend unless such cheque is not paid on presentation or the amount of tax so
deducted is not paid to the appropriate taxing authority.

 

		Section
                            21.13	Capitalization
of Surplus

 

Notwithstanding
anything contained in these Articles, the directors may from time to time capitalize any surplus of the Company and may from time
to time issue, as fully paid, shares or any bonds, debentures or other securities of the Company as a dividend representing the
surplus or any part of the surplus.

 

Article
22

DOCUMENTS, RECORDS AND REPORTS

 

		Section
                            22.1	Recording
of Financial Affairs

 

The
directors must cause adequate accounting records to be kept to record properly the financial affairs and condition of the Company
and to comply with the Business Corporations Act.

 

		Section
                            22.2	Inspection
of Accounting Records

 

Unless
the directors determine otherwise, or unless otherwise determined by ordinary resolution, no shareholder of the Company is entitled
to inspect or obtain a copy of any accounting records of the Company.

 

Article
23

NOTICES

 

		Section
                            23.1	Method
of Giving Notice

 

		(1)	Unless
                                         the Business Corporations Act or these Articles provides otherwise, a notice, statement,
                                         report or other record required or permitted by the Business Corporations Act or these
                                         Articles to be sent by or to a person Person
                                         may be sent by any one of the following methods:

 

		(a)	prepaid
                                         mail addressed to the person Person
                                         at the applicable address for that person Person
                                         as follows:

 

		(i)	for
                                         a record mailed to a shareholder, the shareholder’s registered address;

 

		(ii)	for
                                         a record mailed to a director or officer, the prescribed address for mailing shown for
                                         the director or officer in the records kept by the Company or the mailing address provided
                                         by the recipient for the sending of that record or records of that class;

 

		(iii)	in
                                         any other case, the mailing address of the intended recipient;

 

    B - 31

     

    

 

		(b)	delivery
                                         at the applicable address for that person Person
                                         as follows, addressed to the personPerson:

 

		(i)	for
                                         a record delivered to a shareholder, the shareholder’s registered address;

 

		(ii)	for
                                         a record delivered to a director or officer, the prescribed address for delivery shown
                                         for the director or officer in the records kept by the Company or the delivery address
                                         provided by the recipient for the sending of that record or records of that class;

 

		(iii)	in
                                         any other case, the delivery address of the intended recipient;

 

		(c)	fax
                                         to the fax number provided by the intended recipient for the sending of that record or
                                         records of that class;

 

		(d)	e-mail
                                         to the e-mail address provided by the intended recipient for the sending of that record
                                         or records of that class;

 

		(e)	physical
                                         delivery to the intended recipient;

 

		(f)	creating
                                         and providing a record posted on or made available through a general accessible electronic
                                         source and providing written notice by any of the foregoing methods as to the availability
                                         of such record; or

 

		(g)	as
                                         otherwise permitted by applicable securities legislation.

 

		Section
                            23.2	Deemed
Receipt of Mailing

 

A
record that is mailed to a person Person by ordinary
mail to the applicable address for that person Person referred
to in Section 23.1 is deemed to be received by the person Person
to whom it was mailed on the day, Saturdays, Sundays and holidays (in Vancouver) excepted, following the date of mailing.
A record that is delivered to a person Person or their
applicable address is deemed to be received by the person Person
on receipt by that person Person or delivery
to that address. A record that is sent to a person Person by
fax or e-mail is deemed to be received by the person Person on
transmission if sent during business hours at the place of intended receipt by that person Person
and, if not sent during their business hours, on the next business day of the place of intended receipt of that personPerson.
A record that is delivered in accordance with Section 23.1(1)(f) is deemed to be received by the person Person
on the day such written notice is sent.

 

		Section
                            23.3	Certificate
of Sending

 

A
certificate signed by the corporate secretary, if any, or other officer
of the Company or of any other corporation acting in that behalf for the Company stating that a notice, statement, report or other
record was addressed as required, and sent as permitted, by Section 23.1 is conclusive evidence of that fact.

 

		Section
                            23.4	Notice
to Joint Shareholders

 

A
notice, statement, report or other record may be provided by the Company to the joint shareholders of a share by providing the
notice to the joint shareholder first named in the central securities register in respect of the share.

 

		Section
                            23.5	Notice
to Trustees

 

		(1)	A
                                         notice, statement, report or other record may be provided by the Company to the persons
                                         Persons entitled to
                                         a share in consequence of the death, bankruptcy or incapacity of a shareholder by:

 

		(a)	mailing
                                         the record, addressed to them:

 

		(i)	by
                                         name, by the title of the legal personal representative of the deceased or incapacitated
                                         shareholder, by the title of trustee of the bankrupt shareholder or by any similar description;
                                         and

 

    B - 32

     

    

 

		(ii)	at
                                         the address, if any, supplied to the Company for that purpose by the persons
                                         Persons claiming to
                                         be so entitled; or

 

		(b)	if
                                         an address referred to in paragraph 23.5(1)(a)(ii) has not been supplied to the Company,
                                         by giving the notice in a manner in which it might have been given if the death, bankruptcy
                                         or incapacity had not occurred.

 

Article
24

SEAL

 

		Section
                            24.1	Who
May Attest Seal

 

		(1)	Except
                                         as provided in Sections 24.2 and 24.3, the Company’s seal, if any, must not be
                                         impressed on any record except when that impression is attested by the signatures of:

 

		(a)	any
                                         two directors;

 

		(b)	any
                                         officer, together with any director;

 

		(c)	if
                                         the Company only has one director, that director; or

 

		(d)	any
                                         one or more directors or officers or persons Persons
                                         as may be determined by the directors.

 

		Section
                            24.2	Sealing
Copies

 

For
the purpose of certifying under seal a certificate of incumbency of the directors or officers of the Company or a true copy of
any resolution or other document, despite Section 24.1, the impression of the seal may be attested by the signature of any director
or officer.

 

		Section
                            24.3	Mechanical
Reproduction of Seal

 

The
directors may authorize the seal to be impressed by third p arties parties
on share certificates or bonds, debentures or other securities of the Company as they may determine appropriate from
time to time. To enable the seal to be impressed on any share certificates or bonds, debentures or other securities of the Company,
whether in definitive or interim form, on which facsimiles of any of the signatures of the directors or officers of the Company
are, in accordance with the Business Corporations Act or these Articles, printed or otherwise mechanically reproduced, there may
be delivered to the person Person employed to engrave,
lithograph or print such definitive or interim share certificates or bonds, debentures or other securities one or more unmounted
dies reproducing the seal and the chair of the board or any senior officer together with the corporate
secretary, treasurer, secretary-treasurer, an assistant secretary, an assistant treasurer or an assistant secretary
treasurer may in writing authorize such person Person to
cause the seal to be impressed on such definitive or interim share certificates or bonds, debentures or other securities by the
use of such dies. Share certificates or bonds, debentures or other securities to which the seal has been so impressed are for
all purposes deemed to be under and to bear the seal impressed on them.

 

    B - 33

     

    

 

Article
25

SPECIAL RIGHTS AND RESTRICTIONS

 

		Section
                            25.1	Subordinate
Voting Shares

 

		(1)	An
                                         unlimited number of Subordinate Voting Shares, without nominal or par value, are authorized
                                         for issuance, having attached thereto the special rights and restrictions as set forth
                                         below:

 

		(a)	Voting
                                         Rights.

 

Holders
of Subordinate Voting Shares shall be entitled to notice of and to attend (if applicable,
virtually) any meeting of the shareholders of the Company. Holders of Subordinate Voting Shares shall be entitled to vote at
any meeting of the shareholders of the Company, except and at each
such meeting, shall be entitled to one (1) vote in respect of each Subordinate Voting Share held, except for a meeting
of which only holders of another particular class or series of shares of the Company shall have the right to vote.At each
such meeting, holders of Subordinate Voting Shares shall be entitled to one vote in respect of each Subordinate Voting Share held.

 

Except
as otherwise provided in these Articles (including without limitation the restrictions
on voting rights for directors in the case of the Limited Voting Shares) or except as provided in the Business Corporations
Act, Subordinate Voting Shares and , Multiple Voting
Shares, Restricted Voting Shares and Limited Voting Shares are equal in all respects and shall vote together as if
they were shares of a single class. In connection with any Change of Control Transaction requiring approval of the holders of
Subordinate Voting Shares and Multiple Voting all Equity Shares
under the Business Corporations Act, holders of Subordinate Voting Shares and Multiple Voting all
Equity Shares shall be treated equally and identically, on a per share basis, unless different treatment of the shares
of each such class is approved by a majority of the votes cast by the holders of outstanding Subordinate Voting Shares or their
proxyholders in respect of a resolution approving such Change of Control Transaction, voting separately as a class at a meeting
of the holders of that class called and held for such purpose.

 

For
the purpose of these Articles, a “Change of Control Transaction” means an amalgamation, arrangement, recapitalization,
business combination or similar transaction of the Company, other than an amalgamation, arrangement, recapitalization, business
combination or similar transaction that would result in (i) the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the continuing
entity or its direct or indirect parent) more than fifty percent (50%) of the total voting power of the voting securities of the
Company, the continuing entity or its direct or indirect parent, and more than fifty percent (50%) of the total number of outstanding
shares of the Company, the continuing entity or its direct or indirect parent, in each case as outstanding immediately after such
transaction, and (ii) the shareholders of the Company immediately prior to the transaction owning voting securities of the Company,
the continuing entity or its direct or indirect parent immediately following the transaction in substantially the same proportions
(vis-a-vis each other) as such shareholders owned the voting securities of the Company immediately prior to the transaction (provided
that in neither event shall the exercise of any exchangeable shares of a subsidiary of the Company that are exchangeable into
shares of the Company be taken into account in such determination).

 

Notwithstanding
the provisions of the second paragraph of this Section 25.1(1)(a), the holders of Subordinate Voting Shares shall be entitled
to vote as a separate class, in addition to any other vote of shareholders that may be required, in respect of any alteration,
repeal or amendment of these Articles (other than in respect of the creation of
a series of preferred shares) which would: (i) adversely affect the rights or special rights of the holders of Subordinate
Voting Shares,  (including an amendment to the terms of these Articles which provide that any Multiple Voting
Shares sold or transferred to a Person that is not a Permitted Holder shall be automatically converted into Subordinate Voting
Shares); or (ii) affect the holders of Subordinate Voting Shares and Multiple Voting any
Equity Shares differently, on a per share basis; or (iii) except as already
set forth herein, create any class or series of shares ranking equal to or senior to the Subordinate Voting Shares;
and in each case such alteration, repeal or amendment shall not be effective unless a resolution in respect thereof is approved
by a majority of the votes cast by holders of outstanding Subordinate Voting Shares.

 

		(b)	Constraints
                                         on Ownership.

 

(b)Alteration
to Rights of Subject to the Specified Exceptions, the Subordinate Voting Shares.
may only be held, beneficially owned or controlled, by Non-U.S. Persons.

 

As
long as any Subordinate Voting Shares remain outstanding, the Company will not, without the consent of the holders of the Subordinate
Voting Shares by separate special resolution alter or amend these Articles if the result would (i) prejudice or interfere with
any right or special right attached to the Subordinate Voting Shares, or (ii) affect the rights or special rights of holders of
Subordinate Voting Shares or Multiple Voting Shares on a per share basis as provided herein.

 

    B - 34

     

    

 

		(c)	Dividends.

 

Holders
of Subordinate Voting Shares shall be entitled to receive, as and when declared by the board
of directors, dividends in cash or property of the Company. No dividend will be declared or paid on the Multiple
Voting any other class of Equity Shares unless the Company simultaneously
declares or pays, as applicable, equivalent dividends (on a per share basis) on the Subordinate Voting Shares.
The Subordinate Voting Shares shall rank equally with the other Equity Shares as to dividends on a share-for-share basis, without
preference or distinction. In the event of the payment of a dividend in the form of shares, holders of Subordinate
Voting Shares shall receive Subordinate Voting Shares, unless otherwise determined by the Board of Directors of the Companyboard
of directors, provided an equal number of shares is declared as a dividend or distribution on a then outstanding per-Equity Share
basis, without preference or distinction, in each case.

 

		(d)	Liquidation,
                                         Dissolution or Winding-Up.

 

In
the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Subordinate
Voting Shares shall, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Subordinate
Voting Shares, be entitled to participate ratably in the remaining property of the Company along with all holders of Multiple
Voting Shares and other holders of Subordinate Voting the other classes
of Equity Shares (on a per share basis).

 

		(e)	Rights
                                         to Subscribe; Pre-Emptive Rights.

 

The
holders of Subordinate Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Company now or in the future.

 

		(f)	Subdivision
                                         or Consolidation.

 

No
subdivision or consolidation of the Subordinate Voting Shares shall occur unless, simultaneously, the Multiple Voting
other classes of Equity Shares are subdivided or consolidated
or otherwise adjusted so as to maintain and preserve the relative rights of the holders of the shares of each of the said classes.
Subject to Section 25.1(1)(g), the Subordinate Voting Shares cannot be converted into any other class of shares.

 

		(g)	Conversion
                                         of Subordinate Voting Shares Upon an Offer..

 

		(1)	Automatic

 

Subject
to the Specified Exceptions, each issued and outstanding Subordinate Voting Share shall be automatically converted into one Restricted
Voting Share, without any further act on the part of the Company or of the holder, if such Subordinate Voting Share becomes held,
beneficially owned or controlled, by a U.S. Person. 

 

		(2)	Upon
                                         an Offer

 

		(i)	For
                                         the purposes of this Section 25.1(g)(2):

 

		(A)	“Affiliate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

    B - 35

     

    

 

		(B)	“Associate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

		(C)	“Conversion
                                         Period” means the period of time commencing on the eighth day after the Offer
                                         Date and terminating on the Expiry Date;

 

		(D)	“Converted
                                         Shares” means Multiple Voting Subject
                                         Equity Shares resulting from the conversion of Subordinate Voting Shares into
                                         Multiple Voting the Subject
                                         Equity Shares pursuant to subparagraph (ii);

 

		(E)	“Exclusionary
                                         Offer” means an offer to purchase Multiple Voting Subject
                                         Equity Shares that:

 

		(i)	is
                                         a General Offer; and

 

		(ii)	is
                                         not made concurrently with an offer to purchase Subordinate Voting Shares that is identical
                                         to the offer to purchase Multiple Voting. the
                                         Subject Equity Shares in terms of price per share and percentage of outstanding
                                         shares to be taken up exclusive of shares owned immediately prior to the offer by the
                                         Offeror, and in all other material respects, and that has no condition attached other
                                         than the right not to take up and pay for shares tendered if no shares are purchased
                                         pursuant to the offer for Multiple Voting Subject
                                         Equity Shares;

 

and
for the purposes of this definition, if an offer to purchase Multiple Voting Subject
Equity Shares is a General Offer but not an Exclusionary Offer, the varying of any term of such offer shall be deemed
to constitute the making of a new offer unless a variation identical in all material respects concurrently is made to the corresponding
offer to purchase Subordinate Voting Shares;

 

		(F)	“Expiry
                                         Date” means the last date on which holders of Multiple Voting the
                                         Subject Equity Shares may accept an Exclusionary Offer;

 

		(G)	“General
                                         Offer” means an offer to purchase Multiple Voting Subject
                                         Equity Shares that must, by reason of applicable securities legislation or
                                         the requirements of any stock exchange on which the Multiple Voting Subject
                                         Equity Shares are listed, be made to all or substantially all holders of Multiple
                                         Voting Subject Equity Shares
                                         who are in a province of Canada to which any such legislation or requirement applies
                                         (assuming that the offeree was resident in Ontario); 

 

		(H)	“Offer
                                         Date” means the date on which an Exclusionary Offer is made;

 

		(I)	“Offeror”
                                         means a Person that makes an offer to purchase Multiple Voting the
                                         Subject Equity Shares (the “bidder”), and includes any
                                         Associate or Affiliate of the bidder or any Person that is disclosed in the offering
                                         document to be acting jointly or in concert with the bidder,

 

		(J)	“Person”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced and includes a company or other body corporate wherever or however
                                         incorporated;and

 

		(K)	“Subject
                                         Equity Shares” means any one or more classes of Equity Shares that are subject
                                         to an Exclusionary Offer, other than Subordinate Voting Shares; and

 

    B - 36

     

    

 

		(L)	(K)”Transfer
                                         Agent” means the transfer agent of
                                         the Company at the relevant time for any
                                         of the Multiple Voting Subject
                                         Equity Shares (and if there is no such transfer agent, “Transfer
                                         Agent” means the Company);

 

		(ii)	subject
                                         to subparagraph (v), if an Exclusionary Offer is made, each outstanding Subordinate Voting
                                         Share shall be convertible into one (1) Multiple Voting Share, at the
                                         option of each holder of Subordinate Voting Shares during the Conversion Period, be
                                         convertible on a one-for-one basis into the class of Equity Shares that are subject to
                                         such Exclusionary Offer (and if more than one class of Equity Shares are subject to such
                                         Exclusionary Offer, or different Exclusionary Offers are made for separate classes of
                                         Subject Equity Shares, on a one-for-one basis into any class of Equity Shares that are
                                         subject to any such Exclusionary Offer, at the holder’s election, or failing such
                                         election, into any class of Equity Shares that are subject to any such Exclusionary Offer
                                         at the board of directors’ discretion).
                                         The conversion right may be exercised by notice in writing given to the Transfer Agent
                                         prior to the Expiry Date accompanied by the share certificate or
                                         certificates (s) representing the Subordinate Voting Shares which
                                         the holder desires to convert, together with any letter of transmittal or other documentation
                                         , including any medallion
                                         signature guarantee, as may be required
                                         by the Transfer Agent or pursuant to the Exclusionary Offer, in either case in duly executed
                                         or completed form, and such notice shall be executed by such holder, or by his attorney
                                         duly authorized in writing, and shall specify the number of Subordinate Voting Shares
                                         which the holder desires to have converted and
                                         the class of Equity Shares which are desired to be converted into.
                                         The Company shall pay any governmental stamp, transfer or similar tax (but for greater
                                         certainty, no income or capital gains tax) imposed on or in respect of such conversion.
                                         If less than all of the Subordinate Voting Shares represented by any share certificate
                                         are to be converted, the holder shall be entitled to receive a new share certificate
                                         representing in the aggregate the number of Subordinate Voting Shares represented by
                                         the original share certificate , which are not to be converted. Upon any conversion of
                                         any shares of any class into shares of another class, the Company shall adjust the capital
                                         accounts maintained for the respective classes of shares as provided in the Business
                                         Corporations Act. The conversion
                                         right may only be exercised in respect of Subordinate Voting Shares for the purpose of
                                         depositing the resulting Subject Equity Shares pursuant to such offer and for no other
                                         reason;

 

		(iii)	an
                                         election by a holder of Subordinate Voting Shares to exercise the conversion right provided
                                         for in subparagraph (ii) shall be deemed to also constitute irrevocable elections by
                                         such holder (a) to deposit the Converted Shares pursuant to the Exclusionary Offer (subject
                                         to such holder’s right to subsequently withdraw the shares from the offer), and
                                         (b) to exercise the right to convert back into Subordinate Voting Shares all Converted
                                         Shares (on a 1:1 one-for-one basis) in respect of which such holder
                                         exercises his , her
                                         or its right
                                         of withdrawal from the Exclusionary Offer or which are not otherwise ultimately taken
                                         up under the Exclusionary Offer. Any conversion of Converted Shares back into Subordinate
                                         Voting Shares in respect of which the holder exercises his ,
                                         her or its right
                                         of withdrawal from the Exclusionary Offer shall become effective at the time such right
                                         of withdrawal is exercised. If the right of withdrawal is not exercised, any conversion
                                         of Converted Shares back into Subordinate Voting Shares pursuant to a deemed election
                                         shall become effective:

 

		(A)	for
                                         Converted Shares not taken up in accordance with the terms of an Exclusionary Offer which
                                         is nonetheless completed, on the day that the Offeror has taken up and paid for all shares
                                         to be acquired by the Offeror under the Exclusionary Offer; and

 

		(B)	in
                                         respect of an Exclusionary Offer which is abandoned or withdrawn, at the time at which
                                         the Exclusionary Offer is abandoned or withdrawn;

 

    B - 37

     

    

 

		(iv)	no
                                         share certificates representing Converted Shares shall be delivered to the holders of
                                         such shares before such shares are deposited pursuant to the Exclusionary Offer. The
                                         Transfer Agent, on behalf of the holders of the Converted Shares, shall deposit pursuant
                                         to the Exclusionary Offer the certificates representing all Subordinate Voting Shares
                                         for which the certificates, notices and other documents have been duly delivered to the
                                         Transfer Agent pursuant to subparagraph (ii) and shall advise the Offeror of the extent
                                         that such certificates so deposited represent Multiple Voting Subject
                                         Equity Shares of the Company. Upon completion of the Exclusionary Offer, the Transfer
                                         Agent shall deliver to the holders of the shares purchased pursuant to the Exclusionary
                                         Offer all consideration paid by the Offeror pursuant to the Exclusionary Offer. If Converted
                                         Shares are converted back into Subordinate Voting Shares pursuant to subparagraph (iii),
                                         the Transfer Agent shall deliver to the holders entitled thereto share certificates representing
                                         the Subordinate Voting Shares resulting from the conversion. Provided however that if
                                         no Subordinate Voting Shares of a shareholder were acquired by the Offeror pursuant to
                                         the Exclusionary Offer, the Transfer Agent shall return the original share certificate
                                         (if not duly endorsed for transfer to a named transferee) evidencing such Subordinate
                                         Voting Shares tendered pursuant to subparagraph (ii) in satisfaction of its obligations
                                         under this subparagraph (iv). The Company shall make all arrangements with the Transfer
                                         Agent necessary or desirable to give effect to this subparagraph (iv);

 

		(v)	subject
                                         to subparagraph (vi), the conversion right provided for in subparagraph (ii) shall not
                                         come into effect with respect to a class
                                         of Subject Equity Shares if:

 

		(A)	prior
                                         to the time at which the Exclusionary Offer is made there is or has been delivered to
                                         the Transfer Agent and to the Secretary corporate
                                         secretary of the Company a certification or certifications signed by or on
                                         behalf of one or more shareholders of the Company owning in the aggregate, as at the
                                         time the Exclusionary Offer is made(,
                                         more than 50% of the then outstanding Multiple Voting Subject
                                         Equity Shares, of
                                         each class (exclusive of shares owned immediately prior to the Exclusionary
                                         Offer by the Offeror), which certification or certifications shall confirm, in the case
                                         of each such shareholder that made such certification, that such shareholder shall not:

 

		(i)	accept
                                         any Exclusionary Offer without giving the Transfer Agent and the Secretary corporate
                                         secretary of the Company written notice of such acceptance or intended acceptance
                                         at least 7 days prior to the Expiry Date;

 

		(ii)	make
                                         any Exclusionary Offer;

 

		(iii)	act
                                         jointly or in concert with any Person that makes any Exclusionary Offer, ;
                                         or

 

		(iv)	transfer
                                         any Multiple Voting Subject
                                         Equity Shares, directly or indirectly, during the time any Exclusionary Offer
                                         is outstanding without giving the Transfer Agent and the Secretary corporate
                                         secretary of the Company written notice of such transfer or intended transfer
                                         at least 7 seven (7) days
                                         prior to the Expiry Date, which notice shall state, if known to the transferor, the names
                                         of the transferees and the number of Multiple Voting Subject
                                         Equity Shares transferred or to be transferred to each transferee; or

 

    B - 38

     

    

 

		(B)	within
                                         7 seven (7) days
                                         after the Offer Date there is delivered to the Transfer Agent and to the Secretary
                                         corporate secretary of
                                         the Company a certification or certifications signed by or on behalf of one or more shareholders
                                         of the Company owning in the aggregate more than 50% of the then outstanding Multiple
                                         Voting Subject Equity Shares
                                         of such class (exclusive of
                                         shares owned immediately prior to the Exclusionary Offer by the Offeror), which certification
                                         or certifications shall confirm, in the case of each shareholder who made such certification:

 

		(i)	the
                                         number of Multiple Voting Subject
                                         Equity Shares owned by the shareholder; 

 

		(ii)	that
                                         such shareholder is not making the Exclusionary Offer and is not an Associate or Affiliate
                                         of, or acting jointly or in concert with, the Person making such offer;

 

		(iii)	that
                                         such shareholder shall not accept the Exclusionary Offer, including any varied form of
                                         the offer, without giving the Transfer Agent and the Secretary corporate
                                         secretary of the Company written notice of such acceptance or intended acceptance
                                         at least 7 seven (7) days
                                         prior to the Expiry Date; and

 

		(iv)	that
                                         such shareholder shall not transfer any Multiple Voting Subject
                                         Equity Shares, directly or indirectly, prior to the Expiry Date without giving
                                         the Transfer Agent and the Secretary corporate
                                         secretary of the Company written notice of such transfer or intended transfer
                                         at least 7 seven (7) days
                                         prior to the Expiry Date, which notice shall state, if known to the transferor, the names
                                         of the transferees and the number of Multiple Voting Subject
                                         Equity Shares transferred or to be transferred to each transferee if this
                                         information is known to the transferor;

 

		(vi)	if
                                         a notice (the “Notice”) referred to in sub-clause (v)(A)(i), (v)(A)(iv),
                                         (v)(B)(iii) or (v)(B)(iv) is given to the Transfer Agent and to the Secretary corporate
                                         secretary of the Company and the conversion right provided for in subparagraph
                                         (ii) has not, because of the giving of such Notice, come into effect, the Company shall,
                                         either forthwith upon receipt of the Notice or forthwith after the seventh (7th)
                                         day following the Offer Date, whichever is later, make a good faith determination
                                         as to whether there are subsisting certifications that comply with either clause (v)(A)
                                         or (v)(B) from shareholders of the Company who own in the aggregate more than 50% of
                                         the then outstanding Multiple Voting Subject Equity Shares, exclusive
                                         of shares owned immediately prior to the Exclusionary Offer by the Offeror. If the Company
                                         determines that there are not such subsisting certifications, subparagraph (v) shall
                                         cease to apply and the conversion right provided for in subparagraph (ii) shall be in
                                         effect for the remainder of the Conversion Period;

 

		(vii)	as
                                         soon as reasonably possible after the seventh (7th)
                                         day after the Offer Date, the Company shall send to each holder of Subordinate
                                         Voting Shares a written notice advising the holders as to whether they are entitled to
                                         convert their Subordinate Voting Shares into Multiple Voting Subject
                                         Equity Shares and the reasons therefor. If such notice discloses that they are not
                                         so entitled, but it is subsequently determined that they are so entitled by virtue of
                                         subparagraph (vi) or otherwise, the Company shall forthwith send another notice to them
                                         advising them of that fact and the reasons therefor;

 

		(viii)	if
                                         a notice referred to in subparagraph (vii) discloses that the conversion right set forth
                                         in Section 25.1(1)(g)(ii) has come into effect, the notice shall:

 

		(A)	include
                                         a description of the procedure to be followed to effect the conversion and to have the
                                         Converted Shares tendered under the Exclusionary Offer;

 

		(B)	include
                                         the information set out in subparagraph (iii) hereof; and

 

    B - 39

     

    

 

		(C)	be
                                         accompanied by a copy of the Exclusionary Offer and all other materials sent to any holders
                                         of Multiple Voting Subject
                                         Equity Shares in respect of such offer; and as soon as reasonably possible
                                         after any additional material, including any notice of variation, is sent to any holders
                                         of Multiple Voting Subject
                                         Equity Shares in respect of such offer, the Company shall send a copy of such
                                         additional materials to each holder of Subordinate Voting Shares;

 

		(ix)	prior
                                         to or forthwith after sending any notice referred to in subparagraph (vii), the Company
                                         shall cause a news release to be issued to a Canadian national news service, describing
                                         the contents of the notice; and

 

		(x)	references
                                         to share certificates shall include, as applicable, the equivalent in any non-certificated
                                         inventory system (such as, for example, a Direct Registration System or
                                         electronic position), with appropriate changes.

 

		(3)	Specified
                                         Exceptions

 

There
will be no right to convert the Subordinate Voting Shares into Restricted Voting Shares in each of the following circumstances
(collectively, the “Specified Exceptions”):

 

(i)
Equity Shares held, beneficially owned or controlled, by one or more underwriters solely for the purposes of a distribution to
the public; or 

 

(ii)
Equity Shares held, beneficially owned or controlled, by a Person acting solely in the capacity of an intermediary in connection
with either the payment of funds and/or the delivery of securities and that provides centralized facilities for the deposit, clearing
or settlement of trades in securities (including CDS Clearing and Depositary Services Inc., or any successor or assign) without
general discretionary authority over the voting or disposition of such Equity Shares.

 

		(b)	Renaming
                                         as Common Shares.

 

At
the effective time that no Multiple Voting Shares remain issued and outstanding (including, without limitation, by the conversion
of all Multiple Voting Shares, in accordance with these Articles, into Subordinate Voting Shares and/or Restricted Voting Shares,
as applicable), the Subordinate Voting Shares shall henceforward be named “Common Shares”, and all references in these
Articles to “Subordinate Voting Share” shall thereinafter refer to “Common Share”.

 

		Section
                            25.2	Multiple
Voting Shares

 

		(1)	An
                                         unlimited number of Multiple Voting Shares, without nominal or par value, are authorized
                                         for issuance, having attached thereto the special rights and restrictions as set forth
                                         below:

 

		(a)	Voting
                                         Rights.

 

Holders
of Multiple Voting Shares shall be entitled to notice of and to attend (if applicable,
virtually) any meeting of the shareholders of the Company. Holders of Multiple Voting Shares shall be entitled to vote at
any meeting of the shareholders of the Company, except and at each
such meeting, shall be entitled to twenty-five (25) votes in respect of each Multiple Voting Share held, except for a
meeting of which only holders of another particular class or series of shares of the Company shall have the right to vote.At
each such meeting, holders of Multiple Voting Shares will be entitled to 25 votes in respect of each Multiple Voting Share held.

 

    B - 40

     

    

 

Except
as otherwise provided in these Articles (including without limitation the restrictions
on voting rights for directors in the case of the Limited Voting Shares) or except as provided in the Business Corporations
Act, Multiple Voting Shares, Subordinate Voting Shares and
Multiple , Restricted Voting Shares and Limited Voting Shares
are equal in all respects and shall vote together as if they were shares of a single class. In connection with any Change of Control
Transaction requiring approval of the holders of Subordinate Voting Shares and Multiple Voting all
Equity Shares under the Business Corporations Act, holders of Subordinate Voting Shares and Multiple
Voting each such Equity Shares shall be treated equally and
identically, on a per share basis, unless different treatment of the shares of each such class is approved by a majority of the
votes cast by the holders of outstanding Multiple Voting Shares or their proxyholders in respect of a resolution approving such
Change of Control Transaction, voting separately as a class at a meeting of the holders of that class called and held for such
purpose.

 

		(b)	Alteration
                                         to Rights of Multiple Voting Shares.

 

As
long as any Multiple Voting Shares remain outstanding, the Company will not, without the consent of the holders of the Multiple
Voting Shares by separate special resolution alter or amend these Articles if the result would: (i) prejudice or interfere with
any right or special right attached to the Multiple Voting Shares; or (ii) affect the rights or special rights of the holders
of Subordinate Voting Shares or Multiple Voting Shares on a per share basis as provided herein.

 

Notwithstanding
the provisions of the second paragraph of this Section 25.2(1)(a), the holders of Multiple Voting Shares shall be entitled to
vote as a separate class, in addition to any other vote of shareholders that may be required, in respect of any alteration, repeal
or amendment of these Articles which would: (i) adversely affect the rights or special rights of the holders of Multiple Voting
Shares (including an amendment to the terms of these Articles which provide that any Multiple Voting Shares sold or transferred
to a Person that is not a Permitted Holder shall be automatically converted into Restricted Voting Shares and/or Subordinate Voting
Shares, as applicable); or (ii) affect the holders of Equity Shares differently, on a per share basis; or (iii) create any class
or series of shares ranking equal to or senior to the Multiple Voting Shares; and in each case such alteration, repeal or amendment
shall not be effective unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding
Multiple Voting Shares. 

 

		(c)	Constraints
                                         on Ownership.

 

The
Multiple Voting Shares may be held, beneficially owned or controlled, by U.S. Persons and Non-U.S. Persons.

 

		(b)	Dividends.

 

Holders
of Multiple Voting Shares shall be entitled to receive, as and when declared by the directors, dividends in cash or property of
the Company. No dividend will be declared or paid on the Subordinate Voting other
Equity Shares unless the Company simultaneously declares or pays, as applicable, equivalent dividends (on a per share
basis) on the Multiple Voting Shares. The Multiple Voting Shares shall rank equally
with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction. In the
event of the payment of a dividend in the form of shares, holders of Multiple Voting Shares shall receive Multiple Voting Shares,
unless otherwise determined by the Board of Directors board of
directors of the Company, provided an equal number of shares is declared
as a dividend or distribution on a per-Equity Share basis in each case.

 

		(c)	Liquidation,
                                         Dissolution or Winding-Up.

 

In
the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Multiple
Voting Shares shall, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Multiple
Voting Shares, be entitled to participate ratably in the remaining property of the Company along with all other holders of Multiple
Voting Shares and Subordinate Voting Equity Shares (on a per
share basis).

 

    B - 41

     

    

 

		(d)	Rights
                                         to Subscribe; Pre-Emptive Rights.

 

The
holders of Multiple Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Company now or in the future.

 

		(d)	Subdivision
                                         or Consolidation.

 

(f)No
subdivision or consolidation of the Multiple Voting Shares shall occur unless, simultaneously, the other classes of Equity Shares
are subdivided or consolidated or otherwise adjusted so as to maintain and preserve the relative rights of the holders of the
shares of each of the said classes. Subject to Section 25.2(1)(g), the Multiple Voting Shares cannot be converted into any other
class of shares. 

 

		(e)	Conversion
                                         of Multiple Voting Shares.

 

Holders
of Multiple Voting Shares shall have conversion rights as follows (the “Conversion Rights”):

 

		(i)	Right
                                         to Convert.

 

Each
Multiple Voting Share shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such
share at the office of the Company or any transfer agent for such shares, on a one-for-one
basis, into one (1(i) fully paid and non-assessable
Subordinate Voting ShareShares in the event the Multiple Voting
Shares are held, beneficially owned or controlled, by a Non-U.S. Person, and (ii) fully paid and non-assessable Restricted Voting
Shares in the event the Multiple Voting Shares are held, beneficially owned or controlled, by a U.S. Person.

 

		(ii)	Automatic
                                         Conversion.

 

		(A)	Upon
                                         the date that is 60 months from the date of first issuance of a Multiple Voting Share
                                         (the date of first issuance
                                         being May 24, 2019),
                                         each Multiple Voting Share shall be automatically converted ,
                                         without
                                         any action on the part of the holder ,
                                         into
                                         one (1i)
                                         fully paid and non-assessable Subordinate Voting Share,
                                         in the event the Multiple Voting Share is held, beneficially owned or controlled by a
                                         Non-U.S. Person, and (ii) fully paid and non-assessable Restricted Voting Share in the
                                         event the Multiple Voting Shares is held, beneficially owned or controlled by a U.S.
                                         Person.

 

		(B)	Upon
                                         the first date that any Multiple Voting Share shall be held by a Person other than by
                                         a Permitted Holder, the Permitted Holder which held such Multiple Voting Share until
                                         such date, without any further action, shall automatically be deemed to have exercised
                                         his, her or its rights under Section 25.2(1)(f)(i25.2(1)(g)(i)
                                         to convert such Multiple Voting Share into one (i)
                                         fully paid and non-assessable Subordinate Voting Share,
                                         in the event the Multiple Voting Share is held, beneficially owned or controlled by a
                                         Non-U.S. Person, and (ii) fully paid and non-assessable Restricted Voting Share in the
                                         event the Multiple Voting Shares is held, beneficially owned or controlled by a U.S.
                                         Person.

 

		(C)	Upon
                                         the first date that the aggregate number of Multiple Voting Shares held by all Permitted
                                         Holders is reduced to a number which is less than 33 1/3% of the aggregate number of
                                         Multiple Voting Shares held by all Permitted Holders on the date of first issuance of
                                         the Multiple Voting Shares (being May 24,
                                         2019), each Permitted Holder shall automatically be deemed, without further
                                         action, to have exercised his, her or its rights under Section 25.2(1)(f)(i25.2(1)(g)(i)
                                         to convert all Multiple Voting Shares held by such Permitted Holder into an equal number
                                         of (i) fully paid and non-assessable
                                         Subordinate Voting Shares, in the event
                                         the Multiple Voting Shares are held, beneficially owned or controlled by a Non-U.S. Person,
                                         and (ii) fully paid and non-assessable Restricted Voting Shares in the event the Multiple
                                         Voting Shares are held, beneficially owned or controlled by a U.S. Person.

 

    B - 42

     

    

 

		(D)	A
                                         Multiple Voting Share that is converted into a
                                         Subordinate Voting Shares Share
                                         or a Restricted Voting Share, in each case as applicable and as provided for
                                         in Section 25.2(1)(f)(ii)(A), Section 25.2(1)(f)(ii)(B) or Section 25.2(1)(f)(ii)(C)
                                         25.2(1)(g)(ii)(A), Section 25.2(1)(g)(ii)(B)
                                         or Section 25.2(1)(g)(ii)(C) will automatically be cancelled. 

 

		(E)	For
                                         the purposes hereof: 

 

		(i)	“Members
                                         of the Immediate Family” means with respect to any individual, each parent
                                         (whether by birth or adoption), spouse or child (including any step-child) or other descendants
                                         (whether by birth or adoption) of such individual, each spouse of any of the aforementioned
                                         personsPersons,
                                         each trust created solely for the benefit of such individual and/or one or more of the
                                         aforementioned personsPersons,
                                         and each legal representative of such individual or of any aforementioned persons
                                         Persons (including
                                         without limitation a tutor, curator, mandatary due to incapacity, custodian, guardian
                                         or testamentary executor), acting in such capacity under the authority of the law, an
                                         order from a competent tribunal, a will or a mandate in case of incapacity or similar
                                         instrument. For the purposes of this definition, a Person shall be considered the spouse
                                         of an individual if such person Person
                                         is legally married to such individual, lives in a civil union with such individual
                                         or is the common law partner of such individual. A Person who was the spouse of an individual
                                         within the meaning of this paragraph immediately before the death of such individual
                                         shall continue to be considered a spouse of such individual after the death of such individual;

 

		(ii)	“Permitted
                                         Holders” means (a) Jonathan Sandelman, Charles Miles or Kamaldeep Thindal and
                                         any Members of the Immediate Family of any of them, (b) Mercer Park L.P., (c) Mercer
                                         Park CB, L.P., and (d) any person Person
                                         controlled, directly or indirectly by one or more of the persons Persons
                                         referred to in clause (a), (b) or (c) above; and

 

		(iii)	“Person”
                                         has the meaning assigned by the Securities Act (British Columbia) as, from time to time,
                                         amended, re-enacted or replaced and includes a company or other body corporate wherever
                                         or however incorporated.

 

    B - 43

     

    

 

		(iii)	Mechanics
                                         of Conversion.

 

Before
any holder of Multiple Voting Shares shall be entitled to convert Multiple Voting Shares into Subordinate Voting Shares and/or
Restricted Voting Shares, as applicable, the holder thereof shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for Subordinate Voting Shares or Restricted
Voting Shares, as applicable, or the equivalent in any non-certificated inventory system (such as, for example, a Direct
Registration System or electronic position) administered by any applicable
depository or transfer agent of the Company, and shall give written notice to the Company at its head office, of the election
to convert the same (each, a “Conversion Notice”) and the Subordinate Voting Shares or
Restricted Voting Shares, as applicable, resulting therefrom shall be registered in the name of the registered holder
of the Multiple Voting Shares converted or, subject to payment by the registered holder of any stock transfer or applicable taxes
and compliance with any other reasonable requirements of the Company in respect of such transfer, in such name or names as such
registered holder may direct in writing. Upon receipt of such notice and certificate or certificates and, as applicable, compliance
with such other requirements, the Company shall (or shall cause its transfer agent to), at its expense, as soon as practicable
thereafter, remove or cause the removal of such holder from the register of holders in respect of the Multiple Voting Shares for
which the conversion right is being exercised, add the holder (or any person or persons Person
or Persons in whose name or names such converting holder shall have directed the resulting Subordinate Voting Shares
or Restricted Voting Shares, as applicable, to be registered) to the
securities register of holders in respect of the resulting Subordinate Voting Shares or
Restricted Voting Shares, as applicable, cancel or cause the cancellation of the certificate or certificates representing
such Multiple Voting Shares and issue and deliver at such office to such holder, or to the nominee or nominees of such holder,
a certificate or certificates or the equivalent in any non-certificated inventory system (such as, for example, a Direct Registration
System or electronic position) administered by any applicable depository
or transfer agent of the Company, representing the Subordinate Voting Shares or
Restricted Voting Shares, as applicable, issued upon the conversion of such Multiple Voting Shares. Such conversion
shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Multiple Voting
Shares to be converted, and the person or persons Person or Persons
entitled to receive the Subordinate Voting Shares or Restricted Voting
Shares, as applicable, issuable upon such conversion shall be treated for all purposes as the record holder or holders
of such Subordinate Voting Shares or Restricted Voting Shares, as applicable, as
of such date. If less than all of the Multiple Voting Shares represented by any certificate are to be converted, the holder shall
be entitled to receive a new certificate representing the Multiple Voting Shares represented by the original certificate which
are not to be converted. A Multiple Voting Share that is converted into a Subordinate
Voting Shares Share or Restricted Voting Share, as applicable,
as provided for in this Section 25.2(1)(f)(iii25.2(1)(g)(iii)
will automatically be cancelled.

 

		(iv)	Effect
                                         of Conversion.

 

All
Multiple Voting Shares which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares shall immediately cease and terminate at the time of conversion (the “Conversion
Time”), except only the right of the holders thereof to receive Subordinate Voting Shares or
Restricted Voting Shares, as applicable, in exchange therefor.

 

		(g)	Subdivision
                                         or Consolidation.

 

No
subdivision or consolidation of the Multiple Voting Shares shall occur unless, simultaneously, the Subordinate Voting Shares are
subdivided or consolidated or otherwise adjusted so as to maintain and preserve the relative rights of the holders of the shares
of each of the said classes. Subject to Section 25.2(1)(f), the Multiple Voting Shares cannot be converted into any other class
of shares.

 

		(f)	Transfer
                                         of Multiple Voting Shares.

 

Except
in accordance with Sections 2.3 or 2.8 of the Coattail Agreement coattail
agreement dated the same date as the Multiple Voting Shares are first issued (the
 “Coattail Agreement”) or as expressly provided herein, including upon conversion into Subordinate
Voting Shares and/or Restricted Voting Shares, as applicable, no Multiple
Voting Share may be sold, transferred, assigned, pledged or otherwise disposed of without the written consent of the directors,
and the directors are not required to give any reason for refusing to consent to any such sale, transfer or disposition.

 

		(g)	Share
                                         Superior to Multiple Voting Shares

 

The
Company may take no action which would authorize or create shares of any class or series having preferences superior to or on
a parity with the Multiple Voting Shares without the consent of the holders of a majority of the outstanding Multiple Voting Shares
expressed by special separate resolution. At any meeting of holders of Multiple Voting Shares called to consider such a special
separate resolution, each Multiple Voting Share will entitle the holder to one (1) vote and each fraction of a Multiple Voting
Share shall entitle the holder to the corresponding fraction of one (1) vote.

 

    B - 44

     

    

 

		Section 25.3	Rights, Privileges, Restrictions and Conditions Applicable to Subordinate Voting Shares – Redemption Provisions

 

Redemption

 

		Section
                            25.3	Restricted
Voting Shares

 

		(1)	An
                                         unlimited number of Restricted Voting Shares, without nominal or par value, are authorized
                                         for issuance, having attached thereto the special rights and restrictions as set forth
                                         below:

 

		(a)	Voting
                                         Rights.

 

Holders
of Restricted Voting Shares shall be entitled to notice of and to attend (if applicable, virtually) any meeting of the shareholders
of the Company. Holders of Restricted Voting Shares shall be entitled to vote at any meeting of the shareholders of the Company,
and at each such meeting, shall be entitled to one (1) vote in respect of each Restricted Voting Share held, except for a meeting
of which only holders of another particular class or series of shares of the Company shall have the right to vote. 

 

Except
as otherwise provided in these Articles (including without limitation the restrictions on voting rights for directors in the case
of the Limited Voting Shares) or except as provided in the Business Corporations Act, Multiple Voting Shares, Subordinate Voting
Shares, Restricted Voting Shares and Limited Voting Shares are equal in all respects and shall vote together as if they were shares
of a single class. In connection with any Change of Control Transaction requiring approval of the holders of all Equity Shares
under the Business Corporations Act, holders of each class of Equity Shares shall be treated equally and identically, on a per
share basis, unless different treatment of the shares of any such class is approved by a majority of the votes cast by the holders
of outstanding Restricted Voting Shares or their proxyholders in respect of a resolution approving such Change of Control Transaction,
voting separately as a class at a meeting of the holders of Restricted Voting Shares called and held for such purpose.

 

Notwithstanding
the provisions of the second paragraph of this Section 25.3(1)(a), the holders of Restricted Voting Shares shall be entitled to
vote as a separate class, in addition to any other vote of shareholders that may be required, in respect of any alteration, repeal
or amendment of these Articles (other than in respect of the creation of a series of preferred shares) which would: (i) adversely
affect the rights or special rights of the holders of Restricted Voting Shares (including an amendment to the terms of these Articles
which provide that any Multiple Voting Shares sold or transferred to a Person that is not a Permitted Holder shall be automatically
converted into Subordinate Voting Shares and/or Restricted Voting Shares, as applicable); or (ii) affect the holders of any class
of Equity Shares differently, on a per share basis; or (iii) except as already set forth herein, create any class or series of
shares ranking equal to or senior to the Restricted Voting Shares; and in each case such alteration, repeal or amendment shall
not be effective unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding
Restricted Voting Shares.

 

		(b)	Constraints
                                         on Ownership.

 

Subject
to the Specified Exceptions, the Restricted Voting Shares may only be held, beneficially owned or controlled, by U.S. Persons.

 

		(c)	Dividends.

 

Holders
of Restricted Voting Shares shall be entitled to receive, as and when declared by the board of directors, dividends in cash or
property of the Company. No dividend will be declared or paid on any other class of Equity Shares unless the Company simultaneously
declares or pays, as applicable, equivalent dividends (on a per share basis) on the Restricted Voting Shares. The Restricted Voting
Shares shall rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction.
In the event of the payment of a dividend in the form of shares, holders of Restricted Voting Shares shall receive Restricted
Voting Shares, unless otherwise determined by the board of directors, provided an equal number of shares is declared as a dividend
or distribution on a then outstanding per-Equity Share basis, without preference or distinction, in each case.

 

    B - 45

     

    

 

		(d)	Liquidation,
Dissolution or Winding-Up.

 

In
the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Restricted
Voting Shares shall, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Restricted
Voting Shares, be entitled to participate ratably in the remaining property of the Company along with all holders of the other
classes of Equity Shares (on a per share basis).

 

		(e)	Rights
to Subscribe; Pre-Emptive Rights.

 

The
holders of Restricted Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part
of any issue of shares, or bonds, debentures or other securities of the Company now or in the future.

 

		(f)	Subdivision
or Consolidation.

 

No
subdivision or consolidation of the Restricted Voting Shares shall occur unless, simultaneously, the other classes of Equity Shares
are subdivided or consolidated or otherwise adjusted so as to maintain and preserve the relative rights of the holders of the
shares of each of the said classes. Subject to Section 25.3(1)(g), the Restricted Voting Shares cannot be converted into any other
class of shares. 

 

		(g)	Conversion
of Restricted Voting Shares.

 

		(1)	Automatic

 

Subject
to the Specified Exceptions, each issued and outstanding Restricted Voting Share shall be automatically converted into one Subordinate
Voting Share, without any further act on the part of the Company or of the holder, if such Restricted Voting Share becomes held,
beneficially owned or controlled, by a Non-U.S. Person. 

 

		(2)	Conversion
                                         into Limited Voting Shares

 

Subject
to the Specified Exceptions, if, at any given time, the total number of Restricted Voting Shares becomes equal to or in excess
of the FPI Threshold, the minimum number of Restricted Voting Shares required to stay within the FPI Threshold shall be automatically
converted, without further act or formality, on a pro-rata basis across all registered holders of Restricted Voting Shares (rounded
up to the next nearest whole number of shares), on a one-for-one basis, into Limited Voting Shares. For purposes of these Articles,
 “FPI Threshold” means:

 

(0.50
x Aggregate Number of Multiple Voting Shares, Subordinate Voting Shares and Restricted Voting Shares) – (Aggregate Number
of Multiple Voting Shares held, beneficially owned or controlled by U.S. Persons) 

 

Notwithstanding
the foregoing, in connection with a formal bid for all Equity Shares on identical terms made in compliance with Canadian securities
laws that results in the bidder owning or controlling more than fifty percent (50%) of the total voting power of the voting securities
of the Company for the election of directors (assuming the Limited Voting Shares each have one (1) vote per share for the election
of directors), the bidder may elect, by way of written notice to the Company, that the Restricted Voting Shares it so acquires
not be automatically converted into Limited Voting Shares.

 

    B - 46

     

    

 

		
(3)	Upon
                                         an Offer

 

		
(i)	For
                                         the purposes of this Section 25.3(1)(g)(3):

 

		(A)	“Affiliate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

		(B)	“Associate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

		(C)	“Conversion
                                         Period” means the period of time commencing on the eighth day after the Offer
                                         Date and terminating on the Expiry Date;

 

		(D)	“Converted
                                         Shares” means the Subject Equity Shares resulting from the conversion of Restricted
                                         Voting Shares into the Subject Equity Shares pursuant to subparagraph (ii);

 

		(E)	“Exclusionary
                                         Offer” means an offer to purchase Subject Equity Shares that:

 

		(i)	is
a General Offer; and

 

		(ii)	is
                                         not made concurrently with an offer to purchase Restricted Voting Shares that is identical
                                         to the offer to purchase the Subject Equity Shares in terms of price per share and percentage
                                         of outstanding shares to be taken up exclusive of shares owned immediately prior to the
                                         offer by the Offeror, and in all other material respects, and that has no condition attached
                                         other than the right not to take up and pay for shares tendered if no shares are purchased
                                         pursuant to the offer for Subject Equity Shares;

 

and
for the purposes of this definition, if an offer to purchase Subject Equity Shares is a General Offer but not an Exclusionary
Offer, the varying of any term of such offer shall be deemed to constitute the making of a new offer unless a variation identical
in all material respects concurrently is made to the corresponding offer to purchase Restricted Voting Shares;

 

		(F)	“Expiry
                                         Date” means the last date on which holders of the Subject Equity Shares may
                                         accept an Exclusionary Offer;

 

		(G)	“General
                                         Offer” means an offer to purchase Subject Equity Shares that must, by reason
                                         of applicable securities legislation or the requirements of any stock exchange on which
                                         the Subject Equity Shares are listed, be made to all or substantially all holders of
                                         Subject Equity Shares who are in a province of Canada to which any such legislation or
                                         requirement applies (assuming that the offeree was resident in Ontario);

 

		(H)	“Offer
                                         Date” means the date on which an Exclusionary Offer is made;

 

		(I)	“Offeror”
                                         means a Person that makes an offer to purchase the Subject Equity Shares (the “bidder”),
                                         and includes any Associate or Affiliate of the bidder or any Person that is disclosed
                                         in the offering document to be acting jointly or in concert with the bidder;

 

    B - 47

     

    

 

		(J)	“Person”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced and includes a company or other body corporate wherever or however
                                         incorporated; 

 

		(K)	“Subject
                                         Equity Shares” means any one or more classes of Equity Shares that are subject
                                         to an Exclusionary Offer, other than Restricted Voting Shares; and

 

		(L)	“Transfer
                                         Agent” means the transfer agent of the Company at the relevant time for any
                                         of the Subject Equity Shares (and if there is no such transfer agent, “Transfer
                                         Agent” means the Company);

 

		(ii)	subject
                                         to subparagraph (v), if an Exclusionary Offer is made, each outstanding Restricted Voting
                                         Share shall, at the option of each holder of Restricted Voting Shares during the Conversion
                                         Period, be convertible on a one-for-one basis into the class of Equity Shares that are
                                         subject to such Exclusionary Offer (and if more than one class of Equity Shares are subject
                                         to such Exclusionary Offer, or different Exclusionary Offers are made for separate classes
                                         of Subject Equity Shares, on a one-for-one basis into any class of Equity Shares that
                                         are subject to any such Exclusionary Offer, at the holder’s election, or failing
                                         such election, into any class of Equity Shares that are subject to any such Exclusionary
                                         Offer at the board of directors’ discretion). The conversion right may be exercised
                                         by notice in writing given to the Transfer Agent prior to the Expiry Date accompanied
                                         by the share certificate(s) representing the Restricted Voting Shares which the holder
                                         desires to convert, together with any letter of transmittal or other documentation, including
                                         any medallion signature guarantee, as may be required by the Transfer Agent or pursuant
                                         to the Exclusionary Offer, in either case, in duly executed or completed form, and such
                                         notice shall be executed by such holder, or by his attorney duly authorized in writing,
                                         and shall specify the number of Restricted Voting Shares which the holder desires to
                                         have converted and the class of Equity Shares which are desired to be converted into.
                                         The Company shall pay any governmental stamp, transfer or similar tax (but for greater
                                         certainty, no income or capital gains tax) imposed on or in respect of such conversion.
                                         If less than all of the Restricted Voting Shares represented by any share certificate
                                         are to be converted, the holder shall be entitled to receive a new share certificate
                                         representing in the aggregate the number of Restricted Voting Shares represented by the
                                         original share certificate, which are not to be converted. Upon any conversion of any
                                         shares of any class into shares of another class, the Company shall adjust the capital
                                         accounts maintained for the respective classes of shares as provided in the Business
                                         Corporations Act. The conversion right may only be exercised in respect of Restricted
                                         Voting Shares for the purpose of depositing the resulting Subject Equity Shares pursuant
                                         to such offer and for no other reason;

 

		(iii)	an
                                         election by a holder of Restricted Voting Shares to exercise the conversion right provided
                                         for in subparagraph (ii) shall be deemed to also constitute irrevocable elections by
                                         such holder (a) to deposit the Converted Shares pursuant to the Exclusionary Offer (subject
                                         to such holder’s right to subsequently withdraw the shares from the offer), and
                                         (b) to exercise the right to convert back into Restricted Voting Shares all Converted
                                         Shares (on a one-for-one basis) in respect of which such holder exercises his, her or
                                         its right of withdrawal from the Exclusionary Offer or which are not otherwise ultimately
                                         taken up under the Exclusionary Offer. Any conversion of Converted Shares back into Restricted
                                         Voting Shares in respect of which the holder exercises his, her or its right of withdrawal
                                         from the Exclusionary Offer shall become effective at the time such right of withdrawal
                                         is exercised. If the right of withdrawal is not exercised, any conversion of Converted
                                         Shares back into Restricted Voting Shares pursuant to a deemed election shall become
                                         effective:

 

		(A)	for
                                         Converted Shares not taken up in accordance with the terms of an Exclusionary Offer which
                                         is nonetheless completed, on the day that the Offeror has taken up and paid for all shares
                                         to be acquired by the Offeror under the Exclusionary Offer; and

 

    B - 48

     

    

 

		(B)	in
                                         respect of an Exclusionary Offer which is abandoned or withdrawn, at the time at which
                                         the Exclusionary Offer is abandoned or withdrawn;

 

		(iv)	no
                                         share certificates representing Converted Shares shall be delivered to the holders of
                                         such shares before such shares are deposited pursuant to the Exclusionary Offer. The
                                         Transfer Agent, on behalf of the holders of the Converted Shares, shall deposit pursuant
                                         to the Exclusionary Offer the share certificates representing all Restricted Voting Shares
                                         for which the certificates, notices and other documents have been duly delivered to the
                                         Transfer Agent pursuant to subparagraph (ii) and shall advise the Offeror of the extent
                                         that such certificates so deposited represent Subject Equity Shares of the Company. Upon
                                         completion of the Exclusionary Offer, the Transfer Agent shall deliver to the holders
                                         of the shares purchased pursuant to the Exclusionary Offer all consideration paid by
                                         the Offeror pursuant to the Exclusionary Offer. If Converted Shares are converted back
                                         into Restricted Voting Shares pursuant to subparagraph (iii), the Transfer Agent shall
                                         deliver to the holders entitled thereto share certificates representing the Restricted
                                         Voting Shares resulting from the conversion. Provided however that if no Restricted Voting
                                         Shares of a shareholder were acquired by the Offeror pursuant to the Exclusionary Offer,
                                         the Transfer Agent shall return the original share certificate (if not duly endorsed
                                         for transfer to a named transferee) evidencing such Restricted Voting Shares tendered
                                         pursuant to subparagraph (ii) in satisfaction of its obligations under this subparagraph
                                         (iv). The Company shall make all arrangements with the Transfer Agent necessary or desirable
                                         to give effect to this subparagraph (iv);

 

		(v)	subject
                                         to subparagraph (vi), the conversion right provided for in subparagraph (ii) shall not
                                         come into effect with respect to a class of Subject Equity Shares if:

 

		(A)	prior
                                         to the time at which the Exclusionary Offer is made there is or has been delivered to
                                         the Transfer Agent and to the corporate secretary of the Company a certification or certifications
                                         signed by or on behalf of one or more shareholders of the Company owning in the aggregate,
                                         as at the time the Exclusionary Offer is made, more than 50% of the then outstanding
                                         Subject Equity Shares of each class (exclusive of shares owned immediately prior to the
                                         Exclusionary Offer by the Offeror), which certification or certifications shall confirm,
                                         in the case of each such shareholder, that made such certification, that such shareholder
                                         shall not:

 

		(i)	accept
                                         any Exclusionary Offer without giving the Transfer Agent and the corporate secretary
                                         of the Company written notice of such acceptance or intended acceptance at least 7 days
                                         prior to the Expiry Date;

 

		
(ii)	make
any Exclusionary Offer;

 

		
(iii)	act
jointly or in concert with any Person that makes any Exclusionary Offer; or

 

		(iv)	transfer
                                         any Subject Equity Shares, directly or indirectly, during the time any Exclusionary Offer
                                         is outstanding without giving the Transfer Agent and the corporate secretary of the Company
                                         written notice of such transfer or intended transfer at least seven (7) days prior to
                                         the Expiry Date, which notice shall state, if known to the transferor, the names of the
                                         transferees and the number of Subject Equity Shares transferred or to be transferred
                                         to each transferee; or

 

    B - 49

     

    

 

		(B)	within
                                         seven (7) days after the Offer Date there is delivered to the Transfer Agent and to the
                                         corporate secretary of the Company a certification or certifications signed by or on
                                         behalf of one or more shareholders of the Company owning in the aggregate more than 50%
                                         of the then outstanding Subject Equity Shares of such class (exclusive of shares owned
                                         immediately prior to the Exclusionary Offer by the Offeror), which certification or certifications
                                         shall confirm, in the case of each shareholder who made such certification:

 

		
(i)	the
                                         number of Subject Equity Shares owned by the shareholder; 

 

		(ii)	that
                                         such shareholder is not making the Exclusionary Offer and is not an Associate or Affiliate
                                         of, or acting jointly or in concert with, the Person making such offer;

 

		(iii)	that
                                         such shareholder shall not accept the Exclusionary Offer, including any varied form of
                                         the offer, without giving the Transfer Agent and the corporate secretary of the Company
                                         written notice of such acceptance or intended acceptance at least seven (7) days prior
                                         to the Expiry Date; and

 

		(iv)	that
                                         such shareholder shall not transfer any Subject Equity Shares, directly or indirectly,
                                         prior to the Expiry Date without giving the Transfer Agent and the corporate secretary
                                         of the Company written notice of such transfer or intended transfer at least seven (7)
                                         days prior to the Expiry Date, which notice shall state, if known to the transferor,
                                         the names of the transferees and the number of Subject Equity Shares transferred or to
                                         be transferred to each transferee if this information is known to the transferor;

 

		(vi)	if
                                         a notice (the “Notice”) referred to in sub-clause (v)(A)(i), (v)(A)(iv),
                                         (v)(B)(iii) or (v)(B)(iv) is given to the Transfer Agent and to the corporate secretary
                                         of the Company and the conversion right provided for in subparagraph (ii) has not, because
                                         of the giving of such Notice, come into effect, the Company shall, either forthwith upon
                                         receipt of the Notice or forthwith after the seventh (7th) day following the
                                         Offer Date, whichever is later, make a good faith determination as to whether there are
                                         subsisting certifications that comply with either clause (v)(A) or (v)(B) from shareholders
                                         of the Company who own in the aggregate more than 50% of the then outstanding Subject
                                         Equity Shares of each class, exclusive of shares owned immediately prior to the Exclusionary
                                         Offer by the Offeror. If the Company determines that there are not such subsisting certifications,
                                         subparagraph (v) shall cease to apply and the conversion right provided for in subparagraph
                                         (ii) shall be in effect for the remainder of the Conversion Period;

 

		(vii)	as
                                         soon as reasonably possible after the seventh (7th) day after the Offer Date,
                                         the Company shall send to each holder of Restricted Voting Shares a written notice advising
                                         the holders as to whether they are entitled to convert their Restricted Voting Shares
                                         into Subject Equity Shares and the reasons therefor. If such notice discloses that they
                                         are not so entitled, but it is subsequently determined that they are so entitled by virtue
                                         of subparagraph (vi) or otherwise, the Company shall forthwith send another notice to
                                         them advising them of that fact and the reasons therefor;

 

		(viii)	if
                                         a notice referred to in subparagraph (vii) discloses that the conversion right set forth
                                         in Section 25.3(1)(g)(3)(ii) has come into effect, the notice shall:

 

		(A)	include
                                         a description of the procedure to be followed to effect the conversion and to have the
                                         Converted Shares tendered under the Exclusionary Offer;

 

		(B)	include
                                         the information set out in subparagraph (iii) hereof; and

 

		(C)	be
                                         accompanied by a copy of the Exclusionary Offer and all other materials sent to any holders
                                         of Subject Equity Shares in respect of such offer; and as soon as reasonably possible
                                         after any additional material, including any notice of variation, is sent to any holders
                                         of Subject Equity Shares in respect of such offer, the Company shall send a copy of such
                                         additional materials to each holder of Restricted Voting Shares;

 

    B - 50

     

    

 

		(ix)	prior
                                         to or forthwith after sending any notice referred to in subparagraph (vii), the Company
                                         shall cause a news release to be issued to a Canadian national news service, describing
                                         the contents of the notice; and

 

		(x)	references
                                         to share certificates shall include, as applicable, the equivalent in any non-certificated
                                         inventory system (such as, for example, a Direct Registration System or an electronic
                                         position), with appropriate changes.

 

	Section
                            25.4	Limited
Voting Shares

 

	(1)	An
                                         unlimited number of Limited Voting Shares, without nominal or par value, are authorized
                                         for issuance, having attached thereto the special rights and restrictions as set forth
                                         below:

 

		(a)	Voting
                                         Rights.

 

Holders
of Limited Voting Shares shall be entitled to notice of and to attend (if applicable, virtually) any meeting of the shareholders
of the Company. Holders of Limited Voting Shares shall be entitled to vote at any meeting of the shareholders of the Company,
and at each such meeting, shall be entitled to one (1) vote in respect of each Limited Voting Share held, except that holders
shall not have an entitlement to vote (i) in respect of the election for directors of the board of directors or (ii) for a meeting
of which only holders of another particular class or series of shares of the Company shall have the right to vote. 

 

Except
as otherwise provided in these Articles (including without limitation the restrictions on voting rights for directors in the case
of the Limited Voting Shares) or except as provided in the Business Corporations Act, Multiple Voting Shares, Subordinate Voting
Shares, Restricted Voting Shares and Limited Voting Shares are equal in all respects and shall vote together as if they were shares
of a single class. In connection with any Change of Control Transaction requiring approval of the holders of all Equity Shares
under the Business Corporations Act, holders of each class of Equity Shares shall be treated equally and identically, on a per
share basis, unless different treatment of the shares of any such class is approved by a majority of the votes cast by the holders
of outstanding Limited Voting Shares or their proxyholders in respect of a resolution approving such Change of Control Transaction,
voting separately as a class at a meeting of the holders of Limited Voting Shares called and held for such purpose.

 

Notwithstanding
the provisions of the second paragraph of this Section 25.4(1)(a), the holders of Limited Voting Shares shall be entitled to vote
as a separate class, in addition to any other vote of shareholders that may be required, in respect of any alteration, repeal
or amendment of these Articles (other than in respect of the creation of a series of preferred shares) which would: (i) adversely
affect the rights or special rights of the holders of Limited Voting Shares (including an amendment to the terms of these Articles
which provide that any Multiple Voting Shares sold or transferred to a Person that is not a Permitted Holder shall be automatically
converted into Subordinate Voting Shares and/or Restricted Voting Shares, as applicable); or (ii) affect the holders of any class
of Equity Shares differently, on a per share basis; or (iii) except as already set forth herein, create any class or series of
shares ranking equal to or senior to the Limited Voting Shares; and in each case such alteration, repeal or amendment shall not
be effective unless a resolution in respect thereof is approved by a majority of the votes cast by holders of outstanding Limited
Voting Shares.

 

		(b)	Constraints
                                         on Ownership.

 

Subject
to the Specified Exceptions, the Limited Voting Shares may only be held, beneficially owned or controlled, by U.S. Persons.

 

    B - 51

     

    

 

		(c)	Dividends.

 

Holders
of Limited Voting Shares shall be entitled to receive, as and when declared by the board of directors, dividends in cash or property
of the Company. No dividend will be declared or paid on any other class of Equity Shares unless the Company simultaneously declares
or pays, as applicable, equivalent dividends (on a per share basis) on the Limited Voting Shares. The Limited Voting Shares shall
rank equally with the other Equity Shares as to dividends on a share-for-share basis, without preference or distinction. In the
event of the payment of a dividend in the form of shares, holders of Limited Voting Shares shall receive Limited Voting Shares,
unless otherwise determined by the board of directors, provided an equal number of shares is declared as a dividend or distribution
on a then outstanding per-Equity Share basis, without preference or distinction, in each case.

 

		(d)	Liquidation,
                                         Dissolution or Winding-Up.

 

In
the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or in the event of any
other distribution of assets of the Company among its shareholders for the purpose of winding up its affairs, the holders of Limited
Voting Shares shall, subject to the prior rights of the holders of any shares of the Company ranking in priority to the Limited
Voting Shares, be entitled to participate ratably in the remaining property of the Company along with all holders of the other
classes of Equity Shares (on a per share basis).

 

		(e)	Rights
                                         to Subscribe; Pre-Emptive Rights.

 

The
holders of Limited Voting Shares are not entitled to a right of first refusal to subscribe for, purchase or receive any part of
any issue of shares, or bonds, debentures or other securities of the Company now or in the future.

 

		(f)	Subdivision
                                         or Consolidation.

 

No
subdivision or consolidation of the Limited Voting Shares shall occur unless, simultaneously, the other classes of Equity Shares
are subdivided or consolidated or otherwise adjusted so as to maintain and preserve the relative rights of the holders of the
shares of each of the said classes. Subject to Section 25.4(1)(g), the Limited Voting Shares cannot be converted into any other
class of shares. 

 

		(g)	Conversion
                                         of Limited Voting Shares.

 

		(1)	Automatic

 

Subject
to the Specified Exceptions, each issued and outstanding Limited Voting Share shall be automatically converted into one Subordinate
Voting Share, without any further act on the part of the Company or of the holder, if at any given time, such Limited Voting Share
becomes held, beneficially owned or controlled, by a Non-U.S. Person. 

 

		(2)	Conversion
                                         into Restricted Voting Shares 

 

Subject
to the Specified Exceptions, if, at any given time, the total number of Restricted Voting Shares represents a number below the
FPI Threshold, the number of Limited Voting Shares shall be automatically converted, without further act or formality, on a pro-rata
basis across all registered holders of Limited Voting Shares (rounded up to the next nearest whole number of shares), on a one-for-one
basis, into Restricted Voting Shares, to the maximum extent possible such that the Limited Voting Shares then represent a number
of Equity Shares that is one share less than the FPI Threshold. 

 

Notwithstanding
the foregoing, in connection with a formal bid for all Equity Shares on identical terms made in compliance with Canadian securities
laws that results in the bidder owning or controlling more than fifty percent (50%) of the total voting power of the voting securities
of the Company for the election of directors (assuming the Limited Voting Shares each have one (1) vote per share for the election
of directors), the bidder may elect, by way of written notice to the Company, that the Limited Voting Shares it so acquires not
be automatically converted into Restricted Voting Shares. 

 

    B - 52

     

    

 

		(3)	Upon
                                         an Offer

 

		(i)	For
                                         the purposes of this Section 25.4(1)(g)(3):

 

		(A)	“Affiliate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

		(B)	“Associate”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced;

 

		(C)	“Conversion
                                         Period” means the period of time commencing on the eighth day after the Offer
                                         Date and terminating on the Expiry Date;

 

		(D)	“Converted
                                         Shares” means the Subject Equity Shares resulting from the conversion of Limited
                                         Voting Shares into the Subject Equity Shares pursuant to subparagraph (ii);

 

		(E)	“Exclusionary
                                         Offer” means an offer to purchase Subject Equity Shares that:

 

		(i)	is
                                         a General Offer; and

 

		(ii)	is
                                         not made concurrently with an offer to purchase Limited Voting Shares that is identical
                                         to the offer to purchase the Subject Equity Shares in terms of price per share and percentage
                                         of outstanding shares to be taken up exclusive of shares owned immediately prior to the
                                         offer by the Offeror, and in all other material respects, and that has no condition attached
                                         other than the right not to take up and pay for shares tendered if no shares are purchased
                                         pursuant to the offer for Subject Equity Shares;

 

and
for the purposes of this definition, if an offer to purchase Subject Equity Shares is a General Offer but not an Exclusionary
Offer, the varying of any term of such offer shall be deemed to constitute the making of a new offer unless a variation identical
in all material respects concurrently is made to the corresponding offer to purchase Limited Voting Shares;

 

		(F)	“Expiry
                                         Date” means the last date on which holders of the Subject Equity Shares may
                                         accept an Exclusionary Offer;

 

		(G)	“General
                                         Offer” means an offer to purchase Subject Equity Shares that must, by reason
                                         of applicable securities legislation or the requirements of any stock exchange on which
                                         the Subject Equity Shares are listed, be made to all or substantially all holders of
                                         Subject Equity Shares who are in a province of Canada to which any such legislation or
                                         requirement applies (assuming that the offeree was resident in Ontario);

 

		(H)	“Offer
                                         Date” means the date on which an Exclusionary Offer is made;

 

		(I)	“Offeror”
                                         means a Person that makes an offer to purchase the Subject Equity Shares (the “bidder”),
                                         and includes any Associate or Affiliate of the bidder or any Person that is disclosed
                                         in the offering document to be acting jointly or in concert with the bidder,

 

    B - 53

     

    

 

		(J)	“Person”
                                         has the meaning assigned by the Securities Act (Ontario) as, from time to time, amended,
                                         re-enacted or replaced and includes a company or other body corporate wherever or however
                                         incorporated; 

 

		(K)	“Subject
                                         Equity Shares” means any one or more classes of Equity Shares that are subject
                                         to an Exclusionary Offer, other than Limited Voting Shares; and

 

		(L)	“Transfer
                                         Agent” means the transfer agent of the Company at the relevant time for any
                                         of the Subject Equity Shares (and if there is no such transfer agent, “Transfer
                                         Agent” means the Company);

 

		(ii)	subject
                                         to subparagraph (v), if an Exclusionary Offer is made, each outstanding Limited Voting
                                         Share shall, at the option of each holder of Limited Voting Shares during the Conversion
                                         Period, be convertible on a one-for-one basis into the class of Equity Shares that are
                                         subject to such Exclusionary Offer (and if more than one class of Equity Shares are subject
                                         to such Exclusionary Offer, or different Exclusionary Offers are made for separate classes
                                         of Subject Equity Shares, on a one-for-one basis into any class of Equity Shares that
                                         are subject to any such Exclusionary Offer, at the holder’s election, or failing
                                         such election, into any class of Equity Shares that are subject to any such Exclusionary
                                         Offer at the board of directors’ discretion). The conversion right may be exercised
                                         by notice in writing given to the Transfer Agent prior to the Expiry Date accompanied
                                         by the share certificate(s) representing the Limited Voting Shares which the holder desires
                                         to convert, together with any letter of transmittal or other documentation, including
                                         any medallion signature guarantee, as may be required by the Transfer Agent or pursuant
                                         to the Exclusionary Offer, in either case, in duly executed or completed form, and such
                                         notice shall be executed by such holder, or by his attorney duly authorized in writing,
                                         and shall specify the number of Limited Voting Shares which the holder desires to have
                                         converted and the class of Equity Shares which are desired to be converted into. The
                                         Company shall pay any governmental stamp, transfer or similar tax (but for greater certainty,
                                         no income or capital gains tax) imposed on or in respect of such conversion. If less
                                         than all of the Limited Voting Shares represented by any share certificate are to be
                                         converted, the holder shall be entitled to receive a new share certificate representing
                                         in the aggregate the number of Limited Voting Shares represented by the original share
                                         certificate, which are not to be converted. Upon any conversion of any shares of any
                                         class into shares of another class, the Company shall adjust the capital accounts maintained
                                         for the respective classes of shares as provided in the Business Corporations Act. The
                                         conversion right may only be exercised in respect of Limited Voting Shares for the purpose
                                         of depositing the resulting Subject Equity Shares pursuant to such offer and for no other
                                         reason;

 

		(iii)	an
                                         election by a holder of Limited Voting Shares to exercise the conversion right provided
                                         for in subparagraph (ii) shall be deemed to also constitute irrevocable elections by
                                         such holder (a) to deposit the Converted Shares pursuant to the Exclusionary Offer (subject
                                         to such holder’s right to subsequently withdraw the shares from the offer), and
                                         (b) to exercise the right to convert back into Limited Voting Shares all Converted Shares
                                         (on a one-for-one basis) in respect of which such holder exercises his, her or its right
                                         of withdrawal from the Exclusionary Offer or which are not otherwise ultimately taken
                                         up under the Exclusionary Offer. Any conversion of Converted Shares back into Limited
                                         Voting Shares in respect of which the holder exercises his, her or its right of withdrawal
                                         from the Exclusionary Offer shall become effective at the time such right of withdrawal
                                         is exercised. If the right of withdrawal is not exercised, any conversion of Converted
                                         Shares back into Limited Voting Shares pursuant to a deemed election shall become effective:

 

		(A)	for
                                         Converted Shares not taken up in accordance with the terms of an Exclusionary Offer which
                                         is nonetheless completed, on the day that the Offeror has taken up and paid for all shares
                                         to be acquired by the Offeror under the Exclusionary Offer; and

 

    B - 54

     

    

 

		(B)	in
                                         respect of an Exclusionary Offer which is abandoned or withdrawn, at the time at which
                                         the Exclusionary Offer is abandoned or withdrawn;

 

		(iv)	no
                                         share certificates representing Converted Shares shall be delivered to the holders of
                                         such shares before such shares are deposited pursuant to the Exclusionary Offer. The
                                         Transfer Agent, on behalf of the holders of the Converted Shares, shall deposit pursuant
                                         to the Exclusionary Offer the share certificates representing all Limited Voting Shares
                                         for which the certificates, notices and other documents have been duly delivered to the
                                         Transfer Agent pursuant to subparagraph (ii) and shall advise the Offeror of the extent
                                         that such certificates so deposited represent Subject Equity Shares of the Company. Upon
                                         completion of the Exclusionary Offer, the Transfer Agent shall deliver to the holders
                                         of the shares purchased pursuant to the Exclusionary Offer all consideration paid by
                                         the Offeror pursuant to the Exclusionary Offer. If Converted Shares are converted back
                                         into Limited Voting Shares pursuant to subparagraph (iii), the Transfer Agent shall deliver
                                         to the holders entitled thereto share certificates representing the Limited Voting Shares
                                         resulting from the conversion. Provided however that if no Limited Voting Shares of a
                                         shareholder were acquired by the Offeror pursuant to the Exclusionary Offer, the Transfer
                                         Agent shall return the original share certificate (if not duly endorsed for transfer
                                         to a named transferee) evidencing such Limited Voting Shares tendered pursuant to subparagraph
                                         (ii) in satisfaction of its obligations under this subparagraph (iv). The Company shall
                                         make all arrangements with the Transfer Agent necessary or desirable to give effect to
                                         this subparagraph (iv);

 

		(v)	subject
                                         to subparagraph (vi), the conversion right provided for in subparagraph (ii) shall not
                                         come into effect with respect to a class of Subject Equity Shares if:

 

		(A)	prior
                                         to the time at which the Exclusionary Offer is made there is or has been delivered to
                                         the Transfer Agent and to the corporate secretary of the Company a certification or certifications
                                         signed by or on behalf of one or more shareholders of the Company owning in the aggregate,
                                         as at the time the Exclusionary Offer is made, more than 50% of the then outstanding
                                         Subject Equity Shares of each class (exclusive of shares owned immediately prior to the
                                         Exclusionary Offer by the Offeror), which certification or certifications shall confirm,
                                         in the case of each such shareholder, that made such certification, that such shareholder
                                         shall not:

 

		(i)	accept
                                         any Exclusionary Offer without giving the Transfer Agent and the corporate secretary
                                         of the Company written notice of such acceptance or intended acceptance at least 7 days
                                         prior to the Expiry Date;

 

		(ii)	make
                                         any Exclusionary Offer;

 

		(iii)	act
                                         jointly or in concert with any Person that makes any Exclusionary Offer; or

 

		(iv)	transfer
                                         any Subject Equity Shares, directly or indirectly, during the time any Exclusionary Offer
                                         is outstanding without giving the Transfer Agent and the corporate secretary of the Company
                                         written notice of such transfer or intended transfer at least seven (7) days prior to
                                         the Expiry Date, which notice shall state, if known to the transferor, the names of the
                                         transferees and the number of Subject Equity Shares transferred or to be transferred
                                         to each transferee; or

 

    B - 55

     

    

 

		(B)	within
                                         seven (7) days after the Offer Date there is delivered to the Transfer Agent and to the
                                         corporate secretary of the Company a certification or certifications signed by or on
                                         behalf of one or more shareholders of the Company owning in the aggregate more than 50%
                                         of the then outstanding Subject Equity Shares of such class (exclusive of shares owned
                                         immediately prior to the Exclusionary Offer by the Offeror), which certification or certifications
                                         shall confirm, in the case of each shareholder who made such certification:

 

		(i)	the
                                         number of Subject Equity Shares owned by the shareholder; 

 

		(ii)	that
                                         such shareholder is not making the Exclusionary Offer and is not an Associate or Affiliate
                                         of, or acting jointly or in concert with, the Person making such offer;

 

		(iii)	that
                                         such shareholder shall not accept the Exclusionary Offer, including any varied form of
                                         the offer, without giving the Transfer Agent and the corporate secretary of the Company
                                         written notice of such acceptance or intended acceptance at least seven (7) days prior
                                         to the Expiry Date; and

 

		(iv)	that
                                         such shareholder shall not transfer any Subject Equity Shares, directly or indirectly,
                                         prior to the Expiry Date without giving the Transfer Agent and the corporate secretary
                                         of the Company written notice of such transfer or intended transfer at least seven (7)
                                         days prior to the Expiry Date, which notice shall state, if known to the transferor,
                                         the names of the transferees and the number of Subject Equity Shares transferred or to
                                         be transferred to each transferee if this information is known to the transferor;

 

		(vi)	if
                                         a notice (the “Notice”) referred to in sub-clause (v)(A)(i), (v)(A)(iv),
                                         (v)(B)(iii) or (v)(B)(iv) is given to the Transfer Agent and to the corporate secretary
                                         of the Company and the conversion right provided for in subparagraph (ii) has not, because
                                         of the giving of such Notice, come into effect, the Company shall, either forthwith upon
                                         receipt of the Notice or forthwith after the seventh (7th) day following the
                                         Offer Date, whichever is later, make a good faith determination as to whether there are
                                         subsisting certifications that comply with either clause (v)(A) or (v)(B) from shareholders
                                         of the Company who own in the aggregate more than 50% of the then outstanding Subject
                                         Equity Shares of each class, exclusive of shares owned immediately prior to the Exclusionary
                                         Offer by the Offeror. If the Company determines that there are not such subsisting certifications,
                                         subparagraph (v) shall cease to apply and the conversion right provided for in subparagraph
                                         (ii) shall be in effect for the remainder of the Conversion Period;

 

		(vii)	as
                                         soon as reasonably possible after the seventh (7th) day after the Offer Date,
                                         the Company shall send to each holder of Limited Voting Shares a written notice advising
                                         the holders as to whether they are entitled to convert their Limited Voting Shares into
                                         Subject Equity Shares and the reasons therefor. If such notice discloses that they are
                                         not so entitled, but it is subsequently determined that they are so entitled by virtue
                                         of subparagraph (vi) or otherwise, the Company shall forthwith send another notice to
                                         them advising them of that fact and the reasons therefor;

 

		(viii)	if
                                         a notice referred to in subparagraph (vii) discloses that the conversion right set forth
                                         in Section 25.4(1)(g)(3)(ii) has come into effect, the notice shall:

 

		(A)	include
                                         a description of the procedure to be followed to effect the conversion and to have the
                                         Converted Shares tendered under the Exclusionary Offer;

 

		(B)	include
                                         the information set out in subparagraph (iii) hereof; and

 

		(C)	be
                                         accompanied by a copy of the Exclusionary Offer and all other materials sent to any holders
                                         of Subject Equity Shares in respect of such offer; and as soon as reasonably possible
                                         after any additional material, including any notice of variation, is sent to any holders
                                         of Subject Equity Shares in respect of such offer, the Company shall send a copy of such
                                         additional materials to each holder of Limited Voting Shares;

 

    B - 56

     

    

 

		(ix)	prior
                                         to or forthwith after sending any notice referred to in subparagraph (vii), the Company
                                         shall cause a news release to be issued to a Canadian national news service, describing
                                         the contents of the notice; and

 

		(x)	references
                                         to share certificates shall include, as applicable, the equivalent in any non-certificated
                                         inventory system (such as, for example, a Direct Registration System or an electronic
                                         position), with appropriate changes.

 

	Section
                            25.5	Rights,
Privileges, Restrictions and Conditions Applicable to Equity Shares

 

(A)
           Redemption, Transfer and Other Limiting Provisions

 

	(1)	For
                                         the purposes of this Section 25.5,
                                         the
                                         following terms will have the meaning specified below:

 

“Applicable
Price” means a price per Equity Share determined by the Board,
but not less than 95% of the lesser of: (i) the closing price Closing
Market Price of the Subordinate Voting Shares on the Exchange (or the then principal marketplace on which the Subordinate
Voting Shares are listed or quoted for trading) on the trading day immediately prior to the closing of the Redemption or Transfer
(or the average of the last bid and last asking prices if there was no trading on the specified date); and (ii) the five-day volume
weighted average price of the Subordinate Voting Shares on the Exchange (or the then principal marketplace on which the Subordinate
Voting Shares are listed or quoted for trading) for the five trading days immediately prior to the closing of the Redemption or
Transfer (or the average of the last bid and last asking prices if there was no trading on the specified dates). Notwithstanding
the foregoing, if the Subordinate Voting Shares are not traded or quoted for trading on the exchange Exchange
or any other marketplace, the Applicable Price may be determined by the Board in its sole discretion,
and if at such time of determination there are no Subordinate Voting Shares issued and outstanding, then all references in this
definition to “Subordinate Voting Shares” shall be to “Restricted Voting Shares” or “Limited Voting
Shares”, as applicable);

 

“Board”
means the board of directors of the Company;

 

“Business”
means the conduct of any activities relating to the cultivation, manufacturing and dispensing of cannabis and cannabis-derived
products, including in the United States or elsewhere, which include the owning and operating of cannabis licenses;

 

“Closing
Market Price” shall be: (i) an amount equal to the closing price of the Subordinate Voting Shares on the trading day
immediately prior to the closing of the Redemption or Transfer or exchange if there was a trade on the specified date and the
applicable exchange or market provides a closing price; or (ii) an amount equal to the average of the last bid and last asking
prices if there was no trading on the applicable date; and notwithstanding the foregoing,
if at such time of determination there are no Subordinate Voting Shares issued and outstanding, then all references in this definition
to “Subordinate Voting Shares” shall be to “Restricted Voting Shares” or “Limited Voting Shares”,
as applicable;

 

“Determination
Date” means the date on which the Company provides written notice to any shareholder that the Board has determined that
such shareholder is an Unsuitable Person;

 

“Exchange”
means the NEO Aequitas Canadian Securities Exchange
or any other stock exchange on which the Subordinate Voting Shares are then listed;

 

“Governmental
Authority” or “Governmental Authorities” means any United States or foreign, federal, provincial,
state, county, regional, local or municipal government, any agency, administration, board, bureau, commission, department, service,
or other instrumentality or political subdivision of the foregoing, and any Person with jurisdiction exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government or monetary policy (including any court or arbitration
authority) and any Exchange;

 

    B - 57

     

    

 

“Licenses”
means all licenses, permits, approvals, orders, authorizations, registrations, findings of suitability, franchises, exemptions,
waivers and entitlements issued by a Governmental Authority to or for the benefit of the Company or any affiliate required for,
or relating to, the conduct of the Business;

 

“Limited
Voting Shares” means the limited voting shares of the Company;

 

“Multiple
Voting Shares” means the multiple voting shares of the Company;

 

“Ownership”
(and derivatives thereof) means (i) ownership of record as evidenced in the Company’s central securities register, (ii)
 “beneficial ownership” as defined in Section 1 of the Business Corporations Act, or (iii) the power to exercise
control or direction over a security;

 

“Person”
means an individual, partnership, corporation, company, limited or unlimited liability company, trust or any other entity;

 

“Redemption”
has the meaning ascribed thereto in Section 25.3(825.5(8);

 

“Redemption
Date” means the date on which the Company will redeem and pay for the Equity
Shares pursuant to Section 25.325.5. The
Redemption Date will be not less than thirty (30) Trading Days following the date of the Redemption Notice unless a Governmental
Authority requires that the Equity Shares be redeemed as of an earlier
date, in which case, the Redemption Date will be such earlier date and if there is an outstanding Redemption Notice, the Company
will issue an amended Redemption Notice reflecting the new Redemption Date forthwith;

 

“Redemption
Notice” has the meaning ascribed thereto in Section 25.3(925.5(9);

 

“Restricted
Voting Shares” means the restricted voting shares of the Company;

 

“Significant
Interest” means Ownership of five percent (5%) or more of all of the issued and outstanding shares of the Company, including
through acting jointly or in concert with another shareholder, or such other number of Equity
Shares as is determined by the Board from time to time;

 

“Shares”
refers to Subordinate Voting Shares and/or Multiple Voting Shares of the Company, as applicable;

 

“Subject
Shareholder” means a personPerson, a group
of persons Persons acting jointly or in concert or a
group of persons Persons who the Board reasonably determines
are acting jointly or in concert;

 

“Subordinate
Voting Shares” means the subordinate voting shares of the Company;

 

“Trading
Day” means a day on which trades of any class of the Equity
Shares are executed on the Exchange or any other stock exchange on which the Equity
Shares are listed or quoted for trading;

 

“Transfer”
has the meaning ascribed thereto in Section 25.3(825.5(8);

 

“Transfer
Date” means the date on which a Transfer of Equity Shares required
by the Company is required to be completed by the Company;

 

“Transfer
Notice” has the meaning ascribed thereto in Section 25.3(12); and25.5(12);

 

“Transferred
Share” has the meaning ascribed thereto in Section 25.5(8); and

 

    B - 58

     

    

 

“Unsuitable
Person” means:

 

		(i)	any
                                         person Person (including
                                         a Subject Shareholder) with a Significant Interest who a Governmental Authority granting
                                         the Licenses has determined to be unsuitable to own Equity
                                         Shares;

 

		(ii)	any
                                         person Person (including
                                         a Subject Shareholder) with a Significant Interest whose ownership of Equity
                                         Shares may result in the loss, suspension or revocation (or similar action)
                                         with respect to any Licenses or in the Company or any affiliate being unable to obtain
                                         any new Licenses in the normal course, including, but not limited to, as a result of
                                         such person’s Person’s
                                         failure to apply for a suitability review from or to otherwise fail to comply
                                         with the requirements of a Governmental Authority, all as determined by the Board; or

 

		(iii)	who
                                         have not been determined by the applicable Governmental Authority to be an acceptable
                                         person Person or
                                         otherwise have not received the requisite consent of such Governing Authority to own
                                         the Equity Shares within a reasonable
                                         period of time acceptable to the Board or prior to acquiring any Equity
                                         Shares, as applicable.

 

	(2)	Subject
                                         to Section 25.3(425.5(4),
                                         no Subject Shareholder may acquire Equity Shares that would result in the holding of
                                         a Significant Interest, directly or indirectly, in one or more transactions, without
                                         providing not less than 30 days’ advance written notice (or such shorter period
                                         as the Board may approve) to the Company by written notice to the Company’s head
                                         office to the attention of the Corporate Secretary corporate
                                         secretary and without having received all required approvals from all Governmental
                                         Authorities.

 

	(3)	If
                                         the Board reasonably believes that a Subject Shareholder may have failed to comply with
                                         any of the provisions of Section 25.3(225.5(2),
                                         the Company may, without prejudice to any other remedy hereunder, apply to the Supreme
                                         Court of British Columbia or another court of competent jurisdiction for an order directing
                                         that the Subject Shareholder disclose the number of Equity
                                         Shares
                                         Owned.

 

	(4)	The
                                         provisions of Sections 25.3(2Section
                                         25.5(2)
                                         and 25.3(3Section
                                         25.5(3)
                                         will
                                         not apply to the Ownership, acquisition or disposition of Equity
                                         Shares
                                         as a result of:

 

		(a)	any
                                         transfer of Equity Shares occurring
                                         by operation of bankruptcy or insolvency law including, inter alia, the transfer of Equity
                                         Shares of the Company to a trustee in bankruptcy;

 

		(b)	an
                                         acquisition or proposed acquisition by one or more underwriters or portfolio managers
                                         who hold Equity Shares for the
                                         purposes of distribution to the public or for the benefit of a third party provided that
                                         such third party is in compliance with Section 25.3(225.5(2);
                                         

 

		(c)	the
                                         holding by a recognized clearing agency or recognized depositary in the ordinary course
                                         of its business; or

 

		(d)	the
                                         conversion, exchange or exercise of securities of the Company or an affiliate (other
                                         than the Equity Shares) duly
                                         issued or granted by the Company or an affiliate, into or for Equity
                                         Shares, in accordance with their respective terms.

 

	(5)	At
                                         the option of the Company and upon determination by the Board that an Unsuitable Person
                                         has not received the requisite approval of any Government Authority to own the sharesEquity
                                         Shares, the Company may issue a notice prohibiting any Unsuitable Person owning
                                         Equity Shares from exercising
                                         any voting rights with respect to such Equity
                                         Shares and on and after the Determination Date specified therein, and/or providing
                                         that such holder will cease to have any rights whatsoever with respect to such Equity
                                         Shares, including any rights to the receipt of dividends from the Company,
                                         other than the right to receive the Applicable Price, without interest, on the Redemption
                                         Date or the Transfer Date, as applicable; provided, however, that if any such Equity
                                         Shares come to be owned solely by persons Persons
                                         other than an Unsuitable Person (such as by transfer of such Equity
                                         Shares to a liquidating trust, subject to the approval of the Board and any
                                         applicable Governmental Authority), such persons Persons
                                         may, in the discretion of the Board, exercise the voting and/or other rights
                                         attached to such Equity Shares
                                         and the Board may determine, in its sole discretion, not to Redeem or require the Transfer
                                         of such Equity Shares. 

 

    B - 59

     

    

 

	(6)	Notwithstanding
                                         anything to the contrary contained herein, all transfers of Multiple Voting Shares are
                                         subject to the terms of any coattail agreement
                                         entered into in respect thereof the Coattail Agreement and to
                                         the other provisions of Article 25. In
                                         the event of any conflict between these Articles and any provision of the Coattail Agreement,
                                         the provisions of these Articles shall prevail.

 

	(7)	Following
                                         any Redemption in accordance with the terms of this Section 25.325.5,
                                         the redeemed Equity
                                         Shares
                                         will be cancelled.

 

	(8)	At
                                         the option, but not obligation, of the Company, and at the discretion of the Board, any
                                         Equity Shares
                                         directly or indirectly owned by an Unsuitable Person may be (i) redeemed by the Company
                                         (for the Applicable Price) out of funds lawfully available on the Redemption Date (a
                                         “Redemption”), or (ii) required to be transferred to a third party for the
                                         Applicable Price and on such terms and conditions as the Board may direct (a “Transfer”).
                                         , and
                                         each Equity Share subject to a Transfer, a “Transferred Share”). Equity Shares
                                         to be redeemed or mandatorily transferred pursuant to this section will be redeemed or
                                         mandatorily transferred at any time and from time to time pursuant to the terms hereof.

 

	(9)	In
                                         the case of a Redemption, the Company will send a written notice to the holder of the
                                         Equity Shares called for Redemption,
                                         which will set forth: (i) the Redemption Date, (ii) the number of Equity
                                         Shares to be redeemed on the Redemption Date, (iii) the Applicable Price or
                                         the formula pursuant to which the Applicable Price will be determined and the manner
                                         of payment therefor, (iv) the place where such Equity
                                         Shares (or certificate therefor, as applicable) must be surrendered, or accompanied
                                         by proper instruments of transfer (and if so determined by the Board, together with a
                                         medallion signature guarantee), and (v) any other requirement of surrender of the Equity
                                         Shares to be redeemed (the “Redemption
                                         Notice”). The Redemption Notice may be conditional
                                         such that the Company need not redeem the Equity
                                         Shares owned by an Unsuitable Person on the Redemption Date if the Board determines,
                                         in its sole discretion, that such Redemption is no longer advisable or necessary on or
                                         before the Redemption Date. If applicable, the Company will send a written notice confirming
                                         the amount of the Applicable Price promptly following the determination of such Applicable
                                         Price.

 

	(10)	Upon
                                         receipt by the Unsuitable Person of a Redemption Notice in accordance with Section 25.3(925.5(9)
                                         and surrender of the relevant Equity
                                         Share certificate, if applicable, the holder of the Equity
                                         Shares tendered for redemption (together with the applicable transfer documents)
                                         shall be entitled to receive the Applicable Price per redeemed Equity
                                         Share.

 

	(11)	The
                                         Applicable Price payable in respect of the Equity
                                         Shares surrendered for Redemption during any calendar month shall be satisfied
                                         by way of cash payment no later than the last day of the calendar month following the
                                         month in which the Equity Shares
                                         were tendered for Redemption. Payments made by the Company of the cash portion of the
                                         Applicable Price, less any applicable taxes and any costs to the Company of the Redemption,
                                         are conclusively deemed to have been made upon the mailing of a cheque in a postage prepaid
                                         envelope addressed to the Unsuitable Person unless such cheque is dishonoured upon presentment.
                                         Upon such payment, the Company shall be discharged from all liability to the former Unsuitable
                                         Person in respect of the redeemed Equity
                                         Shares.

 

	(12)	In
                                         the case of a required Transfer, the Company will send a written notice to the holder
                                         of the Equity
                                         Shares
                                         in question, which will set forth: (i) the Transfer Date, (ii) the number of Equity
                                         Shares
                                         to be Transferred on the Transfer Date, (iii) the Applicable Price or the formula pursuant
                                         to which the Applicable Price will be determined and the manner of payment therefor,
                                         (iv) the place where such Equity
                                         Shares
                                         (or certificate therefor, as applicable) must be surrendered, accompanied by proper instruments
                                         of transfer (and if so determined by the Board, together with a medallion signature guarantee),
                                         and (v) any other requirement in respect of the Equity
                                         Shares
                                         to be Transferred, which may without limitation include a requirement to dispose of the
                                         Equity Shares
                                         via the Exchange to a person Person
                                         who
                                         would not be in violation of the provisions of this Section 25.3(1225.5(12)
                                         (the
                                         “Transfer
                                         Notice”). The Transfer Notice may be conditional
                                         such that the Company need not require the Transfer of the Equity
                                         Shares
                                         owned by an Unsuitable Person on the Transfer Date if the Board determines, in its sole
                                         discretion, that such Transfer is no longer advisable or necessary on or before the Transfer
                                         Date. If applicable, the Company will send a written notice confirming the amount of
                                         the Applicable Price promptly following the determination of such Applicable Price.

 

    B - 60

     

    

 

	(13)	Upon
                                         receipt by the Unsuitable Person of a Transfer Notice in accordance with Section 25.3(1225.5(12)
                                         and
                                         surrender of the relevant Equity
                                         Share
                                         certificate, if applicable (together with applicable Transfer documents), the holder
                                         of the Equity Shares
                                         tendered for Transfer shall be entitled to receive the Applicable Price per Transferred
                                         Share. 

 

	(14)	The
                                         Applicable Price payable in respect of the Equity
                                         Shares surrendered for Transfer during any calendar month shall be satisfied,
                                         less any costs to the Company of the Transfer, by way of cash payment no later than the
                                         last day of the calendar month following the month in which the Equity
                                         Shares were tendered for Transfer. Payments made by the Company of the cash
                                         portion of the Applicable Price, less any applicable taxes and any costs to the Company
                                         of the Transfer, are conclusively deemed to have been made upon the mailing of a cheque
                                         in a postage prepaid envelope addressed to the Unsuitable Person unless such cheque is
                                         dishonoured upon presentment. Upon such payment, the Company shall be discharged from
                                         all liability to the former Unsuitable Person in respect of the Transferred Shares.

 

	(15)	If
                                         Equity Shares
                                         are required to be Transferred under Section 25.3(1225.5(12),
                                         the
                                         former owner of the Equity
                                         Shares
                                         immediately before the Transfer shall by that Transfer be divested of their interest
                                         or right in the Equity
                                         Shares,
                                         and the person Person
                                         who,
                                         but for the Transfer, would be the registered owner of the Equity
                                         Shares
                                         or a person Person who satisfies the Company that, but for the
                                         Transfer, they could properly be treated as the registered owner or registered holder
                                         of the Equity Shares
                                         shall, from the time of the Transfer, be entitled to receive only the Applicable Price
                                         per Transferred Share, without interest, less any applicable taxes and any costs to the
                                         Company of the Transfer.

 

	(16)	Following
                                         the sending of any Redemption Notice or Transfer Notice, and prior to the completion
                                         of the Redemption or Transfer specified therein, the Company may refuse to recognize
                                         any other disposition of the Equity
                                         Shares in question.

 

	(17)	If
                                         the Company does not know the address of the former holder of Equity
                                         Shares Transferred or Redeemed hereunder, it may retain the amount payable
                                         to the former holder thereof, title to which shall revert to the Company if not claimed
                                         within two (2) years (and at that time all rights thereto shall belong to the Company).

 

	(18)	To
                                         the extent required by applicable laws, the Company may deduct and withhold any tax from
                                         the Applicable Price. To the extent any amounts are so withheld and are timely remitted
                                         to the applicable Governmental Authority, such amounts shall be treated for all purposes
                                         herein as having been paid to the Person in respect of which such deduction and withholding
                                         was made.

 

	(19)	All
                                         notices given by the Company to holders of Equity
                                         Shares pursuant to this Schedule, including a Redemption Notice or Transfer
                                         Notice, will be in writing and will be deemed given when delivered by personal service,
                                         overnight courier or first-class mail, postage prepaid, to the holder’s registered
                                         address as shown on the Company’s share register.

 

	(20)	The
                                         Company’s right to Redeem or Transfer Equity
                                         Shares pursuant to this Section 25.3 25.5 will not be
                                         exclusive of any other right the Company may have or hereafter acquire under any agreement
                                         or any provision of the notice of articles or the articles of the Company or otherwise
                                         with respect to the Equity
                                         Shares or any restrictions on holders thereof.

 

	(21)	In
                                         connection with the conduct of its or its affiliates’ Business, the Company may
                                         require that a Subject Shareholder provide to one or more Governmental Authorities, if
                                         and when required, information and fingerprints for a criminal background check, individual
                                         history form(s), and other information required in connection with applications for Licenses.

 

    B - 61

     

    

 

	(22)	The
                                         Board can waive any provision of this Section 25.325.5.

 

	(23)	In
                                         the event that any provision (or portion of a provision) of this Section 25.3
                                         25.5 or the application thereof becomes or is declared by a court
                                         of competent jurisdiction to be illegal, void or unenforceable, the remainder of Section
                                         25.3 25.5 (including
                                         the remainder of such provision, as applicable) will continue in full force and effect.

 

(B)
          Board Powers, Declarations and Deeming Provisions 

 

	(1)	Where
                                         an Equity Share is held, beneficially owned or controlled, directly or indirectly, or
                                         jointly by (i) one or more U.S. Persons and (ii) one or more Non-U.S. Persons, such Equity
                                         Share shall be deemed to be held, beneficially owned or controlled by a U.S. Person.

 

	(2)	So
                                         long as they are publicly listed, the Subordinate Voting Shares, Restricted Voting Shares
                                         and Limited Voting Shares may, in the Company’s discretion and subject to regulatory
                                         approval, trade under a single stock symbol on the Exchange.

 

	(3)	Subject
                                         to the Business Corporations Act, the board of directors may, in its sole discretion,
                                         in order to administer the constrained share provisions of the Equity Shares set out
                                         in these Articles:

 

		(h)	require
                                         any Person in whose name Equity Shares are registered or any beneficial holder or controller,
                                         whether direct or indirect, of the Equity Shares to furnish a statutory declaration declaring
                                         whether:

 

		(i)	the
                                         shareholder holds, is the beneficial owner of and/or has control over the Equity Shares
                                         of the Company (and if the Person is not also the beneficial owner and in control of
                                         the Equity Shares, the Person must make reasonable inquiries of the beneficial owner(s)
                                         or persons in control of such Equity Shares to confirm that the statements made in the
                                         statutory declaration as they pertain to the beneficial owner and controller are true);
                                         and

 

		(ii)	the
                                         Equity Shares are held, beneficially owned or controlled, by a U.S. Person or a Non-U.S.
                                         Person;

 

and
declaring any further facts or provide any other documents that the directors consider relevant;

 

		(b)	require
                                         any Person seeking to have a transfer of an Equity Share registered in such Person’s
                                         name or to have an Equity Share issued to him or her or it to furnish a declaration similar
                                         to the declaration a shareholder may be required to furnish under paragraph (a) above;
                                         and

 

		(c)	determine
                                         the circumstances in which any declarations are required, their form and the times when
                                         they are to be furnished.

 

	(2)	Where
                                         a Person fails to furnish a declaration pursuant to a by-law or other document made under
                                         this Section 25.5(B) in accordance with the requested timeline, the directors may, in
                                         their sole discretion, deem such shareholder to be a U.S. Person.

 

	(3)	Where
                                         a Person is required to furnish a declaration pursuant to a by-law or other document
                                         made under this Section 25.5(B) the directors may refuse to register a transfer of an
                                         Equity Share in such Person’s name or to issue an Equity Share to such Person until
                                         that Person has furnished the declaration.

 

(C)          Administration
by the Board

 

	(1)	In
                                         the administration of the provisions of these Articles, the board of directors shall
                                         have, in addition to the powers set forth herein, all of the powers necessary or desirable,
                                         in their opinion, to carry out the intent and purpose of these Articles.

 

    B - 62

     

    

 

	(2)	In
                                         administering the provisions of these Articles, including for the purpose of determining
                                         the shareholder’s or transferee’s status as a U.S. Person or Non-U.S. Person,
                                         the board of directors may rely on:

 

		(a)	a
                                         statement made in a declaration referred to in Section 25.5(B); and

 

		(b)	any
                                         information received from Broadridge Investor Communications Corporation, or any affiliate,
                                         successor or assign thereof; 

 

		(c)	any
                                         information received from CDS Clearing and Depositary Services Inc., or any affiliate,
                                         successor or assign thereof; and/or

 

		(d)	the
                                         knowledge of any director, officer, employee or agent (including the Transfer Agent)
                                         of the Company.

 

	(3)	Where
                                         the directors are required to determine the number of any class or classes of Equity
                                         Shares of the Company held by or on behalf of Persons who are U.S. Persons or Non-U.S.
                                         Person, as applicable, the directors may rely upon (i) the share register of the Company
                                         or (ii) any other register held, or any declaration collected by, the transfer agent
                                         of the Company or any depositary, such as CDS Clearing and Depositary Services Inc. (or
                                         any affiliate, successor or assign thereof), or by Broadridge Investor Communications
                                         Corporation (or any affiliate, successor or assign thereof), in each case, as of any
                                         date.

 

	(4)	Wherever
                                         in these Articles it is necessary to determine the opinion of the board of directors,
                                         such opinion shall be expressed and conclusively evidenced by a resolution of the board
                                         of directors duly adopted, including a resolution in writing executed pursuant these
                                         Articles and the Business Corporations Act. 

 

	(5)	No
                                         shareholder of the Company nor any other Person claiming an interest in shares of the
                                         Company shall have any claim or action against the Company or against any director or
                                         officer of the Company, and the Company shall have no claim or action against any director
                                         or officer of the Company, arising out of any act (including any omission to act) taken
                                         by any such director or officer pursuant to, or in intended pursuance of, the provisions
                                         of these articles or any breach or alleged breach of such provisions.

 

Article
26

ADVANCE NOTICE OF MEETINGS OF SHAREHOLDERS

 

	Section
                            26.1	Nomination
Procedures.

 

	(1)	Subject
                                         only to the Business Corporations Act, regulations, Applicable Securities Law and the
                                         articles of the Company, only persons
                                         Persons who are nominated in accordance with the following procedures shall be
                                         eligible for election as directors of the Company. Nominations of persons
                                         Persons for election to the board may be made at any annual meeting
                                         of shareholders, or at any special meeting of shareholders if the election of directors
                                         is a matter specified in the notice of meeting,

 

		(a)	by
                                         or at the direction of the board, including pursuant to a notice of meeting;

 

		(b)	by
                                         or at the direction or request of one or more shareholders pursuant to a proposal made
                                         in accordance with the provisions of the Business Corporations Act, or a requisition
                                         of the shareholders made in accordance with the provisions of the Business Corporations
                                         Act; or 

 

		(c)	by
                                         any person Person
                                         (a “Nominating Shareholder”) who (A) at the close of business on the
                                         date of the giving of the notice provided for in this Article 26 and on the record date
                                         for notice of such meeting, is entered in the central securities register as a holder
                                         of one or more shares carrying the right to vote at such meeting or who beneficially
                                         owns shares that are entitled to be voted at such meeting and provides evidence of such
                                         beneficial ownership to the Company, and (B) complies with the notice procedures set
                                         forth below in this Article.

 

    B - 63

     

    

 

	Section
                            26.2	Timely
noticeNotice.

 

In
addition to any other applicable requirements, for a nomination to be made by a Nominating Shareholder, the Nominating Shareholder
must have given timely notice thereof in proper written form to the Corporate Secretary corporate
secretary of the Company in accordance with this Article 26.

 

	Section
                            26.3	Manner
of timely noticeTimely Notice.

 

	(1)	To
                                         be timely, a Nominating Shareholder’s notice under this Article 26 must be given:

 

		(a)	in
                                         the case of an annual meeting (including an annual and special meeting) of shareholders,
                                         not less than 30 days prior to the date of the meeting; provided, however, that in the
                                         event that the meeting is to be held on a date that is less than 50 days after the date
                                         (the “Notice Date”) on which the first public announcement of the
                                         date of the meeting was made, notice by the Nominating Shareholder may be made not later
                                         than the close of business on the tenth (10th) day following the Notice Date;
                                         and

 

		(b)	in
                                         the case of a special meeting (which is not also an annual meeting) of shareholders called
                                         for the purpose of electing directors (whether or not called for other purposes), not
                                         later than the close of business on the fifteenth (15th) day following the
                                         day on which the first public announcement of the date of the meeting was made.

 

	Section
                            26.4	Proper
form of noticeForm of Notice.

 

	(1)	To
                                         be in proper written form, a Nominating Shareholder’s notice under this Article
                                         26 must set forth:

 

		(a)	as
                                         to each person Person
                                         whom the Nominating Shareholder proposes to nominate for election as a director,
                                         : (A) the name, age,
                                         province or state, and country of residence of the personPerson,
                                         (B) the principal occupation, business or employment of the personPerson,
                                         both present and within the five years preceding the notice, (C) the number of securities
                                         of each class of voting securities of the Corporation Company
                                         or any of its subsidiaries beneficially owned, or controlled or directed,
                                         directly or indirectly, by such personPerson,
                                         as of the record date for the meeting of shareholders (if such date shall then have been
                                         made publicly available and shall have occurred) and as of the date of such notice, and
                                         (D) any other information relating to the person Person
                                         that would be required to be disclosed in a dissident’s proxy circular
                                         in connection with solicitations of proxies for election of directors pursuant to the
                                         Business Corporations Act or any Applicable Securities Laws; and 

 

		(b)	as
to the Nominating Shareholder, : (A)
the number of securities of each class of voting securities of the Company or any of its subsidiaries beneficially owned, or controlled
or directed, directly or indirectly, by such person Person
or any joint actors,
as of the record date for the meeting (if such date shall then have been made publicly available and shall have occurred) and
as of the date of such notice, (B) full particulars regarding any proxy, contract, arrangement, agreement, understanding or relationship
pursuant to which such Nominating Shareholder has a right to vote or to direct or to control the voting of any shares of the Company ,
and (C) any other
information relating to such Nominating Shareholder that would be required to be made in a dissident’s proxy circular in
connection with solicitations of proxies for election of directors pursuant to the Business Corporations Act or any Applicable
Securities Laws, . 

 

		(c)	References
                                         to “Nominating Shareholder” in this Article 26 shall be deemed to refer to
                                         each shareholder that nominates a person Person
                                         for election as director in the case of a nomination proposal where more than
                                         one shareholder is involved in making such nomination proposal.

 

    B - 64

     

    

 

	Section
                            26.5	Notice
to be updatedUpdated.

 

In
addition, to be considered timely and in proper written form, a Nominating Shareholder’s notice shall be promptly updated
and supplemented, if necessary, so that the information provided or required under this Article 26 to be provided in such notice
shall be true and correct as of the record date for the meeting.

 

	Section
                            26.6	Power
of the chairmanChair.

 

The
chairman chair of the meeting shall have the power and
duty to determine whether a nomination was made in accordance with the procedures set forth in the foregoing provisions and, if
any proposed nomination is not in compliance with such foregoing provisions, to declare that such defective nomination shall be
disregarded.

 

	Section
                            26.7	Delivery
of noticeNotice.

 

Notwithstanding
any other provision of these articles, notice given to the Corporate Secretary corporate
secretary of the Company pursuant to this Article 26 may only be given by personal delivery, facsimile transmission
or by email (provided that the Corporate Secretary corporate secretary
of the Company has stipulated an email address for purposes of this notice), and shall be deemed to have been given
and made only at the time it is served by personal delivery, email (at the address as aforesaid) or sent by facsimile transmission
(provided that receipt of the confirmation of such transmission has been received) to the Corporate Secretary corporate
secretary of the Company at the address of the principal executive offices of the Company; provided that if such delivery
or electronic communication is made on a day which is not a business day or later than 5:00 p.m. (Vancouver time) on a day which
is a business day, then such delivery or electronic communication shall be deemed to have been made on the subsequent day that
is a business day.

 

	Section
                            26.8	Waiver.

 

Notwithstanding
the foregoing, the board may, in its sole discretion, waive any or all requirements in this Article 26.

 

	Section
                            26.9	Definitions.

 

	(1)	For
                                         purposes of this Article 26,

 

		(a)	“Applicable
                                         Securities Laws” means the applicable securities legislation of each relevant
                                         province and territory of Canada, as amended from time to time, the written rules, regulations
                                         and forms made or promulgated under any such statute and the published national instruments,
                                         multilateral instruments, policies, bulletins and notices of the securities commissions
                                         and similar regulatory authorities of each province and territory of Canada; 

 

		(b)	“beneficially
                                         owns” or “beneficially owned” means, in connection with
                                         the ownership of shares in the capital of the Company by a personPerson,
                                         (i) any such shares as to which such person Person
                                         or any of such person’s Person’s
                                         affiliates (as defined in the Business Corporations Act) owns at law or in
                                         equity, or has the right to acquire or become the owner at law or in equity, where such
                                         right is exercisable immediately or after the passage of time and whether or not on condition
                                         or the happening of any contingency or the making of any payment, upon the exercise of
                                         any conversion right, exchange right or purchase right attaching to any securities, or
                                         pursuant to any agreement, arrangement, pledge or understanding whether or not in writing;
                                         (ii) such shares as to which such person Person
                                         or any of such person’s Person’s
                                         affiliates (as defined in the Business Corporations Act) has the right to
                                         vote, or the right to direct the voting, where such right is exercisable immediately
                                         or after the passage of time and whether or not on condition or the happening of any
                                         contingency or the making of any payment, pursuant to any agreement, arrangement, pledge
                                         or understanding whether or not in writing; and (iii) any such shares which are owned
                                         beneficially within the meaning of this definition by any other person Person
                                         with whom such person Person
                                         is acting jointly or in concert with respect to the Corporation Company
                                         or any of its securities; and

 

    B - 65

     

    

 

		(c)	“close
                                         of business” means 5:00 p.m. (Vancouver time) on a business day in British
                                         Columbia, Canada; and

 

		(d)	“public
                                         announcement” shall mean disclosure in a press release reported by a national
                                         news service in Canada, or in a document publicly filed by the Corporation Company
                                         under its profile on the System for Electronic Document Analysis and Retrieval
                                         at www.sedar.com.

 

Article
27

FORUM SELECTION

 

	Section
                            27.1	Forum
Selection

 

	(1)	Unless
                                         the Company consents in writing to the selection of an alternative forum, the Supreme
                                         Court of the Province of British Columbia, Canada and the appellate courts therefrom
                                         (collectively, the “courts”) shall, to the fullest extent permitted by law,
                                         be the sole and exclusive forum for : (i) any derivative action or proceeding brought
                                         on behalf of the Company, ; (ii) any action asserting a claim of breach
                                         of a fiduciary duty owed by any director or officer of the Company to the Company,
                                         ; (iii) any action asserting a claim arising pursuant to any provision of the
                                         Business Corporations Act or the notice of articles or articles of the Company (as either
                                         may be amended from time to time); or (iv) any action asserting a claim otherwise related
                                         to the relationships among the Company, its affiliates and their respective shareholders,
                                         directors and/or officers, but this paragraph (v) does not include claims related to
                                         the business carried on by the Company or such affiliates.

 

	(2)	If
                                         any action or proceeding the subject matter of which is within the scope of the preceding
                                         sentence is filed in a court other than a court located within the province of British
                                         Columbia (a “Foreign Action”) in the name of any registered or beneficial
                                         shareholder, such registered or beneficial shareholder shall be deemed to have consented
                                         to : (i) the personal jurisdiction of the courts in connection with any action brought
                                         in any such court to enforce the foregoing exclusive forum provision (an “enforcement
                                         action”), ; and (ii) having service of process made upon such
                                         registered or beneficial shareholder in such enforcement action by service upon such
                                         registered or beneficial shareholder’s counsel in the Foreign Action as agent for
                                         such shareholder.

 

Article
28

Corporate opportunities

 

	Section
                            28.1	Excluded
Opportunities

 

The
Company renounces, to the maximum extent permitted by law, any interest or expectancy of the Company in, or in being offered an
opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest
that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of, any director or officer
of the Company (or any of its subsidiaries) who is also a director or officer of another company or corporation (or of any subsidiaries
thereof) (collectively, “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired,
created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s
capacity as a director or officer of the Company or a subsidiary thereof.

 

    B - 66

     

    

 

	Section
                            28.2	Allocation
of Opportunities

 

The
Company may enter into agreements with other parties regarding the allocation of corporate opportunities. To the maximum extent
permissible under applicable law, no director or officer shall have any liability for complying or attempting to comply in good
faith with the provisions thereof (which may involve, among other things, not bringing potential transactions to the attention
of the Company). 

 

Dated
_______________, 20192020.

 

    B - 67

     

    

 

APPENDIX
 “C” 

AUDIT
COMMITTEE CHARTER

 

		Section
                            1	PURPOSE

 

The
audit committee (the “Audit Committee”) is a committee of the board of directors (the “Board”)
of Ayr Strategies Inc. (the “Corporation”). The primary function of the Audit Committee is to assist the directors
of the Corporation in fulfilling their applicable roles by:

 

		(a)	recommending
                                         to the Board the appointment and compensation of the Corporation’s external auditor;

 

		(b)	overseeing
                                         the work of the external auditor, including the resolution of disagreements between the
                                         external auditor and management;

 

		(c)	pre-approving
                                         all non-audit services (or delegating such pre-approval if and to the extent permitted
                                         by law) to be provided to the Corporation by the Corporation’s external auditor;

 

		(d)	satisfying
                                         themselves that adequate procedures are in place for the review of the Corporation’s
                                         public disclosure of financial information, other than those described in (g) below,
                                         extracted or derived from its financial statements, including periodically assessing
                                         the adequacy of such procedures;

 

		(e)	establishing
                                         procedures for the receipt, retention and treatment of complaints received by the Corporation
                                         regarding accounting, internal controls or auditing matters, and for the confidential,
                                         anonymous submission by employees of the Corporation of concerns regarding questionable
                                         accounting or auditing matters;

 

		(f)	reviewing
                                         and approving any proposed hiring of current or former partner or employee of the current
                                         and former auditor of the Corporation; and

 

		(g)	reviewing
                                         and approving the annual and interim financial statements, related Management Discussion
                                         and Analysis (“MD&A”) and other financial information provided
                                         by the Corporation to any governmental body or the public.

 

The
Audit Committee should primarily fulfill these roles by carrying out the activities enumerated in this Charter. However, it is
not the duty of the Audit Committee to prepare financial statements, to plan or conduct internal or external audits, to determine
that the financial statements are complete and accurate and are in accordance with Canadian generally accepted accounting principles,
to conduct investigations, or to assure compliance with laws and regulations or the Corporation’s internal policies, procedures
and controls, as these are the responsibility of management, and in certain cases, the external auditor.

 

		Section
                            2	LIMITATIONS
ON AUDIT COMMITTEE’S DUTIES

 

In
contributing to the Audit Committee’s discharge of its duties under this Charter, each member of the Audit Committee shall
be obliged only to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
Nothing in this Charter is intended to be, or may be construed as, imposing on any members of the Audit Committee a standard of
care or diligence that is in any way more onerous or extensive than the standard to which the directors are subject.

 

Members
of the Audit Committee are entitled to rely, absent actual knowledge to the contrary, on (i) the integrity of the persons and
organizations from whom they receive information, (ii) the accuracy and completeness of the information provided, (iii) representations
made by management as to the non-audit services provided to the Corporation by the external auditor, (iv) financial statements
of the Corporation represented to them by a member of management or in a written report of the external auditors to present fairly
the financial position of the Corporation in accordance with generally accepted accounting principles, and (v) any report of a
lawyer, accountant, engineer, appraiser or other person whose profession lends credibility to a statement made by any such person.

 

    C - 1

     

    

 

		Section
                            3	COMPOSITION
AND MEETINGS

 

The
Audit Committee should be comprised of not less than three directors as determined by the Board, all of whom should be “financially
literate” within the meaning of NI 52-110 – Audit Committees (“52-110”) of the Canadian
Securities Administrators. The Audit Committee members may enhance their familiarity with finance and accounting by participating
in educational programs conducted by the Corporation or an outside consultant. In the event the Corporation ceases to be a venture
issuer, the Audit Committee should comply with the independence requirements set forth in NI 52-110.

 

The
members of the Audit Committee shall be elected by the Board on an annual basis or until their successors shall be duly appointed.
Unless a Chair of the Audit Committee (the “Chair”) is elected by the full Board, the members of the Audit
Committee may designate a Chair by majority vote of the full Audit Committee membership.

 

In
addition, the Audit Committee members should meet all of the requirements for members of audit committees as defined from time
to time under applicable legislation and the rules of any stock exchange on which the Corporation’s securities are listed
or traded.

 

The
Audit Committee should meet at least four times annually, or more frequently as circumstances require. The Audit Committee should
meet within forty-five (45) days following the end of the first three financial quarters to review and discuss the unaudited financial
results for the preceding quarter and the related MD&A, and should meet within 90 days following the end of the fiscal year
end to review and discuss the audited financial results for the preceding quarter and year and the related MD&A.

 

The
Audit Committee may ask members of management or others to attend meetings and provide pertinent information as necessary. For
purposes of performing their duties, members of the Audit Committee shall have full access to all corporate information and any
other information deemed appropriate by them, and shall be permitted to discuss such information and any other matters relating
to the financial position of the Corporation with senior employees, officers and the external auditor of the Corporation, and
others as they consider appropriate.

 

For
greater certainty, management is indirectly accountable to the Audit Committee and is responsible for the timeliness and integrity
of the financial reporting and information presented to the Board.

 

In
order to foster open communication, the Audit Committee or its Chair should meet at least annually with management and the external
auditor in separate sessions to discuss any matters that the Audit Committee or each of these groups believes should be discussed
privately. In addition, the Audit Committee or its Chair should meet with management quarterly in connection with the Corporation’s
interim financial statements.

 

A
quorum for the transaction of business at any meeting of the Audit Committee shall be a majority of the number of members of the
Audit Committee or such greater number as the Audit Committee shall by resolution determine.

 

Meetings
of the Audit Committee shall be held from time to time and at such place as any member of the Audit Committee shall determine
upon 48 hours’ notice to each of its members. The notice period may be waived by all members of the Audit Committee. Each
of the Chair of the Board, the external auditor, the Chief Executive Officer, the Chief Financial Officer or the Secretary shall
be entitled to request that any member of the Audit Committee call a meeting.

 

This
Charter is subject in all respects to the Corporation’s articles of incorporation and by-laws from time to time.

 

    C - 2

     

    

 

		Section
                            4	ROLE

 

As
part of its function in assisting the Board in fulfilling its oversight role (and without limiting the generality of the Audit
Committee’s role), the Audit Committee should:

 

		(1)	Determine
                                         any desired agenda items;

 

		(2)	Review
                                         and recommend to the Board changes to this Charter, as considered appropriate from time
                                         to time;

 

		(3)	Review
                                         the public disclosure regarding the Audit Committee required by 52-110;

 

		(4)	Review
                                         and seek to ensure that disclosure controls and procedures and internal control over
                                         financial reporting frameworks are operational and functional;

 

		(5)	Summarize
                                         in the Corporation’s annual information form the Audit Committee’s composition
                                         and activities, as required;

 

		(6)	Submit
                                         the minutes of all meetings of the Audit Committee to the Board upon request;

 

Documents
/ Reports Review

 

		(7)	Review
                                         and recommend to the Board for approval the Corporation’s annual and interim financial
                                         statements, including any certification, report, opinion, undertaking or review rendered
                                         by the external auditor and the related MD&A, as well as such other financial information
                                         of the Corporation provided to the public or any governmental body as the Audit Committee
                                         or the Board require;

 

		(8)	Review
                                         other financial information provided to any governmental body or the public as they see
                                         fit;

 

		(9)	Review,
                                         recommend and approve any of the Corporation’s press releases that contain financial
                                         information;

 

		(10)	Seek
                                         to satisfy itself and ensure that adequate procedures are in place for the review of
                                         the Corporation’s public disclosure of financial information extracted or derived
                                         from the Corporation’s financial statements and related MD&A and periodically
                                         assess the adequacy of those procedures;

 

External
Auditor

 

		(11)	Recommend
                                         to the Board the selection of the external auditor, considering independence and effectiveness,
                                         and review the fees and other compensation to be paid to the external auditor;

 

		(12)	Review
                                         and seek to ensure that all financial information provided to the public or any governmental
                                         body, as required, provides for the fair presentation of the Corporation’s financial
                                         condition, financial performance and cash flow;

 

		(13)	Instruct
                                         the external auditor that its ultimate client is not management and that it is required
                                         to report directly to the Audit Committee, and not management;

 

		(14)	Monitor
                                         the relationship between management and the external auditor including reviewing any
                                         management letters or other reports of the external auditor and discussing any material
                                         differences of opinion between management and the external auditor;

 

		(15)	Review
                                         and discuss, on an annual basis, with the external auditor all significant relationships
                                         it has with the Corporation to determine the external auditor’s independence;

 

		(16)	Pre-approve
                                         all non-audit services (or delegate such pre-approval, as the Audit Committee may determine
                                         and as permitted by applicable Canadian securities laws) to be provided by the external
                                         auditor;

 

		(17)	Review
                                         the performance of the external auditor and any proposed discharge of the external auditor
                                         when circumstances warrant;

 

    C - 3

     

    

 

		(18)	Periodically
                                         consult with the external auditor out of the presence of management about significant
                                         risks or exposures, internal controls and other steps that management has taken to control
                                         such risks, and the fullness and accuracy of the financial statements, including the
                                         adequacy of internal controls to expose any payments, transactions or procedures that
                                         might be deemed illegal or otherwise improper;

 

		(19)	Communicate
                                         directly with the external auditor and arrange for the external auditor to be available
                                         to the Audit Committee and the full Board as needed;

 

		(20)	Review
                                         and approve any proposed hiring by the Corporation of current or former partners or employees
                                         of the current (and any former) external auditor of the Corporation;

 

Audit
Process

 

		(21)	Review
                                         the scope, plan and results of the external auditor’s audit and reviews, including
                                         the auditor’s engagement letter, the post-audit management letter, if any, and
                                         the form of the audit report. The Audit Committee may authorize the external auditor
                                         to perform supplemental reviews, audits or other work as deemed desirable;

 

		(22)	Following
                                         completion of the annual audit and quarterly reviews, review separately with each of
                                         management and the external auditor any significant changes to planned procedures, any
                                         difficulties encountered during the course of the audit and, if applicable, reviews,
                                         including any restrictions on the scope of work or access to required information and
                                         the cooperation that the external auditor received during the course of the audit and,
                                         if applicable, reviews;

 

		(23)	Review
                                         any significant disagreements among management and the external auditor in connection
                                         with the preparation of the financial statements;

 

		(24)	Where
                                         there are significant unsettled issues between management and the external auditor that
                                         do not affect the audited financial statements, the Audit Committee shall seek to ensure
                                         that there is an agreed course of action leading to the resolution of such matters;

 

Financial
Reporting Processes

 

		(25)	Review
                                         the integrity of the financial reporting processes, both internal and external, in consultation
                                         with the external auditor as they see fit;

 

		(26)	Consider
                                         the external auditor’s judgments about the quality, transparency and appropriateness,
                                         not just the acceptability, of the Corporation’s accounting principles and financial
                                         disclosure practices, as applied in its financial reporting, including the degree of
                                         aggressiveness or conservatism of its accounting principles and underlying estimates,
                                         and whether those principles are common practices or are minority practices;

 

		(27)	Review
                                         all material balance sheet issues, material contingent obligations (including those associated
                                         with material acquisitions or dispositions) and material related party transactions;

 

		(28)	Review
                                         with management and the external auditor the Corporation’s accounting policies
                                         and any changes that are proposed to be made thereto, including all critical accounting
                                         policies and practices used, any alternative treatments of financial information that
                                         have been discussed with management, the ramification of their use and the external auditor’s
                                         preferred treatment and any other material communications with management with respect
                                         thereto;

 

		(29)	Review
                                         the disclosure and impact of contingencies and the reasonableness of the provisions,
                                         reserves and estimates that may have a material impact on financial reporting;

 

		(30)	If
                                         considered appropriate, establish separate systems of reporting to the Audit Committee
                                         by each of management and the external auditor;

 

    C - 4

     

    

 

		(31)	Periodically
                                         consider the need for an internal audit function, if not present;

 

Risk
Management

 

		(32)	Review
                                         program of risk assessment and steps taken to address significant risks or exposures
                                         of all types, including insurance coverage and tax compliance;

 

General

 

		(33)	With
                                         prior Board approval, the Audit Committee may at its discretion retain independent counsel,
                                         accountants and other professionals to assist it in the conduct of its activities and
                                         to set and pay (as an expense of the Corporation) the compensation for any such advisors;

 

		(34)	Respond
                                         to requests by the Board with respect to the functions and activities that the Board
                                         requests the Audit Committee to perform.

 

		(35)	Periodically
                                         review this Charter and, if the Audit Committee deems appropriate, recommend to the Board
                                         changes to this Charter;

 

		(36)	Review
                                         the public disclosure regarding the Audit Committee required from time to time by applicable
                                         Canadian securities laws, including:

 

		(i)	the
                                         Charter of the Audit Committee;

 

		(ii)	the
                                         composition of the Audit Committee;

 

		(iii)	the
                                         relevant education and experience of each member of the Audit Committee;

 

		(iv)	the
                                         external auditor services and fees; and

 

		(v)	such
                                         other matters as the Corporation is required to disclose concerning the Audit Committee;

 

		(37)	Review
                                         in advance, and approve, the hiring and appointment of the Corporation’s senior
                                         financial executives by the Corporation, if any; and

 

		(38)	Perform
                                         any other activities as the Audit Committee deems necessary or appropriate including
                                         ensuring all regulatory documents are compiled to meet Committee reporting obligations
                                         under 52-110.

 

		Section
                            5	AUDIT
COMMITTEE COMPLAINT PROCEDURES

 

Submitting
a Complaint

 

		(39)	Anyone
                                         may submit a complaint regarding conduct by the Corporation or its employees or agents
                                         (including its independent auditors) reasonably believed to involve questionable accounting,
                                         internal accounting controls or auditing matters. The Chair should oversee treatment
                                         of such complaints.

 

Procedures

 

		(40)	The
                                         Chair will be responsible for the receipt and administration of employee complaints.

 

		(41)	In
                                         order to preserve anonymity when submitting a complaint regarding questionable accounting
                                         or auditing matters, the employee may submit a complaint confidentially.

 

    C - 5

     

    

 

Investigation

 

		(42)	The
                                         Chair should review and investigate the complaint. Corrective action will be taken when
                                         and as warranted in the Chair’s discretion.

 

Confidentiality

 

		(43)	The
                                         identity of the complainant and the details of the investigation should be kept confidential
                                         throughout the investigatory process.

 

Records
and Report

 

		(44)	The
                                         Chair should maintain a log of complaints, tracking their receipt, investigation, findings
                                         and resolution, and should prepare a summary report for the Audit Committee.

 

The
Audit Committee is a committee of the Board and is not and shall not be deemed to be an agent of the Corporation’s securityholders
for any purpose whatsoever. The Board may, from time to time, permit departures from the terms hereof, either prospectively or
retrospectively, and no provision contained herein is intended to give rise to civil liability to securityholders of the Corporation
or other liability whatsoever.

 

    C - 6

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