Document:

Document

PERFORMANCE SHARE AWARD AGREEMENT

THIS AWARD AGREEMENT is made and entered into as of ____________ (the “Date of Grant”), by and between Pinnacle West Capital Corporation (the “Company”), and _________________ (“Employee”).
BACKGROUND
A.The Board of Directors of the Company (the “Board of Directors”) has adopted, and the Company’s shareholders have approved, the Pinnacle West Capital Corporation 2012 Long-Term Incentive Plan (the “Plan”), pursuant to which Performance Share Awards and Dividend Equivalent Awards may be granted to employees of the Company and its subsidiaries.  
B.The Company desires to grant to Employee Performance Shares and Dividend Equivalents under the terms of the Plan.  
C.Pursuant to the Plan, the Company and Employee agree as follows:
AGREEMENT
a.Grant of Award.  Pursuant to action of the Committee, which was taken on the Date of Grant, the Company grants to Employee ____________ (____) Performance Shares and related Dividend Equivalents.  The Performance Shares granted under this Section 1 are referred to in this Award Agreement as the “Base Grant.”
b.Award Subject to Plan.  This Performance Share Award and the related Dividend Equivalent Award are granted under and are expressly subject to all of the terms and provisions of the Plan, which terms are incorporated herein by reference, and this Award Agreement.  In the event of any conflict between the terms and conditions of this Award Agreement and the Plan, the provisions of the Plan shall control.  
c.Performance Period.  The Performance Period for this Award begins January 1, ____________, and ends December 31, ____________.
d.Payment and Vesting.
(i)Performance Shares Payable In Stock.  As soon as practicable in the fiscal year immediately following the end of the Performance Period, the Company will determine (i) the Company’s Total Shareholder Return (as defined herein) as compared to the Total Shareholder Return of the companies in the Edison Electric Institute Index (the “Growth Index”) over the Performance Period and (ii) the Company’s Average Performance with respect to the Performance Metrics (as defined herein).  The Company then will deliver to Employee one (1) share of the Company’s Stock for each then-outstanding Performance Share under this Award Agreement, subject to adjustment pursuant to Section 5 below.  The Company anticipates that the Stock payout, if any, related to the Company’s Total Shareholder Return will be made by ____________.  The Company anticipates that the Stock payout, if any, related to the Performance Metrics will be made by ____________ and in no event will such Stock payout be made later than ____________.  
(ii)Normal or Early Retirement, Death or Disability; Late Career Recipient.  
(i) Provided that Employee either qualifies for “Early Retirement” or “Normal Retirement” under the Pinnacle West Capital Corporation Retirement Plan (the “Retirement Plan”), or  is a Late Career Recipient (as defined below), in the case of Employee’s death or Disability, Employee shall be deemed to have been employed by the Company through the end of the Performance 

Period and Employee (or his or her estate) will receive the Stock, if any, to which Employee is entitled at the time specified in Section 4(a). 
(ii) In the case of Employee’s Termination of Employment during the Performance Period which constitutes an Early Retirement or a Normal Retirement under the Retirement Plan, Employee shall be deemed to have been employed by the Company through the end of the Performance Period and Employee (or his or her estate) will receive the Stock, if any, to which Employee is entitled at the time specified in Section 4(a). 
(iii) If, at the time of Employee’s death, Disability or retirement Employee has reached sixty (60) years of age and has been credited with at least five (5) Years of Service, as defined under the Retirement Plan, and does not otherwise meet the criteria for Early Retirement or Normal Retirement under the Retirement Plan, Employee shall be treated for purposes of this Agreement as a “Late Career Recipient”.  Upon a Late Career Recipient’s retirement during the Performance Period, Employee will receive a straight prorated payout of the number of Performance Shares calculated in accordance with Section 5 based on the number of days Employee was employed during the Performance Period.  Upon a Late Career Recipient’s retirement following the end of the Performance Period, Employee will receive a payout of the number of Performance Shares calculated in accordance with Section 5.  No fractional Stock shall be issued.  If the Stock payout results in a fractional share of one-half or greater, such fraction will be increased to provide for the issuance of a full share of Stock.  Employee will receive the Stock, if any, to which Employee is entitled at the time specified in Section 4(a). 
(iii)Termination Without Cause.  In the event Employee’s employment is terminated by the Company without cause, the Chief Executive Officer (“CEO”) of the Company may determine in his discretion if, to what extent, and when any unvested portion of the Performance Shares granted under this Agreement should vest; provided, however, that (i) any vesting of unvested Performance Shares granted under this Agreement pursuant to this Section 4(c) shall be approved by the Committee, and (ii) nothing herein shall obligate the CEO to exercise his discretion to cause any unvested Performance Shares to vest.
(iv)Termination For Cause.  Notwithstanding any other provision in this Section 4, in the event Employee is terminated for Cause, then regardless of Employee’s retirement, Early Retirement, Normal Retirement, death or Disability, Employee shall forfeit the right to receive any Stock hereunder that Employee would otherwise be entitled to receive following his or her date of termination.  For purposes only of this Section 4(d), “Cause” means (A) embezzlement, theft, fraud, deceit and/or dishonesty by the Employee involving the property, business or affairs of the Company or any of its subsidiaries, or (B) an act of moral turpitude which in the sole judgment of the CEO reflects adversely on the business or reputation of the Company or any of its subsidiaries or negatively affects any of the Company’s or any of its subsidiaries’ employees or customers.
(v)Disability.  “Disability” has the meaning set forth for such term in the Retirement Plan.   
(vi)Dividend Equivalents.  In satisfaction of the Dividend Equivalents Award made pursuant to Section 1, at the time of the Company’s delivery of Stock to Employee pursuant to this Section 4, the Company also will deliver to Employee fully transferrable shares of Stock equal in value to the amount of dividends, if any, that Employee would have received if Employee had directly owned the Stock to which the Performance Shares relate from the Date of Grant to the date of the Stock payout, plus interest on such amount at the rate of 5 percent compounded quarterly, as determined pursuant to the Plan.  The number of shares of Stock distributed to Employee will be determined by dividing the amount of the Dividend Equivalents and interest by the Fair Market Value of one share of Stock as of the applicable date of the Stock payout.  No fractional Stock 
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shall be issued.  If the Stock payout results in a fractional share of one-half or greater, such fraction will be increased to provide for the issuance of a full share of Stock.
(vii)Impact on Retirement Plans.  The value of the shares of Stock distributed upon payment for the Performance Shares and Dividend Equivalents will be disregarded for purposes of calculating the amount of Employee’s benefit under any Company retirement plans.
e.Performance Criteria and Adjustments.  Fifty percent (50%) of the Performance Shares awarded under this Award Agreement will be determined pursuant to Section 5(a) and fifty percent (50%) of the Performance Shares awarded under this Award Agreement will be determined pursuant to Section 5(b).  In no event will Employee be entitled to receive a number of Performance Shares pursuant to this Award Agreement greater than 2.0 times the Base Grant.
(i)Adjustment of Base Grant for Total Shareholder Return.  Fifty percent (50%) of the Base Grant will increase or decrease based upon the Company’s “Total Shareholder Return” as compared to the Total Shareholder Return of the companies in the Growth Index during the Performance Period, as follows:
						
	If the Company’s Total Shareholder Return Over The Performance Period As Compared to the Total Shareholder Return of the Companies in the Growth Index is:

	The Number of Performance Shares will be:
	90th Percentile or greater
75th Percentile
	1.0 X Base Grant
.75 X Base Grant

	50th Percentile	0.5 X Base Grant
	25th Percentile	0.25 X Base Grant
	Less than 25th Percentile	None

If intermediate percentiles are achieved, the number of Performance Shares awarded will be prorated (partial shares will be rounded down to the nearest whole share when applicable).  In no event will Employee be entitled to receive a number of Performance Shares pursuant to this Subsection 5(a) greater than 1.0 times the Base Grant.  
(ii)Adjustment of Base Grant for Performance Metrics.  Fifty percent (50%) of the Base Grant will increase or decrease based upon the Company’s “Average Performance” with respect to the “Performance Metrics,” as follows:
						
	If the Company’s Average Performance is:	The Number of Performance Shares will be:

	90th Percentile or greater
75th Percentile
	1.0 X Base Grant
.75 X Base Grant

	50th Percentile	0.5 X Base Grant
	25th Percentile	0.25 X Base Grant
	Less than 25th Percentile	None

If intermediate percentiles are achieved, the number of Performance Shares awarded pursuant to this Subsection 5(b) will be prorated (partial shares will be rounded down to the nearest whole share when applicable).  In no event will Employee be entitled to receive a number of Performance Shares pursuant to this Subsection (b) greater than 1.0 times the Base Grant.
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f.Definitions.
(i)Performance Metrics.  The “Performance Metrics” for the Performance Period are: (i) the System Average Interruption Frequency Index (Major Events Excluded) (“SAIFI”); (ii) Arizona Public Service Company’s customer to employee improvement ratio; (iii) the OSHA rate (All Incident Injury Rate); (iv) nuclear capacity factor; and (v) the J.D. Power Electric Utility Residential Study Overall Customer Satisfaction Index.  
(1)With respect to the Performance Metric described in clause (i) of this Subsection 6(a), the Edison Electric Institute (“EEI”) will provide data on an annual basis regarding the SAIFI result of the participating companies; the Company will calculate its SAIFI result for the year in question and determine its percentile ranking based on the information provided by EEI.
(2)With respect to the Performance Metric described in clause (ii) of this Subsection 6(a), S&P Global Market Intelligence (“Market Intelligence”), an independent third party data system, will provide data on an annual basis regarding the customer and employee counts; the Company will use its customer and employee counts for the year in question and determine its percentile ranking based on the information provided by Market Intelligence.  Only those companies whose customers and employees were included in the data provided by Market Intelligence in each of the years of the Performance Period will be considered.
(3)With respect to the Performance Metric described in clause (iii) of this Subsection 6(a), EEI will provide data on an annual basis regarding the OSHA rate of the participating companies; the Company will calculate its OSHA rate for the year in question and determine its percentile ranking based on the information provided by EEI.
(4)With respect to the Performance Metric described in clause (iv) of this Subsection 6(a), Market Intelligence will provide data on an annual basis regarding the nuclear capacity factors of the participating nuclear plants; the Company will calculate its nuclear capacity factor for the year in question and determine its percentile ranking based on the information provided by Market Intelligence.  Only those plants that were included in the data provided by Market Intelligence in each of the years of the Performance Period will be considered.
(5)With respect to the Performance Metric described in clause (v) of this Subsection 6(a), the J.D. Power Electric Utility Residential Study will provide data on an annual basis regarding the scores of the participating companies; the Company will calculate its percentile ranking within the large, investor-owned utility peer set based on the information provided by J.D. Power.
(6)The Company’s percentile ranking during the Performance Period for each Performance Metric will be the average of the Company’s percentile ranking for each Performance Metric during each of the three years of the Performance Period (each, an “Average Performance Metric”); provided, however, that if the third year of a Performance Metric is not calculable by December 15 of the following year, the Performance Metric shall consist of the three most recent years for which such Performance Metric is calculable.  The Company’s “Average Performance,” for purposes of determining any Base Grant adjustments pursuant to Subsection 5(b) above will be the average of the Average Performance Metrics.  If only quartile, rather than percentile, rankings are available for a particular Performance Metric, the Average Performance Metric for any such Performance Metric shall be expressed as a percentile.  For example, if the Performance Metric was in the top quartile for two Performance Periods and in the lowest quartile in the other 
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Performance Period, the average of these quartiles would be 3 (the average of 4, 4, and 1)  and the Average Performance Metric would be the 75th percentile (3 /4). The calculations in this Subsection 6(a)(6) will be verified by the Company’s internal auditors.
(7)If either EEI or Market Intelligence discontinues providing the data specified above, the Committee shall select a data source that, in the Committee’s judgment, will provide data most comparable to the data provided by EEI or Market Intelligence, as the case may be.  If the J.D. Power Electric Utility Residential Customer Satisfaction Study (or a successor JD Power survey) is not available during each of the years of the Performance Period, the Performance Metric associated with the JD Power Residential Survey (Subsection 6(a)(5)) will be disregarded and not included in the Company’s Average Performance for purposes of determining any Base Grant adjustments pursuant to Subsection 5(b).  
(ii)Total Shareholder Return.  “Total Shareholder Return” for the Performance Period is the measure of a company’s stock price appreciation plus any dividends paid during the Performance Period.  Only those companies that were included in the Growth Index in each of the years of the Performance Period will be considered.  Total Shareholder Return for the Company and the companies in the Growth Index will be determined using the Daily Comparative Return as calculated by Bloomberg (or other independent third party data system).  If the Growth Index is discontinued, the Committee shall select the most comparable index then in use for the sector comparison.  In addition, if the sector comparison is no longer representative of the Company’s industry or business, the Committee shall replace the Growth Index with the most representative index then in use.  Once the Total Shareholder Returns of the Company and all relevant companies in the Growth Index have been determined, the member companies will be ranked from greatest to least.  Percentiles will be calculated (interpolated from 0% to 100%) based on a company’s relative ranking.  Percentiles will be carried out to one (1) decimal place.  If the Company is not in the Growth Index, then its percentile will be interpolated between the companies listed in the relative ranking.  These calculations will be verified by the Company’s internal auditors.
g.Termination of Award.  This Award Agreement will terminate and be of no further force or effect on the date that Employee is no longer employed by the Company or any of its subsidiaries, whether due to voluntary or involuntary termination, death, retirement, Disability, or otherwise, except as specifically set forth in Section 4 above or in Article 15 of the Plan.  Employee will, however, be entitled to receive any Stock and Dividend Equivalents payable under Section 4 of this Award Agreement if Employee’s employment terminates after the end of the Performance Period but before Employee’s receipt of such Stock and Dividend Equivalents.
h.Section 409A Compliance.  If the Company concludes, in the exercise of its discretion, that this Award is subject to Section 409A of the Code, the Plan and this Award Agreement shall be administered in compliance with Section 409A and each provision of this Award Agreement and the Plan shall be interpreted to comply with Section 409A.  If the Company concludes, in the exercise of its discretion, that this Award is not subject to Section 409A, but, instead, is eligible for the short-term deferral exception to the requirements of Section 409A, the Plan and this Award Agreement shall be administered to comply with the requirements of the short-term deferral exception to the requirements of Section 409A and each provision of this Award Agreement and the Plan shall be interpreted to comply with the requirements of such exception.  In either event, Employee does not have any right to make any election regarding the time or form of any payment due under this Award Agreement.
i.Tax Withholding.  Employee is responsible for any and all federal, state, and local income, payroll or other tax obligations or withholdings (collectively, the “Taxes”) arising out of this Award.  Employee shall pay any and all Taxes due in connection with a payout of Stock hereunder by having the Company withhold shares of Stock from such payout.  
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j.Continued Employment.  Nothing in the Plan or this Award Agreement shall be interpreted to interfere with or limit in any way the right of the Company or its subsidiaries to terminate Employee’s employment or services at any time.  In addition, nothing in the Plan or this Award Agreement shall be interpreted to confer upon Employee the right to continue in the employ or service of the Company or its subsidiaries.
k.Confidentiality.  During Employee’s employment and after termination thereof, for any reason, Employee agrees that Employee will not, directly or indirectly, in one or a series of transactions, disclose to any person, or use or otherwise exploit for Employee’s own benefit or for the benefit of anyone other than the Company or any of its Affiliates any Confidential Information (as hereinafter defined), whether prepared by Employee or not; provided, however, that during the term of Employee’s employment, any Confidential Information may be disclosed (i) to officers, representatives, employees and agents of the Company and its Affiliates who need to know such Confidential Information in order to perform the services or conduct the operations required or expected of them in the business, and (ii) in good faith by Employee in connection with the performance of Employee’s job duties to persons who are authorized to receive such information by the Company or its Affiliates.  Employee shall have no obligation to keep confidential any Confidential Information, if and to the extent disclosure of any such information is specifically required by law; provided, however, that in the event disclosure is required by applicable law, Employee shall provide the Company with prompt notice of such requirement, prior to making any disclosure, so that it may seek an appropriate protective order.
Employee agrees that all Confidential Information of the Company and its Affiliates (whether now or hereafter existing) conceived, discovered or made by him during employment exclusively belongs to the Company or its Affiliates (and not to Employee). Employee will promptly disclose such Confidential Information to the Company and perform all actions reasonably requested by the Company to establish and confirm such exclusive ownership.  For purposes of this Section 11, the term “Confidential Information” shall mean and include any information disclosed to Employee any time during Employee’s employment with the Company or its Affiliates or thereafter which is not generally known to the public, including, but not limited to, information concerning the Company’s or its Affiliates’ assets and valuations, business plans, methods of operation, management, information systems, procedures, processes, practices, policies, plans, programs, personnel and/or reports or other information prepared by appraisers, consultants, advisors, bankers or attorneys.
l.Restrictive Covenants.
(i)Non-Competition.  Employee agrees that for a period of 12 months following any Termination of Employment voluntarily by Employee (other than due to Disability),  Employee shall not, without the prior written consent of the Company’s General Counsel, participate, whether as a consultant, employee, contractor, partner, owner (ownership of less than 5% of the outstanding stock of a publicly traded company will not be considered ownership under this provision), co-owner, or otherwise, with any business, corporation, group, entity or individual that is or intends to be engaged in the business activity of supplying electricity in any area of Arizona for which the Company or its Affiliates is authorized to supply electricity. 
(ii)Employee Non-Solicitation.  Employee agrees that for a period of 12 months following Employee’s Termination of Employment for any reason, Employee will not encourage, induce, or otherwise solicit, or actively assist any other person or organization to encourage, induce or otherwise solicit, directly or indirectly, any employee of the Company or any of its Affiliates to terminate his or her employment with the Company or its Affiliates, or otherwise interfere with the advantageous business relationship of the Company and its Affiliates with their employees. 
(iii)[No Pledging or Hedging.  Employee agrees that during his or her term of employment, Employee will not pledge, margin, hypothecate, hedge, or otherwise grant an economic interest in any shares of Company stock received by Employee pursuant to this Award (net of shares sold or surrendered to meet tax withholding or exercise requirements).  This restriction shall extend to 
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the purchase or creation of any short sales, zero-cost collars, forward sales contracts, puts, calls, options or other derivative securities in respect of any shares of Company stock.]
(iv)Remedies.  If Employee fails to comply with Sections 11, 12(a), [or] 12(b), [or 12(c)] in a material respect, the Company may (i) cause any of Employee’s unvested Performance Shares and related Dividend Equivalents to be cancelled and forfeited, (ii) refuse to deliver shares of Stock or cash in exchange for vested Performance Shares or Dividend Equivalents, and/or (iii) pursue any other rights and remedies the Company may have pursuant to this Award Agreement or the Plan at law or in equity including, specifically, injunctive relief.
m.Cooperation with Government Agencies.  Employee shall have no obligation to keep confidential any Confidential Information, if and to the extent disclosure of any such information is specifically permitted by law, because Employee is providing information to government investigatory or enforcement agencies, such as the Nuclear Regulatory Commission, Department of Labor, Equal Employment Opportunity Commission (or its state equivalent), National Labor Relations Board, the Occupational Safety and Health Administration (or its state equivalent) or the Securities and Exchange Commission.  This Award Agreement also does not limit Employee’s ability to communicate with any government agency regarding matters within the agency’s jurisdiction or otherwise participate in any investigation or proceedings that may be conducted by such agency, including providing documents or other information without notice to the Company.  Nothing in this Award Agreement shall prevent Employee from the disclosure of Confidential Information or trade secrets that:  (i) is made: (a) in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney; and (b) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is permitted to be made, and is made, under seal.  In the event that Employee files a lawsuit alleging retaliation by Company for reporting a suspected violation of law, Employee may disclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to Employee’s attorney and use the Confidential Information or trade secrets in the court proceeding if Employee or Employee’s attorney:  (i) files any document containing Confidential Information or trade secrets, under seal if permitted; and (ii) does not disclose the Confidential Information or trade secrets, except pursuant to or in accordance with a court order.  The Company provides this notice in compliance with federal law, including  the Defend Trade Secrets Act of 2016.
n.Clawback.  The portion of this Award, if any, that is earned based on the Company’s Total Shareholder Return will be subject to potential forfeiture or recovery to the extent called for by the Company’s Clawback Policy.  The Clawback Policy may include such provisions as the Human Resources Committee of the Board of Directors determines to be necessary or appropriate either to comply with any applicable law or listing standard or in light of Company ethics or other policies and practices. Specific requirements of the Clawback Policy may be adopted and amended at such times as the Human Resources Committee of the Board of Directors determines in its discretion.  By accepting this Award, Employee consents and agrees to abide by such Clawback Policy.
o.Non-Transferability.  Neither this Award nor any rights under this Award Agreement may be assigned, transferred, or in any manner encumbered except as provided in the Plan.
p.Definitions:  Copy of Plan and Plan Prospectus.  To the extent not specifically defined in this Award Agreement, all capitalized terms used in this Award Agreement will have the same meanings ascribed to them in the Plan.  By signing this Award Agreement, Employee acknowledges receipt of a copy of the Plan and the related Plan prospectus.
q.Amendment.  Except as provided below, any amendments to this Award Agreement must be made by a written agreement executed by the Company and Employee.  The Company may amend this Award Agreement unilaterally, without the consent of Employee, if the change (i) is required by law or regulation, (ii) does not adversely affect in any material way the rights of Employee, or (iii) is required to cause the 
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benefits under the Plan to qualify for favorable tax treatment either for the Company or Employee or to comply with the provisions of Section 409A of the Code and applicable regulations or other interpretive authority.  Additional rules relating to amendments to the Plan or any Award Agreement to assure compliance with Section 409A of the Code are set forth in Section 17.15 of the Plan.
r.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means will have the same effect as physical delivery of the paper document bearing an original signature.
IN WITNESS WHEREOF, the Company has caused this Award Agreement to be executed, as of the Date of Grant, by an authorized representative of the Company and this Award Agreement has been executed by Employee.
PINNACLE WEST CAPITAL CORPORATION
By:  ________________________________

Its:  ________________________________
                        Date: _______________________________

EMPLOYEE

By:                        

Date: ___________________________________

8Exhibit 4.1

 

AYR
Strategies Inc. 

 

Annual
information form

 

For the
Financial Year Ended December 31, 2019, and as at June 30, 2020

Dated September
30, 2020

 

     

     

    

 

TABLE
OF CONTENTS

 

	AYR STRATEGIES INC.	 	1
	 	 	 
	EXPLANATORY NOTES	 	2
	 	 	 
	FORWARD-LOOKING INFORMATION	 	2
	 	 	 
	MARKET AND INDUSTRY DATA	 	4
	 	 	 
	CORPORATE STRUCTURE	 	4
	 	 	 
	GENERAL DEVELOPMENT OF THE BUSINESS	 	5
	 	 	 
	DESCRIPTION OF THE BUSINESS	 	6
	 	 	 
	CANNABIS MARKET OVERVIEW	 	16
	 	 	 
	Compliance with State Regulatory Frameworks	 	23
	Non-Compliance with State and Local Cannabis Laws	 	32
	Ability to Access Public and Private Capital	 	32
	 	 	 
	RISK FACTORS	 	33
	 	 	 
	DIVIDENDS	 	58
	 	 	 
	DESCRIPTION OF SHARE CAPITAL	 	58
	 	 	 
	Subordinate Voting Shares	 	59
	Multiple Voting Shares	 	60
	Warrants	 	61
	Rights	 	62
	Coattail Agreement	 	63
	 	 	 
	MARKET FOR SECURITIES	 	64
	 	 	 
	TRADING PRICE AND VOLUME	 	64
	Subordinate Voting Shares	 	64
	Warrants	 	65
	Rights	 	66
	 	 	 
	SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER	 	67
	 	 	 
	DIRECTORS AND OFFICERS	 	67
	 	 	 
	Names, Occupations and Security Holdings	 	67
	Shareholdings of Directors and Executive Officers	 	70
	Corporate Cease Trade Orders, Bankruptcies, Penalties or Sanctions	 	70
	Conflicts of Interest and Interests of Management and Others in Material Transactions	 	71
	 	 	 
	PROMOTER	 	72
	 	 	 
	LEGAL PROCEEDINGS AND REGULATORY ACTIONS	 	72
	 	 	 
	AUDITORS, TRANSFER AGENT AND REGISTRAR	 	72
	 	 	 
	MATERIAL CONTRACTS	 	72
	 	 	 
	INTERESTS OF EXPERTS	 	73
	 	 	 
	AUDIT COMMITTEE	 	73
	 	 	 
	AUDIT COMMITTEE CHARTER	 	73
	COMPOSITION OF AUDIT COMMITTEE	 	73
	EXTERNAL AUDITOR SERVICE FEES	 	73
	 	 	 
	ADDITIONAL INFORMATION	 	74
	 	 	 
	APPENDIX A	 	A-1

 

    	Ayr Strategies Inc.	i	Annual Information Form

     

    

 

AYR
STRATEGIES INC.

 

	
        Ayr Strategies Inc. (the “Corporation”
        or “Ayr” or “we” or “us”) derives a substantial portion of its revenues from the cannabis industry
        in certain states (“States”, each a “State”) of the United States of America (“U.S.” or “United
        States”), which industry is illegal under U.S. federal law. Ayr is a vertically-integrated multi-State operator in the U.S.
        cannabis sector, with a portfolio in the States of Massachusetts and Nevada. Currently, through its operating companies, Ayr is
        a leading cultivator, manufacturer and retailer of cannabis products and branded cannabis packaged goods, and is 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 State of Massachusetts and provides administrative, consulting and operations services to licensed establishments
        in the State of Nevada.

         

        The United States federal government
        regulates drugs through the Controlled Substances Act (21 U.S.C.§ 811) (the “CSA”), which places controlled substances,
        including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under U.S. federal law, a Schedule I drug or substance
        has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the
        drug under medical supervision. The United States Food and Drug Administration (“FDA”) has not approved marijuana as
        a safe and effective drug for any indication.

         

        In the United States, marijuana is largely
        regulated at the State level. State laws regulating cannabis are in direct conflict with the CSA, which makes cannabis use and
        possession federally illegal. Although certain States authorize medical or adult-use cannabis production and distribution by licensed
        or registered entities, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug
        paraphernalia is illegal and any such acts are criminal acts under federal law. The Supremacy Clause of the United States Constitution
        establishes that the United States Constitution and federal laws made pursuant to it are paramount and, in case of conflict between
        federal and State law, the federal law shall apply.

         

        On January 4, 2018, former
U.S. Attorney General Jeff Sessions issued a memorandum to U.S. district attorneys which rescinded previous guidance from the
U.S. Department of Justice (the “DOJ”) specific to cannabis enforcement in the United States, including the Cole Memorandum
(as defined herein).1 With the Cole
Memorandum rescinded, U.S. federal prosecutors have been given discretion in determining whether to prosecute cannabis related
violations of U.S. federal law, subject to budgetary constraints. On November 7, 2018, Mr. Sessions tendered his resignation as
Attorney General at the request of President Donald Trump. Following Mr. Sessions’ resignation, Matthew Whitaker began serving
as Acting United States Attorney General, until February 14, 2019, when William Barr was appointed as the United States Attorney
General. Mr. Barr is a former Attorney General under George H.W. Bush, with an anti-drug stance during his tenure. During his
Senate confirmation hearing, Mr. Barr stated that he disagrees with efforts by States to legalize marijuana, but will not go after
marijuana companies in States that legalized it under Obama administration policies. He stated further that he would not upset
settled expectations that have arisen as a result of the Cole Memorandum. In June 2020, a federal prosecutor accused Mr. Barr
of ordering “politically motivated” antitrust reviews of 10 marijuana business mergers, allegedly because he personally
did not support their underlying business in the marijuana industry. At least one of those investigations allegedly resulted in
the collapse of a proposed merger between two large cannabis businesses. If true, Mr. Barr’s actions may reflect a hostility
to the cannabis industry and further adverse actions could be taken. It is unclear what further impact, if any, Mr. Barr’s
appointment will have on U.S. federal government enforcement policy on marijuana.

 

 

 

1 On
August 29, 2013, the DOJ attempted to address this inconsistency and to provide guidance to enforcement agencies when then Deputy
Attorney General, James Cole, authored a memorandum (the “Cole Memorandum”) addressed to all United States Attorneys
acknowledging that notwithstanding the designation of cannabis as a controlled substance at the federal level in the United States,
several States have enacted laws relating to cannabis for medical and recreational purposes. In March 2017, then newly-appointed
Attorney General Jeff Sessions, a long-time opponent of State-regulated medical and recreational cannabis, noted limited federal
resources and acknowledged that much of the Cole Memorandum had merit; however, he had previously stated that he did not believe
it had been implemented effectively. On January 4, 2018, the Cole Memorandum was rescinded by then Attorney General Sessions. While
this did not create a change in federal law, as the Cole Memorandum was not itself law, the revocation removed the DOJ’s
guidance to U.S. Attorneys that state-regulated cannabis industries substantively in compliance with the Cole Memorandum’s
guidelines should not be a prosecutorial priority.

 

    	Ayr Strategies Inc.	1	Annual Information Form

     

    

 

	
        There is no guarantee that State laws
        legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities
        will not limit the applicability of State laws within their respective jurisdictions. Unless and until the United States Congress
        (“Congress”) amends the CSA with respect to medical and/or adult-use cannabis (and as to the timing or scope of any
        such potential amendments there can be no assurance), there is a risk that U.S. federal authorities may enforce current U.S. federal
        law. If the U.S. federal government begins to enforce U.S. federal laws relating to cannabis in States where the sale and use of
        cannabis is currently legal, or if existing applicable State laws are repealed or curtailed, Ayr’s results of operations,
        financial condition and prospects and Ayr would be materially adversely affected. See “U.S. Federal Enforcement Priorities”.

         

        In light of the political and regulatory
        uncertainty surrounding the treatment of U.S. cannabis-related activities, including the rescission of the Cole Memorandum discussed
        above, on February 8, 2018, the Canadian Securities Administrators published a staff notice 51-352 (Revised) – Issuers with
        U.S. Marijuana-Related Activities (“Staff Notice 51-352”) setting out the Canadian Securities Administrator’s
        disclosure expectations for specific risks facing issuers with cannabis-related activities in the United States. Staff Notice 51-352
        includes additional disclosure expectations that apply to all issuers with U.S. cannabis-related activities, including those with
        direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services
        to third parties involved in the U.S. cannabis industry. 

         

        Ayr’s involvement in
the U.S. cannabis market may subject Ayr to heightened scrutiny by regulators, stock exchanges, clearing agencies and other U.S.
and Canadian authorities. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain
restrictions on Ayr’s ability to operate in the U.S. or any other jurisdiction. There are a number of risks associated with
the business of Ayr. See “Cannabis Market Overview” and “Risk Factors”. 

 

EXPLANATORY
NOTES

 

Unless otherwise indicated, the information
appearing in this annual information form (“AIF”) is stated as of June 30, 2020, and all amounts are in United
States dollars.

 

FORWARD-LOOKING INFORMATION

 

This AIF 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
AIF 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;

 

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		•	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 will 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; and

 

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

 

See “Risk Factors” for
further details. No assurance can be given that these expectations will prove to be correct and such forward-looking information
included in this AIF 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.

 

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MARKET
AND INDUSTRY DATA

 

This AIF includes market and industry data
that has been obtained from third-party sources, including industry publications. The Corporation believes that the industry data
is accurate and that its estimates and assumptions are reasonable, but there is no assurance as to the accuracy or completeness
of this data. Third party sources generally state that the information contained therein has been obtained from sources believed
to be reliable, but there is no assurance as to the accuracy or completeness of included information. Although the data is believed
to be reliable, the Corporation has not independently verified any of the data from third-party sources referred to in this AIF
or ascertained the underlying economic assumptions relied upon by such sources.

 

CORPORATE
STRUCTURE

 

Name,
Address and Incorporation

 

The Corporation (formerly known as Cannabis
Strategies Acquisition Corp.) was incorporated on July 31, 2017 under the Business Corporations Act (Ontario). Ayr continued
on May 24, 2019 into British Columbia under the Business Corporations Act (British Columbia) (“BCBCA”),
changed its name to “Ayr Strategies Inc.”, and amended its financial year-end from September 30 to December 31 in connection
with its Qualifying Transaction. The registered office of the Corporation is located at 666 Burrard Street, Suite 1700, Vancouver,
British Columbia V6C 2X8. The head office of the Corporation is located at 590 Madison Avenue, 26th Floor, New York,
New York, United States, 10022.

 

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

 

Intercorporate
Relationships

 

The following
is an organizational chart of Ayr as of June 30, 2020.

 

 

On September 12, 2018, Ayr incorporated
a wholly-owned subsidiary in Nevada, United States, named CSAC Holdings Inc., to facilitate the Qualifying Transaction (as defined
below). On September 17, 2018, CSAC Holdings Inc. incorporated a wholly-owned subsidiary in Nevada, United States, named CSAC Acquisition
Inc. (“CSAC AcquisitionCo”). On May 24, 2019, the Corporation completed its acquisitions of control of the target
businesses of: (i) Washoe Wellness, LLC (“Washoe”), a Nevada limited liability company, (ii) The Canopy NV,
LLC (“Canopy”), a Nevada limited liability company, (iii) Sira Naturals, Inc. (“Sira”), a
Massachusetts corporation, (iv) LivFree Wellness, LLC (“LivFree”), a Nevada limited liability company, and (v)
CannaPunch of Nevada LLC, a Nevada limited liability company (“CannaPunch”), and entered into either a services
agreement or operations agreement with Washoe, Canopy and LivFree pending regulatory approval for the consummation of the transaction,
which collectively constituted its qualifying transaction (collectively, the “Qualifying Transaction”).

 

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Ayr’s principal shareholder, Mercer
Park CB, L.P. (“Mercer”), is a limited partnership formed under the laws of the State of Delaware, of which
Mercer Park CB GP, LLC is the general partner, and which is indirectly controlled by Jonathan Sandelman. Mercer is a privately-held
family office based in New York, United States, the executive leadership and entrepreneurial expertise, investment and deal experience
and network of which have been a critical component of Ayr’s success to date. Mercer Park, L.P., the parent of Mercer, provides
management services to the Corporation pursuant to a management services agreement.

 

GENERAL DEVELOPMENT OF THE BUSINESS

 

Three-Year Summary

 

Initial Public Offering

 

On December 21, 2017, the Corporation completed
its initial public offering (the “Offering”).

 

Concurrent with the completion of the Offering,
Mercer, Kamaldeep Thindal and Charles Miles (or persons or companies controlled by them) (collectively with Mercer, the “Founders”)
purchased an aggregate of 3,434,298 Class B shares of the Corporation (each, a “Class B Share”) (such Class
B Shares issued to the Founders referred to as the “Founders’ Shares”), consisting of 3,415,438 Class
B Shares purchased by Mercer, 9,430 Class B Shares purchased by Kamaldeep Thindal, and 9,430 Class B Shares purchased by Charles
Miles. In addition, Mercer purchased an aggregate of 262,188 Class B units of the Corporation (each, a “Class B Unit”)
at C$10.00 per Class B Unit and 2,621,870 warrants (the “Founders’ Warrants”) at C$1.00 per Founders’
Warrant. Each Class B Unit consisted of one Class B Share, one Warrant and one Right. The Founders’ Warrants were subject
to the same terms and conditions as the Warrants underlying the Class A Restricted Voting units of the Corporation (the “Class
A Restricted Voting Units”) and Class B Units. The Rights underlying the Class B Units were subject to the same terms
and conditions as the Rights underlying the Class A Restricted Voting Units.

 

Qualifying Transaction

 

On May 24, 2019, Ayr completed its acquisitions
which qualified as its Qualifying Transaction, the businesses of which are briefly summarized below under “Ayr’s
Businesses”. The Corporation’s businesses operate in the cultivation, manufacturing, branding and/or retail, as
applicable, of cannabis products in the states of Massachusetts and Nevada.

 

The aggregate purchase price
consideration for the Qualifying Transaction payable by Ayr was comprised of a combination of cash, debt and the issuance of non-voting
Exchangeable Shares of CSAC AcquisitionCo (the “Exchangeable Shares”) to the vendors thereof, which are exchangeable,
on a one-for-one basis, into Subordinate Voting Shares, at the option of the holder, and are designed to be economically equivalent
(without taking into account tax consequences) to the Subordinate Voting Shares.

 

Any summary information of certain material
terms from definitive agreements, as may have been amended, in respect of the acquisitions of Washoe, Canopy, Sira, LivFree, and
CannaPunch (collectively the “Definitive Agreements”) is not exhaustive and is qualified in its entirety by
reference to the terms of the Definitive Agreements, which may be found on Ayr’s profile on SEDAR at www.sedar.com.

 

Ayr obtained control of certain of its
businesses, being Washoe, Canopy and LivFree through separate management service agreements (collectively, the “Management
Services Agreements”). Each Management Service Agreement provides the Corporation with significant management rights
over the entities’ operations. Through these management service agreements, Ayr has the power to control relevant activities
which affect the returns Ayr receives. As at June 30, 2020, Washoe, Canopy, and LivFree are awaiting State approval to transfer
licenses to the Corporation.

 

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In connection with each Definitive Agreement,
Ayr entered into the corresponding support agreement as well as an exchange rights agreements with CSAC AcquisitionCo and the respective
holders of the Exchangeable Shares (collectively, the “Exchange Rights Agreements”) for the benefit of the sellers
under each Definitive Agreement, whereby Ayr agreed to make certain covenants in favor of the sellers to protect their rights as
holders of Exchangeable Shares. Among other things, Ayr agreed to reserve an amount of applicable Subordinate Voting Shares for
issuance upon exchange of the Exchangeable Shares, and upon notice to Ayr and CSAC AcquisitionCo, Ayr will issue such number of
applicable Subordinate Voting Shares to a holder of Exchangeable Shares in exchange for the Exchangeable Shares of such holder,
subject to the terms specified in the Exchange Rights Agreements. Additionally, Ayr has an overriding liquidation call right under
the Exchange Rights Agreements to purchase all, but not less than all, of the Exchangeable Shares from the holders thereof upon
a proposed liquidation, dissolution or winding-up of CSAC AcquisitionCo, as well as a redemption call right and retraction call
right on the Exchangeable Shares, in each case for the consideration set forth in such agreements.

 

The description of the Management Service
Agreements and the Exchange Rights Agreement is not exhaustive and qualified in its entirety by reference to the terms of such
agreements, which may be found on Ayr’s profile on SEDAR at www.sedar.com.

 

Subsequent
Developments

 

Stock Repurchase Program

 

On October 1, 2019, the Corporation commenced
a stock repurchase program to purchase up to five percent (5%) of the total issued and outstanding Subordinate Voting Shares during
each twelve-month period through the facilities of the CSE and other marketplaces. As at June 30, 2020, 7,400 Subordinate Voting
Shares were repurchased and cancelled, and 63,300 Subordinate Voting Shares were repurchased and are held by the Corporation as
treasury shares under the stock repurchase program.

 

Proposed
Acquisitions

 

Massachusetts Acquisition

 

On February 26, 2020, the Corporation entered
a binding term sheet to acquire 100% of the membership interests in a Massachusetts LLC. Pursuant to the term sheet, the Corporation
will be acquiring rights to legally open and operate a recreational cannabis licensed retail store in the Commonwealth of Massachusetts.
The Corporation has agreed to pay a purchase price consisting of cash and non-voting interest in the net profits of the Massachusetts
LLC. The term sheet is a binding agreement with respect to the terms and conditions and intended to serve as an outline of the
proposed principal terms and conditions to be included in the final membership interest purchase agreement documents. The closing
of the acquisition will be subject to, among other things, regulatory approval. As at June 30, 2020, the acquisition has not yet
closed.

 

Pennsylvania Acquisition

 

On August 25, 2020, the Corporation entered
a binding term sheet to acquire 100% of the membership interests in CannTech PA, LLC. Pursuant to the term sheet, the Corporation
will be acquiring rights to legally operate six retail dispensaries along with a 143,000 square foot cultivation and production
facility. CannTech PA, LLC operates in the medical cannabis market in Pennsylvania. The Corporation has agreed to pay a purchase
price consisting of cash, debt, Exchangeable Shares, and other consideration totaling an aggregate value of approximately $57 million.
The purchase price is inclusive of a minimum of $2.4 million of bridge financing the Corporation has agreed to provide to the target
company. The term sheet is a binding agreement with respect to the terms and conditions and intended to serve as an outline of
the proposed principal terms and conditions to be included in the final membership interest purchase agreement documents. The closing
of the acquisition will be subject to, among other things, regulatory approval, absence of a material adverse change and the Corporation
being satisfied with its due diligence investigations. In addition, the Corporation will on closing receive an option to acquire
certain real estate at its fair market value. As at June 30, 2020, the acquisition has not yet closed.

 

DESCRIPTION
OF THE BUSINESS

 

Ayr is a vertically-integrated multi-State
operator in the U.S. cannabis sector, with a portfolio of licensed operations in the State of Massachusetts and of services and
operations agreements in the State of Nevada. Ayr is a leading cultivator, manufacturer and retailer of cannabis products and branded
cannabis packaged goods, and is engaged in the manufacture, possession, use, sale or distribution of cannabis and/or holds licenses
or services or operations agreements in the adult-use and/or medicinal cannabis marketplace in the State of Massachusetts and provides
administrative, consulting and operations services to licensed establishments in the State of Nevada.

 

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In Massachusetts, Ayr is vertically-integrated
with cultivation, extraction, production, manufacturing, distribution and medical retail dispensary operations. The medical dispensaries
are under the Sira Naturals brand, which is actively seeking licenses to operate adult-use cannabis retail establishments. Ayr’s
retail and wholesale products include cannabis and cannabis products, including concentrates, edibles, and vaporizer products.

 

In Nevada, Ayr provides operational services
for five (5) dispensaries under service agreements or operations agreements, as applicable. Each dispensary is licensed to sell
in both the medical and adult-use recreational markets in Nevada. Three (3) of the dispensaries are under the brand “The
Dispensary” with retail operations in Clark County, Henderson and Reno, Nevada. The two (2) remaining dispensaries are under
the MYNT brand, which was named Best Dispensary in Reno in 2018. In addition to the five (5) retail stores to which Ayr provides
operational services, Ayr also provides operational services to cultivation, production and distribution businesses in northern
Nevada, focused in Reno and distributing to Las Vegas, also with extraction, processing and manufacturing capabilities. The licensed
cultivation and production facilities to which Ayr provides operational services, produce premium cannabis flower, pre-rolls, and
a full line of vape pens, concentrates, and cannabis-infused products, including chocolates, beverages and gummies.

 

 Strategy

 

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

 

 Growth

 

The Corporation remains focused on pursuing
acquisition opportunities in limited license markets that complement the existing portfolio while expanding its presence in current
markets. The Corporation’s financial capacity will help the Corporation emerge as an even stronger player in this distressed
industry. The Corporation plans to implement its growth strategy by targeting acquisition opportunities in limited license jurisdictions,
applying for de novo licenses and expanding its presence in current markets.

 

As of June 30, 2020, 100% the Corporation’s
business was directly derived from U.S. cannabis-related activities. As such, the Corporation’s balance sheet and operating
statement exposure to U.S. cannabis related activities is 100%.

 

Targeting acquisition opportunities
in limited licenses jurisdictions. The Corporation is pursuing acquisition opportunities in limited license markets with high
barriers to entry.

 

Applying for de novo licenses. The
Corporation is actively seeking additional avenues of growth in its existing markets and other key markets. The Corporation is
in the process of evaluating, preparing to enter, or has submitted applications for municipal cannabis licenses in New Jersey and
Illinois. Ayr was recently awarded two additional dispensary licenses in the greater Las Vegas market, one in Clark County and
one in Henderson, and aims to open the additional Clark County dispensary this year.

 

Expanding its presence in current markets.
The Corporation currently operates in limited license markets where State-level restrictions limit the number of cannabis licenses
awarded, resulting in high barriers to entry, limited market participants, and long-term competitive advantages.

 

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Current Operations

 

Cultivation &
Production

 

The Corporation provides operational support
to licensed Nevada establishments engaging in cultivation and production operations in Nevada under services and operations agreements
and in Massachusetts. Pursuant to its licenses and services and operations agreements, the Corporation currently supports approximately
123,000 square feet of cultivation and production facilities across four (4) sites. Engaging in cultivation and production operations
allows for meaningful penetration of markets via vertically integrated operations. The Corporation has developed a suite of products
with hundreds of SKUs in over 20 brands of flower, extracts and edibles.

 

Product Selection
and Brands

 

The Corporation prides itself on its best-in-class
grow facilities producing high quality products along with dependable and reliable distribution. In Nevada, the licensed establishments
to which Ayr provides operational support, produce premium cannabis flower, pre-rolls, vape pens, concentrates, and edibles, and
also operate a production facility where cannabis oil is sourced to manufacture a variety of cannabis-infused products, including
beverages, gummies, and vaporizer pens. The top branded products in Nevada include Kynd flower, Tumbleweed vape pens, Cannapunch
beverages, Highly Edible and Kanji gummies, Dutch Girl edibles and Nordic Goddess balm. In Nevada, the licensed establishments
to which Ayr provides operational support sell their branded products through the wholesale channel as well as the five (5) dispensaries
referenced above. Under the services and operations agreements, Ayr provides operational support to three (3) dispensaries under
the “The Dispensary” brand and two (2) dispensaries under the MYNT brand, which was named Best Dispensary in Reno in
2018.

 

In Massachusetts, Ayr’s retail and
wholesale products include premium cannabis flower and cannabis products, including concentrates, edibles, and vaporizer products.
Its top branded products in Massachusetts include Entourage vaporize pens, Wicked Sour gummies, Jimmy’s Choice flower, Nantucket
Nuggets flower and Root 90 flower. In Massachusetts, the Corporation sells in-house products at its medical dispensaries under
the Sira Naturals brand, which is actively seeking licenses to operate adult-use cannabis retail establishments.

 

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

 

Sales and Distribution

 

With respect to cannabis retail locations,
the Corporation targets highly visible locations adjacent or near heavily trafficked roads. For cultivation, production and other
forms of industrial activity, the Corporation targets locations with immediate capabilities as well as future expansion potential.
The Corporation uses an internal team for the selection of real estate, as well as a broad network of real estate brokers. The
Corporation makes its determination to purchase or lease its underlying real estate on a case-by-case basis.

 

The Corporation plans to expand its network
of cannabis retail locations in select markets. The Corporation has developed key indicators to identify attractive sites based
on existing competition, population, real estate, parking, traffic and regulatory market attractiveness.

 

Principal Markets
 & Competition 

 

The Corporation competes against other
businesses across the various State markets in which it operates. The Corporation aims to minimize competitive risk in these markets
by picking strategic locations, with defensible buffers naturally built in through local regulations and local dispensaries laws. 

 

With respect to cultivation and production,
the Corporation expects to compete with both multi-State operator (“MSOs”) and local operators in the States
in which it operates. The Corporation expects to compete with larger MSOs that may have access to public markets, experienced management
teams, or be further along in terms of reaching scale. The Corporation is positioning itself to minimize all of the above risks
through accretive acquisitions, superior execution, and strong operating talent.

 

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Revenues

 

The Corporation recognized total net retail
and wholesale revenues of $75.2 million for the financial year ended December 31, 2019. The Corporation recognized total net retail
and wholesale revenues of $61.9 million for the six months ended June 30, 2020.

 

Licenses

 

The following table provides a list of
the licenses granted to companies and facilities operated by, or to which operational support is provided by, the Corporation as
of June 30, 2020.

 

	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	LivFree Wellness LLC	3900 Ponderosa Way, Las Vegas, NV 89118	State of Nevada Medical Marijuana Cultivation Registration Certificate – Department of Taxation	74378723704914675084	June 30, 2021	Cultivation - Medical
	State of Nevada Marijuana Cultivation Facility License – Department of Taxation	68096361433916615303	October 31, 2020	Cultivation - Recreational
	State of Nevada Medical Marijuana Production Registration Certificate – Department of Taxation	52864127312203226338	June 30, 2021	Production - Medical
	State of Nevada Marijuana Product Manufacturing License – Department of Taxation	59998657224967428496	October 31, 2020	Production - Recreational
	The Dispensary	5347 S. Decatur, Las Vegas, NV 89118	State of Nevada Medical Marijuana Dispensary Registration Certificate – Department of Taxation	60215712221216816750	June 30, 2021	Retail - Medical

 

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	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	 	 	State of Nevada Retail Marijuana Store License – Department of Taxation	71224329369156133247	June 30, 2021	Retail - Recreational
	State of Nevada Retail Marijuana Distributor License – Department of Taxation	14504799651148975256	June 30, 2021	Distribution - Recreational
	50 N. Gibson, Henderson, NV 89014	State of Nevada Medical Marijuana Dispensary Registration Certificate – Department of Taxation	54403159919762505142	June 30, 2021	Retail - Medical
	State of Nevada Retail Marijuana Store License – Department of Taxation	08792343110299625005	September 30, 2020	Retail - Recreational
	100 W. Plumb Lane, Reno, NV 89509	State of Nevada Medical Marijuana Dispensary Registration Certificate – Department of Taxation	04186481440349513323	June 30, 2021	Retail - Medical
	State of Nevada Retail Marijuana Store License – Department of Taxation	71702389611437559364	June 30, 2021	Retail - Recreational

 

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	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	 	 	City of Reno – Medical Marijuana Dispensary License	R101848Q	September 30, 2020 (issued quarterly)	Retail - Medical
	City of Reno – Marijuana Establishment – Retail Marijuana Store License	R145282Q	September 30, 2020 (issued quarterly)	Retail - Recreational
	435 Eureka Avenue, Reno, NV 89512	State of Nevada Medical Marijuana Cultivation Registration Certificate – Department of Taxation	96804690721657828547	June 30, 2021	Cultivation - Medical
	State of Nevada Medical Marijuana Production Registration Certificate – Department of Taxation	18668881888004789228	June 30, 2021	Production - Medical
	State of Nevada Marijuana Cultivation Facility License – Department of Taxation	94104154254817748080	November 30, 2020	Cultivation - Recreational
	State of Nevada Marijuana Product Manufacturing License – Department of Taxation	56693629355290417097	November 30, 2020	Production - Recreational
	City of Reno – Medical Marijuana Production Facility	R145364Q	September 30, 2020 (issued quarterly)	Production - Medical

 

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	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	 	 	City of Reno – Medical Marijuana Cultivation Facility	R145363Q	September 30, 2020 (issued quarterly)	Cultivation - Medical
	City of Reno – Marijuana Establishment	R145362A	October 31, 2020 (issued quarterly)	Miscellaneous
	City of Reno – Marijuana Establishment	R145361A	October 31, 2020 (issued quarterly)	Miscellaneous
	City of Reno – Marijuana Establishment Product - Manufacturing	R145418Q	September 30, 2020 (issued quarterly)	Manufacturing - Recreational
	City of Reno – Marijuana Establishment Cultivation	R145417Q	September 30, 2020 (issued quarterly)	Cultivation - Recreational
	Kynd Cannabis Company	1645 Crane Way, Sparks, NV 89431	State of Nevada Medical Marijuana Cultivation Registration Certificate – Department of Taxation	82842542964915513809	June 30, 2021	Cultivation - Medical
	State of Nevada Marijuana Cultivation Facility License – Department of Taxation	20856188563796491040	June 30, 2021	Cultivation - Recreational
	State of Nevada Medical Marijuana Production Registration Certificate – Department of Taxation	12078072637090304628	June 30, 2021	Production - Recreational

 

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	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	 	 	State of Nevada Marijuana Product Manufacturing License – Department of Taxation	76163748746660781629	June 30, 2021	Manufacturing - Recreational
	The State of Nevada Marijuana Distributor License – Department of Taxation	77027711033924812731	June 30, 2021	Distribution – Medical / Recreational
	Tahoe-Reno Botanicals LLC	Marijuana Cultivation - Adult Use Quarterly License	S080844Q-LIC	September 30, 2020 (issued quarterly)	Cultivation – Medical / Recreational
	Tahoe-Reno Extractions LLC	Medical/Retail Marijuana Production Facility License

(Issued to Tahoe-Reno Extractions LLC dba Kynd Cannabis Company)	S080842Q-LIC	September 30, 2020 (issued quarterly)	Production – Medical / Recreational
	Retail Marijuana Distributor License

(Issued to Tahoe-Reno Extractions LLC dba Kynd Cannabis Company)	S080843Q-LIC	September 30, 2020 (issued quarterly)	Distribution – Medical / Recreational
	Industrial Hemp Handler Certificate - Department of Agriculture	202042H	December 31, 2020	Cultivation - Hemp

 

    	Ayr Strategies Inc.	13	Annual Information Form

     

    

 

	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	Mynt Cannabis Dispensary	132 E. Second St., Reno, NV 89501	State of Nevada Medical Marijuana Dispensary Registration Certificate –Department of Taxation	97519348303293892007	June 30, 2021	Retail - Medical
	State of Nevada Retail Marijuana Store License – Department of Taxation	46934338604709544132	June 30, 2021	Retail - Recreational
	City of Reno – Medical Marijuana Dispensary License	R101872Q	September 30, 2020 (issued quarterly)	Retail - Medical
	Marijuana Establishment – Retail Marijuana Store License	R145321Q	September 30, 2020 (issued quarterly)	Retail - Recreational
	Lemon Aide, LLC	340 Lemmon Drive, Reno, NV  89506	State of Nevada Medical Marijuana Dispensary Registration Certificate – Department of Taxation	80994578239784321818	June 30, 2021	Retail - Medical
	State of Nevada Retail Marijuana Store License –Department of Taxation	13244303247046007918	July 31, 2021	Retail - Recreational
	Washoe County Marijuana License

(Issued to Lemon Aide LLC dba MYNT Cannabis Dispensary)	W000013ME-LIC	October 1, 2020 (issued quarterly)	Retail – Medical / Recreational

 

    	Ayr Strategies Inc.	14	Annual Information Form

     

    

 

	Entity	Address Attached to License	Certificate/ License	Certificate/ License #	Expiration/Renewal Date	Summary
	Sira Naturals, Inc.	1001 Massachusetts Avenue, Cambridge, MA 02138	Registered Marijuana Dispensary Registration	RMD-325	June 27, 2021	Retail - Medical
	240 Elm Street, Somerville, MA 02114	Registered Marijuana Dispensary Registration	RMD-245	June 27, 2021	Retail - Medical
	29 Franklin Street, Needham, MA 02492	Registered Marijuana Dispensary Registration	RMD-625	July 12, 2021	Retail - Medical
	13 Commercial Way, Milford, MA 01757	Marijuana Establishment License (Cultivation/Tier 3 – Indoor)	MC281252	September 30, 2021	Cultivation
	Marijuana Establishment License (Product Manufacturer)	MP281303	September 30, 2021	Production
	Marijuana Establishment License (Transporter with Other Existing ME License)	MX281310	September 29, 2021	Transportation
	
        1 Industrial Way, Milford MA 01751

         
	Marijuana Establishment License (Cultivation/Tier 3 – Indoor)	MC282015	August 19, 2021	Cultivation

 

Intangible
Assets

 

As of June 30, 2020, intangible assets
had a net book value of $183 million (excluding goodwill) and consisted of the following: Licenses, Right-to-use Licenses, Host
community agreements and Trade name / brand which have useful lives of 15, 15, 15, and 5 years, respectively. Amortization is recorded
on a straight-line basis over their estimated useful lives, which do not exceed the contractual period, if any. Such assets are
tested annually for impairment, or more frequently, if events or changes in circumstances indicate that they might be impaired.

 

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Employees

 

As of June 30, 2020, the Corporation had
approximately 600 employees. The Corporation seeks to attract, hire and promote the most qualified and diverse candidates for each
position. Based on both acquisitions and hires, the Corporation leverages experience from multiple individuals that have been in
the regulated cannabis market. The Corporation draws upon this knowledge base and proven training program to develop and educate
employees. With policies and procedures that have successfully been rolled out in multiple markets, the Corporation uses these
proven policies and procedures where applicable to other businesses in order to meet the operational expectations for each market.
The Corporation seeks to ensure that staff are appropriately trained and ensure the safety and welfare of employees at Company
facilities. Leveraging existing operations in legal adult use States, all new employees receive true hands-on training prior to
starting in their new market. Setting the tone from the top, the Corporation’s executive team goes above and beyond to seek
to ensure that all individuals within the Corporation are held to the highest standards, particularly with respect to compliance.

 

Foreign Operations

 

The Corporation does not currently have
any foreign operations outside of the United States. Neither the Corporation nor any reportable segment of the Corporation has
any dependence upon foreign operations outside of the United States.

 

Investment Policies

 

The Corporation may provide working capital
facilities to its acquisition targets in order to fund development of assets prior to completion of the acquisitions, where it
is to the benefit of the Corporation to do so.

 

No Bankruptcy Proceedings

 

There are presently no bankruptcy, receivership,
or similar proceedings against the Corporation or any of its subsidiaries, including voluntary bankruptcy, receivership, or similar
proceedings, nor have there been any such proceedings within the three (3) most recently completed financial years.

 

CANNABIS
MARKET OVERVIEW

 

On February 8, 2018, the Canadian Securities
Administrators revised their previously released Staff Notice 51-352, which provides specific disclosure expectations for issuers
that currently have, or are in the process of developing, cannabis-related activities in the United States as permitted within
a particular State’s regulatory framework. All issuers with U.S. cannabis-related activities are expected to clearly and
prominently disclose certain prescribed information in disclosure documents. As a result of the Corporation’s existing operations
in Nevada and Massachusetts, Ayr provides the following disclosure:

 

The legalization and regulation of marijuana
for medical use is being implemented at the State level in the United States. State laws regulating cannabis are in direct conflict
with the CSA, which makes cannabis use and possession federally illegal. Although certain States and territories of the United
States authorize medical or adult-use cannabis production and distribution by licensed or registered entities, under United States
federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal and any such
acts are criminal acts under federal law under any and all circumstances under the CSA. Although the Corporation’s business
activities are believed to be compliant in all material respects with applicable U.S. State and local law, strict compliance with
State and local laws with respect to cannabis may neither absolve Ayr of liability under United States federal law, nor may it
provide a defense to any federal proceeding which may be brought against Ayr. 

 

The following table is intended to assist
readers in identifying those parts of this AIF that address the disclosure expectations outlined in Staff Notice 51-352.

 

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	Industry

Involvement	Specific Disclosure Necessary to Fairly Present all 

Material Facts, Risks and Uncertainties	AIF Cross-Reference
	All Issuers with U.S. Marijuana- Related Activities	Describe the nature of the issuer’s involvement in the U.S. marijuana industry and include the disclosures indicated for at least one of the direct, indirect and ancillary industry involvement types noted in this table.	
        -      Description
of the Business

         

	 	 

                                                                               Prominently State that marijuana is illegal under U.S. federal law and that enforcement of relevant laws is a significant risk.
	
        -      Cover
page (disclosure in bold typeface)

        -      Cannabis
Market Overview (disclosure in bold typeface)

	 	 

                                                                               Discuss any statements and other available guidance made by federal authorities or prosecutors regarding the risk of enforcement action in any jurisdiction where the issuer conducts U.S. marijuana-related activities.
	
        -      Cover
page (disclosure in bold typeface)

        -      Federal Regulatory Environment

        -      U.S. Federal Enforcement Priorities

        -      Risk Factors – While legal under applicable
U.S. State law, Ayr’s business activities are illegal under U.S. federal law

        -      Risk Factors – The approach to the enforcement of cannabis laws may be subject
to change or may not proceed as previously outlined

	 	 	 
	 	Outline related risks including, among others, the risk that third-party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S.	
        -      Risk Factors – Service providers could suspend or withdraw service

        -      Risk Factors - While legal under applicable U.S. State law, Ayr’s business activities are illegal under U.S. federal
law

	 	 

                                                                               Given the illegality of marijuana under U.S. federal law, discuss the issuer’s ability to access both public and private capital and indicate what financing options are / are not available in order to support continuing operations.
	
        -      Ability to Access Public and Private Capital

        -      Risk Factors – Ayr may be subject to restricted access to banking in the United States and Canada

        -      Risk Factors – Ayr’s investments in the U.S. are subject to applicable anti-money laundering laws and regulations

	 	Quantify the issuer’s balance sheet and operating statement exposure to U.S. marijuana related activities.	-      Exposure to U.S. Marijuana Related Activities
	 	Disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding (a) compliance with applicable State regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law.	-      The Corporation has received and continues to receive legal input regarding (a) compliance with applicable State regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law in certain respects. The Corporation receives such advice on an ongoing basis but does not have a formal legal opinion on such matters.

	U.S. Marijuana Issuers with direct involvement in cultivation or distribution	Outline the regulations for U.S. States in which the issuer operates and confirm how the issuer complies with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. State.	
        -      Cannabis Market Overview – Nevada

        -      Cannabis
Market Overview – Massachusetts

        -      Cannabis
Market Overview – Compliance with State Regulatory Frameworks 

 

    	Ayr Strategies Inc.	17	Annual Information Form

     

    

 

	Industry

Involvement	Specific Disclosure Necessary to Fairly Present all Material Facts, Risks and Uncertainties	AIF Cross-Reference
	 	Discuss the issuer’s program for monitoring compliance with U.S. State law on an ongoing basis, outline internal compliance procedures and provide a positive statement indicating that the issuer is in compliance with U.S. State law and the related licensing framework. Promptly disclose any non-compliance, citations or notices of violation which may have an impact on the issuer’s licence, business activities or operations.	
        -      Cannabis
Market Overview – Compliance with State Regulatory Frameworks

         

 

In accordance with Staff Notice 51-352,
below is a discussion of the federal and State-level U.S. regulatory regimes in those jurisdictions where Ayr is directly or indirectly
involved through its subsidiaries. Ayr is currently indirectly 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 State of Massachusetts and provides
administrative, consulting and operations services to licensed establishments in the State of Nevada, and has entered into a binding
term sheet with the intention to expand into the State of Pennsylvania. In accordance with Staff Notice 51-352, Ayr will evaluate,
monitor and reassess this disclosure, and any related risks, on an ongoing basis and the same will be supplemented and amended
to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance,
laws or regulations regarding cannabis regulation. As noted under “Non-Compliance with State and Local Cannabis Laws”
below, Ayr intends to cause its businesses to promptly remedy any material known occurrences of non-compliance with applicable
State and local cannabis rules and regulations, and Ayr intends to publicly disclose any material non-compliance, citations or
notices of violation which may have an impact on its licenses, business activities or operations.

 

Exposure to U.S. Marijuana Related Activities

 

As of June 30, 2020, 100% of the businesses
was directly derived from United States cannabis-related activities. As such, the Corporation’s balance sheet and operating
statement exposure to United States cannabis related activities is 100%.

 

Federal Regulatory Environment 

 

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

 

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

 

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

 

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

 

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

 

U.S. Federal Enforcement
Priorities

 

Due to the current federal regulatory environment
in the Unites States, as further described herein, Ayr may become the subject of heightened scrutiny by regulators, stock exchanges
and other authorities in Canada and the U.S. As a result, Ayr may be subject to significant direct and indirect interaction with
public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions
on Ayr’s ability to invest in the U.S. or any other jurisdiction. See “Risk
Factors – While legal under applicable U.S. State law, Ayr’s business activities are illegal under U.S. federal law”
and “Risk Factors – The approach to
the enforcement of cannabis laws may be subject to change or may not proceed as previously outlined”.

 

Changes in government policy or public
opinion can significantly influence the regulation of the cannabis industry in Canada, the United States and elsewhere. A negative
shift in the public’s perception of cannabis in the U.S. or any other applicable jurisdiction could affect future legislation
or regulation. Among other things, such a shift could cause State jurisdictions to abandon initiatives or proposals to legalize
cannabis, thereby limiting the number of new State jurisdictions into which Ayr could expand. Any inability to fully implement
Ayr’s expansion strategy may have a material adverse effect on Ayr’s business, financial condition and results of operations.
See “Risk Factors”.

 

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

 

Nevada

 

Nevada Regulatory Landscape

 

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

 

    	Ayr Strategies Inc.	19	Annual Information Form

     

    

 

Licenses

 

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

 

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

 

Regulations

 

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

 

Reporting Requirements

 

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

 

Storage and Security

 

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

 

		1.	Maintain an enclosed, locked facility;

 

		2.	Have a single secure entrance;

 

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

 

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

 

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

 

		b.	exterior lighting designed to facilitate surveillance;

 

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

 

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

 

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

 

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

 

    	Ayr Strategies Inc.	20	Annual Information Form

     

    

 

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

 

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

 

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

 

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

 

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

 

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

 

		5.	Implement security procedures that:

 

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

 

		b.	deter and prevent theft;

 

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

 

		d.	prevent loitering;

 

		e.	require and explain electronic monitoring; and

 

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

 

Massachusetts

 

Massachusetts Regulatory Landscape

 

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

 

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

 

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

 

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

 

Licenses

 

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

 

    	Ayr Strategies Inc.	21	Annual Information Form

     

    

 

Regulations

 

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

 

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

 

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

 

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

 

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

 

Reporting Requirements

 

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

 

For a more detailed analysis of the federal
and State regulatory environment, see the “Cannabis Market Overview” section in the final non-offering prospectus
of Ayr dated February 15, 2019 (the “Final QT Prospectus”).

 

Pennsylvania

 

Pennsylvania Regulatory Landscape

 

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

 

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Chapter 20 of the PAMMA established a marijuana
research program whereby clinical registrants collaborate with medical schools and hospitals to design and implement a research
plan. Chapter 20 authorizes PA DOH to issue grower/processor and dispensary permits to up to eight (8) clinical registrants. Under
these permits, which are in addition to the 25 grower/processor and 50 dispensaries mentioned above, clinical registrants effectively
operate as vertically integrated entities. Furthermore, the dispensary permits authorize clinical registrants to operate dispensaries
at up to six (6) locations in any region of the Commonwealth. The dispensaries must dispense marijuana for the purpose of conducting
research. To date, PA DOH has issued permits to seven (7) clinical registrants.

 

Pennsylvania Licenses

 

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

 

License and Regulations

 

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

 

Site-Visits & Inspections

 

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

 

Reporting Requirements

 

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

 

Storage and Security

 

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

 

Compliance with
State Regulatory Frameworks

 

Nevada Regulatory Compliance

 

Each of the Nevada-based cannabis establishments
for which the Corporation provides operational support possess licenses and/or operate dispensaries in compliance with applicable
licensing requirements and the regulatory framework enacted by the State of Nevada in all material respects, and maintains the
appropriate licenses for the cultivation, production, distribution and operation of dispensaries, as applicable.

 

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

 

    	Ayr Strategies Inc.	23	Annual Information Form

     

    

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

		•	wholesale transfer;

 

		•	inventory intake;

 

		•	inventory management;

 

		•	retail transactions; and

 

		•	sales data tracking and reporting.

 

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

 

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

 

    	Ayr Strategies Inc.	24	Annual Information Form

     

    

 

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

 

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

 

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

 

		•	the batch or lot number;

 

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

 

		•	the number of marijuana seeds or marijuana cuttings planted;

 

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

 

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

 

		•	the number of marijuana plants grown to maturity;

 

		•	harvest information, including:

 

		○	the date of harvest;

 

		○	the final yield weight of processed usable marijuana; and

 

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

 

		•	marijuana flowers in process in all locations;

 

		•	marijuana in storage by location;

 

		•	marijuana in locked containers awaiting disposal; and

 

		•	an audit trail of all material inventory adjustments.

 

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

 

		•	in respect of dispensary inventory:

 

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

 

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

 

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

 

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

 

		•	in respect of dispensary retail sales:

 

		○	the date and time of each retail sale;

 

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

 

		○	the price paid or consideration given for the marijuana;

 

    	Ayr Strategies Inc.	25	Annual Information Form

     

    

  

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

 

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

 

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

 

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

 

		•	the date and time of each sale;

 

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

 

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

 

		•	the consideration given;

 

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

 

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

 

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

 

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

 

		•	the date of disposal;

 

		•	confirmation that the marijuana was rendered unusable before disposal;

 

		•	the method of disposal; and

 

		•	the name and card number of the agent responsible for the disposal.

 

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

 

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

 

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

 

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

 

		•	maintaining video surveillance of facilities;

 

		•	maintaining visitor logs;

 

    	Ayr Strategies Inc.	26	Annual Information Form

     

    

 

		•	providing for and maintaining secure perimeters for facilities;

 

		•	requesting employees to watch for suspicious activities;

 

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

 

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

 

		•	arranging for prompt and safe disposal of materials;

 

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

 

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

 

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

 

		•	random review of cash register drawers by dispensary supervisors;

 

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

 

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

 

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

 

		•	recording of all disbursements on a disbursement form; and

 

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

 

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

 

		•	correspondence and updates with regulators;

 

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

 

		•	appropriate employee training for all standard operating procedures.

 

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

 

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

 

    	Ayr Strategies Inc.	27	Annual Information Form

     

    

 

Massachusetts Regulatory Compliance

 

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

 

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

 

The Corporation’s Massachusetts-based
business currently possesses three (3) registered marijuana dispensary registrations which allow the business to sell medical marijuana
in Massachusetts directly to consumers, and which allow for the right to open three (3) adult use dispensaries subject to local
municipality and other marijuana regulatory approvals. The Massachusetts-based business currently possesses licenses to cultivate,
manufacture and transport to other marijuana establishments in Massachusetts. No assurance can be given that the applicable
regulatory approvals allowing for the opening of adult use dispensaries will be received.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

		•	wholesale transfer;

 

    	Ayr Strategies Inc.	28	Annual Information Form

     

    

 

		•	inventory intake;

 

		•	inventory management;

 

		•	retail transactions; and

 

		•	sales data tracking and reporting.

 

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

 

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

 

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

 

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

 

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

 

		•	the batch;

 

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

 

		•	the number of marijuana seeds or marijuana cuttings planted;

 

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

 

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

 

		•	the number of marijuana plants grown to maturity;

 

		•	harvest information, including:

 

		○	the date of harvest; and

 

		○	the final yield weight of processed usable marijuana;

 

		•	marijuana flowers in process in all locations;

 

		•	marijuana in storage by location;

 

		•	marijuana in locked containers awaiting disposal; and

 

		•	an audit trail of all material inventory adjustments.

 

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

 

		•	in respect of dispensary inventory:

 

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

 

    	Ayr Strategies Inc.	29	Annual Information Form

     

    

 

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

 

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

 

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

 

		•	in respect of dispensary retail sales:

 

		○	the date and time of each retail sale;

 

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

 

		○	the price paid or consideration given for the marijuana;

 

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

 

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

 

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

 

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

 

		•	the date and time of each sale;

 

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

 

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

 

		•	the consideration given;

 

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

 

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

 

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

 

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

 

		•	the date of disposal;

 

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

 

		•	the method of disposal;

 

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

 

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

 

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

 

    	Ayr Strategies Inc.	30	Annual Information Form

     

    

 

		•	maintaining video surveillance of facilities;

 

		•	maintaining visitor logs;

 

		•	providing for and maintaining secure perimeters for facilities;

 

		•	requesting employees to watch for suspicious activities;

 

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

 

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

 

		•	arranging for prompt and safe disposal of materials;

 

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

 

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

 

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

 

		•	random review of cash register drawers by dispensary supervisors;

 

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

 

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

 

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

 

		•	recording of all disbursements on a disbursement form; and

 

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

 

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

 

		•	correspondence and updates with regulators;

 

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

 

		•	appropriate employee training for all standard operating procedures.

 

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

 

While the Corporation’s Massachusetts-based
business is compliant with State and local cannabis laws in all material respects, its cannabis-related activities remain illegal
under United States federal law. See “Risk Factors”.

 

    	Ayr Strategies Inc.	31	Annual Information Form

     

    

 

Non-Compliance with
State and Local Cannabis Laws

 

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

 

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

 

		•	minor inventory discrepancies with regulatory reporting software;

 

		•	missing fields in regulatory reports;

 

		•	cleaning schedules not available on display;

 

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

 

		•	updated staffing plan not immediately available on site;

 

		•	improper illumination of external signage;

 

		•	marijuana infused product utensils improperly stored;

 

		•	labels out of compliance with most recent regulatory guidelines;

 

		•	partial obstruction of camera views; and

 

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

 

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

 

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

 

Ability to Access
Public and Private Capital

 

Ayr has historically had and will continue
to have access to equity financing from the public capital markets by virtue of its status as a reporting issuer in each of the
provinces and territories of Canada, other than Québec.

 

Ayr has access to equity and debt financing
from the prospectus exempt (private placement) markets in Canada and the U.S. and has relationships with sources of private capital
(such as funds and high net worth individuals) that could be investigated at a higher cost of capital.

 

While Ayr is unable to obtain traditional
bank financing in the U.S. or financing from other U.S. federally regulated entities, it currently has access to equity financing
through markets in Canada and the U.S. Since the use of marijuana is illegal under U.S. federal law, and in light of concerns in
the banking industry regarding money laundering and other federal financial crime related to marijuana, U.S. banks have been reluctant
to accept deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana
industry often have difficulty finding a bank willing to accept their business. Likewise, marijuana businesses have limited, if
any, access to credit card processing services. As a result, marijuana businesses in the U.S. are largely cash-based. This complicates
the implementation of financial controls and increases security issues.

 

Commercial banks, private equity firms
and venture capital firms have approached the cannabis industry cautiously to date. However, there are increasing numbers of high
net worth individuals and family offices that have made meaningful investments in companies and businesses similar to Ayr’s.
Although there has been an increase in the amount of private financing available over the last several years, there is neither
a broad nor deep pool of institutional capital that is available to cannabis license holders and license applicants. There can
be no assurance that additional financing, if raised privately, will be available to Ayr when needed or on terms which are acceptable
to Ayr. Ayr’s inability to raise financing to fund capital expenditures or acquisitions could limit its growth and may have
a material adverse effect upon future profitability. See “Risk Factors – Ayr may be subject to restricted access
to banking services in the United States and Canada”.

 

    	Ayr Strategies Inc.	32	Annual Information Form

     

    

 

 

RISK FACTORS

 

The Corporation is subject to various risks
and uncertainties and an investment in securities of the Corporation should be considered highly speculative. Prior to making an
investment decision, investors should consider the investment risks set forth below and those described elsewhere in this AIF,
which are in addition to the usual risks associated with an investment in a business at an early stage of development. The Corporation
considers the risks set forth below to be the most significant, but do not consider them to be all the risks associated with an
investment in securities of the Corporation.

 

The following information is a summary
only of certain risk factors and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed
information appearing elsewhere in this AIF and in the Final QT Prospectus. Additional risks and uncertainties not presently known
to Ayr or currently deemed immaterial by Ayr may also impair the operations of Ayr. If any such risks actually occur, shareholders
of Ayr could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects
of Ayr could be materially adversely affected and the ability of Ayr to implement its growth plans could be adversely affected.
Prospective investors should consult with their professional advisors to assess any investment in the Corporation.

 

Risks Related to Legality of Cannabis

 

While legal under applicable U.S.
State law, Ayr’s business activities are illegal under U.S. federal law.

 

Investors are cautioned that in the United
States, cannabis is largely regulated at the State level. To Ayr’s knowledge, as of July 2020, some form of cannabis has
been legalized in 33 States, the District of Columbia, and the territories of Guam, U.S. Virgin Islands, Northern Mariana Islands
and Puerto Rico. Additional States have pending legislation regarding the same. Although each State in which Ayr will operate authorizes,
as applicable, medical and/or adult-use cannabis production and distribution by licensed or registered entities, and numerous other
States have legalized cannabis in some form, under U.S. federal law, the possession, use, cultivation, and transfer of cannabis
and any related drug paraphernalia is illegal, and any such acts are criminal acts under federal law under any and all circumstances
under the Substances Act. The concepts of “medical cannabis”, “retail cannabis” and “adult-use cannabis”
do not exist under U.S. federal law. Marijuana is a Schedule I drug under the Substances Act. Under U.S. federal law, a Schedule
I drug or substance has a high potential for abuse, no accepted medical use in the U.S., and a lack of safety for the use of the
drug under medical supervision. Although Ayr believes its businesses are compliant with applicable U.S. State and local law, strict
compliance with State and local laws with respect to cannabis may not absolve Ayr of liability under U.S. federal law, nor may
it provide a defense to any federal proceeding which may be brought against Ayr. Any such proceedings brought against the Ayr may
result in a material adverse effect on Ayr.

 

Since the possession and use of cannabis
and any related drug paraphernalia is illegal under U.S. federal law, Ayr may be deemed to be aiding and abetting illegal activities.
The Corporation’s businesses manufacture and/or distribute medical and adult-use cannabis. As a result, U.S. law enforcement
authorities, in their attempt to regulate the illegal use of cannabis and any related drug paraphernalia, may seek to bring an
action or actions against Ayr, including, but not limited to, a claim regarding the possession, use and sale of cannabis, and/or
aiding and abetting another’s criminal activities. The U.S. federal aiding and abetting statute provides that anyone who
 “commits an offense or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.”
As a result, the U.S. Department of Justice (“DOJ”), under the current administration, could allege that Ayr
has “aided and abetted” violations of federal law by providing financing and services to the Corporation. Under these
circumstances, the federal prosecutor could seek to seize the assets of Ayr, and to recover the “illicit profits” previously
distributed to shareholders resulting from any of the foregoing. In these circumstances, Ayr’s operations would cease, shareholders
may lose their entire investment and directors, officers and/or shareholders may be left to defend any criminal charges against
them at their own expense and, if convicted, be sent to federal prison. Such an action would result in a material adverse effect
on Ayr.

 

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U.S. Customs and Border Protection (“CBP”)
enforces the laws of the United States. Crossing the border while in violation of the Substances Act and other related federal
laws may result in denied admission, seizures, fines and apprehension. CBP officers administer the Immigration and Nationality
Act to determine the admissibility of travelers, who are non-U.S. citizens, into the United States. An investment in Ayr, if it
became known to CBP, could have an impact on a shareholder’s admissibility into the United States and could lead to a lifetime
ban on admission. See “Risk Factors - U.S. border officials could deny entry of non-U.S. citizens into the U.S. to employees
of or investors in companies with cannabis operations in the United States and Canada”.

 

The Corporation derives 100% of their revenues
from the cannabis industry in certain States, which industry is illegal under U.S. federal law. Even where the Corporation’s
cannabis-related activities are compliant with applicable State and local law, such activities remain illegal under U.S. federal
law. The enforcement of relevant laws is a significant risk.

 

Medical cannabis has been protected against
enforcement by enacted legislation from the United States Congress in the form of what is commonly called the “Rohrabacher-Blumenauer
Amendment”, which prevents federal prosecutors from using federal funds to impede the implementation of medical cannabis
laws enacted at the State-level, subject to the United States Congress restoring such funding. Notably, this amendment has always
applied to only medical cannabis programs, and has no effect on pursuit of recreational cannabis activities. The amendment has
historically been passed as an amendment to omnibus appropriations bills, which by their nature expire at the end of a fiscal year
or other defined term. Subsequent to the issuance of the Sessions Memorandum by then Attorney General Sessions on January 4, 2018,
the United States Congress passed its omnibus appropriations bill, SJ 1662, which for the fourth consecutive year contained the
Rohrabacher-Blumenauer Amendment language (referred to in 2018 as the Leahy Amendment) and continued the protections for the medical
cannabis marketplace and its lawful participants from interference by the U.S. DOJ up and through the 2018 appropriations deadline
of September 30, 2018.

 

The deadline passed, but the Rohrbacher-Leahy
Amendment remained in effect by virtue of a continuing resolution under which the entire 2018 budget continued to operate. 
Following the expiration of the continuing resolution on December 7, 2018, Congress failed to agree upon an appropriations bill,
and the United States government entered a partial shutdown. The Rohrabacher-Leahy Amendment was no longer in effect during the
partial shutdown. The partial shutdown ended on January 25, 2019 when the United States Congress passed an appropriations
bill funding the United States government through February 15, 2019.  This temporary appropriations bill included language
similar to the Rohrabacher Leahy Amendment (now referred to as the “Joyce/Leahy Amendment”).  On February
15, 2019, the amendment was renewed through the signing of the Fiscal Year 2019 omnibus spending bill, effective through September
30, 2019. On September 27, 2019, the amendment was renewed through a stopgap spending bill, and it was renewed again on November
21, 2019. On December 20, 2019, the amendment was renewed by the signing of the Fiscal Year 2020 omnibus spending bill, effective
through September 30, 2020. That legislation also contains a provision continuing to block Washington, D.C. from using its own
local tax dollars to implement a legal marijuana sales program.

 

As he did when signing the 2017 and 2019
spending bills (but not the 2018 bill), President Trump included a signing statement when he signed the 2020 spending bill. That
statement reads, in part, “My Administration will treat [the amendment] consistent with the President’s constitutional
responsibility to faithfully execute the laws of the United States.” Some have interpreted this as a reservation of the right
to disregard the language of the amendment when enforcing federal drug laws against those who are otherwise compliant with State
medical cannabis laws.

 

President Trump’s 2021 budget plan
released in February 2020 did not include the amendment. This is not unusual, as he made similar proposals in his 2019 and 2020
plans. Congress still voted to include the amendment both times. In July 2020, the House of Representatives passed the “Blumenauer-McClintock-Norton-Lee
amendment,” to the Commerce, Justice, Science (CJS) Appropriations bill. That amendment would continue the Joyce/Leahy amendment’s
protections for state medical cannabis programs, and extend those protections to include recreational programs in states where
recreational cannabis is legal. The House passed a CJS appropriations bill with the same expansion last year, but ultimately agreed
with the Senate’s proposal to continue protections only for medical cannabis programs. Senate Majority Leader Mitch McConnell
opposes marijuana legalization, and the Senate may take the same approach this year.

 

Should the Joyce/Leahy amendments language
not be included in the final Fiscal Year 2021 appropriations package, there can be no assurance that the federal government will
not seek to prosecute cases involving medical cannabis businesses that are otherwise compliant with State law. Such potential proceedings
could involve significant restrictions being imposed upon Ayr or third parties, while diverting the attention of key executives.
Such proceedings could have a material adverse effect on Ayr, even if such proceedings were concluded successfully in favour of
Ayr.

 

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

 

The approach to the enforcement of
cannabis laws may be subject to change or may not proceed as previously outlined.

 

As a result of the conflicting views between
State legislatures and the federal government regarding cannabis, investments in cannabis businesses in the U.S. are subject to
inconsistent legislation and regulation. The response to this inconsistency was addressed in the Cole Memorandum addressed to all
United States district attorneys acknowledging that notwithstanding the designation of cannabis as a controlled substance at the
federal level in the United States, several States have enacted laws relating to cannabis for medical purposes.

 

The Cole Memorandum outlined certain priorities
for the U.S. DOJ relating to the prosecution of cannabis offenses. In particular, the Cole Memorandum noted that in jurisdictions
that have enacted laws legalizing cannabis in some form and that have also implemented strong and effective regulatory and enforcement
systems to control the cultivation, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations
is less likely to be a priority at the federal level. Notably, however, the U.S. DOJ has never provided specific guidelines for
what regulatory and enforcement systems it deems sufficient under the Cole Memorandum standard.

 

In light of limited investigative and prosecutorial
resources, the Cole Memorandum concluded that the U.S. DOJ should be focused on addressing only the most significant threats related
to cannabis. States where medical cannabis had been legalized were not characterized as a high priority. In March 2017, then newly
appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the Cole Memorandum
had merit; however, he had previously stated that he did not believe it had been implemented effectively and, on January 4, 2018,
former Attorney General Jeff Sessions issued the Sessions Memorandum, which rescinded the Cole Memorandum. The Sessions Memorandum
rescinded previous nationwide guidance specific to the prosecutorial authority of United States Attorneys relative to cannabis
enforcement on the basis that they are unnecessary, given the well-established principles governing federal prosecution that are
already in place. Those principles are included in chapter 9.27.000 of the USAM and require federal prosecutors deciding which
cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General,
the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the
community.

 

As a result of the Sessions Memorandum,
federal prosecutors are now free to utilize their prosecutorial discretion to decide whether to prosecute cannabis activities despite
the existence of State-level laws that may be inconsistent with federal prohibitions. No direction was given to federal prosecutors
in the Sessions Memorandum as to the priority they should ascribe to such cannabis activities, and resultantly it is uncertain
how active U.S. federal prosecutors will be in relation to such activities.

 

As discussed above, should the Joyce/Leahy
amendment not be renewed, there can be no assurance that the federal government will not seek to prosecute cases involving medical
cannabis businesses that are otherwise compliant with State law.

 

Furthermore, the Sessions Memorandum did
not discuss the treatment of medical cannabis by federal prosecutors. While dozens of U.S. attorneys from across the country have
affirmed that their view of federal enforcement priorities has not changed, there can be no assurances that such views are universally
held or will continue in the near future. In California, at least one U.S. Attorney has made comments indicating a desire to enforce
the Controlled Substances Act, stating that the Sessions Memorandum and the rescission of the Cole Memorandum “returns trust
and local control to federal prosecutors” to enforce the Controlled Substances Act. These and other so called “enforcement
hawks” in California or elsewhere may choose to enforce the Controlled Substances Act in accordance with federal policies
prior to the issuance of the Cole Memorandum. As such, there can be no assurance that the federal government will not seek to prosecute
cases involving cannabis businesses that are otherwise compliant with State law. Contrastingly, Andrew Lelling, the U.S. Attorney
for the District of Massachusetts, issued a statement explaining that while marijuana is illegal under federal law, his “office’s
resources [...] are primarily focused on the opioid epidemic.”2
In this statement, U.S. Attorney Lelling also clarified that his marijuana enforcement efforts will be focused on overproduction,
targeted sales to minors, and organized crime and interstate transportation of drug proceeds.

 

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On November 7, 2018, Mr. Sessions tendered
his resignation as Attorney General at the request of President Donald Trump. Following Mr. Sessions’ resignation, Matthew
Whitaker began serving as Acting United States Attorney General, and William Barr was eventually appointed to the role. Mr. Barr
is a former Attorney General under George H.W. Bush, with an anti-drug stance during his tenure.  During his Senate confirmation
hearing, Mr. Barr stated that he disagrees with efforts by States to legalize marijuana, but will not go after marijuana companies
in states that legalized it under Obama administration policies. He stated further that he would not upset settled expectations
that have arisen as a result of the Cole Memorandum. In June 2020, a federal prosecutor accused Mr. Barr of ordering “politically
motivated” antitrust reviews of 10 marijuana business mergers, allegedly because he personally did not support their underlying
business in the marijuana industry. At least one of those investigations allegedly resulted in the collapse of a proposed merger
between two large cannabis businesses. If true, Mr. Barr’s actions reflect a hostility to the cannabis industry and further
adverse actions could be taken.

 

Such potential proceedings could involve
significant restrictions being imposed upon Ayr or third parties, while diverting the attention of key executives. Such proceedings
could have a material adverse effect on Ayr, as well as Ayr’s reputation, even if such proceedings were concluded successfully
in favour of Ayr. In the extreme case, such proceedings could ultimately involve the prosecution of key executives of Ayr or the
seizure of corporate assets; however as of the date hereof, Ayr believes that proceedings of this nature are remote.

 

There is no certainty as to how the U.S.
DOJ, Federal Bureau of Investigation and other government agencies will handle cannabis matters in the future. Ayr regularly monitors
the activities of the current administration in this regard.

 

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

 

Ayr may be subject to restricted
access to banking services in the United States and Canada.

 

In February 2014, FinCEN issued guidance
through the FinCEN Memorandum (which is not law) with respect to financial institutions providing banking services to cannabis
businesses. This guidance includes burdensome due diligence expectations and reporting requirements, and does not provide any safe
harbors or legal defenses from examination or regulatory or criminal enforcement actions by the U.S. DOJ, FinCEN or other federal
regulators. Thus, many banks and other financial institutions in the United States choose not to provide banking services to cannabis-related
businesses or rely on this guidance, which can be amended or revoked at any time by the Trump administration. In addition to the
foregoing, banks may refuse to process debit card payments, and credit card companies generally refuse to process credit card payments
for cannabis-related businesses. As a result, Ayr may have limited or no access to banking or other financial services in the United
States. The inability, or limitation of Ayr’s ability, to open and maintain bank accounts, obtain other banking services
and/or accept credit card and debit card payments may make it difficult for Ayr to operate and conduct its business as planned
or to operate efficiently. Ayr does not consider this to be a risk at the current time in Nevada.

 

Additionally, Canadian banks may potentially
refuse to provide banking services to companies engaged in U.S. cannabis activities while it is illegal under U.S. federal law.

 

 

 

2
Statement by U.S. Attorney Andrew Lelling Regarding the Legalization of Recreational Marijuana in Massachusetts (July 10, 2018.
Available at https://www.justice.gov/usao-ma/pr/statement-us-attorney-andrew-lelling-regarding-legalization-recreational-marijuana.

  

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There are increasing numbers of high net
worth individuals and family offices that have made meaningful investments in companies and businesses similar to the Corporation.
Although there has been an increase in the amount of private financing available over the last several years, there is neither
a broad nor deep pool of institutional capital that is available to cannabis license holders and license applicants. There can
be no assurance that additional financing, if raised privately, will be available to Ayr when needed or on terms which are acceptable
to Ayr. Ayr’s inability to raise financing to fund capital expenditures or acquisitions could limit its growth and may have
a material adverse effect upon future profitability.

 

The differing regulatory requirements
across State jurisdictions may hinder or otherwise prevent Ayr from achieving economies of scale. 

 

Traditional rules of investing may prove
to be imperfect in the cannabis industry. For example, while it would be common for investment managers to purchase equity in companies
in different States to reach economies of scale and to conduct business across State lines, such an investment thesis may not be
feasible in the cannabis industry because of varying State-by-State legislation. Applicable regulations in many States may require
advance disclosure of and approval of State regulators to accomplish an investment. As no two regulated markets in the cannabis
industry are exactly the same, doing business across State lines may not be possible or commercially practicable. As a result,
Ayr may be limited to identifying opportunities in individual States, which may have the effect of slowing the growth prospects
of Ayr.

 

Risk of legal, regulatory or other
political change.

 

The success of the business strategy of
Ayr depends on the legality of the cannabis industry. The political environment surrounding the cannabis industry in general can
be volatile and the regulatory framework remains in flux. To Ayr’s knowledge, as of July 2020, some form of cannabis has
been legalized in 33 States, the District of Columbia, and the territories of Guam, U.S. Virgin Islands, Northern Mariana Islands
and Puerto Rico; however, the risk remains that a shift in the regulatory or political realm could occur and have a drastic impact
on the industry as a whole, adversely impacting Ayr’s business, results of operations, financial condition or prospects.

 

Delays in enactment of new State or federal
regulations could restrict the ability of Ayr to reach strategic growth targets. The growth strategy of Ayr is contingent upon
certain federal and State regulations being enacted to facilitate the legalization of medical and adult-use marijuana. If such
regulations are not enacted, or enacted but subsequently repealed or amended, or enacted with prolonged phase-in periods, the growth
targets of Ayr could be negatively impacted, and thus, the effect on the return of investor capital, could be detrimental.

 

Ayr is unable to predict with certainty
when and how the outcome of these complex regulatory and legislative proceedings will affect its business and growth.

 

Further, there is no guarantee that State
laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities
will not limit the applicability of State laws within their respective jurisdictions, including prohibiting ownership of cannabis
businesses by public companies. If the federal government begins to enforce federal laws relating to cannabis in States where the
sale and use of cannabis is currently legal under State law, or if existing applicable State laws are repealed or curtailed, Ayr’s
business, results of operations, financial condition and prospects would be materially adversely affected. It is also important
to note that local and city ordinances may strictly limit and/or restrict disbursement of marijuana in a manner that will make
it extremely difficult or impossible to transact business in that jurisdiction, which may adversely affect Ayr’s continued
operations. Federal actions against individuals or entities engaged in the cannabis industry or a repeal of applicable marijuana
legislation could adversely affect Ayr and its business, results of operations, financial condition and prospects.

 

Ayr is also aware that multiple States
are considering special taxes or fees on businesses in the cannabis industry. It is a potential yet unknown risk at this time that
other States are in the process of reviewing such additional fees and taxation. Should such special taxes or fees be adopted, this
could have a material adverse effect upon Ayr’s business, results of operations, financial condition or prospects.

 

Overall, the medical and adult-use cannabis
industry is subject to significant regulatory change at both the State and federal level. For instance, in Massachusetts, the State’s
Department of Public Health recently transferred the medical cannabis program, which it has been regulating since 2013, to the
Cannabis Control Commission (the current regulator of the State’s adult-use cannabis program). The inability of Ayr to respond
to the changing regulatory landscape may cause it to not be successful in capturing significant market share and could otherwise
harm its business, results of operations, financial condition or prospects.

 

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The cannabis industry is a new industry
that may not succeed.

 

Should the U.S. federal government change
course and decide to prosecute those dealing in medical or adult-use cannabis under applicable law, there may not be any market
for Ayr’s products and services. It is a new industry subject to extensive regulation, and there can be no assurance that
it will grow, flourish or continue to the extent necessary to permit Ayr to succeed. Ayr is treating the cannabis industry as a
deregulating industry with significant unsatisfied demand for its proposed products and will adjust its future operations, product
mix and market strategy as the industry develops and matures.

 

Ayr’s operations in the U.S.
cannabis market may become the subject of heightened scrutiny.

 

For the reasons set forth above, Ayr’s
existing operations in the U.S., and any future operations or investments, may become the subject of heightened scrutiny by regulators,
stock exchanges and other authorities in Canada and the U.S. As a result, Ayr may be subject to significant direct and indirect
interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition
of certain restrictions on Ayr’s ability to operate or invest in the U.S. or any other jurisdiction, in addition to those
described herein.

 

Given the heightened risk profile associated
with cannabis in the U.S., CDS Clearing and Depository Services Inc. (“CDS”) may implement procedures or protocols
that would prohibit or significantly curtail the ability of CDS to settle trades for cannabis companies that have cannabis businesses
or assets in the U.S. On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian
securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (“TMX MOU”) with
the NEO Exchange, the CSE, the Toronto Stock Exchange, and the TSX Venture Exchange. The TMX MOU outlines the parties’ understanding
of Canada’s regulatory framework applicable to the rules, procedures, and regulatory oversight of the exchanges and CDS as
it relates to issuers with cannabis-related activities in the U.S. The TMX MOU confirms, with respect to the clearing of listed
securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing
of securities of issuers with cannabis-related activities in the U.S. However, there can be no guarantee that this approach to
regulation will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability
of holders of Subordinate Voting Shares to make and settle trades. In particular, Subordinate Voting Shares would become highly
illiquid as until an alternative was implemented, investors would have no ability to effect a trade of Subordinate Voting Shares
through the facilities of a stock exchange.

 

In light of the political and regulatory
uncertainty surrounding the treatment of U.S. cannabis-related activities, including the rescission of the Cole Memorandum discussed
above, on February 8, 2018, the Canadian Securities Administrators revised their previously released Staff Notice – 51-352
Issuers with U.S. Marijuana-Related Activities setting out their disclosure expectations for specific risks facing issuers
with cannabis-related activities in the U.S. The Staff Notice confirms that a disclosure-based approach remains appropriate for
issuers with U.S. cannabis-related activities. The Staff Notice includes additional disclosure expectations that apply to all issuers
with U.S. cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution
of cannabis, as well as issuers that provide goods and services to third parties involved in the U.S. cannabis industry. Ayr views
the Staff Notice favourably, as it provides increased transparency and greater certainty regarding the views of its exchange and
its regulator of existing operations and strategic business plan as well as Ayr’s ability to pursue further investment and
opportunities in Ayr.

 

Government policy changes or public opinion
may also result in a significant influence over the regulation of the cannabis industry in Canada, the U.S. or elsewhere. A negative
shift in the public’s perception of medical and/or adult-use cannabis in the U.S. or any other applicable jurisdiction could
affect future legislation or regulation. Among other things, such a shift could cause State jurisdictions to abandon initiatives
or proposals to legalize medical and/or adult-use cannabis, thereby limiting the number of new State jurisdictions into which Ayr
could expand. Any inability to fully implement Ayr’s expansion strategy may result in a material adverse effect on Ayr’s
business, financial condition, results of operations or prospects.

 

Regulatory scrutiny of Ayr’s
industry may negatively impact its ability to raise additional capital.

 

Ayr’s business activities rely on
newly established and/or developing laws and regulations in the various States in which Ayr operates. These laws and regulations
are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect Ayr’s profitability
or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the FDA, Securities
and Exchange Commission, the U.S. DOJ, the Financial Industry Regulatory Advisory or other federal, State or non-governmental regulatory
authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for
medical and/or adult-use purposes in the U.S. It is impossible to determine the extent of the impact of any new laws, regulations
or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding Ayr’s
industry may adversely affect the business and operations of Ayr, including without limitation, the costs to remain compliant with
applicable laws and the impairment of its ability to raise additional capital, create a public trading market in the U.S. for securities
of Ayr or to find a suitable acquirer, which could reduce, delay or eliminate any return on investment in Ayr.

 

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Ayr’s investments in the U.S.
are subject to applicable anti-money laundering laws and regulations.

 

Because the manufacture, distribution,
and dispensation of cannabis remains illegal under the Substances Act, banks and other financial institutions providing services
to cannabis-related businesses risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957),
the unlicensed money-remitter statute (18 U.S.C. § 1960) and the U.S. Bank Secrecy Act, as amended by Title III of the Uniting
and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT
Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations
thereunder, the Criminal Code (Canada) and other related or similar rules, regulations or guidelines, issued, administered or enforced
by governmental authorities in the United States and Canada. These statutes can impose criminal liability for engaging in certain
financial and monetary transactions with the proceeds of a “specified unlawful activity” such as distributing controlled
substances which are illegal under U.S. federal law, including cannabis, and for failing to identify or report financial transactions
that involve the proceeds of cannabis-related violations of the Substances Act. As a result, a majority of the United States’
banks and financial institutions have refused to open bank accounts for the deposit of funds from businesses involved with the
cannabis industry. Others have agreed to accept deposits from medical cannabis sales, but not recreational cannabis sales. The
inability to open bank accounts with certain institutions could materially and adversely affect the business of Ayr. See “Risk
Factors – Ayr may be subject to restricted access to banking in the United States and Canada”.

 

In February 2014, the U.S. Department of
the Treasury’s Financial Crimes Enforcement Network issued the FinCEN Memorandum providing instructions to banks seeking
to provide services to cannabis-related businesses. The FinCEN Memorandum states that in some circumstances, it is permissible
for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering
laws. It refers to supplementary guidance that Deputy Attorney General Cole issued to federal prosecutors in the 2014 Cole Memorandum
relating to the prosecution of money laundering offenses predicated on cannabis-related violations of the Substances Act. It is
unclear at this time whether the current administration will follow the guidelines of the FinCEN Memorandum.

 

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

 

Any re-classification of cannabis
or changes in U.S. controlled substance laws and regulations may affect Ayr’s business.

 

If cannabis and/or CBD is re-categorized
as a Schedule II or lower controlled substance, the ability to conduct research on the medical benefits of cannabis would most
likely be simpler and more accessible; however, if cannabis is re-categorized as a Schedule II or other controlled substance, the
resulting re-classification would result in the requirement for FDA approval if medical claims are made for Ayr’s products
such as medical cannabis. As a result, the manufacture, importation, exportation, domestic distribution, storage, sale and use
of such products may be subject to a significant degree of regulation by the Drug Enforcement Administration (“DEA”).
In that case, Ayr may be required to be registered (licensed) to perform these activities and have the security, control, recordkeeping,
reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. Obtaining the necessary registrations
may result in delay of the manufacturing or distribution of Ayr’s anticipated products. The DEA conducts periodic inspections
of certain registered establishments that handle controlled substances. Failure to maintain compliance could have a material adverse
effect on Ayr’s business, financial condition and results of operations. The DEA may seek civil penalties, refuse to renew
necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances,
violations could lead to criminal proceedings.

 

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The availability of favourable locations
may be severely restricted.

 

In Massachusetts and other States, the
local municipality has authority to choose where any cannabis establishment will be located. These authorized areas are frequently
removed from other retail operations.

 

Because the cannabis industry remains illegal
under U.S. federal law, the disadvantaged tax status of businesses deriving their income from cannabis, and the reluctance of the
banking industry to support cannabis businesses, it may be difficult for Ayr to locate and obtain the rights to operate at various
preferred locations. Property owners may violate their mortgages by leasing to Ayr, and those property owners that are willing
to allow use of their facilities may require payment of above fair market value rents to reflect the scarcity of such locations
and the risks and costs of providing such facilities.

 

U.S. border officials could deny
entry of non-U.S. citizens into the U.S. to employees of or investors in companies with cannabis operations in the United States
and Canada.

 

Because cannabis remains illegal under
U.S. federal law, those employed at or investing in legal and licensed Canadian cannabis companies could face detention, denial
of entry or lifetime bans from the U.S. for their business associations with U.S. cannabis businesses. Entry happens at the sole
discretion of CBP officers on duty, and these officers have wide latitude to ask questions to determine the admissibility of a
non-U.S. citizen or foreign national. The government of Canada has started warning travelers on its website that previous use of
cannabis, or any substance prohibited by U.S. federal laws, could mean denial of entry to the U.S. Business or financial involvement
in the legal cannabis industry in Canada or in the United States could also be reason enough for U.S. border guards to deny entry.
On September 21, 2018, CBP released a statement outlining its current position with respect to enforcement of the laws of the United
States. It stated that Canada’s legalization of cannabis will not change CBP enforcement of United States laws regarding
controlled substances and because cannabis continues to be a controlled substance under United States law, working in or facilitating
the proliferation of the legal marijuana industry in U.S. States where it is deemed legal or Canada may affect admissibility to
the U.S. As a result, CBP has affirmed that, employees, directors, officers, managers and investors of companies involved in business
activities related to cannabis in the U.S. or Canada (such as Ayr), who are not U.S. citizens face the risk of being barred from
entry into the United States for life. On October 9, 2018, CBP released an additional statement regarding the admissibility of
Canadian citizens working in the legal cannabis industry. CBP stated that a Canadian citizen working in or facilitating the proliferation
of the legal cannabis industry in Canada coming into the U.S. for reasons unrelated to the cannabis industry will generally be
admissible to the U.S.; however, if such person is found to be coming into the U.S. for reasons related to the cannabis industry,
such person may be deemed inadmissible.

 

Business Structure Risks

 

Ayr’s dual-class structure
will have the effect of concentrating voting control and the ability to influence corporate matters with the Founders.

 

The Multiple Voting Shares have 25 votes
per share, whereas the Subordinate Voting Shares have one vote per share. As of June 30, 2020, Mercer holds 3,677,626 Multiple
Voting Shares and approximately 18.79% of the voting power of the outstanding voting shares of Ayr (including the Multiple Voting
Shares and Subordinate Voting Shares, and assuming the outstanding Warrants are not determined to be “out of the money”
by the Corporation’s board of directors) and would therefore have significant influence over the management and affairs of
Ayr and over all matters requiring shareholder approval, including the election of directors and significant corporate transactions.
In addition, because of the 25-to-1 voting ratio between the Multiple Voting Shares and Subordinate Voting Shares, the holders
of Multiple Voting Shares will control a majority of the combined voting power of Ayr’s voting shares even though the Multiple
Voting Shares will represent a substantially reduced percentage of the total outstanding shares of Ayr. The concentrated voting
control of the holders of Multiple Voting Shares will limit the ability of the holders of Subordinate Voting Shares to influence
corporate matters for the foreseeable future, including the election of directors as well as with respect to Ayr’s decisions
to amend its share capital, create and issue additional classes of shares, make significant acquisitions, sell significant assets
or parts of its business, merge with other companies and/or undertake other significant transactions. As a result, holders of Multiple
Voting Shares will have the ability to influence or control many matters affecting Ayr and actions may be taken that the holders
of Subordinate Voting Shares may not view as beneficial. The market price of the Subordinate Voting Shares could be adversely affected
due to the significant influence and voting power of the holders of Multiple Voting Shares. Additionally, the significant voting
interest of the holders of Multiple Voting Shares could discourage transactions involving a change of control, including transactions
in which an investor, as a holder of the Subordinate Voting Shares, might otherwise receive a premium for the Subordinate Voting
Shares over the then-current market price, or discourage competing proposals if a going private transaction is proposed by one
or more holders of Multiple Voting Shares.

 

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At the holder’s option, the Multiple
Voting Shares will be convertible, on a one-for-one basis, into Subordinate Voting Shares. In addition, the Multiple Voting Shares
will be automatically converted, without further act or formality, into Subordinate Voting Shares 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.

 

General Regulatory and Legal Risks

 

Ayr may be subject to the risk of
civil asset forfeiture.

 

Because the cannabis industry remains illegal
under U.S. federal law, any property owned by participants in the cannabis industry which are either used in the course of conducting
such business, or are the proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset
forfeiture. Even if the owner of the property were never charged with a crime, the property in question could still be seized and
subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.

 

Ayr may lack access to U.S. bankruptcy
protections.

 

Because the use of cannabis is illegal
under U.S. federal law, many courts have denied cannabis businesses bankruptcy protections, thus making it very difficult for lenders
to recoup their investments in the cannabis industry in the event of a bankruptcy. If Ayr was to experience a bankruptcy, there
is no guarantee that U.S. federal bankruptcy protections would be available to Ayr’s U.S. operations, which could have a
material adverse effect on Ayr.

 

Ayr may be subject to the risk of
an inability to enforce its contracts.

 

It is a fundamental principle of law that
a contract will not be enforced if it involves a violation of law or public policy. Because cannabis remains illegal at a federal
level, judges in multiple States have on a number of occasions refused to enforce contracts for the repayment of money when the
loan was used in connection with activities that violate federal law, even if there is no violation of State law. There remains
doubt and uncertainty that Ayr will be able to legally enforce contracts it enters into if necessary. Ayr cannot be assured that
it will have a remedy for breach of contract, which would have a material adverse effect on Ayr.

 

Ayr may be subject to the risk of
changes in Canadian laws or regulations, or a failure to comply with any such laws and regulations.

 

Ayr is subject to laws and regulations
enacted by the federal and provincial governments of Canada. In particular, Ayr will be required to comply with certain Canadian
securities law, income tax law and the CSE and other legal and regulatory requirements. Compliance with, and monitoring of, applicable
laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application
also may change from time to time and those changes could have a material adverse effect on Ayr’s business, investments and
results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could
result in a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

Ayr is subject to general regulatory
and licensing risks.

 

The Corporation is 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 Ayr’s business objectives is contingent, in part, upon compliance with applicable regulatory requirements
and obtaining all requisite regulatory approvals. Changes to such laws, regulations and guidelines due to matters beyond the control
of Ayr may result in a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

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Certain of the Corporation’s businesses
may be required to obtain or renew further government permits and licenses for its current and contemplated operations. Obtaining,
amending or renewing the necessary governmental permits and licenses can be a time-consuming process potentially involving numerous
regulatory agencies, public hearings and costly undertakings on the Corporation’s part. The duration and success of the Corporation’s
efforts to obtain, amend and renew permits and licenses are contingent upon many variables not within its control, including the
interpretation of applicable requirements implemented by the relevant permitting or licensing authority. The Corporation may not
be able to obtain, amend or renew permits or licenses that are necessary to its operations or to achieve the growth of its business.
Any unexpected delays or costs associated with the permitting and licensing process could impede the ongoing or proposed operations
of the Corporation. To the extent necessary, permits or licenses are not obtained, amended or renewed, or are subsequently suspended
or revoked, the Corporation may be curtailed or prohibited from proceeding with ongoing operations or planned development and commercialization
activities. Such curtailment or prohibition may result in a material adverse effect on Ayr’s business, financial condition,
results of operations or prospects.

 

Several of the licenses held by the Corporation
are subject to renewal on an annual or periodic basis; however, they are generally renewed, as a matter of course, if the license
holder continues to operate in compliance with applicable legislation and regulations and without any material change to its operations.
For example, Massachusetts’ medical and adult-use cannabis programs each require annual renewal of registrations. These renewals
are contingent upon the registration holder’s past and continued ability to meet the statutory and regulatory requirements
of the given program. Compliance personnel of each of the Corporation’s businesses check renewal dates for licenses to seek
to ensure that licenses are renewed as and when required. Ayr has implemented an additional centralized review of such renewal
process.

 

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

 

Ayr may become involved in a number of
government or agency proceedings, investigations and audits. The outcome of any regulatory or agency proceedings, investigations,
audits, and other contingencies could harm Ayr’s reputation, require Ayr to take, or refrain from taking, actions that could
harm its operations or require Ayr to pay substantial amounts of money, harming its financial condition. There can be no assurance
that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial costs or
a diversion of management’s attention and resources or have a material adverse impact on Ayr’s business, financial
condition, results of operations or prospects.

 

Nevada Regulatory Regime and Transfer
and Grant of Licenses.

 

The business and activities of Ayr are
heavily regulated in Nevada. Ayr’s operations are subject to various laws, regulations and guidelines by governmental authorities,
relating to the manufacture, marketing, management, transportation, storage, sale, pricing and disposal of medical marijuana and
cannabis oil, and also including laws and regulations relating to health and safety, insurance coverage, the conduct of operations
and the protection of the environment. Laws and regulations, applied generally, grant the Nevada Cannabis Compliance Board (as
successor regulatory agency to the Nevada Taxation Department over the Nevada cannabis industry) and self-regulatory bodies broad
administrative discretion over the activities of Ayr in Nevada, including the power to limit or restrict business activities as
well as impose additional disclosure requirements on Ayr’s products and services. Achievement of Ayr’s business objectives
is contingent, in part, upon compliance with regulatory requirements enacted by the Nevada Cannabis Compliance Board and other
governmental authorities and obtaining all regulatory approvals from the Nevada Cannabis Compliance Board and other governmental
authorities, where necessary, for the sale of its cannabis products. Similarly, Ayr cannot predict the time required to secure
all appropriate regulatory approvals for its licenses, including the transfer of licenses and/or the grant of new licenses in Nevada,
or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failure
to obtain regulatory approvals or licenses, including the transfer of licenses and/or the grant of new licenses in Nevada, would
significantly delay the development of markets and products and could have a material adverse effect on the business, results of
operations and financial condition of Ayr.

 

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Ayr will incur ongoing costs and obligations
related to regulatory compliance and obtaining new licenses. Failure to comply with regulations may lead to possible sanctions
including the revocation or imposition of additional conditions on licenses to operate Ayr’s business, the suspension or
expulsion from the Nevada cannabis market or of its key personnel, and the imposition of fines and censures. In addition, changes
in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to Ayr’s
operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the
business, results of operations and financial condition of Ayr.

 

Limitations on ownership of licenses.

 

In certain States, the cannabis laws and
regulations limit not only the number of cannabis licenses issued, but also the number of cannabis licenses that one person may
own. For example, in Massachusetts, no person may have an ownership interest, or control over, more than three medical licenses
or three adult-use licenses in any category – for example, cultivation, product manufacturing, transport or retail. Ayr believes
that, where such restrictions apply, it may still capture significant share of revenue in the market through the provision of management
or support services and similar arrangements with other operators. Nevertheless, such limitations on the acquisition of ownership
of additional licenses within certain States may limit Ayr’s ability to grow organically or to increase its market share
in such States.

 

Regulatory action and approvals from
the Food and Drug Administration.

 

The Corporation’s cannabis-based
products are supplied to patients diagnosed with certain medical conditions. However, the Corporation’s cannabis-based products
are not approved by the FDA as “drugs” or for the diagnosis, cure, mitigation, treatment, or prevention of any disease.
Accordingly, the FDA may regard any promotion of the cannabis-based products as the promotion of an unapproved drug in violation
of the Food, Drug and Cosmetic Act (“FDCA”).

 

In recent years, the FDA has issued letters
to a number of companies selling products that contain CBD oil derived from hemp warning them that the marketing of their products
violates the FDCA. FDA enforcement action against the Corporation could result in a number of negative consequences, including
fines, disgorgement of profits, recalls or seizures of products, or a partial or total suspension of the Corporation’s production
or distribution of its products. Any such event could have a material adverse effect on Ayr’s business, prospects, financial
condition, and operating results.

 

Risks related to acquisitions.

 

Material acquisitions, dispositions and
other strategic transactions involve a number of risks, including: (i) potential disruption of the Corporation’s ongoing
business; (ii) distraction of management; (iii) the Corporation may become more financially leveraged; (iv) the anticipated benefits
and cost savings of those transactions may not be realized fully or at all or may take longer to realize than expected; (v) increasing
the scope and complexity of the Corporation’s operations; and (vi) loss or reduction of control over certain of the Corporation’s
assets. Additionally, Ayr may issue additional Subordinate Voting Shares in connection with such transactions, which would dilute
an Ayr shareholder’s holdings in Ayr or indirect holdings in Ayr.

 

The Corporation could incur additional
transaction and integration related costs or other factors such as the failure to realize all of the benefits from the acquisition
of businesses or strategic assets. All of these factors could cause dilution to the Corporation’s earnings per share or decrease
or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of the Corporation’s
securities.

 

The Corporation may not be able to successfully
integrate and combine the operations, personnel and technology infrastructure of any such acquired company with its existing operations.
If integration is not managed successfully by the Corporation’s management, the Corporation may experience interruptions
in its business activities, deterioration in its employee and customer relationships, increased costs of integration and harm to
its reputation, all of which could have a material adverse effect on the Corporation’s business, financial condition and
results of operations. The Corporation may experience difficulties in combining corporate cultures, maintaining employee morale
and retaining key employees. The integration of any such acquired companies may also impose substantial demands on management.
There is no assurance that these acquisitions will be successfully integrated in a timely manner.

 

Such transactions could involve other risks,
including the assumption of unidentified or unknown liabilities, disputes or contingencies, for which the Corporation, as a successor
owner, may be responsible, and/or changes in the industry, location, or regulatory or political environment in which these investments
are located, that the Corporation’s due diligence review may not adequately uncover and that may arise after entering into
such transactions. Although the Corporation has and expects to continue to realize strategic, operational and financial benefits
as a result of the Corporation’s mergers and acquisitions, the Corporation cannot predict whether and to what extent such
benefits will be achieved.

 

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Furthermore, any future merger or acquisition
may result in diversion of management’s attention from other business concerns, and such transactions may be dilutive to
the Corporation’s financial results and/or result in impairment charges and write-offs.

 

The presence of one or more material liabilities
of an acquired company that are unknown to Ayr at the time of acquisition could have a material adverse effect on the business,
results of operations, prospects and financial condition of Ayr. A strategic transaction may result in a significant change in
the nature of Ayr’s business, operations and strategy. In addition, Ayr may encounter unforeseen obstacles or costs in implementing
a strategic transaction or integrating any acquired business into Ayr’s operations.

 

Risks related to expansion strategy.

 

There is no guarantee that the Corporation’s
expansion strategy will be completed, nor is there any guarantee that the Corporation will be able to expand into additional jurisdictions.
There is also no guarantee that the Corporation’s intentions to acquire and/or construct additional cannabis production,
manufacturing, distribution or sales facilities, and to expand the Corporation’s marketing and sales initiatives will be
successful. Any such activities will require, among other things, various regulatory approvals, licences and permits and there
is no guarantee that all required approvals, licences and permits will be obtained in a timely fashion or at all. There is also
no guarantee that the Corporation will be able to complete any of the foregoing activities as anticipated or at all.

 

The Corporation’s failure to successfully
execute its expansion strategy (including receiving required regulatory approvals, licences and permits) could adversely affect
the Corporation’s business, financial condition and results of operations and may result in the Corporation failing to meet
anticipated or future demand for its cannabis products, when and if it arises.

 

Risks related to evaluating prospective
target businesses.

 

Although the Corporation has identified
specific criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which
the Corporation enters into a transaction will not have all of these positive attributes. If the Corporation consummates a transaction
with a target that does not meet some or all of these guidelines, such transaction may not prove to be successful. In addition,
there is no guarantee that an investment that meets the criteria and guidelines established by the Corporation will prove to be
successful.

 

Risks related to transactions that
are not consummated.

 

The Corporation anticipates that the investigation
of each specific target business and the negotiation, drafting, and execution of relevant agreements, disclosure documents, and
other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and other
experts. If the Corporation decides not to complete a specific transaction, the costs incurred up to that point for the proposed
transaction likely would not be recoverable. Furthermore, if the Corporation reaches an agreement relating to a specific target
business, the Corporation may fail to consummate the transaction for any number of reasons, including those beyond its control.
Any such event will result in losses to the Corporation of the related costs incurred which could materially adversely affect subsequent
attempts to locate and acquire or merge with another business.

 

Risks related to loss of officers
and directors.

 

The Corporation’s operations are
dependent upon a relatively small group of individuals and, in particular, its officers and directors. The Corporation believes
that its success will depend on the continued service of its officers and directors. In addition, the Corporation’s officers
and directors are not required to commit any specified amount of time to the Corporation’s affairs and, accordingly, may
have conflicts of interest in allocating management time among various business activities, including identifying potential acquisitions
and monitoring the related due diligence. The Corporation does not have key-man insurance on the life of any of its directors or
officers. The unexpected loss of the services of one or more of its directors or officers could have a detrimental effect on the
Corporation, its operations and its ability to make acquisitions.

 

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Risks related to conflicts of interest.

 

The Corporation engages in the business
of identifying and combining with one or more businesses. The Corporation’s officers and directors may now be, or may in
the future become, affiliated with entities that are engaged in a similar business.

 

The Corporation’s officers and directors
also may become aware of business opportunities which may be appropriate for presentation to the Corporation and the other entities
to which it owes duties. In the course of its other business activities, the Corporation’s officers and directors may owe
similar or other duties, and may have obligations, to other entities or pursuant to other outside business arrangements, including
seeking and presenting investment and business opportunities. Accordingly, they may have conflicts of interest in determining to
which entity a particular business opportunity should be presented. These conflicts may not be resolved in the Corporation’s
favour, as the Corporation’s officers and directors are not required to present investment and business opportunities to
the Corporation in priority to other entities with which they are affiliated or to which they owe duties.

 

The Corporation has not adopted a policy
that expressly prohibits its directors, officers, security holders, affiliates or associates from having a direct or indirect financial
interest in any investment to be acquired or disposed of by the Corporation or in any transaction to which it is a party or has
an interest. In fact, even though it is not the Corporation’s current intentions to do so, they may enter into a transaction
with a target business that is affiliated with the Corporation’s directors or officers.

 

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 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. See “Conflicts of Interest and Interests of Management and Others
in Material Transactions”.

 

Business Risks Related to the Cannabis
Industry

 

Scientific research related to the
benefits of marijuana remains in early stages, is subject to a number of important assumptions and may prove to be inaccurate.

 

Research in Canada, the U.S. and internationally
regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids remains in early stages.
To Ayr’s knowledge, there have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids.
Any statements made in this AIF concerning the potential medical benefits of cannabinoids are based on published articles and reports.
As a result, any statements made in this AIF are subject to the experimental parameters, qualifications, assumptions and limitations
in the studies that have been completed.

 

Although Ayr believes that the articles
and reports, and details of research studies and clinical trials that are publicly available reasonably support its beliefs regarding
the medical benefits, viability, safety, efficacy and dosing of cannabis, future research and clinical trials may prove such statements
to be incorrect, or could raise concerns regarding and perceptions relating to cannabis. Given these risks, uncertainties and assumptions,
prospective and current Ayr shareholders should not place undue reliance on such articles and reports. Future research studies
and clinical trials may draw opposing conclusions to those stated in this AIF or reach negative conclusions regarding the viability,
safety, efficacy, dosing, social acceptance or other facts and perceptions related to medical cannabis, which may result in a material
adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

Competition in the cannabis industry
is intense and increased competition by larger and better-financed competitors could materially and adversely affect the business,
financial condition and results of operations of Ayr.

 

Ayr expects to face intense competition
in the cannabis industry, some of which can be expected to come from companies with longer operating histories and more financial
resources, manufacturing and marketing experience than Ayr. In addition, there is potential that the cannabis industry will undergo
consolidation, creating larger companies with financial resources, manufacturing and marketing capabilities, and products that
will be greater than those of Ayr. As a result of this competition, Ayr may be unable to maintain its operations or develop them
as currently proposed on terms it considers to be acceptable or at all. Increased competition by larger, better-financed competitors
with geographic advantages may result in a material adverse effect on Ayr’s business, financial condition, results of operations
or prospects.

 

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Negative publicity or consumer perception
may affect the success of Ayr’s business. 

 

The success of the cannabis industry may
be significantly influenced by the public’s perception of marijuana. Both the medical and adult-use of marijuana are controversial
topics, and there is no guarantee that future scientific research, publicity, regulations, medical opinion and public opinion relating
to marijuana will be favourable. The cannabis industry is an early-stage business that is constantly evolving with no guarantee
of viability. The market for medical and adult-use marijuana is uncertain, and any adverse or negative publicity, scientific research,
limiting regulations, medical opinion and public opinion (whether or not accurate or with merit) relating to the consumption of
marijuana, whether in Canada, the U.S. or elsewhere, may have a material adverse effect on Ayr’s operational results, consumer
base and financial results.

 

Public perception can be significantly
influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding
the consumption of marijuana products. There can be no assurance that future scientific research or findings, regulatory investigations,
litigation, media attention or other publicity will be favorable to the marijuana market or any particular product, or consistent
with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity
that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a
material adverse effect on the demand for adult-use or medical marijuana and on the business, results of operations, financial
condition, cash flows or prospects of Ayr.

 

Further, adverse publicity reports or other
media attention regarding the safety, efficacy and quality of marijuana in general, or associating the consumption of adult-use
and medical marijuana with illness or other negative effects or events, could have such a material adverse effect. There is no
assurance that such adverse publicity reports or other media attention will not arise. Among other things, a negative shift in
the public’s perception of cannabis in the United States or any other applicable jurisdiction could cause State jurisdictions
to abandon initiatives or proposals to legalize medical and/or adult-use cannabis, thereby limiting the number of new State jurisdictions
into which Ayr could expand. Any inability to fully implement Ayr’s expansion strategy may have a material adverse effect
on Ayr’s business, results of operations or prospects.

 

Results of future clinical research
may negatively impact the cannabis industry. 

 

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

 

The cannabis industry is difficult
to forecast.

 

Ayr must rely largely on its own market
research to forecast sales as detailed forecasts are not generally obtainable from other sources at this early stage of the cannabis
industry. A failure in the demand for its products to materialize as a result of competition, technological change or other factors
could have a material adverse effect on the business, results of operations, financial condition or prospects of Ayr.

 

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Reliable data on the medical and
adult-use cannabis industry is not available.

 

As a result of recent and ongoing regulatory
and policy changes in the medical and adult-use cannabis industry, the market data available is limited and unreliable. Federal
and State laws prevent widespread participation and hinder market research. Therefore, market research and projections by Ayr of
estimated total retail sales, demographics, demand, and similar consumer research, are based on assumptions from limited and unreliable
market data, and generally represent the personal opinions of Ayr’s management team as of the date of this AIF.

 

Ayr may be subject to the risk of
constraints on marketing products.

 

The development of Ayr’s business
and operating results may be hindered by applicable restrictions on sales and marketing activities imposed by government regulatory
bodies. The regulatory environment in the U.S. limits companies’ abilities to compete for market share in a manner similar
to other industries. If Ayr is unable to effectively market its products and compete for market share, or if the costs of compliance
with government legislation and regulation cannot be absorbed through increased selling prices for its products, Ayr’s sales
and results of operations or prospects could be adversely affected.

 

Risks Related to Ayr’s Business

 

COVID-19 pandemic. 

 

COVID-19 was declared a pandemic by the
World Health Organization on March 11, 2020. The outbreak has caused companies and various international jurisdictions to impose
restrictions such as quarantines, business closures and travel restrictions. While the impact of these restrictions cannot be reasonably
estimated at this time, the Corporation has sought to assess the potential impact of the pandemic on its operating results. The
Corporation has attempted to assess the impact of the pandemic by identifying risks in the following principle areas:

 

Mandatory Closure. In response to
the pandemic, most States and localities have deemed cannabis sales to be “essential business” and made only limited
changes (if any) to normal business practices to prevent the spread of COVID-19. While the Corporation has and continues to work
closely with State and local regulators to remain in compliance with COVID-19 guidelines, there is no guarantee further measures
may nevertheless require Ayr to shut operations in some or all States. The Corporation’s ability to generate revenue would
be materially impacted by any shut down of its operations.

 

Customer Impact. The Corporation
has implemented several initiatives prioritizing its medical patients and customers most susceptible to COVID-19 during the pendency
of the COVID-19 outbreak. While the Corporation is seeking to implement measures, where permitted, such as “curbside”
sales and delivery, to reduce infection risk to our customers, regulators may not permit such measures, or such measures may not
prevent a reduction in demand.

 

Health and Safety of Patients, Customers,
and Employees. In accordance with the guidance of the Centers of Disease Control and Prevention (“CDC”),
the Corporation made essential changes to promote a healthy and safe operating environment for all of its patients, customers and
employees, including:

 

		•	frequently sanitizing high-touch surfaces;

 

		•	deep cleaning and sanitizing workstations;

 

		•	sanitizing or washing hands after each transaction;

 

		•	ensuring hand sanitizer is easily accessible;

 

		•	suspending all use of paper menus, demo products, and demo samples;

 

		•	positioning staff at every other register when possible;

 

		•	taking the temperature of store employees before they begin their shift;

 

		•	requiring all dispensary staff to wear face masks;

 

		•	installed plexi-shields in areas where patients/customers come face to face with staff (check-in
and at registers where glass doesn’t already exist); and

 

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		•	placed markers on the floor to dictate 6 feet + of space between patients/customers.

 

Supply Chain Disruption. The Corporation
relies on third party suppliers for equipment and services to produce its products and keep its operations going. If its suppliers
are unable to continue operating due to mandatory closures or other effects of the pandemic, it may negatively impact its own ability
to continue operating. At this time, the Corporation has not experienced any failure to secure critical supplies or services. However,
disruptions in our supply chain may affect our ability to continue certain aspects of the Corporation’s operations or may
significantly increase the cost of operating its business and significantly reduce its margins.

 

Staffing Disruption. The Corporation
is, for the time being, implementing among its staff where feasible “social distancing” measures recommended by such
bodies as the CDC, the Presidential Administration, as well as state and local governments. The Corporation has cancelled nonessential
travel by employees, implemented remote meetings where possible, and permitted all staff who can work remotely to do so. For those
whose duties require them to work on-site, measures have been implemented to reduce infection risk, such as reducing contact with
customers, mandating additional cleaning of workspaces and hand disinfection, providing masks and taking the temperature of employees
before they begin their shift. Nevertheless, despite such measures, the Corporation may find it difficult to ensure that its operations
remain staffed due to employees falling ill with COVID-19, becoming subject to quarantine, or deciding not to come to come to work
on their own volition to avoid infection.

 

The Corporation is actively addressing
the risk to business continuity represented by each of the above factors through the implementation of a broad range of measures
throughout its structure and is re-assessing its response to the COVID-19 pandemic on an ongoing basis. The above risks individually
or collectively may have a material impact on the Corporation’s ability to generate revenue. Implementing measures to remediate
the risks identified above may materially increase our costs of doing business, reduce our margins and potentially result in losses.
While the Corporation is not currently in financial distress, if the Corporation’s financial situation materially deteriorates
as a result of the impact of the pandemic, the Corporation could eventually be unable to meet its obligations to third parties,
including observing financial covenants under the Corporation’s senior notes payable or other debt, which in turn could lead
to insolvency and bankruptcy of the Corporation.

 

Ayr has a limited operating history.

 

As a high-growth enterprise, Ayr does not
have a history of profitability. As such, Ayr has no immediate prospect of generating profit from its intended operations. Ayr
is therefore subject to many of the risks common to early-stage enterprises, including under-capitalization, cash shortages, limitations
with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that Ayr will be successful
in achieving a return on its shareholders’ investment and the likelihood of success must be considered in light of the early
stage of operations.

 

Ayr will be reliant on its management
team.

 

The success of Ayr is dependent upon the
ability, expertise, judgment, discretion and good faith of its senior management. While employment agreements or management agreements
are customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued
services of such employees. Any loss of the services of such individuals could have a material adverse effect on Ayr’s business,
operating results, financial condition or prospects.

 

News media have reported that U.S. immigration
authorities have increased scrutiny of Canadian citizens who are crossing the U.S.-Canada border with respect to persons involved
in cannabis businesses in the U.S. There have been a number of Canadians barred from entering the U.S. as a result of an investment
in or act related to U.S. cannabis businesses. In some cases, entry has been barred for extended periods of time. Ayr employees
traveling from Canada to the U.S. for the benefit of Ayr may encounter enhanced scrutiny by U.S. immigration authorities that may
result in the employee not being permitted to enter the U.S. for a specified period of time. If this happens to Ayr employees,
then this may reduce our ability to manage effectively our business in the U.S.

 

Certain of Ayr’s officers and directors
may now be, and all of them may in the future become, affiliated with entities engaged in business activities similar to those
intended to be conducted by Ayr and, accordingly, may have conflicts of interest in allocating their time and determining to which
entity a particular business opportunity should be presented.

 

    	Ayr Strategies Inc.	48	Annual Information Form

     

    

 

Ayr’s officers and directors also
may become aware of business opportunities which may be appropriate for presentation to Ayr and the other entities to which they
owe duties. In the course of their other business activities, Ayr’s officers and directors may owe similar or other duties,
and may have obligations, to other entities or pursuant to other outside business arrangements, including seeking and presenting
investment and business opportunities. Accordingly, they may have conflicts of interest in determining to which entity a particular
business opportunity should be presented. These conflicts may not be resolved in our favour, as Ayr’s officers and directors
are not required to present investment and business opportunities to Ayr in priority to other entities with which they are affiliated
or to which they owe duties, and such conflicts may result in a material adverse effect on Ayr’s business, financial condition,
results of operations or prospects.

 

Ayr may be subject to the risk of
competition from synthetic production and technological advances.

 

The pharmaceutical industry may attempt
to dominate the cannabis industry, and in particular, legal marijuana, through the development and distribution of synthetic products
which emulate the effects and treatment of organic marijuana. If they are successful, the widespread popularity of such synthetic
products could change the demand, volume and profitability of the cannabis industry. This could adversely affect the ability of
Ayr to secure long-term profitability and success through the sustainable and profitable operation of its business. There may be
unknown additional regulatory fees and taxes that may be assessed in the future that may result in a material adverse effect on
Ayr’s business, financial condition, results of operations or prospects

 

Ayr may be subject to the risks associated
with fraudulent or illegal activity by its employees, contractors and consultants.

 

Ayr is exposed to the risk that its employees,
independent contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include
intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to Ayr that violates: (i) government regulations;
(ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse laws and regulations; or (iv) laws that require
the true, complete and accurate reporting of financial information or data. It may not always be possible for Ayr to identify and
deter misconduct by its employees and other third parties, and the precautions taken by Ayr to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting Ayr from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are
instituted against Ayr, and it is not successful in defending itself or asserting its rights, those actions could have a significant
impact on Ayr’s business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines,
contractual damages, reputational harm, diminished profits and future earnings, and curtailment of Ayr’s operations, any
of which could have a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

Certain events or developments in
the cannabis industry more generally may impact Ayr’s reputation.

 

Damage to Ayr’s reputation can be
the result of the actual or perceived occurrence of any number of events, and could include any negative publicity, whether true
or not. Cannabis has often been associated with various other narcotics, violence and criminal activities, the risk of which is
that our business might attract negative publicity. There is also risk that the action(s) of other participants, companies and
service providers in the cannabis industry may negatively affect the reputation of the industry as a whole and thereby negatively
impact the reputation of Ayr. The increased usage of social media and other web-based tools used to generate, publish and discuss
user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate
and share opinions and views in regards to Ayr and its activities, whether true or not, and the cannabis industry in general, whether
true or not. Ayr does not ultimately have direct control over how it or the cannabis industry is perceived by others. Reputation
loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an
impediment to Ayr’s overall ability to advance its business strategy and realize on its growth prospects, thereby having
a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

Third parties with whom Ayr may do
business may perceive themselves as being exposed to reputational risk as a result of their relationship with Ayr.

 

The parties with which Ayr may do business
may perceive that they are exposed to reputational risk as a result of Ayr’s cannabis-related business activities. Failure
to establish or maintain business relationships due to reputational risk arising in connection with the nature of Ayr’s business
may result in a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

    	Ayr Strategies Inc.	49	Annual Information Form

     

    

 

Ayr may be subject to advertising
and promotional risk in the event it cannot effectively implement a successful branding strategy. 

 

Ayr’s future growth and profitability
may depend on the effectiveness and efficiency of advertising and promotional costs, including its ability to (i) create brand
recognition for any products we may develop or sell; (ii) determine appropriate advertising strategies, messages and media; and
(iii) maintain acceptable operating margins on such costs. There can be no assurance that advertising and promotional costs will
result in revenues for Ayr’s business in the future or will generate awareness for any of Ayr’s products. In addition,
no assurance can be given that Ayr will be able to manage our advertising and promotional costs on a cost-effective basis.

 

The cannabis industry in Canada, including
both the medical and adult-use cannabis markets, is in its early development stage and restrictions on advertising, marketing and
branding of cannabis companies and products by Health Canada, various medical associations, other governmental or quasi-governmental
bodies or voluntary industry associations may adversely affect Ayr’s ability to conduct sales and marketing activities and
to create brand recognition, and could potentially result in a material adverse effect on Ayr’s business, financial condition,
results of operations or prospects.

 

Certain of the Corporation’s
businesses are subject to product liability regimes and strict product recall requirements. 

 

Certain of the Corporation’s businesses
are distributors of products designed to be ingested by humans. Accordingly, Ayr faces the risk of exposure to product liability
claims, regulatory action and litigation if any of its businesses’ products are alleged to have caused significant loss or
injury. In addition, the sale of cannabis products involves the risk of injury to consumers due to tampering by unauthorized third
parties or product contamination. Previously unknown adverse reactions resulting from human consumption of cannabis products alone
or in combination with other medications or substances could occur. Ayr may be subject to various product liability claims, including,
among others, that specific cannabis products caused injury or illness, or include inadequate warnings concerning possible side
effects or interactions with other substances. A product liability claim or regulatory action against Ayr could result in increased
costs, could adversely affect our reputation with Ayr’s clients and consumers generally, and may result in a material adverse
effect on Ayr’s business, financial condition, results of operations or prospects.

 

In addition, manufacturers and distributors
of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects,
such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or
inaccurate labelling disclosure. To the extent any products are recalled due to an alleged product defect or for any other reason,
Ayr could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with
the recall. Ayr may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at
all. In addition, a product recall may require significant management attention. Moreover, a recall for any of the foregoing reasons
could lead to decreased demand and could have a material adverse effect on Ayr. Product recalls may lead to increased scrutiny
of operations by applicable regulatory agencies, requiring further management attention and potential legal fees and other expenses.

 

Ayr may not be able to successfully
develop new products or find a market for their sale. 

 

The cannabis industry is in its early stages
of development and Ayr, and its competitors, may seek to introduce new products in the future. In attempting to keep pace with
any new market developments, Ayr may need to expend significant amounts of capital in order to successfully develop and generate
revenues from new products introduced by Ayr. Ayr may also be required to obtain additional regulatory approvals from Health Canada
and any other applicable regulatory authorities, which may take significant amounts of time. Ayr may not be successful in developing
effective and safe new products, bringing such products to market in time to be effectively commercialized, or obtaining any required
regulatory approvals, which, together with any capital expenditures made in the course of such product development and regulatory
approval processes, may result in a material adverse effect on Ayr’s business, financial condition, results of operations
or prospects.

 

Ayr will be reliant on third-party
suppliers, manufacturers and contractors.

 

Ayr intends to maintain a full supply chain
for the provision of products and services to the regulated cannabis industry. Due to the uncertain regulatory landscape for regulating
cannabis in Canada and the U.S., Ayr’s third-party suppliers, manufacturers and contractors may elect, at any time, to decline
or withdraw services necessary for Ayr’s operations. Loss of these suppliers, manufacturers and contractors may result in
a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

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Ayr will be reliant on key inputs.

 

The marijuana business is dependent on
a number of key inputs and their related costs including raw materials and supplies related to growing operations, as well as electricity,
water and other local utilities. Any significant interruption or negative change in the availability or economics of the supply
chain for key inputs could materially impact the business, financial condition, results of operations or prospects of Ayr. Some
of these inputs may only be available from a single supplier or a limited group of suppliers. If a sole source supplier was to
go out of business, Ayr might be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier
were to be acquired by a competitor, that competitor may elect not to sell to Ayr in the future. Any inability to secure required
supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition,
results of operations or prospects of Ayr.

 

Ayr will be reliant on equipment
and skilled labour.

 

The ability of Ayr to compete and grow
will be dependent on it having access, at a reasonable cost and in a timely manner, to skilled labour, equipment, parts and components.
No assurances can be given that Ayr will be successful in maintaining its required supply of skilled labour, equipment, parts and
components. It is also possible that the final costs of the major equipment contemplated by Ayr’s capital expenditure plans
may be significantly greater than anticipated by Ayr’s management, and may be greater than funds available to Ayr, in which
circumstance Ayr may curtail, or extend the timeframes for completing, its capital expenditure plans. This may result in a material
adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

Service providers could suspend or
withdraw service.

 

As a result of any adverse change to the
approach in enforcement of United States cannabis laws, adverse regulatory or political change, additional scrutiny by regulatory
authorities, adverse change in public perception in respect of the consumption of marijuana or otherwise, third-party service providers
to Ayr could suspend or withdraw their services, which may have a material adverse effect on Ayr’s business, revenues, operating
results, financial condition or prospects.

 

Ayr may be subject to the risk of
litigation.

 

Ayr may become party to litigation from
time to time in the ordinary course of business which could adversely affect its business. Should any litigation in which Ayr becomes
involved be determined against Ayr, such a decision could adversely affect Ayr’s ability to continue operating and the market
price for the Subordinate Voting Shares. Even if Ayr is involved in litigation and wins, litigation can redirect significant company
resources.

 

Ayr may be subject to risks related
to the protection and enforcement of intellectual property rights, and may become subject to allegations that Ayr is in violation
of intellectual property rights of third parties.

 

The ownership and protection of intellectual
property rights may be a significant aspect of Ayr’s future success. Ayr may rely on trade secrets, technical know-how and
proprietary information that are not protected by patents to maintain its competitive position. Ayr will try to protect such intellectual
property by entering into confidentiality agreements with parties that have access to it, such as Ayr’s partners, collaborators,
employees and consultants. Any of these parties may breach these agreements and we may not have adequate remedies for any specific
breach. In addition, trade secrets and technical know-how, which are not protected by patents, may otherwise become known to or
be independently developed by competitors, in which event Ayr could be materially adversely affected.

 

Unauthorized parties may attempt to replicate
or otherwise obtain and use Ayr’s products, trade secrets, technical know-how and proprietary information. Policing the unauthorized
use Ayr’s future intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be
enforcing these rights against unauthorized use by others. Identifying unauthorized use of intellectual property rights is difficult
as Ayr may be unable to effectively monitor and evaluate the products being distributed by its competitors, including parties such
as unlicensed dispensaries, and the processes used to produce such products. In addition, in any infringement proceeding, some
or all of Ayr’s future trademarks, patents or other intellectual property rights or other proprietary know-how, or arrangements
or agreements seeking to protect the same for the benefit of Ayr, may be found invalid, unenforceable, anti-competitive or not
infringed. An adverse result in any litigation or defense proceedings could put one or more of Ayr’s future trademarks, patents
or other intellectual property rights at risk of being invalidated or interpreted narrowly. Any or all of these events could result
in a material adverse effect on Ayr’s business, financial condition, results of operations or prospects.

 

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In addition, other parties may claim that
Ayr’s products infringe on their proprietary and perhaps patent-protected rights. Such claims, whether or not meritorious,
may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining
orders and/or require the payment of damages. As well, Ayr may need to obtain licenses from third parties who allege that Ayr has
infringed on their lawful rights. However, such licenses may not be available on terms acceptable to Ayr or at all. In addition,
Ayr may not be able to obtain or utilize on terms that are favorable to it, or at all, licenses or other rights with respect to
intellectual property that it does not own.

 

Ayr may be subject to risks related
to information technology systems, including cyber-attacks.

 

Ayr’s operations may depend, in part,
on how well it and its suppliers protect networks, equipment, information technology systems and software against damage from a
number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage
and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Ayr’s operations may also depend on the
timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to
mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase
in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of
any such failure, adversely impact Ayr’s reputation and results of operations. Ayr’s risk and exposure to these matters
cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and
the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software,
data and networks from attack, damage or unauthorized access may become a priority to ensure the ongoing success and security of
the business. As cyber threats continue to evolve, Ayr may be required to expend additional resources to continue to modify or
enhance protective measures or to investigate and remediate any security vulnerabilities.

 

Ayr may be subject to risks related
to security breaches.

 

Given the nature of the Corporation’s
product and its lack of legal availability outside of channels approved by the Government of the United States, as well as the
concentration of inventory in its facilities, despite meeting or exceeding all legislative security requirements, there remains
a risk of shrinkage as well as theft. A security breach at one of the Corporation’s facilities could expose Ayr to additional
liability and to potentially costly litigation, increase expenses relating to the resolution and future prevention of these breaches
and may deter potential patients from choosing Ayr’s products.

 

In addition, the Corporation collects and
stores personal information about its patients and is responsible for protecting that information from privacy breaches. A privacy
breach may occur through procedural or process failure, information technology malfunction, or deliberate unauthorized intrusions.
Theft of data for competitive purposes, particularly patient lists and preferences, is an ongoing risk whether perpetrated via
employee collusion or negligence or through deliberate cyber-attack. Any such theft or privacy breach would have a material adverse
effect on Ayr’s business, financial condition and results of operations or prospects.

 

Ayr may be subject to risks related
to high bonding and insurance coverage.

 

There is a risk that a greater number of
State regulatory agencies will begin requiring entities engaged in certain aspects of the business or industry of legal marijuana
to post a bond or significant fees when applying, for example, for a dispensary license or renewal as a guarantee of payment of
sales and franchise tax. Ayr is not able to quantify at this time the potential scope for such bonds or fees in the States in which
it currently or may in the future operate. Any bonds or fees of material amounts could have a negative impact on the ultimate success
of Ayr’s business.

 

Ayr’s business is subject to a number
of risks and hazards generally, including adverse environmental conditions, accidents, labour disputes and changes in the regulatory
environment. Such occurrences could result in damage to assets, personal injury or death, environmental damage, delays in operations,
monetary losses and possible legal liability.

 

Although Ayr maintains insurance to protect
against certain risks in such amounts as it considers to be reasonable, its insurance does not cover all the potential risks associated
with its operations. Ayr may also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance
coverage may not continue to be available or may not be adequate to cover any resulting liability. Moreover, insurance against
risks such as environmental pollution or other hazards encountered in the operations of Ayr is not generally available on acceptable
terms. Ayr might also become subject to liability for pollution or other hazards which may not be insured against or which Ayr
may elect not to insure against because of premium costs or other reasons. Losses from these events may cause Ayr to incur significant
costs that could have a material adverse effect upon its business, results of operations, financial condition or prospects.

 

    	Ayr Strategies Inc.	52	Annual Information Form

     

    

 

Ayr may be subject to transportation
risks.

 

Ayr’s business involves, both directly
and indirectly, the production, sale and distribution of cannabis products. Due to the perishable nature of such products, Ayr
depends on fast and efficient direct and third-party transportation services to distribute its product. Any prolonged disruption
of third-party transportation services could have an adverse effect on Ayr. Rising costs associated with the third-party transportation
services which will be used by Ayr to ship its proposed products may also adversely impact the business of Ayr.

 

Ayr’s share price may be vulnerable
to rising energy costs.

 

Ayr’s business may involve, directly
or indirectly, the production of cannabis products which will consume considerable energy, making Ayr vulnerable to rising energy
costs. Rising or volatile energy costs may adversely impact the business of Ayr and its ability to operate profitably.

 

Ayr may be subject to risks inherent
in an agricultural business.

 

Ayr’s business may involve, directly
or indirectly, the growing of cannabis, which is an agricultural product. As such, the business may be subject to the risks inherent
in the agricultural business, such as insects, plant diseases and similar agricultural risks. Even when grown indoors under climate-controlled
conditions monitored by trained personnel, there can be no assurance that natural elements, such as insects and plant diseases,
will not have a material adverse effect on the production of cannabis products and on Ayr’s business, financial condition,
results of operations or prospects of Ayr.

 

Management of growth may prove to
be difficult.

 

Ayr may be subject to growth-related risks
including capacity constraints and pressure on its internal systems and controls. The ability of Ayr to manage growth effectively
will require it to continue to implement and improve its operational and financial systems and to expand, train and manage its
employee base. The inability of Ayr to deal with this growth may result in a material adverse effect on Ayr’s business, financial
condition, results of operations or prospects.

 

Ayr may be subject to the risks of
leverage.

 

Ayr anticipates utilizing leverage in connection
with Ayr’s investments in the form of secured or unsecured indebtedness. Although Ayr will seek to use leverage in a manner
it believes is prudent, such leverage will increase the exposure of an investment to adverse economic factors such as downturns
in the economy or deterioration in the condition of the investment. If Ayr defaults on secured indebtedness, the lender may foreclose
and Ayr could lose its entire investment in the security of such loan. If Ayr defaults on unsecured indebtedness, the terms of
the loan may require Ayr to repay the principal amount of the loan and any interest accrued thereon in addition to heavy penalties
that may be imposed. Because Ayr may engage in financings where several investments are cross-collateralized, multiple investments
may be subject to the risk of loss. As a result, Ayr could lose its interest in performing investments in the event such investments
are cross-collateralized with poorly performing or nonperforming investments.

 

In addition to leveraging Ayr’s investments,
Ayr may borrow funds in its own name for various purposes, and may withhold or apply from distributions amounts necessary to repay
such borrowings. The interest expense and such other costs incurred in connection with such borrowings may not be recovered by
income from investments purchased by Ayr. If investments fail to cover the cost of such borrowings, the value of the investments
held by Ayr would decrease faster than if there had been no such borrowings. Additionally, if the investments fail to perform to
expectation, the interests of investors in Ayr could be subordinated to such leverage, which will compound any such adverse consequences.

 

Risks related to the difficulty of
attracting and retaining personnel.

 

Ayr’s success depends to a significant
degree upon its ability to attract, retain and motivate highly skilled and qualified personnel. Failure to attract and retain necessary
technical personnel, sales and marketing personnel and skilled management could adversely affect Ayr’s business. If Ayr fails
to attract, train and retain sufficient numbers of these highly qualified people, its prospects, business, financial condition
and results of operations will be materially and adversely affected.

 

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Co-investment risk in terms of control
over Ayr’s investments.

 

Ayr has co-invested and may continue to
co-invest in one or more investments with certain strategic investors and/or other third parties through joint ventures or other
entities, which parties in certain cases may have different interests or superior rights to those of Ayr. Although it is Ayr’s
intent to retain control and other superior rights over Ayr’s investments, under certain circumstances it may be possible
that Ayr relinquishes such rights over certain of its investments and, therefore, may have a limited ability to protect its position
therein. In addition, even when Ayr does maintain a control position with respect to its investments, Ayr’s investments may
be subject to typical risks associated with third-party involvement, including the possibility that a third-party may have financial
difficulties resulting in a negative impact on such investment, may have economic or business interests or goals that are inconsistent
with those of Ayr, or may be in a position to take (or block) action in a manner contrary to Ayr’s objectives. Ayr may also,
in certain circumstances, be liable for the actions of its third-party partners or co-investors. Co-investments by third parties
may or may not be on substantially the same terms and conditions as Ayr, and such different terms may be disadvantageous to Ayr.

 

Reliance on Management Services Agreements
with subsidiaries and affiliates could adversely affect prospects and results.

 

Certain of Ayr’s subsidiaries and
other affiliates are likely to engage in the medicinal cannabis business through Management Services Agreements entered into with
State-licensed entities. Under such agreements, its subsidiaries and affiliates perform a number of services, including cultivation,
growing and handling of marijuana plants, trimming, curing and packaging of dry flower, patient advisory, lab and scientific research
services, consultation on regulatory issues and a variety of management functions and are required to obtain cannabis business
support licenses. In exchange for providing these services, Ayr’s subsidiaries and affiliates receive management fees which
are a key source of revenue. Payment of such fees is dependent on the continuing validity and enforceability of the relevant Management
Services Agreements. If such agreements are found to be invalid or unenforceable, or are terminated by the counter-party, this
could have a material adverse effect on the business, prospects, financial condition, and operating results. If ultimate approval
of license transfers is not able to be obtained, this could have a material adverse effect on Ayr.

 

Liabilities arising from Ayr’s
website accessibility.

 

Internet websites are visible by people
everywhere, not just in jurisdictions where the activities described therein are considered legal. As a result, to the extent Ayr
sells services or products via web-based links targeting only jurisdictions in which such sales or services are compliant with
State law, Ayr may face legal action in other jurisdictions which are not the intended object of any of Ayr’s marketing efforts
for engaging in any web-based activity that results in sales into such jurisdictions deemed illegal under applicable laws.

 

Ayr is subject to the costs of being
a public company.

 

As a public issuer, Ayr is subject to the
reporting requirements and rules and regulations under the applicable Canadian securities laws and rules of any stock exchange
on which Ayr’s securities may be listed from time to time. Additional or new regulatory requirements may be adopted in the
future. The requirements of existing and potential future rules and regulations will increase Ayr’s legal, accounting and
financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on its
personnel, systems and resources, which could adversely affect its business and financial condition.

 

Certain remedies may be limited to
Ayr.

 

Pursuant to its governing documents, Ayr
and the shareholders of Ayr may be prevented from recovering damages for alleged errors or omissions made by the members of the
Corporation’s board of directors and its officers. Ayr’s governing documents also provide that Ayr will, to the fullest
extent permitted by law, indemnify members of the Corporation’s board of directors and its officers for certain liabilities
incurred by them by virtue of their acts on behalf of Ayr.

 

    	Ayr Strategies Inc.	54	Annual Information Form

     

    

 

Ayr may have difficulty enforcing
judgments and effecting service of process on directors and officers.

 

The directors and officers of Ayr reside
outside of Canada. Some or all of the assets of such persons may be located outside of Canada. Therefore, it may not be possible
for Ayr shareholders to collect or to enforce judgments obtained in Canadian courts predicated upon the civil liability provisions
of applicable Canadian securities laws against such persons. Moreover, it may not be possible for Ayr shareholders to effect service
of process within Canada upon such persons.

 

Past performance is not indicative
of future results.

 

The prior investment and operational performance
of any of the Corporation’s businesses is not indicative of the future operating results of Ayr. There can be no assurance
that the historical operating results achieved by any of the Corporation’s businesses or their affiliates will be achieved
by Ayr, and Ayr’s performance may be materially different.

 

Financial projections may prove materially
inaccurate or incorrect.

 

Any Ayr financial estimates, projections
and other forward-looking information or statements included in this AIF were prepared by Ayr without the benefit of reliable historical
industry information or other information customarily used in preparing such estimates, projections and other forward-looking information
or statements. Such forward-looking information or statements are based on assumptions of future events that may or may not occur,
which assumptions may not be disclosed in this AIF. Ayr shareholders should inquire of Ayr and become familiar with the assumptions
underlying any estimates, projections or other forward-looking information or statements. Projections are inherently subject to
varying degrees of uncertainty and their achievability depends on the timing and probability of a complex series of future events.
There is no assurance that the assumptions upon which these projections are based will be realized. Actual results may differ materially
from projected results for a number of reasons including increases in operation expenses, changes or shifts in regulatory rules,
undiscovered and unanticipated adverse industry and economic conditions, and unanticipated competition. Accordingly, Ayr shareholders
should not rely on any projections to indicate the actual results Ayr might achieve.

 

Ayr may not pay dividends.

 

Ayr does not anticipate paying any dividends
on the Subordinate Voting Shares or the Multiple Voting Shares in the foreseeable future. Dividends paid by Ayr would be subject
to tax and, potentially, withholdings. See “Dividends”.

 

Market and Economy Risks

 

Ayr may be vulnerable to currency
exchange fluctuations.

 

Due to Ayr’s present operations in
the United States, and its intention to continue future operations outside Canada, Ayr is expected to be exposed to significant
currency fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency
markets. Currently, all of Ayr’s revenue is earned in US dollars. Fluctuations in the exchange rate between the US dollar
and the Canadian dollar may have a material adverse effect on Ayr’s business, financial position or results of operations
or prospects.

 

Ayr may be subject to market price
volatility risks.

 

The market price of the Subordinate Voting
Shares may be subject to wide fluctuations in response to many factors, including variations in the operating results of Ayr, divergence
in financial results from analysts’ expectations, changes in earnings estimates by stock market analysts, changes in the
business prospects for Ayr, general economic conditions, legislative changes, and other events and factors outside of Ayr’s
control. In addition, stock markets have from time to time experienced extreme price and volume fluctuations, which, as well as
general economic and political conditions, could adversely affect the market price for the Subordinate Voting Shares.

 

There may be restrictions on the
market for the Subordinate Voting Shares.

 

Notwithstanding that the Subordinate Voting
Shares are listed on the CSE (and excluding the Multiple Voting Shares which will not be listed securities), various regulatory
regimes in the United States forbid the transfer of such Subordinate Voting Shares in quantities that exceed published thresholds
without receiving advanced approval of the State regulators. Failure to obtain approval may result in Ayr’s licenses in that
State being revoked.

 

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There is a limited market for the
Subordinate Voting Shares.

 

Notwithstanding that the Subordinate Voting
Shares are listed on the CSE (and excluding the Multiple Voting Shares which will not be listed securities), there can be no assurance
that an active and liquid market for such Subordinate Voting Shares will develop or be maintained and an Ayr shareholder may find
it difficult to resell any securities of Ayr.

 

Ayr may be subject to the risks posed
by sales by existing Ayr shareholders.

 

Sales of a substantial number of Subordinate
Voting Shares (and excluding the Multiple Voting Shares which will not be listed securities) in the public market could occur at
any time by existing holders of such Subordinate Voting Shares. These sales, or the market perception that the holders of a large
number of Subordinate Voting Shares intend to sell Subordinate Voting Shares, could reduce the market price of the Subordinate
Voting Shares. If this occurs and continues, it could impair Ayr’s ability to raise additional capital through the sale of
securities.

 

The cashless exercise feature of
the Warrants could result in more volatile financial results.

 

The cashless exercise feature of the Warrants
could result in more volatile financial results because with the Cashless Exercise feature, the Warrants are classified as a liability
and are therefore recorded at fair value. Any fluctuations in the fair value of a Warrant would be reflected in income. See “Description
of Share Capital – Warrants”.

 

Global financial conditions and the
future economic shocks may impair Ayr’s financial condition. 

 

Following the onset of the credit crisis
in 2007-2008, global financial conditions were characterized by extreme volatility and several major financial institutions either
went into bankruptcy or were rescued by governmental authorities. While global financial conditions subsequently stabilized, there
remains considerable risk in the system given the extraordinary measures adopted by government authorities to achieve that stability.
Global financial conditions could suddenly and rapidly destabilize in response to future economic shocks, as government authorities
may have limited resources to respond to future crises.

 

Future economic shocks may be precipitated
by a number of causes, including a rise in the price of oil, geopolitical instability and natural disasters. Any sudden or rapid
destabilization of global economic conditions could impact Ayr’s ability to obtain equity or debt financing in the future
on terms favourable to Ayr. Additionally, any such occurrence could cause decreases in asset values that are deemed to be other
than temporary, which may result in impairment losses. Further, in such an event, Ayr’s operations and financial condition
could be adversely impacted.

 

Furthermore, general market, political
and economic conditions, including, for example, inflation, interest and currency exchange rates, structural changes in the cannabis
industry, supply and demand for commodities, political developments, legislative or regulatory changes, social or labour unrest
and stock market trends will affect Ayr’s operating environment and its operating costs, profit margins and share price.
Any negative events in the global economy could have a material adverse effect on Ayr’s business, financial condition, results
of operations or prospects.

 

Environmental Risks

 

Ayr may be subject to significant
environmental regulations and risks.

 

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

 

Government approvals and permits are currently,
and may in the future, be required in connection with Ayr’s operations. To the extent such approvals are required and not
obtained, Ayr may be curtailed or prohibited from its proposed production of medical marijuana or from proceeding with the development
of its operations as currently proposed.

 

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

 

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

 

Ayr may be subject to unknown environmental
risks. 

 

There can be no assurance that Ayr will
not encounter hazardous conditions at the facilities where it operates its businesses, such as asbestos or lead, in excess of expectations
that may delay the development of its businesses. Upon encountering a hazardous condition, work at the facilities of Ayr may be
suspended. The presence of other hazardous conditions may require significant expenditure of Ayr’s resources to correct the
condition. Such conditions could have a material impact on the investment returns of Ayr.

 

Tax Risks 

 

U.S. tax residence of Ayr. 

 

Ayr, which is and will continue to be a
Canadian corporation as of the date of this AIF, generally would be classified as a non-U.S. corporation (and, therefore, as a
non-U.S. tax resident) for U.S. federal income tax purposes. Section 7874 of the United States Internal Revenue Code of 1986, as
amended (the “Code”), however, contains rules that can cause a non-U.S. corporation to be taxed as a U.S. corporation
for U.S. federal income tax purposes.

 

Ayr expects to be treated as a U.S. corporation
for U.S. federal income tax purposes under section 7874 of the Code and expects to be subject to U.S. federal income tax on its
worldwide income.

 

Ayr also expects, for Canadian tax purposes,
to be treated as a Canadian resident company (as defined in the Income Tax Act (Canada), as amended from time to time, including
the regulations thereunder (the “Tax Act”)) regardless of any application of section 7874 of the Code. As a
result, Ayr will be subject to taxation both in Canada and the U.S., which could have a material adverse effect on its financial
condition and results of operations.

 

Moreover, it is unlikely that Ayr will
pay any dividends on the Subordinate Voting Shares in the foreseeable future, but any distributions paid by Ayr to a holder of
Subordinate Voting Shares may be subject to U.S. withholding tax as well as any applicable Canadian withholding tax.

 

In particular, dividends received by shareholders
who are residents of Canada for purpose of the Tax Act will be subject to U.S. withholding tax. Any such dividends may not qualify
for a reduced rate of withholding tax under the Canada-United States tax treaty. In addition, a foreign tax credit or a deduction
in respect of foreign taxes may not be available.

 

Dividends received by U.S. shareholders
will not be subject to U.S. withholding tax but will be subject to Canadian withholding tax. Dividends paid by Ayr will be characterized
as U.S. source income for purposes of the foreign tax credit rules under the Code. Accordingly, U.S. shareholders generally will
not be able to claim a credit for any Canadian tax withheld unless, depending on the circumstances, they have an excess foreign
tax credit limitation due to other foreign source income that is subject to a low or zero rate of foreign tax.

 

Dividends received by shareholders that
are neither Canadian nor U.S. shareholders will be subject to U.S. withholding tax and will also be subject to Canadian withholding
tax. These dividends may not qualify for a reduced rate of U.S. withholding tax under any income tax treaty otherwise applicable
to a shareholder of Ayr, subject to examination of the relevant treaty. These dividends may however qualify for a reduced rate
of Canadian withholding tax under any income tax treaty otherwise applicable to a shareholder of Ayr, subject to examination of
the relevant treaty.

 

EACH SHAREHOLDER SHOULD SEEK TAX ADVICE,
BASED ON SUCH SHAREHOLDER’S PARTICULAR CIRCUMSTANCES, FROM AN INDEPENDENT TAX ADVISOR.

 

Ayr will be subject to significant
tax liabilities until the U.S. Internal Revenue Service (“IRS”) or Congress changes its position that most expenses
of cannabis businesses are not permitted tax deductions under section 280E of the Code. 

 

Section 280E of the Code prohibits businesses
from deducting certain expenses associated with trafficking controlled substances (including cannabis) which are listed on Schedule
I and II under the U.S. federal Substances Act. The IRS has invoked section 280E of the Code in tax audits against various cannabis
businesses in the U.S. that are authorized under State laws, seeking substantial sums in tax liabilities, interest and penalties
resulting from under payment of taxes due to the lack of deductibility of otherwise ordinary business expenses the deduction of
which is prohibited by section 280E of the Code. Although the IRS issued a clarification allowing the deduction of certain expenses
that can be categorized as cost of goods sold, the scope of such items is interpreted very narrowly and include the cost of seeds,
plants and labor related to cultivation, while the bulk of operating costs and general administrative costs are not permitted to
be deducted. While there are currently several pending cases before various U.S. administrative and federal courts challenging
these restrictions, there is no guarantee that these courts will issue an interpretation of section 280E of the Code favorable
to cannabis businesses. Ayr’s current financial plans include U.S. federal tax payable on gross revenue net only of the cost
of seeds, plants and labor related to cultivation, rather than earnings before tax, which is typical in other jurisdictions.

 

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Tax risk related to controlled substances.

 

Section 280E of the Code, as amended prohibits
businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I
and II of the Substances Act). The IRS has invoked section 280E of the Code in tax audits against various cannabis businesses in
the U.S. that are permitted under applicable State laws. Although the IRS issued a clarification allowing the deduction of certain
expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs
are not permitted to be deducted. While there are currently several pending cases before various U.S. administrative and federal
courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of section 280E of
the Code favorable to cannabis businesses.

 

DIVIDENDS

 

The Corporation has not paid any cash dividends
on its shares to date and does not anticipate paying any dividends in the foreseeable future. Subordinate Voting Shares and Multiple
Voting Shares would be entitled to dividends on an equal per share basis, if, as and when declared by the board of directors of
the Corporation (the “Board”).

 

DESCRIPTION OF SHARE CAPITAL

 

The Corporation is authorized to issue
an unlimited number of Multiple Voting Shares and an unlimited number of Subordinate Voting Shares, each without nominal or par
value. The Subordinate Voting Shares are “restricted securities” within the meaning of such term under applicable Canadian
securities laws.

 

The following description summarizes the
material terms of Ayr’s share capital. This summary is not exhaustive and is qualified in its entirety by reference to Ayr’s
articles, the warrant agency agreement dated December 21, 2017, between the Corporation and Odyssey, as the warrant agent (the
 “Warrant Agent”), as amended (the “Warrant Agreement”), and the rights agreement dated December
21, 2017 between the Corporation and Odyssey, as the rights agent (the “Rights Agent”), as amended (the “Rights
Agreement”), each of which are filed on SEDAR at www.sedar.com.

 

As of June 30, 2020, the Corporation had
the following securities outstanding:

 

	Subordinate Voting Shares	15,880,793
	Multiple Voting Shares	3,696,486
	Exchangeable Shares	8,080,568
	Warrants	16,060,858
	Rights	1,564,648

 

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Subordinate Voting
Shares

 

As of June 30, 2020, there were an aggregate
of 15,880,793 Subordinate Voting Shares outstanding. The holders of Subordinate Voting Shares will be entitled to receive notice
of and to attend all meetings of the shareholders of the Corporation, except a meeting at which the holders of a specific class
are entitled to vote separately as a class under the BCBCA. The Subordinate Voting Shares will carry one vote per share. The Subordinate
Voting Shares are “restricted securities” within the meaning of such term under applicable Canadian securities laws.

 

In connection with any Change of Control
Transaction (as defined below) requiring approval of the holders of Subordinate Voting Shares and Multiple Voting Shares under
the BCBCA, the holders of Subordinate Voting Shares and Multiple Voting 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 purposes herein, 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).

 

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 Subordinate Voting Shares); or (ii) affect the holders
of the Subordinate Voting Shares and Multiple Voting Shares differently, on a per share basis; or (iii) 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.

 

As long as any Subordinate Voting Shares
remain outstanding, the Corporation will not, without the consent of the holders of the Subordinate Voting Shares by separate special
resolution alter or amend the Corporation’s 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 the Subordinate Voting
Shares or Multiple Voting Shares on a per share basis, as provided in the Corporation’s articles.

 

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 Multiple Voting Shares unless the Corporation simultaneously declares or pays, as applicable, equivalent
dividends (on a per share basis) on the Subordinate Voting Shares. 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.

 

Subdivision or Consolidation

 

No subdivision or consolidation of the
Subordinate Voting Shares shall occur unless simultaneously, the Multiple Voting 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 said classes.

 

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In the case of liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, or a 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 to receive the Corporation’s
remaining property and are entitled to share equally, on a share for share basis, with all holders of Multiple Voting Shares and
other holders of the Subordinate Voting Shares in all distributions of such assets.

 

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.

 

If an offer is made to purchase the Multiple
Voting Shares and such offer is one which is required, pursuant to applicable securities legislation or the rules of a stock exchange
on which the Multiple Shares that are subject to the offer are then listed, to be made to all or substantially all the holders
of such Multiple Voting 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 Multiple Voting 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
Multiple Voting 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 Multiple Voting Shares pursuant to such offer on behalf of
such holder.

 

Should the applicable Multiple Voting Shares
issued upon such conversion and tendered in response to such offer be withdrawn by the Corporation’s shareholders or not
taken up by the offeror, or should the offer be abandoned or withdrawn, then each Multiple Voting 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.

 

Multiple Voting
Shares

 

As of June 30, 2020, there were an aggregate
of 3,696,486 Multiple Voting Shares outstanding. The holders of Multiple Voting Shares shall be entitled to receive notice of and
to attend any meeting of shareholders of the Corporation, except a meeting of which only holders of another particular class or
series of shares of the Corporation shall have the right to vote. 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, 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 Subordinate Voting Shares and Multiple Voting Shares under the BCBCA, holders
of the Subordinate Voting Shares and Multiple Voting 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.

 

As long as any Multiple Voting Shares remain
outstanding, the Corporation will not, without the consent of the holders of the Multiple Voting Shares by separate special resolution
alter or amend the Corporation’s 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 holders of the Subordinate Voting Shares
or Multiple Voting Shares on a per share basis, as provided in the Corporation’s articles.

 

Holders of Multiple Voting Shares shall
be entitled to receive, as and when declared by the board of directors, dividends in cash or property of the Corporation. No dividend
will be declared or paid on the Subordinate Voting Shares unless the Corporation simultaneously declares or pays, as applicable,
equivalent dividends (on a per share basis) on the Multiple Voting Shares. 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.

 

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 each of the said classes.

 

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In the case of liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, or a 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 to receive the Corporation’s
remaining property and are entitled to share equally, on a share for share basis, with all holders of Subordinate Voting Shares
and the other Multiple Voting Shares, in all distributions of such assets.

 

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.

 

At the holder’s option, the Multiple
Voting Shares will be convertible, on a one-for-one basis, into Subordinate Voting Shares. In addition, the Multiple Voting Shares
will be automatically converted, without further act or formality, into Subordinate Voting Shares 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.

 

The Multiple Voting Shares are subject
to coattail provisions, as set forth in the Corporation’s articles.

 

Warrants

 

As of June 30, 2020, there were an aggregate
of 16,060,858 Warrants outstanding. Each Warrant is exercisable to purchase one Subordinate Voting Share at a price of C$11.50
per share, subject to the following adjustments. The Warrant Agreement provides that the exercise price and number of Subordinate
Voting Shares issuable on exercise of the Warrants may be adjusted in certain circumstances, including in the event of a stock
dividend, extraordinary dividend or a recapitalization, reorganization, merger or consolidation. The Warrants will not, however,
be adjusted for issuances of Subordinate Voting Share at a price below their exercise price. Once the Warrants become exercisable,
Ayr may accelerate the expiry date of the outstanding Warrants (excluding the Founders’ Warrants but only to the extent still
held by Mercer at the date of public announcement of such acceleration and not transferred prior to the accelerated expiry date,
due to the anticipated knowledge by Mercer of material undisclosed information which could limit their flexibility) by providing
30 days’ notice if, and only if, the closing share price of the Subordinate Voting Shares equals or exceeds C$18.00 per Subordinate
Voting Share (as adjusted for stock splits or combinations, stock dividends, extraordinary dividends, reorganizations and recapitalizations
and the like) for any 20 trading days within a 30-trading day period, in which case the expiry date shall be the date which is
30 days following the date on which such notice if provided.

 

The exercise of the Warrants by any holder
in the United States, or that is a U.S. Person (as such term is defined in Regulation S of the United States Securities Act of
1933 (the “U.S. Securities Act”)), may only be effected in compliance with an exemption from the registration
requirements of the U.S. Securities Act and applicable State “blue sky” securities laws.

 

At the election of the holder, the Warrants
may be exercised through cashless exercise. A cashless exercise permits the holder, in lieu of making a cash payment on exercise,
to instead elect to surrender its Warrants and receive the number of Subordinate Voting Shares that is equal to the quotient obtained
by multiplying (i) the number of Subordinate Voting Shares for which the Warrant is being exercised by (ii) the difference between
(A) the volume weighted average price of the Subordinate Voting Shares on the Exchange for the 20 trading days immediately prior
to (but not including) the date of exercise of the Warrant and (B) the exercise price in effect on the date immediately prior to
(but not including) the date of exercise of the Warrant, and dividing such product by the volume weighted average price of the
Subordinate Voting Shares on the Exchange for the 20 trading days immediately prior to (but not including) the date of exercise.

 

Pursuant to the “early” exercise
rights granted to holders of the Warrants, each whole Warrant was exercisable from July 15, 2019 to July 26, 2019 (the “Early
Exercise Period”), on a one-for-one basis, into Subordinate Voting Shares, at an exercise price of C$11.50 per Subordinate
Voting Share (subject to adjustment and penalties in certain circumstances), and for which the Corporation agreed to pay a commitment
fee of C$0.50, which was set off against payment of the applicable exercise price, resulting in a net payment of C$11.00 required
to exercise a Warrant during the Early Exercise Period. Cashless exercises were not available for exercises during the Early Exercise
Period.

 

The right to exercise will be forfeited
unless the Warrants are exercised prior to the date specified in the notice of acceleration of the expiry date. On and after the
accelerated expiry date, a record holder of a Warrant will have no further rights. Warrants may be exercised only for a whole number
of shares. No fractional shares will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would
be entitled to receive a fractional interest in a share, we will, upon exercise, round down to the nearest whole number of shares
to be issued to the Warrant holder.

 

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The Warrant holders do not have the rights
or privileges of holders of shares and any voting rights until they exercise their Warrants and receive corresponding Subordinate
Voting Shares. After the issuance of corresponding Subordinate Voting Shares upon exercise of the Warrants, each holder will be
entitled to one vote for each share held of record on all matters to be voted on by shareholders. On the exercise of any Warrant,
the Warrant exercise price will be C$11.50, subject to adjustments.

 

The Warrant Agent shall, on receipt of
a written request of the Corporation or holders of not less than 25% of the aggregate number of Warrants then outstanding, convene
a meeting of holders of Warrants upon at least 21 calendar days’ written notice to holders of Warrants. Every such meeting
shall be held in Toronto, Ontario or at such other place as may be approved or determined by the Warrant Agent. A quorum at meetings
of holders or Warrants shall be two persons present in person or represented by proxy holding or representing more than 20% of
the aggregate number of Warrants then outstanding.

 

From time to time, the Corporation and
the Warrant Agent, without the consent of the holders of Warrants, may amend or supplement the Warrant Agreement for certain purposes
including curing defects or inconsistencies or making any change that does not adversely affect the rights of any holder of Warrants.
Any amendment or supplement to the Warrant Agreement that adversely affects the interests of the holders of Warrants may only be
made by an “extraordinary resolution”, which is defined in the Warrant Agreement as a resolution either (i) passed
at a meeting of the holders of Warrants by the affirmative vote of holders of Warrants representing not less than two-thirds of
the aggregate number of the then outstanding Warrants represented at the meeting and voted on such resolution, or (ii) adopted
by an instrument in writing signed by the holders of Warrants representing not less than two-thirds of the aggregate number of
the then outstanding Warrants.

 

The Warrants will expire at 5:00 p.m. (Toronto
time) on the day that is five years after the completion of the Qualifying Transaction (being May 24, 2024) or may expire earlier
if the expiry date is accelerated, as described above.

 

Rights

 

As of June 30, 2020, there were an aggregate
of 1,564,648 Rights outstanding. Each Right entitles the holder to receive one-tenth (1/10) of a Subordinate Voting Share. In order
to effect such a conversion, the holder of any Right must surrender to the Rights Agent certificates or electronic positions representing
the Rights held by the holder, together with a duly completed conversion form in form and manner satisfactory to the Rights Agent
pursuant to the terms of the Rights Agreement. Any Right that has not been converted within two years after the completion of the
Qualifying Transaction (being May 24, 2021) shall be null and void.

 

Rights will only be converted for a whole
number of shares. No fractional shares will be issued upon conversion of the Rights. If, upon conversion of the Rights, a holder
would be entitled to receive a fractional interest in a share, the Corporation will, upon conversion, round down to the nearest
whole number of shares to be issued to the Right holder. As a result, holders must hold Rights in multiples of 10 in order to receive
Subordinate Voting Shares for all of his, her or its Rights. The Rights do not possess any redemption or distribution rights.

 

The Rights Agreement provide that the number
of Subordinate Voting Shares issuable on conversion of the Rights may be adjusted in certain circumstances, including in the event
of a stock dividend, extraordinary dividend, recapitalization, reorganization, merger or consolidation. The Rights Agreement also
provides the mechanism pursuant to which holders of Rights, including beneficial holders of Rights held through CDS Clearing and
Depositary Services Inc., or its nominee, may convert his, her or its Rights.

 

The Right holders do not have the rights
or privileges of holders of shares or any voting rights until the Rights are converted in accordance with the terms of the Rights
Agreement and such holders receive corresponding Subordinate Voting Shares. After the issuance of the corresponding Subordinate
Voting Shares upon conversion of the Rights, each holder is expected to be entitled to one vote for each Subordinate Voting Share
held of record on all matters to be voted on by shareholders.

 

The Rights Agent shall, on receipt of a
written request of the Corporation or holders of not less than 25% of the aggregate number of Rights then outstanding, convene
a meeting of holders of Rights upon at least 21 calendar days’ written notice to holders of Rights. Every such meeting shall
be held in Toronto, Ontario or at such other place as may be approved or determined by the Rights Agent. A quorum at meetings of
holders or Rights shall be two persons present in person or represented by proxy holding or representing more than 20% of the aggregate
number of Rights then outstanding.

 

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From time to time, the Corporation and
the Rights Agent, without the consent of the holders of Rights, may amend or supplement the Rights Agreement for certain purposes
including curing defects or inconsistencies or making any change that does not adversely affect the rights of any holder of Rights.
Any amendment or supplement to the Rights Agreement that adversely affects the interests of the holders of Rights may only be made
by an “extraordinary resolution”, which is defined in the Rights Agreement as a resolution either (i) passed at a meeting
of the holders of Rights by the affirmative vote of holders of Rights representing not less than two-thirds of the aggregate number
of the then outstanding Rights represented at the meeting and voted on such resolution, or (ii) adopted by an instrument in writing
signed by the holders of Rights representing not less than two-thirds of the aggregate number of the then outstanding Rights.

 

Rights may only be converted by U.S. Persons
who are Qualified Institutional Buyers (as defined in Rule 144A of the U.S. Securities Act) or accredited investors or where the
Corporation has otherwise availed itself of an exemption from registration under the U.S. Securities Act.

 

Coattail
Agreement

 

Under applicable Canadian law, an offer
to purchase Multiple Voting Shares would not necessarily require that an offer be made to purchase Subordinate Voting Shares. In
accordance with the rules applicable to most senior issuers in Canada, in the event of a take-over bid, the holders of Subordinate
Voting Shares would be entitled to participate on an equal footing with holders of Multiple Voting Shares. In connection with the
Qualifying Transaction, the owners of all the outstanding Multiple Voting Shares entered into a customary coattail agreement with
Ayr and Odyssey, as trustee (the “Coattail Agreement”). The Coattail Agreement contains provisions customary
for dual-class listed corporations designed to prevent transactions that otherwise would deprive the holders of Subordinate Voting
Shares of rights under applicable provincial take-over bid legislation to which they would have been entitled if the Multiple Voting
Shares had been Subordinate Voting Shares. The undertakings in the Coattail Agreement would not apply to prevent a sale by any
holder of Multiple Voting Shares if concurrently an offer is made to purchase Subordinate Voting Shares that:

 

		(a)	offers a price per Subordinate Voting Share in the same form of consideration and at least as high
as the highest price per share paid pursuant to the take-over bid for the Multiple Voting Shares (on an as-converted basis to Subordinate
Voting Shares);

 

		(b)	provides that the percentage of outstanding Subordinate Voting Shares to be taken up (exclusive
of shares owned immediately prior to the offer by the offeror or persons acting jointly or in concert with the offeror) is at least
as high as the percentage of Multiple Voting Shares to be sold (exclusive of Multiple Voting Shares owned immediately prior to
the offer by the offeror or persons acting jointly or in concert with the offeror);

 

		(c)	as no condition attached other than the right not to take up and pay for Subordinate Voting Shares
or Multiple Voting Shares tendered if no shares are purchased pursuant to the offer for Multiple Voting Shares; and

 

		(d)	is in all other material respects identical to the offer for Multiple Voting Shares.

 

In addition, the terms of the Coattail
Agreement do not prevent the transfer of Multiple Voting Shares by a holder to certain permitted holders, including without limitation,
the Founders and persons controlled by them. The conversion of Multiple Voting Shares into Subordinate Voting Shares would not
constitute a disposition of Multiple Voting Shares for the purposes of the Coattail Agreement.

 

Under the Coattail Agreement, any disposition
of Multiple Voting shares (including a transfer to a pledgee as security) by a holder of Multiple Voting Shares party to the agreement
would be conditional upon the transferee or pledgee abiding by the terms of the Coattail Agreement. The Coattail Agreement contain
provisions for authorizing action by the trustee to enforce the rights under the Coattail Agreement on behalf of the holders of
the Subordinate Voting Shares, which obligation is conditional on Ayr or holders of the Subordinate Voting Shares providing such
funds and indemnity as the trustee may require. No holder of Subordinate Voting Shares would have the right, other than through
the trustee, to institute any action or proceeding or to exercise any other remedy to enforce any rights arising under the Coattail
Agreement unless the trustee fails to act on a request authorized by holders of not less than 10% of the outstanding Subordinate
Voting Shares, and reasonable funds and indemnity have been provided to the trustee. Ayr agrees to pay the reasonable costs of
any action that may be taken in good faith by holders of Subordinate Voting Shares, as the case may be, pursuant to the Coattail
Agreement.

 

    	Ayr Strategies Inc.	63	Annual Information Form

     

    

 

The Coattail Agreement may not be amended,
and no provision thereof may be waived, unless, prior to giving effect to such amendment or waiver, the following have been obtained:

 

		(e)	the consent of the applicable securities regulatory authority in Canada; and

 

		(f)	the approval of at least 662/3% of the votes cast by holders of Subordinate Voting Shares,
excluding votes attached to Subordinate Voting Shares, if any, held by the holders of Multiple Voting Shares, their affiliates
and any persons who have an agreement to purchase Multiple Voting Shares on terms which would constitute a sale or disposition
for purposes of the Coattail Agreement other than as permitted thereby.

 

No provision of the Coattail Agreement
would limit the rights of any holders of Subordinate Voting Shares under applicable law.

 

MARKET FOR SECURITIES

 

TRADING PRICE AND VOLUME

 

As of June 30, 2020, the closing price
of the Subordinate Voting Shares on the CSE was C$10.00, the closing price of the Warrants on the CSE was C$2.22, and the closing
price of the Rights on the CSE was C$1.20. As of September 29, 2020, the closing price of the Subordinate Voting Shares on the
CSE was C$16.80, the closing price of the Warrants on the CSE was C$5.49, and the closing price of the Rights on the CSE was C$1.50.

 

Following the close of business on January
31, 2018 until the close of business of August 16, 2019, the Warrants and the Rights traded on the Neo Exchange Inc. (“Neo
Exchange”) under the symbols “CSA.WT” and “CSA.RT”, respectively. As of May 24, 2019 until the
close of business of August 16, 2019, the Subordinate Voting Shares traded on the Neo Exchange. Effective August 19, 2019, the
Subordinate Voting Shares, Warrants and Rights commenced trading on the Exchange under the symbols “AYR.A”, “AYR.WT”
and “AYR.RT”, respectively. The Multiple Voting Shares are not listed.

 

Subordinate Voting
Shares

 

The following table sets forth information
relating to the price range and volume traded for the Subordinate Voting Shares (AYR.A) on a monthly basis for each month in the
fiscal period ended December 31, 2019 in which the Subordinate Voting Shares were listed for trading (following the Qualifying
Transaction), and for each completed month to date in the fiscal year 2020:

 

	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	Up to September 29, 2020	$17.90	$15.90	552,173
	August 2020	$17.58	$12.10	770,662
	July 2020	$12.76	$9.76	492,476
	June 2020	$11.70	$9.10	831,652
	May 2020	$12.46	$7.32	530,268
	April 2020	$9.00	$6.75	749,550
	March 2020	$12.40	$4.98	834,872

 

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	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	February 2020	$13.22	$8.57	446,844
	January 2020	$14.45	$10.93	456,618
	December 2019	$12.47	$10.60	729,390
	November 2019	$12.99	$10.10	645,037
	October 2019	$12.90	$10.85	659,719
	September 2019	$14.75	$10.00	1,008,509
	August 2019	$17.26	$13.23	564,528
	July 2019	$19.68	$11.82	1,216,803
	June 2019	$22.50	$18.04	529,122
	May 2019	$27.00	$17.00	2,597,241
	April 2019	$26.65	$20.10	2,286,492
	March 2019	$21.48	$18.50	1,768,113
	February 2019	$20.11	$15.25	1,659,284
	January 2019	$16.28	$14.09	785,339

 

Warrants

 

The following table sets forth information
relating to the price range and volume traded for the Warrants (AYR.WT) on a monthly basis for each month in the fiscal period
ended December 31, 2019 in which the Warrants were listed for trading, and for each completed month to date in the fiscal year
2020:

 

	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	Up to September 29, 2020	$6.19	$4.90	634,820
	August 2020	$6.00	$3.75	1,182,821
	July 2020	$4.00	$2.12	330,471
	June 2020	$2.69	$2.00	199,557
	May 2020	$2.90	$1.55	797,970
	April 2020	$2.00	$1.35	184,819
	March 2020	$2.90	$1.53	261,145
	February 2020	$3.15	$2.43	147,646

 

    	Ayr Strategies Inc.	65	Annual Information Form

     

    

 

	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	January 2020	$4.00	$2.52	214,215
	December 2019	$3.00	$2.00	150,515
	November 2019	$3.50	$2.70	54,662
	October 2019	$3.74	$2.43	420,594
	September 2019	$4.25	$2.40	118,496
	August 2019	$5.60	$3.30	376,775
	July 2019	$7.42	$2.50	441,587
	June 2019	$10.24	$6.49	214,669
	May 2019	$14.50	$7.50	805,675
	April 2019	$12.99	$8.45	1,157,925
	March 2019	$9.25	$6.53	620,308
	February 2019	$7.99	$4.65	1,082,441
	January 2019	$5.00	$3.25	834,560

 

Rights

 

The following table sets forth information
relating to the price range and volume traded for the Rights (AYR.WT) on a monthly basis for each month in the fiscal period ended
December 31, 2019 in which the Warrants were listed for trading, and for each completed month to date in the fiscal year 2020:

 

	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	Up to September 29, 2020	$1.60	$1.00	2,900
	August 2020	$1.45	$1.45	5,000
	July 2020	$1.20	$0.90	39,817
	June 2020	$0.80	$0.80	50
	May 2020	$1.20	$0.70	125,118
	April 2020	$0.70	$0.46	57,900
	March 2020	$1.19	$0.69	111,103
	February 2020	$0.70	$0.70	2,710
	January 2020	$0.70	$0.12	2,500

 

    	Ayr Strategies Inc.	66	Annual Information Form

     

    

 

	Month	High Price

(C$)	Low Price

(C$)	Traded Volume
	December 2019	N/A	N/A	N/A
	November 2019	N/A	N/A	N/A
	October 2019	N/A	N/A	10
	September 2019	$1.41	$0.10	101,090
	August 2019	$1.29	$1.29	100
	July 2019	$1.75	$1.70	11,100
	June 2019	$2.25	$1.46	268,440
	May 2019	$2.59	$1.80	1,542,201
	April 2019	$2.40	$1.81	2,017,194
	March 2019	$2.38	$1.79	1,748,050
	February 2019	$2.00	$1.31	2,159,832
	January 2019	$1.65	$1.23	7,399,108

 

SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION
ON TRANSFER

 

None of the Multiple Voting Shares, Subordinate
Voting Shares, Warrants or Rights are subject to a contractual restriction on transfer. Certain of the Exchangeable Shares are
subject to contractual transfer restrictions.

 

DIRECTORS AND OFFICERS

 

Names, Occupations and Security Holdings

 

The names and municipality of residence
of the directors of the Board, their position with the Corporation, their principal occupation, the date upon which they became
a director of the Corporation and the number of voting or other securities beneficially owned by each of them, or over which control
or direction is exercised by each of them as of June 30, 2020, are as follows:

 

	

Name and

Place of Residence	Position Held

in the Corporation	Principal Occupation(1)	Director Since	Holdings (Security, Number, Percentage of

                                                                                Class)

	
        Jonathan Sandelman

         

        New York, NY

         
	Chief Executive Officer, Chairman, Director and Corporate Secretary(2)(3)	
        Chief Executive Officer, Mercer Park, L.P.

         
	September 25, 2017	
        Subordinate

        Voting Shares
	Nil	N/A
	
        Multiple Voting

        Shares
	3,677,626(4)	99.49%
	Warrants	
        2,884,058(4)

        10,000(5)
	18.02%
	Rights	262,188(4)	16.76%

 

    	Ayr Strategies Inc.	67	Annual Information Form

     

    

 

	

Name and

Place of Residence	Position Held

in the Corporation	Principal Occupation(1)	Director Since	Holdings (Seurity, Number, Percentage of

                                                                                Class)

	
        Mark Smith(6)

         

        Edwards, Colorado

         
	Director and Executive Vice Chairman	Chief Executive Officer, Green Cross Colorado, Green Cross Nevada and Tumbleweed Companies	September 25, 2017	
        Subordinate

        Voting Shares
	449,369(7)	2.83%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Charles Miles

         

        Brooklyn, NY

         
	Director(2)(3)	Consultant, Recapture Partners(8)	September 25, 2017	
        Subordinate

        Voting Shares
	45,000(9)	0.28%
	
        Multiple Voting

        Shares
	9,430	0.26%
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Chris R. Burggraeve

         

        New York, NY

         
	Director(2)(3)	Founder, Chief Executive Officer, Vicomte LLC	December 17, 2018	
        Subordinate

        Voting Shares
	6,000(10)	0.04%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Steve Menzies

         

        Las Vegas, NV

         
	Director	Manager, Focus Plumbing LLC	May 24, 2019	
        Subordinate

        Voting Shares
	500(11)	0.003%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Louis F. Karger

         

        Needham MA

         
	Director	Manager, Founder and owner of Panther Properties Management LLC and Panther Residential Management LLC	May 24, 2019	
        Subordinate

        Voting Shares
	16,742(12)	0.11%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A

 

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Name and

Place of Residence	Position Held

in the Corporation	Principal Occupation(1)	Director Since	Holdings (Security, Number, Percentage of

                                                                                Class)

	
        Glenn Isaacson

         

        New York, NY

         
	Director	Vice Chairman of Cushman & Wakefield (Manhattan)	August 25, 2020	
        Subordinate

        Voting Shares
	101,539	0.64%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A

 

Notes:

 

		(1)	Each director has been at their principal occupation for at least five years unless otherwise specified
herein.

		(2)	Member of the Compensation, Nominating and Corporate Governance Committee.

		(3)	Member of the Audit Committee.

		(4)	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 Jonathan Sandelman.

		(5)	Owned directly by Jonathan Sandelman. Jonathan Sandelman also directly owns 850,250 Exchangeable
Shares.

		(6)	Mark Smith owns a minority interest in Mercer.

		(7)	Mark Smith directly owns 65 limited partnership units.

		(8)	Charles Miles previously worked at Bloomberg LLP as an equity option trader, and prior to his tenure
at Bloomberg, Charles co-founded Claris Capital Management and served as Chief Information Officer.

		(9)	Charles Miles directly owns 2,750 Exchangeable Shares.

		(10)	Chris Burggraeve directly owns 2,750 Exchangeable Shares.

		(11)	Steve Menzies directly owns 2,238,807 Exchangeable Shares.

		(12)	Louis Karger also indirectly owns 332,809 Exchangeable Shares held through Green Partners Investor
LLC and Green Partners Sponsor I, LLC.

 

The following table sets forth the names,
residency and office of the non-director officers of the Corporation.

 

	

Name and

Place of Residence	Position Held

in the Corporation	Principal Occupation(1)	Officer Since	Holdings
	
        Brad Asher

        New York, NY
	Chief Financial Officer	Chief Financial Officer of Ayr	November 14, 2019	
        Subordinate

        Voting Shares
	Nil(3)	N/A
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Jennifer Drake

        New York, NY
	Chief Operating Officer(2)	Chief Operating Officer of Ayr	May 24, 2019	
        Subordinate

        Voting Shares
	10,000(4)	0.06%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A

 

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Name and

Place of Residence	Position Held

in the Corporation	Principal Occupation(1)	Officer Since	Holdings
	
        Jamie Mendola

        San Francisco, CA
	Head of Strategy and M&A	Director at Monaker Group from June 2019 to Present	May 24, 2019	
        Subordinate

        Voting Shares
	28,850(5)	0.18%
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A
	
        Jason Griffith

        New York, NY
	
        Chief Integration Officer

         
	
        Chief Integration Officer of Ayr

         
	November 15, 2019	
        Subordinate

        Voting Shares
	Nil(6)	N/A
	
        Multiple Voting

        Shares
	Nil	N/A
	Warrants	Nil	N/A
	Rights	Nil	N/A

 

Notes:

 

		(1)	Each officer has been at their principal occupation for
at least five years unless otherwise specified herein.

		(2)	Jennifer Drake acted as Chief Financial Officer, on an
interim basis, from June 28, 2019 to November 14, 2019.

		(3)	Brad Asher directly owns 125,000 Exchangeable Shares.

		(4)	Jennifer Drake also directly owns 1,700,750 Exchangeable
Shares.

		(5)	Jamie Mendola also directly owns 637,800 Exchangeable
Shares.

		(6)	Jason Griffith directly owns 425,000 Exchangeable Shares.

 

Shareholdings of Directors and Executive
Officers

 

As of June 30, 2020, as a group (including
director appointments subsequent to June 30, 2020), the directors and executive officers beneficially own, or control or direct,
directly or indirectly (i) 658,000 Subordinate Voting Shares, representing 4.14% of such class of securities (and 2.38% of the
total number of Subordinate Voting Shares, Multiple Voting Shares and Exchangeable Shares), (ii) 3,687,056 Multiple Voting Shares,
representing 99.74% of such class of securities (and 13.33% of the total number of Subordinate Voting Shares, Multiple Voting Shares
and Exchangeable Shares), and (iii) 3,427,366 Exchangeable Shares, representing 42.41% of such class of securities (and 12.39%
of the total number of Subordinate Voting Shares, Multiple Voting Shares and Exchangeable Shares).

 

Jonathan Sandelman holds the position of
Chief Executive Officer of the parent company of Mercer and therefore may through such role have significant influence over the
shares of the Corporation owned by Mercer.

 

Corporate Cease Trade Orders, Bankruptcies,
Penalties or Sanctions

 

To the knowledge of the Corporation and
based upon information provided by the directors and executive officers, none of the Corporation’s directors and executive
officers is, or within ten years prior to the date hereof has been, a director, chief executive officer or chief financial officer
of any company (including the Corporation) that (i) was subject to a cease trade order, an order similar to a cease trade order,
or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for a period
of more than 30 consecutive days, that was issued while the director or executive officer was acting in the capacity as director,
chief executive officer or chief financial officer, or (ii) was subject to a cease trade order, an order similar to a cease trade
order, or an order that denied the relevant company access to any exemption under securities legislation, that was in effect for
a period of more than 30 consecutive days, that was issued after the director or executive officer ceased to be a director, chief
executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the
capacity as director, chief executive officer or chief financial officer.

 

    	Ayr Strategies Inc.	70	Annual Information Form

     

    

 

To the knowledge of the Corporation and
based upon information provided by the directors and executive officers, none of the Corporation’s directors and executive
officers is, or (i) within ten years prior to the date hereof has been, a director or executive officer of any company (including
the Corporation) 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, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets,
or (ii) has, within ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy
or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver,
receiver manager or trustee appointed to hold the assets of the director or executive officer.

 

To the knowledge of the Corporation and
based upon information provided by the directors, except for the following, none of the Corporation’s directors and executive
officers 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 investor
in making an investment decision.

 

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.

 

Conflicts of Interest and Interests
of Management and Others in Material Transactions

 

To the best of the Corporation’s
knowledge, other than as disclosed below and elsewhere in this AIF, 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 Ayr act honestly and
in good faith with a view to the best interest of Ayr, to disclose any personal interest which they may have in any material contract
or transaction which is proposed to be entered into with Ayr 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 businesses comprising the Corporation’s Qualifying Transaction, namely Louis Karger
for Sira, Steve Menzies for LivFree and Mark Smith for Cannapunch, and so while it is possible that a dispute may arise pursuant
to the respective Definitive Agreement, 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 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.

 

    	Ayr Strategies Inc.	71	Annual Information Form

     

    

 

PROMOTER

 

Mercer was considered a promoter of Ayr
within the meaning of applicable securities legislation at the time of the Offering and at the time of the Final QT Prospectus.

 

As of June 30, 2020, Mercer owns, of record
and beneficially, (1) 3,677,626 Multiple Voting Shares (comprised of 1 Multiple Voting Share (formerly, a Class B Share) issued
on September 25, 2017 in connection with Ayr’s incorporation and initial organization, 3,415,437 Multiple Voting Shares (formerly,
Class B Shares which were automatically exchanged into Multiple Voting Shares in connection with the Qualifying Transaction) and
the 262,188 Multiple Voting Shares (formerly, Class B Shares) forming part of the 262,188 Class B Units), representing approximately
18.79% of Ayr’s issued and outstanding shares, (2) 2,884,058 Warrants (comprised of 2,621,870 Warrants issued to Mercer (referred
to previously as “Founders’ Warrants”) and the 262,188 Warrants forming part of the 262,188 Class B Units), representing
approximately 17.96% of Ayr’s issued and outstanding Warrants, and (3) 262,188 Rights (forming part of the 262,188 Class
B Units), representing approximately 16.76% of Ayr’s issued and outstanding Rights.

 

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

 

Ayr is not party to any material legal
proceedings or regulatory actions nor, to its knowledge, are any such material proceedings or actions contemplated by or against
us.

 

AUDITORS, TRANSFER AGENT AND REGISTRAR

 

Ayr’s auditors are MNP LLP, having
an address at 111 Richmond Street West, Suite 300, Toronto, Ontario, Canada, M5H 2G4. Such firm is independent of the Corporation
within the meaning of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario (registered name of
The Institute of Chartered Accountants of Ontario).

 

Odyssey Trust Company (“Odyssey”),
at its principal offices in Toronto, Ontario, is the transfer agent and registrar for the Corporation’s Subordinate Voting
Shares and the Multiple Voting Shares.

 

Odyssey, at its principal offices in Toronto,
Ontario, is the Warrant Agent for the Corporation’s Warrants under the Warrant Agreement and is the Rights Agent for the
Corporation’s Rights under the Rights Agreement.

 

MATERIAL CONTRACTS

 

As of December 31, 2019, the following
are the material contracts of Ayr, other than contracts entered into in the ordinary course of business:

 

		(a)	the Warrant Agreement;

 

		(b)	the Rights Agreement;

 

		(c)	the Definitive Agreements;

 

		(d)	the Exchange Rights Agreements;

 

		(e)	the Management Services Agreements; and

 

		(f)	the Operations Agreement.

 

To the extent that cannabis-related licenses
could also be considered to be material contracts, see the licenses listed under “Description of the Business - Licenses”.

 

The Corporation has no leases representing
over 10% of its revenues, to the extent that such contracts would be considered to be material contracts entered into outside of
the ordinary course of business for the purposes of this AIF.

 

    	Ayr Strategies Inc.	72	Annual Information Form

     

    

 

Copies of these agreements are available
for inspection at our offices, during ordinary business hours and will be available on SEDAR at www.sedar.com.

 

Copies of the above material are available
on Ayr’s SEDAR profile at www.sedar.com.

 

INTERESTS OF EXPERTS

 

The financial statements for the fiscal
period ended December 31, 2019 have been audited by MNP LLP, the Corporation’s auditors, who are independent within the meaning
of the Rules of Professional Conduct of the Chartered Professional Accountants of Ontario (registered name of The Institute of
Chartered Accountants of Ontario).

 

As at the date hereof, none of the partners
or associates of MNP LLP beneficially own, directly or indirectly, any of our securities.

 

AUDIT COMMITTEE

 

AUDIT COMMITTEE CHARTER

 

The Board has adopted a written charter
(the “Charter of the Audit Committee”) for the audit committee of the Corporation (the “Audit Committee”),
which sets out the Audit Committee’s responsibility in reviewing and approving the financial statements of the Corporation
and public disclosure documents containing financial information and reporting on such review to the Board, ensuring that adequate
procedures are in place for the reviewing of the Corporation’s public disclosure documents that contain financial information,
overseeing the work and reviewing the independence of the external auditors. The text of the Charter of the Audit Committee that
has been adopted is attached to this AIF as Appendix A.

 

COMPOSITION OF AUDIT COMMITTEE

 

The Audit Committee is composed of a minimum
of three directors, each of whom is financially literate within the meaning of National Instrument 52-110 – Audit Committees.
As at June 30, 2020, the Audit Committee was composed of:

 

Jonathan
Sandelman (as Chair)

 

Charles
Miles

 

Chris
R. Burggraeve

 

EXTERNAL AUDITOR SERVICE FEES

 

During the fiscal periods ended December
31, 2019, and December 31, 2018, the Corporation paid the following fees to the Corporation’s external auditors, MNP LLP,
for the following fee categories:

 

	Fee Category	Fiscal

                                                                                Period

                                                                                2019 ($)
	Fiscal

                                                                                Period 

2018 ($)

	Audit Fees	$425,000	$23,500
	Audit-Related Fees	$105,000	$7,500
	Tax Services Fees	N/A	$1,750
	Other Fees	N/A	N/A
	TOTAL	$530,000	$32,750

Audit Fees

 

Audit fees include all fees paid to the
Corporation’s external auditors for the audit of the Corporation’s financial statements.

 

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Audit-Related Fees

 

Audit-related fees include all fees paid
to the Corporation’s external auditors for audit-related services including the review of the Corporation’s interim
financial statements, preparation and/or review of certain filings with Canadian securities regulators, including comfort and consent
letters, and accounting consultations on matters addressed during the audit and interim reviews.

 

Tax Services Fees

 

Tax services fees include all fees paid
to the Corporation’s external auditors for tax-related advice including tax return preparation and/or review and tax planning
advice.

 

All Other Fees

 

Other fees include fees for products and
services provided by the Corporation’s auditors other than the services included in “Audit Fees”, “Audit-Related
Fees” and “Tax Services Fees”.

 

ADDITIONAL INFORMATION

 

Additional information with respect to
the Corporation is provided in the Corporation’s audited financial statements and notes to the audited financial statements
and the Corporation’s management’s discussion & analysis for the fiscal period ended December 31, 2019 and for
the three and six months ended June 30, 2020. Additional information with respect to the Corporation, including certain of its
directors’ and officers’ remuneration, and securities authorized for issuance under the Corporation’s equity
incentive plan, is contained in the Corporation’s Form 51-102F6 – Statement of Executive Compensation for the financial
year ended December 31, 2019. These documents as well as additional information relating to the Corporation are available on SEDAR
at www.sedar.com.

 

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APPENDIX A

 

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.

 

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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.

 

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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;

 

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		(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;

 

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		(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.

 

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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.

 

    	Ayr Strategies Inc.	A-6	Annual Information Form

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