The Supreme Cannabis Company, Inc. Annual Report 2019

FY2019 Annual Report · The Supreme Cannabis Company, Inc.

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The Supreme Cannabis Company Inc.
Annual Report 2019

T S X : F I R E

We simply
grow better.

The Supreme Cannabis Company, Inc.
The Supreme Cannabis Company, Inc. is a global diversified
portfolio of distinct cannabis brands. Since 2014, the
Company has emerged as one of the world’s fastest-growing,
premium plant driven-lifestyle companies by effectively
deploying capital, with an emphasis on disciplined growth
and high-quality products.

About Us

04.

09.

10.

12.

14.

24.

26.

83.

Message from the CEO

Vision and Mission

Fiscal 2019 Highlights

Canadian Cannabis Landscape

Brands and Operations

Message from the Chairman

Management’s Discussion and Analysis

Consolidated Financial Statements

Stay up to date on what Supreme Cannabis and

its brands are up to in FY2020

Message from
the CEO.

To our fellow shareholders,

Fiscal 2019 was a transformational year for the industry and for our Company. We began

the year with the landmark passing of the Cannabis Act, legislation that set the stage for the

federally regulated cannabis industry in Canada and created a standard for cannabis policies

and regulatory frameworks globally.

The legalization and subsequent creation of a new industry came with expected challenges.

Anticipating discerning consumers, supply challenges and price compression for mid to low-

end products, we took a differentiated approach from our peers. We measured our success

beyond yield and capacity; the pursuit of quality for a long-term competitive advantage drove

our business strategy. We overcame foreseen industry challenges with our first brand, 7ACRES

by focusing on the essential skill of premium cultivation at scale.

7ACRES’ in demand products secure strong pricing with Canadian provinces and maintain

premium margins. The ability to cultivate cannabis to a desired specification of quality is

a foundational skill that establishes a long-term competitive advantage with wide-ranging

impacts. We end fiscal 2019 as one of the top regulated branded revenue generators in the

Canadian cannabis industry. We generated earnings with brands that are uniquely equipped

and competitively positioned to operate in any regulated cannabis environment.

NAVDEEP DHALIWAL
CHIEF EXECUTIVE OFFICER

AND DIRECTOR

“We measured our success beyond yield and capacity; the

pursuit of quality for a long-term competitive advantage

drove our business strategy.”

Message from the CEO

Brands, Operations and Corporate Services.

With our initial approach, we built a distinguished premium brand, a scaled cultivation facility and

developed unique regulated-industry expertise. These core strengths and assets make up Supreme

Cannabis’ strategic functions; we go to market with authentic brands, focused regulated operations at

scale and essential corporate services with the goal of growing regulated branded revenue.

Authentic brands are created and built with extensive industry research and consumer insights. We view

marketing and communications as tools to enhance awareness, but first and foremost, we let our product

quality speak for our brands. Our uncompromising products are what create authentic brands that

consumers trust. We have established a diversified portfolio of premium brands with exceptional products

that cater to varying desired consumer experiences.

Focused operations at scale create the exceptional products that drive our brands. This year, we scaled

a highly sophisticated cultivation facility and expanded our operations to include licensed extraction and

R&D infrastructure. We made careful capital investments in operating assets to diversify our business and

ensure strong long-term returns.

Industry leading corporate services support the revenue drivers of our business. Our sales, marketing,

commercialization, finance, legal and regulatory teams serve our global brands and operations from

Supreme Cannabis’ headquarters in Toronto, Ontario. As Supreme Cannabis’ portfolio expands, we

continue to grow a diverse and experienced pool of human capital that offers unparalleled value to our

brands and businesses.

Brands Inspired by Consumer Experiences.

We aim to create meaningful brands that stand for something in the eyes of consumers. We achieve this

by identifying distinct consumer groups, determining their needs and creating products that address those

existing human behaviours and preferences. As Canadian and global cannabis markets develop, more

distinct consumer groups are emerging. We are building a diverse portfolio of brands that cater to these

consumers’ unique experiences.

7ACRES core ethos of “Respect the Plant” guides both those who cultivate the flower and those who enjoy

it. 7ACRES caters to cannabis flower consumers, delivering products with strong sensory characteristics,

robust terpene profiles and desirable flower consumption experiences. 7ACRES has launched five flower

products into eight provinces across Canada. The brand continues to grow its line-up of premium strains,

most recently launching its first sativa cultivar, Jack Haze.

Blissco is a Canadian license holder and extractor selling premium wellness products. Blissco was

identified as a high-potential wellness brand producing quality wellness products and operating

a facility with existing extraction capabilities. In the fourth quarter, we announced the definitive

agreement to acquire Blissco, which closed in July, 2019. Blissco accelerates our growth into the

premium wellness and global CBD industry with an authentic brand focused on whole plant wellness

and a commitment to sustainability.

Truverra’s global medical brand and experienced pharmaceutical team caught our attention during

fiscal 2019. In July, we announced the acquisition of Truverra, a privately held cannabis company

serving the Canadian and international cannabis markets through its wholly-owned subsidiaries,

Canadian Clinical Cannabinoids and Truverra Europe. Subsequent to fiscal year end, we closed the

acquisition of Truverra, creating a house of brands capable of serving recreational, wellness and

medical consumers.

World-class partnerships. In fiscal 2019, we complimented our brand-building efforts with select

strategic partnerships, aligning our Company with well-known and top-tier names like Khalifa Kush

Enterprises Canada and PAX Labs. By year end, we launched our first product under the KKE brand,

KKE Oil. We intend to create other ultra premium products under this brand, including pre-rolls,

derivative products and flower to provide consumers with the #KKExperience.

We drew additional brand strength from our partnership with PAX, announcing our agreement to

supply 7ACRES-branded vaporizer oil for PAX Era pods. As one of PAX’s foundational partners, we are

well positioned to quickly capitalize on the market for new cannabis vaporizer products. Partnerships

with companies like PAX allow us to strategically enter new product categories for new consumer

groups alongside an established and trusted brand while focusing on the quality cannabis inputs. We

will continue to work with like-minded partners to drive synergies and regulated branded revenue.

Foundational Strength in Regulated Operations.

Whether we are creating novel strains, premium flower or new product forms, sophisticated operations

drive the success of each of our brands and partnerships.

Regulated cultivation at scale. 7ACRES’ hybrid indoor greenhouse in Kincardine, Ontario is one of the

only cultivation facilities in Canada growing premium cannabis at scale. By fiscal year end, the facility

boasted 230,000 square feet of licensed growing space, this represents an annual production capacity

of approximately 33,000kg.

Extraction for wellness products. Blissco’s production facility in Langley, British Columbia houses a

state-of-the-art extraction lab that will include both ethanol and CO2 extraction. This operating asset

expands our infrastructure beyond cultivation, with capability to address much of our businesses’

extraction needs in-house.

Message from the CEO

Extraction and development of cannabis concentrate products. Truverra’s 5,000 square-foot Health

Canada licensed facility in Scarborough, Ontario is being re-purposed to produce high-quality

cannabis extracts, including concentrates and vaping liquids for “cannabis 2.0”. We believe the

Scarborough facility will begin to produce products in early calendar year 2020.

Genetics and cultivation R&D. To ensure 7ACRES’ facility maintained its focus on premium cultivation

at scale, we spun-out 7ACRES’ genetics business, creating Cambium Plant Sciences. Drawing on the

expertise from 7ACRES’ existing genetics practice and advanced cultivation practices, Cambium

will develop proprietary cannabis genetics and cultivation IP for recreational, medical and wellness

products.

With the goal of developing focused infrastructure and expertise, Supreme Cannabis is investing

approximately $14 million to retrofit and equip an existing 34,000 square foot facility in close

proximity to 7ACRES. The valuable intellectual property Cambium creates will ensure the production

of differentiated and competitive cannabis products for the long-term and possibly future blockbuster

strains.

Prudent Capital Allocation and Strong Financial Performance.

The Company’s financial results provide an initial indication of the positive consumer response to our

products. In fiscal 2019, Supreme Cannabis generated total revenue of $41.8 million, growing revenue

by 370% year-over-year. From a revenue run rate perspective, Supreme Cannabis was among the top

6 performing Canadian licensed producers in 2019.

Through prudent capital allocation, we further differentiated ourselves from industry players, ending

the year with an Adjusted EBITDA positive quarter, reporting $3.2 million for the fourth quarter. As we

grow our business beyond 7ACRES, we maintain our thoughtful and focused approach, acquiring and

investing in brands and assets that provide a differentiated long-term advantage.

Positioned for International Growth.

We take a prudent approach to pursuing international opportunities, minimizing risk while positioning

the Company for continued global growth. Through key investments and globally positioned brands,

we are entering new markets and establishing a strategic footprint.

Supreme Cannabis’ early investment in Medigrow, a Lesotho-based cannabis producer, provided

access to an advanced cultivation and extraction operation in a federally legal low-cost international

jurisdiction. In fiscal 2019, Medigrow received a positive Certificate of Analysis for its oils; with this

validation of the product quality, we expect to export Medigrow product to various international

jurisdictions in the near-term to drive the growth of our international regulated brands.

In the fourth quarter, we launched Supreme Heights, an investment platform based in London, UK.

Supreme Cannabis will support Supreme Heights as it pursues investment opportunities in the EU’s

high-growth CBD health and wellness space. As Supreme Heights makes headway in this promising

market, we establish an early mover advantage, gain broad experience across jurisdictions and

secure early equity positions in CBD and wellness brands.

Further to standalone investment opportunities, we intend to address promising international

markets with Supreme Cannabis’ brands. Truverra Europe addresses consumers’ growing demand

for CBD products with proven efficacy. Truverra currently delivers scientifically proven products

to the UK and Netherlands and will create evidence based medical cannabis products for global

markets. Truverra’s experienced senior management team will drive this strategy forward, applying

their global pharmaceutical and regulated industry experience.

Building on a Strong Foundation.

We enter fiscal 2020 fully funded to execute on all planned initiatives and positioned to build on

our strong foundation. Through our existing brands, partnerships, operations and international

businesses we expect to generate revenue between $150 million and $180 million in fiscal 2020.

We continue to prioritize sustainable and profitable operations and expect to be Adjusted EBITDA

positive on aggregate in the upcoming year.

Our team believes in the positive impact cannabis can make globally. This industry is in its first

inning and we are confident in our consumer experience driven approach, which has established us

as a leading player, driving global revenue growth through our regulated cannabis brands.

Our brands, operations and services are driven by incredible people who share a unifying passion

for the cannabis plant. Our passionate team prioritizes superior products, best-in-class processes,

differentiated brands and decision making that delivers long-term value. Our people possess

“FIRE”, which is more than the TSX ticker symbol we trade under, it’s the passionate culture which

fuels Supreme Cannabis for sustainable growth.

I would like to thank our shareholders for supporting our differentiated vision and approach.

Whether it be the launch of new products, acquisition of new businesses or expansion of

international operations, we continue to see the long-term value of our foundational investments in

high-end cannabis cultivation.

Together, we continue to simply grow better and bigger.

Thank you,

NAVDEEP DHALIWAL
CHIEF EXECUTIVE OFFICER

AND DIRECTOR

Vision and Mission

Vision and
Mission.

Vision.

Improve global well-being
with cannabis.

Mission.

We exist to use our
knowledge of the plant
to create transformative
businesses, products and
brands that deliver positive
experiences.

“In fiscal 2019, we unified Supreme Cannabis under a

distinct corporate identity, one with a design and essence

that will grow with our business. We created a meaningful

brand by bringing our people together under a mission and

vision that aligned with their goals and values.”

NICOLE SALE
VP COMMUNICATIONS, INVESTOR RELATIONS AND DIGITAL

Financial Highlights.

$41,833,000

Total Revenue

$100,000,000

Capital raised

370% Revenue Growth

Year over Year

Supreme Cannabis Revenue Growth
($ millions)

FY2018

FY2019

$19.0

$7.7

$10.0

$5.1

$3.5

$1.6

$1.7

$2.1

“In fiscal 2019, we established and scaled a strong core business, ending the

year with our first Adjusted EBITDA positive quarter. We prepared for Fiscal

2020 with thoughtful acquisitions and maintained a focused and disciplined

approach to growth.”

NIKHIL HANDA

CHIEF FINANCIAL OFFICER

Operating Highlights.

Fiscal 2019 Highlights

Launched diverse brand portfolio: 7ACRES, BLISSCO, TRUVERRA

Secured partnerships with leading premium brands: PAX, KKE

Graduated to the Toronto Stock Exchange, becoming TSX : FIRE

Signed supply agreements across Canada, entering 8 provinces

Scaled a premium cultivation facility in Canada to over 440,000 square feet

Canadian Cannabis
Landscape.

“Over the past decade, Canada has been a leader in re-thinking cannabis regulation to

create a better legislative framework that reduces risks and enables positive outcomes for

all stakeholders. After 95 years of prohibition, the Cannabis Act came into effect on October

17, 2018, federally legalizing Cannabis in Canada. This should be remembered as a proud

moment for all Canadians. We showed leadership on the international stage as the first G7

country to take a progressive, fact-based approach to cannabis legislation.

The Cannabis Act gave us the opportunity to launch 7ACRES as Canada’s leading High-

End™ brand for cannabis enthusiasts. The cannabis that consumers were familiar with prior

to legalization possessed desirable sensory characteristics, this existing product created

a high expectation for legal cannabis. To meet and exceed expectations, we learned

from the techniques of our predecessors. We carefully selected our plants, grew them

thoughtfully and completed a comprehensive slow plant dry and cure, and we did this on

a massive scale. This process created flower with an aroma, appearance and flavour that

appealed to the most discerning of consumers. By producing a product our customers love,

we experienced consistent demand and achieved premium pricing that we believe will be

sustainable over time.

Our focus on high-end flower positions us for success beyond the first wave of cannabis

legalization. As we prepare to launch Cannabis 2.0 products, we are equipped with the high-

quality flower inputs necessary to create best-in-class oil, concentrates and other derivative

products. By exceeding consumer expectations across all of our offerings, we do more than

drive better pricing; we improve our industry and show respect for our consumers”.

JOHN FOWLER

FOUNDER, CHIEF ADVOCACY OFFICER AND

MANAGING DIRECTOR, FLOWER & CONCENTRATES

Canadian Cannabis Landscape

Consumer Driven Approach
in Canada and Abroad.

Discover. Identified, researched and analyzed target

consumer segment: the Adult Cannabis Enthusiast.

Design. Constructed a one-of-a-kind purpose-built

hybrid-greenhouse to create products for Enthusiasts.

Deliver. Cultivated and distributed high-end cannabis

with strong sensory characteristics across Canada.

Scale. Created leading infrastructure, processes

and operations that can be replicated and modified globally.

WE OPERATE IN ONE OF THE MOST HIGHLY

REGULATED INDUSTRIES IN THE WORLD.

Brands and Operations.

230,000 Square Foot

licensed cultivation space

8 Provinces

across Canada

3 Awards

for 7ACRES’ brand

+600 Employees

currently working at 7ACRES

4 Strains

sold across Canada

JEAN GUY

SENSI STAR

WAPPA

WHITE WIDOW

Brands and Operations

1515

7ACRES is the only licenced producer growing premium cannabis at

scale in Canada. The multi-award winning 7ACRES brand is committed to

providing a high end cannabis experience, through the creation of better

cannabis flower. 7ACRES grows hand-crafted cannabis from its purpose-

built 440,000 square foot indoor hybrid facility.

“We believe that passionate people grow better cannabis.

In fiscal 2019, we grew our team at 7ACRES to over 600

passionate people who care about the product they

produce and the end consumer it reaches.”

RAM DAVLOOR

SENIOR VICE PRESIDENT, OPERATIONS AND

GENERAL MANAGER OF 7ACRES

Blissco Cannabis Corp. is an established cannabis brand, distributor and

retailer in British Columbia. Supreme Cannabis is accelerating Blissco’s

growth as a premium wellness cannabis company, advancing the

company’s product development and focusing its operations. Supreme

Cannabis is expanding Blissco’s existing extraction infrustructure to serve

the increasing demand for high-CBD derivative products.

12,000 Square Foot

extraction facility

7,000,000 Tincture Bottles

of cannabis oil annually by December 2019

“Through our shared corporate services model, we facilitate

the smooth integration of new businesses, quickly applying our

SENIOR VICE PRESIDENT, OPERATIONS

AND GENERAL MANAGER OF 7ACRES

best-in-class processes and expertise in commercialization,

marketing, branding, regulation and finance.”

RIYAZ LALANI

CHIEF CORPORATE OFFICER

Brands and Operations

In July 2019, subsequent to year end, Supreme Cannabis entered into a definitive

agreement to acquire Truverra Inc. Truverra’s European subsidiary, Truverra

Europe, delivers its rapidly expanding portfolio of CBD Hemp products into the UK

and Netherlands, as well as direct to consumer through the company’s ecommerce

website. Supreme Cannabis will address international medical opportunities under

the Truverra brand.

5,000 Square Foot

licensed research and extraction facility in Ontario

25 SKU’s

of efficacy-based CBD wellness products

In April 2019, Supreme Cannabis launched Cambium Plant Sciences to create

and commercialize the next generation of premium cannabis genetics.

Cambium is led by a team with over 30 years of experience developing plant

IP, the same team who built 7ACRES genetics business. Cambium will operate

from a 34,000 square foot state-of-the-art research and development facility

located in Goderich, Ontario.

34,000 Square Foot

research and development facility

11,000 Seeds

procured for strain development and testing

Investments.

In June 2019, Supreme Cannabis announced the launch of Supreme Heights, a

separate entity that would be solely dedicated to addressing opportunities in the

UK and Europe’s CBD Health and wellness market. Supreme Heights will target

strategic investments in and provide support services to differentiated high-growth

health and wellness businesses with focused brands and premium CBD offerings.

400% Growth

expected for Europe’s CBD market over next four years1

5 EU Jurisdictions

legalized medical cannabis since January 20182

1. Brightfield Group, March 2019 2. Prohibition Partners, August 2019

Brands and Operations

Located in the Kingdom of Lesotho, a jurisdiction within Southern

Africa, Medigrow produces medical cannabis oil products for

international markets. Supreme Cannabis maintains a global

distribution agreement with Medigrow and holds an approximate

10% ownership interest in Medigrow.

+400 Employees

at Lesotho facility

424,000 Square Feet

across eight cultivation pads

“Our legal, regulatory and quality assurance experts show respect for our regulators
and consumers by adhering to the robust cannabis regulatory regime that ensures
product consistency and safety. As we bring new cannabis derivative products
to market and enter new international jurisdictions, we apply our learnings from
operating in one of the most advanced regulated cannabis industries in the world.”

SONY GOKHALE
GENERAL COUNSEL AND REGULATORY AFFAIRS

Partnerships.

In December 2018, Supreme Cannabis and Khalifa Kush Enterprises Canada

(“KKE”) entered into an exclusive consulting services agreement to develop

and launch a lineup of premium cannabis products for Canada and

international markets. In June 2019, KKE oils were launched into the Canadian

market, the first in a full suite of recreational focused products to be created

under the partnership.

Brands and Operations

In June 2019, Supreme Cannabis and Pax Labs formed a partnership to

launch the PAX Era in Canada with Premium 7ACRES oil pods. With the

announcement of Health Canada’s final regulations for new cannabis

products, Supreme Cannabis is positioned to enter Canada’s cannabis

extracts category alongside one of the most proven and established

vaporizer companies in the world.

RAM DAVLOOR
SENIOR VICE PRESIDENT, OPERATIONS

“We formed strong partnerships with leading consumer-
brands, drawing on our respective strengths to create premium
AND GENERAL MANAGER OF 7ACRES
differentiated offerings.”

OMER AZEEZ

VICE PRESIDENT, COMMERCIALIZATION

Message from
the Chairman.

Organizing the business for strategic vision, execution and sustainable growth.

Fiscal 2019 was a year of tremendous growth for Supreme Cannabis. We ended the

year reporting an Adjusted EBITDA positive fourth quarter and affirming our path

towards sustainable profitability, distinguishing ourselves as one of the few Canadian

cannabis companies delivering growth without sacrificing profitability.

To prepare for this growth, we began the first quarter of fiscal 2019 with the repositioning of

the company’s management team. We made Navdeep Dhaliwal the Company’s Chief Executive

Officer to optimize Supreme Cannabis’ growth trajectory and expand the Company from a

single asset into a diversified portfolio of brands built on strong regulated operations. At the

same time, Supreme Cannabis’ founder, John Fowler, transitioned into a new role that best

leverages his status as one of Canada’s foremost authorities on the cannabis plant, consumers

and products. As our Chief Advocacy Officer and Managing Director of Flower & Concentrates,

Mr. Fowler will chart Supreme’s course forward into “Legalization 2.0” while continuing to be the

cannabis industry’s leading voice for adopting a more consumer-oriented approach to building

brands and businesses.

As the Company continued to grow over the course of fiscal 2019, the board of directors

recognized additional opportunities to ensure we had a strong management team in place to

deliver value for shareholders. In April, Nikhil Handa was appointed to Chief Financial Officer

to further drive inorganic international and domestic growth. Through his senior roles at Well.

ca, Restaurant Brands International and RBC Capital Markets, Mr. Handa brought a wealth of

experience in the wellness space and transaction expertise to the senior leadership team.

“In February 2019, Supreme Cannabis reached a significant

company milestone as it commenced trading on the Toronto

Stock Exchange.”

Message from the Chairman

“the Board believes it has formed a team with the critical

experience needed in retail, supply chain management,

regulated industry and governance to help guide Supreme

Cannabis forward.”

Strong Corporate Governance.

In February 2019, Supreme Cannabis reached a significant company milestone as it
commenced trading on the Toronto Stock Exchange. With our graduation to the TSX, we
saw an opportunity to further enhance our board and practices.

During the fiscal year and subsequent to quarter end, we accepted the resignation of two
non-independent directors and named Kenneth R. McKinnon, Q.C independent director.
Mr. McKinnon’s director experience includes his current position on Touchstone Exploration
Inc.’s board of directors and his previous positions on the boards of Petrominerales Ltd.
and Lightstream Resources Ltd. As an experienced corporate executive and director, Mr.
McKinnon brought substantial financial oversight and business advisory experience to the
Company’s Board.

With Mr. McKinnon’s addition, the Board believes it has formed a team with the critical
experience needed in retail, supply chain management, regulated industry and
governance to help guide Supreme Cannabis forward. In the coming year, we will look
to further bolster the board with the addition of another independent director. As we
continue to build and enhance our board, we look for professionals who will bring diverse
perspectives and expertise to our group.

Your board of directors takes its mandate to exercise accountability to shareholders
seriously. We will be working through the Company’s fiscal 2020 to further implement the
best practises in corporate governance and ensure continued sustainable and responsible
growth.

Thank you for your continued support, trust and confidence.

Respectfully,

MICHAEL LA BRIER
Chairman and Director

Management’s
Discussion and
Analysis Of
Financial Results

For the Year Ended June 30, 2019
All figures expressed in Canadian Dollars

September 17, 2019

The Supreme Cannabis Company, Inc. | TSX:FIRE

THE SUPREME CANNABIS COMPANY, INC.

Management’s Discussion and Analysis.

The following Management’s Discussion and Analysis (“MD&A”) should be read in
conjunction with The Supreme Cannabis Company, Inc. (the “Company” or “Supreme
Cannabis”) consolidated financial statements and notes for the year ended June 30,
2019 (the “Financial Statements”). The Financial Statements, together with this MD&A
are intended to provide investors with a reasonable basis for assessing the financial
performance of Supreme Cannabis as well as forward-looking statements relating to
future performance. The financial statements are prepared in accordance with
International Financial Reporting Standards (“IFRS”). All amounts are in Canadian
dollars unless otherwise noted.

This MD&A contains disclosures up to September 17, 2019.

Certain capitalized terms used in this MD&A which are not defined herein have the
meanings ascribed to them under “Glossary” in the Company’s Annual Information
Form dated September 17, 2019 and available at www.sedar.com.

Forward-Looking Statements.

This MD&A contains certain information that may constitute “forward-looking
information” and “forward-looking statements” (collectively, “forward-looking
statements”) which are based upon the Company’s current internal expectations,
estimates, projections, assumptions and beliefs. Such statements can, in some cases,
be identified by the use of forward-looking terminology such as "expect," "likely",
"may," "will," "should," "intend," "anticipate," "potential," "proposed," "estimate" and
other similar words, including negative and grammatical variations thereof, or
statements that certain events or conditions “may” or “will” happen, or by discussions
of strategy. Forward-looking statements include estimates, plans, expectations,
opinions, forecasts, projections, targets, guidance, or other statements that are not
statements of fact. The forward-looking statements included in this MD&A are made
only as of the date of this MD&A. Forward-looking statements in this MD&A include, but
are not limited to, statements with respect to:

• performance of the Company’s business and operations;
•

intention and plans to grow the business, operations and potential activities of
the Company;
licensing risks and expectations with respect to renewal and/or extension of the
Company’s licences;
risks and any commentary with respect to Canada’s cannabis regulatory regime;

•

•
• change in laws, regulations and guidelines;
•

the potential time frame for the implementation of regulations with respect to
the regulatory framework for ingestible cannabis, cannabis extracts and
cannabis topical products;

•

•
•
•

• expectations with respect to the cannabis market and market risks;
•

the expected growth in the number of customers and patients using the
Company’s adult use and medical cannabis;
the Company’s ability to enter into and maintain strategic arrangements with
distributors and retailers and the potential benefits of such arrangements;
the success of the entities the Company acquires and the Company’s
collaborations;
the development of the Company’s brands, product diversification and future
corporate development;
the expansion and production capacity of the Company’s sites and the timing
related thereto;
risks inherent in an agricultural business;
future liquidity and financial capacity;
the advancement of the Company’s international projects and targeting other
opportunities as the
laws and regulations governing cannabis evolve
internationally;
the competitive and business strategies of the Company;

•
• history of net losses; and
•

the competitive conditions of the medical and adult use cannabis industry.

Certain of the forward-looking statements and other information contained herein
concerning the medical and the adult use cannabis industry and the general
expectations of Supreme Cannabis concerning the medical and the adult use cannabis
industry and concerning Supreme Cannabis are based on estimates prepared by
Supreme Cannabis using data from publicly available governmental sources as well as
from market research and industry analysis and on assumptions based on data and
knowledge of this industry which Supreme Cannabis believes to be reasonable. While
Supreme Cannabis is not aware of any misstatement regarding any industry or
government data presented herein, the medical and the adult use cannabis industry
involves risks and uncertainties that are subject to change based on various factors
and the Company has not independently verified such third-party information.

Although the Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will prove
to have been correct. The Company’s forward-looking statements are expressly
qualified in their entirety by this cautionary statement. In particular, but without limiting
the foregoing, disclosure in this MD&A under “Overview of Supreme Cannabis’ Business
& Corporate Strategy” as well as statements regarding the Company’s objectives, plans
and goals, including future operating results and economic performance may make
reference to or involve forward-looking statements. A number of factors could cause
actual events, performance or results to differ materially from what is projected in the
forward-looking statements. See below under “Risk and Uncertainties” for further
details. The purpose of forward-looking statements is to provide the reader with a
description of management’s expectations, and such forward-looking statements may
not be appropriate for any other purpose. You should not place undue reliance on
forward-looking statements contained in this MD&A. Supreme Cannabis undertakes no

obligation to update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by applicable law.

Non-GAAP Measures.

This MD&A contains certain financial performance measures that are not recognized
or defined under IFRS (“Non-GAAP Measures”). As a result, this data may not be
comparable to data presented by other cannabis companies. For an explanation and
reconciliation of these measures to related comparable financial information
presented in the Financial Statements prepared in accordance with IFRS, refer to the
Results of Operations for the three and twelve months ended June 30, 2019 and 2018
section below. The Company believes that these Non-GAAP Measures are useful
indicators of operating performance and are specifically used by management to
assess the financial and operational performance of the Company. These Non-GAAP
Measures include, but are not limited to, Adjusted EBITDA.

The Company defines Adjusted EBITDA as net income (loss) excluding fair value
changes on growth of biological assets, realized fair value changes on inventory sold
or impaired, amortization of property plant and equipment & intangible assets, share
based payments, finance expense, loss on disposal of property plant and equipment,
unrealized gains or losses on investments and income taxes.

Non-GAAP Measures should be considered together with other data prepared in
accordance with IFRS to enable investors to evaluate the Company’s operating results,
underlying performance and prospects in a manner similar to Supreme Cannabis’
management. Accordingly, these Non-GAAP Measures are intended to provide
additional information and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with IFRS.

Overview of Supreme Cannabis’ Business & Corporate Strategy.

Supreme Cannabis is a global diversified portfolio of distinct cannabis companies,
products and brands.

Supreme Cannabis’ portfolio includes 8528934 Canada Ltd. d/b/a 7ACRES (“7ACRES”),
its wholly-owned subsidiary and multi-award-winning brand; BlissCo Cannabis Corp.
(“BlissCo”), a wellness cannabis brand and a multi-licenced processor and distributor
based in British Columbia; Truverra, a global medicinal cannabis brand and licenced
cultivator; Cambium Plant Sciences (“Cambium”), a plant genetics and cultivation IP
company; Medigrow Lesotho, an cannabis oil producer located in southern Africa;
Supreme Heights an investment platform focused on CBD brands in the United Kingdom
and Europe and party to a brand partnership and licensing deal with Khalifa Kush
Enterprises Canada ULC (“KKE”) (an unrelated entity).

Supreme Cannabis trades as FIRE on the Toronto Stock Exchange (TSX: FIRE), SPRWF on
the OTC Exchange in the United States (OTCQX: SPRWF) and 53S1 on the Frankfurt
Stock Exchange (FRA: 53S1).

We simply grow better.

Mission.

Supreme Cannabis exists to use our knowledge of the plant to create transformative
businesses, products and brands that deliver positive experiences.

Vision.

Supreme Cannabis’ vision is to improve global well-being with cannabis.

Corporate Strategy.

Driven by a strong mission and vision, Supreme Cannabis is committed to creating value
for shareholders by executing on a focused and competitive strategy. The company
aims to pursue opportunities where it can establish a long-term differentiated
advantage. Guided by this overarching objective, Supreme Cannabis operates with
three strategic priorities:

1. Build consumer experience driven brands that generate regulated and

branded cannabis revenue;

2. Create high-quality products to ensure efficacy; and

3. Leverage experience in Canada to enter promising global markets.

Supreme Cannabis’ Portfolio Overview.

OWNERSHIP LOCATION SIZE2 CAPACITY1

7ACRES

100%

Kincardine,
ON

440,000
ft2

50,000 kg

BLISSCO

100%

Langley, BC

12,000
ft2

7,000,000
tincture
bottles

LICENCE
STATUS

Cultivation,
processing and
medical sale

Cultivation,
processing and
medical sale.
Awaiting approval
to sell cannabis
oil

TRUVERRA
EU

100%

UK &
Netherlands

N/A

PURPOSE
Scaled cultivation of
premium cannabis
and processing of
cannabis products
that are dried
cannabis
Infrastructure for
processing cannabis
products that are
cannabis extracts
and cannabis
topicals

Hemp derived
medicinal products

CCC

100%

Scarborough,
ON

5,000
ft2

TBD3

Cultivation and
medical sale.
Awaiting
processing and
analytical testing
licence

CAMBIUM

100%

Goderich, ON

34,000
ft2

Up to 500 kg
flower
cultivation
capacity; on-
site lab testing

Awaiting
cultivation and
processing
licence

MEDIGROW
LESOTHO

10%

Kingdom of
Lesotho

424,000
ft2

2,300 litres of
distillate oil

Licence for
cultivation,
manufacturing,
and sale, into and
outside Lesotho
for medicinal
purposes or
scientific use

SUPREME
HEIGHTS

KKE

N/A4

N/A5

London,
England

Toronto,
Canada

N/A

Infrastructure for
processing cannabis
products that are
cannabis extracts,
cannabis topicals
and edible cannabis
Proprietary R&D for
cultivation and
development of new
varieties of cannabis
plants

Cultivation,
extraction and
processing of
cannabis and hemp
for medical purposes

European CBD
investment platform

Commercialization
and brand
partnership

1 Figures are estimated on an annual basis upon full completion of planned expansion and current
regulatory approvals.
2 Square foot information is based on the planned total size of each facility upon completion of
construction activities.
3 Management is in the process of operationalizing the facility and output metrics are not yet determined
4 The Company has not yet completed an investment in Supreme Heights, which is subject to customary
approvals.
5 KKE is not a related party entity.

Supreme Cannabis’ Brands and Businesses.

Supreme Cannabis global headquarters are located in Toronto, Canada. Since its
founding in 2014, Supreme Cannabis has grown to operate multiple brands and
offerings. Businesses and investments in Supreme Cannabis’ portfolio are supported by
the Company’s shared corporate services model, under which, the Company offers
cultivation, commercialization, financial, regulatory, marketing and brand building
expertise. The Company’s corporate services are delivered by a team of over 60
professionals.

Brands.

7ACRES is a wholly-owned subsidiary of the Company, and is a Licence Holder located
in Kincardine, Ontario, and has been a Licence Holder since March 11, 2016. 7ACRES

grows hand-crafted cannabis for consumers in the adult use market in Canada. The
multi-award winning 7ACRES brand is committed to providing a High-End CannabisTM
experience, through the creation of better cannabis flower.

Products.

7ACRES currently produces four dried flower strains, available for sale in eight
Canadian provinces. On June 7, 2019, 7ACRES announced a partnership agreement
with PAX Labs, Inc. (“PAX”) to create a cannabis product including 7ACRES cannabis
concentrates in pods for use in PAX’s best-selling PAX Era concentrate vaporizer
system. 7ACRES currently sells adult-use dried cannabis into the Ontario, British
Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, New Brunswick and Prince
Edward Island adult use markets.

7ACRES Site.

7ACRES takes pride in growing High-End CannabisTM that respects each variety’s
genetic lineage and history. 7ACRES grows its cannabis plants in a purpose-built
440,000 square foot indoor hybrid site (the “7ACRES Site”). The 7ACRES Site is unique
for being one of the only in the world capable of premium cultivation at scale.

BlissCo is a wholly-owned subsidiary of the Company that is a Licence Holder in Langley,
British Columbia, with a focus on extraction and processing of cannabis extracts and
cannabis topicals. On July 11, 2019, Supreme Cannabis acquired all of the issued and
outstanding common shares of BlissCo, not already owned by Supreme Cannabis.
BlissCo has been a Licence Holder since March 2018. BlissCo currently sells adult-use
dried cannabis into the British Columbia, Alberta, Saskatchewan and New Brunswick
adult use markets.

Global wellness brand.

With the acquisition of BlissCo, Supreme Cannabis gained a dedicated wellness brand
that focuses exclusively on this growing consumer segment globally. Supreme Cannabis
is streamlining BlissCo’s production operations to create a highly focused site
dedicated to hemp and cannabis extraction for processing of full-spectrum and
specific-fraction cannabis products. Cannabis products launched under the BlissCo
brand are expected to include cannabis extracts high in CBD, dried cannabis pre-rolls
with significant amounts of CBD and cannabis topicals high in CBD for domestic and
international markets.

BlissCo Site.

BlissCo’s production site (“BlissCo Site”) in Langley, British Columbia has been
producing cannabis oils and pre-rolls since receiving its cultivation, cannabis sales and

oil production licences in 2018. The BlissCo Site houses a state-of-the-art cannabis oil
extraction lab with a CO2 extractor capable of producing full spectrum products.

Truverra is a wholly-owned subsidiary of the Company located in Scarborough, Ontario.
On August 13, 2019, Supreme Cannabis acquired all issued and outstanding shares of
the privately held cannabis company, Truverra Inc. and its subsidiaries Canadian
Clinical Cannabinoids Inc. (“CCC”) and Truverra (Europe) B.V. (“Truverra Europe”).
CCC operates a 5,000 square-foot Health Canada licenced site (“Truverra Site”) in
Scarborough, Ontario. Supreme Cannabis intends to repurpose CCC’s state-of-the-art
site to produce high-quality cannabis extracts, including cannabis concentrates. In
addition to its operations in Canada, Truverra Europe is located in the Netherlands and
sells a broad portfolio of hemp-based CBD products into select European markets.

Global medical brand.

Truverra is well positioned to take advantage of the emerging cannabis market in
Europe and is a leader in the development, marketing and distribution of hemp derived
medicinal products with clinically proven efficacy. Truverra Europe is currently
delivering its rapidly expanding portfolio of CBD hemp products into the United
Kingdom and Netherlands, as well as direct to consumer through the company’s
ecommerce. Truverra is currently in the process of developing unique cannabis derived
branded ‘ingredients’ with proven safety and efficacy for broad high-value health
indicators.

Product diversification infrastructure.

CCC has been a Licence Holder since March 2019. CCC’s 5,000 square-foot site will
house Supreme Cannabis’ extraction lab for processing cannabis concentrates and
other cannabis extracts, including cannabis concentrates for vaporizing. Supreme
Cannabis is retrofitting the site to include a range of solvent-less extraction equipment
to leverage our unique position as the only cultivator with high-end flower at scale.
Changes to the site are being made with the goal of meeting demand of the upcoming
market for cannabis products that are cannabis concentrates and other cannabis
extracts, including cannabis concentrates for vaporizing.

Cambium is a wholly-owned subsidiary located Goderich, Ontario. With the systematic
application of research, technology and science, Cambium is developing the next
generation of premium cannabis genetics for the adult use, medical and wellness
markets. Cambium’s innovative mission is to supply agriculturally focused, disease
resistant, premium seed stock to the rapidly growing global cannabis market.

Proprietary intellectual property.

Leveraging 7ACRES’ large production platform and plant knowledge, Cambium will use
proprietary research, technology and scientific methodologies to revolutionize
cannabis cultivation for the adult use, medical and wellness markets. Supreme
Cannabis believes this creates long-term proprietary value for the Company’s in-house
brands.

Business to business genetics brand.

The team at 7ACRES established one of the largest cannabis genetics businesses in
Canada by supplying plant genetics to other Licence Holders on a royalty basis.
7ACRES’ in-house genetics business was spun out to create Cambium. With focused
operations, Supreme Cannabis expects Cambium to emerge as a top supplier of
cannabis genetics in Canada.

Dedicated genetics R&D Site.

Supreme Cannabis is investing approximately $14 million to retrofit and equip an
existing 34,000 square foot site (“Cambium Plant Sciences Site”) in Goderich, Ontario.
Retrofitting of Cambium’s R&D site commenced in July 2019 and is expected to be
complete by January 2020.

Investments.

In March 2018, Supreme Cannabis entered into a definitive agreement pursuant to
which Supreme Cannabis completed a $10.1 million strategic equity investment in
Medigrow Lesotho for a 10% equity stake as well as a global distribution agreement for
their supply of high-quality cannabis extracts.

International medical focus.

Supreme Cannabis anticipates growing demand for medical cannabis extracts
globally. As one of the first Licence Holders to recognize the opportunity in the Kingdom
of Lesotho, Africa, Supreme Cannabis’ investment in Medigrow Lesotho will help meet
that demand. The Medigrow team has the expertise to meet the highest quality
standards in cannabis extract production.

Advanced operations.

Medigrow has installed cannabis extractors on-site and continue to process cannabis
extracts. Supreme Cannabis anticipates output at Medigrow to be approximately 2,300
litres of cannabis distillate oil per year. Remaining construction continues in the
cultivation space and surrounding areas. All construction is being completed in
anticipation of applying for an EU GMP certification.

Founded in June 2019, Supreme Heights targets investments in high quality,
differentiated brands with defendable business models and strong management teams
in the United Kingdom and European branded CBD health & wellness segment. Partners
of Supreme Heights benefit from the industry experience, knowledge and intellectual
property of Supreme Cannabis. Supreme Heights works collaboratively with Supreme
Cannabis to diligently assess investment opportunities, identify synergies and advance
the businesses in its portfolio.

CBD offerings.

Supreme Heights will make strategic investments in and provide support services to
differentiated high-growth health and wellness businesses with focused brands and
premium CBD offerings.

Particular attention will be paid towards investments in wellness brands with CBD
offerings in extract vaporizers, topicals and edibles (including beverages) or with
ancillary services.

Strong partnership.

Supreme Heights benefits
regulatory, product
commercialization, supply chain, marketing and capital markets expertise and
corporate support services, and in some cases Supreme Cannabis’ intellectual
property. Supreme Cannabis’ management team has immense experience supporting
health and wellness companies operating in Canada and international markets.

from Supreme Cannabis’

Supreme Heights will also draw on the Company’s experience launching premium
brands.

Brand Partnerships.

In June 2019, Supreme Cannabis announced that it had entered into an exclusive
partnership to become a foundational brand partner and supplier of PAX’s vaporizer
pods filled with cannabis concentrates for the Canadian market.

Through this partnership, 7ACRES becomes one of only four Licence Holders chosen
as initial partners to create cannabis products that include vaporizer pods for the PAX
Era filled with cannabis concentrates. PAX is a market leader with over 1.5 million
vaporizing devices sold worldwide and has an established reputation as one of the
best-selling battery-and-pod system in the United States. Supreme Cannabis’
partnership with PAX will accelerate the growth of the Company’s concentrate pod
product category, where Supreme Cannabis’ proven brand-building ability and high-
quality dried cannabis at scale offer a distinct market advantage.

In December 2018, Supreme Cannabis entered into an international partnership with
KKE to develop and launch a lineup of premium cannabis products, such as pre-rolls,
concentrate pods, vaporizers, and a dried flower line based on KKE’s flagship “Khalifa
Kush” strain.

The first commercialization of this partnership took place in June 2019 with the launch
of a cannabis product called KKE Oil. KKE Oil is a premium, adult-use focused cannabis
oil. KKE Oil was developed for the consumer who wants the convenience, high THC
potency and precise dosing offered by a cannabis oil. KKE Oils are one of the first ever
adult-use focused cannabis oil products available to consumers in Canada.

Highlights for the three and twelve months ended June 30, 2019.

Supreme Cannabis achieves eight straight quarter of regulated cannabis
revenue growth.

During the three months ended June 30, 2019, Supreme Cannabis achieved $19.0
million of net revenue representing a 90% and 443% increase from the three months
ended March 31, 2019 and the three months ended June 30, 2018, respectively. The
record revenue achieved during the three months ended June 30, 2019 is due to
increased production at the 7ACRES Site, the launch of KKE products, strong demand
for the Company’s premium dry cannabis flower, increased sales volumes and robust
wholesale and adult-use pricing.

Supreme Cannabis starts trading on the Toronto Stock Exchange.

On February 4, 2019, Supreme Cannabis’ common shares were delisted from the
Toronto Venture Exchange (“TSXV”) and commenced trading on the TSX under the
symbol “FIRE”. The Company’s 6.0% senior unsecured convertible debentures due 2021
were also delisted from the TSXV and commenced trading on the TSX under the symbol
"FIRE.DB”.

7ACRES expands Health Canada licenced cultivation area.

During the year ended June 30, 2019, 7ACRES obtained Health Canada approval for
approximately an additional 200,000 sq. ft of flowering rooms, bringing the total
flowering room capacity at 7ACRES to approximately 230,000 sq. ft substantially
increasing the footprint and output of the 7ACRES Site as compared to the prior year.

Supreme Cannabis signs eight provincial supply agreements.

During the year ended June 30, 2019, Supreme Cannabis, through 7ACRES, entered in
eight provincial supply agreements with Ontario, British Columbia, Alberta,
Saskatchewan, Manitoba, Nova Scotia, New Brunswick and Prince Edward Island. The
provincial supply agreements have made 7ACRES-branded award-winning products
available coast-to-coast in Canada.

Supreme Cannabis signs international partnership agreement with Khalifa
Kush Enterprises.

On December 6, 2018 the Company entered into an exclusive consulting agreement
with KKE to develop and launch a lineup of premium cannabis products.

KKE will provide cannabis related consulting services to the Company who will be the
exclusive producer of KKE branded products in Canada and, subject to certain
approvals, international markets (other than the United States). This will include a strain
to be developed by the parties in Canada based on KKE’s flagship “Khalifa Kush” strain.
The Company and KKE will work to develop and commercialize a product lineup that is
expected to include pre-rolls, extracts, capsules, and cannabis oils to be sold by the
Company under the brand, “KKE” or “KK”.

The initial term of the agreement is five years and may be extended by the Company
for an additional five years, subject to certain conditions and the issuance of a number
of common shares of the Company to be determined at the time of the renewal. As
partial consideration, KKE received 5,745,000 common shares along with a cash
payment of $1 million. In addition, KKE will receive annual royalty payments paid over
the course of the agreement, calculated based on the sale of products developed
pursuant to the agreement.

Supreme Cannabis enters exclusive partnership with PAX Labs.

On June 7, 2019, Supreme Cannabis’ announced it has entered into an agreement with
PAX to become a foundational brand partner and supplier for the PAX Era in Canada,
pending the federal legalization of the vaporizable products.

Under the terms of the agreement, 7ACRES-branded vaporizer oil will be sold
exclusively in Era-compatible pods. Supreme Cannabis may also create pods for the
PAX Era under different brands. The Company anticipates selling 7ACRES-branded Era
Pods coast-to-coast in every jurisdiction where Supreme Cannabis has provincial supply
agreements.

Supreme Cannabis launches cannabis genetics company, Cambium Plant
Sciences.

On April 22, 2019, Supreme Cannabis’ announced the launch of Cambium Plant
Sciences (“Cambium”), located in Goderich, Ontario. Cambium, a wholly owned
subsidiary of Supreme Cannabis, aims to lead the agricultural revolution of cannabis
genetics, redefining consumer experiences and cultivation economics across the
global cannabis industry. With the systematic application of research, technology and
science, Cambium will focus on developing the next generation of premium cannabis
genetics for recreational, medical and wellness applications. Cambium’s innovative
mission is to supply agriculturally focused, disease resistant, premium seed stock to the
rapidly growing global cannabis market. Supreme Cannabis will invest approximately
$14 million for the construction of a state-of-the-art, 34,000 sq. ft research and
development facility located in Goderich, Ontario.

Supreme Cannabis launches investment platform Supreme Heights.

On June 24, 2019, Supreme Cannabis’ announced the launch of Supreme Heights, an
investment platform based in London, UK, focused on opportunities in the UK and
Europe’s CBD health and wellness space. Supreme Heights intends to make strategic
investments in and provide support services to differentiated high-growth health and
wellness businesses with focused brands and premium CBD offerings.

Supreme Cannabis has launched Supreme Heights as a separate entity that will solely
address opportunities in the UK and Europe’s CBD health and wellness market. The
completion of the investment by Supreme Cannabis in Supreme Heights is subject to,
among other things, the negotiation and execution of a mutually agreeable investment
agreement and related documents and the satisfaction or waiver of any conditions
precedent to the consummation of such investment.

Supreme acquires Bayfield Strategy, Inc.

On November 30, 2018 the Company acquired Bayfield Strategy, Inc. (“Bayfield”), a
leading communications and stakeholder relations firm. Bayfield’s Chief Executive
Officer, founder and shareholder, Mr. Riyaz Lalani, was appointed to the position of
Chief Corporate Officer of the Company. Bayfield’s other employees entered into
employment agreements with Supreme and assumed a variety of roles in corporate
operations and stakeholder relations.

Over the last two decades, Mr. Lalani has advised public companies, boards of
directors, private equity funds and hedge funds across North America. Prior to founding
Bayfield, Mr. Lalani was the Chief Operating Officer of a leading shareholder services
firm in Canada. Beforehand he was the head of research for an international asset
manager in New York and Toronto, focused on investments in biotechnology, life
sciences, resources, and a variety of other industry sectors. Mr. Lalani will contribute a
unique and diverse experience set that encompasses capital allocation, strategic
communications, and operational execution.

The Company issued 1,075,269 common shares to Bayfield’s shareholders in exchange
for all of the issued and outstanding shares of Bayfield. Portion of the share
consideration is considered compensation due to claw back requirement tied to
continuous employment of Bayfield employees with the Company.

Supreme Cannabis strengthens the board of directors and management
team for the next stage of global growth.

On March 7, 2019, Supreme Cannabis’ announced strengthening of its board of
directors (the “Board”) with the appointment of a new independent director, Kenneth
R. McKinnon, Q.C. As an experienced corporate executive and director, Mr. McKinnon

brings substantial financial oversight and business advisory experience to the
Company’s Board. Following Supreme Cannabis’ graduation to the TSX, the Board
reviewed its existing corporate governance and, in line with best practice, decided to
increase the number of independent directors sitting on the Board. As such, the
Company has also accepted the resignation of Mr. Scott Walters, who served as a
director of the Company since 2016 before becoming a member of Supreme Cannabis’
management team in 2018.

On March 8, 2019, Supreme Cannabis announced the appointment of Mr. Nikhil Handa
as the Company’s new Chief Financial Officer (“CFO”). Mr. Handa, as CFO, will be
responsible for the stewardship of Supreme Cannabis’ finance department, with an
emphasis on capital allocation planning, M&A, and transactional execution as the
Company focuses on expanding operations and distribution of its premium cannabis
products domestically and internationally. Mr. Handa joins Supreme Cannabis with
considerable cross-sector capital markets experience. Most recently he was the Vice
President (“VP”) of Finance at Well.ca, a leading online destination for health, wellness,
beauty and baby products. In that role he led the finance function, provided leadership
across various aspects of operations and drove key strategic initiatives including the
sale of Well.ca to McKesson Canada. Over the course of his career, Mr. Handa also held
a variety of senior finance and operational roles at Restaurant Brands International, the
quick service restaurant holding company created by the merger of Burger King and
Tim Hortons and majority owned by 3G Capital. Additionally, he was a key member of
the mergers and acquisition group of RBC Capital Markets.

In August 2018, Mr. Barinder Bhullar, was appointed VP, Government Relations and
International Affairs. Mr. Bhullar will guide Supreme Cannabis’s international and
emerging markets strategy to take advantage of the global market opportunity for
medical cannabis. Mr. Bhullar will also lead government relations across Canada for
the Company. Mr. Bhullar is a public affairs strategic advisor with over a decade of
experience in public policy, strategic communications and politics. Mr. Bhullar has
served in a variety of senior roles within Government, including, Director of Policy in the
office of the British Columbia Premier, where he worked to ensure specific policy
development aligned with the broader objectives of government. In this role, Mr. Bhullar
led a team responsible for strategic planning and cross-government coordination. As
Senior Director of International Missions for the British Columbia Government, Mr.
Bhullar identified and led the execution of targeted international trade missions and
events, ensuring missions delivered trade and investment outcomes for British
Columbia. Mr. Bhullar engaged with external parties both in Canada and in
International Markets to encourage business to business, and business to government
relationships. His experience dealing with major International companies brings a
tremendous value to the Company.

Bought deal offering.

On October 19, 2018, the Company closed a bought deal offering for gross proceeds
of $100 million, including the exercise, in full, of the underwriters’ over-allotment option

(the “Offering”), comprised of 6.0% senior unsecured convertible debentures (the
“Debentures”) of the Company at the issue price of $1,000 per Debenture, with a
syndicate of underwriters, co-led by GMP Securities L.P. and BMO Capital Markets,
including Cormark Securities Inc., Eight Capital, Beacon Securities Limited and P.I.
Financial Corp.

The Debentures have a maturity date that is 36 months from the closing date of the
Offering (the “Maturity Date”) and bear interest from the date of closing at 6.0% per
annum, payable semi-annually on June 30 and December 31 of each year. The
Debentures are convertible, at the option of the holder, into common shares at any
time prior to the close of business on the last business day immediately preceding the
Maturity Date at a conversion price of $2.45 per common share (the “Conversion
Price”), subject to adjustment in certain circumstances. The Company may force the
conversion of the principal amount of the then outstanding Debentures at the
Conversion Price on not less than 30 days’ notice should the daily volume weighted
average trading price of the common shares be greater than $3.43 for any 10
consecutive trading days. The Debentures are listed for trading on the TSX under the
symbol “FIRE.DB”.

Settlement of debt.

On November 6, 2018, Supreme completed the conversion of the then outstanding
aggregate principal amount of $4.84 million and accrued interest outstanding of 8%
unsecured convertible debentures due November 2019 to 3,261,622 common shares of
the Company.

Subsequent Events.

Supreme Cannabis closes the acquisition of premium wellness brand and
extraction company BlissCo.

On July 11, 2019, Supreme Cannabis acquired all of the issued and outstanding shares
of BlissCo in exchange for 23,434,151 Supreme Cannabis common shares.

With the closing of the BlissCo acquisition, Supreme Cannabis will gain advanced
extraction infrastructure and expertise. BlissCo’s production facility in Langley, British
Columbia has been producing cannabis oils and pre-rolls since receiving its cultivation,
cannabis sales and oil production licenses in 2018. The BlissCo facility houses a state-
of-the-art cannabis oil extraction lab with a CO2 extractor capable of producing full
spectrum oil. Planned additions to the BlissCo facility include the installation of an
ethanol extractor that will serve the increasing demand for full spectrum CBD and THC
derivative products.

Supreme Cannabis closes the acquisition of Truverra Inc.

On August 13, 2019, Supreme Cannabis acquired all of the issued and outstanding
shares of privately held Truverra Inc in exchange for approximately 14,700,000
Supreme Cannabis common shares.

Located in Toronto, Truverra is a private cannabis company, serving the Canadian and
international cannabis markets through its wholly owned subsidiaries, CCC and
Truverra Europe. CCC operates a 5,000 square-foot Health Canada licenced facility in
Scarborough, Ontario. Supreme Cannabis intends to repurpose CCC’s state-of-the-art
facility to produce high-quality cannabis extracts, including concentrates and vaping
liquids. In addition to its operations in Canada, Truverra’s wholly owned European
subsidiary, Truverra Europe, is located in the Netherlands and sells a broad portfolio of
hemp-based CBD products into select European markets. Supreme Cannabis will use
CCC’s facility to complete extraction for select brands and partners.

Supreme Cannabis Appoints New Chief Information Officer and VP of Talent.

On July 24, 2019, Supreme Cannabis announced the addition of Mr. Ash Rajendra as
Chief Information Officer (“CIO”) and Ms. Valerie Rother as VP, Talent.

Mr. Ash Rajendra is an experienced information technology and business leader who
has a deep understanding of vertically integrated products, including operating within
a regulated environment. Most recently, Mr. Rajendra was the CIO at Just Energy, which
specializes in electricity, natural gas, solar and green energy around the world and
serves approximately two million residential and commercial customers. As a member
of Just Energy’s executive management team, Mr. Rajendra was responsible for
planning and execution of the company’s global IT strategy. Prior to this Mr. Rajendra
served as the CIO for Nordion, the world’s largest producer of medical isotopes.

Ms. Valerie Rother has over 16 years of experience in recruitment, talent management
and HR business practices. In her previous role as Director of People and Culture at
Wave Financial, Ms. Rother oversaw its Talent Strategy and Acquisition Team in a high-
volume, fast-paced environment.

Supreme Cannabis’ 7ACRES Site approved for additional 10,000 square feet
of production capacity.

In August 2019, 7ACRES obtained Health Canada approval for an additional flowering
room, bringing the total flowering room capacity at 7ACRES to approximately 240,000
sq. ft.

Results of Operations for the three and twelve months ended
June 30, 2019 and 2018.

During the three and twelve months ended June 30, 2019, the Company reported a net
comprehensive loss of $0.3 million (June 30, 2018: net comprehensive gain of $0.2
million) and $14.4 million (June 30, 2018: $7.3 million), respectively.

The Company recorded a net comprehensive loss for the three months ended June 30,
2019 as compared to the prior period net comprehensive income, primarily as a result
of increases in revenue and net impact of fair value changes related to biological
assets offset by an increase in production costs, operating expenses, increase in other
expenses and impact of deferred tax expense. The increase in revenue and related
production costs and operating expenses are due to the expansion of the 7ACRES Site,
increased employee headcount and the launch of additional products. Other expenses
increased due to higher finance expense as a result of additional borrowing costs
related to convertible debentures issued in October 2018 and higher unrealized losses
on investments.

The net comprehensive loss for the twelve months ended June 30, 2019 increased as
compared to the prior period, primarily as a result of increases in production costs,
operating expenses, other expenses and impact of deferred tax expense, offset by an
increase in revenues and net impact from gains on fair value of biological assets. The
increase in revenue and related production costs and operating expenses are due to
the expansion of the expansion of 7ACRES Site, increased employee headcount and the
launch of additional products. Other expenses increased due to higher finance expense
as a result of additional borrowing costs related to convertible debentures issued in
October 2018, loss on disposal of assets as a result of repurposing of various areas at
the 7ACRES Site and unrealized losses on the Company’s investment in BlissCo.

Adjusted EBITDA.

Adjusted EBITDA (in 000's) Q4 2019 Q3 2019 Q2 2019 Q1 2019
(5,386)
(421)

Net loss

(1,551)

(7,139)

Q4 2018 Q3 2018 Q2 2018 Q1 2018
(2,178)

(3,368)

(2,035)

234

Adjustments:
Amortization of property, plant and
equipment & intangible assets
Amortization expense included in
production costs
Share based payments
Fair value changes on growth of
biological assets
Realized fair value changes on
inventory sold or impaired
Finance expense, net
Loss on disposal of property, plant
and equipment
Unrealized (gain) / loss on
investments
Deferred tax expense (recovery)
Adjusted EBITDA:

1,366

916

808

250

964

705

421

437

154

546

159

117

1,182

2,094

1,890

1,770

1,642

1,110

2,803

(22,695)

(7,673)

(10,139)

(5,177)

(6,175)

(3,281)

(1,706)

(1,299)

11,815

8,435

6,081

3,958

2,963

1,809

2,167

2,001

1,200

(183)

350

3,542

(563)

106

652

591

941

315

694

1,675

(2,456)

2,401

(492)

(155)

(1,941)

(41)

7,142
3,195

778
(2,339)

(5,552)
(4,091)

64
(1,217)

(393)
(1,641)

1,301
(3,025)

(161)
(1,720)

-
(578)

During the three and twelve months ended June 30, 2019, the Company generated
Adjusted EBIDTA of $3.2 million (June 30, 2018: -$1.6 million) and -$4.5M (June 30, 2018;
-$7.0 million), respectively. See “Non-GAAP Measures”.

The positive adjusted EBITDA achieved during the three months ended June 30, 2019 is
a result of increased revenue of 443% as compared to the three months ended June
30, 2018, the addition of new products and the effective containment of production
costs and operating expenses.

Revenue.

During the three and twelve months ended June 30, 2019, the Company generated net
revenues of $19.0 million (June 30, 2018: $3.5 million) and $41.8 million (June 30, 2018:
$8.9 million), respectively. The increase in revenue for the three and twelve months
ended June 30, 2019 of 443% and 370%, respectively, as compared to the prior year, is
due to the launch of the Canadian adult-use market, the launch of new products, the
increased capacity of the 7ACRES’ Site offset by a decrease in the average price of
cannabis flower by 1% and an increase of 15% as compared to the three and twelve
months ended June 30, 2018, respectively.

Production costs.

Production costs consist of direct and overhead costs attributable to cannabis
production activities during the biological transformation process up to the point of
harvest incurred in the period, as well as direct and overhead costs attributable to post-

harvest cannabis processing activities that have been initially capitalized to inventory
and subsequently expensed to production costs as cannabis inventory is sold.

Production costs related to cannabis production activities during the biological
transformation process up to the point of harvest consist of direct and overhead
allocation for wages and benefits, facilities, materials, supplies and 7ACRES Site
amortization expense for production, sanitation, record keeping, quality assurance,
security and 7ACRES Site maintenance activities. These costs are expensed to
production costs in the period they are incurred.

Production costs related to cannabis processing activities after harvest consist of direct
and overhead allocation for wages and benefits, facilities, materials, supplies and
amortization expense for drying, trimming, packaging, sanitation, record keeping,
quality assurance, security and 7ACRES Site maintenance activities. These costs are
initially capitalized to inventory in the period incurred and subsequently expensed to
production costs as cannabis is sold.

Production costs for the three and twelve months ended June 30, 2019 and 2018
includes the following direct and overhead costs:

Production costs incurred during the pre-harvest biological transformation
process:

(In 000's)

Three months
Twelve months
Twelve months
ended June 30,
ended June 30,
ended June 30,
2019
2018
2019
$ 3,126
$
$ 7,642
Wages and benefits expense
$ 1,725
$
Facilities, materials and supplies expense $ 4,277
$ 2,336
$ 916
$
Amortization expense
$ 14,255 $ 5,693 $ 5,767

2,689
2,260
744

Three months
ended June 30,
2018

$
$
$
$

874
476
456
1,806

Post-harvest production costs incurred related to cannabis inventory sold:

(In 000's)

Twelve months
ended June 30,
2019
639
Wages and benefits expense
$ 4,764
247
Facilities, materials and supplies expense $ 1,165
100
$ 191
Amortization expense
$ 6,120 $ 986

Twelve months
ended June 30,
2018

$
$
$

Three months
ended June 30,
2019
$ 1,505
$ 442
$ 48
$ 1,995

Three months
ended June 30,
2018

$
$
$
$

351
183
90
624

Production costs related to cannabis production activities during the biological
transformation process increased by $4.0 million and $8.6 million during the three and
twelve months ended June 30, 2019, respectively, as compared to prior year. This is due
to a substantial increase in the footprint and output of the 7ACRES Site and
consequently an increase in personnel, facility, materials, supplies and amortization
expenses that have been incurred. As a percentage of net revenue for the three and

twelve months ended June 30, 2019, as compared to prior year, production costs
related to cannabis production activities decreased from 51% to 30% and 64% to 34%,
respectively, as a result of the realization of efficiencies as output of the 7ACRES Site
increases while investments in training and best practices are realized.

Production costs related to post-harvest cannabis processing activities increased by
$1.4 million and $5.1 million during the three and twelve months ended June 30, 2019,
respectively, as compared to prior year. This is due to a substantial increase in the
footprint and output of the 7ACRES Site and consequently an increase in personnel,
facility, materials, supplies and amortization expenses that have been incurred. As a
percentage of net revenue for the twelve months ended June 30, 2019, as compared
to prior year, production costs related to cannabis processing activities increased from
11% to 15%, respectively, due to additional processing capabilities added to the
7ACRES Site and packaging costs for the adult-use market. During the three months
ended June 30, 2019, as compared to prior year, as a percentage of net revenue,
production costs related to cannabis processing activities decreased from 18% to 10%
as compared to the three months ended June 30, 2018, as a result of the realization of
efficiencies through automation of post harvest activities.

As discussed below in the Realized fair value changes on inventory sold or impaired
section below, production costs related to cannabis processing activities were
expensed to the statement of profit and loss as the costs were incurred prior to June
30, 2017. This is due to the previous accounting policy of expensing inventory
processing costs as the Company did not have a license to sell cannabis. As a result,
production costs would have been higher by approximately $0.3 million for the twelve
months ended June 30, 2018 if the current policy to capitalize post-harvest processing
cost would have been in place. A portion of the cannabis sold during the three and
twelve months ended June 30, 2018 was harvested and processed prior to June 28,
2017, the date the Company, through 7ACRES, was granted permission to sell.

IFRS allows for the use of alternative methods when recording actual costs incurred
during the biological transformation process. As described above, the Company has
elected to expense cost incurred during the biological transformation process in the
period. Alternatively, IFRS allows for actual costs incurred during the biological
transformation process to be capitalized when incurred and expensed when the related
inventory is sold. For greater comparability the Company has presented both methods.
The alternatives presented below are both IFRS compliant and use the retrospective
approach, except as described above:

For the year ending June 30, 2019
(In 000's)

Production Costs
Gain on fair value changes of biological assets
Realized fair value changes on inventory sold or impaired
Total

For the year ending June 30, 2018
(In 000's)

Production Costs
Gain on fair value changes of biological assets
Realized fair value changes on inventory sold or impaired
Total

Results of the
Company's
current IFRS
compliant method
$
20,375
(45,684)
30,289

Results when
capitalizing costs during
the biological
transformation process
$
13,510
(25,310)
16,780
$ 4,980 $ 4,980

Results of the
Company's
current IFRS
compliant method
6,679
$
(12,461)
5,713

Results when
capitalizing costs during
the biological
transformation process
3,062
$
(5,782)
2,651
-$ 69 -$ 69

Changes in fair value of biological assets.

In accordance with IFRS, the Company is required to record its biological assets at fair
value less cost to sell. At each reporting period, each harvest is adjusted to full fair
value less costs to complete and sell based on the actual yield in grams for completed
harvests and estimated yield for harvests in progress. Costs incurred during the
biological transformation process are expensed in the period the costs are incurred.
Cannabis which has been harvested is transferred to inventory at the full fair value less
costs to complete and sell.

Additional costs incurred after harvest related to processing and other finishing costs
are capitalized to inventory until such time that the cannabis is ready for sale and
recorded as finished inventory.

During the three and twelve months ended June 30, 2019, the Company recognized a
gain of $22.7 million (June 30, 2018: $6.2 million) and $45.7 million (June 30, 2018: $12.5
million), respectively, related to the fair value adjustments of biological assets.

The biological assets as at June 30, 2019, of $8.8 million (June 30, 2018: $3.3 million)
are comprised of 23,079 (June 30, 2018: 8,364) cannabis plants that are estimated to
be 69% (June 30, 2018: 65%) complete to harvest. Once harvested, the produced
cannabis is transferred to inventory. During the twelve months ended June 30, 2019,
the Company transferred approximately 10,039 kilograms (June 30, 2018: 2,374
kilograms) of cannabis to inventory.

Assumption related to biological assets include average selling price and yield per
plant. During the three months ended June 30, 2019 the Company reduced its estimate
of selling prices for premium flower by $0.15 and 2% as compared to the preceding
quarter to account for greater expected volatility in the wholesale market for the

portion that is not contractually obligated. Estimated selling prices for premium
cannabis trim have decreased by $0.42 and 15% as compared to the preceding quarter
to account for current market conditions. The yield estimates have been increased by
97% and 13% per plant for premium trim and premium flower, respectively, as
compared to the preceding quarter to account for actual yields improvements in new
flowering rooms approved by Health Canada during the year. Yield estimates are
revised on quarterly basis as the existing and new cultivation areas are calibrated for
optimal environmental controls and growing conditions.

Realized fair value changes on inventory sold or impaired.

Realized fair value changes on inventory sold or impaired is the fair value less cost to
sell recognized during the biological transformation process related to cannabis sold
during the period and impairment charges related to cannabis inventory.

During the three and twelve months ended June 30, 2019, the Company recognized
realized fair value changes on inventory sold or impaired of $11.8 million (June 30, 2018:
$3.0 million) and $30.3 million (June 30, 2018: $5.7 million), respectively as a result of
cannabis sold during the period and impairment charges.

During the twelve months ended June 30, 2018, a portion of cannabis sold was not
recognized as inventory when harvested as a result of the Company’s previous
accounting policy to expense costs related to cannabis inventory and not recognize
the related biological assets as the Company did not have permission to sell cannabis.
Under the current policy, which was implemented by the Company after obtaining
permission to sell cannabis, the Company would have recognized approximately $2.16
million of additional realized fair value changes on inventory sold or impaired related
to revenue generated during the twelve months ended June 30, 2018.

During the twelve months ended June 30, 2019, net effect of changes in fair value of
biological assets and inventory include: $15.4 million of net unrealized changes in fair
value due to biological transformation charges that have been added to biological
assets and inventory, and $30.3 million of realized fair value increments on inventory
sold or impaired.

Profits before operating expenses and other charges.

During the three and twelve months ended June 30, 2019 the Company generated
profits before operating expenses and other charges of $22.1 million (June 30, 2018:
$4.3 million) and $36.9 million (June 30, 2018: $8.9 million), respectively. The increase
in profits before operating expenses and other charges for the three and twelve months
ended June 30, 2019 as compared to prior year is a result of the Company generating
higher net revenues of $19.0 million (June 30, 2018: $3.5 million) and $41.8 million (June
30, 2018: $8.9 million), respectively. Additionally, during the three and twelve months
ended June 30, 2019 the Company recognized a net positive impact of $10.9 million
(June 30, 2018: $3.2 million) and net positive impact of $15.4 million (June 30, 2018:

$6.7 million), respectively, due to non-cash changes in fair value of biological assets,
offset by production costs of $7.8 million (June 30, 2018: $2.4 million) and $20.4 million
(June 30, 2018: $6.7 million), respectively.

Operating expenses.

During the three and twelve months ended June 30, 2019, total operating expenses
increased to $11.6 million (June 30, 2018: $5.1 million) and $38.7 million (June 30,
2018: $15.9 million), respectively. The operating expenses contributing to the overall
movement for the period are due to the following:

• For the three and twelve months ended June 30, 2019, the Company’s total
wages and benefits expense increased to $3.4 million (June 30, 2018: $1.4
million) and $13.1 million (June 30, 2018: $4.7 million), respectively. The total
increase in wages and benefits expense for the three and twelve months ended
June 30, 2019, are due primarily to the increased staffing requirements at the
7ACRES Site as the Company experiences an increase in business activity and
expansion of operations, additions to the management team and increase in
variable management compensation.

• For the three and twelve months ended June 30, 2019, the Company’s total rent
and facilities expense increased to $0.6 million (June 30, 2018: $0.5 million) and
increased to $2.2 million (June 30, 2018: $1.5 million), respectively. The increase
in rent and facilities expense for the twelve months ended June 30, 2019, is due
to the increase in the number of employees requiring more office space and the
expansion of the 7ACRES Site requiring more utilities, security and other related
occupancy costs.

• For the three and twelve months ended June 30, 2019, the Company’s total
professional fees expense increased to $1.3 million (June 30, 2018: $0.2 million)
and $3.6 million (June 30, 2018: $1.0 million) respectively. Professional fees
expense increased for the three and twelve months ended June 30, 2019 as
compared to prior period due to higher legal, regulatory fees, and enterprise
resource planning integration costs, during the current year as a result of the
implementation of a leading ERP system, the up list to the TSX and increased
partnerships and other transactions .

• For the three and twelve months ended June 30, 2019, the Company’s total sales,
marketing and business development expense increased to $2.3 million (June 30,
2018: $0.8 million) and $6.2 million (June 30, 2018: $1.6 million), respectively. The
sales, marketing and business development expense increased due to sales,
marketing and business development related travel expenses, additional brand
development expenses, the launch of the 7ACRES and KKE brands for the
legalization of adult-use cannabis in Canada and the build out of a coast to
coast internal sales force to position the Company’s brands as the leading
primum offerings in the adult-use market.

• For the three and twelve months ended June 30, 2019, the Company’s total
general and administrative expense increased to $1.4 million (June 30, 2018:
$0.4 million) and $3.3 million (June 30, 2018: $1.1 million), respectively. The
general and administrative expense increased due to the additional information
technology, training and other general expenses as a result of the increased
number of employees and the expansion of the 7ACRES Site.

• For the three and twelve months ended June 30, 2019, the Company’s share-
based payments expense amounted to $1.2 million (June 30, 2018: $1.6 million)
and $6.9 million (June 30, 2018: $5.5 million), respectively. Share based
payments were made in correspondence with the Employee Stock Option Plan
(“ESOP”) and represent incentives to employees and directors for the positive
achievements over the past fiscal year and the strengthening of the
management team. The ESOP grants are used by management to obtain and
retain key executives, employees and directors. The increase in share-based
payment expense for this period is due to an increase in the total value of
incentive options vested during the period.

Construction of the 7ACRES Site.

For the three and twelve months ended June 30, 2019, the Company’s total capitalized
expenditure related to the 7ACRES Site increased by $14.9 million (June 30, 2018: $27.4
million) and $76.9 million (June 30, 2018: $67.4 million), respectively. In addition, for the
three and twelve months ended June 30, 2019, the Company capitalized borrowing
costs of $1.3 million (June 30, 2018: $1.8 million) and $5.4 million (June 30, 2018: $5.6
million), respectively, directly attributable to the construction of the 7ACRES Site. The
increase in aggregate capitalized expenditure related to the 7ACRES Site is a result of
accelerated construction efforts aimed at the rapid expansion of the 7ACRES Site
including the newly licenced growing rooms, the full completion of the 7ACRES Site,
including support areas and offices is expected during the calendar year 2019.

As construction on the 7ACRES Site nears completion, Supreme Cannabis has chosen
to build additional support infrastructure on the six-acre property adjacent to the
7ACRES Site, previously referred to as Lot 16. 7ACRES’ advanced cultivation practices
have consistently produced premium quality flower well above the industry standard.
With stable premium pricing for 7ACRES’ products and strong consumer validation,
Supreme Cannabis intends to use the additional acreage to further enhance this
successful operating asset. The Company expects the 7ACRES Site, including all
administrative infrastructure, to be complete by the end of calendar year 2019 and
construction on the adjacent property to begin upon completion.

Selected Annual Information.

(In 000's)

Revenue
Net loss before taxes
Net loss after taxes

Net comprehensive loss after taxes

Basic and diluted loss per share

Total assets

Total long-term liabilities

Dividends declared per share

June 30,
2019
(Audited)

June 30,
2018
(Audited)

June 30,
2017
(Audited)

41,833 $

8,855 $

(12,065)
(14,497)
(14,392)

(0.05)

334,801

91,882

(6,600)
(7,347)
(7,347)

(0.03)

199,784

31,722

-
(18,332)
(15,267)
(14,423)

(0.09)

95,903

31,705

During the year ended June 30, 2017, the Company did not generate revenues as its
license to sell cannabis was granted on June 28, 2017. During the year ended June 30,
2018, the Company generated its first revenue from the cultivation and sale of
cannabis. The decrease in net comprehensive loss from the year ended June 30, 2017
to June 30, 2018 is mainly due to the Company generating revenues, increase in fair
value gains on biological assets, increase in unrealized gains on investments, decrease
in operating expenses offset by increase in production costs, the recognition of losses
due to disposal of assets, higher finance costs and deferred tax. The increase in net
comprehensive loss for the year ended June 30, 2019 as compared to June 30, 2018 is
a result of an increase in revenues, increase in the net impact of fair value adjustment
on biological assets offset by higher productions costs, operating expenses, finance
expenses, loss on disposal of assets, loss on investments and deferred tax expense.

Total assets increased each year ended June 30, 2017, 2018 and 2019. The increase in
net assets is mainly due to the increase in investments made to property, plant and
equipment related to the 7ACRES Site, increase in inventory and biological assets, and
other assets.

The increase in liabilities each year ended June 30, 2017, 2018 and 2019 is due to the
issuance of convertible debentures, increase of accounts payable and accruals, KKE
royalty payments and deferred taxes. Since June 30, 2017, the Company settled the
convertible debentures issued in December 2016 and November 2017.

The weighted average number of common shares, basic and diluted, outstanding for
the twelve months ended June 30, 2019 is 281,418,793 (June 30, 2018: 223,827,154).

Selected Financial Information – Quarterly Highlights.

The following table sets out selected quarterly information for the last 8 completed
fiscal quarters of the Company:

(In 000's)

30-Jun-19

31-Mar-19

31-Dec-18

30-Sep-18

30-Jun-18

31-Mar-18

31-Dec-17

30-Sep-17

Net Sales / Revenue

19,005

9,970

7,718

5,140

3,545

2,069

1,681

1,560

Net Income (Loss)
after tax

Basic and diluted
Earnings (Loss) per
share

(421)

(7,139)

(1,551)

(5,385)

234

(3,368)

(2,035)

(2,179)

(0.00)

(0.02)

(0.01)

(0.02)

0.00

(0.01)

The quarterly variation in operating results has been discussed above in Results of
Operations for the three and twelve months ended June 30, 2019 and 2018. The
Company’s results of operations are not exposed to seasonal variations.

Liquidity.

As at June 30, 2019, the Company has working capital surplus of $76.9 million (June 30,
2018: $50.6 million).

Cash used in operating activities during the three and twelve months ended June 30,
2019 is $0.6 million (June 30, 2018: $4.1 million) and $14.8 million (June 30, 2018: $1.3
million), respectively. The cash outflows from operating activities mainly relates to
working capital changes of $11.0 million, loss for the period of $14.5 million, offset by
non-cash expenses and gains of $10.7 million.

Cash used in investing activities during the three and twelve months ended June 30,
2019 is $24.4 million (June 30, 2018: $27.9 million) and $95.3 million (June 30, 2018:
$85.0 million), respectively. The increase in cash used for investing activities is mainly
related to investments made to the 7ACRES Site to increase capacity, develop
proprietary designs and increase ultimate efficiency and the development of intangible
assets.

Cash provided from financing activities during the three and twelve months ended June
30, 2019 is $4.9 million (June 30, 2018: $1.2 million) and $109.1 million (June 30, 2018:
$81.9 million), respectively. The cash inflows from financing activities are due to
warrant and option exercises and the issuance of convertible debentures.

The Company’s contractual obligations for the next five fiscal years ending June 30,
and thereafter are summarized as follows:

(In 000's)

2020
2021
2022
2023
2024 and beyond

Operating leases

KKE Minimum
Royalty
Payments

Convertible
debentures

1,747
1,639
1,651
1,541
7,499
14,077

1,500
2,000
2,500
3,000
-
9,000

6,000
6,000
101,800

-
-

113,800

Capital Resources and Liquidity Risk.

The Company constantly monitors and manages its capital resources to assess the
liquidity necessary to fund operations and capacity expansion. As at June 30, 2019 the
Company had a cash balance of $54.8 million and current liabilities of $31.9 million.
The Company’s current resources are sufficient to settle its current liabilities.
Management believes the current resources available will be sufficient for the
completion of the 7ACRES Site and execute on the Company’s strategy. All of the
Company’s liabilities are due within twelve months except for the convertible debt and
KKE royalty fees. Should additional capital requirements or the replacement of debt be
necessary, the Company expects it could satisfy these requirements through capital
raises, debt restructurings, or asset sales. However, the outcome of these matters
cannot be predicted with certainty at this time.

Related Party Transactions.

As at June 30, 2019, there were no material transactions with related parties except for
wages and stock option compensation as described in the Financial Statements.
Subsequent to June 30, 2019, the Company acquired all of the issued and outstanding
shares of Truverra. Consideration for the transaction consisted of the issuance of
approximately 14,700,000 Common Shares to shareholders of Truverra. Certain
directors and officers of the Company were shareholders of Truverra at the time of the
Company’s acquisition of Truverra. See “Subsequent Events – Supreme Cannabis closes
the acquisition of Truverra Inc.”.

Regulatory Background.

Legal Developments

On October 17, 2018, the Cannabis Act and the Cannabis Regulations came into force,
regulating the cultivation, processing, possession and sale of cannabis in Canada for
both medical and adult use purposes. The Cannabis Act and the Cannabis Regulations
replaced the Controlled Drugs and Substances Act (Canada) (the “CDSA”) and the
Access to Cannabis and Medical Purposes Regulations (“ACMPR”) as the governing
laws and regulations of cannabis in respect of the production, sale and distribution of

cannabis for medical purposes. The Cannabis Act also regulates, for the first time, sale
of cannabis for adult use purposes.

The Cannabis Act provides a licensing and permitting scheme for the production,
sending, delivery,
importation, exportation,
transportation, sale, possession and disposal of cannabis for adult use, implemented
by regulations made under the Cannabis Act. The Cannabis Act maintains separate
access to cannabis for medical purposes, including providing that import and export
permits will only be issued in respect of cannabis for medical or scientific purposes or
in respect of industrial hemp.

testing, packaging,

labelling,

The Cannabis Regulations, among other things, set out regulations relating to the
following matters: (1) Licences, Permits and Authorizations; (2) Security Clearances; (3)
Cannabis Tracking System; (4) Cannabis Products; (5) Packaging and Labelling; and
(6) Cannabis for Medical Purposes.

Under the Cannabis Act, cannabis is defined to include: (a) any part of a cannabis
plant, including the phytocannabinoids produced by, or found in, such a plant,
regardless of whether that part has been processed or not, other than: (i) a non-viable
seed of a cannabis plant, (ii) a mature stalk, without any leaf, flower, seed or branch,
of such a plant, (iii) fiber derived from such mature stalk and (iv) the root or any part
of the root of such a plant; (b) any substance or mixture of substances that contains or
has on it any part of such a plant, and (c) any substance that is identical to any
phytocannabinoid produced by, or found in, such a plant, regardless of how the
substance was obtained.

Licences, Permits and Authorizations

The Cannabis Regulations establish the following six classes of licences under the
Cannabis Act:

• cultivation licences;
• processing licences;
•
licences for sale;
• analytical testing licences;
•
research licences; and
• cannabis drug licences.

The Cannabis Regulations also create subclasses of cultivation licences (standard
cultivation, micro-cultivation and nursery), processing licences (standard processing
and micro-processing) and licences for sale (for medical purposes). Different licences
and each subclass therein, carry differing rules and requirements that are intended to
be proportional to the public health and safety risks posed by each licence category
and each subclass. Any licence issued will be valid for no more than five years. A
licence, once issued, identifies the specific activities that the licencee is authorized to

conduct. A holder of a licence is permitted to carry out those activities permitted to be
conducted pursuant to the Cannabis Regulations that are set out in the licence.

The holder of a processing licence is, subject to the Cannabis Regulations and the
licence, permitted to possess cannabis, to produce cannabis (other than obtain it by
cultivating, propagating or harvesting it) and sell cannabis to other licence holders. A
processing licence may authorize a holder thereof to engage in manufacturing
cannabis products, extraction and formulation of cannabis, and to distribute, import
and export cannabis and cannabis products in accordance with the Cannabis Act and
Cannabis Regulations.

Other licences regulated under the Cannabis Regulations are medical sale, analytical
testing, research and cannabis drug licences. A medical sales licence allows a holder
to sell cannabis products to registered clients authorized to use cannabis for medical
purposes in Canada, other Licence Holders, the Minister of Health (the “Minister”) and
certain hospital employees. An analytical testing licence allows testing of cannabis and
cannabis products. Research licences entitle the holder to, for the purpose of research,
possess, produce and transport cannabis between sites authorized by the licence, and
distribute cannabis to another research licence holder, an analytical testing licence
holder, a cannabis drug licence holder, a research subject or the Minister. A cannabis
drug licence authorizes a company to manufacture and sell a drug (as defined in the
Food and Drugs Act (the “FDA”)) that contains cannabis. A prerequisite for applying for
a cannabis drug licence, including authorization to manufacture a drug containing
cannabis, is that the company must already be a holder of a Drug Establishment
Licence (DEL) under Section C.01A.008 of the Food and Drug Regulations. A DEL is also
required for manufacturing drugs that do not contain cannabis. Achieving both the DEL
and cannabis drug licence would permit a site to engage in the following activities with
respect to drugs containing cannabis: possession, production/manufacturing,
distribution and sale. Note that each drug containing cannabis would require a Drug
Identification Number (DIN) to be regulated for sale.

Transitional provisions of the Cannabis Act provide that every licence issued under
Section 35 of the ACMPR that was in force immediately before the day on which the
Cannabis Act came into force (October 17, 2018) was deemed to be a licence issued
under the Cannabis Act, and that such licence will continue in force until it is revoked
or expires. For example, a licence for production and sale of dried cannabis, cannabis
resin, cannabis seeds, cannabis plants and cannabis oil under the ACMPR would be
deemed to be licences for cultivation, processing and sale for medical purposes under
the Cannabis Act, provided that the licence holder met certain requirements.

Similarly, the Cannabis Act generally provides that licences pertaining to cannabis or
its derivatives issued under the Narcotic Control Regulations that were in force
immediately before the Cannabis Act came into force be deemed to be licences issued
under the corresponding provisions of the Cannabis Act and any such licences will
continue in force until it is revoked or expires. For example, a dealer licence issued

under the Narcotic Control Regulations authorizing cultivation of cannabis for scientific
purposes would have become a research licence under the Cannabis Act.

Security Clearances

The Cannabis Regulations require that certain individuals associated with a holder of a
licence for cultivating, processing or sale obtain security clearances. Key Personnel
must hold valid security clearances. In addition, a number of Key Personnel involved in
the licence holder’s activities related to cannabis are required to hold security
clearances, including the “responsible person” and the “head of security.” The “master
grower” associated with any cultivation licence, and the “quality assurance person”
associated with any processing licence, must each also hold a security clearance.
Alternate individuals tasked as Key Personnel with these operational roles must also
hold security clearances. The Minister grants security clearances if the Minister
determines that the applicant does not pose an unacceptable risk to public health or
public safety, including the risk of cannabis being diverted to an illicit market or activity.

Cannabis Tracking System

Pursuant to the Cannabis Act, the Minister has established a national cannabis tracking
system, known as the Cannabis Tracking and Licensing System (the “CTLS”). The CTLS
provides a single-entry-point online secure platform for filing applications for security
clearances and licences under the Cannabis Regulations. It also permits the Minister to
track cannabis through the supply chain to help prevent diversion of cannabis into, and
out of, the legal market. Licence Holders are required to submit monthly reports to the
Minister relating to inventory of their cannabis products, among other things.

Cannabis Products

The Cannabis Regulations permit sale to consumer of cannabis products in the dried
cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds classes of
cannabis. The sale of cannabis edible products, cannabis topical products (other than
cannabis oil for such use) and cannabis extract products other than cannabis oil (such
as hashish, wax and vaping products) are not permitted for sale. Amendments to the
Cannabis Regulations will allow for such sale on October 17, 2019. The Cannabis
Regulations require processors to file a notice with Health Canada at least sixty days
before releasing a new product to the market. As a result, any cannabis products that
are cannabis extracts (other than currently-saleable cannabis oil), topical cannabis
products or edible cannabis products are not expected to be available for purchase in
medical or adult use markets until at least December 17, 2019.

The Cannabis Regulations acknowledge that a range of product forms should be
enabled to help the legal industry displace the illicit market. Additional product forms
that are mentioned under the Cannabis Regulations include vaporization cartridges
manufactured with dried cannabis. Specific details related to these new products are
to be set out in a subsequent regulatory proposal.

Packaging and Labelling

The Cannabis Regulations require plain packaging for cannabis products, including
strict requirements for logos, colours and branding. Cannabis package labels must
include specific information, such as: (i) product source information, including the class
of cannabis and the name, phone number and email of the processor; (ii) a mandatory
health warning, rotating between Heath Canada’s list of standard health warnings; (iii)
the Health Canada standardized cannabis symbol; and (iv) information specifying THC
and CBD content.

These requirements are intended to promote informed consumer choice and allow for
the safe handling and transportation of cannabis, while also reducing the appeal of
cannabis to youth and promoting safe consumption.

Health Products Containing Cannabis

Health Canada is taking a scientific, evidenced-based approach for the oversight of
health products with cannabis that are approved with health claims, including
prescription and non-prescription drugs, natural health products, veterinary drugs,
veterinary health products and medical devices (discussed further below). Under the
current regulatory framework, these health products are subject to the FDA and its
regulations, in addition to the Cannabis Act and the Cannabis Regulations. The
Cannabis Exemption (Food and Drugs Act) Regulations exempt cannabis from the FDA
unless, among other things, therapeutic claims are made in association with such
products. For many of these products, such as drugs, natural health products and most
classes of medical devices, pre-market approval is required. Note, when the Cannabis
Act and Cannabis Regulations were introduced, the Natural Health Products
Regulations under the FDA were amended to essentially prohibit cannabis products
from being regulated as a natural health product. Instead, cannabis, if not exempt
from the FDA, will be treated as a drug product. On June 19, 2019, Health Canada
announced a new public consultation in relation to a potential new category of
products referred to as “cannabis health products”. The comment period closed on
September 3, 2019. This new category may potentially address the current gap in the
legislation/regulations that essentially prohibits health claims from being made in
relation to cannabis products (including medical cannabis).

Promotional Activity

The Cannabis Act stipulates strict restrictions regarding the promotion of cannabis
products. The Cannabis Act generally prohibits promotions of cannabis, cannabis
accessories, and services related to cannabis, subject to certain exceptions. Brand
preference or informational promotion is compliant provided that it is communicated
in a fashion that excludes young people. Within permitted channels for promotional
activity, content restrictions prohibit any promotional activity that (a) communicates
price or distribution, (b) could be appealing to young persons, (c) includes a testimonial
or endorsement, (d) depicts a person, character or animal, whether real or fictional or
(e) presents in way that evokes a positive or negative emotion about or image of, a

way of life such as one that includes glamour, recreation, excitement, vitality, risk or
daring. It is also prohibited to promote cannabis or a cannabis accessory in a manner
that is false, misleading or deceptive or that is likely to create an erroneous impression
about its characteristics, value, quantity, composition, strength, concentration,
potency, purity, quality, merit, safety, health effects or health risks. Display of a brand
element in sponsorship of a person, event, entity, activity or site, and naming of a sports
or cultural site with a cannabis brand element, are also prohibited. The Cannabis Act
also prohibits offering cannabis or a cannabis accessory without consideration or as
consideration for other purchases or transactions. Similarly, it is prohibited to offer
benefits conditional on purchase of cannabis or a cannabis accessory.

Cannabis for Medical Purposes

Access to cannabis for medical use transitioned from the ACMPR under the CDSA to
the Cannabis Regulations under the Cannabis Act on October 17, 2018. Part 14 of the
Cannabis Regulations remains substantively similar to the medical cannabis regulatory
framework under the ACMPR, with adjustments to create consistency with regulations
applicable to adult use, to improve patient access, and to reduce the risk of abuse
within the medical access system. Under Part 14 of the Cannabis Regulations, patients
have three options for obtaining cannabis for medical purposes: (i) register a medical
document with a holder of a medical sales licence to become a client of, and to
purchase cannabis products from, the medical sales licence holder; (ii) register a
medical document with Health Canada to produce a limited amount of cannabis; or
(iii) register a medical document with Health Canada to designate someone else to
produce a limited amount of cannabis for them. With respect to (ii) and (iii), starting
materials, such as cannabis plants or cannabis plant seeds, must be obtained from a
medical sales licence holder, or from a cultivation licence holder or processing licence
holder at the direction of a medical sales licence holder.

The Cannabis Regulations provide that a medical document authorizing the use of
cannabis for medical purposes must include the daily quantity of cannabis that the
healthcare practitioner who provides the medical document authorizes for the patient.
The maximum amount of cannabis products that may be sold to the patient are based
on this daily quantity.

Provincial Regulatory Framework

The Cannabis Act allows the possession, sale, and distribution of cannabis by persons
authorized under provincial legislation. Such provincially authorized persons may only
sell cannabis products sourced from federally licenced cannabis producers.

All Canadian provinces and territories have regulated distribution and sale of cannabis
for adult use purposes, allowing all Canadians over the age of 19 (18 in Alberta and
Québec) to purchase cannabis products without medical access. The only provinces
with restrictions on classes of cannabis that may be sold in the adult use markets are
Québec and Manitoba, where plants and seeds are not sold because personal
cultivation for adult use purposes is prohibited in those two provinces. Regardless of

the framework, all cannabis products for the adult use cannabis market are ultimately
supplied by federally licenced cultivators (plants and seeds only) and processors (all
saleable classes of cannabis – currently dried cannabis, cannabis oil, plants and seeds;
fresh cannabis is also saleable but the Company is unaware of any entity selling fresh
cannabis as a cannabis product).

In most provinces and territories, a liquor or cannabis authority operated by the
province serves as a wholesaler, with retailers purchasing cannabis products from the
liquor or cannabis authority or from provincially licenced distributors. The wholesalers,
in turn, acquire the cannabis products from federally licenced cultivators and
processors. Storefront and online sales of adult use cannabis products are regulated
as part of the private sector or as public entities as in the following chart:

Activity

Storefront adult use sale

Online adult use sale

Privately Operated
British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Newfoundland
Nunavut
Northwest Territories
Yukon
Manitoba
Saskatchewan

Publicly Operated
British Columbia
Québec
New Brunswick
Nova Scotia
Prince Edward Island
Yukon
Northwest Territories

British Columbia
Alberta
Ontario
Québec
New Brunswick
Nova Scotia
Prince Edward Island
Newfoundland
Yukon
Northwest Territories
Nunavut

Risks and Uncertainties.

Overview

Regulated commercial cannabis production for medical and adult use markets is a new
industry in Canada. Participation in this industry requires, among other things,
obtaining and maintaining regulatory approvals. As a result, there is a high degree of
risk associated with the Company’s business. There is a significant risk that the
expenditures made by the Company in developing its cannabis business units for the
medical and wellness markets in Canada and internationally, and the adult use market
in Canada, and specifically the 7ACRES, BlissCo, Truverra EU, Truverra, Cambium Plant
Sciences, Medigrow Lesotho, Supreme Cannabis Heights and KKE businesses, will not
result in profitable operations.

There are a number of risk factors that could cause future results to differ materially
from those described herein. The following sets out the principal risks faced by the
Company. Additional risks and uncertainties, including those that the Company does
not know about or that it currently deems immaterial, could also adversely affect the
Company’s business and results of operations.

Key Personnel Risks

The Company’s efforts are dependent to a large degree on the skills and experience of
certain of its Key Personnel, including the executive team and the board of directors.
Key Personnel require security clearances, which may be issued for a period of up to
five years and must be renewed in order for individuals to remain in a Key Personnel
position. The Company does not maintain “key man” insurance policies on these
individuals. Should the availability of these persons’ skills and experience be in any way
reduced or curtailed, due to departure or other reasons, this could have a material
adverse outcome on the Company and its securities.

Low Quality Cannabis Risk

Supreme Cannabis currently operates in an early stage market which has a small
representation of Canadian cannabis consumers. Should the Company be unable to
grow a quality product demanded by the consumers, this could have a material impact
on the Company’s revenues and average price per gram.

Licensing Risk

Certain of the Company’s subsidiaries are dependent on maintaining its status as a
Licence Holder. Although the Company’s subsidiaries have been successful in obtaining
status as a Licence Holder, there is no guarantee that the Company’s subsidiaries will
retain such status as licensing is beyond the control of Supreme Cannabis and its
subsidiaries and the sole discretion lies with Health Canada. The Licence held by
7ACRES. 7ACRES is valid until March 2020. The Licence held by BlissCo is valid until
March 2021, thereafter requiring approval for renewal by Health Canada. Supreme
Cannabis, 7ACRES and BlissCo must strictly adhere to the regulations and applicable
law in order to maintain the Licences and to secure renewals. There can be no
guarantee that Health Canada will renew any or all of the Licences. Failure to comply
with the requirements of or otherwise maintain the Licences held by 7ACRES and by
BlissCo, or any failure to have issued or maintain pending Licences by Truverra or
Cambium, would have a material adverse impact on the business, financial condition
and operating results of the Company.

Regulatory Risks

Supreme Cannabis operates in a new industry which is highly regulated and is in a
market which is very competitive and evolving rapidly. Sometimes new risks emerge
and management may not be able to predict all such risks, or be able to predict how
risks may cause actual results to be different from those contained in any forward-
looking statements. 7ACRES’ and BlissCo’s ability to grow, store and sell medical and

adult use cannabis in Canada is dependent on the Licences and the need to maintain
the Licence in good standing (see Licensing Risk section). Failure to comply with the
requirements of the Licences or any failure to maintain this Licences would have a
material adverse impact on the business, financial condition and operating results of
Supreme.

Supreme Cannabis will incur ongoing costs and obligations related to regulatory
compliance. Failure to comply with regulations may result in additional costs for
corrective measures, penalties or in restrictions of our operations. In addition, changes
in regulations, more vigorous enforcement thereof or other unanticipated events could
require extensive changes to Supreme Cannabis’ operations, increased compliance
costs or give rise to material liabilities, which could have a material adverse effect on
the business, results of operations and financial condition of the Company.

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

The Company’s business as a Licence Holder under the Cannabis Regulations involves
engaging in a new industry and new market regulated under the Cannabis Act, the
Cannabis Regulations and the Industrial Hemp Regulations. In addition to being subject
to general business risks and to risks inherent in the nature of an early stage business,
a business involving an agricultural product and a regulated consumer product, the
Company will need to continue to build brand awareness in the industry and market
through significant investments in its strategy, its production capacity, quality
assurance, and compliance with regulations, including significant restrictions on
promotional activity. These activities may not promote the Company’s brand and
products as effectively as intended. The new market and industry into which
management is entering will have competitive conditions, consumer tastes, patient
requirements and unique circumstances, and spending patterns that may differ from
existing markets.

Change in Laws, Regulations and Guidelines

The Company’s operations are subject to a variety of laws, regulations and guidelines
relating to the manufacture, management, transportation, storage, sale and disposal
of cannabis as well as laws and regulations relating to health and safety, privacy, the
conduct of operations and the protection of the environment. While to the knowledge
of management, Supreme Cannabis is currently in compliance with all such laws,
regulations and guidelines, changes to such laws, regulations and guidelines due to

matters beyond the control of Supreme Cannabis may have an adverse effect on the
Company’s operations and the financial condition of Supreme Cannabis. While the
potential impact of any of such changes is highly uncertain and fact dependent, it is
not expected that any such changes would have an effect on Supreme Cannabis’
operations that is materially different than the effect on similar-sized companies in the
same business as Supreme Cannabis.

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

Market Risks

The Company’s securities trade on public markets and the trading value thereof is
determined by the evaluations, perceptions and sentiments of both individual investors
and the investment community taken as a whole. Such evaluations, perceptions and
sentiments are subject to change, both in short term time horizons and longer term
time horizons. An adverse change in investor evaluations, perceptions and sentiments
could have a material adverse outcome on the Company and its securities.

Commodity Price Risks

Cannabis is a developing market and likely subject to volatile and possibly declining
prices year over year as a result of increased competition. Because the medical and
adult use cannabis markets are part of a newly commercialized and regulated industry
in Canada, historical price data is either not available or not predictive of future price
levels. There may be downward pressure on the average price for cannabis products
sold in medical and adult use markets, and Supreme Cannabis has arranged its
proposed business accordingly. However, there can be no assurance that price
volatility will be favorable to Supreme Cannabis or in line with expectations. Pricing will
depend on general factors including, but not limited to, the number of Licences granted
by Health Canada, the volume and quality of cannabis and cannabis products that
Licence Holders other than subsidiaries of the Company are able to generate, and the
number of patients who gain physician approval to purchase medical cannabis as
clients of medical sales licence holders. An adverse change in cannabis prices, or in
investors’ beliefs about trends in those prices, could have a material adverse outcome
on the Company and its securities.

Reliance on Key Inputs

7ACRES and BlissCo, and once they are Licence Holders, also Truverra and Cambium,
are dependent on a number of key inputs and their related costs, including raw

materials and supplies related to cultivation and processing operations, such as
electricity, water and other utilities. Any significant interruption or negative change in
the availability or economics of the supply chain for key inputs or any inability to secure
required supplies and services or to do so on appropriate terms could materially impact
their business, financial condition and operating results.

Financing Risks

Entering the Cannabis Act regulated medical cannabis marketplace requires a
substantial outlay of capital. There can be no assurance that the capital markets will
remain favorable in the future and/or that the Company will be able to raise the
financing needed to continue its business at favorable terms or at all. Restrictions on
the Company’s ability to raise financing could have a material adverse outcome on the
Company and its securities.

Expansion of 7ACRES Site

Expansion of the 7ACRES Site is subject to Health Canada regulatory approvals. The
delay or denial of such approvals may have a material adverse impact on the business
and may result in Supreme Cannabis not meeting anticipated or future demand when
it arises.

Reliance on Specific Sites

The Company’s current and future production is expected to take place at the 7ACRES
Site, the BlissCo Site, the Truverra Site and the Cambium Plant Sciences Site. Adverse
changes or developments affecting any of these sites could have a material adverse
effect on Supreme Cannabis’ ability to continue producing cannabis for the medical
market, and cannabis products for the adult use market, its financial condition and
prospects.

Risks Inherent in an Agriculture Business

The Company’s business involves cultivation of cannabis plants for processing by the
Company or third parties into cannabis products. Cannabis plants are an agricultural
product. As such, the business is subject to the risks inherent in the agricultural business,
including but not limited to, pests, plant diseases, crop failure and similar agricultural
risks. Although Supreme Cannabis grows its products indoors under climate controlled
conditions and carefully monitors the growing conditions with trained personnel, there
can be no assurance that natural elements will not have a material adverse effect on
the volume, quality and consistency of its cannabis plants, and of cannabis products
processed from the cannabis plants, and consequently on the Company’s sales,
profitability and financial condition.

Brand Perception

Supreme Cannabis is targeting making its brands and businesses a premium cannabis
offering that is recognized as such by retailers and consumers. Any negative changes

to the Company’s brands as a quality cannabis offering could have a material adverse
effect on Supreme Cannabis’ sales, profitability and financial condition.

Share Price Volatility and Price Fluctuations

In recent years, the securities markets in Canada have experienced a high level of price
and volume volatility, and the market prices of securities of many corporations have
experienced wide fluctuations which have not necessarily been related to the operating
performance, underlying asset values or prospects of such companies. Such volatility
has been particularly evident with regards to the share price of the medical and adult
use cannabis companies that are public issuers in Canada.

Competition

There is potential that Supreme Cannabis will face intense competition from other
companies, some of which can be expected to have more financial resources, industry,
manufacturing and marketing experience than Supreme. Additionally, there is potential
that the industry will undergo consolidation, creating larger companies that may have
increased geographic scope and other economies of scale. Increased competition by
larger, better-financed competitors with geographic or other structural advantages
could materially and adversely affect the business, financial condition and results of
operations of Supreme.

To date, Health Canada has issued a limited number of Licences. The number of
Licences granted, and the resulting additional number of Licence Holders, could have
an impact on the operations of the Company. Due to the early stage of the industry in
which the Company operates, the Company expects to face additional competition
from new Licence Holders. As of September 17, 2019, Health Canada has granted
cultivation, processing or cannabis sales licences to a total of 223 Licence Holders. If
the number of users of cannabis products purchased in medical or adult use markets
in Canada increases, the demand for cannabis products will increase and the Company
expects that competition will become more intense as current and future competitors
begin to offer an increasing number of diversified cannabis products. To remain
competitive, the Company will require a continued level of investment in research and
development, marketing, sales and client support. The Company may not have
sufficient resources to maintain research and development, marketing, sales and client
support efforts on a competitive basis which could materially and adversely affect the
business, financial condition and results of operations of the Company.

Intellectual Property

The ownership and protection of trademarks, industrial designs, patents, plant
breeders’ rights, copyright, trade secrets and other intellectual property rights are
significant aspects of the Company’s future success. Unauthorized parties may attempt
to replicate or otherwise obtain and use the Company’s branding and technology.
Protecting the company’s current or future branding and technology by filing
applications for trademarks, industrial designs, patents, plant breeders’ rights and

copyright, and by maintaining trade secrets or other intellectual property rights, could
be difficult, expensive, time-consuming and unpredictable. Similarly, policing
unauthorized use of the Company’s branding and technology by enforcing these rights
against unauthorized use by others could be difficult, expensive, time-consuming and
unpredictable.

In addition, other parties may claim that the Company’s branding or products infringe
on their trademarks, industrial designs, patents, plant breeders’ rights, copyright or
other intellectual property rights. Such claims, whether or not meritorious, may result
in the expenditure of significant financial and managerial resources, legal fees,
injunctions or temporary restraining orders, and require the payment of damages or
other monetary remedies. As well, the Company may need to obtain intellectual
property licenses from third parties who allege that the Company has infringed on their
intellectual property rights. Such licences, however, may not be available on terms
acceptable to the Company or at all. In addition, the Company 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 rights that it does not own or otherwise have access to.

Environmental and Other Regulatory Requirements

The current or future operations of the Company, including development activities and
production within the 7ACRES Site, the BlissCo Site, the Truverra Site and the Cambium
Plant Sciences Site, may require permits from various governmental authorities and
such operations are and may be subject to laws and regulations governing disposal,
growing, storage, transportation, record keeping, sales and similar activities.
Companies engaged in the cannabis business need to comply with numerous laws,
regulations and permits. There can be no assurance that the Company will be able to
obtain or maintain all approvals and permits that may be required to develop or
operate the 7ACRES Site on terms which enable operations to be conducted at
economically justifiable costs.

Environmental regulations mandate, among other things, the maintenance of air and
water quality standards and land reclamation, and usage of water and other inputs
that may be required for the Company’s operations. Such regulations also set forth
limitations on the generation, transportation, storage and disposal of solid and
hazardous waste. Environmental legislation is evolving in a manner which may 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 and employees.
There is no assurance that future changes in environmental regulation, if any, will not
adversely affect the Company’s operations.

Failure to comply with applicable laws, regulations, and permitting requirements may
result in enforcement actions thereunder, potentially 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. Parties engaged in cannabis cultivation and
processing may be required to compensate those suffering loss or damage by reason
of such activities and may have civil or criminal fines or penalties imposed for violations
of applicable laws or regulations.

Product Liability

As a distributor of cannabis products designed to be ingested by humans, Supreme
Cannabis faces an inherent risk of exposure to product liability claims, regulatory
action and litigation if its products are alleged to have caused significant loss or injury.
In addition, the sale of the Company’s 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 Supreme
Cannabis’ cannabis products alone or in combination with medications or other
substances could occur. Supreme Cannabis may be subject to various product liability
claims, including, among others, that the Company’s products caused injury or illness,
include inadequate instructions for use or include inadequate warnings concerning
possible side effects or interactions with other substances. A product liability claim or
regulatory action against Supreme Cannabis could result in increased costs, could
adversely affect the Company’s reputation with its clients and consumers generally,
and could have a material adverse effect on our results of operations and financial
condition of the Company.

Product Recalls

Manufacturers and distributors of cannabis products are sometimes subject to the
recall or return of their cannabis 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.
If any of the Company’s cannabis products are recalled due to an alleged product
defect or for any other reason, Supreme Cannabis could be required to incur the
unexpected expense of the recall and any legal proceedings that might arise in
connection with the recall. Supreme Cannabis may lose a significant amount of sales
and may not be able to replace those sales at an acceptable margin or at all.

Results of Future Clinical Research

Research regarding the medical benefits, viability, safety, efficacy, dosing and social
acceptance of cannabis or isolated phytocannabinoids (such as CBD and THC), alone
or in combination with specific terpenoids, phenylpropanoids or other molecules found
in the cannabis plant, remain in early stages. There have been relatively few clinical
trials on the benefits of cannabis or specific preparations of phytocannabinoids,
terpenoids, phenylpropanoids or other molecules found in the cannabis plant. Future
research studies and clinical trials may reach negative conclusions regarding the
medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts
and perceptions related to cannabis, which could have a material adverse effect on
the demand for the Company’s cannabis products with the potential to lead to a

material adverse effect on the Company’s business, financial condition and results of
operations.

Litigation

The Company 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 the
Company becomes involved be determined against the Company, such a decision
could adversely affect the Company’s ability to continue operating and the value of its
securities and could use significant resources. Even if the Company is involved in
litigation and wins, litigation can redirect significant Company resources, including the
time and attention of management and available working capital. Litigation may also
create a negative perception of the Company’s brand.

Uncertain tax burden

Tax regimes, including excise taxes and sales taxes, can disproportionately affect the
price of our products, or disproportionately affect the relative price of our products
versus other cannabis products. Because our products are targeted at the premium
cannabis market, tax regimes based on sales price can place us at a competitive
disadvantage in certain price-sensitive markets. As a result, our volume and profitability
may be adversely affected in these markets.

History of Net Losses; Accumulated Deficit; Revenue from Operations

The Company has incurred net losses to date and the Company may continue to incur
losses. There is no certainty that the Company will continue to produce revenue or
operate profitably in the future. There is also no certainty that the Company will provide
a return on investment in the future.

Breaches of security

Given the nature of the Company’s product and the concentration of inventory in its
sites, despite meeting or exceeding Health Canada’s physical security requirements,
there remains a risk of shrinkage as well as theft. A security breach at one of the
Company’s sites could expose the Company 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 the Company’s
products.

Uninsurable risks

The Company may become subject to liability for pollution, fire and explosion, against
which it cannot insure or against which it may elect not to insure. Such events could
result in substantial damage to property and personal injury. The payment of any such
liabilities may have a material, adverse effect on the Company’s financial position.

Financial Performance of Subsidiary

Supreme Cannabis is a holding company that conducts its business through 7ACRES
which currently generates substantially all of the Company’s revenues. As a result, our
financial performance and ability to meet financial obligations is dependent on the
operating results and revenues of 7ACRES, and the distribution of those earnings to
Supreme. In the event of a liquidation or bankruptcy of 7ACRES, lenders and trade
creditors will generally be entitled to payment of their claims from the assets of 7ACRES
before any assets are made available for distribution to Supreme.

Expansion into Foreign Jurisdictions

The Company's expansion into jurisdictions outside of Canada is subject to risks. In
addition, in jurisdictions outside of Canada, there can be no assurance that any market
for the Company's products will develop. The Company may face new or unexpected
risks or significantly increase its exposure to one or more existing risk factors, including
economic instability, changes in laws and regulations, and the effects of competition.
These factors may limit the Company's ability to successfully expand its operations into
such jurisdictions and may have a material adverse effect on the Company's business,
financial condition and results of operations.

U.S. Border Officials Could Deny Entry into the U.S. to Employees of, or Investors in,
Companies with Cannabis Operations in the United States and Canada.

Since cannabis remains illegal under U.S. federal law, those employed at or investing
in legal and licenced 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 the U.S. Customs and Border
Protection officers on duty, and these officers have wide latitude to ask questions to
determine the admissibility of a 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. In addition,
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, U.S. Customs and Border Protection 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 U.S. Customs
and Border Protection 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 cannabis industry in
U.S. states where it is deemed legal or Canada may affect admissibility to the U.S. As a
result, U.S. Customs and Border Protection has affirmed that, a Canadian citizen
working in or facilitating the proliferation of the legal cannabis industry in Canada,
coming to the U.S. for reasons unrelated to the cannabis industry, will generally be
admissible to the U.S. However, if a traveler is found to be coming to the U.S. for reason
related to the cannabis industry, they may be deemed inadmissible.

The Company Relies on International Advisors and Consultants in Order to Keep
Abreast of Material Legal, Regulatory and Government Developments that Impact
its Business and Operations in the Jurisdictions in which it Operates.

The legal and regulatory requirements in the foreign countries in which the Company
operates with respect to the cultivation and sale of cannabis, banking systems and
controls, as well as local business culture and practices are different from those in
Canada. The Company’s officers and directors must rely, to a great extent, on local
legal counsel and consultants in order to keep abreast of material legal, regulatory and
governmental developments as they pertain to and affect the Company’s business
operations, and to assist with governmental relations. The Company must rely, to some
extent, on those members of management and the board of directors who have
previous experience working and conducting business in these countries, if any, in order
to enhance its understanding of and appreciation for the local business culture and
practices. The Company also relies on the advice of local experts and professionals in
connection with current and new regulations that develop in respect of the cultivation
and sale of cannabis as well as in respect of banking, financing, labour, litigation and
tax matters in these jurisdictions. Any developments or changes in such legal,
regulatory or governmental requirements or in local business practices are beyond its
control. The impact of any such changes may adversely affect the Company’s business.

The Company’s Operations in Emerging Markets are Subject to Political and Other
Risks Associated with Operating in a Foreign Jurisdiction

The Company’s investments have operations in various emerging markets and may
have operations in additional emerging markets in the future. Such operations expose
the Company to the socioeconomic conditions as well as the laws governing the
cannabis industry in such countries. Inherent risks with conducting foreign operations
include, but are not limited to: high rates of inflation; extreme fluctuations in currency
exchange rates, military repression; war or civil war; social and labour unrest; organized
crime; hostage taking; terrorism; violent crime; expropriation and nationalization;
renegotiation or nullification of existing licences, approvals, permits and contracts;
changes in taxation policies; restrictions on foreign exchange and repatriation; and
changing political norms, banking and currency controls and governmental regulations
that favour or require the Company to award contracts in, employ citizens of, or
purchase supplies from, the jurisdiction.

Governments in certain foreign jurisdictions intervene in their economies, sometimes
frequently, and occasionally make significant changes in policies and regulations.
Changes, if any, in marijuana industry or investment policies or shifts in political attitude
in the countries in which the Company operates may adversely affect the Company's
operations or profitability. Operations may be affected in varying degrees by
government regulations with respect to, but not limited to, restrictions on production,
price controls, export controls, currency remittance, importation of product and
supplies, income and other taxes, royalties, the repatriation of profits, expropriation of
property, foreign investment, maintenance of concessions, licences, approvals and

permits, environmental matters, land use, land claims of local people, water use and
workplace safety. Failure to comply strictly with applicable laws, regulations and local
practices could result in loss, reduction or expropriation of licences, or the imposition
of additional local or foreign parties as joint venture partners with carried or other
interests.

The Company continues to monitor developments and policies in the emerging markets
in which it operates or invests and assess the impact thereof to its operations; however
such developments cannot be accurately predicted and could have an adverse effect
on the Company's operations or profitability.

Corruption and Fraud in Certain Emerging Markets Relating to Ownership of Real
Property May Adversely Affect the Company’s Business

There are uncertainties, corruption and fraud relating to title ownership of real property
in certain emerging markets in which the Company operates or may operate. Property
disputes over title ownership are frequent in emerging markets, and, as a result, there
is a risk that errors, fraud or challenges could adversely affect the Company's ability to
operate in such jurisdictions.

The Company’s Operations may be Impaired as a Result of Restrictions on the
Acquisition or Use of Properties by Foreign Investors or Local Companies under
Foreign Control

Non-resident individuals and non-domiciled foreign legal entities may be subject to
restrictions on the acquisition or lease of properties in certain emerging markets.

Limitations also apply to legal entities domiciled in such countries which are controlled
by foreign investors, such as the entities through which the Company operates in
certain countries. Accordingly, the Company's current and future operations may be
impaired as a result of such restrictions on the acquisition or use of property, and the
Company's ownership or access rights in respect of any property it owns or leases in
such jurisdictions may be subject to legal challenges, all of which could result in a
material adverse effect on the Company's business, results of operations, financial
condition and cash flows.

Conflicts of Interest

The Company may be subject to various potential conflicts of interest because of the
fact that some of its officers and directors may be engaged in a range of business
activities. In some cases, the executive officers and directors may have fiduciary
obligations associated with these business interests that interfere with their ability to
devote time to the Company and its affairs, and that could adversely affect Company
operations. These business interests could require significant time and attention of the
Company’s executive officers and directors. In addition, the Company may also
become involved in other transactions which conflict with the interests of the
Company’s directors and officers who may from time to time deal with persons, firms,
institutions or corporations with which the Company may be dealing, or which may be
seeking investments similar to those the Company desires. The interests of these
persons could conflict with the Company’s interests. In addition, from time to time,
these persons may be competing with the Company for available investment
opportunities. Conflicts of interest, if any, will be subject to the procedures and
remedies provided under applicable laws. In particular, in the event that such a conflict
of interest arises at a meeting of directors, a director who has such a conflict will
abstain from voting for or against the approval of such participation or such terms. In
accordance with applicable laws, directors are required to act honestly, in good faith
and in the Company’s best interests.

Third Party Transportation

In order for customers of the Company to receive their product, the Company must rely
on third-party transportation services. This can cause logistical problems with and
delays in patients, government entities and private retailers obtaining their orders and
cannot be directly controlled by the Company. Any delay by third party transportation
services may adversely affect the Company’s financial performance.

The Company may be held Responsible for Corruption and Anti-bribery Law
Violations

The Company’s business is subject to Canadian laws, which generally prohibit
companies and employees from engaging in bribery or other prohibited payments to
foreign officials for the purpose of obtaining or retaining business. In addition, the
Company is subject to the anti-bribery laws of any other countries in which it conducts

business now or in the future. The Company’s employees or other agents may, without
its knowledge and despite its efforts, engage in prohibited conduct under the
Company’s policies and procedures and anti-bribery laws for which the Company may
be held responsible. The Company’s policies mandate compliance with these anti-
corruption and anti-bribery laws. However, there can be no assurance that the
Company’s internal control policies and procedures will always protect it from
recklessness, fraudulent behaviour, dishonesty or other inappropriate acts committed
by its affiliates, employees, contractors or agents. If the Company’s employees or other
agents are found to have engaged in such practices, the Company could suffer severe
penalties and other consequences that may have a material adverse effect on its
business, financial condition and results of operations.

Fraudulent or Illegal activity by the Company’s Employees, Contractors and
Consultants

The Company 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 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 is not always
possible for the Company to identify and deter misconduct by its employees and other
third parties, and the precautions taken by the Company to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting the Company from governmental investigations or other actions or lawsuits
stemming from a failure to comply with such laws or regulations. If any such actions
are instituted against the Company, and it is not successful in defending itself or
asserting its rights, those actions could have a significant impact on the Company’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 the Company’s operations, any of which could
have a material adverse effect on the Company’s business, financial condition and
results of operations.

Global Economy Risk

An economic downturn of global capital markets has been shown to make the raising
of capital by equity or debt financing more difficult. The Company will be dependent
upon the capital markets to raise additional financing in the future, while it establishes
a user base for its products. As such, the Company is subject to liquidity risks in meeting
its development and future operating cost requirements in instances where cash
positions are unable to be maintained or appropriate financing is unavailable. These
factors may impact the Company’s ability to raise equity or obtain loans and other
credit facilities in the future and on terms favorable to the Company and its
management. If uncertain market conditions persist, the Company’s ability to raise

capital could be jeopardized, which could have an adverse impact on the Company’s
operations and the trading price of the Company’s shares on the TSX, OTCQX, and FRA.

Dividend Risk

The Company has not paid dividends in the past and does not anticipate paying
dividends in the near future. The Company expects to retain its earnings to finance
further growth and, when appropriate, retire debt.

Financial Instruments & Other Instruments.

The Company’s financial instruments consist of cash, receivables, investments,
accounts payable and accrued liabilities, and convertible debt. The fair values of cash,
receivables, accounts payable and accrued liabilities approximate their carrying
values due to the relatively short-term to maturity. The Company classifies its cash as
fair value through profit and loss (“FVTPL”), receivables as amortized cost, investments
as fair value through other comprehensive income (“FVOCI”) or FVTPL, and accounts
payable, accrued liabilities, and convertible debt as amortized cost.

The FVTPL investment in common shares is considered Level 1 categorization in the IFRS
fair value hierarchy as a quoted price if an active market exists. The FVTPL investment
in common share purchase warrants that are not traded on active markets is
considered Level 2 categorization in the IFRS fair value hierarchy as fair value is
determined by observable inputs such as volatility, discount rates and the underlying
stock price for the common shares.

The FVOCI investments are considered Level 3 categorization in the IFRS fair value
hierarchy, as it is a security without a quoted value. If Level 2 inputs are available, such
as implied valuations from follow-on financing rounds, third party sale negotiations, or
market-based approaches, fair value is considered determinable.

For the year ended June 30, 2019 the Company has recognized an unrealized loss from
investments classified as FVTPL of $1,128 (June 30, 2018: unrealized gain of $2,096) due
to the changes in fair value. The unrealized gain was determined using Level 1 and
Level 2 inputs. The Company has also recognized an unrealized gain from its
investments classified as FVOCI of $105, net of tax (June 30, 2018: $nil) that was
determined using Level 3 inputs.

Off-Balance Sheet Arrangements.

The Company has no off-balance sheet arrangements that would potentially affect
current or future operations or the financial condition of the Company.

Critical Accounting Estimates.

The preparation of these Financial Statements in conformity with IFRS requires
management to make judgments, estimates and assumptions that affect the reported
amounts of assets, liabilities and contingent liabilities at the date of the Financial
Statements and reported amounts of revenues and expenses during the reporting
period. Estimates and assumptions are continuously evaluated and are based on
management’s experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates.

Information about assumptions and estimation uncertainties that have a significant risk
of resulting in a material adjustment to the amounts recognized in the Financial
Statements are listed below:

Business Combination:

Determination of fair value of assets acquired, liabilities assumed and the fair
value of total purchase consideration, including contingent consideration, requires
the use of various estimates made by management.

ii)

Revenue:

The Company estimates whether certain vendors will exercise the right to early
payment discounts based on past experience with each vendor.

iii)

Biological Assets:

Determination of the fair values of the biological assets requires the Company to
make various estimates and assumptions. The fair value of biological assets is
considered a Level 3 categorization in the IFRS fair value hierarchy. The significant
estimates and inputs used to assess the fair value of biological assets include the
following assumptions as at June 30, 2019:

a. Selling prices – selling prices are based on the Company's historical average
selling price per gram for the preceding nine months, adjusted for current
market conditions. Adjusted selling prices averaged $6.13 for cannabis
flower and $2.44 for cannabis trim.

b. Post-harvest costs – the costs are based on actual processing costs incurred
by drying, trimming, testing and packaging activities incurred in the period,
including overhead allocations for these activities. Post-harvest processing
costs averaged $0.42 per gram.

c. The stage of plant growth – the stage of plant growth is estimated by the
number of days into the growing stage as compared to the estimated

growing time for a full harvest. The estimated stage of growth of the
cannabis plants as at June 30, 2019 averaged 69%.

d. Expected yield – the expected yield per plant is based on the Company’s
historical adjusted average yield per plant. Expected yield per plant is 70.51
grams of cannabis trim and 70.96 grams of cannabis flower.

iv)

Property, Plant and Equipment:

Initial recognition of costs – The Company uses estimates to determine certain
costs that are directly attributable to self-constructed assets. These estimates
primarily include certain internal and external direct labor, overhead, and
borrowing costs associated with the acquisition, construction, development, or
betterment of its facilities.

Useful lives of property, plant and equipment – Components of an item of property,
plant and equipment may have different useful lives. The Company makes
significant estimates when determining depreciation rates and asset useful lives,
which require considering company specific factors, such as past experience and
expected use, and industry trends. The Company monitors and reviews residual
values, depreciation rates, and asset useful lives at least once per year and
changes them if they are different from previous estimates.

Intangible Assets and Goodwill:

The Company uses estimates in determining the useful life and residual values of
its definite life intangible assets. The definite life intangible assets that are not
under development and are ready for use, are amortized on a straight-line basis,
based on the estimated useful lives as described in the table below:

The Company uses estimates in determining the recoverable amount of intangible
assets and long-lived assets. The determination of the recoverable amount for
impairment testing requires the use of significant estimates, such as future cash
flows and discount rates. Future cash flows are based on the Company’s estimates
and expected future operating results of the CGU after considering economic
conditions impacting the CGU. The following inputs have been used to determine
the recoverability of intangible assets and long-lived assets based on the value in
use of the asset or CGU:

(a)

Discount rate of 18%

(b)

(c)

(d)

(e)

(f)

Average selling price per gram of approximately $5.35 and $2.38 for
cannabis flower and trim, respectively

Average quantity sold per year ranging from approximately 25,000
Kilograms to 50,000 Kilograms

Average cost of production and operating expenses of approximately
55%-75% of revenue

Forecasted cash flow period of 5 years followed by a terminal value of
future cash flows

Growth rate of 10% after the 7ACRES Site has reached full production,
following 2% growth rate for terminal value

vi)

Provisions

The Company’s best estimate of the royalty payments owed to KKE is the future
minimum fixed royalty payments owed to KKE over the expected term of the
Agreement and the timing of the payments. The initial carrying amount of the
financial liability was determined by discounting the stream of future minimum
royalty payments at a market interest rate of 18.31%.

vii)

Investments

The Company uses the Black-Scholes pricing model to estimate the value of its
investment in the warrants of BlissCo. The following estimates were used as inputs
into the model as at June 30, 2019 and June 30, 2018:

The Company uses the discounted cash flows valuation method to estimate the
value of its FVOCI investments considered a Level 3 categorization on the IFRS fair
value hierarchy. The significant unobservable input into the valuation models of
these investments is the discount rate, which has been estimated to be between
18%-30%. Changes in discount rates will result in changes in the fair values of these
investments.

viii) Convertible Debentures:

Convertible Debenture is 18.31%. The market rate of interest used to calculate the
fair value of the debt components of November 2017 and December 2016
Convertible Debentures is 19.9%.

ix)

Share Based Compensation:

Significant estimates are used to determine the fair value of stock options, the
table below shows the range of estimates and assumptions used in applying the
Black-Scholes option pricing model:

Income Taxes:

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

xi)

Financial Instruments:

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

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

Level 2 – Inputs other than quoted prices that are observable for the asset or
liability either directly or indirectly; and

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

New Accounting Standards and Interpretations Effective July 1,
2018.

The Company adopted the following new accounting standards effective July 1, 2018.

IFRS 9 – Financial Instruments (“IFRS 9”)

Effective July 1, 2018, the Company adopted IFRS 9. In July 2014, the IASB issued
the final publication of the IFRS 9 standard, which supersedes International
Accounting Standards (“IAS”) 39 – Financial Instruments: recognition and
measurement (“IAS 39”). IFRS 9 includes revised guidance on the classification
and measurement of financial instruments and new guidance for measuring
impairment on financial assets. The Company has made a policy choice to adopt
IFRS 9 on a retrospective basis where the cumulative impact of adoption will be
recognized in retained earnings as of July 1, 2018; thus, prior period comparatives
will not be restated.

Under IFRS 9, financial assets are classified and measured based on the business
model in which they are held and the characteristics of their contractual cash
flows. IFRS 9 contains three primary measurement categories for financial assets:
measured at amortized cost, FVOCI, and FVTPL. Under IFRS 9, the Company has
irrevocably elected to present subsequent changes in the fair value of equity
investments that are not held-for-trading in other comprehensive income (“OCI”).
For these equity investments, any subsequent changes in fair value of the
instrument will be recorded in OCI, and cumulative gains or losses in OCI will not
be reclassified into net income on disposal. Any subsequent changes in fair value
on equity investments that are held-for-trading will continue to be realized in net
income.

Under IFRS 9, the loss allowance for trade receivables must be calculated using
the expected lifetime credit loss and recorded at the time of initial recognition.
The Company has estimated the expected loss allowance as at June 30, 2019
using the lifetime credit loss approach to estimate the bad debt expense for the
current period to be $103. There is no significant effect on the carrying value of
the Company’s other financial instruments under IFRS 9 related to this new
requirement.

Below is a summary showing the classification and measurement bases of the
Company’s financial instruments as at July 1, 2018 as a result of adopting IFRS 9
(along with a comparison to IAS 39).

Note 1: Subsequently measured at fair value with changes recognized in other
comprehensive income. The net change subsequent to initial recognition, in

the case of investments, is reclassified into net income upon disposal of the
investment or when the investment becomes impaired.

Note 2: Subsequently measured at fair value with changes recognized in OCI.
The net change subsequent to initial recognition, in the case of investments, is
not reclassified into net income upon disposal of the investment or when the
investment becomes impaired.

Note 3: Subsequently measured at amortized cost using the effective interest
rate.

ii)

IFRS 15 – Revenue from contracts with customers (“IFRS 15”)

Effective July 1, 2018, the Company adopted IFRS 15. IFRS 15 supersedes previous
accounting standards for revenue, including IAS 18 – Revenue.

The standard requires revenue to be recognized in a manner that depicts the
transfer of promised goods or services to a customer and at an amount that
reflects the consideration expected to be received in exchange for transferring
those goods or services. This is achieved by applying the following five steps:

1. identify the contract with a customer;

2. identify the performance obligations in the contract;
3. determine the transaction price;

4. allocate the transaction price to the performance obligations in the contract;
and

5. recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue from the direct business to business sale of cannabis to legal and licenced
Canadian retailers for a fixed price is recognized when the Company transfers
control of the good to the customer. The Company has elected to adopt IFRS 15
on a cumulative effective basis, with no restatement of the comparative period.
The Company assessed the impact of adopting IFRS 15 retrospectively and
determined that no retroactive adjustments were necessary.

New Accounting Standards and Interpretations Not Yet Effective.

IFRS 16 – Leases (“IFRS 16”)

IFRS 16 was issued by the IASB in January 2016 and brings most leases onto the
statement of financial position for lessees under a single model, eliminating the
distinction between operating and finance leases. IFRS 16 supersedes the current
accounting standards for leases, including IAS 17 – Leases (“IAS 17”) and

Interpretations of the IFRS Interpretations Committee 4 – Determining whether an
arrangement contains a lease.

Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-
of-use asset is treated similarly to other non-financial assets and depreciated
accordingly, and the liability accrues interest. The lease liability is initially measured at
the present value of the lease payments payable over the lease term, discounted at
the rate implicit in the lease or an entity's incremental borrowing rate if the implicit
rate cannot be readily determined.

Lessees are permitted to make an election for leases with a term of 12 months or less,
or where the underlying asset is of low value and not recognize lease assets and lease
liabilities. The expense associated with these leases can be recognized on a straight-
line basis over the lease term or on another systematic basis.

The date of initial application of IFRS 16 is January 1, 2019. The Company has elected
to adopt IFRS 16 using the modified retrospective approach. Under this approach, the
Company will not restate its comparative figures but will recognize the cumulative
effect of adopting IFRS 16 as an adjustment to opening retained earnings at the
beginning of the 2020 fiscal year.

On transition to IFRS 16, the Company will elect to apply the practical expedient to
grandfather the assessment of which transactions are leases and apply IFRS 16 only to
contracts that were previously identified as leases. Contracts that were not identified
as leases under IAS 17 will not be reassessed for whether a lease exists. The Company
will elect to not recognize right-of-use assets and lease liabilities for leases that have a
lease term of 12 months or less and for leases of low-value assets. The Company will
also account for leases for which the lease term ends within 12 months of the date of
initial application as short-term leases. Accordingly, the Company does not expect
significant adjustments to opening retained earnings at the beginning of the 2020 fiscal
year.

Other MD&A Requirements.

As specified by National Instrument 51-102, the Company advises readers of this MD&A
that important additional information about the Company, including the Company’s
annual information form, is available on the SEDAR website – www.sedar.com.

The Company’s Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining disclosure controls and procedures and internal controls
over financial reporting for the Company.

Outstanding Share Data.

The authorized capital of the Company consists of an unlimited number of common
shares without par value, 10,000,000 Class “A” preference shares with a par value of

$10 each and 10,000,000 Class “B” preference shares with a par value of $50 each.
The Company had 354,039,204 common shares issued and outstanding as at
September 17, 2019.

The following table sets out the number of stock options granted and outstanding as
at September 17, 2019.

# of Options
250,000
865,000
800,000
3,302,415
6,500,000
2,915,000
6,712,084
500,000
400,000
300,000
375,000
200,000
25,000
150,000
300,000
940,000
732,400
88,800
62,400
19,200
192,000
79,200
810,000
300,000

Exercise Price
$0.41
$0.50
$0.75
$0.75
$2.00
$1.45
$1.80
$3.05
$1.70
$1.80
$1.50
$2.05
$1.50
$1.80
$2.05
$2.30
$1.25
$1.38
$1.58
$1.69
$1.31
$1.31
$1.50
$1.35

Expiry
14-Oct-19
10-Jan-21
25-Apr-21
29-Aug-21
15-Dec-26
25-Sep-22
29-Mar-28
05-Jan-23
25-Jun-23
15-May-23
23-Aug-23
17-Oct-23
02-Jan-24
14-Feb-24
05-Mar-24
01-Apr-24
23-Feb-22
08-Jun-21
06-Jul-21
18-Sep-21
24-Oct-28
24-Oct-21
22-Jul-24
09-Aug-24

The following table sets out the number of share purchase warrants issued and
outstanding as at September 17, 2019.

# of Warrants

Exercise Price

4,511,904
17,084,641
12,332,200
2,501,766
4,484,171

$0.32
$1.70
$1.80
$1.04
$2.50

Expiry
23-Apr-20
13-Dec-19
14-Nov-20
21-Jul-20
23-Feb-20

The following table sets out the number of restricted share units (“RSU”) issued and
outstanding as at September 17, 2019.

# of RSU

2,779,250

Issued

July 22, 2019

Vesting Period
Quarterly from July 22,
2019 to July 22, 2021

Consolidated
Financial Statements
(Audited)

For the Year Ended June 30, 2019

September 17, 2019

The Supreme Cannabis Company, Inc. | TSX:FIRE

Management’s Responsibility for Financial Reporting

To the Shareholders of The Supreme Cannabis Company, Inc. (the “Company” or “Supreme”):

Management is responsible for the preparation and presentation of the accompanying consolidated financial
statements, including responsibility for significant accounting judgments and estimates in accordance with International
Financial Reporting Standards (“IFRS”). This responsibility includes selecting appropriate accounting principles and
methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

In discharging its responsibilities for the integrity and fairness of the consolidated financial statements, management
designs and maintains the necessary accounting systems and related internal controls to provide reasonable assurance
that transactions are authorized, assets are safeguarded, and financial records are properly maintained to provide
reliable information for the preparation of the consolidated financial statements.

The Audit Committee is comprised of Directors who are neither management nor employees of the Company. The
Board of Directors is responsible for overseeing management in the performance of its financial reporting
responsibilities, and for approving the consolidated financial statements. The Audit Committee has the responsibility of
meeting with management and external auditors to discuss internal controls over the financial reporting process,
auditing matters and financial reporting findings. The Audit Committee is also responsible for recommending the
appointment of the Company’s external auditors.

The consolidated financial statements have been audited by MNP LLP, an external independent firm of Chartered
Professional Accountants, in accordance with Canadian generally accepted auditing standards on behalf of the
Shareholders. MNP LLP has full and free access to, and meet periodically and separately with, both the Audit
Committee and management to discuss their audit findings.

September 17, 2019

(signed)

/Nikhil Handa/
Chief Financial Officer

(signed)

/Kenneth McKinnon/
Director

Independent Auditor's Report

To the Shareholders of The Supreme Cannabis Company, Inc.:

Opinion

We have audited the consolidated financial statements of The Supreme Cannabis Company, Inc. and its subsidiaries (the "Company"),
which comprise the consolidated statements of financial position as at June 30, 2019 and June 30, 2018, and the consolidated
statements of comprehensive loss, changes in shareholders' equity and cash flows for the years then ended, and notes to the
consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial
position of the Company as at June 30, 2019 and June 30, 2018, and its consolidated financial performance and its consolidated cash
flows for the years then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

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

Other Information

Management is responsible for the other information. The other information comprises:

 Management’s Discussion and Analysis


The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audits or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis and the Annual Report
prior to the date of this auditor’s report. If, based on the work we have performed on this other information, we conclude that there is a
material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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

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

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

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

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

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

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



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

 Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by management.

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

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

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

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.

The engagement partner on the audit resulting in this independent auditor's report is Marufur Raza.

Toronto, Ontario
September 17, 2019

Chartered Professional Accountants
Licensed Public Accountants

The Supreme Cannabis Company, Inc.

Consolidated Statements of Financial Position

(Expressed in thousands of Canadian Dollars)

As at:

ASSETS
Current assets

Cash
Receivables
Prepaid expenses, deposits and other receivables
Inventory
Biological assets

Non-current assets

Property, plant and equipment
Deposits on property, plant and equipment
Intangible assets
Investments
Other assets and deposits
Goodwill

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities

Accounts payable and accrued liabilities
Other current liability

Long-term liabilities
Convertible debt
Other long term liability
Deferred tax liability

SHAREHOLDERS’ EQUITY

Share capital
Reserves
Shares to be issued
Accumulated other comprehensive income
Deficit

Commitments (Note 18)
Subsequent events (Note 19)

Note

June 30, 2019

June 30, 2018

6
7

9
11

3, 9

9, 10

12
9, 10
16

54,822
21,969
4,248
19,026
8,762
108,827

181,726
3,001
24,446
15,325
796
680
334,801

30,629
1,318
31,947

79,054
5,023
7,805
123,829

217,646
53,312
250
950
(61,186)

210,972

55,896
8,468
1,290
4,579
3,283

73,516

101,008
516
8,397
16,332
15

199,784

22,917

-
22,917

31,722
-
-
54,639

156,097
34,892
-
845
(46,689)

145,145

334,801

199,784

Approved and authorized by the Board of Directors on September 17, 2019:
"Navdeep Dhaliwal"
Director

"Kenneth McKinnon"
Director

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

The Supreme Cannabis Company, Inc.

Consolidated Statements of Comprehensive Loss

(Expressed in thousands of Canadian Dollars)

For the year ended

Note

June 30, 2019

June 30, 2018

Gross revenue
Excise taxes
Net revenue

Production costs

Fair value changes on growth of biological assets
Realized fair value changes on inventory sold or impaired

Operating expenses
Wages and benefits
Rent and facilities
Professional fees
Sales, marketing and business development
General and administrative
Amortization of property, plant and equipment & intangible assets
Share based payments

Other expenses (Income)
Finance expense, net
Loss on disposal of property, plant and equipment
Unrealized (gain) / loss on investments

Net loss before taxes
Deferred tax expense
Net loss
Gain on revaluation of investments, net of tax
Net loss and total comprehensive loss after taxes

Weighted average number of shares
Basic and diluted loss per common share

5 $ 43,015 $
5

(1,182)
41,833

8,855
-
8,855

6, 8

7
6, 7

15 $

8, 9
13, 15

8, 12 $
8
11

(20,375)

(6,679)

45,684
(30,289)

13,133 $
2,187
3,557
6,224
3,336
3,340
6,936
38,713

5,185 $
3,892
1,128
10,205

(12,065) $
(2,432)
(14,497) $

105

(14,392) $

12,461
(5,713)

4,698
1,535
1,031
1,602
1,118
327
5,555
15,866

363
1,391
(2,096)
(342)

(6,600)
(747)
(7,347)
-
(7,347)

281,418,793

(0.05) $

223,827,154
(0.03)

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

The Supreme Cannabis Company, Inc.

Consolidated Statements of Cash Flows

(Expressed in thousands of Canadian Dollars)

For the year ended

Operating activities:

Net loss

Items not involving cash:

Amortization
Accrued interest and accretion, net of payment
Flow-through share interest and penalties
Share based payments
Loss on disposal of property, plant and equipment
Fair value changes on growth of biological assets
Realized fair value changes on inventory sold
Impairment adjustment on fair value of inventory
Deferred tax expense
Unrealized (gain) / loss on investments
Bad debt expense

Changes in non-cash working capital:

Inventory
Receivables
Prepaid expenses, deposits and other receivables
Accounts payable and accrued liabilities
Other assets and deposits

Investing activities:

Additions to property, plant and equipment

Additions to intangible assets
Acquired cash on business combination
Investments
Deposits on property, plant and equipment

Financing activities:
Warrants exercised
Stock options exercised
Convertible debentures issued (net of issuance costs)

June 30, 2019

June 30, 2018

(14,497) $

(7,347)

5,808
5,779
10
6,936
3,892
(45,684)
29,434
855
2,432
1,128
103

(4,044)
(13,501)
(2,958)
10,244
(781)
(14,844)

(89,642)

(3,244)
55
-
(2,485)
(95,316)

13,278
284
95,524
109,086

1,171
86
9
5,555
1,391
(12,461)
5,315
398
747
(2,096)
-

(654)
(7,413)
(1,180)
17,806
-
1,327

(71,850)

-
-
(13,162)
(44)
(85,056)

42,788
716
38,439
81,943

(1,786)
57,682
55,896

Net change in cash
Cash, beginning of year
Cash, end of year

(1,074)
55,896
54,822 $

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

The Supreme Cannabis Company, Inc.
Consolidated Statements of Changes in Shareholders' Equity

(Expressed in thousands of Canadian Dollars)

Balance, June 30, 2017

Warrants exercised
Stock options exercised
Debenture conversion (Dec 2016), net of tax
Convertible debenture (Nov 2017), net of tax
Debenture conversion (Nov 2017), net of tax
Share based payments
Net loss for the period
Balance, June 30, 2018

Warrants exercised
Stock options exercised
Debenture conversions (Nov 2017), net of tax
Convertible debenture (Oct 2018), net of tax
Shares issued for business combination
Shares issued for asset acquisition
Share based payments
Net loss for the period
Other comprehensive income

Balance, June 30, 2019

Number of
Common
Shares

Share
Capital

Shares
to be
issued

Reserves

AOCI

Deficit

Total
Shareholders'
(Deficiency)
Equity

188,832,127 $
31,369,482
1,521,250
31,104,992
-
2,909,375
-
-
255,737,226
16,148,712
361,666
22,483,557
-
358,423
5,745,000
716,846
-
-

301,551,430 $

65,636 $
46,274
1,276
39,078
-
3,833
-
-
156,097
15,406
460
35,467
-
667
8,216
1,333
-
-

217,646 $

- $
-
-
-
-
-
-
-
-
250
-
-
-
-
-
-
-
-
250 $

31,947 $
(3,486)
(560)
(3,050)
4,947
(461)
5,555
-
34,892
(2,378)
(176)
(2,878)
18,249
-
-
5,603
-
-

53,312 $

845 $
-
-
-
-
-
-
-
845
-
-
-
-
-
-
-
-
105
950 $

(39,342) $

-
-
-
-
-
-
(7,347)
(46,689)
-
-
-
-
-
-
-
(14,497)
-

(61,186) $

59,086
42,788
716
36,028
4,947
3,372
5,555
(7,347)
145,145
13,278
284
32,589
18,249
667
8,216
6,936
(14,497)
105
210,972

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

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

1. Nature of Operations

Supreme is a federally incorporated Canadian company with a global diversified portfolio of distinct cannabis
companies, products and brands. Its common shares are publicly traded on the Toronto Stock Exchange ("TSX")
under the symbol "FIRE", Over-the-Counter (“OTCQX”) under the symbol “SPRWF”, and on the Frankfurt Stock
Exchange (“FRA”) under the symbol “53S1”.

Supreme’s primary asset is 7ACRES, a Canadian corporation that is wholly owned by Supreme. 7ACRES is a
Licensed Producer of cannabis under the Cannabis Act. On May 23, 2014, Supreme purchased a 342,000 square
foot facility including adjacent buildings, which is currently being expanded to 440,000 square feet, situated on
approximately sixteen acres of land located in the Bruce Energy Park, in Kincardine, Ontario, approximately 160
kilometers outside of Toronto (the “Facility”). 7ACRES became a Licensed Producer on March 11, 2016 when it was
issued a license to cultivate medical cannabis at its Facility. On June 28, 2017, the Company was granted permission
to sell cannabis.

The Company’s head office and registered records office is located at 178R Ossington Avenue, Toronto, ON,
Canada.

2. Significant Accounting Policies

a) Statement of compliance

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

These Financial Statements were authorized for issuance by the Company’s Board of Directors (“Board”) on
September 17, 2019.

b) Basis of measurement

These Financial Statements have been prepared on a historical cost basis except for certain financial
instruments, biological assets, and acquired net assets from business combinations which have been measured
at fair value. In addition, these Financial Statements have been prepared using the accrual basis of accounting,
except for cash flow information.

c) Basis of consolidation

These Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, 8528934
Canada Ltd., d/b/a/, 7ACRES, 10695181 Canada Ltd., d/b/a, Cambium Plant Sciences, 8408432 Canada Ltd.,
d/b/a, Bayfield Strategy, Inc., and 11095668 Canada Ltd. All significant intercompany balances and transactions
were eliminated on consolidation.

d) Functional and presentation of foreign currency

The Financial Statements are presented in Canadian dollars unless otherwise noted. The presentation currency
and functional currency of the Company and its subsidiaries is the Canadian Dollar.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

2. Significant Accounting Policies (continued)

e) New Accounting Standards effective July 1, 2018

The Company adopted the following new accounting standards effective July 1, 2018:

IFRS 9 – Financial Instruments (“IFRS 9”)

Effective July 1, 2018, the Company adopted IFRS 9. In July 2014, the IASB issued the final publication
of the IFRS 9 standard, which supersedes International Accounting Standards (“IAS”) 39 – Financial
Instruments: recognition and measurement (“IAS 39”). IFRS 9 includes revised guidance on the
classification and measurement of financial instruments and new guidance for measuring impairment
on financial assets. The Company has made a policy choice to adopt IFRS 9 on a retrospective basis
where the cumulative impact of adoption will be recognized in retained earnings as of July 1, 2018;
thus, prior period comparatives will not be restated.

Under IFRS 9, financial assets are classified and measured based on the business model in which they
are held and the characteristics of their contractual cash flows. IFRS 9 contains three primary
measurement categories for financial assets: measured at amortized cost, fair value through other
comprehensive income (“FVOCI”), and fair value through profit and loss (“FVTPL”). Under IFRS 9, the
Company has irrevocably elected to present subsequent changes in the fair value of equity investments
that are not held-for-trading in other comprehensive income (“OCI”). For these equity investments, any
subsequent changes in fair value of the instrument will be recorded in OCI, and cumulative gains or
losses in OCI will not be reclassified into net income on disposal. Any subsequent changes in fair value
on equity investments that are held-for-trading will continue to be realized in net income.

Under IFRS 9, the loss allowance for trade receivables must be calculated using the expected lifetime
credit loss and recorded at the time of initial recognition. The Company has estimated the expected
loss allowance as at June 30, 2019 using the lifetime credit loss approach to estimate the bad debt
expense for the current period to be $103. There is no significant effect on the carrying value of the
Company’s other financial instruments under IFRS 9 related to this new requirement.

Below is a summary showing the classification and measurement bases of the Company’s financial
instruments as at July 1, 2018 as a result of adopting IFRS 9 (along with a comparison to IAS 39).

Financial Instrument

IAS 39

IFRS 9

Financial Assets

Cash

FVTPL

Accounts Receivable, excluding sales taxes

Loans and receivables

FVTPL

Amortized cost

Investments:

BlissCo shares & warrants

Held-for-trading (FVTPL)

FVTPL

Trellis Solutions Inc.

MediGrow shares

Available-for-sale (Note 1)

FVOCI, with no reclass to Net Income (Note 2)

Available-for-sale (Note 1)

FVOCI, with no reclass to Net Income (Note 2)

Financial Liabilities

Accounts payable and accrued liabilities

Other financial liabilities

Convertible Debentures

Other financial liabilities (Note 3)

Amortized cost

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

2. Significant Accounting Policies (continued)

e) New Accounting Standards effective July 1, 2018 (continued)

IFRS 9 – Financial Instruments (continued)

Note 1: Subsequently measured at fair value with changes recognized in other comprehensive income.
The net change subsequent to initial recognition, in the case of investments, is reclassified into net
income upon disposal of the investment or when the investment becomes impaired.

Note 2: Subsequently measured at fair value with changes recognized in OCI. The net change
subsequent to initial recognition, in the case of investments, is not reclassified into net income upon
disposal of the investment or when the investment becomes impaired.

Note 3: Subsequently measured at amortized cost using the effective interest rate.

ii.

IFRS 15 – Revenue from contracts with customers (“IFRS 15”)

Effective July 1, 2018, the Company adopted IFRS 15. IFRS 15 supersedes previous accounting
standards for revenue, including IAS 18 – Revenue.

IFRS 15 introduced a single model for recognizing revenue from contracts with customers. This
standard applies to all contracts with customers, with only some exceptions, including certain contracts
accounted for under other IFRSs. The standard requires revenue to be recognized in a manner that
depicts the transfer of promised goods or services to a customer and at an amount that reflects the
consideration expected to be received in exchange for transferring those goods or services. This is
achieved by applying the following five steps:

1. Identify the contract with a customer;

2. Identify the performance obligations in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligations in the contract; and

5. Recognize revenue when (or as) the entity satisfies a performance obligation.

Revenue from the direct business to business sale of cannabis to legal and licensed Canadian retailers
is recognized when the Company transfers control of the good to the customer. The Company has
elected to adopt IFRS 15 on a cumulative effective basis, with no restatement of the comparative
period. The Company assessed the impact of adopting IFRS 15 retrospectively and determined that
no retroactive adjustments were necessary.

f) Recent accounting pronouncements not yet adopted

IFRS 16 – Leases (“IFRS 16”)

IFRS 16 was issued by the IASB in January 2016 and brings most leases onto the statement of financial
position for lessees under a single model, eliminating the distinction between operating and finance
leases. IFRS 16 supersedes the current accounting standards for leases, including IAS 17 – Leases
(“IAS 17”) and IFRIC 4 – Determining whether an arrangement contains a lease.

Under IFRS 16, a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is
treated similarly to other non-financial assets and depreciated accordingly, and the liability accrues
interest. The lease liability is initially measured at the present value of the lease payments payable over
the lease term, discounted at the rate implicit in the lease or an entity's incremental borrowing rate if
the implicit rate cannot be readily determined.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

2. Significant Accounting Policies (continued)

f) Recent accounting pronouncements not yet adopted (continued)

Lessees are permitted to make an election for leases with a term of 12 months or less, or where the
underlying asset is of low value and not recognize lease assets and lease liabilities. The expense
associated with these leases can be recognized on a straight-line basis over the lease term or on
another systematic basis.

The date of initial application of IFRS 16 is January 1, 2019. The Company has elected to adopt IFRS
16 using the modified retrospective approach. Under this approach, the Company will not restate its
comparative figures but will recognize the cumulative effect of adopting IFRS 16 as an adjustment to
opening retained earnings at the beginning of the 2020 fiscal year.

On transition to IFRS 16, the Company will elect to apply the practical expedient to grandfather the
assessment of which transactions are leases and apply IFRS 16 only to contracts that were previously
identified as leases. Contracts that were not identified as leases under IAS 17 will not be reassessed
for whether a lease exists. The Company will elect to not recognize right-of-use assets and lease
liabilities for leases that have a lease term of 12 months or less and for leases of low-value assets. The
Company will also account for leases for which the lease term ends within 12 months of the date of
initial application as short-term leases. Accordingly, the Company does not expect significant
adjustments to opening retained earnings at the beginning of the 2020 fiscal year.

g) Additional significant accounting policies, estimates, and judgements

The preparation of these Financial Statements in conformity with IFRS requires management to make
judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent
liabilities at the date of the Financial Statements and reported amounts of revenues and expenses during the
reporting period. Estimates and assumptions are continuously evaluated and are based on management’s
experience and other factors, including expectations of future events that are believed to be reasonable under
the circumstances. However, actual outcomes can differ from these estimates.

Following information is disclosed throughout the notes as identified in the table below:

(a)

(b)

(c)

Information on the Company’s significant accounting policies;

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a
material adjustment to the amounts recognized in the consolidated financial statements; and

Information about judgments made in applying accounting policies that have the most significant effect
on the amounts recognized in the consolidated financial statements.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

2. Significant Accounting Policies (continued)

g) Additional significant accounting policies, estimates, and judgements (continued)

Note

Topic

Accounting Policy Use of Estimates Use of Judgments

Business Combination

Accounts Receivable

Revenue

Inventory

Biological Assets

Property, Plant and Equipment

Intangible Assets

Provisions

Investments

Convertible Debentures

Share Based Compensation

Share Capital

Income Taxes
Financial Risk Management and Financial
Instruments

3. Business Combination

Accounting Policy:

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

Contingent consideration, if any, is measured at its acquisition date fair value and included as part of the consideration
transferred in a business combination. Contingent consideration that is classified as equity is not remeasured at
subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration
that is classified as an asset or a liability is remeasured at subsequent reporting dates with the corresponding gain
or loss being recognized in profit or loss.

Non-controlling interest in the acquiree, if any, is recognized either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets, determined on an acquisition-by-acquisition basis. For each
acquisition, the excess of total consideration, the fair value of previously held equity interest prior to obtaining control
and the non-controlling interest in the acquiree, over the fair value of the identifiable net assets acquired, is recorded
as goodwill.

Certain fair values may be estimated at the acquisition date pending confirmation or completion of the valuation
process. Where provisional values are used in accounting for a business combination, they may be adjusted
retrospectively in subsequent periods. The measurement period is the period from the acquisition date to the date
complete information about facts and circumstances that existed as of the acquisition date is received. However, the
measurement period does not exceed one year from the acquisition date.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

3. Business Combination (continued)

Use of Estimates:

Determination of fair value of assets acquired, liabilities assumed and the fair value of total purchase consideration,
including contingent consideration, requires the use of various estimates made by management.

Use of Judgment:

Classification of a transaction as a business combination depends on whether the assets acquired constitute a
business in accordance with the criteria set forth in IFRS 3 – Business Combinations, which can be a complex
judgment.

Explanatory Information:

On November 30, 2018 the Company acquired Bayfield Strategy, Inc. (“Bayfield”), a privately held Canadian
communications company which provides expertise in the area of strategic communications, public affairs, and
shareholder services. The Company acquired this business to bring these services in-house. The transaction was
accounted for as a business combination.

The Company acquired all of the issued and outstanding shares of Bayfield for share consideration of 358,423
common shares of the Company, with a fair value of $667 and settlement of pre-existing relationship, measured at
fair value of $200. As part of this transaction, the Company acquired the following net identifiable assets, which are
measured at a fair value of $187, resulting in total goodwill of $680.

Cash
Receivables
Prepaid expenses and deposits
Accounts payable and accrued liabilities
Net assets

November 30, 2018
55
178
6
(52)
187

Goodwill represents expected synergies, future income and growth, and other intangibles that do not qualify for
separate recognition. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.
Management has initially allocated the purchase price as noted above. As the acquisition is within the measurement
period, management will continue to refine and finalize the allocations. During the three months ended June 30, 2019
a measurement adjustment related to net assets acquired was recorded, resulting in an adjustment to the purchase
price allocation which decreased the net assets acquired and increased the goodwill by $20.

On the acquisition date, the Company also made share-based payment advances to Bayfield employees for a total
of 716,846 common shares of the Company, with a fair value of $1,333. The share-based payment advances have
certain performance and claw-back agreements attached to them, which expire over a period of two years. The
Company will amortize these share-based payment advances to profit and loss, over a period of two years, as the
employees provide services to the Company. The amount recognized for the year ended June 30, 2019 was $581
(2018: $nil), which is included in share-based payment in the consolidated statement of comprehensive loss.

For the year ended June 30, 2019 Bayfield accounted for a recovery of $5 of net expenses on the consolidated
statement of comprehensive loss.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

4. Accounts Receivable

Accounting Policy:

The Company initially recognizes accounts receivable on the date they originate. Receivables are initially measured
at fair value, and subsequently at amortized cost, with changes recognized in net income.

The Company recognizes expected credit losses for trade receivables based on the simplified approach under IFRS
9. The simplified approach to the recognition of expected losses does not require the Company to track the changes
in credit risk; rather, the Company recognizes a loss allowance based on lifetime expected credit losses at each
reporting date from the date of the trade receivable.

The Company evaluates its overdue trade accounts and measures loss allowance at an amount equal to twelve
months of expected losses, which is allocated to an allowance for doubtful accounts and recognized on the
consolidated statement of comprehensive loss.

Explanatory Information:

The Company’s accounts receivable consists of trade receivable, sales tax receivable and other receivable. The
breakdown of the accounts receivable balance is as follows:

Trade accounts receivable (net of allowance of $67)
Sales tax receivable
Other receivable
Total accounts receivable

5. Revenue

Accounting Policy:

June 30, 2019
21,969

-
-

21,969

June 30, 2018
4,800
3,503
165
8,468

As described in Note 2 (e) (ii), the Company adopted IFRS 15 on July 1, 2018. The standard requires revenue to be
recognized in a manner that depicts the transfer of promised goods or services to a customer and at an amount that
reflects the consideration expected to be received in exchange for transferring those goods or services. This is
achieved by applying the following five steps:

Identify the contract with a customer; the Company enters into binding sales agreements with all customers

Identify the performance obligations in the contract; the performance obligation of the Company’s sales
agreements is to deliver a fixed amount of dried cannabis

c) Determine the transaction price; sales agreements have fixed prices for dried cannabis

d) Allocate the transaction price to the performance obligations in the contract; the transaction price is allocated to

the performance obligation to deliver dried cannabis

e) Recognize revenue when (or as) the entity satisfies a performance obligation; the Company satisfies the
performance obligations when the dry cannabis is delivered to the customer as per the terms and conditions of
the Company’s sales agreements

The amount of recognized revenue is impacted by excise taxes as explained below. Excise taxes are applicable to
the cannabis industry. The Company performed an analysis to assess whether the excise taxes are sales-related or
effectively a production tax. Excise taxes are effectively a production tax as excise becomes payable when goods
are moved from the Company’s warehouse to the end consumer and are not based on the retail sales value.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

5. Revenue (continued)

Accounting Policy (continued):

Increases in excise tax are not always (fully) passed on to customers and the Company cannot, or can only partly,
reclaim the excise tax in the case products are eventually not sold to customers. Excise tax is borne by the Company
and included in revenue.

To provide full transparency on the impact of the accounting for excise, the Company presents the excise tax expense
on a separate line below revenue in the consolidated statement of comprehensive loss. A new subtotal called ‘Net
revenue’ is added. This ‘Net revenue’ subtotal is revenue as defined in IFRS 15 after discounts minus the excise tax
expense.

Use of Estimates:

The Company estimates whether certain vendors will exercise the right to early payment discounts based on past
experience with each vendor.

Use of Judgements:

Due to the complexity in tax legislations, significant judgement is applied in the assessment of whether taxes are
borne by the Company or collected on behalf of a third party impacting the net or gross presentation of revenue.

Explanatory information:

During year ended June 30, 2019 the Company recognized gross revenue of $43,015 (June 30, 2018: $8,855) from
the sale of cannabis products. Included in gross revenue for the year ended June 30, 2019, are excise taxes of
$1,182 (June 30, 2018: $nil). The Company’s sales transactions occurred in Canada and are substantially comprised
of sale of dry cannabis. The Company has not experienced significant sales returns and no sales provision has been
recognized as of June 30, 2019. During the year ended June 30, 2019 the Company had three major customers that
accounted for 40%, 31%, and 7%, respectively, of total revenues for the year.

Inventory

Accounting Policy:

Inventories consist of dried cannabis, cannabis distillate oil, cannabis seeds and supplies.

Finished goods inventory consist of dried cannabis flower and trim that has been processed and is available for sale.
Work in progress inventory consists of harvested cannabis plants that are in the processing stage. Cannabis distillate
oil is a liquid cannabis concentrate that may be sold in the wholesale market in its current form or further refined in
non-flower consumable products. Seeds inventory consists of cannabis seeds to be used in the genetic selection of
cannabis strains. Supplies inventory includes consumables used in the production and processing of cannabis
cultivation activities.

Subsequent to harvest all direct and overhead post-harvest costs are capitalized to inventory to the extent that the
cost is less than net realizable value. Direct and overhead costs include wages and benefits, facility costs,
amortization and other costs incurred in bringing the inventory to the present location and condition. Net realizable
value is determined as the estimated selling price less the estimated costs of completion and estimated selling costs.
Cost is determined on a weighted average basis for each individual harvest.

Inventories are written down to net realizable value when the cost of inventories is determined not to be recoverable.
When the circumstances that previously caused inventories to be written down no longer exist, the amount of the
write-down is reversed.

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

Inventory (continued)

Explanatory Information:

Carrying amount as at
Supplies
Seeds
Work in progress
Finished goods
Distillate oil
Total inventory

June 30, 2019

June 30, 2018

800
224
5,777
9,184
3,041
19,026 $

246
-
2,102
2,231
-
4,579

During the year ended June 30, 2019 inventory recognized as expense was $36,409 (June 30, 2018: $6,698),
consisting of $30,289 (June 30, 2018: $5,713) of realized fair value changes on inventory sold or impaired and $6,120
(June 30, 2018: $985) of capitalized post-harvest costs expensed during the period as cannabis inventory is sold.

Impairment charges related to inventory for the year ended June 30, 2019 was $855 (June 30, 2018: $398). The
impairment charge is due to the cost of certain inventory exceeding net realizable value for the year ended June 30,
2019. The amount has been expensed through realized fair value changes on inventory sold or impaired.

7. Biological Assets

Accounting Policy:

Biological assets, consisting of cannabis plants, are measured at fair value up to the point of harvest less costs to
complete and sell.

The Company initially values its cannabis plants as biological assets approximately 30 days into the growing stage;
cannabis plants that are approximately between day 1 and day 30 in the growth cycle are not considered to have
significant fair value and consequently are carried at a fair value of nil. During day 1 to day 15 of growth, the cannabis
plants are considered clones and housed in the nursery room. During day 16 to day 30, the cannabis plants are
considered to be in the pre-vegetation stage and housed in the vegetation rooms. During this time the survival rates
of the clones and pre-vegetation plants are inconsistent. Consequently, the Company has concluded that probable
future economic benefits associated with the cannabis plants in the first 30 days of growth will not flow to the Company
resulting in a carrying value of nil.

Approximately 30 days in the growth cycle, cannabis plants are moved in the flowering room where they will grow for
approximately 70 days until harvest. When the cannabis plants are transferred in the flowering rooms they are
sufficiently mature and do not experience significant plant loss. Growing time for a full harvest approximates 100
days.

The company values biological assets by multiplying the expected yield, in grams, from each harvest by the selling
price expected to be achieved by the Company. The value of biological assets is then reduced by the percentage of
completion of the harvest and the estimated post-harvest costs and cost to complete. The Company estimates that
fair value of the cannabis plants approximates the stage of completion of the cannabis plants based on approximately
linear costs incurred during the growth stage.

All direct and overhead costs incurred during the biological transformation process and up to the point of harvest are
expensed to production costs on the consolidated statement of comprehensive loss in the period the costs are
incurred.

Use of Estimates:

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

7. Biological Assets (continued)

Use of Estimates (continued):

The significant estimates and inputs used to assess the fair value of biological assets include the following
assumptions as at June 30, 2019:

a) Selling prices – selling prices are based on the Company's historical average selling price per gram for the
preceding nine months, adjusted for current market conditions. Adjusted selling prices averaged $6.13 for
cannabis flower and $2.44 for cannabis trim.

b) Post-harvest costs – the costs are based on actual processing costs incurred by drying, trimming, testing and
packaging activities incurred in the period, including overhead allocations for these activities. Post-harvest
processing costs averaged $0.42 per gram.

c) The stage of plant growth – the stage of plant growth is estimated by the number of days into the growing stage
as compared to the estimated growing time for a full harvest. The estimated stage of growth of the cannabis
plants as at June 30, 2019 averaged 69%.

d) Expected yield – the expected yield per plant is based on the Company’s historical adjusted average yield per

plant. Expected yield per plant is 70.51 grams of cannabis trim and 70.96 grams of cannabis flower.

Explanatory Information:

As at June 30, 2019, the Company’s biological assets consist of cannabis plants. The changes in the fair value of
biological assets are as follows:

Carrying amount, June 30, 2017
Changes in fair value less costs to sell due to biological transformation
Transferred to inventory upon harvest
Carrying amount, June 30, 2018
Changes in fair value less costs to sell due to biological transformation
Transferred to inventory upon harvest
Carrying amount, June 30, 2019

459
12,461
(9,637)
3,283
45,684
(40,205)
8,762

The Company expects that a $1 increase or decrease in the wholesale market price per gram of dried cannabis
would increase or decrease the fair value of biological assets by $2,485 (June 30, 2018: $861). A 5% increase or
decrease in the estimated yield per cannabis plant would result in an increase or decrease in the fair value of
biological assets by $227 (June 30, 2018: $164). Additionally, an increase or decrease of 10% in the post-harvest
costs would decrease or increase the fair value of biological assets by $105 (June 30, 2018: $78).

Net effect of changes in fair value of biological assets and inventory include:

Unrealized change in fair value of biological assets
Realized fair value increments on inventory sold or impaired

$ 15,395
30,289

Realized fair value changes on inventory sold or impaired included on the Company’s consolidated statement of
comprehensive loss is entirely comprised of the amount of changes in fair value due to biological transformation and
inventory impairment charges that have been expensed during the years ended June 30, 2019 as cannabis inventory
is sold or impaired.

Unrealized change in fair value of biological assets is the net amount of changes in fair value due to biological
transformation charges that have been added to biological assets and inventory during the years ended June 30,
2019.

100

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

7. Biological Assets (continued)

Explanatory Information (continued):

As at June 30, 2019, biological assets and inventory include a total of $22,567 (June 30, 2018: $7,208) of unrealized
fair value of biological assets charges which are yet to be expensed as the related cannabis inventory is not yet sold.
For the year ended June 30, 2019 a total of $30,289 (June 30, 2018: $5,713) has been recognized as realized fair
value changes on inventory sold or impaired.

8. Property, Plant and Equipment

Accounting Policy:

Initial recognition and amortization:

The Company measures property, plant and equipment upon initial recognition at cost and begins recognizing
depreciation when the asset is ready for its intended use, and when applicable, all Health Canada licensing has been
received. Subsequently, property, plant and equipment is carried at cost less accumulated depreciation and
accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes:

(a) Cost of materials and direct labor;

(b) Costs directly associated with bringing the assets to a working condition for intended use; and

The Company depreciates property, plant and equipment over its estimated useful life by expensing depreciation in
the consolidated statement of comprehensive loss.

The Company calculates gains and losses on the disposal of property, plant and equipment by comparing the
proceeds from the disposal with the item’s carrying amount and recognizes the gains or losses in the consolidated
statement of comprehensive loss.

The Company capitalizes development expenditures if they meet the criteria for recognition as an asset and amortize
them over their expected useful lives once the assets to which they relate are available for use. The Company
calculates depreciation based on the estimated useful lives and pattern of consumption of assets based on the
following:

101

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

8. Property, Plant and Equipment (continued)

Accounting Policy (continued):

Initial recognition and amortization (continued):

Asset Class

Assets under development

Land

Furniture & Equipment

Computer software & equipment

Building (Facility)

Grow Rooms (Facility)

Mechanical & Electrical Equipment (Facility)

Leasehold improvements

Impairment policy:

Basis

Not amortized

Straight-line

Estimated useful life

N/A

3-5 years

1-3 years

5-30 years

6-20 years

15-30 years

Over the shorter of useful life or lease terms

Long-lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. The recoverable
amount of an asset is the higher of its fair value, less costs to sell, and its value in use.

If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately
in the consolidated statement of comprehensive loss, by the amount by which the carrying amount of the asset
exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset
is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have
been recorded had no impairment loss been recognized previously.

Borrowing costs capitalization policy:

Borrowing costs, including non-cash accretion, attributable to the acquisition, construction or production of qualifying
assets are capitalized as part of those assets, until such time as the assets are substantially ready for their intended
use.

Use of Estimates:

Initial recognition of costs – The Company uses estimates to determine certain costs that are directly attributable to
self-constructed assets. These estimates primarily include certain internal and external direct labor, overhead, and
borrowing costs associated with the acquisition, construction, development, or betterment of its facilities.

Useful lives of property, plant and equipment – Components of an item of property, plant and equipment may have
different useful lives. The Company makes significant estimates when determining depreciation rates and asset
useful lives, which require considering company specific factors, such as past experience and expected use, and
industry trends. The Company monitors and reviews residual values, depreciation rates, and asset useful lives at
least once per year and changes them if they are different from previous estimates.

Use of Judgments:

The Company makes significant judgments in choosing methods for depreciating property, plant and equipment that
the Company believes most accurately represent the consumption of benefits derived from those assets and are
most representative of the economic substance of the intended use of the underlying assets.

102

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

8. Property, Plant and Equipment (continued)

Explanatory Information:

Cost
Balance, June 30, 2017

Additions
Disposals
Borrowing costs

Balance, June 30, 2018

Additions
Disposals
Borrowing costs

Balance, June 30, 2019

Accumulated Amortization
Balance, June 30, 2017

Amortization
Disposals

Balance, June 30, 2018

Amortization
Disposals

Balance, June 30, 2019

Net carrying cost, June 30, 2018

Net carrying cost, June 30, 2019

Facility

Land

Furniture,
equipment
and
leaseholds

Total Property,
Plant and
Equipment

25,849 $
67,409
(1,448)
5,526
97,336
77,309
(4,416)
5,367
175,596 $

681 $
953
(58)
1,576
3,942
(524)
4,994 $

1,203 $
2,232
-
-
3,435
2,462
-
-

5,897 $

- $
-
-
-
-
-
- $

391 $

1,765
(4)
-
2,152
4,728
-
-

6,880 $

125 $
218
(4)
339
1,314
-

1,653 $

27,443
71,406
(1,452)
5,526
102,923
84,499
(4,416)
5,367
188,373

806
1,171
(62)
1,915
5,256
(524)
6,647

95,760 $

3,435 $

1,813 $

101,008

170,602 $

5,897 $

5,227 $

181,726

As at June 30, 2019 the Company had $52,554 (June 30, 2018: $63,868) of Facility under development. Each phase
of construction is considered under development until such time that it has been approved by Health Canada. Once
Health Canada approval is granted, the asset is amortized as it is available for use. During the year ended June 30,
2019, a total of $88,205 (June 30, 2018: $15,083) of facility additions became available for use.

During the year ended June 30, 2019 a total of $5,367 (June 30, 2018: $5,526) of borrowing costs were capitalized.
Borrowing costs include a non-cash accretion expense of $3,039 (June 30, 2018: $2,736). Amortization expense of
$2,468 (June 30, 2018: $844) has been recorded as production costs or capitalized to inventory for the year ended
June 30, 2019, respectively.

Intangible Assets and Goodwill

Accounting Policy:

Initial recognition – Intangible assets:

Upon initial recognition, the Company measures intangible assets at cost unless they are acquired through a business
combination, in which case they are measured at fair value. For internally generated intangible assets, research costs
are expensed as incurred. Development expenditures are capitalized only if development costs can be measured
reliably, the product or process is technically, and commercially feasible, future economic benefits are probable, and
the Company intends to and has sufficient resources to complete development to use or sell the asset.

103

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

Intangible Assets and Goodwill (continued)

Accounting Policy (continued):

Initial recognition – Intangible assets (continued):

The Company begins recognizing amortization of intangible assets with finite useful lives when the asset is ready for
its intended use. Subsequently, the asset is carried at cost less accumulated amortization and accumulated
impairment losses. The estimated useful lives, residual values, and amortization methods are reviewed at each period
end, and any changes in estimates are accounted for prospectively.

The Company does not amortize intangible assets with indefinite lives.

Initial recognition – Goodwill:

The Company initially recognizes goodwill when it arises from business combinations. The Company measures
goodwill as the difference between the purchase consideration for the acquisition and the fair value of the separately
identifiable assets acquired and liabilities assumed as part of the acquisition. If the fair value of the purchase
consideration transferred is lower than the sum of the separately identifiable assets acquired and liabilities assumed,
the Company immediately recognizes the difference as a gain in the statement of comprehensive loss.

The Company allocates Goodwill to a cash-generating unit (“CGU”) that is expected to benefit from the synergies of
the business combination from which the goodwill arose.

Impairment of intangible assets and goodwill:

An intangible asset or goodwill is impaired if the recoverable amount of the asset is less than its carrying amount.
The recoverable amount of an intangible asset or the CGU to which the goodwill has been allocated, is the higher of
its fair value less costs to sell and value in use.

The Company tests intangible assets with finite useful lives for impairment whenever an event or change in
circumstances indicates that the assets’ carrying amount may not be recoverable. For indefinite life intangible assets
and goodwill, the Company conducts impairment tests on every annual reporting period end, or more frequently if
any event or change in circumstances indicate that the assets’ carrying amount may not be recoverable.

If an asset is considered impaired, the Company immediately recognizes the impairment loss in the consolidated
statement of comprehensive loss.

Use of Estimates:

The Company uses estimates in determining the useful life and residual values of its definite life intangible assets.
The definite life intangible assets that are not under development and are ready for use, are amortized on a
straight-line basis, based on the estimated useful lives as described in the table below:

Asset Class

Basis

Estimated useful life

Assets under development

Not amortized

Database & system technologies

Product license

Straight-line

N/A

3-5 years

Expected term of agreement

The Company uses estimates in determining the recoverable amount of intangible assets and long-lived assets. The
determination of the recoverable amount for impairment testing requires the use of significant estimates, such as
future cash flows and discount rates. Future cash flows are based on the Company’s estimates and expected future
operating results of the CGU after considering economic conditions impacting the CGU.

104

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

Intangible Assets and Goodwill (continued)

Use of Estimates (continued):

The following inputs have been used to determine the recoverability of intangible assets and long-lived assets based
on the value in use of the asset or CGU:

(a) Discount rate of 18%

(b) Average selling price per gram of approximately $5.35 and $2.38 for cannabis flower and trim, respectively

(d) Average cost of production and operating expenses of approximately 55%-75% of revenue

(e) Forecasted cash flow period of 5 years followed by a terminal value of future cash flows

(f) Growth rate of 10% after the facility has reached full production, following 2% growth rate for terminal value

A 20% increase or decrease in any of the above inputs individually or cumulatively will not result in an impairment of
intangible assets.

Use of Judgements:

Intangible assets:

Judgment is applied when deciding to designate the Health Canada license as an asset with indefinite useful life
since the Company believes the license is likely to be renewed for the foreseeable future such that there is no limit
to the period over which the asset is expected to generate net cash inflows. The Company makes judgments to
determine that this asset has indefinite life, analyzing all relevant factors, including the expected usage of the asset,
the typical life cycle of the asset, and anticipated changes in the market demand for the products and services the
asset helps generate. After review of the competitive, legal, regulatory, and other factors, it is the Company’s view
that these factors do not limit the useful life of the Company’s Health Canada license. The Company’s intangible
asset of its Health Canada license has been allocated to its one CGU.

The Company uses judgement to assess if an intangible asset is an indefinite or a definite life intangible. Additionally,
in the case of internally generated intangibles, further judgment is required to assess if the costs incurred are part of
research or development stage and whether future economic benefits are probable.

Goodwill:

The Company uses judgment in determining the allocation of goodwill to a CGU for the purpose of impairment testing.
As at June 30, 2019 the Company only had one CGU and all the goodwill was allocated to that CGU.

105

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

Intangible Assets and Goodwill (continued)

Explanatory Information:

Database &
System
Technologies

Product
License

Health
Canada
License

Total
Intangible
Assets

Goodwill

Note 9A

Note 9B

Note 9C

Note 9D

Cost
Balance, June 30, 2017

Additions

Balance, June 30, 2018

Additions

Balance, June 30, 2019

Accumulated Amortization
Balance, June 30, 2017

Amortization

Balance, June 30, 2018

Amortization

Balance, June 30, 2019

Net carrying cost, June 30, 2018

Net carrying cost, June 30, 2019

- $
-
-
1,179
1,179 $

- $
-
-
118
118 $

- $

- $
-
-
15,722
15,722 $

- $
-
-
734
734 $

8,397 $

-
8,397
-

8,397 $

-
8,397
16,901
25,298 $

- $
-
-
-
- $

- $
-
-
852
852 $

- $

8,397 $

-
-
-
680
680

-
-
-
-
-

1,061 $

14,988 $

8,397 $

24,446 $

680

As at June 30, 2019 the Company had $73 (June 30, 2018: $nil) of intangible assets under development, which
would be classified as definite life intangibles, upon completion of development. For the years ending June 30, 2019
the Company has not recorded any amortization on these assets, as they are not ready for use yet.

Note 9A:

The Company implemented an enterprise resource planning (“ERP”) software and internally developed its website
and database. The development costs associated with these projects have been capitalized as part of an internally
generated, definite life intangible asset.

During the years ended June 30, 2019 the Company recognized amortization expense on the ERP software in the
amounts of $65 (June 30, 2018: $nil). During the same period, the Company also recognized amortization expense
on the website and database intangible asset in the amount of $53 (June 30, 2018: $nil).

Note 9B:

On December 6, 2018 the Company entered into an agreement with Khalifa Kush Enterprises Canada ULC (“KKE”)
(an unrelated entity), which gives the Company an exclusive right to sell products under the KKE or KK brand across
Canada, and international markets (other than the United States), in addition to certain product development services
(the “Agreement”).

This product license has been capitalized as a definite life intangible, as there is a defined useful life, in accordance
with the terms of the Agreement. The Company issued 5,745,000 common shares valued at $1.43 each, along with
a cash consideration of $1,000 for a total purchase consideration of $9,215. The Company incurred total transaction
costs of $65 which have been capitalized.

106

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

Intangible Assets and Goodwill (continued)

Explanatory Information (continued):

Note 9B (continued):

In addition, the Company owes certain minimum royalty payments to KKE over the course of the Agreement. As
further discussed in Note 10, the initial liability amount was determined to be $6,370 which has been capitalized to
intangible asset. During the year ended June 30, 2019 the Company incurred $594 (June 30, 2018: $nil) in non-cash
accretion expense, of which $72 (June 30, 2018: $nil) was capitalized to the intangible asset.

For the year ended June 30, 2019 the Company recorded amortization expense of $734 (2018: $nil), of which $300
(2018: $nil) relates to KKE Royalties that has been included in production costs.

Note 9C:

The indefinite life intangible asset represents the value attributed to an in-process Health Canada application on
acquisition of 7ACRES. Subsequent to acquisition, the Company was granted a license to cultivate cannabis. ACMPR
licenses are issued by Health Canada for a maximum term of 3 years and are to be renewed before expiry unless
the Company has significantly breached compliance. Accordingly, the useful life of the License is considered
indefinite and has not been amortized. The License is tested for impairment annually by comparing the recoverable
amount to its carrying amount. The Company did not have any impairment losses in the current period and the
intangible asset continues to be carried at $8,397 (June 30, 2018: $8,397).

Note 9D:

The Company has recorded goodwill arising from the Bayfield acquisition transaction, as discussed in Note 3. The
Company has allocated the goodwill to its only CGU, the cannabis cultivation operations in Kincardine, Ontario. The
CGU is tested for impairment annually or if there are any events or change in circumstances that might indicate that
the assets’ carrying amount is not recoverable.

The Company did not have any impairment losses in the current period and the goodwill continues to be carried at
$680 (June 30, 2018: $nil).

10. Provisions

Accounting Policy:

The Company recognizes a provision when a past event creates a legal or constructive obligation that can be
reasonably estimated and is likely to result in a future outflow of economic resources. The estimated cash outflows
are discounted at a pre-tax rate that reflects the current market assessment of the time value of money and specific
risks. The Company recognizes a provision even when the timing or amount of the obligation may be uncertain, which
can require the Company to make significant estimates. The Company measures provisions for one-off events at the
most likely amount and for large populations of events at a probability-weighted expected value.

The Company currently has one provision for royalty payments owed to KKE over the expected term of the
Agreement.

Use of Estimates:

The Company’s best estimate of the royalty payments owed to KKE is the future minimum fixed royalty payments
owed to KKE over the expected term of the Agreement and the timing of the payments. The initial carrying amount
of the provision was determined by discounting the stream of future minimum royalty payments at a market interest
rate of 18.31%.

107

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

10. Provisions (continued)

Use of Judgements:

Significant judgment is required to determine when the Company is subject to unavoidable costs arising from
contracts. These judgments may include, for example, whether a certain promise is legally binding or whether the
Company may be successful in negotiations with the counterparty. The Company uses judgement in determining the
timing of future outflows of economic resources.

Explanatory Information:

As discussed in Note 9B, the Company owes certain minimum royalty payments to KKE over the course of the
Agreement. The initial liability amount attached to this future stream of payments was determined to be $6,370. The
Company has capitalized this amount to Product License intangible asset. During the year ended June 30, 2019 the
Company incurred $594 (June 30, 2018: $nil) in non-cash accretion expense. $72 (June 30, 2018: $nil) of that
accretion expense was capitalized to the intangible asset since the asset was still under development until April 4,
2019 as per terms of the Agreement. Since then, the Company has started amortizing the asset and has recorded
total amortization expense of $300 (June 30, 2018: $nil) for the year ending June 30, 2019, which has been recorded
in production costs. As at June 30, 2019 the Company has an outstanding current and long-term liability of $1,318
(June 30, 2018: $nil) and $4,646 (June 30, 2018: $nil), respectively, related to the minimum royalty payments due.

11. Investments

Accounting Policy:

The Company classifies its investments in companies where it does not have control or significant influence as follows:

(i)

Publicly-traded companies – at FVTPL based on publicly quoted prices; and

(ii)

Private companies – at FVOCI using implied valuations from follow-on financing grounds, third-party
sale negotiations, or market-based approaches.

Use of Estimates:

The Company uses the Black-Scholes pricing model to estimate the value of its investment in the warrants of BlissCo
Cannabis Corp. (“BlissCo”). The following estimates were used as inputs into the model as at June 30, 2019, and
June 30, 2018:

Share price
Expected dividend yield
Stock price volatility
Expected life of warrants
Forfeiture rate
Risk free rate

2019
0.36
0.00%
88.48%
0.63 years
-
1.50%

2018
0.40
0.00%
79.50%
1.63 years
-
1.91%

The Company uses the discounted cash flows valuation method to estimate the value of its FVOCI investments
considered a Level 3 categorization on the IFRS fair value hierarchy.

The significant unobservable input into the valuation models of these investments is the discount rate, which has
been estimated to be between 18%-30%. Changes in discount rates will result in changes in the fair values of these
investments.

108

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

11. Investments (continued)

Explanatory Information:

Carrying
amount, June
30, 2018

Investment

Fair value
June 30, 2019

Unrealized
Gain / (Loss)
on investment

Carrying
amount, June 30,
2019

Level 1 on fair value hierarchy

BlissCo shares

Note 11A

4,000

Level 2 on fair value hierarchy

BlissCo warrants

Note 11A

1,096

Level 3 on fair value hierarchy

Trellis Solutions Inc.

Note 11B

1,074

MediGrow

Note 11C

10,162

11,236

16,332

Note 11A:

3,550

418

1,074

10,283

11,357

15,325

(450)

(678)

121

(1,007)

3,550

418

1,074

10,283

11,357

15,325

On February 26, 2018, Supreme closed an investment in BlissCo, an early stage vertically integrated distribution
focused cannabis company. The Company purchased 10,000,000 units for $3,000. Each unit is comprised of one
common share and one common share purchase warrant of BlissCo. The common share purchase warrants are
exercisable until February 23, 2020 at $0.60 per common share. The Company has valued the common shares and
common share purchase warrant separately. The Company does not exercise significant influence or control. The
investment has been classified as a FVTPL financial instrument. The Company revalued the investment as at June
30, 2019 and adjusted the carrying amount of common shares to $3,550 which is based on the common share price
of BlissCo quoted on the Canadian Securities Exchange, resulting in an unrealized loss of $450 (June 30, 2018:
unrealized gain of $1,779).

The Company revalued the common share purchase warrants as at June 30, 2019 using the Black-Scholes pricing
model to estimate the fair value of warrants at the period then ended, resulting in an unrealized loss of $678 (June
30, 2018: unrealized gain of $317). The unrealized losses related to BlissCo common shares and common share
purchase warrants have been recorded in unrealized gains and losses on investments on the consolidated statement
of comprehensive loss. Refer to Note 19 for subsequent events related to the Company’s investment in BlissCo.

Note 11B:

On April 22, 2016, Supreme closed an investment in Trellis Solutions Inc., a software company focused on providing
enterprise resource planning solutions to the cannabis industry. The Company purchased 285,714 common shares
for $100. The Company does not exercise significant influence or control.

The investment has been classified as a FVOCI financial instrument. The Company revalued the investment on June
30, 2017 and adjusted the carrying amount to $1,074 due to follow-on financing round establishing a current fair
value.

109

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

11. Investments (continued)

Explanatory Information (continued):

Note 11B (continued):

During the year ended June 30, 2019 there were no adjustments necessary to the carrying value of the investment
based on free cash flow model analysis (2018: $nil). The Company intends to continue as a passive shareholder.

Note 11C:

On March 20, 2018, Supreme closed an investment in MediGrow Lesotho (Pty) Limited (“MediGrow”), a licensed
producer of medical cannabis based in the Kingdom of Lesotho. MediGrow is focused on medical cannabis oil
production for export to federally legal medical cannabis markets globally.

The Company purchased 278,000 common shares for $10,074 and incurred $88 of transaction costs that have been
capitalized. The Company does not exercise significant influence or control. The investment has been classified as
a FVOCI financial instrument. The Company revalued the investment on June 30, 2019 based on free cash flow
model analysis and adjusted the carrying value to $10,283 resulting in an unrealized gain of $121 and a tax impact
of $16 (June 30, 2018: $nil) which has been recognized in OCI.

12. Convertible Debentures

Accounting Policy:

Compound financial instruments issued by the Company are comprised of convertible debt that can be converted to
share capital at the option of the holder. The liability component of a compound financial instrument is recognized
initially at the fair value which is equal to the net present value of future cash flows applying an interest rate at the
date of issue of a similar liability that does not have an equity convertible option. The equity component is recognized
initially as the difference between the fair value of the compound financial instrument as a whole and the fair value
of the liability component. Any directly attributable transaction costs are allocated to the liability and equity
components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized
cost using the effective interest method. The equity component of a compound financial instrument is not remeasured
subsequent to initial recognition. Interest, dividends, losses and gains relating to the financial liability are recognized
in the consolidated statement of comprehensive loss.

Use of Estimates:

Market rate of interest – The market rate of interest is estimated by assessing market conditions and other internal
and external factors. The market rate of interest used to calculate the fair value of the debt component of October
2018 Convertible Debenture is 18.31%. The market rate of interest used to calculate the fair value of the debt
components of November 2017 and December 2016 Convertible Debentures is 19.9%.

Explanatory Information:

October 2018 Convertible Debenture:

On October 19, 2018, the Company received gross proceeds of $100,000 from a bought deal offering issuance of
6% coupon, unsecured debentures, which are convertible into common shares at a rate of $2.45 per share at any
time and mature on October 19, 2021. The unsecured debentures are subject to accelerated expiry in some
circumstances. The effective interest rate used to value the convertible debenture is 18.61%.

The Company incurred expenses of $4,154 related to the bought deal offering and $321 of legal and other fees.
These transaction costs have been allocated to the liability and equity components based on their pro-rata values.
As at June 30, 2019, the principal amount outstanding of October 2018 Convertible Debentures was $100,000 (June
30, 2018: $nil).

110

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

12. Convertible Debentures (continued)

Explanatory Information (continued):

October 2018 Convertible Debenture (continued):

The October 2018 Convertible Debenture is comprised of a liability component and a conversion feature. As the
debentures are convertible into common shares, the liability and equity components are presented separately. The
initial carrying amount of the financial liability was determined by discounting the stream of future payments of interest
and principal at a market interest rate of 18.31%. Using the residual method, the carrying amount of the conversion
feature is the difference between the principal amount and the initial carrying value of the financial liability. The equity
component is recorded in reserves on the consolidated statement of financial position. The debentures, net of the
equity component and issue costs are accreted using the effective interest method over the term of the debentures,
such that the carrying amount of the financial liability will equal the principal balance at maturity.

November 2017 Convertible Debenture:

On November 14, 2017, the Company received gross proceeds of $40,250 from a brokered private placement
issuance of 8% coupon, unsecured debentures, which are convertible into common shares at a rate of $1.60 per
share at any time and mature on November 14, 2019.

Concurrently, the lenders received 12,598,250 warrants exercisable at $1.80 until November 14, 2020. Both the
unsecured debentures and the warrants are subject to accelerated expiry in some circumstances. The effective
interest rate used to value the convertible debenture is 20.6%.

The Company incurred expenses of $1,594 related to the private placement and $217 of legal and regulatory fees.
These transaction costs have been allocated to the liability and equity components based on their pro-rata values.

On November 6, 2018 the Company exercised its accelerated condition included in the indenture relating to the
November 2017 Convertible Debenture resulting in all the outstanding convertible debentures being exercised and
converted to common shares of the Company. As at June 30, 2019 the principal amount outstanding of November
2017 Convertible Debentures was $nil (June 30, 2018: $35,595).

December 2016 Convertible Debenture:

On December 13, 2016, the Company received gross proceeds of $55,000 from a brokered private placement
issuance of 10% coupon, unsecured debentures, which are convertible into common shares at a conversion price of
$1.30 per share at any time and mature December 31, 2019. Concurrently, the lenders received 42,350,000 warrants
exercisable at $1.70 until December 13, 2019, subject to accelerated expiry in some circumstances. The effective
interest rate used to value the convertible debenture is 20.6%. The proceeds were primarily used for the construction
of the Company’s Facility, resulting in the capitalization of borrowing costs.

The Company incurred cash finders’ fees of $1,807, share issue fees of $495 and issued 1,273,965 finders’ warrants
valued at $858. These transaction costs have been allocated to the liability and equity components based on their
pro-rata values.

On January 22, 2018, the Company exercised its accelerated condition included in the indenture relating to the
December 2016 Convertible Debenture resulting in all the outstanding convertible debentures being exercised and
converted to common shares of the Company. As at June 30, 2019, the principal amount outstanding of December
2016 Convertible Debentures was $nil (June 30, 2018: $nil).

111

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

12. Convertible Debentures (continued)

Explanatory Information (continued):

Convertible debentures consist of the following:

Debt component

Balance June 30, 2017

Conversion (Dec 2016 Debentures)
Accretion (Dec 2016 Debentures)
Issue of convertible debt, net
Conversion (Nov 2017 Debentures)
Accretion and unpaid interest (Nov 2017 Debentures)

Balance, June 30, 2018

Conversion (Nov 2017 Debentures)
Accretion and interest (Nov 2017 Debentures)
Issue of convertible debt, net (Oct 2018 Debentures)
Accretion and interest, net of payments (Oct 2018 Debentures)

Balance, June 30, 2019

31,705 $

(32,873)
1,168
31,567
(3,765)
3,920
31,722 $

(30,960)
(762)
70,674
8,380
79,054 $

Equity component
conversion option
3,050
(3,050)
-
4,947
(461)
-
4,486
(3,090)
-
24,850
-
26,246

13. Share Based Compensation

Accounting Policy:

The Company has an employee stock option plan. The Company measures equity settled share-based payments
based on their fair value at the grant date using the Black-Scholes option pricing model and recognizes compensation
expense over the vesting period based on the Company’s estimate of equity instruments that will eventually vest.
Expected forfeitures are estimated at the date of grant and subsequently adjusted if further information indicates
actual forfeitures may vary from the original estimate. The impact of the revision of the original estimate is recognized
in profit or loss such that the cumulative expense reflects the revised estimate.

Consideration paid by employees or non-employees on the exercise of stock options is recorded as share capital
and the related share-based compensation is transferred from share-based reserve to share capital.

During the fiscal year, the Board, shareholders and TSX approved the adoption of the restricted share unit plan. As
at June 30, 2019 there have been no restricted share units issued.

Use of Estimates:

Significant estimates are used to determine the fair value of stock options, the table below shows the range of
estimates and assumptions used in applying the Black-Scholes option pricing model:

Share price

Expected dividend yield

Stock price volatility

Expected life of options

Forfeiture rate

Risk free rate

2019

2018

1.47 - 2.25 $

1.43 - 3.04

0.00%

54.73% - 84.70%

81% - 87.1%

5 years

5 years - 10 years

0% - 1%

1.58% - 2.41%

1.8% - 2.31%

The Company determined the stock price volatility based on an average of its own historical stock price volatility and
the historical stock price volatility of a basket of comparable publicly traded companies.

112

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

13. Share Based Compensation (continued)

Explanatory information:

During the year ended June 30, 2019 the Company granted 2,040,000 incentive stock options to employees as
follows:

Grant Date

# of
options

Expiry Date

Share price at
the time of grant

Exercise
price

Vesting Period

August 23, 2018

375,000

August 23, 2023

1.47

1.50

October 17, 2018

200,000

October 17, 2023

2.02

2.05

January 2, 2019

75,000

January 2, 2024

1.49

1.50

February 14, 2019

150,000

February 14, 2024

1.79

1.80

March 5, 2019

300,000

March 5, 2024

2.02

2.05

April 1, 2019

940,000

April 1, 2024

2.25

2.30

3 years (1/3rd vesting each of the first 3
years)
3 years (1/3rd vesting each of the first 3
years)
3 years (1/3rd vesting each of the first 3
years)
3 years (1/3rd vesting each of the first 3
years)
3 years (1/3rd vesting each of the first 3
years)
3 years (1/3rd vesting each of the first 3
years)

During the year ended June 30, 2019, there were 361,666 common share issuances upon exercise of stock options
and 1,206,300 stock options forfeited or cancelled in the period then ended.

As at June 30, 2019, the Company had 24,579,567 stock options outstanding as follows:

Outstanding and exercisable, June 30, 2017

Granted

Exercised

Expired / Forfeited

Outstanding and exercisable, June 30, 2018

Granted

Exercised

Expired / Forfeited

Outstanding and exercisable, June 30, 2019

Options
Outstanding

Weighted Average
Exercise Price

15,423,783 $

11,410,000

(1,521,250)

(1,205,000)

24,107,533 $

2,040,000

(361,666)

(1,206,300)

24,579,567 $

1.28

1.76

(0.47)

(1.58)

1.54

2.03

(0.79)

(1.07)

1.62

113

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

13. Share Based Compensation (continued)

Explanatory Information (continued):

The stock options outstanding are exercisable as follows:

Exercise Price

Expiry Date

Number of Options

Weighted Average
Remaining Life (years)

October 14, 2019

January 10, 2021

April 25, 2021

August 29, 2021

September 25, 2022

December 15, 2026

January 5, 2023

March 29, 2028

June 25, 2023

May 15, 2023

August 23, 2023

October 17, 2023

January 2, 2024

February 14, 2024

March 5, 2024

April 1, 2024

0.41

0.50

0.75

1.45

2.00

3.05

1.80

1.70

1.80

1.50

2.05

1.50

1.80

2.05

2.30

14. Share Capital

Accounting Policy:

250,000

0.29

905,000

1.53

800,000

1.82

3,307,483

2.17

2,915,000

3.24

6,500,000

7.47

500,000

3.52

6,712,084

3.88

400,000

3.99

300,000

8.75

375,000

4.15

200,000

4.30

25,000

4.51

150,000

4.63

300,000

4.68

940,000

4.76

24,579,567

5.71

Loss per share – The Company presents basic and diluted loss per share data for its common shares. Basic earnings
per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the
weighted average number of common shares outstanding during the period. Diluted earnings per share is determined
by adjusting the profit or loss attributable to common shareholders and the weighted average number of common
shares outstanding, for the effects of all dilutive potential common shares, which comprise warrants and share options
issued. Items with an anti-dilutive impact are excluded from the calculation.

Explanatory Information:

Authorized share capital:

Unlimited number of voting common shares

10,000,000 Class “A” preference shares

10,000,000 Class “B” preference shares

Share Capital: Common shares issued and outstanding

On June 30, 2019 the Company had 301,551,430 common shares issued and outstanding.

114

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

14. Share Capital (continued)

Explanatory Information (continued):

During the year ended June 30, 2019 the Company issued 22,483,557 common shares upon conversion of $35,595
of its outstanding convertible debt and the related accrued interest payment.

Additionally, 16,148,712 common shares were issued as a result of warrant exercises, with an additional 500,000
common shares to be issued for which funds have been received as at June 30, 2019. The Company also issued
361,666 common shares as a result of option exercises, during the year ended June 30, 2019.

The Company also issued 1,075,269 shares in connection with a business acquisition completed in the year ended
June 30, 2019, as described in Note 3. Additionally, the Company issued 5,745,000 shares in connection to its
Agreement with KKE, as described in Note 9B.

Share Capital: Share purchase warrants

During the year ended June 30, 2019, various warrant holders exercised 16,148,712 warrants generating proceeds
of $13,278.

On June 30, 2019, the Company had 48,597,337 share purchase warrants outstanding as follows:

Outstanding, June 30, 2017

Granted

Exercised

Expired

Outstanding, June 30, 2018

Exercised

Exercised, pending share issuance

Expired

Outstanding, June 30, 2019

The warrants outstanding are exercisable as follows:

Warrants
Outstanding

Weighted Average
Exercise Price

87,697,600 $

12,598,250

(31,369,482)

(3,574,587)

65,351,781 $

(16,148,712)

(500,000)

(105,732)

48,597,337 $

1.09

1.80

(1.36)

(0.48)

1.12

(0.80)

(0.50)

1.24

Exercise Price

0.32

0.50

1.70

1.80

Reserves:

Expiry Date

April 23, 2020

July 15, 2019

August 30, 2019

December 13, 2019

November 14, 2020

Number of Warrants

Weighted Average
Remaining Life (years)

4,511,904

319,593

14,348,999

17,084,641

12,332,200

48,597,337

0.82

0.04

0.17

0.45

1.38

0.64

Reserves are comprised of share-based payments, the equity component of convertible debt and initial fair value of
warrants, offset by the exercise of these instruments.

115

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

15. Related Party Transactions

The remuneration awarded to directors and executives for the year ended June 30, 2019, includes the following:

For the year ended
Share based payments
Salaries and wages

June 30, 2019

6,151 $
3,772
9,923 $

June 30, 2018
5,147
1,226
6,373

As at June 30, 2019, directors and executives of the Company held a combined $nil (June 30, 2018: $85) of convertible
debentures.

16. Income Taxes

Accounting Policy:

Income tax expense consists of current and deferred tax expense. Current and deferred tax are recognized in profit
or loss except to the extent that it relates to items recognized directly in equity or other comprehensive income.

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

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

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

Use of Estimates:

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

Explanatory Information:

The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 26.5% (2018 – 26.5%)
to the effective tax rate is as follows:

116

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

16. Income Taxes (continued)

Explanatory Information (continued):

Net Income (Loss) before recovery of income taxes

2019
$ (12,065)

Supreme 7ACRES Cambium
(20)
18,870
(30,915)

(5)

Expected income tax (recovery) expense
Tax rate changes and other adjustments
Share based compensation and non-
deductible expenses
Share issuance costs and other
Convertible debenture
Tax rate difference
True-up relating to prior period
Change in tax benefits not recognized

(3,196)
-

(8,192)
-

5,001
-

2,148
-
-
-
587
2,893

2,141
-
-
-
(883)
2,984

-
-
-
1,470
(96)

Income tax (recovery) expense

2,432

(3,950)

6,382

The Company's income tax (recovery) is allocated as follows:

Deferred tax (recovery) expense

2,432
2,432

(5,373)
(5,373)

7,805
7,805

-
-
-
-
-

-
-

Deferred tax:

The following table summarizes the components of deferred tax:

Deferred Tax Assets

Non-capital losses and farm losses carried forward
Property, plant and equipment
Intangibles
General Reserves
Deferred Financing Costs

2019
4,952
92
284
21
1,610

Supreme 7ACRES Cambium

4,629
92
284
-
1,610

323
-
-
21
-

Deferred Tax Liabilities

Property, plant and equipment
Short term investments
Biological assets
Convertible debt

(2,159)
(274)
(5,990)
(6,341)

-
(274)
-
(6,341)

(2,159)
-
(5,990)
-

2018
(6,600)

(1,749)
(14)

1,570
(460)
(1,159)
(278)

2,837

747

747
747

2018
4,956
-
-
-
-

(1,118)
(407)
(1,910)
(1,521)

-
-
-
-
-

-
-
-
-

Net deferred tax asset/(liability)

(7,805)

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation
authority and the Company has the legal right and intent to offset.

Balance at the beginning of the year
Recognized in profit/loss
Recognized in OCI
Recognized in equity
Balance at the end of the year

2019
-
2,432
16
5,357
7,805

117

2018
-
747
-
(747)
-

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

16. Income Taxes (continued)

Explanatory Information (continued):

Deferred taxes are provided as a result of temporary differences that arise due to the differences between the income
tax values and the carrying amount of assets and liabilities. Deferred tax assets have not been recognized in respect
of the following deductible temporary differences:

Property, plant and equipment
Share issuance cost
Capital losses carried forward
Non-capital losses carried forward - Canada
Resource pools - Mineral Properties

2019
-
-
250
24,402
852

Supreme 7ACRES Cambium
-
-
-
-
-

-
-
250
24,382
852

-
-
-
20
-

The Company’s Canadian non-capital income tax losses expire as follows:

For the fiscal year ending June 30, 2019

2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039

2018

8
3,639
250
8,302
852

204
27
110
160
323
195
192
1,238
2,424
1,370
5,673
9,305
21,868
$ 43,089

17. Financial Risk Management and Financial Instruments

Accounting Policy:

Recognition and derecognition:

The Company initially recognizes cash, bank advances, accounts receivable, debt securities, and accounts payable
and accrued liabilities on the date they originate. All other financial assets and financial liabilities are initially
recognized on the trade date when we become a party to the contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or
it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially
all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets
that is created or retained by the Company is recognized as a separate asset or liability. The Company derecognizes
a financial liability when its contractual obligations are discharged or cancelled or expire.

Classification and measurement:

The Company measures financial instruments by grouping them into classes upon initial recognition, based on the
purpose of the individual instruments. The Company initially measures all financial instruments at fair value plus, in
the case of financial instruments not classified as FVTPL, transaction costs that are directly attributable to the
acquisition or issuance of the financial instruments.

118

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

17. Financial Risk Management and Financial Instruments (continued)

Accounting Policy (continued):

Classification and measurement (continued):

The classifications and methods of measurement subsequent to initial recognition of the Company’s financial assets
and financial liabilities are as follows:

The Company classifies its financial assets as amortized cost, FVTPL or FVOCI. The Company classifies its financial
liabilities as amortized cost. Cash is classified as FVTPL, accounts receivables as amortized cost, investments as
FVTPL or FVOCI. Accounts payable, accrued liabilities and convertible debt are classified as amortized cost.

Impairment of financial assets:

The Company consider the credit risk of a financial asset at initial recognition and at each reporting period thereafter
until it is derecognized. Accounts receivable impairment is measured based on the lifetime expected credit losses.

Offsetting financial assets and financial liabilities:

The Company offsets financial assets and financial liabilities and presents the net amount on the consolidated
statements of financial position when the Company has a legal right to offset them and intend to settle on a net basis
or realize the asset and liability simultaneously.

Use of Estimates:

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

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

Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and

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

Use of Judgments:

The Company makes judgements related to the classification of financial instruments and whether impairment
indicators exist for financial instruments not carried at fair value. The judgements are based on the Company’s
expected use of the financial instrument and internal and external factors with respect to impairment indicators.

Explanatory Information:

For the years ended June 30, 2019 the Company has recognized an unrealized loss from investments classified as
FVTPL of $1,128 (June 30, 2018: unrealized gain of $2,096) due to the changes in fair value. The unrealized gain
was determined using Level 1 and Level 2 inputs. The Company has also recognized an unrealized gain from its
investments classified as FVOCI of $105, net of tax (June 30, 2018: $nil), that was determined using Level 3 inputs.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

Credit risk:

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. Financial
instruments that potentially subject the Company to concentrations of credit risks consist principally of cash and
receivables. To minimize the credit risk the Company places cash with a high credit quality financial institution in
Canada, for receivables, the Company evaluates the credit worthiness of the counterparty before credit is granted.
As at June 30, 2019 a total of $2,385 (June 30, 2018: $669) of trade accounts receivable were considered overdue.

119

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

17. Financial Risk Management and Financial Instruments (continued)

Explanatory Information (continued):

Credit risk (continued):

The Company has estimated the expected loss allowance using the lifetime credit loss approach to estimate the bad
debt expense for the current period to be $103 (June 30, 2018: $nil). The Company’s aging of its trade accounts
receivable is as follows:

Trade Accounts Receivable Aging

Current

1-30
days

31-60
days

61-90
days

91-120
days

Total

As at June 30, 2019

As at June 30, 2018

Liquidity risk:

$ 19,651

349

4,131

141

2,036

- 22,036

510

4,800

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The
Company typically settles its financial obligations out of cash and occasionally will settle liabilities with the issuance
of common shares. The ability to settle obligations with cash relies on the Company raising funds in a timely manner
and by maintaining sufficient cash in excess of anticipated needs. As at June 30, 2019, the Company had a cash
balance of $54,822 (June 30, 2018: $55,896) and current liabilities of $31,947 (June 30, 2018: $22,917).

The Company’s current resources are sufficient to settle its current liabilities. All the Company’s liabilities are due
within one year, other than convertible debt and KKE royalty payments.

Interest rate risk:

The Company is not subject to interest rate risk on future cash flows, as all its instruments bear fixed rates of interest.

Capital management:

Capital is comprised of the Company’s shareholders’ equity and any debt it may issue, other than trade payables in
the normal course of operations. As at June 30, 2019, the Company’s shareholders’ equity was $210,972 (June 30,
2018: $145,145) and liabilities other than trade payable and accruals were $93,200 (June 30, 2018: $31,722).

The Company’s objective when managing capital is to safeguard its accumulated capital in order to provide adequate
return to shareholders by maintaining a sufficient level of funds in order to support its ongoing activities. The Board
of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise
of the Company’s management to sustain future development of the business.

Management reviews its capital management approach on an ongoing basis and believes that this approach is
reasonable.

The Company is dependent on external financing to fund its activities. The Company will spend its existing working
capital on operations, development of the Facility and raise additional amounts as needed. The Company is not
subject to any externally imposed capital requirements. There have been no changes in the Company’s approach to
capital management during the year ended June 30, 2019.

120

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

18. Commitments

The Company has operating leases under which it is committed to pay the following amounts:

For the fiscal year ending June 30,
2020
2021
2022
2023
2024 and beyond

19. Subsequent Events

Acquisition of BlissCo.:

1,747
1,639
1,651
1,541
7,499
14,077

On July 11, 2019, the Company acquired all of the issued and outstanding common shares of BlissCo that were not
previously held by the Company. BlissCo is a licensed producer of cannabis operating in British Columbia, Canada.
Under the agreement, each former BlissCo common share was exchanged for 0.24 of a Supreme common share
(the “Exchange Ratio”), subject to certain exceptions. In addition, all issued and outstanding stock options and
common share purchase warrants of BlissCo were replaced with stock options and common share purchase warrants
of Supreme having the same terms but adjusted for the Exchange Ratio. Following the acquisition, the BlissCo shares
were delisted from the Canadian Securities Exchange (“CSE”) as at the close of trading on July 11, 2019.
As a result of the acquisition, the Company issued a total of 23,434,151 common shares to the former shareholders
of BlissCo and reserved an additional 1,174,000 and 7,033,937 common shares for issuance to the former holders
of BlisssCo options and the holders of the Blissco warrants, respectively.

Acquisition of Truverra Inc.:

On August 13, 2019, the Company acquired all of the issued and outstanding common shares of privately held
Trueverra Inc, (the “Transaction”). Trueverra Inc., is a licenced producer of cannabis operating in Ontario, Canada.
The Transaction was completed by way of a three-cornered amalgamation pursuant to which 2708300 Ontario Ltd.,
a wholly-owned subsidiary of Supreme Cannabis, amalgamated with Truverra Inc. to form a newly amalgamated
company which shall operate under the name “Truverra Inc.” as a wholly-owned subsidiary of the Company.
Consideration for the Transaction consisted of the issuance of 14,699,966 common shares of Supreme (the
“Consideration Shares”) to shareholders of Truverra Inc.

Warrant conversions:

Subsequent to the year ended June 30, 2019, various warrant holders exercised 13,808,589 warrants for total
proceeds of $7,180.

Option conversions:

Subsequent to the year ended June 30, 2019, various option holders exercised 45,068 options for total proceeds of
$24.

Restricted share unit issuance:

On July 22, 2019 the Company issued 2,779,250 restricted share units to various employees of the Company. The
restricted share units will vest on a quarterly basis over two years.

Incentive stock options issuance:

On July 22, 2019 the Company issued 810,000 incentive stock options to various employees and directors of the
Company at an exercise price of $1.50 expiring on July 22, 2024. On August 9, 2019 the Company issued 300,000
incentive stock options to an employee of the Company at an exercise price of $1.35 expiring on August 9, 2024.

121

The Supreme Cannabis Company, Inc.
Notes to the Consolidated Financial Statements
June 30, 2019 and 2018
(Expressed in thousands of Canadian Dollars, unless otherwise noted)

19. Subsequent Events (continued)

Incentive stock options issuance (continued):

The incentive stock options will vest in equal instalments of 1/3 on each of the dates that are 12 months, 24 months
and 36 months from the respective issuance date.

122

Cautionary Note Regarding Forward-Looking Information

This document contains certain information that may constitute “forward-looking information” and “forward-
looking statements” (collectively, “forward-looking statements”) which are based upon the Company’s current
internal expectations, estimates, projections, assumptions and beliefs. Such statements can, in some cases, be
identified by the use of forward-looking terminology such as “expect”, “likely”, “may”, “will”, “should”, “intend”,
“anticipate”, “potential”, “proposed”, “estimate” and other similar words, including negative and grammatical
variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of
strategy. Forward-looking statements include estimates, plans, expectations, opinions, forecasts, projections,
targets, guidance, or other statements that are not statements of fact. The forward-looking statements included
in this document are made only as of the date of this document. Forward-looking statements in this document
include, but are not limited to, statements with respect to:

•
•
•
•
•
•
•

•

•
•
•
•
•

•

performance of the Company’s business and operations;
the competitive and business strategies of the Company;
intention and plans to grow the business, operations and potential activities of the Company;
licensing risks and expectations with respect to renewal and/or extension of the Company’s licences;
any commentary with respect to Canada’s cannabis regulatory regime;
expectations with respect to the cannabis market and market risks;
the expected growth in the number of customers and patients using the Company’s adult use and medical
cannabis;
the Company’s ability to enter into and maintain strategic arrangements with distributors and retailers and
the potential benefits of such arrangements;
the success of the entities the Company acquires and the Company’s collaborations;
the development of the Company’s brands, product diversification and future corporate development;
the expansion and production capacity of the Company’s sites and the timing related thereto;
future liquidity and financial capacity;
the advancement of the Company’s international projects and targeting other opportunities as the laws and
regulations governing cannabis evolve internationally; and
the competitive conditions of the medical and adult use cannabis industry.

Certain forward-looking statements and other information contained herein concerning the medical and the
adult use cannabis industry and the general expectations of Supreme Cannabis concerning the medical and the
adult use cannabis industry and concerning Supreme Cannabis are based on estimates prepared by Supreme
Cannabis using data from publicly available governmental sources as well as from market research and industry
analysis and on assumptions based on data and knowledge of this industry which Supreme Cannabis believes to
be reasonable. While Supreme Cannabis is not aware of any misstatement regarding any industry or government
data presented herein, the medical and the adult use cannabis industry involve risks and uncertainties that are
subject to change based on various factors and the Company has not independently verified such third-party
information. Although the Company believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to have been correct. The Company’s
forward-looking statements are expressly qualified in their entirety by this cautionary statement. In particular,
but without limiting the foregoing, statements in this document regarding the Company’s objectives, plans and
goals, including future operating results and economic performance may make reference to or involve forward-
looking statements. A number of factors could cause actual events, performance or results to differ materially
from what is projected in the forward-looking statements, including general business and economic conditions,
changes in laws and regulations, product demand, changes in prices of required commodities, competition and
other risks as set out under “Risk Factors” in the Company’s Annual Information Form dated September 17, 2019
filed on SEDAR at www.sedar.com. The purpose of forward-looking statements are to provide the reader with
a description of management’s expectations, and such forward-looking statements may not be appropriate
for any other purpose. You should not place undue reliance on forward-looking statements contained in this
document. To the extent any forward-looking information in this document constitutes future-oriented financial
information or financial outlook, within the meaning of applicable securities laws, such information is being
provided to demonstrate the potential of the Company and readers are cautioned that this information may
not be appropriate for any other purpose. Future-oriented financial information and financial outlook, as with
forward-looking information generally, are based on current assumptions and subject to risks, uncertainties and
other factors. Supreme Cannabis undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, except as required by applicable law.

The Supreme Cannabis Company, Inc.
178R Ossington Avenue
Toronto, ON M6J 2Z7

General Information

info@supreme.ca

Investor Relations

ir@supreme.ca

416-466-6265

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