6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 or 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of April, 2019.

Commission File Number 001-38708

APHRIA INC.

(Translation of registrant’s name into English)

265 TALBOT ST. W.

LEAMINGTON, ONTARIO, N8H 4H3, CANADA

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

Form 20-F      o  Form 40-F    ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):   o              

Note:  Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):    o            

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

APHRIA INC.

Date:   April 15, 2019 /s/ Carl Merton______________________ Carl Merton Chief Financial Officer

INDEX TO EXHIBITS

99.1	Condensed Interim Consolidated Financial Statements for the three and nine months ended February 28, 2019 and February 28, 2018
99.2	Management’s Discussion and Analysis for the three and nine months ended February 28, 2019
99.3	Certification of Interim Filings Full Certificate by CEO and CFO dated April 15, 2019

EX-99.1

Exhibit 99.1

 

Aphria Inc.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS AND NINE MONTHS ENDED FEBRUARY 28, 2019 AND FEBRUARY 28, 2018

(Unaudited, expressed in Canadian Dollars, unless otherwise noted)

Aphria Inc.

Condensed Interim Consolidated Statements of Financial Position

(Unaudited – In thousands of Canadian dollars)

		Note	February 28, 2019	May 31, 2018
Assets
Current assets
	Cash and cash equivalents		$  107,502	$  59,737
	Marketable securities	4	27,234	45,062
	Accounts receivable		44,142	3,386
	Other current assets	5	24,615	14,384
	Inventory	6	86,227	22,150
	Biological assets	7	7,261	7,331
	Assets held for sale		--	40,620
	Current portion of convertible notes receivable	12	11,500	1,942
			308,481	194,612
	Capital assets	9	466,349	303,151
	Intangible assets	10	388,125	226,444
	Convertible notes receivable	12	18,542	16,129
	Interest in equity investees	13	9,604	4,966
	Long-term investments	14	125,325	46,028
	Promissory notes receivable	15	61,809	--
	Goodwill	11	674,412	522,762
			$  2,052,647	$  1,314,092
Liabilities
Current liabilities
	Accounts payable and accrued liabilities		$  125,598	$  31,517
	Income taxes payable		1,568	3,584
	Deferred revenue		28,171	2,607
	Current portion of promissory note payable	18	489	610
	Current portion of long-term debt	19	14,612	2,140
	Current portion of option payment liability	20	6,765	--
	Current portion of derivative liability		--	3,396
			177,203	43,854
Long-term liabilities
	Long-term debt	19	62,279	28,337
	Option payment liability	20	14,277	--
	Derivative liability		--	9,055
	Deferred tax liability	16	86,452	59,253
			340,211	140,499
Shareholders’ equity
	Share capital	21	1,653,191	1,113,981
	Warrants	22	1,336	1,375
	Share-based payment reserve		33,218	22,006
	Accumulated other comprehensive loss		(61)	(801)
	Non-controlling interest	24	29,569	9,580
	Retained earnings (deficit)		(4,817)	27,452
			1,712,436	1,173,593
			$  2,052,647	$  1,314,092

Nature of operations (Note 1), Commitment and contingencies (Note 32), Subsequent events (Note 34)

Approved on behalf of the Board:

“John Herhalt”	“Irwin Simon”
Signed:  Director	Signed:  Director

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

 2

Aphria Inc.

Condensed Interim Consolidated Statements of Income and Comprehensive Income

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

			For the three months ended February 28,		For the nine months ended February 28,
		Note	2019	2018	2019	2018
	Revenue from cannabis produced		$  17,862	$  10,267	$  52,816	$  24,891
	Distribution revenue		57,599	--	58,745	--
	Other revenue		545	--	2,261	--
	Excise taxes		(2,424)	--	(5,280)	--
Net revenue			73,582	10,267	108,542	24,891
	Production costs	6	10,175	2,355	24,477	6,447
	Cost of goods purchased		49,745	--	50,856	--
	Other costs of sales		296	--	1,228	--
Gross profit before fair value adjustments			13,366	7,912	31,981	18,444
	Fair value adjustment on sale of inventory	6	5,542	3,443	18,075	7,250
	Fair value adjustment on growth of biological assets	7	(9,471)	(4,101)	(23,136)	(11,481)
Gross profit			17,295	8,570	37,042	22,675
Operating expenses:
	General and administrative	25	22,434	2,794	43,561	6,502
	Share-based compensation	26	14,300	5,959	22,996	10,668
	Selling, marketing and promotion		6,948	2,991	20,025	7,758
	Amortization		3,665	755	9,556	1,270
	Research and development		223	110	1,097	280
	Impairment	11	58,039	--	58,039	--
	Transaction costs		942	4,253	2,930	4,253
			106,551	16,862	158,204	30,731
Operating income (loss)			(89,256)	(8,292)	(121,162)	(8,056)
	Non-operating income (loss)	27	(30,416)	25,308	89,304	50,635
Income (loss) before income taxes (recovery)			(119,672)	17,016	(31,858)	42,579
Income taxes (recovery)		16	(11,463)	4,072	401	8,139
Net income (loss)			(108,209)	12,944	(32,259)	34,440
Other comprehensive gain (loss)
	Other comprehensive gain (loss)		(61)	--	(61)	(801)
Net comprehensive income (loss)			$  (108,270)	$  12,944	$  (32,320)	$  33,639
Total comprehensive income (loss) is attributable to:
	Shareholders of Aphria Inc.		(107,886)	12,945	(31,529)	33,640
	Non-controlling interest	24	(384)	(1)	(791)	(1)
			$  (108,270)	$  12,944	$  (32,320)	$  33,639
Weighted average number of common shares - basic			250,149,598	161,120,698	240,106,147	147,274,372
Weighted average number of common shares - diluted			250,149,598	167,494,603	240,106,147	153,189,773
Earnings (loss) per share - basic		29	$(0.43)	$  0.08	$(0.13)	$  0.23
Earnings (loss) per share - diluted		29	$(0.43)	$  0.08	$(0.13)	$  0.22

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

 3

Aphria Inc.

Condensed Interim Consolidated Statements of Changes in Equity

(Unaudited – In thousands of Canadian dollars, except share amounts)

	Number of  common shares	Share capital (Note 21)	Warrants (Note 22)	Share-based payment reserve	Accumulated other comprehensive loss	Non- controlling interest (Note 24)	Retained earnings (deficit)	Total
Balance at May 31, 2017	138,628,704	$  274,317	$  445	$  3,230	$  --	$  --	$  (4,123)	$  273,869
Share issuance - November 2017 bought deal	12,689,675	86,661	--	--	--	--	--	86,661
Share issuance - Broken Coast acquisition	8,363,651	109,000	--	--	--	--	--	109,000
Share issuance - January 2018 bought deal	14,373,675	214,168	--	--	--	--	--	214,168
Share issuance - warrants exercised	1,584,036	2,400	--	--	--	--	--	2,400
Share issuance - options exercised	2,053,000	5,338	--	(2,000)	--	--	--	3,338
Share issuance - deferred share issuance costs	5,050	62	--	--	--	--	--	62
Share-based payments	--	--	--	9,769	--	--	--	9,769
Income tax recovery on share issuance costs	--	3,002	--	--	--	--	--	3,002
Shares held in escrow for services not yet earned	--	187	--	--	--	--	--	187
Non-controlling interest	--	--	--	--	--	9,800	--	9,800
Net comprehensive income for the period	--	--	--	--	(801)	(1)	34,441	33,639
Balance at February 28, 2018	177,697,791	$  695,135	$  445	$  10,999	$  (801)	$  9,799	$  30,318	$  745,895

	Number of common shares	Share capital (Note 21)	Warrants (Note 22)	Share-based payment reserve	Accumulated other comprehensive loss	Non- controlling interest (Note 24)	Retained earnings (deficit)	Total
Balance at May 31, 2018	210,169,924	$  1,113,981	$  1,375	$  22,006	$  (801)	$  9,580	$  27,452	$  1,173,593
Share issuance - June 2018 bought deal	21,835,510	245,925	--	--	--	--	--	245,925
Additional share issuance - Broken Coast acquisition	19,963	297	--	--	--	--	--	297
Share issuance - LATAM acquisition	15,678,310	273,900	--	--	--	11,341	--	285,241
Share issuance - warrants exercised	448,518	1,609	(39)	--	--	--	--	1,570
Share issuance - options exercised	2,429,177	14,053	--	(9,192)	--	--	--	4,861
Income tax recovery on share issuance costs	--	3,426	--	--	--	--	--	3,426
Share-based payments	--	--	--	20,404	--	--	--	20,404
Elimination of CTA on disposal of equity investee	--	--	--	--	801	--	(801)	--
Non-controlling interest	--	--	--	--	--	9,439	--	9,439
Net comprehensive income for the period	--	--	--	--	(61)	(791)	(31,468)	(32,320)
Balance at February 28, 2019	250,581,402	$  1,653,191	$  1,336	$  33,218	$  (61)	$  35,737	$  (4,817)	$  1,718,604

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

 4

Aphria Inc.

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited – In thousands of Canadian dollars)

				For the nine months ended February 28,
			Note	2019	2018
Cash generated from (used in) operating activities:
	Net income (loss) for the period			$  (32,259)	$  34,440
	Adjustments for:
		Other comprehensive income		(61)	--
		Future income taxes	16	(4,297)	6,030
		Fair value adjustment on sale of inventory	6	18,075	7,250
		Fair value adjustment on growth of biological assets	7	(23,136)	(11,481)
		Loss on marketable securities	4	151	2,193
		Unrealized foreign exchange gain		(28)	(60)
		Amortization	9,10	14,329	2,869
		Loss on sale of capital assets	9	--	191
		Impairment	11	58,039	--
		Unrealized loss (gain) on convertible notes receivable	12	1,087	(1,731)
		Gain on dilution of ownership in equity investee	13	(2,210)	(7,535)
		Loss from equity investees	13	830	9,281
		Gain on sale of equity investee	13	(57,351)	(26,347)
		Deferred gain recognized		(618)	(700)
		Consulting revenue	18	--	(689)
		Other non-cash items		(86)	6
		Share-based compensation	26	22,996	10,668
		Gain (loss) on long-term investments	28	(23,235)	(39,701)
		Unrealized loss on financial liabilities	13	1,109	16,850
		Transaction costs		--	4,253
	Change in non-cash working capital		30	(9,890)	(5,217)
				(36,555)	570
Cash provided by financing activities:
	Share capital issued, net of cash issuance costs			245,925	195,661
	Share capital issued on warrants and options exercised			6,431	5,800
	Proceeds from non-controlling interest			--	9,800
	Advances from related parties		8	988	9,260
	Repayment of amounts due to related parties		8	(988)	(8,764)
	Proceeds from long-term debt		19	27,841	--
	Repayment of long-term debt		19	(1,702)	(620)
				278,495	211,137
Cash used in investing activities:
	Investment in marketable securities		4	--	(7,365)
	Proceeds from disposal of marketable securities		4	17,677	38,271
	Investment in capital and intangible assets, net of shares issued		9,10	(162,194)	(153,605)
	Proceeds from disposal of capital assets		9	--	200
	Convertible notes advances		12	(15,000)	(14,001)
	Repayment of convertible notes receivable			1,942	640
	Investment in long-term investments and equity investees			(70,677)	(45,746)
	Proceeds from disposal of long-term investments and equity investees			56,962	7,468
	Net cash paid on business acquisitions and investment in CannInvest Africa Ltd.			(22,885)	1,956
				(194,175)	(172,182)
Net increase in cash and cash equivalents				47,765	39,525
Cash and cash equivalents, beginning of period				59,737	79,910
Cash and cash equivalents, end of period				$  107,502	$  119,435

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

 5

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

1. Nature of operations

Aphria Inc. (the "Company" or “Aphria”) existing under the laws of Business Corporations Act (Ontario) and is licensed to produce and sell cannabis under The Cannabis Act. In February 2018, the Company acquired Broken Coast Cannabis Ltd. (“Broken Coast”) (Note 11). Broken Coast is licensed to produce and sell cannabis under The Cannabis Act. In March 2018, the Company acquired Nuuvera Inc. (“Nuuvera”) (Note 11). Nuuvera is an international organization with a focus on building a global cannabis brand, with operations in Germany, Italy, Malta, and Lesotho. In January 2019, Aphria through wholly-owned subsidiary Nuuvera Deutschland GmbH acquired CC Pharma GmbH (“CC Pharma”) (Note 11). CC Pharma is a leading distributor of pharmaceutical products, including medical cannabis, to more than 13,000 pharmacies in Germany. In September 2018, the Company acquired LATAM Holdings Inc. (“LATAM”) (Note 11). This purchase provides Aphria an early foothold into the Latin American cannabis market whereby LATAM holds licenses and license applications presently in-process for production, import, export and sale of cannabis and cannabis derivatives in Colombia, Argentina and Jamaica.

In July 2018, Aphria Inc. and its wholly-owned subsidiary, Pure Natures Wellness Inc. (o/a Aphria) amalgamated.

1974568 Ontario Ltd. (“Aphria Diamond”) is a 51% majority owned subsidiary of the Company, incorporated in November 2017. Aphria Diamond has applied for its cultivation licence under the provisions of The Cannabis Act.

The registered office of the Company is located at 1 Adelaide Street East Suite 2310, Toronto, Ontario.

The Company’s common shares are listed under the symbol “APHA” on the Toronto Stock Exchange (“TSX”) in Canada and the New York Stock Exchange (“NYSE”) in the United States.

These condensed interim consolidated financial statements were approved by the Company’s Board of Directors on April 14, 2019.

2. Basis of preparation

(a) Statement of compliance

The Company’s condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting”. These condensed interim consolidated financial statements do not include all notes of the type normally included within the annual financial report and should be read in conjunction with the audited financial statements of the Company for the year ended May 31, 2018, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and Interpretations of the IFRS Interpretations Committee.

(b) Basis of measurement

These condensed interim consolidated financial statements have been prepared on the going concern basis, under the historical cost convention except for certain financial instruments that are measured at fair value and biological assets that are measured at fair value less costs to sell, as detailed in the Company’s accounting policies.

(c) Foreign currency

All figures presented in the condensed interim consolidated financial statements are reflected in Canadian dollars; however, the functional currency of the Company includes the Canadian dollar and the Euro.

Foreign currency transactions are translated to the respective functional currencies of the Company’s entities at the exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the foreign exchange rate applicable at the statement of financial position date. Non-monetary items carried at historical cost denominated in foreign currencies are translated to the functional currency at the date of the transactions. Non-monetary items carried at fair value denominated in foreign currencies are translated to the functional currency at the date when the fair value was determined. Realized and unrealized exchange gains and losses are recognized through profit and loss.

On consolidation, the assets and liabilities of foreign operations reported in their functional currencies, including marketable securities, long-term investments and promissory notes payable, are translated into Canadian dollars, the Group’s presentation currency, at period-end exchange rates. Income and expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from translating foreign operations are recognized in other comprehensive income and accumulated in equity. The Company and all of its subsidiaries functional currency is Canadian dollars, with the exception of CC Pharma whose functional currency is the Euro.

 6

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

(d) Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly and indirectly, to govern the financial and operating policies of an entity and be exposed to the variable returns from its activities. The financial statements of subsidiaries are included in the condensed interim consolidated financial statements from the date that control commences until the date that control ceases.

Subsidiaries	Jurisdiction of incorporation	Ownership interest (1)
Aphria (Arizona) Inc. (2)	Arizona, United States	100%
Cannan Growers Inc.	British Columbia, Canada	100%
Nuuvera Inc.	Ontario, Canada	100%
Nuuvera Holdings Limited	Ontario, Canada	100%
ARA - Avanti Rx Analytics Inc.	Ontario, Canada	100%
Avalon Pharmaceuticals Inc.	Ontario, Canada	100%
Nuuvera Israel Ltd. (2)	Israel	100%
Nuuvera Deutschland GmbH	Germany	100%
Aphria Deutschland GmbH	Germany	100%
FL-Group	Italy	100%
Broken Coast Cannabis Ltd.	British Columbia, Canada	100%
Goodfields Supply Co. Ltd.	United Kingdom	100%
LATAM Holdings Inc.	British Columbia, Canada	100%
MMJ Columbia Partners Inc.	Ontario, Canada	100%
Marigold Acquisitions Inc.	British Columbia, Canada	100%
Hampstead Holdings Ltd.	Bermuda	100%
MMJ International Investments Inc.	British Columbia, Canada	100%
ABP, S.A.	Argentina	100%
CC Pharma GmbH	Germany	100%
CC Pharma Research and Development GmbH	Germany	100%
Marigold Projects Jamaica Limited	Jamaica	95%
Nuuvera Malta Ltd.	Malta	90%
ASG Pharma Ltd.	Malta	90%
QSG Health Ltd.	Malta	90%
ColCanna S.A.S.	Colombia	90%
CC Pharma Nordic ApS	Denmark	75%
1974568 Ontario Ltd.	Ontario, Canada	51%
Aphria Terra S.R.L.	Italy	50.1%
Aphria Italy S.p.A.	Italy	51%
CannInvest Africa Ltd.	South Africa	50%
Verve Dynamics Incorporated (Pty) Ltd.	Lesotho	30%

⁽¹⁾ The Company defines ownership interest as the interest in which the Company is entitled a proportionate share of net income. Legal ownership of some subsidiaries may differ from ownership interest shown above.

⁽²⁾ Represents inactive subsidiaries, which have no operations and do not own any assets, save and except for related party balances owing to the Company.

Intragroup balances, and any unrealized gains and losses or income and expenses arising from transactions with jointly controlled entities are eliminated to the extent of the Company’s interest in the entity.

The Company treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Company. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognized in a separate reserve within equity attributable to the owners of the Company.

 7

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

(e) Amalgamations

Effective June 1, 2017, CannWay Pharmaceuticals Ltd. (“CannWay”), a wholly-owned subsidiary of the Company, was amalgamated with Pure Natures Wellness Inc. (o/a Aphria). The Company has historically presented all balances and activities of CannWay as a fully consolidated entity for financial statement presentation purposes. As of the date of amalgamation, CannWay did not have any assets or outstanding liabilities. There are no material changes to be considered prospectively or to the comparative consolidated statements as a result of the amalgamation.

Effective July 23, 2018, Pure Natures Wellness Inc. (o/a Aphria). (“PNW”), a wholly-owned subsidiary of the Company, was amalgamated with Aphria Inc. The Company had historically presented all balances and activities of PNW as a fully consolidated entity for financial statement presentation purposes. There were no material changes to be considered prospectively or to the comparative consolidated statements as a result of the amalgamation.

Effective February 1, 2019, 2589671 Ontario Inc. and 2589674 Ontario Inc., each a wholly-owned subsidiary of the Company, were amalgamated with Avalon Pharmaceuticals Inc. The Company has historically presented all balances and activities of 2589671 Ontario Inc., 2589674 Ontario Inc. and Avalon Pharmaceuticals Inc. as a fully consolidated entity for financial statement presentation purposes. There were no material changes to be considered prospectively or to the comparative consolidated statements as a result of the amalgamation.

(f) Interest in equity investees

The Company’s interest in equity investees is comprised of its interest in Althea Company Pty Ltd. (“Althea”).

In accordance with IFRS 10, associates are those in which the Company has significant influence, but not control or joint control over the financial and accounting policies.

Interests in associates are accounted for using the equity method in accordance with IAS 28. They are recognized initially at cost, which includes transaction costs. After initial recognition, the condensed interim consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income (“OCI”) of equity investees until the date on which significant influence ceases.

If the Company’s share of losses in an equity investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the other entity.

Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in these entities. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

The carrying amount of equity investments is tested for impairment in accordance with the policy described in the annual audited financial statements.

3. Significant accounting policies

These condensed interim consolidated financial statements have been prepared following the same accounting policies used in the preparation of the audited financial statements of the Company for the year ended May 31, 2018.

New standards applicable during the reporting period

IFRS 9 - Financial Instruments; Classification and Measurement, effective for annual periods beginning on or after January 1, 2018, with early adoption permitted, introduces new requirements for the classification, measurement and derecognition of financial instruments and introduces a new impairment model for financial assets.

 8

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Under IFRS 9, financial instruments are initially measured at fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. Subsequently, all assets within scope of IFRS 9 are measured at:

(i) Amortized cost;

(ii) Fair value through other comprehensive income (“FVOCI”); or

(iii) Fair value through profit or loss (“FVTPL”).

The classification is based on whether the contractual cash flows give rise to payments on specified dates that are solely payments of principal and interest (the “SPPI test”), and the objective of the Company’s business model is to hold assets only to collect cash flows, or to collect cash flows and to sell (the “Business Model test”). Financial assets are required to be reclassified only when the business model under which they are managed has changed. All reclassifications are to be applied prospectively from the reclassification date.

The impairment requirements under IFRS 9 are based on an expected credit loss (“ECL”) model, replacing the IAS 39 incurred loss model. The expected credit loss model applies to debt instruments recorded at amortized cost or at FVOCI, such as loans, debt, securities and trade receivables, lease receivables and most loan commitments and financial guarantee contracts.

The following table summarizes the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets and financial liabilities:

Financial assets/liabilities	IAS 39 Classification	IFRS 9 Classification
Cash and cash equivalents	FVTPL	FVTPL
Marketable securities	FVTPL	FVTPL
Accounts receivable	loans and receivables	amortized cost
Other receivables	loans and receivables	amortized cost
Convertible notes receivable	AFS	FVTPL
Long-term investments	FVTPL	FVTPL
Accounts payable and accrued liabilities	other financial liabilities	other financial liabilities
Income taxes payable	other financial liabilities	other financial liabilities
Promissory note payable	other financial liabilities	other financial liabilities
Long-term debt	other financial liabilities	other financial liabilities
Derivative liability	derivative financial instruments	FVTPL

There were no other changes on adoption aside from the above classification changes.

IFRS 15 - Revenue from Contracts with Customers; effective for annual periods beginning on or after January 1, 2018, specifies how and when to recognize revenue, based on five-step model, and enhances relevant disclosures to be applied to all contracts with customers.

The Company has applied IFRS 15 retrospectively and determined that there is no change to the comparative periods or transitional adjustments required as a result of the adoption of this standard. The Company’s accounting policy for revenue recognition under IFRS 15 is as follows:

To recognize revenue under IFRS 15, the Company applies the following five steps:

1. Identify the contract(s) 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

5. Recognize revenue when or as the Company satisfies a performance obligation

Revenue from the direct sale of goods to customers for a fixed price is recognized when the company transfers control of the good to the customer.

New standards and interpretations issued but not yet adopted

IFRS 16 - Leases; in January 2016, the IASB issued IFRS 16, which specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 is effective for annual reporting periods beginning on or after January 1, 2019, and a lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognise the cumulative effect of initially applying IFRS 16 as an adjustment to opening equity at the date of initial application. Early adoption is permitted if IFRS 15 has also been adopted. Based on its current assets, interests and investments, no significant impact is anticipated from the new standard.

 9

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

There are no other standards that are not yet effective and that would be expected to have a material impact on the Company in the current or future reporting periods and on foreseeable future transactions.

The Company has reclassified certain immaterial items on the comparative consolidated statements of financial position, consolidated statements of income and comprehensive income, and consolidated statements of cash flows to improve clarity.

4. Marketable securities

Marketable securities are classified as fair value through profit or loss, and are comprised of:

		S&P rating at purchase	Interest rate	Maturity date	February 28, 2019	May 31, 2018
Fixed Income:
	Ford Motor Credit Co. LLC	BBB	3.700%	8/2/2018	$  --	$  1,015
	Sobeys Inc.	BB+	3.520%	8/8/2018	--	3,040
	Canadian Western Bank	A-	3.077%	1/14/2019	--	1,528
	Sun Life Financial Inc.	A	2.770%	5/13/2019	3,026	3,018
	Ford Motor Credit Co. LLC	BBB	3.140%	6/14/2019	5,040	5,101
	Canadian Western Bank	A-	3.463%	12/17/2019	1,011	1,025
	Laurentian Bank of Canada	BBB	2.500%	1/23/2020	--	3,003
	Enercare Solutions Inc.	BBB	4.600%	2/3/2020	3,878	3,974
	Enbridge Inc.	BBB+	4.530%	3/9/2020	5,200	5,203
	Choice Properties REIT	BBB	3.600%	4/20/2020	5,109	5,091
	Westcoast Energy Inc.	BBB+	4.570%	7/2/2020	--	5,293
	Citigroup Inc. (USD)	BBB+	2.050%	12/17/2018	--	3,914
	Royal Bank of Canada (USD)	AA-	1.625%	4/15/2019	3,970	3,857
					$  27,234	$  45,062

The cost of marketable securities as at February 28, 2019 was $27,932 (May 31, 2018 - $45,863). During the three and nine months ended February 28, 2019, the company divested of certain marketable securities in its Canadian portfolio for proceeds of $5,472 and $17,677, resulting in a gain (loss) on disposal of $30 and $(116) (2018 - $10 and $(377)), and re-invested $nil and $nil (2018 - $2,365 and $7,365). During the three and nine months ended February 28, 2019, the Company recognized a gain (loss) of $(41) and $(151) (2018 - $(502) and $(2,193)) on its marketable securities portfolio, of which $(71) and $(35) (2018 - $(512) and $(1,816)) represented unrealized fair value adjustments.

5. Other current assets

Other current assets are comprised of:

	February 28, 2019	May 31, 2018
Sales tax receivable	$  5,052	$  10,840
Accrued interest	2,811	831
Prepaid assets	14,491	1,720
Other	2,261	993
	$  24,615	$  14,384

 10

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

6. Inventory

Inventory is comprised of:

	Capitalized cost	Fair value adjustment	February 28, 2019	May 31, 2018
Harvested cannabis	$  8,977	$  10,278	$  19,255	$  12,331
Harvested cannabis trim	1,838	2,112	3,950	2,277
Cannabis oil	11,168	7,304	18,472	6,578
Softgel capsules	378	273	651	--
Distribution inventory	34,447	--	34,447	--
Other inventory items	9,452	--	9,452	964
	$  66,260	$  19,967	$  86,227	$  22,150

During the three and nine months ended February 28, 2019, the Company recorded $10,175 and $24,447 (2018 - $2,355 and $6,447) related to production costs. Included in production costs for the three and nine months ended February 28, 2019 is $238 and $1,432 of cannabis oil conversion costs (2018 - $62 and $157), $22 and $135 related to the cost of accessories (2018 - $71 and $169) and $788 and $2,321 (2018 - $473 and $1,362) of amortization. The Company also included $1,016 and $2,452 of amortization in inventory for the three and nine months ended February 28, 2019 (2018 - $237 and $237) related to capital assets utilized in production. During the three and nine months ended February 28, 2019, the Company expensed $5,542 and $18,075 (2018 - $3,443 and $7,250) of fair value adjustments on the sale of its biological assets included in inventory.

During the three months ended August 31, 2018, the Company also disposed of 13,642 plants prior to harvest. Included in production costs is $979 of accumulated costs relating to these plants which were not harvested.

The Company holds 5,217.7 kilograms of harvested cannabis (May 31, 2018 - 3,221.3 kgs), 1,509.4 kilograms of harvested cannabis trim (May 31, 2018 - 702.0 kgs) and 23,456.3 litres of cannabis oils or 5,212.5 kilograms equivalent in various stages of production (May 31, 2018 - 7,724.7 litres or 1,716.6 kilograms equivalent), 836.5 litres of cannabis oils used in softgel capsules or 185.9 kilograms equivalent (May 31, 2018 - nil) at February 28, 2019.

7. Biological assets

Biological assets are comprised of:

		Amount
Balance at May 31, 2018		$  7,331
	Changes in fair value less costs to sell due to biological transformation	23,136
	Production costs capitalized	24,233
	Transferred to inventory upon harvest	(47,439)
Balance at February 28, 2019		$  7,261

The Company values medical cannabis plants at fair value. Management determined that cost approximates fair value from the date of initial clipping from mother plants until the fourth week prior to harvest. Measurement of the biological transformation of the plant at fair value less costs to sell begins in the fourth week prior to harvest and is recognized evenly until the point of harvest. The number of weeks in the growing cycle is between twelve and sixteen weeks from propagation to harvest. The Company has determined the fair value less costs to sell of greenhouse harvested cannabis and trim to be $3.50 and $2.75 per gram respectively (May 31, 2018 - $3.75 and $3.00 per gram) and $4.00 and $3.25 per gram respectively (May 31, 2018 - $4.25 and $3.50 per gram), upon harvest for indoor produced cannabis and trim.

The effect of the fair value less cost to sell over and above historical cost was an increase in non-cash value of biological assets and inventory of $9,471 and $23,136 during the three and nine months ended February 28, 2019 (2018 - increase of $4,101 and $11,481).

The fair value of biological assets is determined using a valuation model to estimate expected harvest yield per plant applied to the estimated price per gram less processing and selling costs. When there is a material change from the expected fair value used for cannabis, the Company will necessitate the fair value used in this calculation be adjusted. In the prior quarter, as a result of the newly enacted adult-use market along with the introduction of the excise duty tax, the Company determined a reduction of $0.25 per gram was warranted. The majority of the adult-use transactions are wholesale through provincial distribution agencies and as a result the net selling price and the selling costs are lower.

 11

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

In determining the fair value of biological assets, management has made the following estimates in this valuation model:

• The harvest yield is between 40 grams and 80 grams per plant;

• The selling price is between $3.00 and $7.00 per gram;

• Processing costs include drying and curing, testing, post-harvest overhead allocation, packaging and labelling costs between $0.30 and $0.80 per gram; and

• Selling costs include shipping, order fulfilment, patient acquisition and patient maintenance costs between $0.00 and $1.50 per gram.

Sales price used in the valuation of biological assets is based on the historical average selling price of all cannabis products and can vary based on different strains being grown as well as the proportion of sales derived from wholesale compared to retail. The low-end of the selling price, processing costs and selling costs are derived from historical wholesale sales, while the higher end prices and costs are from historical retail sales. Selling costs vary depending on methods of selling and are considered based on the expected method of selling and the determined additional costs which would be incurred. Expected yields for the cannabis plant is also subject to a variety of factors, such as strains being grown, length of growing cycle, and space allocated for growing. Management reviews all significant inputs, at each reporting period, based on historical information obtained as well as based on planned production schedules.

Management has quantified the sensitivity of the inputs and determined the following:

• Selling price per gram - a decrease in the average selling price per gram by 5% would result in the biological asset value decreasing by $255 (May 31, 2018 - $267) and inventory decreasing by $2,146 (May 31, 2018 - $1,040);

• Harvest yield per plant - a decrease in the harvest yield per plant of 5% would result in the biological asset value decreasing by $135 (May 31, 2019 - $179).

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

8. Related party transactions

During the prior quarter, the Company disposed of its remaining shares in Liberty Health Sciences Inc. (“Liberty”) (note 13).

The Company previously funded a portion of the Canadian operating costs of Liberty, for which Liberty reimbursed the Company quarterly. Liberty was considered a related party because certain officers and directors of Aphria were directors of Liberty. During the quarter, those directors resigned from Liberty’s board and the Company ceased its relationship with Liberty.

The Company purchased certain electrical generation equipment from and pays rent to a company owned by a former director. Subsequent to quarter end, the director resigned his officer and director position with the Company.

During the three and nine months ended February 28, 2019, related party corporations charged or incurred expenditures on behalf of the Company (including rent) totaling $20 and $158 (2018 - $112 and $205). Included in this amount was rent of $12 and $20 charged during the three and nine months ended February 28, 2019 (2017 - $10 and $36).

		Amount
Balance due to (from) related parties as at May 31, 2018		$  --
	Related party charges in the period	158
	Payments to related parties in the period	(158)
	Payments made on behalf of related parties in the period	(830)
	Repayments made by related parties in the period	830
Balance at February 28, 2019		$  --

 12

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Key management personnel compensation for the nine months ended February 28, 2019 and 2018 was comprised of:

	For the nine months ended February 28,
	2019	2018
Salaries	$  3,257	$  1,197
Short-term employment benefits (included in office and general)	87	49
Share-based compensation	9,610	4,276
	$  12,954	$  5,522

Key management personnel compensation for the three months ended February 28, 2019 and 2018 was comprised of:

	For the three months ended February 28,
	2019	2018
Salaries	$  1,580	$  537
Short-term employment benefits (included in office and general)	29	13
Share-based compensation	8,308	2,059
	$  9,917	$  2,609

Directors and officers of the Company control 8.2% or 20,508,714 of the voting shares of the Company.

Prior to the end of the quarter, the Company announced a planned transition plan for its Chief Executive Officer, Mr. Neufeld. Prior to his resignation, the Company appointed Mr. Simon as Interim CEO and Chair of the Board. Mr. Simon’s base compensation is $1,100 annually, includes a target bonus of up to 45% of his base compensation and participation in the Company’s Omnibus Incentive Plan. On February 24, 2019, the Board of Aphria declared 1,000,000 stock options and 25,000 restricted share units to Mr. Simon, which vested immediately.

Subsequent to quarter end, certain officers and non-independent directors retired from the Company. No amounts were paid to the retired officers and directors as part of their retirement.

Subsequent to quarter end, the Board of Directors amended their compensation to $300 annually, with $150 paid in cash and $150 in Deferred Share Units under the Company’s Omnibus Plan each, plus a one-time award of 7,500 Restricted Share Units each.

 13

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

9. Capital assets

		Land	Production Facility	Equipment	Leasehold improvements	Construction in process	Total capital assets
Cost
At May 31, 2017		$  10,829	$  16,170	$  5,340	$  262	$  42,159	$  74,760
	Business acquisitions	854	6,992	2,860	1,388	5,947	18,041
	Additions	12,716	47,149	4,759	15	151,899	216,538
	Transfers	105	29,338	2,990	--	(32,433)	--
	Disposals	--	(207)	--	--	(415)	(622)
At May 31, 2018		24,504	99,442	15,949	1,665	167,157	308,717
	Business acquisitions	345	4,524	1,662	182	154	6,867
	Additions	7,225	1,620	14,984	73	138,591	162,493
	Transfers	--	1,737	1,247	(1,389)	(1,595)	--
At February 28, 2019		$  32,074	$  107,323	$  33,842	$  531	$  304,307	$  478,077
Accumulated depreciation
At May 31, 2017		$  --	$  983	$  1,260	$  62	$  --	$  2,305
	Amortization	--	1,517	1,697	47	--	3,261
At May 31, 2018		--	2,500	2,957	109	--	5,566
	Amortization	--	2,690	3,441	31	--	6,162
At February 28, 2019		$  --	$  5,190	$  6,398	$  140	$  --	$  11,728
Net book value
At May 31, 2017		$  10,829	$  15,187	$  4,080	$  200	$  42,159	$  72,455
At May 31, 2018		$  24,504	$  96,942	$  12,992	$  1,556	$  167,157	$  303,151
At February 28, 2019		$  32,074	$  102,133	$  27,444	$  391	$  304,307	$  466,349

 14

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

10. Intangible assets

		Customer relationships	Corporate website	Licences, permits & applications	Non-compete agreements	Tokyo Smoke licensing agreement	Intellectual property, trademarks & brands	Total intangible assets
Cost
At May 31, 2017		$  --	$  218	$  1,250	$  --	$  459	$  4,428	$  6,355
	Business acquisitions	11,730	39	137,920	1,930	--	76,190	227,809
	Additions	--	152	--	--	--	9	161
At May 31, 2018		11,730	409	139,170	1,930	459	80,627	234,325
	Business acquisitions	17,213	--	123,956	433	--	15,042	156,644
	Additions	--	221	11,778	--	--	1,205	13,204
At February 28, 2019		$  28,943	$  630	$  274,904	$  2,363	$  459	$  96,874	$  404,173
Accumulated depreciation
At May 31, 2017		$  --	$  156	$  153	$  --	$  --	$  4,155	$  4,464
	Amortization	1,274	100	124	314	92	1,513	3,417
At May 31, 2018		1,274	256	277	314	92	5,668	7,881
	Amortization	3,211	86	428	758	69	3,615	8,167
At February 28, 2019		$  4,485	$  342	$  705	$  1,072	$  161	$  9,283	$  16,048
Net book value
At May 31, 2017		$  --	$  62	$  1,097	$  --	$  459	$  273	$  1,891
At May 31, 2018		$  10,456	$  153	$  138,893	$  1,616	$  367	$  74,959	$  226,444
At February 28, 2019		$  24,458	$  288	$  274,199	$  1,291	$  298	$  87,591	$  388,125

 15

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

11. Business Acquisitions

Acquisition of Broken Coast Cannabis Ltd.

On February 13, 2018, the Company entered into a share purchase agreement to purchase all of the shares of Cannan Growers Inc. (“Cannan”), a holding company owning shares of Broken Coast Cannabis Ltd. (“Broken Coast”), and to acquire the remaining shares for a combined total of 99.86% of the issued and outstanding shares of Broken Coast. The combined purchase price was $214,168 satisfied through the issuance of an aggregate 14,373,675 common shares. The share purchase agreement entitled the Company to control over Broken Coast on February 1, 2018, which became the effective acquisition date. In August 2018, the Company came to terms with the holder of the remaining 0.14% of the issued and outstanding shares of Broken Coast. In exchange for purchasing the remaining shares, the Company issued 19,963 shares to the holder.

The table below summarizes the fair value of the assets acquired and the liabilities assumed at the acquisition date:

			Note	Number of shares	Share price	Amount
Consideration paid
		Shares issued	(i)	14,393,638	$  14.90	$  214,465
Total consideration paid						$  214,465
Net assets acquired
	Current assets
		Cash and cash equivalents				2,007
		Accounts receivable				299
		Other current assets				43
		Inventory				2,572
		Biological assets				826
	Long-term assets
		Capital assets				13,298
		Customer relationships				11,730
		Corporate website				39
		Licences, permits & applications				6,320
		Non-competition agreements				1,930
		Intellectual property, trademarks & brands				72,490
		Goodwill				146,091
	Total assets					257,645
	Current liabilities
		Accounts payable and accrued liabilities				10,455
		Income taxes payable				922
	Long-term liabilities
		Deferred tax liability				25,889
		Long-term debt				5,914
	Total liabilities					43,180
Total net assets acquired						$  214,465

(i) Share price based on the price of the shares on February 1, 2018.

Net income and comprehensive income for the Company would have been higher by approximately $1,134 and $2,268 for the three and nine months ended February 28, 2018, if the acquisition had taken place on June 1, 2017. In connection with this transaction, the Company incurred transaction costs to date of $1,643.

 16

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Acquisition of Nuuvera Corp.

On March 23, 2018, the Company completed a definitive arrangement agreement (the “Arrangement Agreement”) pursuant to which the Company acquired Nuuvera, by way of a court-approved plan of arrangement, under the Business Corporations Act (Ontario) (the “Transaction”). The Company acquired 100% of the issued and outstanding common shares (on a fully diluted basis) of Nuuvera for a total consideration of $0.62 in cash plus 0.3546 of an Aphria share for each Nuuvera share held. All of Nuuvera’s outstanding options were exchanged for an equivalent option granted pursuant to Aphria’s stock option plan (each, a “Replacement Option”) to purchase from Aphria the number of common shares (rounded to the nearest whole share) equal to: (i) the exchange ratio multiplied by (ii) the number of Nuuvera shares subject to such Nuuvera Option. Each such Replacement Option shall provide for an exercise price per common share (rounded to the nearest whole cent) equal to: (i) the exercise price per Nuuvera share purchasable pursuant to such Nuuvera Option; divided by (ii) the exchange ratio.

The table below summarizes the fair value of the assets acquired and the liabilities assumed at the effective acquisition date:

			Note	Number of shares	Share price	Amount
Consideration paid
		Cash				$  54,604
		Shares issued	(i)	31,226,910	$  13.17	411,258
		Warrants outstanding	(ii)	1,345,866		1,015
		Replacement options issued	(Ii)	1,280,330		12,133
						479,010
Fair value of previously held investment
		Shares held by Aphria	(i)	1,878,738	$  14.92	28,028
		Warrants held by Aphria	(ii)	322,365		243
						28,271
Total fair value of consideration						$  507,281
Net assets acquired
	Current assets
		Cash and cash equivalents				35,033
		Accounts receivable				464
		Other current assets				1,142
		Inventory				401
	Long-term assets
		Capital assets				4,743
		Intellectual property, trademarks & brands				3,700
		Licences, permits & applications				131,600
		Goodwilll				377,221
	Total assets					554,304
	Current liabilities
		Accounts payable and accrued liabilities				11,000
	Long-term liabilities
		Deferred tax liability				36,023
	Total liabilities					47,023
Total net assets acquired						$  507,281

(i) Share price based on the price of the shares on March 23, 2018; shares held by Aphria include the cash consideration paid.

(ii) Options and warrants are valued using the Black-Scholes option pricing model using the following assumptions: the risk-free rate of 2.19%; expected life of 1- 10 years; volatility of 30% based on volatility used for similar instruments on the open market; forfeiture rate of nil; dividend yield of nil; and the exercise price of $2.52 - $20.30.

 17

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Net income and comprehensive net income for the Company would have been lower by approximately $4,902 and $14,706 for the three and nine months ended February 28, 2018, if the acquisition had taken place on June 1, 2017. In connection with this transaction, the Company expensed transaction costs of $3,439.

Acquisition of LATAM Holdings Inc.

On July 17, 2018, the Company signed a share purchase agreement with Scythian Biosciences Corp. (“Scythian”) to purchase 100% of the issued and outstanding shares of LATAM Holdings Inc. (“LATAM Holdings”); a direct wholly-owned subsidiary of Scythian. As outlined in the share purchase agreement, the negotiated purchase price was to be settled with the issuance of 15,678,310 shares of the Company valued on July 17, 2018 at $193,000 and the assumption of $1,000 USD ($1,310 CAD) short-term liabilities. The acquisition of LATAM Holdings closed on September 27, 2018. Therefore, in accordance with IFRS 3 - Business Combinations, the equity consideration transferred was measured at fair value at the acquisition date, which is the date control was obtained, which in this case was determined to be September 27, 2018. The fair value of the consideration shares on September 27, 2018 was $273,900.

LATAM Holdings, through other subsidiaries, provides the Company with access to the emerging cannabis markets in Latin America and the Caribbean. Through this acquisition, the Company secured key licenses in Colombia, Argentina and Jamaica which is anticipated to provide substantial first mover advantage in these countries. In addition, the Company acquired an option and rights of first refusal to purchase a Brazilian incorporated entity, with the option and right of first refusal vesting only upon the entity obtaining a medical cannabis cultivation, processing and distribution license in Brazil.

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date:

			Note	Number of shares	Share price	Amount
Consideration paid
		Shares issued	(i)	15,678,310	$  17.47	$  273,900
Total consideration paid						$  273,900
Net assets acquired
	Current assets
		Cash and cash equivalents				2,704
		Accounts receivable				571
		Other current assets				106
		Inventory				65
	Long-term assets
		Capital assets				494
		Licences, permits & applications				123,956
		Goodwill				189,188
	Total assets					317,084
	Current liabilities
		Accounts payable and accrued liabilities				1,986
		Income taxes payable				20
	Long-term liabilities
		Deferred tax liability				29,837
	Total liabilities					31,843
Non-controlling interest						11,341
Total net assets acquired						$  273,900

(i) Share price based on the price of the shares on September 27^th, 2018.

Net income and comprehensive net income for the Company would have been lower by approximately $1,139 and $3,417 for the three and nine months ended February 28, 2018, if the acquisition had taken place on June 1, 2017. In connection with this transaction, the Company expensed transaction costs of $1,133.

 18

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Acquisition of CC Pharma GmbH

On November 7 ,2018, the Company signed a share purchase agreement to acquire 100% of the issued and outstanding shares of CC Pharma. The purchase price was cash consideration of €18,920 ($28,775 CAD) and additional cash consideration of up to €23,500 ($35,741 CAD) contingent on CC Pharma obtaining a specified EBITDA target. The acquisition of CC Pharma closed on January 9, 2019.

CC Pharma is a leading distributor of pharmaceutical products, including medical cannabis, to more than 13,000 pharmacies in Germany as well as throughout Europe. The acquisition of CC Pharma provides the Company access to the cannabis markets in Germany and ultimately pan-European platforms.

The Company is in the process of assessing the fair value of the net assets acquired and, as a result, the fair value of the net assets acquired may be subject to adjustments pending completion of final valuations and post-closing adjustments. The table below summarizes the preliminary estimated fair value of the assets acquired and the liabilities assumed at the effective acquisition date:

			Amount
Consideration
		Cash	$  28,775
		Contingent consideration	35,741
Total consideration			$  64,516
Net assets acquired
	Current assets
		Cash and cash equivalents	7,237
		Accounts receivable	33,989
		Other current assets	14,616
		Inventory	28,352
	Long-term assets
		Capital assets	6,373
		Intangible assets	32,688
		Goodwill	10,712
	Total assets		133,967
	Current liabilities
		Bank loans and overdrafts	20,255
		Accounts payable and accrued liabilities	44,111
		Income taxes payable	--
	Long-term liabilities
		Deferred tax liability	5,085
	Total liabilities		69,451
Total net assets acquired			$  64,516

Net income and comprehensive net income for the Company would have been higher by approximately $2,625 and $7,875 for the three and nine months ended February 28, 2019, if the acquisition had taken place on June 1, 2018. In connection with this transaction, the Company expensed transaction costs of $595.

Goodwill is comprised of:

	February 28, 2019	May 31, 2018
CannWay goodwill	$  1,200	$  1,200
Broken Coast goodwill	146,091	145,794
Nuuvera goodwill	377,221	375,768
LATAM goodwill	139,188	--
CC Pharma goodwill	10,712	--
	$  674,412	$  522,762

 19

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

During the quarter, independent third party completed their review of the LATAM acquisition, which provided the Company with new information. In accordance with IAS 36, the Company completed an impairment analysis and determined the fair value of the assets based on a discounted cash flows for the three operating entities acquired in the transaction; Colcanna S.A.S (“Colcanna”), ABP, S.A. (“ABP”) and Marigold Projects Jamaica Limited (“Marigold”).

As a result of new information obtained from independent third party’s review, the Company determined some changes in the projected cashflows and adjusted the discount rates from 31.0%, 21.3%, and 36.5% to 33.0%, 23.3%, and 38.5% for Colcanna, ABP and Marigold respectively. Based on the determined fair value, the Company recognized $50,000 in impairment of goodwill. Also included in impairment is £4,600 GBP ($8,039 CAD) related to uncollectible notes receivable (Note 15) for a total impairment of $58,039.

12. Convertible notes receivable

	February 28, 2019	May 31, 2018
Copperstate Farms Investors, LLC	$  --	$  1,942
HydRx Farms Ltd. (d/b/a Scientus Pharma)	11,500	16,129
Fire & Flower Inc.	13,450	--
10330698 Canada Ltd. (d/b/a Starbuds)	5,092	--
	30,042	18,071
Deduct - current portion	(11,500)	(1,942)
	$  18,542	$  16,129

Copperstate Farms Investors, LLC

As at February 28, 2019, this note was paid in full.

HydRx Farms Ltd. (d/b/a Scientus Pharma)

On August 14, 2017, Aphria purchased $11,500 in secured convertible debentures of Scientus Pharma (“SP”). The convertible debenture bears interest at 8%, paid semi-annually, matures in two years and includes the right to convert the debenture into common shares of SP at $2.75 per common share at any time before maturity. SP maintains the option of forced conversion of the convertible debenture if the common shares of SP trade on a stock exchange at a value of $3.02 or more for 30 consecutive days. The Company maintains a first charge on all assets of SP. In October 2018, the Company agreed to share its first charge on all assets of SP with a third party on a pari passu basis. As at February 28, 2019, the third party has not completed its investment.

During the three and nine months ended February 28, 2019, the Company’s note receivable from SP decreased by $4,896 and $4,629, representing the change in fair value on the note. As at February 28, 2019, the convertible note receivable totaled $11,500.

Fire & Flower Inc.

On July 26, 2018, Aphria purchased $10,000 in unsecured convertible debentures of Fire & Flower Inc. (“F&F”). The convertible debentures bear interest at 8% per annum compounded, accrued and paid semi-annually in arrears (the “Debentures”). The Debentures mature on July 31, 2020, at which point, they automatically convert into common shares of F&F at the lower of $1.15 and the share price on July 31, 2020. The Debentures may also be converted into a loan on July 31, 2020 bearing interest at 12%, at the holder’s option.

During the three and nine months ended February 28, 2019, the Company’s note receivable from F&F increased by $855 and $3,450, representing the change in fair value on the note. As at February 28, 2019, the convertible note receivable totaled $13,450.

10330698 Canada Ltd. (d/b/a Starbuds)

On December 28, 2018, Aphria purchased $5,000 in secured convertible debentures of Starbuds. The convertible debentures bear interest at 8.5% per annum accruing daily due on the December 28, 2020 (the “Debentures”). The Debentures are secured against the assets of Starbuds. The Debentures and any accrued and unpaid interest are convertible into common shares for $0.50 per common share and mature on December 28, 2020.

 20

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

During the three and nine months ended February 28, 2019, the Company’s note receivable from Starbuds increased by $92 and $92, representing the change in fair value on the note. As at February 28, 2019, the convertible note receivable totaled $5,092.

Convertible notes receivable

During the nine-month period, the Company purchased a total of $15,000 in convertible notes. The unrealized gain (loss) on convertible notes receivable recognized in the results of operations amounts to $(3,949) and $(1,087) for the three and nine months ended February 28, 2019 (2018 - $(52) and $576).

The fair value was determined using the Black-Scholes option pricing model using the following assumptions: the risk-free rate of 0.85-- 1.51%; expected life of the convertible note; volatility of 70% based on comparable companies; forfeiture rate of nil; dividend yield of nil; and, the exercise price of the respective conversion feature.

13. Interest in equity investee

Summary of equity investees:

	February 28, 2019	May 31, 2018
Associated company
Althea Company Pty Ltd.	$  9,604	$  4,966
	$  9,604	$  4,966

Liberty Health Sciences Inc. (“LHS”)

In February 2018, the Company entered into a call/put obligation (“Obligation Agreement”) for the remaining shares held in Liberty, which were subject to CSE mandatory escrow requirements. As each new tranche of shares became freely trading, the Obligation Agreement resulted in the buyers acquiring the newly freely trading shares at an 18% discount to the market price of Liberty, based on Liberty’s 10-day volume weighted trading price.

The Obligation Agreement included an opt-out for Aphria’s benefit, in the event that the Toronto Stock Exchange amended their regulations such that it permitted investments by Canadian companies in U.S. based cannabis businesses, and in such instance, the Obligation Agreement would be automatically terminated. In exchange for the opt-out, the Company agreed to pay the buyers a $2,500 termination fee.

Based on the terms of the Obligation Agreement, the Company determined that the remaining shares held in Liberty met the requirements under IFRS 5 and were reclassified from interest in equity investees to assets held for sale. The Company ceased accounting for the investment as an equity investment as of November 30, 2017 and transferred the carrying value to assets held for sale.

In July 2018, 16,029,615 shares were released from escrow and sold as part of the Obligation Agreement. The Company received gross proceeds of $11,514 and recognized a gain on sale of equity investee of $9,880. As part of the transaction, the Company paid $480 in exchange for an option to buy back the shares at $1.00 a share, subject to certain downside risk protection which results in the purchaser sharing a portion of the difference between the share price on the day the option is exercised and the exercise price, provided the share price exceeds $1.25. The option to repurchase the shares is subject to the following conditions (collectively, the enumerated conditions (1) through (5), the “Conditions”):

(1) Cannabis becoming legalized federally in the United States; and

One or more of the following conditions have been satisfied:

(2) The TSX has provided its approval for the purchase of the U.S. cannabis assets;

 21

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

(3) The TSX revises its rules such that it no longer has a prohibition against its listed companies having an interest in US assets which are involved in the cannabis business;

(4) The common shares of the Company are voluntarily or involuntarily delisted from the TSX; and/or

(5) The Company is acquired by another entity, provided that the common shares of the Company will be delisted from the TSX upon the change of control.

This option was initially included in long-term investments (Note 14).

During the prior quarter, the Company and the third party agreed to terminate the Obligation Agreement, in exchange for a $1,000 termination fee. The Company then entered into a share purchase agreement to divest of the remaining 64,118,462 Liberty shares in exchange for consideration in the form of a promissory note in the amount of $59,098, bearing interest at a rate of 12% due in 5 years (Note 15). As a security for the promissory note, the Liberty shares were placed in trust with an escrow agent. The purchaser was able to remove the Liberty shares from the escrow at any time by paying off the promissory note. In the event that the Company enforces the security, the escrow agent was to return the shares to the Company, provided that the Conditions are met. In the event they are not met, the escrow agent was to transfer the securities to a third-party investment bank for liquidation, with the proceeds of liquidation delivered to the Company. Simultaneously with this sale, the Company entered into an option agreement to repurchase the Liberty shares for the amount of the promissory note (Note 14). The Company agreed to pay an annual fee equal to 12.975% of the face value of the promissory note to maintain this option (Note 20). The option to repurchase the shares was subject to the Conditions described above. During the three and nine months ended February 28, 2019, the Company reported a gain on sale of equity investee of $nil and $57,351.

On February 19, 2019, the Company and the third party agreed to liquidate the promissory note, security agreement and the option in exchange for a cash payment of $47,448 and a contingent payment up to $10,000, in the event the third party monetizes the assets held under the option within six (6) months of the transaction date.

During the three and six months ended November 30, 2017, the Company reported a total (loss) gain on dilution of ownership in equity investee of $(16) and $7,535. Prior to the Company no longer recording Liberty as an equity investee, Liberty reported a net loss of $23,493 and a net comprehensive loss of $27,001. In accordance with the equity method, the Company recorded a loss of $441 and $9,281 and other comprehensive gain (loss) of $520 and $(801).

Althea Company Pty Ltd. (“Althea”)

As at February 28, 2019 the Company held 50,750,000 common shares of Althea (May 31, 2018 - 4,500) representing an ownership interest of 25% (May 31, 2018 - 37.5%).

The following table summarizes, in aggregate, the financial information of the Company’s associate as included in their own financial statements.

	December 31, 2018	March 31, 2018
Current assets	$  19,812	$  3,857
Non-current assets	553	3
Current liabilities	(251)	(14)
Non-current liabilities	--	--
Net assets	$  20,114	$  3,846

For the period from April 1, 2018 to December 31, 2018, the investee reported a net loss of $3,132 AUD on its financial statements. In accordance with the equity method, the Company recorded a loss of $8 and $830 for the three and nine months ended February 28, 2019 from its investee relative to its ownership of the outstanding common shares at the time.

During the period, Althea completed a share split of 7,500 shares for each existing share. Althea also issued 101,310,000 common shares for total proceeds of $19,650 AUD during the quarter. The Company participated in the financing of Althea contributing $3,400 AUD ($3,258 CAD) of the total $19,650 AUD raised. This additional raise reduced the Company’s ownership interest in Althea from 37.5% to 25% and accordingly, the Company recognized a gain on dilution of $2,210.

 22

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

	February 28, 2019	May 31, 2018
Reconciliation to carrying amount:
Opening balance	$  4,966	$  --
Transfer from long-term investments	--	2,483
Cash contributions, net of share issuance costs	3,258	2,497
Gain on account of dilution of ownership	2,210	--
Share of reported net (loss) income	(830)	(14)
Closing balance	$  9,604	$  4,966

14. Long-term investments

		Cost May 31, 2018	Fair value May 31, 2018	Investment	Divesture/ Transfer	Subtotal February 28, 2019	Change in fair value	Fair value February 28, 2019
Level 1 on fair value hierarchy
	CannaRoyalty Corp.	$  1,500	$  3,765	$  --	$  (3,765)	$  --	$  --	$  --
	MassRoots, Inc.	304	164	--	(164)	--	--	--
	Tetra Bio-Pharma Inc.	2,300	6,800	16,757	--	23,557	(4,189)	19,368
	Hiku Brands Company Ltd.	9,775	13,558	--	(13,558)	--	--	--
	Scythian Biosciences Corp.	9,349	8,603	298	(8,901)	--	--	--
	National Access Cannabis Corp.	1,093	710	10,481	--	11,191	(3,250)	7,941
	Emblem Corp.	--	--	10,000	--	10,000	2,097	12,097
	Rapid Dose Therapeutics Inc.	--	--	5,400	--	5,400	576	5,976
	Fire & Flower Inc.	--	--	3,416	--	3,416	204	3,620
		24,321	33,600	46,352	(26,388)	53,564	(4,562)	49,002
Level 2 on fair value hierarchy
	Hiku Brands Company Ltd.	2,336	1,906	16,787	(18,693)	--	--	--
	Scythian Biosciences Corp.	3,153	661	--	(661)	--	--	--
		5,489	2,567	16,787	(19,354)	--	--	--
Level 3 on fair value hierarchy
	Copperstate Farms, LLC	1,755	5,300	--	(5,300)	--	--	--
	Copperstate Farms Investors, LLC	9,407	14,700	--	(14,700)	--	--	--
	Resolve Digital Health Inc.	718	3,300	--	--	3,300	(2,200)	1,100
	Resolve Digital Health Inc.	282	1,916	--	--	1,916	(1,611)	305
	Green Acre Capital Fund I	1,600	2,042	400	--	2,442	2,137	4,579
	Green Acre Capital Fund II	--	--	3,000	--	3,000	(2,500)	500
	Green Tank Holdings Corp.	650	647	--	--	647	3,475	4,122
	IBBZ Krankenhaus GmbH	1,956	1,956	--	--	1,956	(5)	1,951
	Greenwell Brands GmbH	--	--	152	--	152	--	152
	HighArchy Ventures Ltd.	--	--	9,995	--	9,995	--	9,995
	US legalization options	--	--	54,762	(26,969)	27,793	25,826	53,619
		16,368	29,861	68,309	(46,969)	51,201	25,122	76,323
	Deduct - assets held for sale	(11,162)	(20,000)	--	20,000	--	--	--
		$  35,016	$  46,028	$  131,448	$  (72,711)	$  104,765	$  20,560	$  125,325

The fair value attached to warrants in both Level 1 and Level 3 were determined using the Black-Scholes option pricing model using the following assumptions: risk-free rate of 0.75-1.70% on the date of grant; expected life of 1 and 2 years; volatility of 70% based on comparable companies; forfeiture rate of 0%; dividend yield of nil; and, the exercise price of the respective warrant.

CannaRoyalty Corp. (“CR”)

During the nine-month period, the Company sold its remaining 750,000 shares of CR for proceeds of $4,111, resulting in an accounting gain of $346 (Note 28).

 23

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

MassRoots, Inc.

During the period, the Company sold its remaining 500,000 common shares in MassRoots, Inc. for proceeds of $1, resulting in a loss of

$163 (Note 28).

Tetra Bio-Pharma Inc.

During the prior quarter, the Company purchased an additional 6,900,000 units of Tetra Bio-Pharma Inc. at a total cost of $7,107. Each unit is comprised of one Class A common share and one common share purchase warrant with an exercise price of $1.29 expiring November 2021.

During the quarter, the Company purchased 10,000,000 common shares of Tetra Bio-Pharma Inc. at a total cost of $9,650.

The Company owns 26,900,000 common shares and 6,900,000 warrants at a cost of $19,057, with a fair value of $19,368 as at February 28, 2019.

Hiku Brands Company Ltd. (“Hiku”)
During the nine-month period the Company exercised its 7,993,605 warrants at $2.10 per warrant. Subsequent to exercising its warrants the Company sold all of its shares of Hiku in exchange for $48,153, resulting in a gain on disposal of $15,902 (Note 28).

As part of the purchase of Hiku by a third party, the third party terminated the Hiku supply agreement with the Company. The third party purported to terminate the Tokyo Smoke supply agreement with the Company at approximately the same time. The Company does not believe that the agreement could be terminated by the third party and is pursuing all available legal options associated with the position taken by the third party.

Scythian Biosciences Inc. (“Scythian”)

During the nine-month period the Company purchased 123,800 common shares of Scythian at a total cost of $298. During the period, the Company sold its 2,812,300 common shares and 672,125 common share purchase warrants in Scythian in exchange for $6,609, resulting in a loss on disposal of $2,953 (Note 28).

National Access Cannabis Corp. (“NAC”)

During the nine-month period, the Company purchased 10,344,505 common shares of National Access Cannabis Corp. at a total cost of $10,481. The Company owns 11,344,505 common shares in NAC at a cost of $11,574, with a fair value of $7,941 as at February 28, 2019.

Emblem Corp. (“Emblem”)

During the nine-month period, the Company entered into a 5-year supply agreement with Emblem. As part of the supply agreement the Company received 6,952,169 common shares to satisfy a deposit valued at $10,000. The Company owns 6,952,169 common shares in Emblem at a cost of $10,000, with a fair value of $12,097 as at February 28, 2019. The shares are subject to various hold restrictions tied to terms within the supply agreement. Subsequent to quarter end, Emblem was purchased by a third party, Alefia Health Inc. (“Alefia”). The Company’s shares in Emblem translate into 5,823,831 shares of Alefia.

US legalization options

During the nine-month period, the Company purchased an option to acquire 16,029,615 Liberty shares at $1.00 a share, expiring January 23, 2020. This option includes specific downside risk protection in which the purchaser will share a portion of the difference between the share price on the day the option is exercised and the exercise price, provided the share price exceeds $1.25. The cost of the option is $480. The option to repurchase the shares is subject to the Conditions described in note 13.

During the nine-month period, the Company entered into an option agreement to repurchase 64,118,462 Liberty shares in exchange for settlement of a promissory note receivable, expiring September 6, 2023 (Note 13 and Note 20). The cost of this option was a gross annual fee of $7,668, however the Company also received $7,092 of interest income associated with the promissory note receivable, resulting in a net annual cost to the Company of $576. The option to repurchase the shares was subject to the Conditions described in note 13.

During the period, the Company liquidated the option and promissory note for cash proceeds of $47,448, with a contingent fee owing of up to $10,000 upon satisfaction of certain conditions. As the satisfaction of these conditions require actions outside of the Company’s control, the Company has not allocated any value to the contingent consideration.

 24

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

During the period, the Company contributed assets with a fair value of $55,000 to GA Opportunities Corp. Simultaneously, the Company entered into an option agreement to purchase all of the assets owned by GA Opportunities Corp. at a cost of $55,000, expiring September 24, 2023 (Note 20). The cost of this option is a gross fee of $6,765, however the Company also receives $6,600 of interest income associated with the promissory note receivable, resulting in a net annual cost to the Company of $165. In the event the securities in the fund represent direct or indirect ownership of, or investment in, entities engaging in activities related to the cultivation, distribution or possession of cannabis in the United States, the option to purchase the securities is subject to the Conditions described in note 13.

The Company used the Black-Scholes option pricing model to determine the fair value of the options using the following assumptions: risk-free rate of 2.19-2.19%; expected life of 1.15 - 5 years; volatility of 70-90% based on comparable companies; forfeiture rate of 0%; dividend yield of nil; and, the exercise price of the respective option. The Company discounted the determined Black-Scholes value by 50% for the options expiring in September 2023, for the probability the Conditions described in note 13 being met.

Copperstate Farms, LLC (“Copperstate”) and Copperstate Farms Investors, LLC (“CSF”)

During the period, the Company received $20,000 from the sale of the shares of Copperstate and CSF, which were previously held as available for sale.

Resolve Digital Health Inc. (“Resolve”)

The Company owns 2,200,026 common shares and 2,200,026 warrants in Resolve at a total cost of $1,000, with a fair value of $1,405 as at February 28, 2019. The Company determined the fair value of its investment based on its net realizable value. Each warrant is exercisable at $0.65 per warrant expiring December 1, 2021.

Green Acre Capital Fund I

The Company committed and invested $2,000 to Green Acre Capital Fund I. The Company determined the fair value of its investment, based on its proportionate share of net assets, to be $4,579 as at February 28, 2019. During the nine-month period, the Company received a return of capital of $700 from this investment.

Green Acre Capital Fund II

During the nine-month period, the Company committed to a $15,000 investment in Green Acre Capital Fund II, and as of the balance sheet date, has funded $3,000. Subsequent to quarter end, the Company and Green Acre Capital Fund II agreed to end the Company’s involvement with the fund. The Company and Green Acre Capital Fund II agreed that the Company would no longer be committed to fund the remaining amount of its investment and in exchange, the Company agreed to sell its interest in the fund to the limited partners for $500. The Company determined that the fair value of its investments, based on its net realizable value, based on its proportionate share of net assets, was $500 as at February 28, 2019.

Green Tank Holdings Corp. (“Green Tank”)

During the period Green Tank completed a 12:1 share split, which resulted in the Company obtaining an additional 1,082,675 shares at no additional cost. The Company owns 1,181,100 preferred shares in Green Tank for a total cost of $500 USD ($650 CAD), with a fair value of $3,130 USD ($4,122 CAD). The Company determined the fair value of its investment, based on Green Tank’s most recent financing.

IBBZ Krankenhaus GmbH Klinik Hygiea (“Krankenhaus”)

The Company owns 25.1% of Krankenhaus, which is the owner and operator of Berlin-based Schöneberg Hospital, for €1,294 ($1,956 CAD). Through this investment, the Company is entitled to 5% of the net income (loss) for the years 2018 to 2021, and 10% of the net income (loss) for the period thereafter. The Company determined that the fair value of its investment, based on Krankenhaus’ most recent financing at the same price, is equal to its carrying value. The Company recognized a loss from the change in fair value of $(5) due to changes in the foreign exchange rate.

Greenwell Brands GmbH (“Greenwell”)

In September 2018, the Company entered into an investment and shareholder agreement with Greenwell for the purchase of 1,250 common shares, for a total cost of €100 ($152 CAD). The Company determined that the fair value of its investment, based on the most recent financing at the same price, is equal to its carrying value.

 25

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Rapid Dose Therapeutics Inc. (“RDT”)

In August 2018, the Company entered into a subscription agreement with RDT for the purchase of 7,200,000 common shares, for a total cost of $5,400, with a fair value of $5,976 as at February 28, 2019. During the period, RDT’s common shares began trading on the Canadian Stock Exchange. The Company reclassified this investment from level 3 on fair value hierarchy to level 1 during the three-month period.

HighArchy Ventures Ltd.

In October 2018, the Company entered into a subscription agreement with HighArchy Ventures Ltd. for the purchase of 1,999 Class A shares and 1,999 Class B shares, for a total cost of $9,995. The Company determined that the fair value of its investment, based on the most recent financing at the same price, is equal to its carrying value.

Fire & Flower Inc.

In October 2018, the Company entered into a subscription agreement with Fire & Flower Inc. for the purchase of 2,277,000 common shares, for a total cost of $3,416 with a fair value of $3,620 as at February 28, 2019. During the period, Fire & Flower Inc.’s common shares began trading on the Toronto Stock Exchange Venture.

15. Promissory notes receivable

		May 31, 2018	Additions	Disposal/ Impairment	February 28, 2019
September 6, 2018 - $59,098 - 12%, due		$  --	$  59,098	$  (59,098)	$  --
	September 6, 2023
September 24, 2018 - $55,000 - 12%, due		--	55,000	--	55,000
	September 24, 2023
October 11, 2018 - GBP £4,600 - 3.25%, due		--	7,952	(7,952)	--
	October 11, 2021
October 31, 2018 - $6,609 - 12%, due		--	6,609	--	6,609
	October 31, 2023
November 1, 2018 - $200 - interest free, due		--	200	--	200
	May 1, 2020
		$  --	$  128,859	$  (67,050)	$  61,809

During the quarter, the Company impaired the promissory note receivable of £4,600 GBP to $nil (Note 11).

 26

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

16. Income taxes and deferred income taxes

A reconciliation of income taxes at the statutory rate with the reported taxes is as follows:

		For the nine months ended February 28,
		2019	2018
Income (loss) before income taxes (recovery)		$  (31,858)	$  42,579
Statutory rate		26.5%	26.5%
Expected income tax expense (recovery) at combined basic federal and provincial tax rate		(8,442)	11,283
Effect on income taxes of:
	Foreign tax differential	(381)	--
	Permanent differences	14,496	--
	Non-deductible share-based compensation and other expenses	6,094	2,856
	Non-taxable portion of losses (gains)	(11,617)	(5,832)
	Other	146	(168)
	Tax assets not recognized	105	--
		$  401	$  8,139
Income tax expense (recovery) is comprised of:
	Current	$  4,698	$  2,109
	Future	(4,297)	6,030
		$  401	$  8,139

The following table summarizes the components of deferred tax:

		February 28, 2019	May 31, 2018
Deferred tax assets
	Non-capital loss carry forward	$  16,045	$  4,567
	Capital loss carry forward	--	405
	Share issuance and financing fees	7,094	5,443
	Unrealized loss	--	916
	Other	1,158	27
Deferred tax liabilities
	Net book value in excess of undepreciated capital cost	(14)	(1,017)
	Intangible assets in excess of tax costs	(100,596)	(64,120)
	Unrealized gain	(4,232)	(1,097)
	Biological assets and inventory in excess of tax costs	(5,907)	(4,377)
Net deferred tax assets (liabilities)		$  (86,452)	$  (59,253)

17. Bank indebtedness

The Company secured an operating line of credit in the amount of $1,000 which bears interest at the lender’s prime rate plus 75 basis points. As of February 28, 2019, the Company has not drawn on the line of credit. The operating line of credit is secured by a first charge on the property at 265 Talbot Street West, Leamington, Ontario and a first ranking position on a general security agreement.

 27

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

18. Promissory note payable

During the prior year, the Company entered into a promissory note with Althea for $700 AUD ($686), as part of the purchase of Althea common shares (note 14), the note is due and payable on December 31, 2020. The Company reached an agreement with Althea where the promissory note amount will be used by Althea to purchase products from the Company in connection with a supply agreement entered into in September 2017.

		February 28, 2019	May 31, 2018
Note payable to Althea Company Pty Ltd - $700 AUD ($686), opening balance,		$  610	$  686
	non-interest bearing, due and payable on December 31, 2020
Reduction of Promissory note payable balance with respect to products provided		(93)	(63)
Foreign exchange (gain) loss		(28)	(13)
Balance remaining		489	610
Deduct - principal portion included in current liabilities		(489)	(610)
		$  --	$  --

19. Long-term debt

			February 28, 2019	May 31, 2018
Term loan - $25,000 - Canadian Five Year Bond interest rate plus 2.73% with a minimum 4.50%, 5 year term, with a 15-year amortization, repayable in blended monthly payments sufficient to repay the loan by July 2033			$  24,320	$                 --
Term loan - $25,000 - 3.95%, compounded monthly, 5 year term with a 15-year amortization, repayable in equal monthly instalments of $188 including interest, due in April 2022			23,687	24,107
Term loan - $1,250 - 3.99%, 5-year term, with a 10-year amortization, repayable in			974	1,057
	equal monthly instalments of $13 including interest, due in July 2021
Mortgage payable - $3,750 - 3.95%, 5-year term, with a 20-year amortization,			3,415	3,515
	repayable in equal monthly instalments of $23 including interest, due in July 2021
Vendor take-back mortgage owed to related party - $2,850 - 6.75%, 5-year term,			1,450	1,869
	repayable in equal monthly instalments of $56 including interest, due in June 2021
Term loan - €5,000 - Euro Interbank Offered Rate + 1.79%, 5-year term, repayable in			7,488	--
	quarterly instalments of €250 plus interest, due in December 2023
Term loan - €5,000 - Euro Interbank Offered Rate + 2.68%, 5-year term, repayable in			7,488	--
	quarterly instalments of €250 plus interest, due in December 2023
Term loan - €3,500 - Euro Interbank Offered Rate + 1.79%, due on demand			5,242	--
Term loan - €3,500 - Euro Interbank Offered Rate + 3.68%, due on demand			2,951
			77,015	30,548
Deduct		- unamortized financing fees	(124)	(71)
		- principal portion included in current liabilities	(14,612)	(2,140)
			$  62,279	$  28,337

 28

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Total long-term debt repayments are as follows:

Next 12 months	$  14,612
2 years	6,584
3 years	6,299
4 years	6,212
Thereafter	43,308
Balance of obligation	$  77,015

The term loan of $24,320 was entered into on July 27, 2018 and is secured by a first charge on the property at 223, 231, 239, 265, 269, 271 and 275 Talbot Street West, Leamington Ontario, a first position on a general security agreement, and an assignment of fire insurance to the lender. Principal payments started on the term loan in August 2018. The effective interest rate during the period was 4.68%.

The term loan of $23,687 was entered into on May 9, 2017 and is secured by a first charge on the property at 265 Talbot Street West, Leamington Ontario, a first position on a general security agreement, and an assignment of fire insurance to the lender. Principal payments started on the term loan in March 2018.

The term loan of $974 and mortgage payable of $3,415 were entered into on July 22, 2016 and are secured by a first charge on the property at 265 Talbot Street West, Leamington, Ontario and a first position on a general security agreement.

The vendor take-back mortgage payable of $1,450, owed to a former director of the Company, was entered into on June 30, 2016 in conjunction with the acquisition of the property at 265 Talbot Street West. The mortgage is secured by a second charge on the property at 265 Talbot Street West, Leamington, Ontario.

The Company acquired term loans of $3,000 and $1,201, and a mortgage payable of $1,713 as part of the acquisition of Broken Coast (Note 11). These loans and mortgages were paid in full during the prior year.

The Company acquired term loans initially up to €17,000 ($25,460 CAD) as part of the acquisition of CC Pharma (Note 11). As at February 28, 2019, the Company had amounts outstanding of €15,470 ($23,169 CAD). These term loans are secured against the distribution inventory held by CC Pharma.

20. Option payment liability

	May 31, 2018	Additions	Settlement	Change in fair value	February 28, 2019
US legalization options	$  --	$  58,271	$  (38,338)	$  1,109	$  21,042
Deduct - current portion	--				(6,765)
	$  --				$  14,277

During the period, the Company entered into an option agreement to repurchase 64,118,462 Liberty shares in exchange for settlement of a promissory note receivable, expiring September 6, 2023 (Note 13 and Note 14). The cost of this option is an annual fee of $7,668 paid at the beginning of each year; however, the Company also receives $7,092 of interest income associated with the promissory note receivable, resulting in a net annual cost to the Company of $576. The fair value of the payments from this contract was $30,958 at inception, and $23,905 prior to the settlement of this option liability during the period (Note 28) as at February 28, 2019, using a discount rate of 12%.

During the period, the Company entered into an option agreement to repurchase all the securities held by GA Opportunities Corp. at a cost of $55,000, expiring September 24, 2023 (Note 14). The cost of this option is an annual fee of $6,765 paid at the beginning of each year; however, the Company also receives $6,600 of interest income associated with the promissory note receivable, resulting in a net annual cost to the Company of $165. The fair value of the payments from this contract was $27,313 at inception, and $21,042 as at February 28, 2019, using a discount rate of 12%.

 29

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

21. Share capital

The Company is authorized to issue an unlimited number of common shares. As at February 28, 2019, the Company has issued 250,581,402 shares, of which 600,000 shares were held and subject to various escrow agreements.

Common Shares	Number of shares	Amount
Balance at May 31, 2018	210,169,924	$  1,113,981
June 2018 bought deal, net of cash issuance costs	21,835,510	245,925
Broken Coast acquisition	19,963	297
LATAM acquisition	15,678,310	273,900
Warrants exercised	448,518	1,609
Options exercised	2,429,177	14,053
Income tax recovery on share issuance costs	--	3,426
	250,581,402	$  1,653,191

(a) Throughout the nine-month period, 448,518 warrants with exercise prices ranging from $1.50 to $20.30 were exercised for a value of $1,609 including any cash consideration.

(b) Throughout the nine-month period, 2,429,177 shares were issued from the exercise of stock options with exercise prices ranging from $0.60 to $20.19 for a value of $14,053, including any cash consideration.

(c) In June 2018, the Company closed a bought deal financing in which it issued 21,835,510 common shares at a purchase price of $11.85 per share for $245,925 net of cash issuance costs.

(d) During the nine-month period, the Company agreed to terms to acquire the remaining 0.14% of Broken Coast (Note 11) and accordingly, the Company agreed to issue 19,963 shares.

(e) In September 2018, the Company completed the acquisition of LATAM (note 11) in which it issued 15,678,310 common shares at a purchase price of $17.47 per share for $273,900.

(f) During the period, the Company recognized a $3,426 income tax recovery on share issuance costs.

22. Warrants

The warrant details of the Company are as follows:

Type of warrant	Expiry date	Number of warrants	Weighted average price	Amount
Warrant	December 2, 2019	900,814	1.50	--
Warrant	September 26, 2021	200,000	3.14	360
Nuuvera warrant	February 14, 2020	1,293,803	20.30	976
		2,394,617	$  11.79	$  1,336

	February 28, 2019		May 31, 2018
	Number of warrants	Weighted average price	Number of warrants	Weighted average price
Outstanding, beginning of the period	2,843,138	$  10.52	3,885,908	$  1.61
Issued during the period	--	--	1,345,866	20.30
Exercised during the period	(448,518)	3.70	(2,388,636)	1.54
Cancelled during the period	(3)	1.75	--	--
Outstanding, end of the period	2,394,617	$  11.79	2,843,138	$  10.52

In March 2018, the Company completed the acquisition of Nuuvera (Note 11) in which it reserved 1,345,866 common shares for issuance to the holders of certain common share purchase warrants of Nuuvera (“Nuuvera Warrants”). There are 3,795,450 Nuuvera Warrants, exercisable for Nuuvera shares at an exercise price of $7.20 per share, at which time, the Nuuvera shares would convert to 0.3546 Aphria shares and $0.62 cash.

 30

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

23. Stock options

The Company adopted a stock option plan under which it is authorized to grant options to officers, directors, employees and consultants enabling them to acquire common shares of the Company. The maximum number of common shares reserved for issuance of stock options that can be granted under the plan is 10% of the issued and outstanding common shares of the Company. The options granted can be exercised for up to a maximum of 10 years and vest as determined by the Board of Directors. The exercise price of each option can not be less than the market price of the common shares on the date of grant.

The Company recognized a share-based compensation expense of $12,319 and $20,404 during the three and nine months ended February 28, 2019 (2018 - $5,274 and $19,769). The total fair value of options granted during the period was $21,888 (2018 - $20,158).

	February 28, 2019		May 31, 2018
	Number of options	Weighted average price	Number of options	Weighted average price
Outstanding, beginning of the period	8,956,195	$  7.60	5,926,001	$  1.99
Exercised during the period	(2,821,405)	3.99	(2,637,363)	2.30
Issued during the period	2,925,000	13.10	6,703,330	11.12
Cancelled during the period	(576,375)	9.57	(1,035,773)	11.77
Outstanding, end of the period	8,483,415	$  10.56	8,956,195	$  7.60
Exercisable, end of the period	4,690,378	$  8.72	3,919,542	$  1.36

In June 2018, the Company issued 250,000 stock options at an exercise price of $11.78 per share, exercisable for 3 years to officers of the Company. 83,331 vested immediately and the remainder vest over 2 years.

In July 2018, the Company issued 820,000 stock options at an exercise price between $11.51 and $11.85 per share, exercisable for 5 years to employees of the Company. 50,000 vested immediately and the remainder vest over 3 years.

In September 2018, the Company issued 250,000 stock options at an exercise price of $19.38, exercisable for 5 years to employees of the Company. Nil vested immediately and the remainder vest over 3 years.

In October 2018, the Company issued 80,000 stock options at an exercise price of $19.70, exercisable for 5 years to employees of the Company. Nil vested immediately and the remainder vest over 3 years.

In February 2019, the Company issued 1,525,000 stock options at an exercise price between $9.92 and $13.31, exercisable for 3 to 5 years to officers and employees of the Company. 1,100,000 vested immediately and the remainder vest over 3 years.

 31

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

The outstanding option details of the Company are as follows:

Expiry date	Weighted average exercise price	Number of options	Vested and exercisable
June 2019	$  0.60	230,000	230,000
September 2019	$  3.00	42,365	42,365
October 2019	$  3.47	7,400	7,400
November 2019	$  3.90	658,685	658,685
December 2019	$  5.25	400,000	33,333
January 2020	$  5.72	1,834	1,834
April 2020	$  7.92	38,334	5,000
June 2020	$  5.44	150,000	133,333
July 2020	$  5.24	600,645	470,632
September 2020	$  0.85	185,000	185,000
October 2020	$  6.90	296,666	159,999
November 2020	$  9.05	136,667	43,333
November 2020	$  9.28	50,000	33,333
December 2020	$  14.06	100,000	66,666
January 2021	$  21.70	10,000	6,666
January 2021	$  22.89	150,000	86,665
January 2021	$  22.08	50,000	33,333
March 2021	$  14.39	20,000	6,666
March 2021	$  9.98	200,000	66,666
March 2021	$  12.39	50,000	16,666
April 2021	$  11.40	423,334	186,664
April 2021	$  9.92	400,000	200,000
April 2021	$  11.45	66,667	--
May 2021	$  20.19	908,500	241,832
June 2021	$  1.40	185,002	185,002
June 2021	$  11.78	116,665	83,331
July 2021	$  11.85	150,000	50,000
August 2021	$  1.64	110,000	89,991
September 2021	$  19.38	100,000	33,332
October 2022	$  6.90	74,000	74,000
July 2023	$  11.51	100,000	--
July 2023	$  11.85	558,000	--
September 2023	$  19.38	150,000	--
October 2023	$  19.70	80,000	--
February 2024	$  12.77	425,000	--
February 2024	$  13.31	1,000,000	1,000,000
July 2027	$  2.52	59,689	59,689
November 2027	$  6.29	39,792	39,792
March 2028	$  12.29	119,378	119,378
March 2028	$  14.38	39,792	39,792
Outstanding, end of the period	$  10.56	8,483,415	4,690,378

The Company used the Black Scholes option pricing model to determine the fair value of options granted using the following assumptions: risk-free rate of 2.00 - 2.08% on the date of grant; expected life of 3 and 5 years; volatility of 70% based on comparable companies; forfeiture rate of 0%; dividend yield of nil; and, the exercise price of the respective option.

 32

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

24. Non-controlling interest

The following tables summarise the information relating to the Company’s subsidiaries, 1974568 Ontario Ltd. (“Aphria Diamond”), CannInvest Africa Ltd., Verve Dynamics Incorporated (Pty) Ltd. (“Verve Dynamics”), Nuuvera Malta Ltd., Marigold, and ColCanna before intercompany eliminations.

	Aphria Diamond	CannInvest Africa Ltd.	Verve Dynamics	Nuuvera Malta Ltd.	Marigold	ColCanna S.A.S.	February 28, 2019
Current assets	$  2,690	$  34	$  --	$  2,209	$  91	$  6,751	$  11,775
Non-current assets	156,676	3	13,503	644	7,888	112,099	290,813
Current liabilities	(11,452)	(43)	--	(243)	(1,007)	(95)	(12,840)
Non-current liabilities	(129,698)	--	--	(3,151)	(106)	(9,710)	(142,665)
Net assets	18,216	(6)	13,503	(541)	6,866	109,045	147,083
Non-controlling interest %	49%	50%	70%	10%	5%	10%
Non-controlling interest	$  8,926	$  (3)	$  9,452	$  (54)	$  343	$  10,905	$  29,569

	Aphria Diamond	CannInvest Africa Ltd.	Verve Dynamics	Nuuvera Malta Ltd.	Marigold	ColCanna S.A.S.	February 28, 2019
Revenue	$  --	$  --	$  --	$  186	$  --	$  2	$  188
Total expenses	1,335	8	--	728	540	524	3,135
Net loss and comprehensive loss	(1,335)	(8)	--	(542)	(540)	(522)	(2,947)
Non-controlling interest %	49%	50%	70%	10%	5%	10%
	$  (654)	$  (4)	$  --	$  (54)	$  (27)	$  (52)	$  (791)

	Aphria Diamond	CannInvest Africa Ltd.	Verve Dynamics	Nuuvera Malta Ltd.	Marigold	ColCanna S.A.S.	May 31, 2018
Current assets	$  7,313	$  --	$  --	$  --	$  --	$  --	$  7,313
Non-current assets	83,207	--	--	--	--	--	83,207
Current liabilities	(10,085)	--	--	--	--	--	(10,085)
Non-current liabilities	(60,884)	--	--	--	--	--	(60,884)
Net assets	19,551	--	--	--	--	--	19,551
Non-controlling interest %	49%	0%	0%	0%	0%	0%
Non-controlling interest	$  9,580	$  --	$  --	$  --	$  --	$  --	$  9,580

25. General and administrative expenses

	For the three months ended February 28,		For the nine months ended February 28,
	2019	2018	2019	2018
Executive compensation	$  1,984	$  567	$  3,665	$  1,227
Consulting fees	1,459	52	3,817	210
Office and general	5,294	537	11,485	1,544
Professional fees	3,657	665	5,704	1,362
Salaries and wages	7,141	651	13,252	1,376
Insurance	1,944	99	3,220	211
Travel and accommodation	598	213	1,758	517
Rent	357	10	660	55
	$  22,434	$  2,794	$  43,561	$  6,502

 33

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

26. Share-based compensation

Share-based compensation is comprised of:

		For the three months ended February 28,		For the nine months ended February 28,
		2019	2018	2019	2018
Amounts charged to share-based payment reserve in		$  12,319	$  5,274	$  20,404	$  9,769
	respect of share-based compensation
Share-based compensation accrued in the prior period		--	--	--	(44)
Share-based compensation issued on behalf of a		--	--	--	(32)
	related party
Shares for services compensation		--	--	--	187
Deferred share units expensed in the period		1,981	685	2,592	788
		$  14,300	$  5,959	$  22,996	$  10,668

During the period, the Company issued 22,441 deferred share units to certain directors of the Company, under the terms of the Company’s Omnibus Long-Term Incentive Plan. In May 2018, directors and officers of the Company forfeited 312,000 deferred share units which were granted during the prior year.

As at February 28, 2019, the Company had 210,566 deferred share units and 96,000 restricted share units outstanding.

27. Non-operating income (loss)

Non-operating income (loss), is comprised of:

		For the three months ended February 28,		For the nine months ended February 28,
		2019	2018	2019	2018
Non-operating income (loss):
	Consulting revenue	$  --	$  213	$  --	$  689
	Foreign exchange (loss) gain	105	(62)	(148)	69
	Gain (loss) on marketable securities	(41)	(502)	(151)	(2,193)
	Loss on sale of capital assets	--	(184)	--	(191)
	Gain on dilution of ownership in equity investee	--	--	2,210	7,535
	Loss from equity investees	(8)	--	(830)	(9,281)
	Gain on sale of equity investee	--	26,347	57,351	26,347
	Deferred gain on sale of intellectual property	--	233	340	700
	Interest income	4,433	1,970	11,528	4,549
	Interest expense	(854)	(349)	(2,035)	(1,016)
	Unrealized (loss) gain on convertible notes	(3,949)	(52)	(1,087)	576
	Gain (loss) on long-term investments	(29,968)	14,544	23,235	39,701
	Unrealized loss on financial liabilities	(134)	(16,850)	(1,109)	(16,850)
		$  (30,416)	$  25,308	$  89,304	$  50,635

 34

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

28. Gain (loss) on long-term investments

Gain (loss) on long-term investments for the three and nine months ended February 28, 2019 is comprised of:

Investment	Proceeds	Opening fair value / cost	Gain (loss) on disposal	Change in fair value	Total
Level 1 on fair value hierarchy
CannaRoyalty Corp. - shares	$  4,111	$  3,765	$  346	$  --	$  346
MassRoots, Inc. - shares	1	164	(163)	--	(163)
North Bud Farms Inc. - shares	373	253	120	--	120
Hiku Brands Company Ltd. - shares	30,542	13,558	16,984	--	16,984
Scythian Biosciences Corp. - shares	6,609	8,901	(2,292)	--	(2,292)
Level 2 on fair value hierarchy
Hiku Brands Company Ltd. - warrants	17,611	18,693	(1,082)	--	(1,082)
Scythian Biosciences Corp. - warrants	--	661	(661)	--	(661)
Level 3 on fair value hierarchy
Copperstate Farms, LLC - shares	5,300	5,300	--	--	--
Copperstate Farms Investors, LLC - shares	14,700	14,700	--	--	--
US legalization options	47,448	58,025	(10,577)	--	(10,577)
Long-term investments (Note 14)	--	--	--	20,560	20,560
Nine months ended February 28, 2019	$  126,695	$  124,020	$  2,675	$  20,560	$  23,235
Less transactions in previous quarters:
November 30, 2018	79,247	65,995	13,252	39,951	53,203
Three months ended    February 28, 2019	$  47,448	$  58,025	$  (10,577)	$  (19,391)	$  (29,968)

29. Earnings (loss) per share

The calculation of earnings (loss) per share for the three months ended February 28, 2019 was based on the net (loss) income attributable to common shareholders of $(108,209) (2018 - $12,944) and a weighted average number of common shares outstanding of 250,149,598 (2018 - 161,120,698) calculated as follows:

		2019	2018
Basic earnings (loss) per share:
	Net income (loss) for the period	$  (108,209)	$  12,944
	Average number of common shares outstanding during the period	250,149,598	161,120,698
Earnings (loss) per share - basic		$  (0.43)	$  0.08
		2019	2018
Diluted earnings per share:
	Net income (loss) for the period	$  (108,209)	$  12,944
	Average number of common shares outstanding during the period	250,149,598	161,120,698
	"In the money" warrants outstanding during the period	--	2,077,483
	"In the money" options outstanding during the period	--	4,296,422
		250,149,598	167,494,603
Earnings (loss) per share - diluted		$  (0.43)	$  0.08

 35

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

The calculation of earnings (loss) per share for the nine months ended February 28, 2019 was based on the net income (loss) attributable to common shareholders of $(32,259) (2018 - $34,440) and a weighted average number of common shares outstanding of 240,106,147 (2018 - 147,274,372) calculated as follows:

		2019	2018
Basic earnings (loss) per share:
	Net income (loss) for the period	$  (32,259)	$  34,440
	Average number of common shares outstanding during the period	240,106,147	147,274,372
Earnings (loss) per share - basic		$  (0.13)	$  0.23
		2019	2018
Diluted earnings per share:
	Net income (loss) for the period	$  (32,259)	$  34,440
	Average number of common shares outstanding during the period	240,106,147	147,274,372
	"In the money" warrants outstanding during the period	--	2,005,656
	"In the money" options outstanding during the period	--	3,909,745
		240,106,147	153,189,773
Earnings (loss) per share - diluted		$  (0.13)	$  0.22

30. Change in non-cash working capital

Change in non-cash working capital is comprised of:

	For the nine months ended February 28,
	2019	2018
Decrease (increase) in accounts receivable	$  (6,196)	$  (3,231)
Decrease (increase) in other current assets	4,491	(4,519)
Decrease (increase) in inventory, net of fair value adjustment	(20,822)	(3,609)
Decrease (increase) in biological assets, net of fair value adjustment	(9,707)	1,081
Increase (decrease) in accounts payable and accrued liabilities	8,198	2,974
Increase (decrease) in income taxes payable	(2,036)	2,087
Increase (decrease) in deferred revenue	16,182	--
	$  (9,890)	$  (5,217)

31. Financial risk management and financial instruments

Financial instruments

The Company has classified its cash and cash equivalents, marketable securities, long-term investments, and embedded derivatives as fair value through profit or loss (“FVTPL”), accounts receivable and other current assets as loans and receivables, and accounts payable and accrued liabilities, promissory notes payable, and long-term debt as other financial liabilities. The convertible notes receivable are accounted for on an amortized cost basis.

The carrying values of accounts receivable and other current assets, accounts payable and accrued liabilities, and promissory notes payable approximate their fair values due to their short periods to maturity.

A portion of the Company’s long-term debt, totaling $29,526 is subject to fixed interest rates. The Company’s long-term debt is valued based on discounting the future cash outflows associated with the long-term debt. The discount rate is based on the incremental premium above market rates for Government of Canada securities of similar duration. In each period thereafter, the incremental premium is held constant while the Government of Canada security is based on the then current market value to derive the discount rate. The fair value of the Company’s portion of long-term debt subject to fixed interest rates as at February 28, 2019, was $28,546.

 36

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

Fair value hierarchy

Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of inputs used in making the measurements. Cash and cash equivalents are Level 1. The hierarchy is summarized as follows:

Level 1	quoted prices (unadjusted) in active markets for identical assets and liabilities
Level 2	inputs that are observable for the asset or liability, either directly (prices) or indirectly (derived from prices) from observable market data
Level 3	inputs for assets and liabilities not based upon observable market data

		Level 1	Level 2	Level 3	February 28, 2019
Financial assets at FVTPL
	Cash and cash equivalents	$  107,502	$  --	$  --	$  107,502
	Marketable securities	27,234	--	--	27,234
	Convertible notes receivable	--	--	30,042	30,042
	Long-term investments	49,002	--	76,323	125,325
Outstanding, end of the period		$  183,738	$  --	$  106,365	$  290,103
		Level 1	Level 2	Level 3	May 31, 2018
Financial assets at FVTPL
	Cash and cash equivalents	$  59,737	$  --	$  --	$  59,737
	Marketable securities	45,062	--	--	45,062
	Convertible notes receivable	--	--	18,071	18,071
	Long-term investments	33,600	2,567	29,861	66,028
Outstanding, end of the period		$  138,399	$  2,567	$  47,932	$  188,898

The following table presents the changes in level 3 items for the three and nine months ended February 28, 2019:

		Unlisted equity securities	Trading derivatives	Total
Closing balance May 31, 2018		$  29,861	$  18,071	$  47,932
	Acquisitions	68,309	15,000	83,309
	Disposals	(46,969)	(1,942)	(48,911)
	Unrealized gain on fair value	25,122	(1,087)	24,035
Closing balance February 28, 2019		$  76,323	$  30,042	$  106,365

Financial risk management

The Company has exposure to the following risks from its use of financial instruments: credit; liquidity; currency rate; and, interest rate price.

(a) Credit risk

The maximum credit exposure at February 28, 2019 is the carrying amount of cash and cash equivalents, marketable securities, accounts receivable and other current assets, convertible notes receivable and promissory notes receivable. The Company does not have significant credit risk with respect to customers. All cash and cash equivalents are placed with major Canadian financial institutions. Marketable securities are placed with major Canadian investment banks and are represented by investment grade corporate bonds.

 37

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

The Company mitigates its credit risk and volatility on its marketable securities through its investment policy, which permits investments in Federal or Provincial government securities, Provincial utilities or bank institutions and Investment grade corporate bonds.

	Total	0-30 days	31-60 days	61-90 days	90+ days
Trade receivables	$  44,142	$  38,978	$  3,449	$  623	$  1,092
		88%	8%	1%	3%

(b) Liquidity risk

As at February 28, 2019, the Company’s financial liabilities consist of accounts payable and accrued liabilities, which has contractual maturity dates within one-year, promissory note payable, which has a contractual maturity within 15 months and long-term debt, which has contractual maturities over the next five years. The Company manages its liquidity risk by reviewing its capital requirements on an ongoing basis. Based on the Company’s working capital position at February 28, 2019, management regards liquidity risk to be low.

(c) Currency rate risk

As at February 28, 2019, a portion of the Company’s financial assets and liabilities held in United States Dollars (“USD”) and Euros consist of cash and cash equivalents, marketable securities, convertible notes receivable, long-term investments and a promissory note payable. The Company’s objective in managing its foreign currency risk is to minimize its net exposure to foreign currency cash flows by transacting, to the greatest extent possible, with third parties in the functional currency. The Company is exposed to currency rate risk in other comprehensive income, relating to foreign subsidiaries which operate in a foreign currency. The Company does not currently use foreign exchange contracts to hedge its exposure of its foreign currency cash flows as management has determined that this risk is not significant at this point in time.

The Company is exposed to unrealized foreign exchange risk through its cash and cash equivalents. As at February 28, 2019, the majority of the Company’s cash and cash equivalents was in Canadian dollars, and therefore the Company did not have significant exposure to unrealized foreign exchange risk.

(d) Interest rate price risk

The Company manages interest rate risk by restricting the type of investments and varying the terms of maturity and issuers of marketable securities. Varying the terms to maturity reduces the sensitivity of the portfolio to the impact of interest rate fluctuations.

(e) Capital management

The Company’s objectives when managing its capital are to safeguard its ability to continue as a going concern, to meet its capital expenditures for its continued operations, and to maintain a flexible capital structure which optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and adjusts it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may issue new shares, issue new debt, or acquire or dispose of assets. The Company is not subject to externally imposed capital requirements.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There have been no changes to the Company’s capital management approach in the period. The Company considers its cash and cash equivalents and marketable securities as capital.

 38

Aphria Inc.

Notes to the Condensed Interim Consolidated Financial Statements

For the three months and nine months ended February 28, 2019 and February 28, 2018

(Unaudited – In thousands of Canadian dollars, except share and per share amounts)

32. Commitment and contingencies

The Company has a lease for rental office space from December 2018 to November 30, 2028. The Company has committed purchase orders outstanding at February 28, 2019 related to capital asset expansion of $43,687, all of which are expected to be paid within the next year. Minimum payments payable over the next five years are as follows:

Years ending February 28,
2019	$  43,997
2020	315
2021	331
2022	336
Thereafter	2,155
	$  47,134

From time to time, the Company and/or its subsidiaries may become defendants in legal actions arising out of the ordinary course and conduct of its business.

During the nine-month period, the Company was served statements of claims in class action lawsuits against the Company and certain of its officers and former officers. These claims relate to alleged misconduct in connection with the Company’s acquisitions of LATAM Holdings Inc. (“LATAM”) and Nuuvera Inc., and the Company’s June 2018 securities offering. At the present time, the Company is aware of five such claims, two of which were commenced in the United States and three of which were commenced in Canada. The U.S. claims include alleged violations of Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The Company intends to vigorously defend itself in each of these actions. With respect to the cases commenced in the United States, the Company is self-insured for the costs associated with any award or damages arising from such actions and have entered into indemnity agreements with each of the directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. With respect to the cases commenced in Canada, the Company’s insurance policies may not be sufficient to cover any judgments against the Company. As at February 28, 2019, the Company has not recorded any uninsured amount related to this contingency.

33. Segment reporting

The Company operates in two segments. 1) cannabis operations, which encompasses the production, distribution and sale of both medical and recreational cannabis and 2) distribution operations, which encompasses the purchase and resale of medical products to pharmacies. The distribution operations are carried out through the Company’s wholly owned subsidiaries ABP and CC Pharma.

In the three and nine months ended February 28, 2019, the Company recorded $57,599 and 58,745 in net revenue (2018 - $nil and $nil), $1,991 and $2,065 in net income (2018 - $nil and $nil) related to distribution operations. As at February 28, 2019 the Company has $6,864 of capital assets and $42,611 of intangibles related to distribution operations.

In the three and nine months ended February 28, 2019, the Company recognized $58,311 and $59,605 of revenue outside of Canada. As at February 28, 2019 the Company has $19,612 of capital assets and $366,916 of intangibles which are located outside of Canada.

34. Subsequent events

The following events occurred subsequent to February 28th, 2019:

(a) The Company was one of three cultivators awarded a provisional licence for the domestic cultivation of medical cannabis in Germany. The Company was granted 5 of the 13 available lots, each with a minimum annual capacity of 200 kgs.

(b) The Company has entered into a series of transactions that will accelerate the termination of the unsolicited offer launched by Green Growth Brands. The parties have consented to terminate the bid as of April 15, 2019 thereby resulting in the final and definitive termination of bid on April 25, 2019. As a result of these transactions the Company will receive cash proceeds of $89,000 to liquidate an outstanding promissory note, the remaining US legalization options and option payment liability.

 39

EX-99.2

Exhibit 99.2

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

APHRIA INC.

Management’s Discussion & Analysis

This management discussion and analysis (“MD&A”) of the financial condition and results of operations of Aphria Inc., (the “Company” or “Aphria”), is for the three and nine months ended February 28, 2019. It is supplemental to, and should be read in conjunction with the Company’s consolidated financial statements and the accompanying notes for the period ended February 28, 2019, as well as the audited financial statements and MD&A for the year ended May 31, 2018. The Company’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”).

This MD&A has been prepared by reference to the MD&A disclosure requirements established under National Instrument 51-102 “Continuous Disclosure Obligations” (“NI 51-102”) of the Canadian Securities Administrators. Additional information regarding Aphria Inc. is available on our website at www.aphria.ca or through the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.

In this MD&A, reference is made to gram equivalents, “all-in” cost of sales of dried cannabis per gram, cash costs to produce dried cannabis per gram, gross profit before fair value adjustments, adjusted gross margin, cannabis gross profit, cannabis gross margin, distribution gross profit, distribution gross margin, adjusted EBITDA, adjusted EBITDA from Canadian cannabis operations, adjusted EBITDA from international operations, strategic investments, capital and intangible asset expenditures – wholly owned subsidiaries, and capital and intangible asset expenditures – majority owned subsidiaries which are not measures of financial performance under IFRS. The Company calculates each as follows:

• “Gram equivalents” include both grams of dried cannabis as well as grams of cannabis oil as derived using an ‘equivalency factor’ of 1 gram per 4.5 mL of cannabis oil. Management believes this measure provides useful information as a benchmark of the Company against its competitors.

• “All-in” cost of sales of dried cannabis per gram is equal to production costs less the costs of accessories less cannabis oil conversion costs (“cost of sales of dried cannabis”) plus (minus) increase (decrease) in plant inventory divided by gram equivalents of cannabis sold in the quarter. This measure provides the cost per gram of dry cannabis and gram equivalent of oil sold before the packaging and post harvesting processing costs to create oil or other ancillary products.

• Cash costs to produce dried cannabis per gram is equal to cost of sales of dried cannabis less amortization, packaging costs and distribution costs plus (minus) increase (decrease) in plant inventory divided by gram equivalents of cannabis sold in the quarter. Management believes this measure provides useful information as it removes non-cash and post production expenses tied to our growing costs and provides a benchmark of the Company against its competitors.

• Gross profit before fair value adjustments is equal to gross profit less the non-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.

• Adjusted gross margin is gross profit before fair value adjustments divided by net revenue. Management believes this measure provides useful information as it represents the gross profit based on the Company’s cost to purchase or produce inventory sold and removes fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.

• Cannabis gross profit is equal to gross profit less distribution revenue, other revenue, cost of goods purchased, other costs of sales, the non-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes non-similar revenue, costs and fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.

• Cannabis gross margin is cannabis gross profit divided by net revenue from cannabis produced. Management believes this measure provides useful information as it represents the gross profit based on the Company’s cost to produce inventory sold and removes fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.

• Distribution gross profit is equal to gross profit less revenue from cannabis produced, other revenue, excise taxes, production costs, other costs of sales, the non-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes non-similar revenue and costs.

• Distribution gross margin is distribution gross profit divided by distribution revenue. Management believes this measure provides useful information as it represents the gross profit based on the Company’s costs to purchase inventory for resale.

• Adjusted EBITDA is net income (loss), plus (minus) income taxes (recovery) plus (minus) non-operating (income) loss, net, plus amortization, plus share-based compensation, plus (minus) non-cash fair value adjustments on sale of inventory and on growth of biological assets, plus impairment, plus transaction costs, and certain one-time non-operating expenses, as determined by management. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by operations.

• Adjusted EBITDA from Canadian cannabis operations is calculated based on the same approach outlined above for Adjusted EBITDA, based on the operations of the following entities in the Company’s consolidated financial statements; Aphria Inc, Cannan Growers Inc., Broken Coast Cannabis Ltd., and 1974568 Ontario Ltd. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and it is a close proxy for repeatable cash generated from the Company’s operations in the Canadian cannabis regulated industry.

• Adjusted EBITDA from international operations is Adjusted EBITDA minus Adjusted EBITDA from Canadian cannabis operations. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by the Company’s international operations.

• Strategic investments are the total cash out flows used in investing activities relating to investment in long-term investments and equity investees as well as both notes and convertible notes advanced. Management believes this measure provides useful information as it helps provide an indication of the use of capital raised by the Company outside of its operating activities.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

• Capital and intangible asset expenditures - wholly owned subsidiaries are all cash out flows used in investing activities relating to investment in capital assets and investment in intangible assets, net of shares issued for wholly owned subsidiaries. Management believes this measure provides useful information as it helps provide an indication of the use of capital raised by the Company outside of its operating activities.

• Capital and intangible asset expenditures - majority owned subsidiaries are all cash out flows used in investing activities relating to investment in capital assets and investment in intangible assets, net of shares issued for majority owned subsidiaries. Management believes this measure provides useful information as it helps provide an indication of the use of capital raised by the Company outside of its operating activities.

These measures are not necessarily comparable to similarly titled measures used by other companies.

All amounts in this MD&A are expressed in thousands of Canadian dollars, except share and per share amounts, unless otherwise indicated.

This MD&A is prepared as of April 14, 2019.

Company Overview

Aphria Inc. (“Aphria”), a company amalgamated under the laws of the province of Ontario, is licensed to produce and sell medical and adult-use cannabis and cannabis-derived extracts in Canada under the provisions of The Cannabis Act. Aphria received its licence to produce and sell medical cannabis on November 26, 2014, followed by its licence to sell cannabis extracts on August 18, 2016. These licences were extended to include the adult-use market on October 17, 2018. Aphria’s head office is based in Leamington, Ontario, adjacent to Aphria One, the Company’s original 1,100,000 square foot Leamington greenhouse facility. Throughout this MD&A, Aphria will refer to its original Leamington campus as “Aphria One”.

The Company’s common shares are listed under the symbol “APHA” on the Toronto Stock Exchange (“TSX”) and on the New York Stock Exchange (“NYSE”).

Canadian Cannabis Operations

The Company’s domestic Canadian cannabis operations are comprised of the original Aphria One greenhouse facility (described above) together with its Leamington-based Extraction Centre of Excellence, its wholly-owned British Columbia-based subsidiary Broken Coast, and its 51% majority owned Leamington-based subsidiary, Aphria Diamond.

The Extraction Centre of Excellence is being constructed as an integral part of the Company’s Leamington production facilities to provide the necessary production capacity to process more than 200,000 kgs per year of gram equivalent cannabis-derived extracts primarily for use in product offerings for the adult-use market as they become legal to sell in Canada.

Broken Coast Cannabis Ltd. (“Broken Coast”), a subsidiary of the Company acquired in February 2018, is licensed to produce and sell cannabis under the provisions of The Cannabis Act. Broken Coast’s purpose-built, indoor cannabis production facility on Vancouver Island provides Aphria with ‘B.C. Bud’ and is a leading premium cannabis brand.

1974568 Ontario Ltd. (“Aphria Diamond”) is a 51% majority owned subsidiary of the Company, incorporated in November 2017. This entity is the Company’s venture with Double Diamond Farms (“Double Diamond”). Aphria Diamond has applied for a second site cultivation licence under the provisions of The Cannabis Act.

Capacity expansion is awaiting Health Canada approval at various of the Company’s Canadian production facilities as described later in this MD&A. Once these expanded facilities are licensed and operating at capacity and in full crop rotation, the Company will have more than 2.4 million square feet of space under cultivation capable of annual production of more than 255,000 kgs of cannabis.

International Operations

Nuuvera Inc. (“Aphria International”) is a subsidiary of the Company acquired in March 2018. Aphria International is an international organization with a focus on building a global cannabis brand, through its subsidiaries ARA - Avanti Rx Analytics Inc., Avalon Pharmaceuticals Inc., Nuuvera Israel Ltd., Nuuvera Deutschland GmbH, Nuuvera Malta Ltd., ASG Pharma Ltd., QSG Health Ltd. and FL-Group. Through these subsidiaries, Aphria International has operations in Canada, Germany, Italy, Malta and Lesotho.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

LATAM Holdings Inc. (“LATAM”) is a subsidiary of the Company acquired in September 2018. LATAM holds key licences in Colombia, Argentina and Jamaica through its subsidiaries MMJ Colombia Partners Inc., Marigold Acquisitions Inc., Hampstead Holdings Ltd., MMJ International Investments Inc., ABP, S.A., Marigold Projects Jamaica Limited, and ColCanna S.A.S. Through the LATAM acquisition, the Company also obtained the rights to purchase a majority interest in a Brazilian incorporated entity, upon that Brazilian entity obtaining a medical cannabis cultivation, processing and distribution licence in Brazil.

The Company’s majority and wholly-owned subsidiaries are as follows:

Subsidiaries	Jurisdiction of incorporation	Ownership interest (1)
Aphria (Arizona) Inc.(2)	Arizona, United States	100%
Cannan Growers Inc.	British Columbia, Canada	100%
Nuuvera Inc.	Ontario, Canada	100%
Nuuvera Holdings Limited	Ontario, Canada	100%
ARA - Avanti Rx Analytics Inc.	Ontario, Canada	100%
Avalon Pharmaceuticals Inc.	Ontario, Canada	100%
Nuuvera Israel Ltd.(2)	Israel	100%
Nuuvera Deutschland GmbH	Germany	100%
Aphria Deutschland GmbH	Germany	100%
FL-Group	Italy	100%
Broken Coast Cannabis Ltd.	British Columbia, Canada	100%
Goodfields Supply Co. Ltd.	United Kingdom	100%
LATAM Holdings Inc.	British Columbia, Canada	100%
MMJ Colombia Partners Inc.	Ontario, Canada	100%
Marigold Acquisitions Inc.	British Columbia, Canada	100%
Hampstead Holdings Ltd.	Bermuda	100%
MMJ International Investments Inc.	British Columbia, Canada	100%
ABP, S.A.	Argentina	100%
CC Pharma GmbH	Germany	100%
CC Pharma Research and Development GmbH	Germany	100%
Marigold Projects Jamaica Limited	Jamaica	95%
Nuuvera Malta Ltd.	Malta	90%
ASG Pharma Ltd.	Malta	90%
QSG Health Ltd.	Malta	90%
ColCanna S.A.S.	Colombia	90%
CC Pharma Nordic ApS	Denmark	75%
1974568 Ontario Ltd.	Ontario, Canada	51%
Aphria Terra S.R.L.	Italy	51%
Aphria Italy S.p.A.	Italy	50.1%
CannInvest Africa Ltd.	South Africa	50%
Verve Dynamics Incorporated (Pty) Ltd.	South Africa	30%

⁽¹⁾ The Company defines ownership interest as the interest in which the Company is entitled a proportionate share of net income. Legal ownership of some subsidiaries may differ from ownership interest shown above.

⁽²⁾ Represents inactive subsidiaries, which have no operations and do not own any assets, save and except for a related party balance owing to the Company.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

STRATEGY AND OUTLOOK

Aphria, a leading global cannabis company, is setting the standard for brand development, product innovation and industrial scale automation to the production of safe, clean and pure pharmaceutical-grade cannabis grown in the most natural conditions possible. The Company is one of the first cannabis companies in Canada and the first Canadian cannabis company to fully exploit greenhouse cultivation and industrial-scale production to deliver sustainable operating profit margins in the emerging cannabis industry. Through its international operations, the Company also seeks opportunities to create long-term shareholder value by identifying partnership and investment opportunities where Aphria is able to apply the experience and knowledge it has gained in the Canadian cannabis industry to other jurisdictions where a national cannabis legalization framework is developing or is expected to develop and local market characteristics are expected to support the Company’s competitive strengths.

Canadian Cannabis Operations

Canadian Cannabis Operations include the results of: (i) the parent Aphria; (ii) Canadian subsidiaries which hold investments and have no other operations (Cannan Growers Inc.); (iii) companies which are applicants and are expected to become licensed cannabis producers in Canada (Aphria Diamond); and, (iv) companies which also actively produce and sell cannabis under The Cannabis Act (Broken Coast).  

Licences

The Company received approval from Health Canada of its 800,000 sq, ft. Part IV and Part V expansion at its Aphria One facility and placed the first plants in the approved greenhouse area in the first week of March 2019. The Company continues to fill the additional approved space and is expected to be in full crop rotation by May 2019. The Company anticipates having its first harvest approximately eight weeks from the date the initial crop was established and expects having cannabis available for sale, approximately five weeks thereafter. As of the date of this MD&A, the Aphria Diamond facility is complete, as it relates to being inspection ready for Health Canada and the initial licence application has been submitted to Health Canada. Until the Company receives the initial licence, the Company cannot plant its first crop.

Canadian medical market brands

Since 2014, the Aphria brand has been a leading choice for patients seeking safe, clean, and pure pharmaceutical-grade medical cannabis. As the Canadian adult-use market continues to develop, the Company expects to continue to focus and invest in the Canadian medical market while concurrently developing cannabis-based products and brands targeting the adult-use market.

Canadian adult-use market brands

The Company is investing capital and resources to establish a leading position in the adult-use market in Canada. These investments are focused on brand development, product innovation, marketing, sales, education and research to enable the Company to capture, retain and grow a tier-one share of this market as it continues to develop.

Aphria developed its initial portfolio of adult-use brands to specifically meet the evolving needs of Canada’s most profitable segments where the Company could leverage its strength to offer products with unique product attributes - from price through to potency - to best serve its consumers. The suite of brands created by the Company for Canada’s adult-use market include Solei, RIFF, Good Supply, and Broken Coast. Each brand is unique to a specific offering of products representing various target segments, described below:

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

	Solei Sungrown Cannabis (“Solei”) is designed for current and novice users and pairs an assortment of carefully curated strains and product formats with different experiences.
	RIFF is a community focused brand supporting creators and artists. The brand will have high potency offerings available for more experienced users.
	Good Supply offers regular cannabis users with a no-frills, yet excellent value-for-money assortment that does not sacrifice quality.
	Complementing Aphria’s in-house brands, the Company’s wholly-owned subsidiary Broken Coast is a multi-award-winning craft grower that delivers a premium product and provides consumers with an opportunity to access a brand synonymous with British Columbia-grown cannabis. Broken Coast’s craft cannabis is grown on the shores of the Salish Sea in small batches using single-strain growing rooms. All flower is hand-trimmed and slow-cured ensuring premium product quality and consistency.

Product development

The Canadian government has committed to regulating the sale of cannabis infused products in 2019. Based on customer behavior and product preferences demonstrated in other existing legal markets, we believe cannabis infused products (edibles, beverages, etc.) could represent more than 50% of the total cannabis market upon becoming federally legal in Canada. Aphria is investing capital and resources in product research, development and production technologies in anticipation of the legalization of these new emerging categories. As a part of these R&D efforts, the Company is investing in the following areas in order to develop consistent and unique formulations that can be used in its end-products:

• Industrial-scale extraction technologies using different methods including CO₂, butane and ethanol;

• The effective isolation of terpenes, cannabinoids and other cannabis compounds;

• The development of distillates and formulations to optimize water solubility while insuring bio-availability.

In terms of end products, the Company is developing a suite of edibles, RTDs (ready-to-drink), concentrates, topicals, quick dissolve strips and vapes as well as new medical delivery systems. These new value-added products and brands will be available for sale once permitted by law.

The Company has retained Perennial Inc., a subsidiary of DATA Communications Management Corp. (“DCM”), to support the development of new product brands and product categories to serve the adult-use market.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Distribution

The Company has signed supply agreements with all the provinces and the Yukon Territory in Canada, representing access to 99.8% of Canadians, showing the Company’s commitment to becoming a leader in the adult-use market. The Company is one of a handful of licensed producers which has agreements with every province in Canada.

The Company has signed an exclusive distribution agreement with Great North Distributors Inc. (“Great North Distributors”), a wholly-owned Canadian subsidiary of Southern Glazer’s Wine & Spirits (“Southern Glazer’s”), to provide the Company with the sales force and wholesale/retail channel expertise required to efficiently distribute the Company’s product through each of the provincial/territorial cannabis control agencies. As one of the leading distributors of alcoholic beverages in Canada, Great North Distributors has extensive expertise in managing compliance with the unique rules that govern the marketing of controlled substances in each of the jurisdictions where the Company has supply agreements. The Company has leveraged the Great Northern Distributors agreement by signing a subsequent agreement with We Grow BC Ltd. (“We Grow”), a Vancouver-based licensed producer of premium cannabis, to become We Grow’s exclusive sales representatives across Canada.

In addition to the above new distribution agreements for the adult-use market, the Company is expanding its distribution in the medical cannabis market with its five-year supply agreement with Shoppers Drug Mart.

Production

	LOCATION	CURRENT SIZE	CURRENT CAPACITY(1)	EXPECTED CAPACITY(1)	STATUS	CURRENT LICENCES
						CULTIVATION	PROCESSING / SALE
Aphria One	Leamington, Ontario, Canada	1,100,000 sq. ft.(2)	110,000 kg/year cultivation(2)	110,000 kg/year cultivation	Licence amendment approved(2)	X	X
Aphria Diamond	Leamington, Ontario, Canada	1,300,000 sq. ft.	N/A	140,000 kg/year cultivation	Licence application submitted
Broken Coast	Duncan, British Columbia, Canada	4,500 sq. ft.	5,000 kg/year cultivation	5,000 kg/year cultivation	Licensed expansion underway	X	X
Extraction Centre of Excellence	Leamington, Ontario, Canada	N/A	N/A	200,000 kg/year processing	Under construction

⁽¹⁾ These figures are considered forward-looking information and are based on the Company’s experience in growing cannabis, and data available concerning the wide variety of strains under the growing conditions maintained at its facilities. Material assumptions to derive capacity at full completion include, but are not limited to: the number of plants expected to occupy each facility, the number of harvest cycles and average yield per harvest cycle per year for the strains expected to be grown at each facility.

⁽²⁾ 800,000 sq. ft. was approved by Health Canada in March 2019, the Company anticipates full crop rotation in May 2019. The current capacity cannot be reached until the Company is in full crop rotation.

Aphria One

The Company’s original flagship greenhouse facility, Aphria One, accounts for more than 90% of the Company’s current production.

The Company obtained Health Canada approval on the additional 800,000 square feet at Aphria One in March 2019, bringing the total potential production capacity to 110,000 kgs. annually. The Company continues to ramp up production for the additional capacity of its newly approved Part IV and Part V expansions. Prior to obtaining this approval, the Company effectively lowered Aphria One’s functional capacity, to 20,000 kgs. per annum, to ensure Part IV could commence growing operations without delay upon approval from Health Canada. With the Part IV and Part V greenhouse expansions completed and approved, the Company has over 1,100,000 sq. ft. of state-of-the-art operational greenhouse facilities. Upon full crop rotation being completed in the Part IV and Part V expansions, the Company anticipates production quantities of 110,000 kgs. per year, producing high quality cannabis at an industrial scale thanks to bespoke automation.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

In October 2018, the Board approved additional expenditures of $20,000 for additional capital spending on further automation equipment and improvements to the processing rooms. These additional items are expected to be completed prior to first harvest from Part IV and Part V greenhouse expansions.

As of February 28, 2019, the Company has spent approximately $152,000 of its expected cost of $159,000 budgeted for the Part IV and Part V expansion of Aphria One, an increase of approx. $11,000 (7%) from the original combined budget. The increase is mainly due to project add-ons and change orders relating to upgrades in order to maintain the industry leading state-of-the-art infrastructures.

On receiving Health Canada approval for the Part IV and Part V expansions, the Company is positioned to be the first licensed producer to bring industrial horticulture production technology into the cultivation of cannabis within a greenhouse environment. This cutting-edge technology will automate the following functions of the plant growing cycle:

• Transplanting cuttings through various stages into the final pots for flowering;

• Aiding in evaluation of the health and quality of plants to ensure plants meet the Company’s stringent quality standards throughout the many stages of the growing cycle;

• Monitoring and providing the necessary water and vital nutrients to the plants during the growing cycle; and

• Transporting plants through different areas in the greenhouse including to the processing room once harvested.

Once this innovative technology has been implemented, the only human interaction to occur throughout the plants’ growth cycle will be at the initial phase of taking the cuttings and in the final phase to trim and prune the plants which will occur in work bays outside of the greenhouse.

Additional state-of-the-art automation is already employed by the Company including processes that involve:

• Cutting the plants, and transferring them to be processed;

• Automating the de-budding and trimming process;

• Disposing of waste produced in the cutting, de-budding and trimming phase of production; and

• Distributing the buds into trays in a drying rack to evenly dry and cure the harvested product.

Automating labour-intensive parts of the production process enables the Company to achieve optimal product consistency and quality control while significantly reducing operating costs. In addition to the reduction of labour costs, the Company has also introduced measures that significantly reduce energy costs and consumption.

The Company installed a co-generation power plant that utilizes natural gas to generate its own electricity and as a by-product of this process, hot and cold water and CO₂. This combined-cycle process not only generates electricity for use in the greenhouse to operate the lights and air conditioners, but also hot and cold water that is used to control the temperature and humidity in the greenhouse. The residual gas emissions created by this process are directed through a catalytic converter to create CO₂ which is used during the growing cycle. This co-generation power plant also incorporates state-of-the-art power switching capability that automatically selects between the public electrical grid and the Company’s private power co-generation equipment to ensure it is constantly using the most cost-effective energy available.

In addition to these energy saving initiatives, the Company has installed systems that recycle the water used in the irrigation process. The ‘used’ water is sterilized through a pasteurization process which then allows it to be reused to irrigate additional plants thereby reducing the total amount and cost of water used on a per gram basis.

Aphria Diamond

Through this 51% owned subsidiary, the Company has partnered with Double Diamond, a company with multi-generational expertise in the commercial greenhouse industry. This partnership provides Aphria with access to an industry leading team of growers and operators with expertise in large-scale greenhouse operations , and the Company expect to purchase all of the production from the Aphria Diamond joint venture.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The Company anticipates that the infrastructure will be complete in time for the first harvest from the Aphria Diamond greenhouse expected in the Company’s first quarter of the next fiscal year, subject to Health Canada approval.

The Company provided $10,200 of initial capital to the venture with Double Diamond contributing $9,800. Aphria Diamond acquired 100 acres of land, including almost 32 acres of greenhouses for $42,389, and spent an additional $76,139 as at February 28, 2019 on the retrofit. The Company expects the project to cost an additional $2,444 to complete. All funds above the initial seed capital are currently being funded by the Company and are expected to be repaid in full by Aphria Diamond.

Aphria Diamond is implementing similar levels of automation, as described above in Aphria One.

All production from Aphria Diamond is expected to be sold to Aphria at an agreed upon transfer price, allowing Aphria to recognize 100% of the remaining profit from any further processing into a derivative product, and 100% of the wholesale margin from branding on all product from Aphria Diamond.

Broken Coast

Broken Coast is the Company’s premium brand of indoor-grown cannabis. Broken Coast provides the Company access to the quality associated with British Columbia-grown cannabis as well as an award-winning genetic bank of cannabis strains which in turn can be produced at scale through the Company’s Aphria One and Aphria Diamond facilities. Broken Coast will continue the development of new premium strains and continue to represent what is the highest level of premium cannabis grown through their state-of-the-art custom-built indoor facilities. Broken Coast’s current capacity is approximately 5,000 kgs. per annum. Broken Coast has purchased land for Phase IV expansion and is currently in the process of finalizing plans for the expansion which is expected to take 2 years to complete once commenced.

Broken Coast continues to improve the production process including securing a warehouse for holding packaged products. The Company anticipates the warehouse to be completed and operational by June 2019, contingent on its licence being approved.

Extraction Centre of Excellence

The Company’s $55,000 state-of-the-art Extraction Centre of Excellence was subject to the same delay as a portion of Aphria Diamond’s infrastructure. The Company currently anticipates that the Extraction Centre of Excellence will be available for use in the first quarter of fiscal 2020, subject to Health Canada approval. The Company previously expected this to be completed by May 2019, however extended the expected timeline slightly as a result of minor revisions in the construction plans.

This facility will provide the necessary production capacity to process over 200,000 kgs. per year. It will incorporate the Company’s currently developed extraction technologies and further expand on these technologies to create new and innovative product offerings for the adult-use market as they become legal to sell in Canada. The facility will be equipped to conduct a wide range of cannabis extractions, including CO₂, butane, ethanol, and to produce world-class cannabis concentrates, including fractionated distillates.

The Canadian cannabis market is in the early stages of its evolution with a limited focus on the sale of cannabis as a product, in the form of dried flower or bud, shake or trim, as well as cannabis oil in its many forms, including tinctures, softgel capsules, and oral sprays. The Company believes that as the global cannabis industry evolves, this focus on cannabis as a product will evolve into cannabis as an ingredient. The Extraction Centre of Excellence was created to facilitate Aphria’s leadership in the evolution of cannabis as an ingredient.

As at February 28, 2019, the Company has spent approximately $38,700 of its expected cost of $55,000 budgeted, for the completion of the Extraction Centre of Excellence. The Extraction Centre of Excellence is on schedule to be completed by the first quarter of 2020.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Licences

The Company holds two licences under The Cannabis Act for cultivation processing and sale: Aphria One and Broken Coast.

The Company obtained approval by Health Canada in March 2019 expanding the licensed growing area at Aphria One from 300,000 sq. ft. to over 1,100,000 sq. ft. The Company also has submitted an application for a second site licence for Aphria Diamond, once approved will provide an additional 1,300,000 sq. ft. of licensed greenhouse growing area.

The licences provide the Company with the ability to cultivate, process and sell cannabis within Canada and to other countries where the importation of cannabis is legal.

International Operations

Outside of Canada, the Company is developing partnerships and making direct investments in countries where there is an existing or emerging national legal cannabis market. The Company’s international strategy is currently focused on medical cannabis markets in stable economic and political jurisdictions that have developed or are developing effective regulations and enforcement mechanisms that limit licensed production and control importation and distribution.   Through the acquisitions of Aphria International and LATAM, the Company secured access to key international markets, management team bench strength with a proven knowledge and executional success within the industries and jurisdictions in which they operate. The Company believes that with its significant experience in the highly regulated Canadian cannabis market, it will be able to export its industry leading knowledge and practices to its global subsidiaries as these markets mature.   As part of its international strategy, the Company is developing regional hubs in Pan-Asia, the European Union, South America, North America, the Caribbean and Africa. These hubs will represent key countries for investment and will aid in the flow of cannabis goods across the globe. The Company chose Australia as its Pan-Asian hub. The Company chose Malta as its hub for the European Union and Colombia for South America. The Company chose Jamaica as its hub for the Caribbean and Lesotho as its hub for Africa.  

The Company has international operations in Australia, Argentina, Colombia, Denmark, Germany, Italy, Jamaica, Lesotho, Malta, Paraguay and maintains an option for entry into Brazil. With these markets still in their infancy, and the regulatory environment around them still being formed, these countries are looking to Canada as a leader in developing the regulatory environment. The Company provides a unique opportunity to bring the experience from working within Canada during the development of the cannabis regulations, to provide this expertise and knowledge to develop these global cannabis markets.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Export facility from Canada

Through the acquisition of Aphria International, the Company acquired Brampton-based ARA - Avanti RX Analytics Inc. (“Avanti”), which currently holds four Canadian licences: (i) a licence for analytical testing of cannabis issued pursuant to the Cannabis Act and Regulations; (ii) a licence for standard processing of cannabis issued pursuant to the Cannabis Act and Regulations; (iii) a Drug Establishment Licence issued pursuant to the Food and Drugs Act and Regulations; and (iv) a Medical Device Establishment Licence issued pursuant to the Food and Drugs Act and the Medical Devices Regulations.

The licence for analytical testing of cannabis authorizes Avanti to possess cannabis for the purpose of testing and to obtain cannabis by altering its chemical or physical properties for the purpose of testing at its licensed facility in Brampton, Ontario. The licence for standard processing of cannabis authorizes Avanti to possess cannabis, to produce cannabis (other than through cultivating, propagating, or harvesting), and to sell cannabis to (i) a holder of a licence for research on cannabis or (ii) a holder of a licence for analytical testing of cannabis. These activities are permitted at Avanti’s licensed facility in Brampton, Ontario.

Avanti’s Drug Establishment Licence authorizes it to test and distribute pharmaceuticals and to test active pharmaceutical ingredients at its licensed facility in Brampton, Ontario. Its Medical Device Establishment Licence authorizes Avanti to manufacture Class I medical devices for distribution at its licensed facility in Brampton, Ontario.

The Company is currently in the process of securing EU-GMP certification on the Avanti lab, which will then be used as the Canadian staging site for international bound GMP certified products. The Company’s EU-GMP certification will cover the extraction, post processing, testing, packaging and shipping process.

Pan-Asia

Australia

The Australian market is very similar to the Canadian medical cannabis market three years ago. The Company has access to the Australian medical cannabis market through approximately 25% equity investment in Althea Company Pty Ltd. (“Althea”), and a supply agreement with Althea until they are able to complete construction of their new facility and fulfill their own production requirements.

Althea currently holds licences for the cultivation of cannabis plants and production of cannabis or cannabis resin in accordance with relevant permits and the manufacture of extracts and tinctures of cannabis and cannabis resin issued by the Office of Drug Control (“ODC”). Aphria has shipped product to Althea in Australia on multiple occasions under relevant permits with products sold by Althea in Australia co-branded with Aphria.

Aphria International also maintains relationships in Australia with two companies conducting medical cannabis clinical trials. Medlab Pty Ltd. is currently in a clinical trial related to oncology pain using an Aphria proprietary blend of cannabis strains oil, subsequently converted in Australia into a nanocell mucosol spray. CannPal Pty Ltd., is currently in a clinical trial related to animal pain in cats and dogs, using Aphria strains.

European Union

Germany

The German market is considered to be one of the most highly sought-after medical cannabis markets in the world. German law currently permits import of cannabis only. The German government recently completed a tender process to award licences for in-country cultivation. Aphria International, through its German wholly-owned subsidiary Aphria Deutschland GmbH (“Deutschland”), was one of the three selected by the German Federal Institute for Drugs and Medical Devices to receive a provisional licence for the cultivation of medical cannabis in Germany. The Company was granted 5 of the 13 available lots, each with a minimum annual capacity of 200 kgs. Germany currently allows cannabis and cannabis extracts in pharmacies. These cannabis-based products are also required by German law to be covered by insurance companies. This coverage provides a greater number of medical cannabis patients with access to the full use and benefits of these products.

The Company’s approach in Germany is a three-pronged approach covering: demand; supply; and, distribution.

Demand

Through the acquisition of a 25.1% interest in Berlin-based Schöneberg Hospital, the Company has access to doctors and patients, to support the education of the benefits of medical cannabinoids. The Company also plans to build and operate pain treatment centers including the new possibilities of digital health care throughout Germany, which will further provide access to patients. The Company has partnered with a leading company in digital apps and medical software to build a modern, patient centric clinic for telemedicine.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Supply

The Company will, through imports and local production, supply products into the German market. The Company entered into a strategic partnership with a prominent European flower producer, Schroll Flowers, to obtain access to EU GMP-certified organic medical cannabis. This agreement ensures the Company will have further access to cannabis for distribution throughout the EU.

Distribution

Through the acquisition of CC Pharma GmbH (“CC Pharma”), the Company obtained a leading importer and distributor of EU-pharmaceuticals for the German market. With over 317 active German national pharmaceutical licences, 690 active EU pharmaceutical licences, and access to approximately 13,000 active pharmacy accounts, CC Pharma operates a production, repackaging and labelling facility. The Company will expand CC Pharma’s operations to distribute cannabis throughout the German pharmacies leveraging its existing business and know-how to further the Company’s global cannabis business.

Malta

Through majority-owned subsidiary ASG Pharma Ltd. (“ASG”), the Company received the first import certificate for medical cannabis issued by the Government of Malta’s Ministry of Health. The Company intends on using the Malta facility to import cannabis resin and dried flower for processing, packaging and distribution of EU-GMP certified cannabis products throughout large parts of Europe.

This Malta facility will provide the Company with the ability to bring production of cannabis product from outside of Europe into an EU-GMP certified facility for further packaging, processing and distribution throughout Europe.

Through majority-owned subsidiary QSG Health Ltd. (“QSG”), the Company will pursue the health and wellness market with CBD based products. These products will not have the THC component found in cannabis, and will focus on diversifying the Company’s product offerings throughout Europe.

Italy

The Company’s wholly owned subsidiary, FL-Group, is authorized for the distribution of pharmaceutical products, including cannabis-based and cannabinoids products in Italy to pharmacies. FL-Group holds one of only seven cannabis import licences in Italy. The FL-Group acts as the Company’s distributor to the Italian cannabis market. The Company maintains a partial ownership interest in a separate subsidiary, Aphria Italy S.p.A., in Italy.

United Kingdom

The United Kingdom market is very similar to the Canadian medical cannabis market three years ago. Medicinal cannabis was legalized in the UK effective November 1, 2018. The Company entered into a supply agreement for the UK medicinal cannabis market with Althea. In addition, the Company recently exported to the UK “Joria’s Hope”, a 200:1 product to assist a three year-old control her epileptic seizures.

Althea announced its entry into the UK market in February 2019 and is currently undertaking an extensive medical education program involving specialist prescribers throughout the UK, in advance of its impending product launch.

Africa

Lesotho

The Company entered into a new venture in CannInvest Africa Ltd. (“CannInvest”), a South African corporation. Aphria’s partner in CannInvest is the Verve Group of Companies, founded by Richard Davies, a South African with more than 20 years experience in phytoextraction of African medicinal plants. Through this transaction, the Company obtained a controlling interest in Verve Dynamics Incorporated (Pty) Ltd. (“Verve”). Verve holds a licence in Lesotho for prohibited drug operations, which allows Verve to cultivate, manufacture, supply, distribute, store, export and import cannabis and cannabis resin for medical purposes or scientific use.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The Company also entered into a supply agreement with Verve, where Verve will supply cannabis THC and CBD extract from its planned EU-GMP certified facility. This is expected to provide the Company with access to GMP certified extract for distribution into South Africa and other federally legal markets, including the European Union.

Construction of a new extraction and processing facility is near completion. Upon completion, the Company expects to process cannabis for other producers in the country for a tolling fee, while applying for EU-GMP certification which will allow all product from the Lesotho site to be distributed within the EU.

Subsequent to the quarter, Verve successfully completed the first legal purchase of medicinal cannabis in Africa for processing, allowing the Company to claim a first mover advantage in the local markets.

South America

LATAM Holdings Inc.

The acquisition of LATAM provided the Company with various production, distribution and market development opportunities in South America and the Caribbean, including Colombia, Argentina, Jamaica and potentially Brazil.

Colombia

The acquisition of LATAM provided the Company with a 90% ownership of Colcanna S.A.S. (“Colcanna”). This ownership provides the Company with the ability to further develop the global Aphria brand with Aphria branded products distributed to patients in Colombia. Upon Colcanna developing its 54 acres of land, including its recent acquisition of an additional 20 acres of land, for the cultivation of cannabis, which is expected to provide 50,000 kgs. annually, the Company will maintain the control of the cultivation and distribution of cannabis in Colombia. Until the emerging Colombian market demand grows to match the Company’s Colombian production, the Company will be able to utilize its export licence to distribute the excess production globally. In order to seek to maximize the export activities, the Company will apply for the EU-GMP certification, which is expected to allow all products from the Colombia site to be distributed within the EU.

Argentina

The acquisition of LATAM provided the Company with sole ownership of ABP, S.A. (“APB”), granting to the Company a significant first-mover advantage, as APB is the first company with an in-country medical cannabis research licence. The Company also continues to work with Hospital Garrahan, a leading pediatric hospital in Buenos Aires. The Company believes that once the Argentinian government approves medical cannabis, in-country cultivation opportunities will be attractive.

Jamaica

The acquisition of LATAM provided the Company with a 49% ownership interest in Marigold Projects Jamaica Limited (“Marigold”), through multiple subsidiaries and a 95% royalty on profits through an Intellectual Property agreement. This acquisition will provide the Company with several key licences including a Tier 3 cultivation licence, a conditional Tier 2 herb house licence, as well as conditional licences for import, export and research purposes.

Brazil

Finally, the acquisition of LATAM provided the Company with an option to purchase 50.1% of a Brazilian entity for $24,000 USD once it secures a medical cannabis licence from the Brazilian government and a right of first offer and refusal on another 20% to 39% of the Brazilian entity. This right of first refusal provides the Company with lower risk at a fixed price to enter into the Brazilian cannabis market pending the Brazilian company obtaining a licence.

Equity Financing Activities

During the year-to-date period, the Company closed a bought deal financing for net proceeds of over $245,000.

  Page | 12 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The Company has sufficient funds and capital to complete the existing expansion of the Canadian cannabis operations including capital investments for the build out of the Company’s Aphria One, Aphria Diamond and Broken Coast facilities. The Company may require additional funds for any additional expansion, acquisitions or adjustments to current planned activities in Canada or further international expansion. The Company is In the process of settling approximately $30,000 of outstanding payables related to the Company's Aphria One expansion through the issuance of shares.

INVESTOR HIGHLIGHTS

	Q3 - 2019	Q2 - 2019
Net revenue	$  73,582	$  21,668
Kilograms equivalents sold	2,636.5	3,408.9
Production costs	$  10,175	$  9,971
Cost of goods purchased	$  49,745	$  1,111
Cash cost to produce dried cannabis / gram1	$  1.48	$  1.34
"All-in" cost of sales of dried cannabis / gram1	$  3.76	$  2.60
Gross profit before fair value adjustments1	$  13,366	$  10,157
Adjusted gross margin1	18.2%	46.9%
Adjusted EBITDA from Canadian cannabis operations1	$  (13,804)	$  (6,073)
Cash and cash equivalents & marketable securities	$  134,736	$  184,821
Working capital	$  131,278	$  181,523
Capital and intangible asset expenditures - wholly owned subsidiaries1	$  29,016	$  49,061
Capital and intangible asset expenditures - majority owned subsidiaries1	$  19,779	$  6,575
Strategic investments1	$  36,128	$  43,066

¹ - Non-GAAP measure

• Current production capacity 115,000 kgs. (annualized) after the Health Canada Approval in March 2019.

• Mid-term capacity upgraded to 255,000 kgs. (annualized) production capability, pending Health Canada approval

• Irwin D. Simon appointed as independent chair of Aphria’s Board of Directors in December 2018 and Interim CEO on February 16, 2019

• Successful completion of Special Committee review of the LATAM acquisition

• One of three licensed producers awarded provisional cultivation licence in Germany

• Signed licence agreement with Manna Molecular Science to develop state-of-the-art cannabis transdermal patches

• Entered into an exclusive agreement with Toronto-based UNOapp Inc. to collaborate on the development of technology and analytics solutions for Canada’s adult-use cannabis industry

• Signed an exclusive agreement with the Colombian Medical Federation, a national guild that oversees the ethical exercise of the medical profession in Colombia, in order to jointly develop an academic curriculum on the medicinal use of cannabis

• Signed LOI for exclusive supply agreement with Insumos Medicos, S.A., a Paraguayan pharmaceutical manufacturing, import and distribution company, to provide medical cannabis in Paraguay

• Signed LOI with the Argentinian state-owned Cannabis Avatãra Sociedad del Estado ("CANNAVA") to enter into a co-operation agreement regarding the cultivation of cannabis that will expand the Company’s strategic Argentinian operations

• Signed agreements to supply every Canadian province and the Yukon Territory, securing access to 99.8% of Canadians

• Completed first shipments in the Canadian adult-use cannabis market

• Successfully completed acquisitions of LATAM and CC Pharma expanding the Company’s global presence

• Successfully divested of all US cannabis assets¹, and listed on the NYSE

• Bought deal closed during the year-to-date period for net proceeds of over $245,000

¹In accordance with existing TSX precedent.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

FAIR VALUE MEASUREMENTS

Impact of fair value metrics on biological assets and inventory

In accordance with IFRS, the Company is required to record its biological assets at fair value. During the main growth phase, the cost of each plant is accumulated on a weekly basis. This occurs from the date of clipping from a mother plant up to the end of the twelfth week of growth for Aphria One and ninth week of growth for Broken Coast. For the remainder of the growing period, the cost of each plant continues to be accumulated on a weekly basis but also includes an allocation of the fair value of the plant. At the time of harvest, the Company increases the carrying value of the harvested produce to its full fair value less costs to sell.

As at February 28, 2019, the Company’s harvested cannabis and cannabis oil, as detailed in Note 6, and biological assets, as detailed in Note 7 of its financial statements, are as follows:

	February 28, 2019	November 30, 2018
Harvested cannabis - at cost	$  8,977	$  7,142
Harvested cannabis - fair value increment	10,278	8,355
Harvested cannabis trim - at cost	1,838	1,593
Harvested cannabis trim - fair value increment	2,112	1,605
Cannabis oil - at cost	11,168	9,104
Cannabis oil - fair value increment	7,304	5,987
Softgel capsules - at cost	378	136
Softgel capsules - fair value increment	273	112
Biological assets - at cost	4,939	3,795
Biological assets - fair value increment	2,322	2,301
Cannabis products - at fair value	$  49,589	$  40,130

In an effort to increase transparency, Aphria One’s biological assets are carried at cost plus fair value increments of $0.44, $0.88, $1.32 and $1.76 per gram for weeks 13, 14, 15 and 16, respectively. Broken Coast’s biological assets are carried at cost plus fair value increments of $0.73, $1.46, $2.19 and $2.92 per gram for weeks 10, 11, 12 and 13 respectively. Harvested cannabis and harvested cannabis trim are carried at fair values of $3.50 per gram and $2.75 per gram, respectively (November 30, 2018 - $3.50 and $2.75) for greenhouse produced cannabis. Harvested cannabis and harvested cannabis trim are carried at fair values of $4.00 per gram, $3.25 per gram, respectively (November 30, 2018 - $4.00 and $3.25) for indoor produced cannabis. Cannabis oil and softgel capsules include the relative fair value based on the amount of harvested cannabis or harvested cannabis trim used in the production of each product.

The individual components of fair values are as follows:

	February 28, 2019	November 30, 2018
Harvested cannabis - at cost - per gram	$  1.72	$  1.69
Harvested cannabis - fair value increment - per gram	$  1.97	$  1.98
Harvested cannabis trim - at cost - per gram	$  1.42	$  1.51
Harvested cannabis trim - fair value increment - per gram	$  1.63	$  1.52
Cannabis oil - at cost - per mL	$  0.48	$  0.48
Cannabis oil - fair value increment - per mL	$  0.31	$  0.31
Softgel capsules - at cost - per mL	$  0.45	$  0.49
Softgel capsules - fair value increment - per mL	$  0.33	$  0.40

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

COST PER GRAM

Calculation of “all-in” costs of sales of dried cannabis per gram

The Company calculates “all-in” cost of sales of dried cannabis per gram as follows:

"All-in" cost of sales of dried cannabis per gram			Three months ended
			February 28, 2019	November 30, 2018
Production costs			$  10,175	$  9,971
	Less:
		Cost of accessories	$  (22)	$  (48)
		Cannabis oil conversion costs	$  (238)	$  (1,047)
Adjusted "All-in" cost of sales of dried cannabis			$  9,915	$  8,876
Gram equivalents sold during the quarter			2,636,519	3,408,909
"All-in" cost of sales of dried cannabis per gram			$  3.76	$  2.60

In prior quarters the Company recorded adjustments to “All-in” cost of sales of dried cannabis per gram, for increases in plant inventory. This adjustment was made as a result of the Company using a standard cost method and allocating additional costs to plant inventory, when as part of a planned expansion, there was a significant increase in the number of plants, while the incremental costs with the new capacity have not materialized. The increase in number of plants, before the corresponding increase in costs, led to the Company allocating more costs than incurred to date to biological assets, resulting in over absorbed overhead. To maintain comparability of this figure from quarter to quarter, the Company determined it was appropriate to normalize this item as part of the above calculation. This adjustment is subjective, and requires management to make significant assumptions as to whether the increase in cost included in biological assets, is a result of improved operations, a result of an expansion or a result of other factors.

The Company recognized a temporary increase in the “all-in” cost of sale of dried cannabis per gram and cash costs to produce dried cannabis per gram as a result of the allocation of production space in the Part III expansion to mother and vegetative plants for the Part IV and Part V expansions increasing the “all-in” cost of sale of dried cannabis per gram and cash costs to produce dried cannabis per gram by an estimated $0.20. The Company received Health Canada approval for the Part IV and Part V expansions in March 2019. The Company expects a temporary increase in the “all-in” cost of sale of dried cannabis per gram and cash costs to produce dried cannabis per gram in the next quarter as the Company continues to put these greenhouses into full crop rotation.

The increase in “all-in” cost of sales in the quarter is a result of the increase in packaging and distribution costs from $0.97 per gram to $1.98 in the current quarter. This increase is a result of an effort to meet the demand of the adult-use market and comply with the necessary packaging requirements required under The Cannabis Act. The Company has re-evaluated some of the packaging materials and other costs and made changes to reduce these packaging and distribution costs. The Company expects to continue to report higher then normal packaging costs as it works through its existing packaging material.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Calculation of cash costs to produce dried cannabis per gram

The Company calculates cash costs to produce dried cannabis per gram as follows:

Cash costs to produce dried cannabis per gram			Three months ended
			February 28, 2019	November 30, 2018
Adjusted "All-in" cost of sales of dried cannabis			$  9,915	$  8,876
	Less:
		Amortization	$  (788)	$  (1,020)
		Packaging costs	$  (1,354)	$  (1,856)
		Distribution costs	$  (3,858)	$  (1,438)
Cash costs to produce dried cannabis			$  3,915	$  4,562
Gram equivalents sold during the quarter			2,636,519	3,408,909
Cash costs to produce per gram			$  1.48	$  1.34

During the quarter, the Company identified that distribution costs were previously reported as part of the cash costs to produce per gram. The Company has removed these costs in the current quarter and adjusted the prior quarter to remove the $1,438 previously included in cash costs to produce dried cannabis. This reduced the cash costs to produce per gram from $1.76 to $1.34.

Results of Operations

Net revenue

During the three and nine-months ended February 28, 2019 the Company recognized $73,582 and $108,542 versus $10,267 and $24,891 in the same periods of the prior year. Included in net revenue for the three months ended February 28, 2019 is $17,862 of revenue from cannabis produced, ($2,424) of excise taxes, $57,599 of distribution revenue and $545 of other revenue. Included in net revenue for the nine months ended February 28, 2019 is $52,816 of revenue from cannabis produced, ($5,280) of excise taxes, $58,745 of distribution revenue and $2,261 of other revenue.

Distribution revenue

Included in distribution revenue is $56,045 and $56,045 of revenue from CC Pharma and $1,554 and $2,700 of revenue from ABP for the three and nine months ended February 28, 2019 respectively. These companies were acquired during the period, which is why there were no revenues in the prior period.

Revenue from medical cannabis produced

Revenue for medical cannabis produced for the three months ended February 28, 2019 was $10,649 versus $8,022 in the same period of the prior year and $10,841 in the second quarter of fiscal 2019, representing an increase of 32.7% from the prior year and an 1.8% decrease from the prior quarter. The decrease in cannabis revenue and kilograms sold compared to the prior quarter was primarily related to supply shortages as the Company transitioned growing methods during the late fall and early winter timeframe, as well as temporary packaging and distribution challenges.

Revenue for medical cannabis produced for the nine months ended February 28, 2019 was $32,807 versus $19,944 in the same period of the prior year, representing a 64.5% increase.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The decrease in revenue from cannabis produced during the quarter from the prior quarter was related to:

• Decrease in the medical cannabis sales by 169,390 gram equivalents to 1,274,168 gram equivalents sold in the current quarter, compared to 1,443,558 gram equivalents sold in the prior quarter;

These factors were partially offset by:

• Increase in the average retail selling price (excluding wholesale) before excise taxes to medical patients during the quarter from $7.51 to $8.03; and,

Revenue from adult-use cannabis produced

Revenue for adult-use cannabis produced for the three months ended February 28, 2019 was $7,185 versus $nil in the same period of the prior year and $11,031 in the second quarter of fiscal 2019, representing a decrease of 34.9% from the prior quarter.

Revenue for adult-use cannabis produced for the nine months ended February 28, 2019 was $18,442 versus $nil in the same period of the prior year.

The decrease in revenue from cannabis produced during the quarter from the prior quarter was related to:

• Decrease in the adult-use cannabis sales by 617,598 gram equivalents to 1,329,377 gram equivalents sold in the current quarter, compared to 1,946,975 gram equivalents sold in the prior quarter. This decrease is a result of temporary packaging and distribution challenges; and,

• Decrease in the average selling price before excise taxes to the adult-use market from $6.32 to $5.14.

Gross profit and gross margin

The gross profit for the three months ended February 28, 2019 was $17,295, compared to $8,570 in the same quarter in the prior year and $5,983 in the previous quarter. The increase in gross profit from the prior year and prior quarter is a result of the inclusion of the distribution revenue from the acquisition of CC Pharma and ABP, and the increase in the net fair value adjustment for biological assets.

  Page | 17 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

		Three months ended
		February 28, 2019	November 30, 2018
	Revenue from cannabis produced	$  17,862	$  22,738
	Distribution revenue	57,599	1,146
	Other revenue	545	640
	Excise taxes	(2,424)	(2,856)
Net revenue		73,582	21,668
	Production costs	10,175	9,971
	Cost of goods purchased	49,745	1,111
	Other costs of sales	296	429
Gross profit before fair value adjustments		13,366	10,157
	Fair value adjustment on sale of inventory	5,542	8,328
	Fair value adjustment on growth of biological assets	(9,471)	(4,154)
		(3,929)	4,174
Gross profit		$  17,295	$  5,983
Gross margin		23.5%	27.6%

Cost of sales currently consist of four main categories: (i) production costs and, (ii) cost of goods purchased, (iii) fair value adjustment on sale of inventory and (iv) fair value adjustment on growth of biological assets:

(i) Production costs include all direct and indirect costs of production, related to the medical cannabis sold. This includes costs relating to growing, cultivation and harvesting costs, stringent quality assurance and quality control, cannabis oil processing costs, as well as packaging, labelling and amortization of production equipment and greenhouse infrastructure utilized in the production of medical cannabis. All medical cannabis shipped and sold by Aphria has been grown and produced by the Company.

(ii) Cost of goods purchased consist of items purchased for resale through the Company’s distribution businesses which are run through the subsidiaries ABP and CC Pharma.

(iii) Fair value adjustment on sale of inventory is part of the Company’s cost of sales due to IFRS standards relating to agriculture and biological assets (i.e. living plants or animals). This line item represents the effect of the non-cash fair value adjustment of inventory sold in the period.

(iv) Fair value adjustment on growth of biological assets is part of the Company’s cost of sales due to IFRS standards relating to agriculture and biological assets (i.e. living plants or animals). This line item represents the effect of the non-cash fair value adjustment of biological assets (medical cannabis) produced in the period. In an effort to increase transparency, inventory of harvested cannabis (Note 6 - Consolidated financial statements for the three months and nine months ended February 28, 2019) consists of harvested cannabis and harvested cannabis trim to be $3.50 and $2.75 per gram respectively, for greenhouse produced cannabis and $4.00 and $3.25 per gram respectively, for indoor produced cannabis.

Management believes that the different components of net revenue and cost of sale included in the gross profit and gross margin can be confusing. Accordingly, management believes the use of cannabis gross profit, cannabis gross margin, distribution gross profit and distribution gross margin provides a better representation of performance of the Company’s different types of operations.

  Page | 18 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Cannabis gross profit, cannabis gross margin, distribution gross profit and distribution gross margin are non-GAAP financial measures that do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.

The following is the Company’s cannabis gross profit and cannabis gross margin as compared to IFRS for the three months ended February 28, 2019:

		Three months ended February 28, 2019 (IFRS)	Adjustments	Three months ended February 28, 2019 (Adjusted)
	Revenue from cannabis produced	$  17,862	$  --	$  17,862
	Distribution revenue	57,599	(57,599)	--
	Other revenue	545	(545)	--
	Excise taxes	(2,424)	--	(2,424)
Net revenue		73,582	(57,599)	15,983
	Production costs	10,175	--	10,175
	Cost of goods purchased	49,745	(49,745)	--
	Other costs of sales	296	(296)	--
	Fair value adjustment on sale of inventory	5,542	(5,542)	--
	Fair value adjustment on biological assets	(9,471)	9,471	--
		56,287	(46,112)	10,175
Cannabis gross profit		$  17,295	$  (11,487)	$  5,808
Cannabis gross margin		23.5%		36.3%

The Company recognized a decrease in cannabis gross profit and cannabis gross margin this quarter as a result of the following:

• Higher costs associated with packaging and distribution as discussed earlier in this MD&A; and;

• Decline in total cannabis sold in the period.

  Page | 19 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The following is the Company’s distribution gross profit and distribution gross margin as compared to IFRS for the three months ended February 28, 2019:

		Three months ended February 28, 2019 (IFRS)	Adjustments	Three months ended February 28, 2019 (Adjusted)
	Revenue from cannabis produced	$  17,862	$  (17,862)	$  --
	Distribution revenue	57,599	--	57,599
	Other revenue	545	(545)	--
	Excise taxes	(2,424)	2,424	--
Net revenue		73,582	(15,983)	57,599
	Production costs	10,175	(10,175)	--
	Cost of goods purchased	49,745	--	49,745
	Other costs of sales	296	(296)	--
	Fair value adjustment on sale of inventory	5,542	(5,542)	--
	Fair value adjustment on biological assets	(9,471)	9,471	--
		56,287	(6,542)	49,745
Distribution gross profit		$  17,295	$  (9,441)	$  7,854
Distribution gross margin		23.5%		13.6%

The Company recognized an increase in distribution gross profit and distribution gross margin this quarter as a result of the acquisition of CC Pharma and an increase in the sales from the operations of ABP.

The gross profit for the nine months ended February 28, 2019 was $37,042, compared to $22,675 in the same period of the prior year. The increase in gross profit for the nine months ended February 28, 2019 are consistent with the reasons for the increase in gross profit for the three months ended February 28, 2019.

  Page | 20 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The following is the Company’s cannabis gross profit and cannabis gross margin as compared to IFRS for the nine months ended February 28, 2019:

		Nine months ended February 28, 2019 (IFRS)	Adjustments	Nine months ended February 28, 2019 (Adjusted)
	Revenue from cannabis produced	$  52,816	$  --	$  52,816
	Distribution revenue	58,745	(58,745)	--
	Other revenue	2,261	(2,261)	--
	Excise taxes	(5,280)	--	(5,280)
Net revenue		108,542	(58,745)	49,797
	Production costs	24,477	--	24,477
	Cost of goods purchased	50,856	(50,856)	--
	Other costs of sales	1,228	(1,228)	--
	Fair value adjustment on sale of inventory	18,075	(18,075)	--
	Fair value adjustment on biological assets	(23,136)	23,136	--
		71,500	(47,023)	24,477
Cannabis gross profit		$  37,042	$  (13,983)	$  25,320
Cannabis gross margin		34.1%		50.8%

The following is the Company’s distribution gross profit and distribution gross margin as compared to IFRS for the nine months ended February 28, 2019:

		Nine months ended February 28, 2019 (IFRS)	Adjustments	Nine months ended February 28, 2019 (Adjusted)
	Revenue from cannabis produced	$  52,816	$  (52,816)	$  --
	Distribution revenue	58,745	--	58,745
	Other revenue	2,261	(2,261)	--
	Excise taxes	(5,280)	5,280	--
Net revenue		108,542	(49,797)	58,745
	Production costs	24,477	(24,477)	--
	Cost of goods purchased	50,856	--	50,856
	Other costs of sales	1,228	(1,228)	--
	Fair value adjustment on sale of inventory	18,075	(18,075)	--
	Fair value adjustment on biological assets	(23,136)	23,136	--
		71,500	(20,644)	50,856
Distribution gross profit		$  37,042	$  (29,153)	$  7,889
Distribution gross margin		34.1%		13.4%

  Page | 21 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Selling, general and administrative costs

	For the three months ended February 28,		For the nine months ended February 28,
	2019	2018	2019	2018
General and administrative	$  22,434	$  2,794	$  43,561	$  6,502
Share-based compensation	14,300	5,959	22,996	10,668
Selling, marketing and promotion	6,948	2,991	20,025	7,758
Amortization	3,665	755	9,556	1,270
Research and development	223	110	1,097	280
Impairment	58,039	--	58,039	--
Transaction costs	942	4,253	2,930	4,253
	$  106,551	$  16,862	$  158,204	$  30,731

Selling, general and administrative expenses are comprised of general and administrative, share-based compensation, selling, marketing and promotion, amortization, research and development, impairment, and transaction costs. These costs increased by $89,689 to $106,551 from $16,862 in the same quarter in the prior year.

General and administrative costs

	For the three months ended February 28,		For the nine months ended February 28,
	2019	2018	2019	2018
Executive compensation	$  1,984	$  567	$  3,665	$  1,227
Consulting fees	1,459	52	3,817	210
Office and general	5,294	537	11,485	1,544
Professional fees	3,657	665	5,704	1,362
Salaries and wages	7,141	651	13,252	1,376
Insurance	1,944	99	3,220	211
Travel and accomondation	598	213	1,758	517
Rent	357	10	660	55
	$  22,434	$  2,794	$  43,561	$  6,502

The increase in general and administrative costs during the quarter was largely related to an increase in:

• Executive compensation as a result of the increase in executive headcount including a new chief information officer, chairman of the board and two additional independent board members and fees for special committee and independent committee of $850;

• Consulting fees as a result of increased work on corporate development and international initiatives;

• Office and general as a result of increased operations, head count for directors and officers, as well as the inclusion and growth of the Company’s international presence, including $1,196 from CC Pharma;

• Professional fees as a result of increased work on corporate development and international initiatives as well as expenses related to the special committee review of $2,400; and

• Salaries and wages, Insurance, and travel and accommodation as a result of the introduction of Aphria International, LATAM and $1,933 from CC Pharma activities, increased headcount and other activity within the business over the same period in the prior year;

  Page | 22 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Share-based compensation

The Company recognized share-based compensation expense of $14,300 for the three months ended February 28, 2019 compared to $5,959 for the prior year. Share-based compensation was valued using the Black-Scholes valuation model and represents a non-cash expense. The increase in share-based compensation is a result of an increase in deferred share units (“DSUs”), stock options vesting, as well as an increase in stock price used in the valuation of DSUs and options issued in the current period. The Company issued 3,516 DSUs and 1,525,000 stock options in the current quarter compared, to nil DSUs and 1,825,000 stock options in the same period of the prior year. Of the stock options granted in the quarter, 1,100,000 vested in the quarter.

For the nine months ended February 28, 2019, the Company incurred share-based compensation of $22,996 as opposed to $10,668 for the prior year. The increase in share-based compensation is a result of an increase in stock options vesting, as well as an increase in stock price used in the valuation of options issued in the current period. The Company issued 2,925,000 in the current year-to-date quarter compared to 3,953,000 in the same period of the prior year. Of the stock options granted in the period, 1,233,331 vested in the period.

Selling, marketing and promotion costs

For the three months ended February 28, 2019, the Company incurred selling, marketing and promotion costs of $6,948, versus $2,991. The current period costs comprise of $5,199 of cannabis related selling, marketing and promotion or 29.1% of revenue from cannabis produced and $1,749 of distribution selling marketing and promotion or 3.0% of distribution revenue. These costs relate to brand development expenses, patient acquisition and ongoing patient maintenance, the Company’s call center operations, shipping costs, marketing department, as well as the development of promotional and information materials. Patient acquisition and ongoing patient maintenance costs include payments to individual clinics to perform medical studies as well as reimbursement of operating costs incurred by clinics on the Company’s behalf.

For the nine months ended February 28, 2019, the Company incurred selling, marketing and promotion costs of $20,025, as opposed to $7,758 in the comparable prior period. The current period costs comprise of $18,246 of cannabis related selling, marketing and promotion or 34.5% of revenue from cannabis produced and $1,779 of distribution selling marketing and promotion or 3.0% of distribution revenue. The increase in costs in the nine-month period is consistent with the increase in the three-month period as well as additional costs related to developing, advertising and marketing the adult-use brands, prior to The Cannabis Act coming into effect.

Amortization

The Company incurred non-production related amortization charges of $3,665 for the three months ended February 28, 2019 compared to $755 for the same period in the prior year. The increase in amortization charges are a result of the finite-life intangibles acquired as part of the acquisition, as well as the assets that have been transferred into use from the capital expenditures incurred in the current and prior fiscal year.

The Company incurred amortization charges of $9,556 for the nine months ended February 28, 2019 compared to $1,270 for the same period in the previous year. The increase for the nine-month period is consistent with the increase for the three-month period.

Research and development

Research and development costs of $223, or 1.3% of revenue from cannabis produced were expensed during the three months ended February 28, 2019 compared to $110 in same period last year. These relate to costs associated with the development of new cannabis products. Although the Company spends a significant amount on research and development, the majority of these costs remain in production costs, as the Company does not reclassify research and development costs on products which can still be sold.

  Page | 23 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

For the nine months ended February 28, 2019, the Company incurred research and development costs of $1,097 as opposed to $280 in the same period in the previous year.

Impairment

During the quarter and at the request of the Ontario Securities Commission, the Company completed an annual impairment test on its LATAM assets. As a result of this impairment test conducted by the Company, it determined that a $50 million non-cash impairment charge to the carrying value of the LATAM assets was required. The basis for this impairment arises from the Company’s reassessment of the discount rate and the financial forecasts for these entities as a result of new financial information received from independent third party's review of the LATAM transaction. This new financial information consisted of lower gross margins and EBITDA margins used by the financial advisor for the Special Committee and recent financial information from the LATAM entities that showed higher than expected expenses. As a result of this new information, Aphria determined that the discount rate should be adjusted which resulted in the non-cash impairment charge to the carrying value of the LATAM assets. Also included in impairment is £4,600 GBP ($8,039 CAD) related to uncollectible notes receivable.

Transaction costs

Transaction costs of $942 were expensed during the three months ended February 28, 2019 compared to $4,253 in same period last year. These relate to costs associated with the completed acquisitions and various other potential acquisitions the Company has considered and abandoned, or is still considering.

For the nine months ended February 28, 2019, the Company incurred transaction costs of $2,930 as opposed to $4,253 in the same period in the previous year.

Non-operating income (loss)

	For the three months ended February 28,		For the nine months ended February 28,
	2019	2018	2019	2018
Consulting revenue	$  --	$  213	$  --	$  689
Foreign exchange (loss) gain	105	(62)	(148)	69
Gain (loss) on marketable securities	(41)	(502)	(151)	(2,193)
Loss on sale of capital assets	--	(184)	--	(191)
Gain on dilution of ownership in equity investee	--	--	2,210	7,535
Loss from equity investees	(8)	--	(830)	(9,281)
Gain on sale of equity investee	--	26,347	57,351	26,347
Deferred gain on sale of intellectual property	--	233	340	700
Interest income	4,433	1,970	11,528	4,549
Interest expense	(854)	(349)	(2,035)	(1,016)
Unrealized (loss) gain on convertible notes	(3,949)	(52)	(1,087)	576
Gain (loss) on long-term investments	(29,968)	14,544	23,235	39,701
Unrealized loss on financial liabilities	(134)	(16,850)	(1,109)	(16,850)
	$  (30,416)	$  25,308	$  89,304	$  50,635

The Company completed the sale of 80,148,077 of its shares in Liberty Health Sciences Inc. (“Liberty”) for $70,612 in September 2018. In February 2019, an early termination and liquidation of promissory note, option and other agreements related to the divestiture was approved. This resulted in the Company receiving cash consideration of $47,448 with an additional $10,000 in the event the third party monetizes the assets held under the option within six (6) months of the transaction date. The early termination and liquidation represent the conclusion of Aphria’s investment in Liberty. From Aphria’s first investment in Liberty of $25 million in April 2017 until today’s date, Aphria earned a return equal to 3.4 times its cumulative investment in Liberty, an internal rate of return of approximately 167.2% on the initial investment. The Company recorded a loss on sale of US legalization of $10,577 for the three and nine months ended February 28, 2019 and a gain on sale of equity investee of $nil and $57,351 for the three and nine-months ended February 28, 2019.

  Page | 24 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

For the three months ended February 28, 2019, the Company recognized a loss on long-term investment of $29,968. The loss in the period relates to the loss realized in the divestiture of equity investment in passive US assets of $10,577, the unrealized loss on the Company’s portfolio of long-term investments of $19,391 due to change in the fair value as at quarter-end. The unrealized loss on long-term investments for the three months ended February 28, 2019 is largely comprised of the loss on the remaining U.S. legalization options of $15,037 and losses recognized in the Company’s investment portfolio.

For the nine months ended February 28, 2019, the Company recognized a gain on long-term investment of $23,235 and a gain on sale of equity investee of 57,351. The gain in the period relates to the unrealized gain on the Company’s portfolio of long-term investments of $23,235 due to change in the fair value as at quarter-end.

Net income (loss)

The Company recorded net loss for the three months ended February 28, 2019 of $108,209 or $0.43 per share as opposed to net income of $12,944 or $0.08 per share in the prior year.

The Company recorded net loss for the nine months ended February 28, 2019 of $32,259 of $0.13 per share as opposed to net income of $34,440 or $0.23 per share in the same period of the prior year.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. The Company calculates adjusted EBITDA from operations as net income (loss), plus (minus) income taxes (recovery), plus (minus) non-operating (income) loss, net, plus amortization, plus share-based compensation, plus (minus) non-cash fair value adjustments on sale of inventory and on growth of biological assets, and certain one-time non-operating expenses, as determined by management, all as follows:

		For the three months ended February 28,		For the nine months ended February 28,
		2019	2018	2019	2018
	Net income (loss)	$  (108,209)	$  12,944	$  (32,259)	$  34,440
	Income taxes (recovery)	(11,463)	4,072	401	8,139
	Non-operating (income) loss	30,416	(25,308)	(89,304)	(50,635)
	Amortization	5,469	1,465	14,329	2,869
	Share-based compensation	14,300	5,959	22,996	10,668
	Fair value adjustment on sale of inventory	5,542	3,443	18,075	7,250
	Fair value adjustment on growth of biological assets	(9,471)	(4,101)	(23,136)	(11,481)
	Impairment	58,039	--	58,039	--
	Transaction costs	942	4,253	2,930	4,253
	Adjusted EBITDA from Aphria International	631	--	7,224	--
Adjusted EBITDA from Canadian cannabis      operations		$  (13,804)	$  2,727	$  (20,705)	$  5,503

  Page | 25 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

The increase in adjusted EBITDA loss from Canadian cannabis operations during the quarter was largely related to an increase in:

• Increase in general and administrative costs for the quarter as the Company invests in the necessary infrastructure to support the expected growth with the Part IV and Part V production; and,

• Temporary increase in packaging and distribution costs for the quarter in an effort to meet the demand of the adult-use market.

	For the three months ended February 28,		For the nine months ended February 28,
	2019	2018	2019	2018
Adjusted EBITDA from Canadian cannabis operations	$  (13,804)	$  2,727	$  (20,705)	$  5,503
Adjusted EBITDA from Aphria International	(631)	--	(7,224)	--
Adjusted EBITDA	$  (14,435)	$  2,727	$  (27,929)	$  5,503

The Company experienced a decrease in Adjusted EBITDA loss from Aphria International in the quarter due to the inclusion of CC Pharma which provided over $3,000 of Adjusted EBITDA gain in the quarter.

Last year, the Company reported adjusted EBITDA of $2,940 and $6,195 for the three and nine months ended February 28, 2018. In a prior quarter, the Company re-assessed the definition of adjusted EBITDA, particularly as it related to presenting a repeatable proxy for cash. As a result, the Company removed the following from EBITDA adjustments from the current periods but also removed from the prior periods for comparison purposes:

(i) amortization of certain non-capital assets in the amount of $nil and $3 for the three and nine months ended February 28, 2018; and,

(ii) Consulting revenue in the amount of $213 and $689 for the three and nine months ended February 28, 2018.

LIQUIDITY and capital resources

Cash flow used in operations for the period decreased by $37,125 from cash flow generated from operations of $570 in the prior year to cash flow used in operations of $36,555 in the current nine-month period. The decrease in cash flow generated from operations is primarily a result of:

• Increase in investments in developing international operations; and

• Additional cash production costs expensed due to temporary higher packaging and distribution costs.

Cash resources / working capital requirements

The Company constantly monitors and manages its cash flows to assess the liquidity necessary to fund operations. As at February 28, 2019, Aphria maintained $107,502 of cash and cash equivalents on hand plus $27,234 in liquid marketable securities, compared to $59,737 in cash and cash equivalents plus $45,062 marketable securities at May 31, 2018. Liquid sources of cash decreased $50,085 in the quarter.

Working capital provides funds for the Company to meet its operational and capital requirements. As at February 28, 2019, the Company maintained working capital of $131,278. Management expects that the Company’s existing cash and cash equivalents balance and cash flow from operations will be adequate to meet the Company’s announced expansion of facilities and operational activities.

  Page | 26 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Capital and intangible asset expenditures

For the three months ended February 28, 2019, the Company invested $29,016 in capital and intangible assets through wholly owned subsidiaries, exclusive of business acquisitions, of which $3,413 are considered maintenance CAPEX and the remaining $25,603 growth CAPEX related to Extraction Centre of Excellence, Aphria One’s Part IV and Part V expansions.

For the three months ended February 28, 2019, the Company invested $19,779 in capital and intangible assets through majority owned subsidiaries, of which $nil are considered maintenance CAPEX and the remaining $19,779 growth CAPEX.

Financial covenants

The Company met its financial covenants at all times since they have come into effect. The Company believes that it has sufficient operating room with respect to its financial covenants for the next fiscal year and does not anticipate being in breach of any of its financial covenants during this period.

Contractual obligations and off-balance sheet financing

The Company continues to lease office space from a related party. The lease commitment ended December 31, 2018; however, was renewed for an additional 5-year period. The Company maintains an option to renew for an additional 5-year period. The Company has a lease for rental office space from December 2018 until November 30, 2028.

Minimum payments payable over the next five years are as follows:

Payments due by period
	Total	Less than 1 year	1 - 3 years	4 - 5 years	After 5 years
Outstanding capital related
commitments	$  43,687	$  43,687	$  --	$  --	$  --
Operating leases	3,447	310	646	689	1,802
Long-term debt	77,015	14,612	12,883	6,212	43,308
Total	$  124,149	$  58,609	$  13,529	$  6,901	$  45,110

Except as disclosed elsewhere in this MD&A, there have been no material changes with respect to the contractual obligations of the Company during the year-to-date period.

Contingencies 

From time to time, the Company and/or its subsidiaries may become defendants in legal actions arising out of the ordinary course and conduct of its business.

During the nine-month period, the Company was served statements of claims in class action lawsuits against the Company and certain of its officers and former officers. These claims relate to alleged misconduct in connection with the Company’s acquisitions of LATAM Holdings Inc. (“LATAM”) and Nuuvera Inc., and the Company’s June 2018 securities offering. At the present time, the Company is aware of five such claims, two of which were commenced in the United States and three of which were commenced in Canada. The U.S. claims include alleged violations of Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The Company intends to vigorously defend itself in each of these actions. With respect to the cases commenced in the United States, the Company is self-insured for the costs associated with any award or damages arising from such actions and have entered into indemnity agreements with each of the directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. With respect to the cases commenced in Canada, the Company’s insurance policies may not be sufficient to cover any judgments against the Company. As at February 28, 2019, the Company has not recorded any uninsured amount related to this contingency.

  Page | 27 

APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Share capital

Aphria has the following securities issued and outstanding, as at April 12, 2019:

	Presently outstanding	Exercisable	Exercisable & in-the-money	Fully diluted
Common stock	250,700,023	--	--	250,700,023
Warrants	2,321,890	2,321,890	1,028,087	1,028,087
Stock options	8,428,417	4,725,379	4,203,760	4,203,760
Fully diluted				255,931,870

*Based on closing price on April 12, 2019

Quarterly results

The following table sets out certain unaudited financial information for each of the eight fiscal quarters up to and including the third quarter of fiscal 2019, ended February 28, 2019. The information has been derived from the Company’s unaudited consolidated financial statements, which in management’s opinion, have been prepared on a basis consistent with the audited consolidated financial statements filed in the Company’s 2018 Annual Report and include all adjustments necessary for a fair presentation of the information presented. Past performance is not a guarantee of future performance and this information is not necessarily indicative of results for any future period.

	May/18	Aug/18	Nov/18	Feb/19
Net revenue	$  12,026	$  13,292	$  21,668	$  73,582
Net income (loss)	(4,992)	21,176	54,774	(108,209)
Earnings (loss) per share - basic	(0.06)	0.09	0.22	(0.43)
Earnings (loss) per share - fully diluted	(0.04)	0.09	0.22	(0.43)
	May/17	Aug/17	Nov/17	Feb/18
Net revenue	$  5,718	$  6,120	$  8,504	$  10,267
Net income (loss)	(2,593)	15,041	6,455	12,944
Earnings (loss) per share - basic	(0.02)	0.11	0.05	0.08
Income (loss) per share - fully diluted	(0.02)	0.10	0.04	0.08

related party balances and transactions

During the prior quarter, the Company disposed of its remaining shares in Liberty.

The Company previously funded a portion of the Canadian operating costs of Liberty, for which Liberty reimbursed the Company quarterly. Liberty was considered a related party because certain officers and directors of Aphria were directors of Liberty. During the quarter, those directors resigned from Liberty’s board and the Company ceased its relationship with Liberty.

The Company purchased certain electrical generation equipment from and pays rent to a company owned by a former director. Subsequent to quarter end, the director resigned his officer and director position with the Company.

During the three and nine months ended February 28, 2019, related party corporations charged or incurred expenditures on behalf of the Company (including rent) totaling $20 and $158 (2018 - $112 and $205). Included in this amount was rent of $12 and $20 charged during the three and nine months ended February 28, 2019 (2017 - $10 and $36).

Prior to the end of the quarter, the Company announced a planned transition plan for its Chief Executive Officer, Mr. Neufeld. Prior to his resignation, the Company appointed Mr. Simon as Interim CEO and Chair of the Board. Mr. Simon’s base compensation is $1,100 annually, includes a target bonus of up to 45% of his base compensation and participation in the Company’s Omnibus Incentive Plan. On February 24, 2019, the Board of Aphria declared 1,000,000 stock options and 25,000 restricted share units to Mr. Simon, which vested immediately.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Subsequent to quarter end, certain officers and non-independent directors retired from the Company. No amounts were paid to the retired officers and directors as part of their retirement.

Subsequent to quarter end, the Board of Directors amended their compensation to $300 annually, with $150 paid in cash and $150 in Deferred Share Units under the Company’s Omnibus Plan each, plus a one-time award of 7,500 Restricted Share Units each.

CORPORATE POSITION ON CONDUCTING BUSINESS IN THE UNITED STATES AND OTHER INTERNATIONAL JURISDICTIONS WHERE CANNABIS IS FEDERALLY ILLEGAL

As cannabis is currently federally illegal in the U.S., The Company does not engage in any U.S. cannabis related activities as defined in Canadian Securities Administrators Staff Notice 51-352 (Revised). While the Company has historically held certain interests in U.S. cannabis related activities as at the date of this MD&A, it has divested¹ itself of all such interests. The Company will only conduct business activities related to growing or processing cannabis, in jurisdictions where it is federally legal to do so. While the Company will not engage in cannabis-related activities in the U.S related to growing and processing cannabis so long as cannabis is federally-illegal, the Company has developed specific plans related to establishing business operations in the U.S. in the event cannabis becomes federally legal. The Company has entered into option agreements to purchase certain ownership interest in companies which operate in the U.S. cannabis industry should cannabis be rescheduled to become a legal substance in the U.S.

¹In accordance with existing TSX precedent.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Regulatory Developments

Federal

The Cannabis Act and Cannabis Regulations came into force on October 17, 2018, replacing the Access to Cannabis for Medical Purposes Regulations (“ACMPR”) and the Controlled Drugs and Substances Act (Canada) as the legislation governing the production, sale and distribution of medical cannabis. This development effectively legalized the use of nonmedical cannabis by adults across Canada.

The Cannabis Act creates the regulatory regime and licensing framework for the importation, exportation, production, testing, packaging, labelling, sending, delivery, transportation, sale, possession and disposal of cannabis for non-medical (i.e. recreational use) use. The Cannabis Act also regulates access to cannabis for medical purposes. The Cannabis Regulations set out more detailed requirements for the production, distribution, sale, importation and exportation of cannabis by licensees under the Cannabis Act. Major components of the cannabis regulatory regime are as follows.

Licences

The Regulations establish different types of licences based on the activity being undertaken and, in some cases, the scale of the activity. The types of licences include: (i) cultivation; (ii) processing; (iii) sale to the public for medical purposes; (iv) analytical testing; (v) drug licences; and (vi) research. No licensed activity can be conducted in a dwelling-house.

Cultivation licences allow for both large-scale and small-scale (i.e. micro) growing of cannabis, subject to a stipulated threshold. In order to qualify for a micro-cultivation licence, the licensee must clearly delineate a surface area that does not exceed 200 m2 in which all the cannabis plants, including all the parts of the plants, must be contained and must cultivate, propagate or harvest cannabis plants only from that surface area. Nursery licenses are issued as a subset of cultivation licences.

The Regulations permit both outdoor and indoor cultivation of cannabis. The implications of outdoor cultivation are not yet known, but could be significant as it may reduce start-up capital required for new entrants in the cannabis industry. It may also ultimately lower prices as capital expenditure requirements related to growing outside are typically much lower than those associated with indoor growing.

Security Clearances

Under the Regulations, certain persons are obliged to hold a valid security clearance issued by the Minister of Health, including (i) individuals occupying a “key position” within the licensee, (ii) directors, officers and individuals who exercise, or are in a position to exercise, direct control over a corporate licensee, (iii) directors and officers of any corporation that exercises, or is in a position to exercise, direct control over a corporate licensee and (iv) certain other individuals identified by the Minister of Health pursuant to the Cannabis Act. The Minister of Health can refuse to grant security clearances to individuals having associations with organized crime or with past convictions for, or an association with, drug trafficking, corruption or violent offences.

Individuals who have histories of nonviolent, lower risk criminal activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants) are not precluded from seeking and obtaining a security clearance so they can participate in the legal cannabis industry.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Cannabis Tracking System

Under the Cannabis Act, the Minister of Health is authorized to establish and maintain a national cannabis tracking system. The purpose of this system is to enable the tracking of cannabis, prevent cannabis from being diverted to an illicit market or activity and prevent illicit cannabis from being a source of supply of cannabis in the legal market. For purposes of the tracking system, the Minister of Health has been given the authority, under the Cannabis Act to make a ministerial order that would require licensees to report specific information about their authorized activities with cannabis, in the form and manner specified by the Minister. Such an order was issued and came into force on October 17, 2018.

Good Production Practices

"Good Production Practices" were previously mandated by the ACMPR and continue under the Cannabis Regulations. These practices relate to the premises for and production of cannabis, including the requirements for equipment, a sanitation program, standard operating procedures, product testing, and quality assurance personnel.

Cannabis Products

The Regulations permit the sale of dried cannabis, cannabis oil, fresh cannabis, cannabis plants, and cannabis seeds. The THC content and serving size of cannabis products is limited by the Cannabis Regulations. The sale of edible cannabis products and concentrates (such as hashish, wax and vaping products) are to be permitted no later than one year following the coming into force of the Cannabis Act.

Packaging and Labelling and Promotion

The Regulations set out requirements pertaining to the packaging and labelling of cannabis products. The requirements promote informed consumer choice and allow for the safe handling and transportation of cannabis. All cannabis products must be packaged in a manner that is tamper-evident and child-resistant.

While certain branding is permitted, the Regulations impose strict limits on the use of colours, graphics, and other special characteristics of packaging, and products are required to be labelled with specific information about the product, display mandatory health warnings (as is the case for tobacco products), and be marked with a clearly recognizable standardized cannabis symbol.

The Cannabis Act imposes a general prohibition on the promotion of cannabis, cannabis accessories or any service related to cannabis, unless the promotional activity is specifically authorized under the Cannabis Act. Cannabis products may be promoted at their point of sale if the promotion indicates only its availability and/or price. Brand preference and informational promotion is permitted if such promotion is:

• in a communication that is addressed and sent to an individual who is 18 years of age or older and is identified by name;

• in a place where young persons are not permitted; or

• communicated by means of a telecommunication, where the person responsible for the content of the promotion has taken reasonable steps to ensure that the promotion cannot be accessed by a young person.

Cannabis for Medical Purposes

The medical access regulatory framework is substantially the same as what was in place under the ACMPR, with adjustments to create consistency with rules for non-medical use, improve patient access, and reduce the risk of abuse within the medical access system. For users of cannabis for medical purposes, the Regulations require that medical documents be written to include the amount of dried cannabis in grams per day a user may consume.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Under the Cannabis Regulations, patients have three options for obtaining cannabis for medical purposes: (i) they can continue to access cannabis by registering with licensees holding a licence to sell for medical purposes; (ii) they can register with Health Canada to produce a limited amount of cannabis for their own medical purposes; or (iii) they can designate someone else to produce cannabis for them. With respect to (ii) and (iii), starting materials, such as plants or seeds, must be obtained from licensees.

Health Products and Cosmetics Containing Cannabis

Cannabis products that display health claims, including prescription and non-prescription drugs, natural health products, veterinary drugs and veterinary health products and medical devices must receive marketing authorization from Health Canada prior to launch.

The use of cannabis-derived ingredients in cosmetics will be permitted once the sale of cannabis concentrates is legalized. Such products will be sold subject to provisions of the Cannabis Act (i.e. subject to licensing requirements and packaging and labelling requirements, as well as restrictions on distribution, advertising and promotion. Certain hemp seed derivatives containing no more than 10Ug/g of THC can already be used in cosmetic products.

Provincial

Section 69 of 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 produced by federally licensed cannabis producers.

The legislative regime governing the distribution and sale of recreational cannabis in each province and territory is summarized below.

British Columbia: The B.C. Liquor Distribution Branch oversees the wholesale distribution of cannabis in the province. Recreational cannabis can be sold at both public and licensed private retailers and on the province’s public online store.

Alberta: Cannabis products in Alberta are distributed by a provincial agency. Online sales of recreational cannabis are administered by the Alberta Gaming and Liquor Commission. Recreational cannabis can also be sold by licensed private retailers.

Saskatchewan: Recreational cannabis in Saskatchewan is distributed by licensed private wholesalers and sold through licensed private retailers. Licensed retailers are also permitted to conduct online sales.

Manitoba: Recreational cannabis in Manitoba is distributed by Manitoba Liquor and Lotteries to licensed private retailers. Such retailers are permitted to conduct online sales of cannabis.

Ontario: The distribution and sale of recreational cannabis in Ontario is controlled by the Ontario Cannabis Retail Corporation. Online sales of recreational cannabis must be completed through the Ontario Cannabis Store platform. Ontario also allows for the sale of recreational cannabis through licensed private retailers.

Québec: Recreational cannabis in Québec must be sold through the publicly owned Société québécoise du cannabis retail stores or its online store.

New Brunswick: Recreational cannabis in New Brunswick is sold by publicly owned Cannabis NB online and through retail stores.

Nova Scotia: Recreational cannabis in Nova Scotia can only be sold by the publicly owned Nova Scotia Liquor Corporation through online sales or at retail locations.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Prince Edward Island: Recreational cannabis in P.E.I. may only be sold through publicly owned stores operated by the Prince Edward Island Cannabis Management Corporation and its online store.

Newfoundland and Labrador: Recreational cannabis in Newfoundland and Labrador must be sold through private retailers licensed by the publicly owned Newfoundland and Labrador Liquor Corp., which also oversees the distribution of cannabis and sets retail prices. The Newfoundland and Labrador Liquor Corp. also operates an online store.

Yukon: Sale and distribution of recreational cannabis in Yukon is only allowed through a publicly owned retail store and online store operated by Cannabis Yukon, with licensing of private retailers anticipated in the future.

Northwest Territories: The N.W.T. Liquor and Cannabis Commission controls the distribution and sale of recreational cannabis in the Northwest Territories. Cannabis can be purchased by mail order or online from the N.W.T. Liquor and Cannabis Commission, or from licensed private retailers.

Nunavut: The Nunavut Liquor and Cannabis Commission controls the distribution and sale of recreational cannabis in Nunavut. Cannabis can be purchased by phone or online from the Nunavut Liquor and Cannabis Commission, or from licensed private retailers. 

INDUSTRY TRENDS AND RISKS

The Company’s overall performance and results of operations are subject to a number of risks and uncertainties, of which the below are considered to be the Company’s principal risks. For a more detailed and complete discussion of economic, industry and risk factors of the Company, please see the “Risk Factors” section in our most recent Annual Information Form, dated July 31, 2018.

Volatile Market Price of the Common Shares

The market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company’s control. This volatility may affect the ability of holders of Common Shares to sell their securities at an advantageous price. Market price fluctuations in the Common Shares may be due to the Company’s operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by the Company or its competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Common Shares.

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

Risk Factors Related to Dilution

The Company may issue additional Common Shares or securities convertible into Common Shares in the future, which may dilute a shareholder’s holdings in the Company. The Company’s articles permit the issuance of an unlimited number of Common Shares, and shareholders will have no pre-emptive rights in connection with such further issuance. The directors of the Company have discretion to determine the price and the terms of issue of further issuances. Moreover, additional Common Shares will be issued by the Company on the exercise of options under the Company’s stock option plan and upon the exercise of outstanding warrants.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Reliance on Veterans Affairs Canada (‘‘VAC’’) medical cannabis reimbursement policies

As the Company has previously disclosed, VAC reimburses certain medical cannabis purchases for eligible retired Canadian Armed Forces veterans. The current reimbursement policy includes a three gram per day limit, subject to certain exceptions, and an $8.50 per gram price cap. The Company maintains a number of veterans as part of its overall medical patient list, although as discussed in the Company’s previous continuous disclosure, veteran sales have decreased over the prior quarter. As the Company grows larger and, more particularly, when adult-use of cannabis is implemented by the Canadian Federal Government, the Company anticipates that veteran patients will become less and less material to its overall sales as a relative percentage. However, should VAC further amend its reimbursement policies prior to the introduction of adult-use of cannabis, the Company may be materially adversely affected.

Securing Adequate Financing to Fund Operations and Meet Expected Consumer Demand

There is no guarantee that the Company will be able to achieve its business objectives. The continued development of the Company may require additional financing. The failure to raise such capital could result in the delay or indefinite postponement of current business objectives or the Company ceasing to carry on business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company. In addition, from time to time, the Company may enter into transactions to acquire assets or the shares of other corporations. These transactions may be financed wholly or partially with debt, which may increase the Company’s debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may also contain provisions which, if breached, may entitle lenders or their agents to accelerate repayment of loans and/or realize upon security over the assets of the Company, and there is no assurance that the Company would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to such debt financing.

Reliance on Licence

The Company’s ability to grow, store and sell cannabis and cannabis oil in Canada is dependent on maintaining its licence with Health Canada. Failure to comply with the requirements of the licence or any failure to maintain its licence would have a material adverse impact on the business, financial condition and operating results of the Company. There can be no guarantees that Health Canada will extend or renew the licence as necessary or, if it extended or renewed, that the licence will be extended or renewed on the same or similar terms. Should Health Canada not extend or renew the licence or should it renew the licence on different terms, the business, financial condition and results of the operation of the Company would be materially adversely affected.

Reliance on Key Personnel

The success of the Company is dependent upon the ability, expertise, judgment, discretion and good faith of its senior management (collectively, “Key Personnel”). The Company’s future success depends on its continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and the Company may incur significant costs to attract and retain them. The loss of the services of a Key Person, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on the Company’s ability to execute on its business plan and strategy, and the Company may be unable to find adequate replacements on a timely basis, or at all. A failure by a Key Person to maintain or renew his or her security clearance, would result in a material adverse effect on the Company’s business, financial condition and results of operations. In addition, if a Key Person leaves the Company, and the Company is unable to find a suitable replacement in a timely manner, or at all, there could occur a material adverse effect on the Company’s business, financial condition and results of operations. While employment agreements are customarily used as a primary method of retaining the services of Key Personnel, these agreements cannot assure the continued services of such employees.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Environmental Regulations and Risks

The Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s operations. Government approvals and permits are currently, and may in the future be required in connection with the Company’s operations. To the extent such approvals are required and not obtained, the Company may be curtailed or prohibited from its proposed production of medical cannabis or from proceeding with the development of its operations as currently proposed. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permits governing the production of medical cannabis, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in expenses, capital expenditures or production costs or reduction in levels of production or require abandonment or delays in development.

Reliance on Leamington Facility

To date, the Company’s activities and resources have been primarily focused on the premises in Leamington, Ontario. Aphria expects to continue the focus on this facility for the foreseeable future. Adverse changes or developments affecting the Leamington facility could have a material and adverse effect on the Company’s ability to continue producing medical cannabis, its business, financial condition and prospects.

Regulatory Compliance

The commercial medical and adult-use cannabis industry is a new industry in regulated under The Cannabis Act. These regulations subject the Company to a new regulatory regime governed by new regulations, guidelines and policies relating to the manufacture, processing, import, export, management, packaging/labelling, advertising, sale, transportation, storage and disposal of cannabis but also laws and regulations relating to drugs containing cannabis, amended security measures and outdoor cultivation. While, to the knowledge of management, the Company is currently in compliance with the current regulatory regime, any changes to such laws, regulations, guidelines and policies may have a material adverse effect on its business, financial condition and results of operations.

Changes in Laws, Regulations and Guidelines 

The Company’s operations are subject to various laws, regulations and guidelines relating to the manufacture, management, packaging/labelling, advertising, sale, transportation, storage and disposal of medical cannabis but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment. Changes to such laws, regulations and guidelines due to matters beyond the control of the Company may cause adverse effects business, financial condition and results of operations of the Company. The Company endeavours to comply with all relevant laws, regulations and guidelines. To the best of the Company’s knowledge, the Company is in compliance or in the process of being assessed for compliance with all such laws, regulations and guidelines.

The Cannabis Act and Cannabis Regulations came into force on October 17, 2018. The Cannabis Act and Cannabis Regulations prohibit testimonials, lifestyle branding and packaging that is appealing to youth. The restrictions on advertising, marketing and the use of logos and brand names could have a material adverse impact on the Company’s business, financial condition and results of operation. The legislative framework pertaining to the Canadian adult-use cannabis market is uncertain. In addition, the governments of every Canadian province and territory have, to varying degrees, announced regulatory regimes for the distribution and sale of cannabis for adult-use purposes within those jurisdictions. There is no guarantee that provincial legislation regulating the distribution and sale of cannabis for adult-use purposes will be enacted according to all the terms announced by such provinces and territories, or at all, or that any such legislation, if enacted, will create the growth opportunities that the Company currently anticipates. While the impact of any new legislative framework for the regulation of the Canadian adult-use cannabis market is uncertain, any of the foregoing could result in a material adverse effect of the Company’s business, financial condition and results of operation.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Further, Health Canada may change their administration, interpretation or application of the applicable regulations or their compliance or enforcement procedures at any time. Any such changes could require the Company to revise its ongoing compliance procedures, requiring the Company to incur increased compliance costs and expend additional resources. There is no assurance that the Company will be able to comply or continue to comply with applicable regulations

Risks Related to Regulation of Cannabis Industry

Achievement of the Company’s business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and obtaining all regulatory approvals, where necessary, for the sale of its products. The Company cannot predict the impact of the compliance regime Health Canada is implementing for the Canadian adult-use and medical cannabis industries under the Cannabis Regulations. Similarly, the Company cannot predict the time required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. The impact of Health Canada’s compliance regime, any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on the business, results of operations and financial condition of the Company.

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

Reliance on Third Party Suppliers, Manufacturers and Contractors

The Company intends to maintain a full supply chain for the provision of products and services to the regulated cannabis industry. Due to the novel regulatory landscape for regulating cannabis in Canada and the variability surrounding the regulation of cannabis in the United States, the Company’s third party suppliers, manufacturers and contractors may elect, at any time, to decline or withdraw services necessary for the Company’s operations. Loss of these suppliers, manufacturers and contractors may have a material adverse effect on the Company’s business and operational results.

Risks Inherent in an Agricultural Business

Aphria’s business involves the growing of medical cannabis, an agricultural product. Such business will be subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Although Aphria expects that any such growing will be completed indoors under climate controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on any such future production.

Third Party Transportation

In order for customers of Aphria to receive their product, Aphria must rely on third party mail and courier services. This can cause logistical problems with and delays in patients obtaining their orders and cannot be directly controlled by Aphria. Any delay by third party transportation and/or rising costs associated with these services may adversely affect Aphria’s financial performance. Moreover, security of the product during transportation to and from the Company’s facilities is critical due to the nature of the product. A breach of security during transport could have material adverse effects on Aphria’s business, financials and prospects. Any such breach could impact Aphria’s ability to continue operating under its licences or the prospect of renewing its licences.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Product Liability

As a distributor of products designed to be ingested by humans, Aphria 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 Aphria’s 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 Aphria’s products alone or in combination with other medications or substances could occur. Aphria may be subject to various product liability claims, including, among others, that Aphria’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 Aphria could result in increased costs, could adversely affect Aphria’s reputation with its clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition of Aphria. There can be no assurances that Aphria will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of Aphria’s potential products.

Product Recalls

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of Aphria’s products are recalled due to an alleged product defect or for any other reason, Aphria could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. Aphria may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although Aphria has detailed procedures in place for testing its products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of Aphria’s significant brands were subject to recall, the image of that brand and Aphria could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for Aphria’s products and could have a material adverse effect on the results of operations and financial condition of Aphria and the Resulting Issuer. Additionally, product recalls may lead to increased scrutiny of Aphria’s operations by Health Canada or other regulatory agencies, requiring further management attention and potential legal fees and other expenses.

Regulatory or Agency proceedings, Investigations and Audits

The Company’s business requires compliance with many laws and regulations. Failure to comply with these laws and regulations could subject the Company to regulatory or agency proceedings or investigations and could also lead to damage awards, fines and penalties. Aphria may become involved in a number of government or agency proceedings, investigations and audits. The outcome of any regulatory or agency proceedings, investigations, audits, and other contingencies could harm the Company’s reputation, require the Company to take, or refrain from taking, actions that could harm its operations or require Aphria to pay substantial amounts of money, harming its financial condition. There can be no assurance that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial costs or a diversion of management’s attention and resources or have a material adverse impact on the Company’s business, financial condition and results of operation.

Information technology systems and cyber-attacks

Aphria has entered into agreements with third parties for hardware, software, telecommunications and other information technology (“IT”) services in connection with its operations. The Company’s operations depend, in part, on how well it and its suppliers protect networks, equipment, IT systems and software against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. The Company’s operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital expenses. The failure of information systems or a component of information systems could, depending on the nature of any such failure, adversely impact the Company’s reputation and results of operations.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Aphria has not experienced any material losses to date relating to cyber-attacks or other information security breaches, but there can be no assurance that the Company will not incur such losses in the future. The Company’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority. As cyber threats continue to evolve, the Company may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.

Insurance coverage

Except as described herein, the Company has insurance to protect its assets, operations and its directors and employees in Canada. The Company is currently pursuing additional insurance coverage over its crop, product liability claims and for business interruption. While the Company believes the insurance coverage addresses all material risks to which it is exposed and is adequate and customary in the current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed to. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the Company were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if the Company were to incur such liability at a time when it is not able to obtain liability insurance, the business, results of operations and financial condition could be materially adversely affected.

Litigation

From time to time, the Company and/or its subsidiaries may become involved in legal proceedings or be subject to claims, some of which arise in the ordinary course of our business. Litigation is inherently uncertain, and any adverse outcomes could negatively affect the Company’s business, results of operations, financial condition, brand and/or the trading price of the Company’s securities. In addition, litigation can involve significant management time and attention and be expensive, regardless of outcome. During the course of litigation, there may be announcements of the results of hearings and motions and other interim developments related to the litigation. If securities analysts or investors regard these announcements as negative, the trading price of the Company’s securities may decline. In addition, the Company evaluates these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, the Company may establish reserves or disclose the relevant litigation claims or legal proceedings, as appropriate. These assessments and estimates are based on the information available to management at the time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from the Company’s current assessments and estimates.

The Company was served statements of claims in class action lawsuits against the Company and certain of our officers. These claims relate to alleged misconduct in connection with the Company’s acquisitions of LATAM Holdings Inc. (“LATAM”) and Nuuvera Inc., and the Company’s June 2018 securities offering. At the present time, the Company is aware of five such claims, two of which were commenced in the United States and three of which were commenced in Canada. The U.S. claims include alleged violations of Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The Company intends to vigorously defend itself in each of these actions. With respect to the cases commenced in the United States, the Company is self-insured for the costs associated with any award or damages arising from such actions and have entered into indemnity agreements with each of the directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. With respect to the cases commenced in Canada, the Company’s insurance policies may not be sufficient to cover any judgments against us.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Intellectual Property

The ownership and protection of trademarks, patents, trade secrets and 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 products and technology. Policing the unauthorized use of the Company’s current or future trademarks, patents, trade secrets or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others. Identifying unauthorized use of intellectual property rights is difficult as Aphria may be unable to effectively monitor and evaluate the products being distributed by its competitors, including parties such as unlicensed dispensaries, and the processes used to produce such products. In addition, in any infringement proceeding, some or all of the Company’s trademarks, patents or other intellectual property rights or other proprietary know-how, or arrangements or agreements seeking to protect the same for the benefit of the Company, may be found invalid, unenforceable, anti-competitive or not infringed. An adverse result in any litigation or defense proceedings could put one or more of the Company’s trademarks, patents or other intellectual property rights at risk of being invalidated or interpreted narrowly and could put existing intellectual property applications at risk of not being issued. Any or all of these events could materially and adversely affect the business, financial condition and results of operations of the Company.

In addition, other parties may claim that the Company’s products infringe on their proprietary rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, result in injunctions, temporary restraining orders and/or require the payment of damages. As well, Aphria may need to obtain licences from third parties who allege that the Company has infringed on their lawful rights. However, such licences 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, licences or other rights with respect to intellectual property that it does not own.

Unfavourable Publicity or Negative Consumer Perception

The Company believes the cannabis industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of cannabis and related products distributed to such consumers. Consumer perception of the Company’s products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favourable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company’s products and the business, results of operations, financial condition and cash flows of the Company. The Company’s dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company’s products, and the business, results of operations, financial condition and cash flows of the Company.

Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis and related products in general, or the Company’s products specifically, or associating the consumption of cannabis or related products with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views in regard to the Company and its activities, whether true or not. Although the Company believes that it operates in a manner that is respectful to all stakeholders and that it takes care in protecting its image and reputation, it does not ultimately have direct control over how it is perceived by others. Reputational loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to the Company’s overall ability to advance its projects, thereby having a material adverse impact on its financial performance, financial condition, cash flows and growth prospects.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Risk Factors Related to International Activities

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.

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

The Company has operations in various emerging markets and may have operations in additional emerging markets in the future. Such operations expose the Company to the socio-economic 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 cannabis 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 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 in respect of ownership of real property could adversely affect the Company’s ability to operate in such jurisdictions.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

Inflation in Emerging Markets, Along with Governmental Measures to Combat Inflation, may have a Significant Negative Effect on Local Economies and also on the Company’s Financial Condition and Results of Operations

In the past, high levels of inflation have adversely affected emerging economies and financial markets, and the ability of government to create conditions that stimulate or maintain economic growth. Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. The emerging markets in which the Company operates or may operate may experience high levels of inflation in the future. Inflationary pressures may weaken investor confidence in such countries and lead to further government intervention in the economy. If countries in which the Company operates experience high levels of inflation in the future and/or price controls are imposed, the Company may not be able to adjust the rates the Company charges the Company’s customers to fully offset the impact of inflation on the Company’s cost structures, which could adversely affect the Company’s results of operations or financial condition.

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.

The Company May Expand into Other Geographic Areas, which could Increase the Company’s Operational, Regulatory and Other Risks

In addition to the jurisdictions described elsewhere in this MD&A, the Company may in the future expand into other geographic areas, which could increase the Company’s operational, regulatory, compliance, reputational and foreign exchange rate risks. The failure of the Company’s operating infrastructure to support such expansion could result in operational failures and regulatory fines or sanctions. Future international expansion could require the Company to incur a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance. The Company may not be able to successfully identify suitable acquisition and expansion opportunities or integrate such operations successfully with the Company’s existing operations.

The Company may be 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.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be publicly disclosed by a public company is gathered and reported to senior management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), on a timely basis so that appropriate decisions can be made regarding public disclosure. An evaluation of the effectiveness of the Company’s disclosure controls and procedures was conducted as of May 31, 2018, based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) by and under the supervision of the Company’s management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO concluded that the Company’s disclosure controls and procedures (as defined in National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings of the Canadian Securities Administrators) were effective in providing reasonable assurance that material information relating to the Company is made known to them and information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in such legislation.

Under the supervision of the CEO and CFO, the Company designed internal controls over financial reporting (as defined in National Instrument 52-109) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The Company’s management team used COSO to design the Company’s internal controls over financial reporting.

It is important to understand that there are inherent limitations of internal controls as stated within COSO. Internal controls, no matter how well designed and operated, can only provide reasonable assurance to management and the Board of Directors regarding achievement of an entity’s objectives. A system of controls, no matter how well designed, has inherent limitations, including the possibility of human error and the circumvention or overriding of the controls or procedures. As a result, there is no certainty that an organization's disclosure controls and procedures or internal control over financial reporting will prevent all errors or all fraud. Even disclosure controls and procedures and internal control over financial reporting determined to be effective can only provide reasonable assurance of achieving their control objectives.

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has limited the scope of the design of the Company’s disclosure controls and procedures and internal controls over financial reporting to exclude controls, policies and procedures and internal controls over financial reporting of the recently acquired operations of LATAM and CC Pharma, acquired on September 27, 2018 and January 5, 2019 respectively. The operations of LATAM, represent approximately 2.7% of total current assets, 0.5% of total assets, 0.5% of current liabilities and 0.2% of total liabilities as at February 28, 2019, 2.1% and 2.5% of the Company’s revenues and 2.4% and 1.8% of the Company’s operating expenses for the three and nine months ended February 28, 2019. The operations of CC Pharma, represent approximately 26.3% of total current assets, 6.5% of total assets, 30.7% of current liabilities and 20.8% of total liabilities as at February 28, 2019, 76.2% and 51.7% of the Company’s revenues and 10.8% and 5.7% of the Company’s operating expenses for the three and nine months ended February 28, 2019.

There have been no changes in the Company’s internal controls over financial reporting during the three months ended February 28, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Subsequent events

The following events occurred subsequent to November 30th, 2018:

(a) The Company was one of three cultivators awarded a provisional licence for the domestic cultivation of medical cannabis in Germany. The Company was granted 5 of the 13 available lots, each with a minimum annual capacity of 200 kgs.

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APHRIA INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

(b) The Company has entered into a series of transactions that will accelerate the termination of the unsolicited offer launched by Green Growth Brands. The parties have consented to terminate the bid as of April 15, 2019 thereby resulting in the final and definitive termination of bid on April 25, 2019. As a result of these transactions the Company will receive cash proceeds of $89,000 to liquidate an outstanding promissory note, the remaining US legalization options and option payment liability.

This MD&A contains forward-looking statements within the meaning of applicable securities legislation with regards to expected financial performance, strategy and business conditions. We use words such as “forecast”, “future”, “should”, “could”, “enable”, “potential”, “contemplate”, “believe”, “anticipate”, “estimate”, “plan”, “expect”, “intend”, “may”, “project”, “will”, “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements reflect management’s current beliefs with respect to future events and are based on information currently available to management. Forward-looking statements involve significant known and unknown risks and uncertainties. Many factors could cause actual results, performance or achievement to be materially different from any future forward-looking statements. Factors that may cause such differences include, but are not limited to, general economic and market conditions, investment performance, financial markets, legislative and regulatory changes, technological developments, catastrophic events and other business risks. These forward-looking statements are as of the date of this MD&A and the Company and management assume no obligation to update or revise them to reflect new events or circumstances except as required by securities laws. The Company and management caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.

Some of the specific forward-looking statements in this MD&A include, but are not limited to, statements with respect to the following:

• the intended expansion of the Company’s facilities and receipt of approval from Health Canada to complete such expansion;

• the expected cost to produce a gram of dried cannabis;

• the expected cost to process cannabis oil;

• the anticipated future gross margins of the Company’s operations; and,

• The Company’s investments in the United States, the characterization and consequences of those investments under Federal Law, and the framework for the enforcement of medical cannabis and cannabis-related offenses in the United States.

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EX-99.3

Exhibit 99.3

FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS FULL CERTIFICATE

I, Irwin Simon, Chief Executive Officer, Aphria Inc. certify the following:

1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Aphria Inc. (the “issuer”) for the interim period ended February 28, 2019.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

a. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that 

i. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and 

ii. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and 

b. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (COSO Framework 213) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 ICFR – material weakness relating to design: N/A

5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A

a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and,

b) summary financial information about the business that the issuer acquired that has been consolidated in the issuer’s financial statements.

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on December 1, 2018 and ended on February 28, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. 

Date: April 15, 2019

__”Irwin Simon”_________
Irwin Simon
Interim Chief Executive Officer

FORM 52-109F2 CERTIFICATION OF INTERIM FILINGS FULL CERTIFICATE

I, Carl Merton, Chief Financial Officer, Aphria Inc. certify the following:

1. Review: I have reviewed the interim financial reports and interim MD&A (together, the “interim filings”) of Aphria Inc. (the “issuer”) for the interim period ended February 28, 2019.

2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial reports together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings. 

4. Responsibility: The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5. Design: Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer(s) and I have, as at the end of the period covered by the interim filings

a. designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that 

i. material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and 

ii. information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and 

b. designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP. 

5.1 Control framework: The control framework the issuer’s other certifying officer(s) and I used to design the issuer’s ICFR is the Internal Control – Integrated Framework (COSO Framework 213) published by The Committee of Sponsoring Organizations of the Treadway Commission (COSO).

5.2 ICFR – material weakness relating to design: N/A

5.3 Limitation on scope of design: The issuer has disclosed in its interim MD&A

a) the fact that the issuer’s other certifying officer and I have limited the scope of our design of DC&P and ICFR to exclude controls, policies and procedures of a business that the issuer acquired not more than 365 days before the last day of the period covered by the interim filings; and,

b) summary financial information about the business that the issuer acquired that has been consolidated in the issuer’s financial statements.

6. Reporting changes in ICFR: The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on December 1, 2018 and ended on February 28, 2019 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR. 

Date: April 15, 2019


__”Carl Merton”_________
Carl Merton
Chief Financial Officer