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 October 2022

Commission File Number 001-40397

FLORA GROWTH CORP.

(Exact name of registrant as specified in its charter)

365 Bay Street, Suite 800

Toronto, Ontario M5H 2V1

(Address of Principal Executive Offices)

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

☒ Form 20-F ◻ 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): ◻

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): ◻

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.

INFORMATION CONTAINED IN THIS FORM 6-K REPORT

Arrangement Agreement to Acquire Franchise Global Health Inc.

On October 21, 2022, Flora Growth Corp., a corporation under the laws of the Province of Ontario (“Flora” or the “Company”) and Franchise Global Health Inc., a corporation existing under the laws of the Province of British Columbia (“Franchise”) entered into an Arrangement Agreement (the “Arrangement Agreement”) pursuant to which Flora intends to acquire all the issued and outstanding common shares of Franchise (the “Franchise Common Shares”) by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia).  Franchise, through its wholly-owned subsidiaries, is a multi-national operator in the medical cannabis and pharmaceutical industry with principal operations in Germany.  Below is a summary of the material terms of the Arrangement Agreement. Capitalized terms not defined herein shall have the meanings ascribed to them in the Arrangement Agreement. The following description of the Arrangement Agreement is only a summary and is qualified in its entirety by reference to the complete text of the Arrangement Agreement, which Flora has filed as Exhibit 99.1 to this Form 6-K.

Under the terms of the Arrangement Agreement, Flora will acquire 100% of the issued and outstanding Franchise Common Shares in exchange for an aggregate maximum of 43,525,951 common shares in the capital of Flora (the “Flora Shares”), subject to reduction based on the daily volume-weighted average price of the Flora Shares on the Nasdaq Capital Market as set out in the Arrangement Agreement.  The minimum number of Flora Shares to be issued is 36,515,060.  It is intended that the issuance of the Flora Shares in exchange for the Franchise Common Shares will, subject to applicable securities laws, be exempt from the registration requirements of (i) the Securities Act of 1933, as amended, pursuant to the exemption provided by Section 3(a)(10) thereof and (ii) applicable U.S. state securities laws.  Notwithstanding the foregoing, in accordance with the terms set forth in the Arrangement Agreement, upon the completion of the Arrangement, all Flora Shares to be delivered to the former shareholders of Franchise shall bear a restrictive legend and may not be sold for a period of ninety (90) days following the completion of the Arrangement.

Completion of the Arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of the Arrangement by the Supreme Court of British Columbia, the approval of at least 66 2/3% of the votes cast by shareholders of Franchise (“Franchise Shareholders”) at a meeting of Franchise Shareholders (the “Franchise Meeting”) and, if required under Canadian Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions, approval of a simple majority of the votes cast by Franchise Shareholders at the Franchise Meeting, excluding votes from certain interested Franchise Shareholders. The Arrangement Agreement has been approved by Flora’s board of directors and the Arrangement does not require the approval of the shareholders of Flora.  The Company intends to complete the Arrangement as soon as practicable following the satisfaction of the aforementioned conditions, which it currently anticipates to occur in December 2022.

The Arrangement Agreement provides for, among other things, non-solicitation covenants, with “fiduciary out” provisions that allow Franchise to consider and accept a superior proposal, subject to a “right to match period” in favor of Flora. The Arrangement Agreement also provides for a termination fee of CA$1 million to be paid by Franchise to Flora if the Arrangement Agreement is terminated in certain specified circumstances. Franchise and Flora have also agreed to a reciprocal expense reimbursement of CA$300,000 payable if the Arrangement Agreement is terminated in certain circumstances.  Upon completion of the Arrangement, it is expected that Franchise would be delisted from the TSX Venture Exchange and will apply to cease to be a reporting issuer under applicable securities laws in Canada.

Presently, the directors, senior officers and certain shareholders of Franchise have entered into voting and support agreements with Flora, pursuant to which, among other things, they have agreed to vote their Franchise Common Shares in favor of the Arrangement. In addition, Clifford Starke, the Chairman and Chief Executive Officer of Franchise, along with certain of his affiliated entities, have entered into a voting, support and indemnity agreement, pursuant to which, in addition to agreeing to vote their Franchise Common Shares in favor of the Arrangement, they have agreed to indemnify Flora for certain potential liabilities of Franchise and its subsidiaries for up to US$5.0 million.

Upon the completion of the Arrangement, Flora shall expand the size of its board of directors from seven to nine directors and Clifford Starke shall have the right to designate two individuals to serve on Flora’s board of directors.  It is anticipated that Clifford Starke will be one of such designees.  Additionally, it is anticipated that each of Clifford Starke and Dany Vaiman, Franchise’s current Chief Financial Officer, will join the management team of Flora, pursuant to employment agreements substantially in the form filed as Exhibit 99.9 and 99.10 hereto.

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Full details of the Arrangement are set out in the Arrangement Agreement, which is filed as Exhibit 99.1 to this Form 6-K. In addition, further information regarding the Arrangement and Franchise will be contained in a management information circular of Franchise to be prepared in connection with the Franchise Meeting and filed on Franchise’s SEDAR profile on www.sedar.com at the time that the management information circular is mailed to Franchise Shareholders.

A press release announcing the entry into the Arrangement Agreement is filed as Exhibit 99.2 hereto.

The audited consolidated statement of financial position of Franchise Cannabis Corp. and subsidiaries, the historical operating entity of Franchise, as of December 31, 2020, the related audited consolidated statement of comprehensive loss, changes in equity and cash flows of Franchise Cannabis Corp. and subsidiaries for the year ended December 31, 2020 and the notes related thereto, together with the report there on by MNP LLP included in the audited consolidated financial statements are filed as Exhibit 99.3 hereto and are incorporated by reference.

The audited consolidated statement of financial position of Franchise Cannabis Corp. and subsidiaries, the historical operating entity of Franchise, as of December 31, 2021, the related audited consolidated statement of loss and comprehensive loss, changes in shareholders’ equity and cash flows of Franchise Cannabis Corp. and subsidiaries for the year ended December 31, 2021 and the notes related thereto, together with the report there on by Zeifmans LLP included in the audited consolidated financial statements are filed as Exhibit 99.4 hereto and are incorporated by reference.

The unaudited condensed consolidated interim statement of financial position of Franchise as of June 30, 2022, the related unaudited condensed consolidated interim statements of loss and comprehensive loss, changes in equity and cash flows of Franchise and subsidiaries for the six-months ended June 30, 2022 and the notes related thereto are filed as Exhibit 99.5 hereto and are incorporated herein by reference.

The unaudited pro forma condensed consolidated statement of operations of Flora and subsidiaries for the year ended December 31, 2021 and unaudited pro forma condensed consolidated statement of operations of Flora and subsidiaries for the six-months ended June 30, 2022, the unaudited pro forma condensed consolidated balance sheet of Flora and subsidiaries as of June 30, 2022 and the notes related thereto are filed as Exhibit 99.6 hereto and are incorporated herein by reference.

The information contained in this Form 6-K, including Exhibits 99.1, 99.3, 99.4, 99.5, 99.6, 99.7 and 99.8, but excluding Exhibit 99.2, is hereby incorporated by reference into Flora’s Registration Statement on Form F-3 (No. 333-267585) and Registration Statements on Form S-8 (Registration Nos. 333-259198, 333-262660 and 333-266400).

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Exhibit Index

Exhibit
99.1	Arrangement Agreement, dated October 21, 2022, by and between Flora Growth Corp. and Franchise Global Health Inc.
99.2	Press Release of Flora Growth Corp., dated October 24, 2022.
99.3	Audited Consolidated Financial Statements of Franchise Cannabis Corp. and subsidiaries as of and for the year ended December 31, 2020.
99.4	Audited Consolidated Financial Statements of Franchise Cannabis Corp. and subsidiaries as of and for the year ended December 31, 2021.
99.5	Unaudited Consolidated Financial Statements of Franchise Global Health Inc. and subsidiaries as of and for the six-months ended June 30, 2022.
99.6	Unaudited Pro Forma Condensed Consolidated Financial Statements.
99.7	Consent of MNP LLP related to the financial statements of Franchise Cannabis Corp.
99.8	Consent of Zeifmans LLP related to the financial statements of Franchise Cannabis Corp.
99.9	Form of Employment Agreement for Clifford Starke
99.10	Form of Employment Agreement for Dany Vaiman

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Signatures

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.

	FLORA GROWTH CORP.
Date: October 24, 2022	By:	/s/ Luis Merchan
		Name: Luis Merchan
		Title: Chief Executive Officer

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EX-99.1

EXHIBIT 99.1

ARRANGEMENT AGREEMENT

FLORA GROWTH CORP.

- and -

FRANCHISE GLOBAL HEALTH INC.

October 21, 2022

_________________________

TABLE OF CONTENTS

ARTICLE 1 INTERPRETATION		2
1.1.	Defined Terms	2
1.2.	Certain Rules of Interpretation	15
1.3.	Schedules	16
ARTICLE 2 THE ARRANGEMENT		16
2.1.	The Arrangement	16
2.2.	Interim Order	17
2.3.	The Company Meeting	18
2.4.	The Company Circular	19
2.5.	Final Order	20
2.6.	Court Proceedings	20
2.7.	Company Options, Company RSUs and Agent Compensation Options	21
2.8.	Effective Date	22
2.9.	Payment of Consideration	22
2.10.	Withholding Taxes	22
2.11.	U.S. Securities Law Matters	23
2.12.	Cooperation of Parties	23
ARTICLE 3 REPRESENTATIONS AND WARRANTIES		24
3.1.	Representations and Warranties of the Company	24
3.2.	Representations and Warranties of the Purchaser	24
ARTICLE 4 COVENANTS		24
4.1.	Conduct of Business of the Company	24
4.2.	Covenants of the Company Relating to the Arrangement	29
4.3.	Conduct of Business of the Purchaser	31
4.4.	Covenants of the Purchaser Relating to the Arrangement	32
4.5.	Regulatory Approvals	33
4.6.	Access to Information; Confidentiality	34
4.7.	Public Communications	34
4.8.	Notice Provisions	35
4.9.	Insurance and Indemnification	35
ARTICLE 5. COVENANTS REGARDING NON-SOLICITATION		36
5.1.	Non-Solicitation	36
5.2.	Notification of Acquisition Proposals	38
5.3.	Responding to an Acquisition Proposal	38
5.4.	Right to Match	39
5.5.	Breach by Subsidiaries and Representatives	41
ARTICLE 6 CONDITIONS		41
6.1.	Mutual Conditions Precedent	41
6.2.	Additional Conditions Precedent to the Obligations of the Purchaser	42
6.3.	Additional Conditions Precedent to the Obligations of the Company	43
6.4.	Satisfaction of Conditions	44
ARTICLE 7 TERM AND TERMINATION		44
7.1.	Term	44
7.2.	Termination	44
7.3.	Effect of Termination/Survival	46
7.4.	Company Expense Reimbursement and Company Termination Amount	46
7.5.	Purchaser Expense Reimbursement	49

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ARTICLE 8 GENERAL PROVISIONS		49
8.1	Amendments	49
8.2.	Expenses	50
8.3.	Notices	50
8.4.	Time of the Essence	51
8.5.	Injunctive Relief	51
8.6.	Third Party Beneficiaries	51
8.7.	Waiver	52
8.8.	Entire Agreement	52
8.9.	Successors and Assigns	52
8.10.	Severability	52
8.11.	Governing Law	53
8.12.	Further Assurances	53
8.13.	Rules of Construction	53
8.14.	No Liability	53
8.15.	Counterparts	53
SCHEDULE A PLAN OF ARRANGEMENT		A-1
SCHEDULE B ARRANGEMENT RESOLUTION		B-1
SCHEDULE C COMPANY REPRESENTATIONS AND WARRANTIES		C-1
SCHEDULE D PURCHASER REPRESENTATIONS AND WARRANTIES		D-1

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ARRANGEMENT AGREEMENT

THIS AGREEMENT is made as of October 21, 2022,

BETWEEN:

FLORA GROWTH CORP.,

a corporation existing under the laws of the Province of Ontario

(the “Purchaser”)

- and -

FRANCHISE GLOBAL HEALTH INC.,

a company existing under the laws of the Province of British Columbia

(the “Company”)

WHEREAS the Purchaser wishes to acquire all of the issued and outstanding common shares of the Company in exchange for common shares of the Purchaser;

AND WHEREAS the Board has (i) unanimously (with any interested directors having abstained from voting) determined that the Arrangement is fair to the Company Shareholders and in the best interests of the Company and (ii) resolved to recommend that the Company Shareholders vote in favour of the Arrangement;

AND WHEREAS the Parties intend to carry out the transactions contemplated herein by way of a plan of arrangement under the provisions of the BCBCA;

AND WHEREAS the Purchaser has entered into support and voting agreements with the directors and officers along with certain shareholders of the Company pursuant to which, among other things, such directors, officers and shareholders have agreed to vote all of the Company Common Shares held by them in favour of the Arrangement Resolution, on the terms and subject to the conditions set forth in such agreements;

AND WHEREAS the Parties have entered into this Agreement to provide for the matters referred to in the foregoing recitals and for other matters related to the transactions herein provided for;

AND WHEREAS, the Parties intend that the issuance of the Purchaser Common Shares in exchange for the Company Common Shares will, subject to applicable U.S. Securities Laws, be exempt from the registration requirements of (i) the U.S. Securities Act pursuant to the exemption provided by Section 3(a)(10) thereof and (ii) applicable U.S. state securities laws;

NOW THEREFORE, in consideration of the covenants and agreements herein contained, the Parties agree as follows:

ARTICLE 1 INTERPRETATION

1.1. Defined Terms

As used in this Agreement, the following terms have the following meanings:

“Acquisition Proposal” means, other than the transactions contemplated by this Agreement and any transaction involving only the Company and/or one or more of its wholly-owned Subsidiaries, any offer, proposal, expression or indication of interest or inquiry (whether written or oral) from any Person or group of Persons other than the Purchaser or one or more of its Affiliates relating to: (i) any direct or indirect sale or disposition (or any lease, joint venture, long-term supply agreement, licence or other arrangement having the same economic effect as a sale) of assets of the Company or any of its Subsidiaries (including any voting or equity securities of any of the Company’s Subsidiaries) representing 20% or more of the consolidated assets, or contributing 20% or more of the consolidated revenue or earnings, of the Company and its Subsidiaries taken as whole (in each case based on the consolidated financial statements of the Company most recently filed on SEDAR prior to such offer, proposal or inquiry), or (ii) any direct or indirect acquisition by any Person or group of Persons acting jointly or in concert within the meaning of Securities Laws, of Company Common Shares (including securities convertible into or exercisable or exchangeable for Company Common Shares) representing, when taken together with the Company Common Shares (including securities convertible into or exercisable or exchangeable for Company Common Shares) held by any such Person or group of Persons, 20% or more of the Company Common Shares (assuming, if applicable, the conversion, exchange or exercise of such securities convertible into or exercisable or exchangeable for Company Common Shares), in either case whether by way of take-over bid, tender offer, exchange offer, treasury issuance, plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, share or asset purchase, joint venture, liquidation, dissolution, winding up or other similar transaction involving the Company or any of its Subsidiaries, and whether in a single transaction or  a series of related transactions.

“Agent Compensation Options” means the outstanding compensation options of the Company exercisable to purchase Company Common Shares.

“Agreement” means this arrangement agreement, including all schedules annexed hereto, as may be amended, supplemented or otherwise modified from time to time in accordance with its terms.

“Anti-Corruption Laws” means laws, regulations and rules relating to anti-bribery or anti-corruption including the Corruption of Foreign Public Officials Act (Canada), the Criminal Code (Canada), the United States Foreign Corrupt Practices Act of 1977 and any laws, rules, regulations of any relevant jurisdiction covering a similar subject matter.

“Arrangement” means an arrangement under Part 9, Division 5 of the BCBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations to the Plan of Arrangement made in accordance with the terms of this Agreement or made at the direction of the Court in the Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.

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“Arrangement Resolution” means the special resolution approving the Plan of Arrangement to be considered at the Company Meeting, substantially in the form of Schedule B.

“Authorization” means, with respect to any Person, any order, permit, approval, consent, waiver, licence or similar authorization of any Governmental Entity having jurisdiction over the Person, including but not limited to the Cannabis Licenses.

“BCBCA” means the Business Corporations Act (British Columbia).

“Board” means the board of directors of the Company as constituted from time to time. “Board Recommendation” has the meaning specified in Section 2.4(b).

“Business Day” means any day of the year, other than a Saturday, a Sunday or any day on which major banks are closed for business in Vancouver, British Columbia or Toronto, Ontario.

“Cannabis Licenses” means the licenses, certificates and authorizations of the Company and its Subsidiaries set forth in Section 1.1 of the Company Disclosure Letter.

“Change in Recommendation” has the meaning specified in Section 7.2(a)(iv)(B). “Closing” has the meaning specified in Section 2.8(b).

“Code” has the meaning specified in Paragraph 30(e) of Schedule C.

“Collective Agreements” means all collective bargaining agreements and union agreements currently applicable to the Company and/or any of its Subsidiaries which impose any obligations upon the Company and/or any of its Subsidiaries with respect to any Company Employee.

“Company” has the meaning specified in the preamble.

“Company Assets” means all of the assets, property (real or personal), permits, rights, licenses or other privileges (whether contractual or otherwise) of the Company and its Subsidiaries.

“Company Circular” means the notice of the Company Meeting and accompanying management information circular, including all schedules, appendices and exhibits to, and information incorporated by reference in, such management information circular, to be sent to the Company Shareholders in connection with the Company Meeting, as amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement.

“Company Common Shares” means common shares in the authorized share structure of the Company.

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“Company Disclosure Letter” means the confidential disclosure letter dated the date of this Agreement and delivered by the Company to the Purchaser with this Agreement.

“Company Employees” means all officers and employees of the Company and/or its Subsidiaries, including unionized, non-unionized, part-time, full-time, active and inactive employees.

“Company Expense Reimbursement Amount” has the meaning specified in Section 7.4(a).

“Company Filings” means all documents publicly filed under the profile of the Company on SEDAR since March 31, 2021.

“Company Meeting” means the special meeting of Company Shareholders, including any adjournment or postponement of such meeting in accordance with the terms of this Agreement, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution and for any other purpose as may be set out in the Company Circular and agreed to in writing by the Purchaser, acting reasonably.

“Company Options” means the outstanding options to purchase Company Common Shares issued pursuant to the Company Stock Option Plan.

“Company RSU Plan” means the Franchise Global Health Inc. Share Unit Plan approved by Company Shareholders on September 20, 2021.

“Company RSUs” means, collectively, the outstanding restricted share units of the Company issued pursuant to the Company RSU Plan.

“Company Shareholders” means the registered and/or beneficial holders of the Company Common Shares, as the context requires.

“Company Stock Option Plan” means the Franchise Global Health Inc. Stock Option Plan last approved by Company Shareholders on September 20, 2021.

“Company Termination Amount” has the meaning specified in Section 7.4(a).

“Company Termination Amount Event” has the meaning specified in Section 7.4(b).

“Competition Act” means the Competition Act (Canada).

“Confidential Information” means, in respect of a Party (the “Disclosing Party”), all information concerning the Disclosing Party that is made available by the Disclosing Party or any of its Representatives to the other Party (the “Receiving Party”) or any of its Representatives, whether in verbal, visual, written, electronic or other form, together, in each case, with all notes, memoranda, summaries, analyses, studies, compilations and other writings relating thereto or based thereon prepared by the Receiving Party or any of its Representatives; provided, however, that the term “Confidential Information” does not include information which (i) was lawfully in the possession of the Receiving Party before it was made available by the Disclosing Party or any of its Representatives to the Receiving Party or any of its Representatives; (ii) is independently developed by the Receiving Party without use of the Confidential Information of the Disclosing Party; (iii) is now, or hereafter becomes, available to the public other than as a result of disclosure prohibited by this Agreement; or (iv) becomes available to the Receiving Party or any of its Representatives on a non-confidential basis from a source other than the Disclosing Party or any of its Representatives and such source is not, to the knowledge of the Receiving Party following reasonable inquiry, under any obligation to the Disclosing Party to keep such information confidential.

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“Consideration” means the Exchange Ratio (as such term is defined and determined in accordance with the Plan of Arrangement) of a Purchaser Common Share for each Company Common Share.

“Constating Documents” means, in respect of a Party, the articles and notice of articles, articles of incorporation, formation, amalgamation or continuation, as applicable, charters, operating agreements, by-laws or other organizational documents of such Party and all amendments to such articles, charters, operating agreements, by-laws or other organizational documents.

“Contract” means, in respect of a Party, any legally binding agreement, commitment, engagement, contract, franchise, licence, obligation, arrangement or undertaking (written or oral), together with any amendments and modifications thereto, to which such Party or any of its Subsidiaries is a party or by which such Party or any of its Subsidiaries is bound.

“Court” means the Supreme Court of British Columbia, or other court as applicable.

“Depositary” means the trust company, bank or financial institution agreed to in writing between the Purchaser and the Company for the purpose of, among other things, working in connection with the transfer agents for the Company and the Purchaser, the Canadian Depository for Securities Limited and the Depository Trust & Clearing Corporation to distribute the Purchaser Common Shares comprising the Consideration.

“Disclosing Party” has the meaning specified in the definition of Confidential Information.

“Dissent Rights” means the rights of dissent in respect of the Arrangement described in the Plan of Arrangement.

“EDGAR” means Electronic Data Gathering, Analysis, and Retrieval system.

“Effective Date” means the date the Arrangement becomes effective as agreed to by the Parties in accordance with the Final Order.

“Effective Time” means the beginning of the day (Vancouver time) on the Effective Date, or such other time on the Effective Date as the Parties agree to in writing before the Effective Date.

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“Employee Plan(s)” means all health, welfare, supplemental unemployment benefit, post-employment benefit, bonus, profit sharing, option, stock appreciation, equity or equity-based, savings, insurance, incentive, incentive compensation, deferred compensation, share purchase, share compensation, termination, severance, change of control, disability, superannuation, pension, supplemental pension or supplemental retirement plans and other employee or director compensation or benefit plans, policies, practices, trusts, funds, agreements, arrangements or undertakings, whether oral or written, formal or informal, funded or unfunded, insured or uninsured, registered or unregistered, and in each case for the benefit of directors or former directors of the Company or any of its Subsidiaries, Company Employees, former Company Employees, or any spouses, dependents, survivors or beneficiaries of such Persons, which are maintained by or binding upon the Company or any of its Subsidiaries or in respect of which the Company or any of its Subsidiaries has any actual or potential liability but, for greater certainty, “Employee Plan(s)” does not include any Collective Agreements.

“Environmental Laws” means all applicable Laws relating to worker health and safety, pollution, natural resources, protection of the natural environment or any species that might make use of the natural environment or the generation, production, import, export, use, handling, storage, treatment, transportation, disposal or Release of Hazardous Substances, including under common law, and all Authorizations issued pursuant to such applicable Laws.

“Fairness Opinion” means the opinion of the Financial Advisor to the effect that, as of the date of such opinion, and subject to the assumptions, qualifications and limitations set forth therein, the Consideration to be received by the Company Shareholders is fair, from a financial point of view, to such holders.

“Final Order” means the final order of the Court made pursuant to Section 291(4) of the BCBCA, after a hearing upon the fairness of the terms and conditions of the Arrangement and after being informed of the intention to rely upon the registration exemption provided in Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Purchaser Common Shares to be issued pursuant to the Arrangement in exchange for the Company Common Shares, in a form acceptable to the Company and the Purchaser, each acting reasonably, approving the Arrangement, as such order may be amended by the Court (with the consent of both the Company and the Purchaser, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both the Company and the Purchaser, each acting reasonably) on appeal.

“Financial Advisor” means Haywood Securities Inc., in its role as financial advisor to the Company in connection with the Arrangement.

“Government Official” means any official, employee, or representative of any Governmental Entity or public international organization, any political party or employee thereof, or any candidate for political office.

“Governmental Entity” means (i) any international, multinational, national, federal, provincial, territorial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau, ministry, agency or instrumentality, domestic or foreign, (ii) any subdivision, agent, authority or representative of any of the above, (iii) any quasi- governmental or private body exercising any regulatory, anti-trust, foreign investment, expropriation or taxing authority under or for the account of any of the foregoing, or (iv) any stock exchange, including but not limited to, Bundesinstitut für Arzneimittel und Medizinprodukte (Federal Institute for Drugs and Medical Devices) and the Colombian Ministry of Agriculture, Colombian Ministry of Agriculture, Health Canada.

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“Hazardous Substances” means (i) petroleum and petroleum products, by-products or breakdown products, radioactive materials, asbestos, asbestos-containing materials and polychlorinated biphenyls and (ii) any substance that is defined, regulated, prohibited, designated or classified as dangerous, hazardous, radioactive, explosive or toxic or a pollutant or a contaminant under or pursuant to any applicable Environmental Laws.

“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board.

“Intellectual Property” means domestic and foreign: (i) patents, applications for patents and reissues, divisions, continuations, renewals, extensions and continuations-in-part of patents or patent applications; (ii) proprietary and non-public business information, including inventions (whether patentable or not), invention disclosures, improvements, discoveries, trade secrets, confidential information, know-how, methods, processes, designs, technology, technical data, schematics, formulae and customer lists, and documentation relating to any of the foregoing; (iii) works of authorship, copyrights, copyright registrations and applications for copyright registration; (iv) mask works, mask work registrations and applications for mask work registrations; (v) designs, design registrations, design registration applications and integrated circuit topographies; (vi) trade names, business names, corporate names, domain names, website names and world wide web addresses, common law trade-marks, trade-mark registrations, trade mark applications, trade dress and logos, and the goodwill associated with any of the foregoing; (vii) Software; and (viii) any other intellectual property and industrial property.

“Interim Order” means the interim order of the Court made pursuant to Section 291(2) of the BCBCA in a form acceptable to the Company and the Purchaser, each acting reasonably, providing for, among other things, the calling and holding of the Company Meeting and the voting requirements with respect to the Arrangement Resolution, as such order may be amended by the Court with the consent of the Company and the Purchaser, each acting reasonably.

“Investment Canada Act” means the Investment Canada Act (Canada).

“IT Assets” means any and all Software, hardware, servers, systems, networks, data communications lines, websites, platforms, and other computer, information technology or telecommunications assets and equipment, in each case, owned, leased, licensed, used or held for use by the Company or any of its Subsidiaries.

“Law” means, with respect to any Person, any and all applicable law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, notice, judgment, decree, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, undertaking, property or securities and, to the extent that they have the force of law, any policies, guidelines, notices and protocols of any Governmental Entity, as amended unless expressly specified otherwise.

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“Leased Premises” means the premises which the Company or its Subsidiaries occupies as a tenant.

“Legal Proceedings” means any litigation, action, application, suit, investigation, inquiry, hearing, claim, deemed complaint, grievance, civil, administrative, regulatory, criminal or arbitration proceeding or other similar proceeding, before or by any Governmental Entity (including any appeal or review thereof and any application for leave for appeal or review).

“Lien” means any mortgage, charge, pledge, hypothec, security interest, lien (statutory or otherwise), or adverse right or claim, or other third party interest or encumbrance of any kind.

“LOI” means the letter of intent dated August 22, 2022 entered into between the Purchaser and the Company.

“Matching Period” has the meaning specified in Section 5.4(a)(iii).

“Material Adverse Effect” means, in respect of either Party, any result, change, event, occurrence, effect, state of facts, development or circumstance that, individually or in the aggregate with other such changes, events, occurrences, effects, state of facts, developments or circumstances, is or would reasonably be expected to be material and adverse to the business, operations, results of operations, assets, properties, capitalization, obligations (whether absolute, accrued, conditional or otherwise), financial condition or liabilities (contingent or otherwise) of such Party and its Subsidiaries, taken as a whole, except any such change, event, occurrence, effect, state of facts or circumstance resulting from, arising in connection with or related to:

(a)	any change or development generally affecting the industries or segments in which such Party and its Subsidiaries operate or carry on their business;
(b)	any change or development in currency exchange, interest or inflation rates or in general economic, business, regulatory, political or market conditions or in financial, credit, commodities, securities or capital markets in Canada, the United States, Europe or globally;
(c)	any adoption, proposal, implementation, application or non-application or change in applicable Law or any interpretation of applicable Law by any Governmental Entity;
(d)	any change in IFRS or changes in applicable regulatory accounting requirements applicable to the industries in which it conducts business;
(e)	any hurricane, flood, tornado, earthquake or other natural disaster or man-made disaster;

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(f)	the commencement or continuation of war, armed hostilities, including the escalation or worsening thereof, acts of terrorism, riots, insurrection, civil disorder, military conflicts, political instability or other armed conflict, national calamity, crisis or emergency, or any governmental response to any of the foregoing;
(g)	the commencement or continuation of an epidemic, pandemic or other outbreak of illness or public health event, including the escalation or worsening thereof;
(h)	the announcement of this Agreement or the transactions contemplated hereby;
(i)	any action taken (or omitted to be taken) by such Party or any of its Subsidiaries which is required to be taken (or omitted to be taken) pursuant to this Agreement or that is consented to by the other Party in writing;
(j)	any failure by such Party to meet any analysts’ estimates or expectations of such Party’s revenue, earnings or other financial performance or results of operations for any period, or any failure by such Party or any of its Subsidiaries to meet any internal budgets, plans or forecasts of its revenues, earnings or other financial performance or results of operations (it being understood that, without limiting the applicability of clauses (a) through (i) and (k) of this definition, the causes underlying such failure may be taken into account in determining whether a Material Adverse Effect has occurred); or
(k)	any change in the market price or trading volume of any securities of such Party (it being understood that, without limiting the applicability of clauses (a) through (j) of this definition, the causes underlying such change may be taken into account in determining whether a Material Adverse Effect has occurred), or any suspension of trading in securities generally on any securities exchange on which any securities of such Party trade,

provided, however, that (A) with respect to clauses (a) through (g) of this definition, such matter does not have a materially disproportionate effect on such Party and its Subsidiaries, taken as a whole, relative to other comparable companies and entities operating in the industries in which such Party and/or its Subsidiaries operate, in which case such effect may be taken into account in determining whether a Material Adverse Effect in respect of such Party has occurred, and (B) references in this Agreement to dollar amounts are not intended to be and shall not be deemed to be illustrative or interpretative for purposes of determining whether a Material Adverse Effect has occurred.

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“Material Contract” means any Contract to which the Company or any of its Subsidiaries is a party: (i) that relates to any intellectual property rights of the Company; (ii) relating to indebtedness for borrowed money or pursuant to which the Company or any of its Subsidiaries has guaranteed the liabilities, obligations or indebtedness of any other Person; (iii) restricting, or which may in the future restrict, the incurrence of indebtedness by the Company or any of its Subsidiaries (including by requiring the granting of an equal and rateable Lien), the incurrence of any Liens on any properties or assets of the Company or any of its Subsidiaries, or the payment of dividends or other distributions by the Company or any of its Subsidiaries; (iv) relating to or providing for the establishment, investment in, organization, formation, or governance of any joint venture, limited liability company or partnership with any other Person; (v) that creates an exclusive dealing arrangement or right of first offer or refusal that is material to the Company and its Subsidiaries taken as a whole, to the benefit of a third party, other than industry standard agreements entered into in the Ordinary Course; (vi) providing for the purchase, sale or exchange of, or option to purchase, sell or exchange, any property or asset where the purchase or sale price or agreed value or fair market value of such property or asset exceeds $100,000; (vii) that limits or restricts, or may in the future limit or restrict, the ability of the Company or any Subsidiary to acquire any property, to engage in any line of business or to carry on business in any geographic area, or the scope of Persons to whom the Company or any of its Subsidiaries may sell products or deliver services; (viii) that constitutes a hedge contract, futures contract, swap contract, option contract or similar derivative Contract; (ix) under which the Company or any of its Subsidiaries is obligated to make or expects to receive payments in excess of $100,000 over the remaining term; (x) with any Governmental Entity; (xi) that constitutes an amendment, supplement, renewal or modification in respect of any of the foregoing; or (xii) which, if terminated or if it ceased to be in effect, would have a Material Adverse Effect on the Company.

“MI 61-101” means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

“Misrepresentation” means an untrue statement of a material fact or an omission to state a material fact required or necessary to make the statements contained therein not misleading in light of the circumstances in which they are made.

“Nasdaq” means The Nasdaq Capital Market.

“Nasdaq Rules” means The Nasdaq Stock Market LLC Rules, as may be waived or modified by Nasdaq from time to time.

“Notice” has the meaning specified in Section 8.3.

“officer” has the meaning specified in the Securities Act (British Columbia).

“OHSL” has the meaning specified in Paragraph 30(h) of Schedule C.

“Ordinary Course” means, with respect to an action taken by a Party or its Subsidiary, that such action is consistent with the past practices of such Party or such Subsidiary, and is taken in the usual and ordinary course of the normal day-to-day operations of the business of such Party or such Subsidiary.

“Outside Date” means December 31, 2022, or such later date as may be agreed to in writing by the Parties.

“Parties” means the Company and the Purchaser, and “Party” means any one of them.

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“Permitted Liens” means, in respect of the Company or any of its Subsidiaries, any one or more of the following:

(a)	Liens or deposits for Taxes or charges for electricity, gas, power, water and other utilities (i) which are not yet due and payable or delinquent or (ii) which are being contested in good faith by appropriate proceedings and in respect of which the applicable Governmental Entities are prevented from taking collection action during the valid contest of such amounts and in respect of which reserves have been provided in the most recently published consolidated financial statements of the Company in accordance with IFRS;
(b)	inchoate or statutory Liens of contractors, subcontractors, mechanics, workers, suppliers, materialmen, carriers and others in respect of the construction, maintenance, repair or operation of the Company Assets, provided that such Liens are related to obligations not yet due or delinquent, are not registered against title to any Company Assets and in respect of which adequate holdbacks are being maintained as required by applicable Law imposed by any Governmental Entity having jurisdiction over real property;
(c)	municipal by-laws, regulations, ordinances, zoning law, building or land use restrictions and other limitations imposed by any Governmental Entity having jurisdiction over real property and any other restrictions affecting or controlling the use, marketability or development of real property;
(d)	customary rights of general application reserved to or vested in any Governmental Entity to control or regulate any interest in the facilities in which the Company or any of its Subsidiaries conduct their business, provided that such Liens, encumbrances, exceptions, agreements, restrictions, limitations, contracts and rights (i) were not incurred in connection with any indebtedness, and (ii) do not, individually or in the aggregate, have a material adverse effect on the value or materially impair or add material cost to the use of the subject property;
(e)	Liens incurred, created and granted in the Ordinary Course to a public utility, municipality or Governmental Entity in connection with operations conducted with respect to the Company Assets, but only to the extent those Liens relate to costs and expenses for which payment is not yet due or delinquent;
(f)	easements, rights of way, restrictions, restrictive covenants, servitudes and similar rights in land including rights of way and servitudes for highways and other roads, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone, telegraph or cable television conduits, poles, wires and cables, that in each case do not materially adversely impact the use of such property as it is being used on the date of this Agreement;
(g)	such other imperfections or irregularities of title or Liens as do not individually or in the aggregate materially detract from the value or materially adversely affect the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties; and
(h)	any Liens, other than those described above, that are (i) registered or of record as of the date hereof against title to real property comprising Company Assets in the applicable land registry offices or recording offices, or (ii) registered or recorded, as of the date hereof, against the Company Assets in a public personal property registry, or similar registry systems.

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“Person” includes any individual, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, body corporate, trust, organization, estate, trustee, executor, administrator, legal representative, government (including Governmental Entity), syndicate or other entity, whether or not having legal status.

“Plan of Arrangement” means the plan of arrangement, substantially in the form of Schedule A, subject to any amendments or variations to such plan made in accordance with Section 8.1 or made at the direction of the Court in the Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.

“Purchaser” has the meaning specified in the preamble.

“Purchaser Common Share” means a common share in the capital of the Purchaser.

“Purchaser Expense Reimbursement Amount” has the meaning specified in Section 7.5(a).

“Purchaser Filings” means all documents publicly filed under the profile of the Purchaser on EDGAR since January 1, 2021.

“Receiving Party” has the meaning specified in the definition of Confidential Information.

“Regulatory Approval” means, in respect of a Party, any consent, waiver, permit, exemption, review, order, decision or approval of, or any registration and filing with, any Governmental Entity, or the expiry, waiver or termination of any waiting period imposed by Law or a Governmental Entity, in each case required to be obtained or made by such Party in connection with the Arrangement or otherwise necessary to permit the Parties to complete their obligations under this Agreement.

“Release” has the meaning prescribed in any Environmental Law and includes any sudden, intermittent or gradual release, spill, leak, pumping, addition, pouring, emission, emptying, discharge, injection, escape, leaching, disposal, dumping, deposit, spraying, burial, abandonment, incineration, seepage, placement or introduction of a Hazardous Substance, whether accidental or intentional, into the environment.

“Representative” has the meaning specified in Section 5.1(a).

“Required Approval” has the meaning specified in Section 2.2(b).

“SEC” means the United States Securities and Exchange Commission.

“Securities Authorities” means the British Columbia Securities Commission and any other applicable securities commissions or securities regulatory authority of a province or territory of Canada.

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“Securities Laws” means, unless the context otherwise requires, the Securities Act (British Columbia) and all applicable securities Laws of the United States and Canada, including the federal, state, provincial and territorial rules, policies and regulations issued thereunder, and the published regulations, rules, policy statements, orders, instruments (including national and applicable multilateral instruments), notices and rulings of the securities commissions or equivalent securities regulatory bodies in such jurisdictions, including the applicable rules and policies of, with respect to the Company, the TSXV and, with respect to the Purchaser, the Nasdaq.

“SEDAR” means the System for Electronic Document Analysis and Retrieval maintained on behalf of the Securities Authorities.

“Software” means computer software and programs (both source code and object code form), all proprietary rights in the computer software and programs and all documentation and other materials related to the computer software and programs.

“Superior Proposal” means any bona fide written Acquisition Proposal from a Person or group of Persons acting jointly or in concert (other than the Purchaser and its affiliates) to acquire not less than all of the outstanding Company Common Shares (other than the Company Common Shares beneficially owned by the Person or group of Persons making such Superior Proposal) or all or substantially all of the assets of the Company on a consolidated basis: (i) that did not result from or involve a breach of Article 5, (ii) that is reasonably capable of being completed without undue delay, taking into account all financial, legal, regulatory and other aspects of such proposal and the Person or group of Persons making such proposal; (iii) that is not subject to any financing contingency and in respect of which, to the satisfaction of the Board, acting in good faith, adequate arrangements have been made to ensure that the required funds will be available to effect payment in full for all of the Company Common Shares or assets, as the case may be; (iv) that is not subject to any due diligence or access condition; (v) complies with applicable Laws in all material respects; and (vi) in respect of which the Board determines, in its good faith judgment, after receiving the advice of its financial advisors and its outside legal advisors and after taking into account all the terms and conditions of the Acquisition Proposal, that the Acquisition Proposal would, if completed in accordance with its terms (but without assuming away any risk of non-completion), result in a transaction which is more favourable, from a financial point of view, to the Company Shareholders than the Arrangement (including any amendments to the terms and conditions of the Arrangement proposed by the Purchaser pursuant to Section 5.4(b)).

“Superior Proposal Notice” has the meaning specified in Section 5.4(a)(ii).

“Support and Voting Agreements” means each of the support and voting agreements dated the date hereof between the Purchaser and each of the directors and officers of the Company, along with certain shareholders of the Company.

“Tax Act” means the Income Tax Act (Canada).

“Tax Returns” means any and all returns, reports, declarations, elections, notices, forms, designations, filings, and statements (including estimated tax returns and reports, withholding tax returns and reports, and information returns and reports) filed or required to be filed in respect of Taxes.

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“Taxes” means (i) any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever imposed by any Governmental Entity, whether computed on a separate, consolidated, unitary, combined or other basis, including those levied on, or measured by, or described with respect to, income, gross receipts, profits, gains, windfalls, capital, capital stock, production, recapture, transfer, land transfer, license, gift, occupation, wealth, escheat, environment, net worth, indebtedness, surplus, sales, goods and services, harmonized sales, provincial sales, use, value-added, excise, special assessment, stamp, withholding, business, franchising, real or personal property, health, employee health, payroll, workers’ compensation, employment or unemployment, severance, social services, social security, education, utility, surtaxes, customs, import or export, and including all license and registration fees and all employment insurance, health insurance and government pension plan premiums or contributions; (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Entity on or in respect of amounts of the type described in clause (i) above or this clause (ii); (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) for or to or in respect of any other Person, including as a result of being a member of an affiliated, consolidated, combined or unitary group for any period or by virtue of any statute (including under sections 159 and 160 of the Tax Act); and (iv) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify any other Person or as a result of being a transferee or successor in interest to any party.

“Trade Control Laws” means economic sanctions, anti-terrorism, customs and export and technology transfer control laws, including (i) the Special Economic Measures Act (Canada)¸ the United Nations Act (Canada), the Freezing Assets of Corrupt Foreign Officials Act, the Criminal Code (Canada), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the Foreign Extraterritorial Measures Act, the Export and Import Permits Act (Canada), the Defence Production Act (Canada), the Justice for Victims of Corrupt Foreign Officials Act and the Customs Act (Canada); and (ii) any sanctions or export controls administered or enforced by the U.S. Department of Treasury’s Office of Foreign Assets Control, the U.S. Department of State, or the Bureau of Industry and Security of the U.S. Department of Commerce, and Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, the USA PATRIOT Act of 2001, the Trading with the Enemy Act (12 U.S.C. §95), the International Emergency Economic Powers Act (50 U.S.C. §§1701-1707), and all other applicable U.S. economic sanctions, anti-terrorism, customs and export and technology transfer control Laws, including any regulations or orders issued under the foregoing, and similar applicable economic sanctions, anti-terrorism, customs and export and technology transfer control laws of other jurisdictions.

“TSXV” means the TSX Venture Exchange.

“U.S. Exchange Act” means the Securities Exchange Act of 1934 of the United States of America, as amended.

“U.S. Investment Company Act” means the Investment Company Act of 1940 of the United States of America, as amended.

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“U.S. Securities Act” means the Securities Act of 1933 of the United States of America, as amended.

“U.S. Securities Laws” means the U.S. Securities Act, the U.S. Exchange Act, the U.S. Investment Company Act, any applicable U.S. federal securities laws, rules and regulations promulgated thereunder and any applicable U.S. state securities laws.

1.2. Certain Rules of Interpretation

In this Agreement, unless otherwise specified:

(a) Headings, etc. The provision of a Table of Contents, the division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the construction or interpretation of this Agreement.

(b) Currency. All references to dollars or to $ are references to Canadian dollars, unless otherwise specified.

(c) Gender and Number. Any reference to gender includes all genders. Words importing the singular number only include the plural and vice versa.

(d) Certain Phrases and References, etc. The words “including”, “includes” and “include” mean “including (or includes or include) without limitation,” and “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of.” Unless stated otherwise, “Article”, “Section”, and “Schedule” followed by a number or letter mean and refer to the specified Article or Section of or Schedule to this Agreement.

(e) Capitalized Terms. All capitalized terms used in any Schedule hereto have the meanings ascribed to them in this Agreement.

(f) Knowledge. Where any representation or warranty is expressly qualified by reference:

(i)

to the knowledge of the Company, it is deemed to refer to the actual or constructive knowledge of the Chief Executive Officer, President, and Chief Financial Officer, after making reasonable inquiries into the relevant subject matter together with reasonable inquiries of the applicable employees, consultants or directors of the Company or its Subsidiaries, in each case who are currently employed and not absent from work by reason of leave of absence or otherwise, or otherwise engaged by the Company, as applicable, with respect to the matters that are the subject of the representations and warranties; or

(ii)

to the knowledge of the Purchaser, it is deemed to refer to the actual or constructive knowledge of the Chief Executive Officer and Chief Financial Officer, after making reasonable inquiries into the relevant subject matter together with reasonable inquiries of the applicable employees, consultants or directors of the Purchaser or its Subsidiaries, in each case who are currently employed and not absent from work by reason of leave of absence or otherwise, or otherwise engaged by the Purchaser, as applicable, with respect to the matters that are the subject of the representations and warranties.

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(g) Accounting Terms. Unless otherwise specified herein, all accounting terms are to be interpreted in accordance with IFRS and all determinations of an accounting nature in respect of the Company required to be made shall be made in a manner consistent with IFRS.

(h) Statutes. Any reference to a statute refers to such statute and all rules and regulations made under it, as it or they may have been or may from time to time be amended or re-enacted, unless stated otherwise.

(i) Computation of Time. A period of time is to be computed as beginning on the day following the event that began the period and ending at 5:00 p.m. on the last day of the period, if the last day of the period is a Business Day, or at 5:00 p.m. on the next Business Day if the last day of the period is not a Business Day. If the date on which any action is required or permitted to be taken under this Plan of Arrangement by a Person is not a Business Day, such action shall be required or permitted to be taken on the next succeeding day which is a Business Day.

(j) Time References. References to time herein are to local time, Vancouver, British Columbia, unless otherwise specified.

(k) Affiliates and Subsidiaries. For the purpose of this Agreement, a Person is an “Affiliate” of another Person if one of them is a Subsidiary of the other or each one of them is controlled, directly or indirectly, by the same Person. A “Subsidiary” means a Person that is controlled directly or indirectly by another Person and includes a Subsidiary of that Subsidiary. A Person is considered to “control” another Person if: (i) the first Person beneficially owns or directly or indirectly exercises control or direction, by contract or otherwise, over securities of the second Person carrying votes which, if exercised, would entitle the first Person to elect a majority of the directors of the second Person, unless that first Person holds the voting securities only to secure an obligation, or (ii) the second Person is a partnership, other than a limited partnership, and the first Person holds more than 50% of the interests of the partnership, or (iii) the second Person is a limited partnership, and the general partner of the limited partnership is the first Person.

1.3. Schedules

(a) The Schedules attached to this Agreement form an integral part of this Agreement for all purposes of it.

(b) The Company Disclosure Letter itself and all information contained in it is Confidential Information of the Company and may not be disclosed by either Party unless (i) it is required to be disclosed pursuant to applicable Law unless such Law permits the Parties to refrain from disclosing the information for confidentiality or other purposes, or (ii) a Party, acting reasonably and in good faith, needs to disclose it in order to enforce or exercise its rights under this Agreement.

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ARTICLE 2 THE ARRANGEMENT

2.1. The Arrangement

The Company and the Purchaser agree that the Arrangement will be implemented in accordance with and subject to the terms and conditions of this Agreement and the Plan of Arrangement.

2.2. Interim Order

As soon as reasonably practicable after the date of this Agreement, the Company shall apply in a manner reasonably acceptable to the Purchaser pursuant to Part 9, Division 5 of the BCBCA and, in cooperation with the Purchaser, prepare, file and diligently pursue an application for the Interim Order, which shall provide, among other things:

(a) for the class(es) of persons to whom notice is to be provided in respect of the Arrangement and the Company Meeting and for the manner in which such notice is to be provided;

(b) that the required level of approval (the “Required Approval”) for the Arrangement Resolution shall be (i) two-thirds of the votes cast on the Arrangement Resolution by Company Shareholders present in person or represented by proxy at the Company Meeting and (ii) if required by MI 61-101, minority approval in accordance with MI 61-101;

(c) that, in all other respects, the terms, restrictions and conditions of the Company’s Constating Documents, including quorum requirements, shall apply in respect of the Company Meeting;

(d) for the grant of the Dissent Rights only to those Company Shareholders who are registered Company Shareholders as contemplated in the Plan of Arrangement;

(e) for the notice requirements with respect to the presentation of the application to the Court for the Final Order;

(f) that the Company Meeting may be adjourned or postponed from time to time by the Company in accordance with the terms of this Agreement without the need for additional approval of the Court;

(g) confirmation of the record date for the purposes of determining the Company Shareholders entitled to notice of and to vote at the Company Meeting in accordance with the Interim Order;

(h) that the record date for the Company Shareholders entitled to notice of and to vote at the Company Meeting will not change in respect of any adjournment(s) of the Company Meeting, unless required by applicable Laws;

(i) that it is the Purchaser's intention to rely upon the exemption from registration provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Purchaser Common Shares to be issued pursuant to the Arrangement in exchange for the Company Common Shares, based on the Court's approval of the Arrangement; and

(j) for such other matters as the Purchaser or the Company may reasonably require, subject to obtaining the prior consent of the other Party, such consent not to be unreasonably withheld, conditioned or delayed.

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2.3. The Company Meeting

Subject to the terms of this Agreement and the receipt of the Interim Order, the Company shall:

(a) convene and conduct the Company Meeting in accordance with the Interim Order, the Company’s Constating Documents and applicable Law as soon as reasonably practicable, and in any event on or before December 9, 2022, and not adjourn, postpone or cancel (or propose the adjournment, postponement or cancellation of) the Company Meeting without the prior written consent of the Purchaser, except:

(i)	as required for quorum purposes (in which case the Company Meeting shall be adjourned and not cancelled), by applicable Law or by a valid Company Shareholder action (which action is not solicited or proposed by the Company or the Board); or
(ii)	as otherwise expressly permitted under this Agreement;

(b) use commercially reasonable efforts to solicit proxies in favour of the approval of the Arrangement Resolution and against any resolution submitted by any Company Shareholder that is inconsistent with the Arrangement Resolution or the completion of any of the transactions contemplated by this Agreement, including, if so requested by the Purchaser, acting reasonably, using proxy solicitation services firms acceptable to the Purchaser to solicit proxies in favour of the approval of the Arrangement Resolution;

(c) provide the Purchaser with copies of or access to information regarding the Company Meeting generated by any proxy solicitation services firm, as reasonably requested from time to time by the Purchaser;

(d) consult with the Purchaser in fixing the date of the Company Meeting, give notice to the Purchaser of the Company Meeting and allow the Purchaser’s representatives and legal counsel to attend the Company Meeting;

(e) promptly advise the Purchaser, at such times as the Purchaser may reasonably request and at least on a daily basis on each of the last 10 Business Days prior to the date of the Company Meeting, as to the aggregate tally of the proxies received by the Company in respect of the Arrangement Resolution;

(f) promptly advise the Purchaser of receipt of any communication (written or oral) from any Company Shareholder or any other securityholder of the Company in opposition to the Arrangement (other than non-substantive communications) and/or relating to the exercise or purported exercise or withdrawal of Dissent Rights;

(g) not change the record date for the Company Shareholders entitled to vote at the Company Meeting in connection with any adjournment or postponement of the Company Meeting (unless required by applicable Law or the Interim Order or with the prior written consent of the Purchaser);

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(h) not waive any failure by any holder of Company Common Shares to timely deliver a notice of exercise of Dissent Rights, make any payment or settlement offer, or agree to any payment or settlement prior to the Effective Time with respect to Dissent Rights without the prior written consent of the Purchaser; and

(i) at the reasonable request of the Purchaser from time to time, provide the Purchaser with: (i) a list of the registered Company Shareholders, together with their addresses and respective holdings of Company Common Shares; (ii) a list of the holders of the Company Options, Company RSUs and the Agent Compensation Options, together with their addresses and respective holdings of Company Options, Company RSUs and Agent Compensation Options; and/or (iii) a list of participants and book- based nominee registrants such as CDS & Co., CEDE & Co. and DTC (as applicable), and non-objecting beneficial owners of the Company Common Shares, together with their addresses and respective holdings of the Company Common Shares. The Company shall from time to time require that its registrar and transfer agent furnish the Purchaser with such additional information, including updated or additional lists of the Company Shareholders, and lists of securities positions and other assistance as the Purchaser may reasonably request in order to be able to communicate with the Company Shareholders with respect to the Arrangement.

2.4. The Company Circular

(a) Subject to the Purchaser’s compliance with Section 2.4(d), the Company shall promptly prepare and complete the Company Circular together with any other documents required by Law in connection with the Company Meeting and the Arrangement, and the Company shall, promptly after obtaining the Interim Order, cause the Company Circular and such other documents to be filed and sent to each Company Shareholder and other Person as required by the Interim Order and Law, in each case using all reasonable commercial efforts so as to permit the Company Meeting to be held as soon as reasonably practicable as specified in Section 2.3(a).

(b) On the date of mailing thereof, the Company shall ensure that the Company Circular complies in all material respects with applicable Law and the Interim Order, does not contain any Misrepresentation (except that the Company shall not be responsible for any information included in the Company Circular related to the Purchaser and its Affiliates that was furnished by the Purchaser for inclusion in the Company Circular pursuant to Section 2.4(d)) and provides the Company Shareholders with sufficient information to permit them to form a reasoned judgement concerning the matters to be placed before the Company Meeting. Without limiting the generality of the foregoing, the Company Circular shall include: (i) a copy of the Fairness Opinion, (ii) subject to Article 5, a statement that the Board has received the Fairness Opinion and has unanimously (with any interested directors having abstained from voting), after receiving legal and financial advice, determined that the Arrangement is fair, from a financial point of view, to the Company Shareholders and that the Arrangement is in the best interests of the Company and recommends that the Company Shareholders vote in favour of the Arrangement Resolution (the “Board Recommendation”), (iii) a statement that the directors and officers of the Company who are or who become holders of Company Common Shares, along with certain principal shareholders, have agreed to vote their Company Common Shares in favour of the Arrangement Resolution pursuant to the Support and Voting Agreements; and (iv) all statements that, in the reasonable judgement of the Parties and their legal counsel, the Arrangement qualifies for the exemption provided by Section 3(a)(10) of the U.S. Securities Act.

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(c) The Company shall give the Purchaser and its legal counsel a reasonable opportunity to review and comment on drafts of the Company Circular and other related documents, and shall give reasonable consideration to any comments made by them, and agrees that all information relating solely to the Purchaser or any of its Affiliates included in the Company Circular must be in a form and content satisfactory to the Purchaser.

(d) The Purchaser shall provide the Company with, on a timely basis, all information regarding the Purchaser and its Affiliates, as required by applicable Laws for inclusion in the Company Circular or in any amendments or supplements to the Company Circular. The Purchaser shall ensure that such information (including any information or documentation incorporated by reference therein) does not contain any Misrepresentation.

(e) Each Party shall promptly notify the other Party if it becomes aware that the Company Circular contains a Misrepresentation, or otherwise requires an amendment or supplement. The Parties shall co-operate in the preparation of any such amendment or supplement as required or appropriate, and the Company shall promptly mail, file or otherwise publicly disseminate any such amendment or supplement to the Company Shareholders and, if required by the Court or by applicable Law, file the same with the Securities Authorities or any other Governmental Entity as required.

2.5. Final Order

If the Interim Order is obtained and the Arrangement Resolution is approved at the Company Meeting in accordance with the terms of the Interim Order, the Company shall take all steps necessary to submit the Arrangement to the Court and diligently pursue an application for the Final Order pursuant to Section 291(4) of the BCBCA, as soon as reasonably practicable, but in any event not later than three Business Days after the Arrangement Resolution is passed at the Company Meeting as provided for in the Interim Order.

2.6. Court Proceedings

(a) The Purchaser shall cooperate with and assist the Company in, and consent to the Company, seeking the Interim Order and the Final Order, including by providing the Company on a timely basis any information regarding the Purchaser as reasonably requested by the Company or as required by applicable Law to be supplied by the Purchaser in connection therewith.

(b) In connection with all Court proceedings relating to obtaining the Interim Order and the Final Order, and in each case subject to applicable Law, the Company shall:

(i)	diligently pursue, and cooperate with the Purchaser in diligently pursuing, the Interim Order and the Final Order;
(ii)	provide legal counsel to the Purchaser with a reasonable opportunity to review and comment upon drafts of all material to be filed with the Court in connection with pursuing the Interim Order or the Final Order, and give reasonable consideration to all such comments;

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(iii)	provide legal counsel to the Purchaser with copies of any notice of appearance, evidence or other documents served on the Company or its legal counsel in respect of the application for the Interim Order or the Final Order or any appeal from them, and any notice, written or oral, indicating the intention of any Person to appeal, or oppose the granting of, the Interim Order or the Final Order;
(iv)	not object to legal counsel to the Purchaser making such submissions on the hearing of the motion for the Interim Order and the application for the Final Order as such counsel considers appropriate, provided that the Company is advised of the nature of any submissions on a timely basis prior to the hearing and such submissions are consistent in all material respects with this Agreement and the Plan of Arrangement;
(v)	ensure that all material filed with the Court in connection with pursuing the Interim Order or the Final Order is consistent in all material respects with this Agreement and the Plan of Arrangement;
(vi)	oppose any proposal from any party that the Final Order contain any provision inconsistent with this Agreement;
(vii)	if at any time after the issuance of the Final Order and prior to the Effective Date the Company is required by the terms of the Final Order or by Law to return to Court with respect to the Final Order, it shall do so after notice to, and in consultation and cooperation with, the Purchaser; and
(viii)	not file any material with the Court in connection with pursuing the Interim Order or the Final Order or serve any such material, or agree to modify or amend any material so filed or served, except as contemplated by this Agreement or with the Purchaser’s prior written consent, which consent may not be unreasonably withheld, conditioned or delayed, provided that the Purchaser may, in its sole discretion, withhold its consent with respect to any increase in or variation in the form of the Consideration or other modification or amendment to such filed or served materials that expands or increases the Purchaser’s obligations or diminishes or limits the Purchaser’s rights set forth in any such filed or served materials or under this Agreement.

2.7. Company Options, Company RSUs and Agent Compensation Options

(a) Pursuant to the terms of the Company Stock Option Plan, the Board shall prior to the Effective Time: (i) approve the acceleration of the vesting of all outstanding Company Options, subject to receipt of requisite regulatory approval (if any), and upon such approval each Company Option shall be deemed to be vested and exercisable prior to the Effective Time; and (ii) approve, conditional upon completion of the Arrangement, the termination and cancellation of all Company Options that have not been exercised prior to the Effective Time without payment of any consideration to the holders of such terminated and cancelled Company Options.

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(b) In accordance with the terms of the Agent Compensation Options, each holder of an Agent Compensation Option outstanding immediately prior to the Effective Time shall receive upon the subsequent exercise of such holder’s Agent Compensation Option, in accordance with its terms and for the same aggregate consideration therefor, and shall accept in lieu of each Company Common Share to which such holder was theretofore entitled upon such exercise, the Consideration.

(c) The Parties acknowledge that the outstanding Company RSUs will be treated in accordance with the provisions of the Plan of Arrangement. For clarity, subject to the terms and conditions of this Agreement and as set forth in the Plan of Arrangement, pursuant to the Arrangement, each Company RSU outstanding immediately prior to the Effective Time (whether vested or unvested) shall be deemed to be unconditionally vested and the Company shall allot and issue to each holder of a Company RSU such number of Company Common Shares as are due to such holder under the terms of the Company RSU Plan (less any amounts withheld pursuant to the Plan of Arrangement) and thereafter the Company RSU Plan will terminate and none of the former holders of Company RSUs, the Company nor the Purchaser or their respective successors or assigns shall have any rights, liabilities or obligations in respect of the Company RSU Plan.

2.8. Effective Date

(a) The Effective Date shall occur on the date which is five Business Days after the date on which all conditions set forth in Section 6.1, Section 6.2 and Section 6.3 have been satisfied or waived (excluding conditions that, by their terms, cannot be satisfied until the Effective Date, but subject to the satisfaction or, where not prohibited, the waiver by the applicable Party or Parties in whose favour the condition is, of those conditions as of the Effective Date), unless another time or date is agreed to in writing by the Parties. From and after the Effective Time, the Arrangement will have all of the effects provided by applicable Law, including the BCBCA.

(b) The closing of the Arrangement (the “Closing”) will take place electronically or at such other location as may be agreed upon by the Parties.

2.9. Payment of Consideration

Following receipt of the Final Order and prior to the Effective Time, the Purchaser shall provide the Depositary with the aggregate number of Purchaser Common Shares comprising the Consideration, as determined pursuant to the Plan of Arrangement.

2.10. Withholding Taxes

The Purchaser, the Company and the Depositary, as applicable, shall be entitled to deduct or withhold from the consideration payable or otherwise deliverable to any Person pursuant to the Arrangement or this Agreement, including Company Shareholders exercising Dissent Rights, and from all dividends, other distributions or other amounts otherwise payable to any former Company Shareholders or former holders of Company Options or Company RSUs, such Taxes or other amounts as the Purchaser, the Company or the Depositary is required to deduct or withhold with respect to such payment under the Tax Act or any provision of any other applicable Law. To the extent that Taxes or other amounts are so deducted or withheld, such deducted or withheld Taxes or other amounts shall be treated for all purposes under this Agreement as having been paid to the Person in respect of which such deduction or withholding was made, provided that such deducted or withheld Taxes are actually remitted to the appropriate taxing authority and any such other amounts deducted or withheld are remitted to the appropriate authority or person in accordance with applicable Law.

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2.11. U.S. Securities Law Matters

(a) The Parties agree that, subject to applicable U.S. Securities Laws, the Arrangement will be carried out with the intention that all the Purchaser Common Shares issued on completion of the Arrangement in exchange for the Company Common Shares will be issued by the Purchaser in reliance on: (i) the exemption from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof and (ii) if necessary, exemptions from applicable state securities laws. The Parties agree that any Purchaser Common Shares issuable upon the exercise of Agent Compensation Options subsequent to the Effective Time may be subject to restrictions on transfer in accordance with applicable U.S. Securities Laws.

(b) In order to ensure the availability of the exemption under Section 3(a)(10) of the U.S. Securities Act and to facilitate the Purchaser’s compliance with other applicable U.S. Securities Laws, the Parties agree that the Arrangement will be carried out in accordance with the requirements of the SEC’s Staff Legal Bulletin (SLB) No. 3A (June 18, 2008), including but not limited to the following: (i) the Arrangement will be subject to the approval of the Court; (ii) prior to the hearing required of the Interim Order, the Court will be advised of the intention of the Parties to rely on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof; (iii) the Court will hold a hearing to approve the Arrangement, and the Court shall be required to satisfy itself as to the fairness of the Arrangement prior to the issuance of the Final Order; (iv) the Court will be required to satisfy itself as to the substantive and procedural fairness of the Arrangement to the Company Shareholders; (v) the Company will ensure that each Company Shareholder will be given adequate notice (A) advising them of their right to attend the hearing of the Court to consider approval of the Arrangement; and (B) providing them with sufficient information necessary for them to exercise such right; (vi) the Company Shareholders that will receive the Purchaser Common Shares will be advised that the Purchaser Common Shares issued pursuant to the Arrangement (A) have not been registered under the U.S. Securities Act, (B) will be issued by the Purchaser in reliance on the exemption from registration provided under Section 3(a)(10) of the U.S. Securities Act, and (C) may be subject to certain restrictions on resale under U.S. Securities Laws, including, Rule 144 under the U.S. Securities Act in the case of Purchaser Common Shares issued to Affiliates of the Purchaser; (vii) the Final Order will expressly state that the Arrangement is approved by the Court as being substantially and procedurally fair to the Company Shareholders; (viii) the Interim Order will specify that each Company Shareholder, so long as they enter an appearance within a reasonable time, will have the right to appear before the Court at the hearing of the Court to consider approval of the Arrangement; and (ix) the Final Order shall include a statement to substantially the following effect:

“This Order will serve as the basis for the exemption, pursuant to Section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that Act, regarding the distribution of securities of the Purchaser pursuant to the Plan of Arrangement.”

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2.12. Cooperation of Parties

Notwithstanding any other provision of this Agreement, the Company and the Purchaser shall cooperate in the preparation of any application for any orders, registrations, consents, filings, rulings, exemptions, no-action letters and approvals (including, without limitation, the Interim Order, Final Order and Company Circular) and the preparation of any documents reasonably deemed by either of the Parties to be necessary to discharge its respective obligations or to otherwise be advisable under applicable Laws in connection with this Agreement and the Arrangement.

ARTICLE 3 REPRESENTATIONS AND WARRANTIES

3.1. Representations and Warranties of the Company

(a) The Company represents and warrants to the Purchaser that the representations and warranties set forth in Schedule C are true and correct as of the date hereof and acknowledges and agrees that the Purchaser is relying upon such representations and warranties in connection with the entering into of this Agreement.

(b) The representations and warranties of the Company contained in this Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.

(c) Except for the representations and warranties set forth in this Agreement, neither the Company nor any other Person (i) has made or makes any other express or implied representation and warranty, either written or oral, on behalf of the Company, or (ii) has made or makes any representation or warranty to the Purchaser or any of its Representatives, with respect to any financial projection, forecast, guidance, estimates of revenues, earnings or cash flows, budget or prospective information relating to the Company or any of its Subsidiaries or their respective businesses or operations.

3.2. Representations and Warranties of the Purchaser

(a) The Purchaser represents and warrants to the Company that the representations and warranties set forth in Schedule D are true and correct as of the date hereof and acknowledges and agrees that the Company is relying upon such representations and warranties in connection with the entering into of this Agreement.

(b) The representations and warranties of the Purchaser contained in this Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms.

(c) Except for the representations and warranties set forth in this Agreement, neither the Purchaser nor any other Person (i) has made or makes any other express or implied representation and warranty, either written or oral, on behalf of the Purchaser, or (ii) has made or makes any representation or warranty to the Company or any of its Representatives, with respect to any financial projection, forecast, guidance, estimates of revenues, earnings or cash flows, budget or prospective information relating to the Purchaser or any of its Subsidiaries or their respective businesses or operations.

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ARTICLE 4 COVENANTS

4.1. Conduct of Business of the Company

(a) The Company covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except (A) with the prior written consent of the Purchaser (which consent may not be unreasonably withheld, conditioned or delayed), (B) as required or expressly permitted by this Agreement or the Plan of Arrangement, or (C) as required by applicable Law or a Governmental Entity, the Company shall, and shall cause each of its Subsidiaries to:

(i)	subject to clause (ii) below, conduct its business in the Ordinary Course and in accordance with applicable Laws; and
(ii)	use commercially reasonable efforts to maintain and preserve its business organization, assets (including, for greater certainty, the Company Assets), goodwill, employment relationships (other than those terminated for cause or by reason of resignation or retirement) and business relationships with other Persons with which the Company or any of its Subsidiaries have business relations.

(b) Without limiting the generality of Section 4.1(a), the Company covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except (i) with the prior written consent of the Purchaser (which consent may not be unreasonably withheld, conditioned or delayed), (ii) as required or expressly permitted by this Agreement or the Plan of Arrangement, or (iii) as required by applicable Law or a Governmental Entity, the Company shall not, and the Company shall cause each of its Subsidiaries not to, directly or indirectly:

(i)	amend its Constating Documents;
(ii)	split, combine, subdivide or reclassify any shares of its authorized share structure or other equity interests;
(iii)	declare, set aside or pay any dividend or other distribution on any shares of its authorized share structure or other equity interests (whether in cash, stock or property or any combination thereof);
(iv)	redeem, repurchase, or otherwise acquire or offer to redeem, repurchase or otherwise acquire any shares of its capital stock or other equity interests or any of its outstanding securities;
(v)	issue, deliver, sell, pledge or otherwise encumber, or authorize the issuance, delivery, sale, pledge or other encumbrance of any shares of its authorized share structure or other equity or voting interests, or any options, warrants or similar rights exercisable or exchangeable for or convertible into such shares or other equity or voting interests, except for: (i) the issuance of Company Common Shares issuable upon the exercise or settlement, as the case may be, of Company Options, Company RSUs or Agent Compensation Options outstanding on the date hereof; (ii) from the date hereof until December 1, 2022, the issuance of additional Company RSUs; and (iii) from the date hereof until December 1, 2022, the issuance of Company Common Shares in settlement of any claims, provided that, in any event, the total issued and outstanding Company Common Shares outstanding immediately prior to the Effective Time shall not exceed 149,563,674;

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(vi)	reorganize, arrange, restructure, amalgamate or merge the Company or any of its Subsidiaries;
(vii)	adopt a plan of or resolutions providing for the complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or any of its Subsidiaries;
(viii)	acquire (by merger, consolidation, acquisition of stock or assets or otherwise), or commit to acquire, directly or indirectly, in one transaction or in a series of related transactions, assets, securities, properties, interests or businesses other than in the Ordinary Course;
(ix)	sell, pledge, lease, license, encumber (other than a Permitted Lien) or otherwise transfer any assets of the Company or of any of its Subsidiaries or any interest in any assets of the Company and its Subsidiaries, other than assets sold in the Ordinary Course or assets that are obsolete, damaged or destroyed;
(x)	make any capital expenditure or commitment to do so outside of the Ordinary Course;
(xi)	abandon or fail to diligently pursue any application for any material Authorizations, leases, permits or registrations for the Company or any of its Subsidiaries or take any action, or fail to take any action, that could lead to the termination of any material Authorizations, leases or registrations of the Company or any of its Subsidiaries;
(xii)	except as contemplated herein, allow the Company or any of its Subsidiaries to (A) amend or modify in any material respect, or terminate or waive any material right under, any Material Contract, (B) enter into any contract or agreement that would be a Material Contract if in effect on the date hereof, or (C) make any bid or tender after the date of this Agreement which, if accepted, would result in the Company being obligated to enter into a contract that would be a Material Contract if in effect on the date hereof (other than the renewal of a Contract in existence on the date hereof on terms materially consistent with terms in existence on the date hereof);
(xiii)	enter into any new, or amend the terms of any existing, lease, sublease, license, occupancy agreement or other agreement with respect to any real property;

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(xiv)	in respect of any Company Assets, waive, release, surrender, abandon, let lapse, grant or transfer any material right or amend, modify or change, or agree to amend, modify or change, any existing material Authorization, right to use, lease, Material Contract or Intellectual Property;
(xv)	except as contemplated in Section 4.9 and except for renewals in the Ordinary Course, amend, modify, terminate, cancel or let lapse any material insurance (or re-insurance) policy of the Company or any Subsidiary in effect on the date of this Agreement, unless simultaneously with such termination, cancellation or lapse, replacement policies underwritten by insurance and re-insurance companies of nationally recognized standing providing coverage substantially similar to or greater than the coverage under the terminated, cancelled or lapsed policies are in full force and effect and the Company shall provide notice to the Purchaser in respect thereof;
(xvi)	prepay any long term indebtedness before its scheduled maturity or create, incur, assume or otherwise become liable for any indebtedness for borrowed money or guarantees thereof other than (i) indebtedness owing by one wholly-owned Subsidiary of the Company to the Company or another wholly-owned Subsidiary of the Company, or of the Company to another wholly-owned Subsidiary of the Company, or (ii) indebtedness entered into at the request of the Purchaser, in connection with the Arrangement, or where the Purchaser or any of its Affiliates is the lender;
(xvii)	make, change or revoke any loan or advance to, or any capital contribution or investment in, or assume, guarantee or otherwise become liable with respect to the liabilities or obligations of, any Person other than advances and capital contributions to wholly-owned Subsidiaries of the Company in the Ordinary Course or guarantees of the Company or a Subsidiary to the Purchaser or any of its Affiliates in connection with loans from the Purchaser or any of its Affiliates;
(xviii)	enter into any interest rate, currency, equity or commodity swaps, hedges, derivatives, forward sales contracts or similar financial instruments;
(xix)	take any action, knowingly permit any inaction or knowingly enter into any transaction that would have the effect of preventing the Purchaser from obtaining a full tax cost “bump” pursuant to paragraphs 88(1)(c) and (d) of the Tax Act in respect of the non-depreciable capital property owned by the Company or a Subsidiary of the Company for the purposes of the Tax Act upon an amalgamation with the Company or such Subsidiary or a winding-up of the Company or such Subsidiary into the Purchaser (or successor by amalgamation);

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(xx)	make, change or revoke any material Tax election or designation, settle or compromise any material Tax claim, assessment, reassessment or liability, file any amended Tax Return, enter into, cancel or modify any material agreement with a Governmental Entity with respect to Taxes, surrender any right to claim a material Tax abatement, reduction, deduction, exemption, credit or refund, consent to the extension or waiver of the limitation period applicable to any material Tax matter or materially amend or change any of its methods or periods of reporting income, deductions or accounting for income Tax purposes, in each case, except as may be required by applicable Law;
(xxi)	make any material change in the Company’s methods of accounting, except as required by concurrent changes in IFRS or as otherwise required by applicable Law;
(xxii)	(A) make, or promise to make, any changes to any Collective Agreement, Employee Plan (other than changes to Employee Plans that are, in the opinion of the Company, necessary or desirable to give effect to or implement the Arrangement), written employment agreements and/or any other terms and conditions of employment applicable to any Company Employee, including granting, or promising to grant, any general increase in the rate of wages, salaries, benefits, bonuses or other remuneration of any Company Employees or independent contractor or making, or promising to make, any bonus or profit sharing distribution or similar payment of any kind, or adopting, or promising to adopt, or otherwise implement any employee or executive bonus or retention plan or program, except as required by the terms of any Collective Agreement, Employee Plan, written employment agreements or applicable Law, and/or offer employment to or hire any new Company Employees (other than any offers of employment or hiring in the Ordinary Course); or (B) announce, implement or effect any reduction in force, lay-off or early retirement program, severance program or other similar program or effort concerning the termination of employment of Company Employees (other than employee terminations in the Ordinary Course);
(xxiii)	except as may be required by applicable Law or the terms of any existing Employee Plan provided to the Purchaser prior to the date hereof (as such Employee Plans may be amended as, in the opinion of the Company, necessary or desirable to give effect to or implement the Arrangement) or any Contract (including, for greater certainty, in connection with any termination for cause): (A) increase any severance, change of control or termination pay to (or amend any existing arrangement with) any Company Employee or any director of the Company or any of its Subsidiaries; (B) enter into any employment, deferred compensation or other similar agreement (or amend any such existing agreement) with any director or officer or senior manager of the Company or, other than in the Ordinary Course, any Company Employee (other than a director or officer or senior manager); (C) enter into any employment, deferred compensation or other similar agreement (or amend any such existing agreement) with any Company Employee; (D) increase compensation, retention or incentive compensation or other benefits payable to any director or officer of the Company or any of its Subsidiaries or, other than in the Ordinary Course, any Company Employee (other than a director or officer); (E) loan or advance money or other property by the Company or its Subsidiaries to any of their present or former directors, officers or Company Employees; (F) terminate (other than for cause) or encourage the resignation of any Company Employee; or (G) increase, or agree to increase, any funding obligation or accelerate, or agree to accelerate, the timing of any funding contribution under any Employee Plan;

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(xxiv)	adopt any new material Employee Plan or make any material amendments or improvements to any Employee Plan, except as required by Law or amendments to Employee Plans that are, in the opinion of the Company, necessary or desirable to give effect to or implement the Arrangement;
(xxv)	cancel, waive, release, assign, settle or compromise any material claims or rights;
(xxvi)	commence, waive, release, assign, settle, compromise or settle any litigation, proceeding or governmental investigation that is material or which imposes material restrictions on the operations of the Company or any of its Subsidiaries;
(xxvii)	enter into or amend any Contract with any broker, finder or investment banker, including any amendment of the engagement letters with the Financial Advisor; or
(xxviii)	authorize, agree, resolve or otherwise commit, whether or not in writing, to do any of the foregoing.

4.2. Covenants of the Company Relating to the Arrangement

(a) Subject to the terms and conditions of this Agreement, the Company shall, and shall cause each of its Subsidiaries to, perform all obligations required to be performed by the Company or any of its Subsidiaries under this Agreement, cooperate with the Purchaser in connection therewith, and do all such other commercially reasonable acts and things as may be necessary or desirable to complete and make effective, as soon as reasonably practicable, the Arrangement and, without limiting the generality of the foregoing, the Company shall and, where appropriate, shall cause each of its Subsidiaries to:

(i) use commercially reasonable efforts to obtain and maintain all third party or other consents, waivers, permits, exemptions, orders, approvals, agreements, amendments or confirmations that are (i) required under the Material Contracts in connection with the Arrangement or (ii) required in order to maintain the Material Contracts in full force and effect following completion of the Arrangement, in each case, on terms that are reasonably satisfactory to the Purchaser, and without paying, and without committing itself or the Purchaser to pay, any consideration or incur any liability or obligation without the prior written consent of the Purchaser, such consent not to be unreasonably withheld, conditioned or delayed;

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(ii)	other than in connection with obtaining the Regulatory Approvals in respect of the Company, which shall be governed by the provisions of Section 4.5, use commercially reasonable efforts, upon consultation with the Purchaser, to oppose, lift or rescind any injunction, restraining or other order, decree or ruling seeking to restrain, enjoin or otherwise prohibit or adversely affect the completion of the Arrangement and defend, or cause to be defended, any proceedings to which it is a party or brought against it or its directors or officers challenging the Arrangement or this Agreement, provided that neither the Company nor any of its Subsidiaries will consent to the entry of any judgment or settlement with respect to any such proceeding without the prior written approval of the Purchaser, such approval not to be unreasonably withheld, conditioned or delayed;
(iii)	use its commercially reasonable efforts to promptly satisfy all conditions precedent in this Agreement;
(iv)	carry out the terms of the Interim Order and the Final Order applicable to the Company and comply promptly with all requirements imposed by applicable Law on the Company or its Subsidiaries with respect to this Agreement or the Arrangement;
(v)	not take any action, or refrain from taking any commercially reasonable action, or permit any action to be taken or not taken, which is inconsistent with this Agreement or which would reasonably be expected to prevent, materially delay or otherwise impede the completion of the Arrangement; and
(vi)	subject to confirmation that insurance coverage is maintained or purchased in accordance with Section 4.9 and delivery by the Company and each member of the Board and each officer of mutual releases from all claims and potential claims in respect of the period prior to the Effective Time (subject to customary exceptions), use commercially reasonable efforts to assist in effecting the resignations of each of the Company’s and its Subsidiary’s respective directors and officers designated by the Purchaser, and cause them to be replaced as of the Effective Date by individuals nominated by the Purchaser.

(b) The Company shall promptly notify the Purchaser of: 

(i)

the occurrence of any Material Adverse Effect in respect of the Company after the date hereof;

(ii)

any notice or other communication from any Person alleging (A) that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with this Agreement or the Arrangement, or (B) that such Person is terminating, may terminate, or is otherwise materially adversely modifying or may materially adversely modify its relationship with the Company or any of its Subsidiaries as a result of the Arrangement or this Agreement;

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(iii)	unless prohibited by applicable Law, any notice or other communication from any Governmental Entity in connection with this Agreement (and the Company shall contemporaneously provide a copy of any such written notice or communication to the Purchaser); or
(iv)	any material filing, actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting the Company or its Subsidiaries in connection with the Arrangement or this Agreement.

4.3. Conduct of Business of the Purchaser

(a) The Purchaser covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except (A) with the prior written consent of the Company (which consent may not be unreasonably withheld, conditioned or delayed), (B) as required or expressly permitted by this Agreement, or (C) as required by applicable Law or a Governmental Entity, the Purchaser shall, and shall cause each of its Subsidiaries to, conduct its business in the Ordinary Course in all material respects and in accordance with applicable Laws, and the Purchaser shall use commercially reasonable efforts to maintain and preserve in all material respects its and its Subsidiaries’ business organization, assets, goodwill, employment relationships (other than where terminated for cause or by reason of resignation or retirement) and business relationships with other Persons with which the Purchaser or any of its Subsidiaries have business relations.

(b) Without limiting the generality of Section 4.3(a), the Purchaser covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, except (i) with the prior written consent of the Company (which consent may not be unreasonably withheld, conditioned or delayed), (ii) as required or expressly permitted by this Agreement, (iii) as required by applicable Law or a Governmental Entity or (iv) matters disclosed in the Purchaser Filings as of the date of this Agreement, the Purchaser shall not:

(i)

amend its Constating Documents, or amend or propose to amend the terms of the Purchaser Common Shares;

(ii)

issue, sell, grant or agree to or authorize any issue, sale or grant of, any common shares of the Purchaser or other securities of the Purchaser (other than (A) the issue of Purchaser Common Shares pursuant to options, warrants, convertible securities and other rights to acquire Purchaser Common Shares in accordance with their terms, (B) securities issued pursuant to any awards which may be granted under the Purchaser’s equity incentive plans as such plans exist on the date hereof, (C) pursuant to other existing obligations as of the date hereof as disclosed in the Purchaser Filings, and (D) pursuant to an equity financing of the Purchaser for gross proceeds not to exceed US$15,000,000;

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(iii)	reduce its stated capital, or split, combine, subdivide or reclassify any of the Purchaser Common Shares or propose a rights offering of securities to the holders of the Purchaser Common Shares;
(iv)	adopt a plan of or resolutions, or enter into any agreement, providing directly or indirectly for the complete or partial liquidation or dissolution, merger, consolidation, restructuring, recapitalization, or sale of all or substantially all of the assets, of the Purchaser; or
(v)	take any action, or refrain from taking any action (subject to commercially reasonable efforts), or permit any action to be taken or not taken, inconsistent with the provisions of this Agreement or that would reasonably be expected to materially impede the completion of the transactions contemplated hereby.

4.4. Covenants of the Purchaser Relating to the Arrangement

(a) Subject to the terms and conditions of this Agreement, the Purchaser shall perform all obligations required to be performed by it under this Agreement, cooperate with the Company in connection therewith, and do all such other commercially reasonable acts and things as may be necessary or desirable in order to complete and make effective, as soon as reasonably practicable, the Arrangement and, without limiting the generality of the foregoing, the Purchaser shall:

(i)	other than in connection with obtaining the Regulatory Approvals in respect of the Purchaser, which shall be governed by the provisions of Section 4.5, use its commercially reasonable efforts, upon reasonable consultation with the Company, to oppose, lift or rescind any injunction, restraining or other order, decree or ruling seeking to restrain, enjoin or otherwise prohibit or adversely affect the completion of the Arrangement and defend, or cause to be defended, any proceedings to which it is a party or brought against it or its directors or officers challenging the Arrangement or this Agreement;
(ii)	use its commercially reasonable efforts to satisfy all conditions precedent in this Agreement;
(iii)	carry out the terms of the Interim Order and the Final Order applicable to the Purchaser and comply promptly with all requirements imposed by applicable Law on the Purchaser or with respect to this Agreement or the Arrangement;
(iv)	ensure that the Purchaser Common Shares to be issued pursuant to the Arrangement (i) will have been duly authorized and, upon issue, will be validly issued as fully paid and non-assessable shares in the capital of the Purchaser and (ii) will not be issued in violation of the Constating Documents of the Purchaser or any material agreement, contract, covenant, undertaking or commitment to which the Purchaser is bound; and
(v)	make application for and use its commercially reasonable efforts to obtain conditional approval for the listing and posting for trading on the Nasdaq of the Purchaser Common Shares to be issued pursuant to the Arrangement and otherwise comply with the Nasdaq requirements relevant to the Arrangement.

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(b) The Purchaser shall promptly notify the Company of:

(i)	the occurrence of any Material Adverse Effect in respect of the Purchaser after the date hereof;
(ii)	any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with this Agreement or the Arrangement;
(iii)	unless prohibited by applicable Law, any notice or other communication from any Governmental Entity in connection with this Agreement (and the Purchaser shall contemporaneously provide a copy of any such written notice or communication to the Company); or
(iv)	any material filing, actions, suits, claims, investigations or proceedings commenced or, to the knowledge of the Purchaser, threatened against, relating to or involving or otherwise affecting the Purchaser or its Subsidiaries in connection with this Agreement or the Arrangement.

4.5. Regulatory Approvals

(a) Each Party shall use commercially reasonable efforts to make or obtain all Regulatory Approvals in respect of such Party in a timely manner so as to enable the Closing to occur as soon as reasonably practicable and, in any event, by no later than the Outside Date, including without limitation promptly responding to any information requests made by any Governmental Entity in connection with any Regulatory Approval.

(b) Subject to applicable Law, the Parties will (i) coordinate and cooperate in exchanging information and supplying assistance that is reasonably requested in connection with this Section 4.5, including providing each other or the other Party’s counsel with advance copies and reasonable opportunity to comment on all notices and information or other correspondence supplied to or filed with any Governmental Entity, and all notices and correspondence received from any Governmental Entity (subject to applicable legal privileges), and (ii) promptly notify the other of any communication from any Governmental Entity in respect of the Arrangement or this Agreement, and shall not make any submissions or filings, respond to any information request, or participate in any meetings or any material conversations with any Governmental Entity in respect of any filings, investigations or other inquiries related to the transactions contemplated by this Agreement unless it consults with the other Party in advance. The Parties will provide each other with copies of any substantive written electronic communication received from Governmental Entities with respect to all applications, filings or other processes related to the Regulatory Approvals and will give each other the opportunity to attend and participate in all substantive meetings, telephone calls or other discussions with Governmental Entities in respect of the Regulatory Approvals.

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(c) Each Party shall promptly notify the other Party if it becomes aware that any (i) application, filing, document or other submission made in relation to a Regulatory Approval contains a Misrepresentation, or (ii) Regulatory Approval contains, reflects or was obtained following the submission of any application, filing, document or other submission containing a Misrepresentation, such that an amendment or supplement may be necessary or advisable. In such case, the Company shall, in consultation with and subject to the prior approval of the Purchaser, cooperate in the preparation, filing and dissemination, as applicable, of any such amendment or supplement.

(d) If any objections are asserted by any Governmental Entity under any applicable Law with respect to the transactions contemplated by this Agreement, or if any proceeding is instituted or threatened by any Governmental Entity challenging or which could lead to a challenge of any of the transactions contemplated by this Agreement as not in compliance with any applicable Law or as not satisfying any applicable legal test under any applicable Law necessary to obtain the Regulatory Approvals, the Parties shall use all reasonable efforts consistent with the terms of this Agreement to resolve or avoid such proceeding so as to allow Closing to occur on or prior to the Outside Date.

4.6. Access to Information; Confidentiality

(a) From the date hereof until the earlier of the Effective Time and the termination of this Agreement, subject to applicable Law , each Disclosing Party shall, and shall cause each of its Subsidiaries to, give the Receiving Party and its representatives reasonable access during normal business hours to its: (A) premises, (B) property and assets (including all books and records and Tax Returns, whether retained internally or otherwise), (C) Contracts, and (D) senior personnel, or other information with respect to the financial condition, assets or business of the Disclosing Party or its Subsidiaries as the Receiving Party may from time to time reasonably request; provided that: (I) the Receiving Party provides the Disclosing Party with reasonable prior notice of any request under this Section 4.6(a); (II) access to any materials contemplated in this Section 4.6(a) shall be provided during the Disclosing Party’s normal business hours only, and (III) such access does not unduly interfere with the Ordinary Course conduct of the business of the Disclosing Party or its Subsidiaries.

(b) Subject to Section 4.6(c) of this Agreement, each Party agrees that it shall hold in confidence all Confidential Information of the other Party and shall not disclose such Confidential Information to any Person other than (i) those of its Representatives who reasonably require access to such Confidential Information in connection with completion or implementation of the transactions contemplated by this Agreement or (ii) to the extent such Party, acting reasonably and in good faith, determines it is necessary to disclose such Confidential Information of the other Party in order to enforce or exercise its rights under this Agreement. Before providing access to the Confidential Information of the Disclosing Party to any of its Representatives, the Receiving Party will inform such Representative that such information is subject to this Section 4.6(b) of the contents of this Agreement and shall use its reasonable best efforts to ensure that such Representatives comply with this Section 4.6(b).

(c) If a Receiving Party is requested to disclose any Confidential Information of a Disclosing Party pursuant to any Legal Proceedings or by any Governmental Entity, the Receiving Party will give the Disclosing Party prompt notice of such request so that the Disclosing Party may seek an appropriate protective order and provide such cooperation in seeking such an order as the Disclosing Party may reasonably request. If the Receiving Party is nonetheless compelled to disclose Confidential Information of the Disclosing Party, the Receiving Party will disclose only that portion of such Confidential Information which the Receiving Party is legally required to disclose.

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4.7. Public Communications

The Parties agree to jointly issue a press release with respect to this Agreement as soon as practicable after its due execution. A Party shall not issue any press release or make any other public statement or disclosure with respect to this Agreement or the Arrangement without the consent of the other Party (which consent shall not be unreasonably withheld, conditioned or delayed); provided, however, that the foregoing shall be subject to each Party’s overriding obligation to make any disclosure or filing in accordance with applicable Laws, including Securities Laws, and if, in the opinion of its outside legal counsel, such disclosure or filing is required and the other Party has not reviewed or commented on the disclosure or filing, the Party shall use its reasonable efforts to give the other Party prior oral or written notice and a reasonable opportunity to review or comment on the disclosure or filing (other than with respect to confidential information contained in such disclosure or filing). The Party making such disclosure shall give reasonable consideration to any comments made by the other Party or its respective counsel, and if such prior notice is not possible, shall give such notice immediately following the making of such disclosure or filing. Notwithstanding the foregoing, the Company may have discussions with Company Shareholders, financial analysts and other stakeholders relating to this Agreement or the transactions contemplated by it, provided that such discussions are not inconsistent with the most recent press releases, public disclosures or public statements made by the Company or the Purchaser that was approved by all Parties prior to the filing or release, as applicable. The Parties acknowledge that each Party may be obligated to file this Agreement and a material change report, or equivalent thereof, relating thereto on SEDAR or EDGAR, as applicable, or pursuant to the policies of TSXV and the Nasdaq, as applicable, and each Party hereby consents to such filings of the other Party.

4.8. Notice Provisions

(a) Each Party shall promptly notify the other Party of the occurrence, or failure to occur, of any event or state of facts which occurrence or failure would, or would be reasonably likely to:

(i)	cause any of the representations or warranties of such Party contained in this Agreement to be untrue or inaccurate in any material respect on the date hereof or on the Effective Date; or
(ii)	result in the failure, in any material respect, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such Party under this Agreement.

(b) Notification provided under this Section 4.8 will not affect the representations, warranties, covenants, agreements or obligations of the Parties (or remedies with respect thereto) or the conditions to the obligations of the Parties under this Agreement.

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4.9. Insurance and Indemnification

(a) The Purchaser will, or will cause the Company and its Subsidiaries to, maintain in effect without any reduction in scope or coverage for seven years from the Effective Date customary policies of directors’ and officers’ liability insurance providing protection no less favourable than the protection provided by the policies maintained by the Company and its Subsidiaries which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date. Alternatively, the Purchaser agrees that prior to the Effective Date, the Company may, at the election of the Company in its sole discretion (and provided that if the Company so elects, the Purchaser and the Company and its Subsidiaries shall not have the obligation referenced in the immediately preceding sentence), purchase customary “tail” policies of directors’ and officers’ liability insurance providing protection no less favourable in the aggregate to the protection provided by the policies maintained by the Company and its Subsidiaries which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date on terms and conditions customary for a transaction of this nature and the Purchaser shall, or shall cause the Company and its Subsidiaries to maintain such tail policies in effect without any reduction in scope or coverage for seven years from the Effective Date; provided that the Purchaser shall not be required to pay any amounts in respect of such coverage prior to the Effective Time. From and after the Effective Time, the Company or the Purchaser, as applicable, agrees not to take any action to terminate such directors’ and officers’ liability insurance or adversely affect the rights of the Company’s present and former directors and officers thereunder.

(b) The Purchaser shall cause the Company and its Subsidiaries to honour all rights to indemnification or exculpation now existing in favour of present and former employees, officers and directors of the Company and its Subsidiaries, to the extent that they are (i) included in the Constating Documents of the Company or any of its Subsidiaries, or (ii) set out in any indemnity agreements entered into between such Persons and the Company or any of its Subsidiaries, and acknowledges that such rights shall survive the completion of the Plan of Arrangement and shall continue in full force and effect in accordance with their terms.

(c) If the Company or any of its Subsidiaries or any of their respective successors or assigns (i) consolidates with or merges into any other Person and is not a continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, the Purchaser shall ensure that any such successor or assign (including, as applicable, any acquirer of substantially all of the properties and assets of the Company or its Subsidiaries) assumes all of the obligations of the Company and its Subsidiaries set forth in this Section 4.9.

ARTICLE 5. COVENANTS REGARDING NON-SOLICITATION

5.1. Non-Solicitation

(a) Except as expressly provided in this Article 5, the Company shall not, directly or indirectly, through any officer, director, employee, representative (including any financial or other advisor) or agent of the Company or of any of its Subsidiaries (collectively “Representatives”) or otherwise, and shall not permit any such Person to:

(i) make, solicit, initiate, encourage or otherwise knowingly facilitate (including by way of furnishing or providing copies of, access to, or disclosure of, any confidential information, properties, facilities, books or records of the Company or any Subsidiary) any inquiry, proposal or offer that constitutes or would reasonably be expected to constitute or lead to, an Acquisition Proposal;

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(ii)	enter into or otherwise engage or participate in any discussions or negotiations with any Person (other than the Purchaser or any Person acting jointly or in concert with the Purchaser) or provide any information regarding any inquiry, proposal or offer that constitutes or would reasonably be expected to lead to, an Acquisition Proposal, or otherwise co-operate in any manner with, or assist or participate in, knowingly facilitate or encourage, any effort or attempt by any other person to make or complete any Acquisition Proposal, provided that the Company may (A) communicate with any Person for the sole purpose of clarifying the terms and conditions of any inquiry, proposal or offer made by such Person, (B) advise any Person of the restrictions of this Agreement, and (C) advise any Person making an Acquisition Proposal that the Board has determined that such Acquisition Proposal does not constitute, or is not reasonably expected to constitute or lead to, a Superior Proposal;
(iii)	make a Change in Recommendation;
(iv)	accept, approve, endorse or recommend, or publicly propose to accept, approve, endorse or recommend, or take no position or remain neutral with respect to, any Acquisition Proposal (it being understood that publicly taking no position or a neutral position with respect to an Acquisition Proposal for a period of no more than five Business Days following the announcement of such Acquisition Proposal will not be considered to be in violation of this Section 5.1 provided the Board has rejected such Acquisition Proposal and affirmed the Board Recommendation before the end of such five Business Day period); or
(v)	enter into or publicly propose to enter into any Contract in respect of an Acquisition Proposal (other than a confidentiality agreement permitted by, and in accordance with, Section 5.3).

(b) The Company shall, and shall cause each of its Subsidiaries and its Representatives to, immediately cease and terminate, and cause to be terminated, any solicitation, encouragement, discussion, negotiation, or other activities commenced prior to the date of this Agreement with any Person (other than the Purchaser and its respective Affiliates) with respect to any inquiry, proposal or offer that constitutes or would reasonably be expected to constitute or lead to, an Acquisition Proposal, and in connection with such termination shall:

(i)

discontinue access to and disclosure of all information, if any, to any such Person, including any data room and any confidential information, properties, facilities, books and records of the Company or any Subsidiary; and

(ii)

promptly request, and exercise all rights it has to require (A) the return or destruction of all copies of any confidential information regarding the Company or any Subsidiary provided to any Person other than the Purchaser, and (B) the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding the Company or any Subsidiary, to the extent that such information has not previously been returned or destroyed, using its commercially reasonable efforts to ensure that such requests are fully complied with to the extent the Company is entitled.

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(c) The Company represents and warrants that the Company has not waived any confidentiality, standstill or similar agreement or restriction to which the Company or any of its Subsidiaries is a party. The Company covenants and agrees that (i) the Company shall take all necessary action to enforce each confidentiality, standstill or similar agreement or restriction to which the Company or any Subsidiary is a party, and (ii) neither the Company, nor any Subsidiary nor any of their respective Representatives have released or will release any Person from, or waive, amend, suspend or otherwise modify such Person’s obligations respecting the Company, or any of its Subsidiaries, under any confidentiality, standstill or similar agreement or restriction to which the Company or any Subsidiary is a party (it being acknowledged by the Purchaser that the automatic termination or release of any standstill restrictions of any such agreements as a result of the entering into and announcement of this Agreement shall not be a violation of this Section 5.1(c)).

5.2. Notification of Acquisition Proposals

If the Company or any of its Subsidiaries, or any of their respective Representatives, receives or becomes aware of any inquiry, proposal, request or offer that constitutes or would reasonably be expected to lead to, or that is otherwise in respect of, an Acquisition Proposal, or any request for copies of, access to, or disclosure of, confidential information or for access to properties, books and records of and relating to the Company or any Subsidiary in connection with any proposal that constitutes or would reasonably be expected to lead to, or that is otherwise in respect of, an Acquisition Proposal, including but not limited to information, access, or disclosure relating to the properties, facilities, books or records of the Company or any Subsidiary, the Company shall:

(a) promptly notify the Purchaser, at first orally, and then as soon as practicable (and in any event within 24 hours) in writing, of such Acquisition Proposal, inquiry, proposal, offer or request, including a description of its terms and conditions, the identity of all Persons making the Acquisition Proposal, inquiry, proposal, offer or request (including amendments thereto), and copies of all agreements, documents, correspondence or other material received in respect thereof, from or on behalf of any such Person; and

(b) keep the Purchaser reasonably informed of the status of all developments and negotiations with respect to such Acquisition Proposal, inquiry, proposal, offer or request, including any changes, modifications or other amendments to any such Acquisition Proposal, inquiry, proposal, offer or request, and shall respond as promptly as practicable to the Purchaser’s reasonable questions with respect thereto.

5.3. Responding to an Acquisition Proposal

(a) Notwithstanding Section 5.1, if at any time, prior to obtaining the approval by the Company Shareholders of the Arrangement Resolution, the Company receives a bona fide written Acquisition Proposal, the Company may engage in or participate in discussions with such Person regarding such Acquisition Proposal, and may provide such Person copies of, access to or disclosure of information, properties, facilities, books or records of the Company or its Subsidiaries, if and only if:

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(i)	the Board first determines in good faith, after consultation with its financial advisors and its outside legal counsel, that such Acquisition Proposal constitutes or would reasonably be expected to constitute or lead to a Superior Proposal;
(ii)	such Person was not restricted from making such Acquisition Proposal pursuant to an existing standstill or similar restriction;
(iii)	prior to providing any such copies, access, or disclosure, the Company enters into a confidentiality and standstill agreement with such Person having terms that are not less onerous than those set out in the LOI (unless such Person is already party to a confidentiality and standstill agreement on such terms) and any such copies, access or disclosure provided to such Person shall have already been (or shall reasonably promptly be) provided to the Purchaser;
(iv)	the Company did not breach or is not in breach of Section 5.1; and
(v)	the Company promptly provides the Purchaser with, prior to providing any such copies, access or disclosure, a true, complete and final executed copy of the confidentiality and standstill agreement referred to in Section 5.3(a)(iii).

(b) Nothing contained in this Article 5 shall prohibit the Board from making disclosure to Company Shareholders as required by applicable Law, including complying with section 2.17 of National Instrument 62-104 - Takeover Bids and Issuer Bids and similar provisions under Securities Laws relating to the provision of a directors’ circular in respect of an Acquisition Proposal.

5.4. Right to Match

(a) If the Company receives an Acquisition Proposal that constitutes a Superior Proposal after the date hereof and prior to the approval of the Arrangement Resolution by the Company Shareholders, the Board may: (A) authorize the Company to enter into a definitive agreement with respect to such Acquisition Proposal and (B) withdraw, modify, qualify or change in a manner adverse to the Purchaser its approval or recommendation of the Arrangement and recommend or approve an Acquisition Proposal that is a Superior Proposal, if and only if:

(i)

the Person making the Superior Proposal was not restricted from making such Superior Proposal pursuant to an existing standstill, confidentiality or similar restriction;

(ii)

the Company has delivered to the Purchaser a written notice of the good faith determination of the Board, after consultation with its financial advisors and its outside legal counsel, that such Acquisition Proposal constitutes a Superior Proposal and of the intention of the Board to enter into such definitive agreement, together with a copy of the definitive agreement for the Superior Proposal and disclosure of the value, expressed in dollars, that the Board has, in consultation with its financial advisors, determined should be ascribed to any non-cash consideration offered under the Superior Proposal (collectively, the “Superior Proposal Notice”);

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(iii)	at least five Business Days (the “Matching Period”) have elapsed from the date that is the later of the date on which the Purchaser received the Superior Proposal Notice and a copy of the proposed definitive agreement for the Superior Proposal from the Company;
(iv)	during any Matching Period, the Purchaser has had the opportunity (but not the obligation), in accordance with Section 5.4(b), to offer to amend this Agreement and the Arrangement in order for such Acquisition Proposal to cease to be a Superior Proposal;
(v)	if the Purchaser has offered to amend this Agreement and the Arrangement under Section 5.4(b), the Board has determined in good faith, after consultation with the Company’s financial advisors and outside legal counsel, that such Acquisition Proposal continues to constitute a Superior Proposal compared to the terms of the Arrangement as proposed to be amended by the Purchaser under Section 5.4(b);
(vi)	the Company did not breach any provision of Section 5.1 in connection with the preparation or making of such Superior Proposal and the Company has been and continues to be in compliance with Article 5; and
(vii)	prior to, or concurrently with, entering into such definitive agreement, the Company terminates this Agreement pursuant to Section 7.2(a)(iii)(B) and pays the Company Termination Amount to the Purchaser pursuant to Section 7.4.

(b) During the Matching Period, or such longer period as the Company may approve in writing for such purpose: (i) the Board shall review any offer made by the Purchaser under Section 5.4(a)(v) to amend the terms of this Agreement and the Arrangement in good faith in order to determine, in consultation with its financial and outside legal advisors, whether such proposal would, upon acceptance, result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal; and (ii) if it would no longer constitute a Superior Proposal, the Company shall negotiate in good faith with the Purchaser to make such amendments to the terms of this Agreement and the Arrangement as would enable the Purchaser to proceed with the transactions contemplated by this Agreement on such amended terms. If the Board determines that such Acquisition Proposal would cease to be a Superior Proposal, the Company shall promptly so advise the Purchaser, and the Company and the Purchaser shall amend this Agreement to reflect such offer made by the Purchaser, and shall take and cause to be taken all such actions as are necessary to give effect to the foregoing. Subject to the Company’s disclosure obligations under applicable Securities Laws: (A) the fact of the making of any such proposed amendments; and (B) each of the terms of any such proposed amendments, shall be kept strictly confidential and shall not be disclosed to any person (including without limitation, the person having made the Superior Proposal), other than the Company’s Representatives, without the Purchaser’s prior written consent.

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(c) Each successive amendment to any Acquisition Proposal that results in an increase in, or a modification to, the consideration (or value of such consideration) to be received by Company Shareholders or other material terms or conditions thereof shall constitute a new Acquisition Proposal for the purposes of this Section 5.4, and the Purchaser shall be afforded an additional five-Business Day Matching Period from the date on which the Purchaser received the Superior Proposal Notice.

(d) The Board shall promptly reaffirm the Board Recommendation by press release after any Acquisition Proposal which is not determined to be a Superior Proposal is publicly announced or the Board determines that a proposed amendment to the terms of this Agreement as contemplated under Section 5.4(b) would result in an Acquisition Proposal constituting a Superior Proposal no longer being a Superior Proposal. The Company shall provide the Purchaser and its outside legal counsel with a reasonable opportunity to review the form and content of any such press release and shall make all reasonable amendments to such press release as requested by the Purchaser and its legal counsel.

(e) If the Company provides a Superior Proposal Notice to the Purchaser on a date that is less than 10 Business Days before the Company Meeting, the Company may, and shall at the request of Purchaser, postpone the Company Meeting to a date that is not more than 10 Business Days after the scheduled date of the Company Meeting (and, in any event, prior to the Outside Date).

(f) Neither the Company nor any of its Subsidiaries will become a party to any Contract with any person subsequent to the date hereof that limits or prohibits the Company and/or any of its Subsidiaries from providing:

(i)	or making available to the Purchaser and its affiliates and Representatives any information provided or made available to such person or its officers, directors, employees, consultants, advisors, agents or other Representatives (including solicitors, accountants, investment bankers and financial advisors) pursuant to any confidentiality agreement described in this Section 5.1; or
(ii)	the Purchaser and its affiliates and Representatives with any other information required to be given to it by the Company under this Article 5.

5.5. Breach by Subsidiaries and Representatives

Without limiting the generality of the foregoing, the Company shall advise its Subsidiaries and its Representatives of the prohibitions set out in this Article 5 and any violation of the restrictions set forth in this Article 5 by any of the Company’s Subsidiaries or Representatives shall be deemed to be a breach of this Article 5 by the Company.

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ARTICLE 6 CONDITIONS

6.1. Mutual Conditions Precedent

The Parties are not required to complete the Arrangement unless each of the following conditions is satisfied on or prior to the Effective Time, which conditions may only be waived, in whole or in part, by the mutual consent of each of the Parties:

(a) Arrangement Resolution. The Arrangement Resolution has been approved and adopted by the Company Shareholders at the Company Meeting in accordance with the Interim Order.

(b)  Interim and Final Order. The Interim Order and the Final Order have each been obtained on terms consistent with this Agreement, and have not been set aside or modified in a manner unacceptable to either the Company or the Purchaser, each acting reasonably, on appeal or otherwise.

(c) Exchange Approvals. The necessary conditional approvals or equivalent approvals, as the case may be, of the Nasdaq and TSXV have been obtained, including in respect of the listing of the Purchaser Common Shares constituting the Consideration on the Nasdaq.

(d) U.S. Securities Laws. The issuance of the Purchaser Common Shares to be issued pursuant to the Arrangement in exchange for the Company Common Shares is exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof.

(e) Illegality. No Law is in effect that makes the completion of the Arrangement illegal or otherwise prohibits, restrains or enjoins the Company or the Purchaser from completing the Arrangement.

6.2. Additional Conditions Precedent to the Obligations of the Purchaser

The Purchaser is not required to complete the Arrangement unless each of the following conditions is satisfied on or prior to the Effective Time, which conditions are for the exclusive benefit of the Purchaser and may only be waived, in whole or in part, by the Purchaser in its sole discretion:

(a) Representations and Warranties. (i) The representations and warranties of the Company set forth in Paragraphs 1 [Organization and Qualification], 2 [Corporate Authorization], 3 [Execution and Binding Obligation], 6(a) [Non-Contravention of Constating Documents], and 37 [Brokers] of Schedule C shall be true and correct in all respects as of the date of this Agreement and as of the Effective Time as if made at and as of such time; and (ii) all other representations and warranties of the Company set forth in this Agreement shall be true and correct (A) in all material respects as of the date of this Agreement and (B) in all respects as of the Effective Time as if made at and as of such time (except that any such representation and warranty that by its terms speaks specifically as of the date of this Agreement or another date shall be true and correct in all respects as of such date), except in the case of clause (ii)(B) to the extent that the failure or failures of such representations and warranties to be so true and correct, individually or in the aggregate, would not have a Material Adverse Effect on the Company (and, for this purpose, any reference to “material”, “Material Adverse Effect” or other concepts of materiality in such representations and warranties shall be ignored) and, in each case, the Company has delivered a certificate confirming same to the Purchaser, executed by two senior officers of the Company (in each case without personal liability) addressed to the Purchaser and dated the Effective Date.

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(b) Performance of Covenants. The Company has fulfilled or complied in all material respects with each of the covenants of the Company contained in this Agreement to be fulfilled or complied with by it on or prior to the Effective Date, or which have not been waived by the Purchaser, and has delivered a certificate confirming same to the Purchaser, executed by two senior officers of the Company (in each case without personal liability) addressed to the Purchaser and dated the Effective Date.

(c) Dissent Rights. The aggregate number of Company Common Shares in respect of which Dissent Rights have been validly exercised and not withdrawn shall not exceed 5% of the issued and outstanding Company Common Shares.

(d) Material Adverse Effect. Since the date of this Agreement, there shall not have occurred a Material Adverse Effect in respect of the Company that has not been cured.

(e) No Dividends. The Company has not set a record date for, or otherwise declared, set aside or paid any dividend or distribution on the Company Common Shares.

(f) Consents. All third person and other consents, waivers, permits, exemptions, orders, approvals, agreements and amendments and modifications to agreements, indentures or arrangements, the failure of which to obtain or the non-expiry of which would, or could reasonably be expected to, have a Material Adverse Effect on the Company or materially impede the completion of the Arrangement, shall have been obtained or received on terms that are reasonably satisfactory to the Purchaser.

(g) Releases. The directors and officers of the Company set out in Schedule 6.2(g) of the Company Disclosure Letter shall have delivered a resignation and release to the Company, in form and substance acceptable to the Parties, each acting reasonably.

(h) Support and Voting Agreements. None of the Support and Voting Agreements shall have been terminated.

(i) Share Issuance. The fees described in Schedule 6.2(i) of the Company Disclosure Letter shall have been fully paid and settled in Company Common Shares (which shall be issued prior to the Effective Time).

6.3. Additional Conditions Precedent to the Obligations of the Company

The Company is not required to complete the Arrangement unless each of the following conditions is satisfied on or prior to the Effective Time, which conditions are for the exclusive benefit of the Company and may only be waived, in whole or in part, by the Company in its sole discretion:

(a) Representations and Warranties. (i) The representations and warranties of the Purchaser set forth in Paragraphs 1 [Organization and Qualification], 2 [Corporate Authorization], 4 [Execution and Binding Obligation] and 5(a) [Non-Contravention of Constating Documents] of Schedule D shall be true and correct in all respects as of the date of this Agreement and as of the Effective Time as if made at and as of such time; and (ii) all other representations and warranties of the Purchaser set forth in this Agreement shall be true and correct (A) in all material respects as of the date of this Agreement and (B) in all respects as of the Effective Time as if made at and as of such time (except that any such representation and warranty that by its terms speaks specifically as of the date of this Agreement or another date shall be true and correct in all respects as of such date), except in the case of clause (ii)(B) to the extent that the failure or failures of such representations and warranties to be so true and correct, individually or in the aggregate, would not have a Material Adverse Effect on the Purchaser (and, for this purpose, any reference to “material”, “Material Adverse Effect” or other concepts of materiality in such representations and warranties shall be ignored), and, in each case, Purchaser has delivered a certificate confirming same to the Company, executed by two senior officers thereof (in each case without personal liability) addressed to the Company and dated the Effective Date.

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(b) Performance of Covenants. The Purchaser has fulfilled or complied in all material respects with each of its covenants contained in this Agreement to be fulfilled or complied with by it on or prior to the Effective Time, or which have not been waived by the Company, and the Purchaser has delivered a certificate confirming same to the Company, executed by two senior officers thereof (in each case without personal liability) addressed to the Company and dated the Effective Date.

(c) Payment of Consideration. Subject to obtaining the Final Order and the satisfaction or waiver of the other conditions precedent contained herein in its favour (other than conditions which, by their nature, are only capable of being satisfied as of the Effective Time), the Purchaser shall have complied with its obligations under Section 2.10 and the Depositary will have confirmed to the Company receipt from or on behalf of the Purchaser of the Purchaser Common Shares contemplated by Section 2.10.

(d) Material Adverse Effect. Since the date of this Agreement, there shall not have occurred a Material Adverse Effect in respect of the Purchaser that has not been cured.

(e) Consents. All third person and other consents, waivers, permits, exemptions, orders, approvals, agreements and amendments and modifications to agreements, indentures or arrangements, the failure of which to obtain or the non-expiry of which would, or could reasonably be expected to have, a Material Adverse Effect on the Purchaser or materially impede the completion of the Arrangement, shall have been obtained or received on terms that are reasonably satisfactory to the Company.

6.4. Satisfaction of Conditions

The conditions precedent set out in Section 6.1, Section 6.2 and Section 6.3 will be conclusively deemed to have been satisfied, waived or released at the Effective Time.

ARTICLE 7 TERM AND TERMINATION

7.1. Term

This Agreement shall be effective from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.

7.2. Termination

(a) This Agreement may be terminated prior to the Effective Time by:

(i)	the mutual written agreement of the Parties;
(ii)	either the Company or the Purchaser, if:

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(A)	the Required Approval is not obtained at the Company Meeting in accordance with the Interim Order, provided that a Party may not terminate this Agreement pursuant to this Section 7.2(a)(ii)(A) if the failure to obtain the Required Approval has been caused by, or is a result of, a breach by such Party of any of its representations or warranties under this Agreement or the failure of such Party to perform any of its covenants or agreements under this Agreement;
(B)	after the date of this Agreement, any Law is enacted, made, enforced, issued or amended, as applicable, that makes the completion of the Arrangement illegal or otherwise prohibits or enjoins the Company or the Purchaser from completing the Arrangement, and such Law has, if applicable, become final and non-appealable, provided the Party seeking to terminate this Agreement pursuant to this Section 7.2(a)(ii)(B) has used its commercially reasonable efforts or the efforts required by Section 4.5 to, as applicable, appeal or overturn such Law or otherwise have it lifted or rendered non-applicable in respect of the Arrangement; or
(C)	the Effective Time does not occur on or prior to the Outside Date, provided that a Party may not terminate this Agreement pursuant to this Section 7.2(a)(ii)(C) if the failure of the Effective Time to so occur has been caused by, or is a result of, a breach by such Party of any of its representations or warranties or the failure of such Party to perform any of its covenants or agreements under this Agreement;

(iii) the Company if:

(A)

a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the Purchaser under this Agreement occurs that would  cause  any  condition  in Section 6.3(a) [Purchaser Representations and Warranties Condition] or Section 6.3(b) [Purchaser Covenants Condition] not to be satisfied, and such breach or failure is incapable of being cured or is not cured on or prior to the Outside Date; provided that the Company is not then in breach of this Agreement so as to cause any condition in Sections 6.1 [Mutual Conditions] or 6.2 [Purchaser Conditions] not to be satisfied;

(B)

prior to the approval by the Company Shareholders of the Arrangement Resolution, the Board authorizes the Company to enter into a definitive written agreement (other than a confidentiality agreement permitted by and in accordance with Section 5.3) with respect to a Superior Proposal in accordance with Section 5.4 of this Agreement and prior to or concurrently with such termination the Company (or another Person on behalf of the Company) pays the Company Termination Amount in accordance with Section 7.4 in consideration for the disposition of the Purchaser’s rights under this Agreement;

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(C)	subject to obtaining the Final Order and the satisfaction or waiver of the other conditions precedent contained herein in its favour (other than conditions which, by their nature, are only capable of being satisfied as of the Effective Time), the Purchaser does not provide or cause to be provided to the Depositary sufficient Purchaser Common Shares as required pursuant to Section 2.10; or
(D)	there has occurred a Material Adverse Effect in respect of the Purchaser on or after the date of this Agreement that is incapable of being cured on or prior to the Outside Date; or

(iv) the Purchaser, if:

(A)	a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the Company under this Agreement occurs that would cause any condition in Section 6.2(a) [Company Representations and Warranties Condition] or Section 6.2(b) [Company Covenants Condition] not to be satisfied, and such breach or failure is incapable of being cured or is not cured on or prior to the Outside Date; provided that the Purchaser is not then in breach of this Agreement so as to cause any condition in Sections 6.1 [Mutual Conditions] or 6.3 [Company Conditions] not to be satisfied;
(B)	the Board or any committee of the Board fails to unanimously (with any interested directors having abstained from voting) recommend or withdraws, amends, modifies or qualifies in a manner adverse to the Purchaser or publicly proposes or states its intention to do any of the foregoing, or fails to publicly reaffirm (without qualification) within five Business Days after having been requested in writing by the Purchaser, to do so, the Board Recommendation, or takes no position or a neutral position with respect to a publicly announced Acquisition Proposal for more than five Business Days after such Acquisition Proposal’s public announcement (in each case, a “Change in Recommendation”), or the Company breaches Article 5 in any respect; or
(C)	there has occurred a Material Adverse Effect in respect of the Company on or after the date of this Agreement that is incapable of being cured on or prior to the Outside Date.

(b) The Party desiring to terminate this Agreement pursuant to this Section 7.2 (other than pursuant to Section 7.2(a)(i)) shall give written notice of such termination to the other Party, specifying in reasonable detail the basis for such Party’s exercise of its termination right.

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7.3. Effect of Termination/Survival

If this Agreement is terminated pursuant to Section 7.2, this Agreement shall become void and of no further force or effect without liability of any Party (or any shareholder, director, officer, employee, agent, consultant or representative of such Party) to any other Party to this Agreement, except that: (a) in the event of termination under Section 7.1 as a result of the occurrence of the Effective Time, Section 4.9 shall survive; and (b) in the event of termination under Section 7.2, this Section 7.3 and Section 7.4 through to and including Section 8.15 shall survive in accordance with their terms, and provided further that, subject to Section 7.4(g) and 7.5(d), no Party shall be relieved of any liability for any breach by it of this Agreement.

7.4. Company Expense Reimbursement and Company Termination Amount

(a) Despite any other provision in this Agreement relating to the payment of fees and expenses, including the payment of brokerage fees, (i) if this Agreement is terminated pursuant to Section 7.2(a)(iv)(A) [Breach of Company Representation or Warranty] the Company shall pay $300,000 (the “Company Expense Reimbursement Amount”) to the Purchaser as reimbursement for costs and expenses incurred by or on behalf of the Purchaser in connection with this Agreement and the transactions contemplated hereby; and (ii) if a Company Termination Amount Event occurs, the Company shall pay $1,000,000 (the “Company Termination Amount”) to the Purchaser in consideration for the disposition of the Purchaser’s rights under this Agreement in accordance with Section 7.4(c), all plus applicable taxes.

(b) For the purposes of this Agreement, “Company Termination Amount Event” means the termination of this Agreement:

(i)	by the Purchaser, pursuant to Section 7.2(a)(iv)(B) [Change in Recommendation or Material Breach of Section 5.1];
(ii)	by the Company pursuant to Section 7.2(a)(iii)(B) [Superior Proposal]; or
(iii)	by the Company or the Purchaser pursuant to Section 7.2(a)(ii)(A) [Failure of Shareholders to Approve] if:

(A)

after the announcement of this Agreement and prior to such termination, an Acquisition Proposal is proposed, offered or made or publicly announced or otherwise publicly disclosed by any Person other than the Purchaser or any of its Affiliates (and such Acquisition Proposal has not expired or been withdrawn at least five Business Days prior to the date of the Company Meeting); and

(B)

within 12 months following the date of such termination, (X) an Acquisition Proposal (whether or not such Acquisition Proposal is the same Acquisition Proposal referred to in clause (A) above) is completed, or (Y) the Company or one or more of its Subsidiaries, directly or indirectly, in one or more transactions, enters into a definitive written agreement in respect of an Acquisition Proposal (whether or not such Acquisition Proposal is the same Acquisition Proposal referred to in clause (A) above) and such Acquisition Proposal is later completed (whether or not within 12 months after such termination),

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provided that for purposes of this Section 7.4(b)(iii) the term “Acquisition Proposal” shall have the meaning assigned to such term in Section 1.1, except that references to “20% or more” shall be deemed to be references to “50% or more”.

(c) The Company Termination Amount shall be paid by the Company to the Purchaser in consideration for the disposition of the Purchaser’s rights under this Agreement as follows, by wire transfer of immediately available funds to an account designated by the Purchaser:

(i)	if a Company Termination Amount Event occurs due to a termination of this Agreement described in Section 7.4(b)(i), within two Business Days of the occurrence of such Company Termination Amount Event;
(ii)	if a Company Termination Amount Event occurs due to a termination of this Agreement described in Section 7.4(b)(ii), concurrently with such termination; or
(iii)	if a Company Termination Amount Event occurs due to a termination of this Agreement described in Section 7.4(b)(iii), on the completion of the Acquisition Proposal referred to in Section 7.4(b)(iii).

(d) The Company Expense Reimbursement Amount shall be paid to the Purchaser by the Company by wire transfer of immediately available funds to an account designated by the Purchaser within two Business Days of the occurrence of the termination of this Agreement in the manner contemplated in Section 7.4(a).

(e) For the avoidance of doubt, in no event shall the Company be obligated to pay the Company Termination Amount on more than one occasion. If circumstances arise in which the Company would otherwise be required to pay both the Company Expense Reimbursement Amount and the Company Termination Amount to the Purchaser, any payment by the Company to the Purchaser of the Company Expense Reimbursement Amount shall be credited towards the obligation of the Company to pay the Company Termination Amount to the Purchaser.

(f) The Company acknowledges that the agreements contained in this Section 7.4 are an integral part of the transactions contemplated by this Agreement, and that without these agreements the Purchaser would not enter into this Agreement, and that any payment of the Company Termination Amount or the Company Expense Reimbursement Amount as set out in this Section 7.4 is in consideration for the disposition of the Purchaser’s rights under this Agreement which are a genuine pre-estimate of the damages, including opportunity costs, which the Purchaser will suffer or incur as a result of the event giving rise to such damages and resultant termination of this Agreement, and are not penalties. The Company irrevocably waives any right it may have to raise as a defence that any such amounts are excessive or punitive.

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(g) The Purchaser agrees that the payment of the Company Expense Reimbursement Amount and the Company Termination Amount in the manner provided in this Section 7.4 is the sole and exclusive remedy of the Purchaser in respect of the event giving rise to such payment and the termination of this Agreement, and following receipt thereof, the Purchaser shall not be entitled to bring or maintain any claim, action or proceeding against the Company or any of its Affiliates arising out of or in connection with this Agreement (or the termination thereof) or the transactions contemplated herein and neither the Company nor any of its Affiliates shall have any further liability with respect to this Agreement or the transactions contemplated hereby to the Purchaser or any of its Affiliates) provided, however, that this limitation shall not apply in the event of fraud or a willful breach by the Company or any of its Subsidiaries of its representations, warranties, covenants or agreements set forth in this Agreement (which breach and liability therefore shall not be affected by termination of this Agreement or any payment of the Company Termination Amount). The Parties shall also have the right to injunctive and other equitable relief in accordance with Section 8.5 to prevent breaches or threatened breaches of this Agreement and to enforce compliance with the terms of this Agreement.

7.5. Purchaser Expense Reimbursement

(a) Despite any other provision in this Agreement relating to the payment of fees and expenses, if this Agreement is terminated pursuant to Section 7.2(a)(iii)(A) [Breach of Purchaser Representations and Warranties], the Purchaser shall pay $300,000 (the “Purchaser Expense Reimbursement Amount”) to the Company as reimbursement for costs and expenses incurred by or on behalf of the Company in connection with this Agreement and the transactions contemplated hereby.

(b) The Purchaser Expense Reimbursement Amount shall be paid to the Company by the Purchaser by wire transfer of immediately available funds to an account designated by the Company within two Business Days of the occurrence of the termination of this Agreement as contemplated in Section 7.5(a).

(c) The Purchaser acknowledges that the agreements contained in this Section 7.5 are an integral part of the transactions contemplated by this Agreement, and that without these agreements the Company would not enter into this Agreement, and that any payment of the Purchaser Expense Reimbursement Amount as set out in this Section 7.5 is in consideration for the disposition of the Company’s rights under this Agreement which are a genuine pre-estimate of the damages, including opportunity costs, which the Company will suffer or incur as a result of the event giving rise to such damages and resultant termination of this Agreement, and are not penalties. The Purchaser irrevocably waives any right it may have to raise as a defence that any such amounts are excessive or punitive.

(d) The Company agrees that the payment of the Purchaser Expense Reimbursement Amount in the manner provided in this Section 7.5 is the sole and exclusive remedy of the Company in respect of the event giving rise to such payment and the termination of this Agreement, and following receipt thereof, the Company shall not be entitled to bring or maintain any claim, action or proceeding against the Purchaser or any of its Affiliates arising out of or in connection with this Agreement (or the termination thereof) or the transactions contemplated herein and neither the Purchaser nor any of its Affiliates shall have any further liability with respect to this Agreement or the transactions contemplated hereby to the Company or any of its Affiliates) provided, however, that this limitation shall not apply in the event of fraud or a wilful breach by the Purchaser or any of its Subsidiaries of its representations, warranties, covenants or agreements set forth in this Agreement (which breach and liability therefore shall not be affected by termination of this Agreement or any payment of the Purchaser Expense Reimbursement Amount). The Parties shall also have the right to injunctive and other equitable relief in accordance with Section 8.5 to prevent breaches or threatened breaches of this Agreement and to enforce compliance with the terms of this Agreement.

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ARTICLE 8 GENERAL PROVISIONS

8.1 Amendments

This Agreement and the Plan of Arrangement may, at any time and from time to time before or after the holding of the Company Meeting but not later than the Effective Time, be amended by mutual written agreement of the Parties, without further notice to or authorization on the part of the Company Shareholders and any such amendment may, subject to the Interim Order and the Final Order and applicable Laws:

(i)	change the time for performance of any of the obligations or acts of the Parties;
(ii)	modify any representation or warranty contained in this Agreement or in any document delivered pursuant to this Agreement;
(iii)	modify any of the covenants contained in this Agreement and waive or modify performance of any of the obligations of the Parties; and/or
(iv)	modify any mutual conditions contained in this Agreement.

8.2. Expenses

All out-of-pocket third party transaction expenses incurred in connection with this Agreement and the Plan of Arrangement, including all costs, expenses and fees of the Company incurred prior to the Effective Date in connection with, or incidental to, the Plan of Arrangement, shall be paid by the Party incurring such expenses, whether or not the Arrangement is completed.

8.3. Notices

Any notice, direction or other communication given pursuant to this Agreement (each a “Notice”) must be in writing, sent by hand delivery, courier or email and is deemed to be given and received: (i) on the date of delivery by hand or courier if it is a Business Day and the delivery was made prior to 4:00 p.m. (local time in the place of receipt), and otherwise on the next Business Day; or (ii) if sent by email on the date of transmission if it is a Business Day and transmission was made prior to 4:00 p.m. (local time in the place of receipt) and otherwise on the next Business Day, in each case to the Parties at the following addresses (or such other address for a Party as specified by like Notice):

(a) to the Company at:

Franchise Global Health Inc.

440 W. Hastings, Suite 320

Vancouver, British Columbia

V6B 1L1

Attention: Clifford Starke, Chairman & CEO

Email: starke.clifford@gmail.com

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with a copy to:

Gowling WLG (Canada) LLP

1 First Canadian Place,

100 King Street West, Suite 1600

Toronto, Ontario

M5X 1G5

Attention: Peter Simeon

Email: peter.simeon@gowlingwlg.com

(b) to the Purchaser at:

Flora Growth Corp.

3406 SW 26th Terrace, Suite C-1,

Fort Lauderdale, Florida

33312

Attention: Matthew Cohen

Email: matt.cohen@floragrowth.com

with a copy to:

Wildeboer Dellelce LLP

Suite 800, 365 Bay Street

Toronto, Ontario

M5H 2V1

Attention: Michael Rennie

Email: mrennie@wildlaw.ca

Rejection or other refusal to accept or inability to deliver because of changed address of which no Notice was given shall be deemed to be receipt of the Notice as of the date of such rejection, refusal or inability to deliver. Sending a copy of a Notice to a Party’s legal counsel as contemplated above is for information purposes only and does not constitute delivery of the Notice to that Party. The failure to send a copy of a Notice to legal counsel does not invalidate delivery of that Notice to a Party.

8.4. Time of the Essence

Time is of the essence in this Agreement.

8.5. Injunctive Relief

The Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at Law in the event that any of the provisions of this Agreement were not performed by a Party in accordance with their specific terms or were otherwise breached by a Party. It is accordingly agreed that each Party shall be entitled to injunctive and other equitable relief to prevent breaches or threatened breaches of this Agreement, and to specifically enforce compliance with, or performance of, the terms of this Agreement against the other Party without any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief, this being in addition to any other remedy to which a Party may be entitled at Law or in equity.

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8.6. Third Party Beneficiaries

(a) Except as provided in Section 4.9 which, without limiting their respective terms, are intended as stipulations for the benefit of the third Persons mentioned in such provisions (such third Persons referred to in this Section 8.6 as the “Indemnified Persons”), the Parties intend that this Agreement will not benefit or create any right or cause of action in favour of any Person, other than the Parties and that no Person, other than the Parties, shall be entitled to rely on the provisions of this Agreement in any action, suit, proceeding, hearing or other forum.

(b) Despite the foregoing, the Purchaser acknowledges to each of the Indemnified Persons their direct rights against it under Section 4.9 of this Agreement, which is intended for the benefit of, and shall be enforceable by, each Indemnified Person, his or her heirs and his or her legal representatives, and for such purpose, the Company confirms that it is acting as trustee on their behalf, and agrees to enforce such provision on their behalf. The Parties reserve their right to vary or rescind the rights at any time and in any way whatsoever, if any, granted by or under this Agreement to any Person who is not a Party, without notice to or consent of that Person, including any Indemnified Person.

8.7. Waiver

No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision (whether or not similar). No waiver will be binding unless executed in writing by the Party to be bound by the waiver. A Party’s failure or delay in exercising any right under this Agreement will not operate as a waiver of that right. A single or partial exercise of any right will not preclude a Party from any other or further exercise of that right or the exercise of any other right.

8.8. Entire Agreement

This Agreement constitutes the entire agreement between the Parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between the Parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement. The Company, on the one hand, and the Purchaser, on the other hand, have not relied and are not relying on any other information, discussion or understanding in entering into and completing the transactions contemplated by this Agreement.

8.9. Successors and Assigns

(a) This Agreement becomes effective only when executed by the Company and the Purchaser. After that time, it will be binding upon and enure to the benefit of the Company and the Purchaser and their respective successors and permitted assigns.

(b) Neither this Agreement nor any of the rights or obligations under this Agreement are assignable or transferable by any Party without the prior written consent of the other Party.

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8.10. Severability

If any provision of this Agreement is determined to be illegal, invalid or unenforceable by an arbitrator or any court of competent jurisdiction, that provision will be severed from this Agreement and the remaining provisions shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

8.11. Governing Law

(a) This Agreement will be governed by and interpreted and enforced in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein.

(b) Each Party irrevocably attorns and submits to the exclusive jurisdiction of the British Columbia courts situated in the City of Vancouver and waives objection to the venue of any proceeding in such court or that such court provides an inconvenient forum.

8.12. Further Assurances

Each Party hereto shall, from time to time and at all times hereafter, at the request of the other Parties hereto, but without further consideration, do all such further acts and things, and execute and deliver all such further documents and instruments and provide all such further assurances as may be reasonably required in order to fully perform and carry out the terms and intent hereof.

8.13. Rules of Construction

The Parties to this Agreement waive the application of any applicable Law or rule of construction providing that ambiguities in any agreement or other document shall be construed against the party drafting such agreement or other document.

8.14. No Liability

No director or officer of the Purchaser or its Subsidiaries shall have any personal liability whatsoever to the Company under this Agreement or any other document delivered on behalf of the Purchaser under this Agreement. No director or officer of the Company or any of its Subsidiaries shall have any personal liability whatsoever to the Purchaser under this Agreement or any other document delivered on behalf of the Company or any of its Subsidiaries under this Agreement.

8.15. Counterparts

This Agreement may be executed in any number of counterparts (including counterparts by facsimile or email) and all such counterparts taken together shall be deemed to constitute one and the same instrument. The Parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the Parties.

[Signature Page Follows]

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IN WITNESS WHEREOF the Parties have executed this Arrangement Agreement.

FLORA GROWTH CORP.
By:	(signed) “Luis Merchan”
Name: Luis Merchan
Title: Chief Executive Officer
FRANCHISE GLOBAL HEALTH INC.
By:	(signed) “Clifford Starke”
Name: Clifford Starke
Title: Chief Executive Officer

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SCHEDULE A

PLAN OF ARRANGEMENT

PLAN OF ARRANGEMENT UNDER PART 9, DIVISION 5

OF THE BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA)

ARTICLE 1 INTERPRETATION

1.1 Definitions

 Unless indicated otherwise, where used in this Plan of Arrangement, capitalized terms used but not defined shall have the meanings specified in the Arrangement Agreement and the following terms shall have the following meanings (and grammatical variations of such terms shall have corresponding meanings):

“Agent Compensation Options” means the outstanding compensation options of the Company exercisable to purchase Company Common Shares.

“Arrangement” means the arrangement under Part 9, Division 5 of the BCBCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations made in accordance with the terms of the Arrangement Agreement or Section 5.1 of this Plan of Arrangement or made at the direction of the Court in the Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.

“Arrangement Agreement” means the arrangement agreement made as of October 21, 2022 between the Purchaser and the Company (including the Schedules thereto) as it may be amended, modified or supplemented from time to time in accordance with its terms.

“Arrangement Resolution” means the special resolution approving this Plan of Arrangement to be considered at the Company Meeting by the Company Shareholders entitled to vote thereon pursuant to the Interim Order.

“BCBCA” means the Business Corporations Act (British Columbia).

“Business Day” means any day of the year, other than a Saturday, a Sunday or any day on which major banks are closed for business in Vancouver, British Columbia or Toronto, Ontario.

“Closing Price” means the Purchaser VWAP for the 20 trading days immediately preceding the third Business Day prior to the Effective Date.

“Company” means Franchise Global Health Inc., a company existing under the laws of the Province of British Columbia.

“Company Common Shares” means, at any time, the outstanding common shares in the authorized share structure of the Company.

A-1

“Company Meeting” means the special meeting of Company Shareholders, including any adjournment or postponement of such meeting in accordance with the terms of the Arrangement Agreement, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution and for any other purpose as may be set out in the Company Circular and agreed to in writing by the Purchaser.

“Company Options” means the outstanding options of the Company to purchase Company Common Shares issued pursuant to the Company Stock Option Plan.

“Company RSU Plan” means the Franchise Global Health Inc. Share Unit Plan last approved by Company Shareholders on September 20, 2021.

“Company RSUs” means, collectively, the outstanding restricted share units of the Company issued pursuant to the Company RSU Plan.

“Company Shareholders” means the registered and/or beneficial holders of Company Common Shares, as the context requires.

“Company Stock Option Plan” means the Franchise Global Health Inc. Stock Option Plan last approved by Company Shareholders on September 20, 2021.

“Consideration” means the Exchange Ratio of a Purchaser Common Share for each Company Common Share.

“Court” means the Supreme Court of British Columbia, or other court as applicable.

“Depositary” means the trust company, bank or financial institution agreed to in writing between the Purchaser and the Company for the purpose of, among other things, working in connection with the transfer agents for the Company and the Purchaser, the Canadian Depository for Securities Limited and the Depository Trust & Clearing Corporation to distribute the Purchaser Common Shares comprising the Consideration.

“Dissent Rights” has the meaning specified in Section 3.1(a).

“Dissenting Share” has the meaning specified in Section 2.3(b)(i).

“Dissenting Shareholder” means a registered Company Shareholder who has validly exercised his, her or its Dissent Rights and has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights, but only in respect of the Company Common Shares in respect of which Dissent Rights are validly exercised by such registered Company Shareholder.

“Effective Date” means the date the Arrangement becomes effective as agreed to by the Parties in accordance with the Final Order.

“Effective Time” means the beginning of the day (Vancouver time) on the Effective Date, or such other time on the Effective Date as the Parties agree to in writing before the Effective Date.

A-2

“Exchange Ratio” means the Initial Exchange Ratio, except that (A) if the Closing Price is greater than US$1.25 but less than US$1.49, then the Exchange Ratio will be calculated as (i) the Initial Price per Company Common Share divided by (ii) the Closing Price; and (B) if the Closing Price is greater than or equal to US$1.49, then the Exchange Ratio will be calculated as (i) the Initial Price per Company Common Share divided by (ii) US$1.49; provided, however, that the aggregate Consideration payable for all Company Common Shares (including the Company Common Shares allotted and issued pursuant to Section 2.3(a)(iv) hereof) will in no event be more than 43,525,951 Purchaser Common Shares nor be less than 36,515,060 Purchaser Common Shares. For greater certainty, if the Closing Price is less than US$1.25, then the Exchange Ratio shall be the Initial Exchange Ratio.

“Final Order” means the final order of the Court made pursuant to Section 291(4) of the BCBCA, after a hearing upon the fairness of the terms and conditions of the Arrangement and after being informed of the intention to rely upon the registration exemption provided in Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of the Purchaser Common Shares to be issued pursuant to the Arrangement in exchange for the Company Common Shares, in a form acceptable to the Company and the Purchaser, each acting reasonably, approving the Arrangement, as such order may be amended by the Court (with the consent of both the Company and the Purchaser, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both the Company and the Purchaser, each acting reasonably) on appeal.

“Governmental Entity” means (i) any international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau, ministry, agency or instrumentality, domestic or foreign, (ii) any subdivision, agent, authority or representative of any of the above, (iii) any quasi-governmental or private body exercising any regulatory, anti-trust, foreign investment, expropriation or taxing authority under or for the account of any of the foregoing or (iv) any stock exchange, including but not limited to, Bundesinstitut für Arzneimittel und Medizinprodukte (Federal Institute for Drugs and Medical Devices) and the Colombian Ministry of Agriculture, Colombian Ministry of Agriculture, Health Canada.

“Interim Order” means the interim order of the Court made pursuant to Section 291(2) of the BCBCA in a form acceptable to the Company and the Purchaser, each acting reasonably, providing for, among other things, the calling and holding of the Company Meeting and the voting requirements with respect to the Arrangement Resolution, as such order may be amended by the Court with the consent of the Company and the Purchaser, each acting reasonably.

“Initial Exchange Ratio” means 0.3234598886 Purchaser Common Shares for each Company Common Share, provided that if the Company issues any Company Common Shares in accordance with Section 4.1(b)(v) of the Arrangement Agreement prior to the Effective Time, the Initial Exchange Ratio shall be the number of Purchaser Common Shares determined by dividing 43,525,951 by the number of issued and outstanding Company Common Shares immediately prior to the Effective Time, with the minimum Initial Exchange Ratio being 0.2910195359 Purchaser Common Shares.

“Initial Price per Company Common Share” means US$0.4044, provided that if the Company issues any Company Common Shares in accordance with Section 4.1(b)(v) of the Arrangement Agreement prior to the Effective Time, the Initial Price per Company Common Share shall be the price determined by multiplying the Initial Exchange Ratio by US$1.25.

A-3

“Law” means, with respect to any Person, any and all applicable law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, notice, judgment, decree, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, undertaking, property or securities, and to the extent that they have the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended unless expressly specified otherwise.

“Letter of Transmittal” means the letter of transmittal sent to Company Shareholders for use in connection with the Arrangement.

“Lien” means any mortgage, charge, pledge, hypothec, security interest, lien (statutory or otherwise), or adverse right or claim, or other third party interest or encumbrance of any kind.

“Person” includes any individual, partnership, limited liability company, incorporated or unincorporated association, joint venture, joint stock company, body corporate, trust, organization, estate, trustee, executor, administrator, legal representative, government (including a Governmental Entity), syndicate or other entity, whether or not having legal status.

“Plan of Arrangement” means this plan of arrangement and any amendments or variations made in accordance with the Arrangement Agreement or Section 5.1 or made at the direction of the Court in the Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.

“Purchaser” means Flora Growth Corp., a corporation existing under the laws of the Province of Ontario.

“Purchaser Common Share” means a common share in the capital of the Purchaser.

“Purchaser VWAP” means the daily volume-weighted average price of the Purchaser Common Shares on the Nasdaq Capital Market for such date or dates on the Nasdaq Capital Market as reported by Bloomberg L.P. during regular trading hours.

“Release Date” means the date that is ninety (90) calendar days following the Effective Date.

“Restricted Legend” means the legend or similar annotation to be carried (or, in the case of uncertificated Purchaser Common Shares, be deemed to be carried) by the certificates or any “direct registration system” statements or advice representing the Purchaser Common Shares issuable pursuant to the Arrangement providing for a restriction on trading such Purchaser Common Shares from the Effective Date until the Release Date, in accordance with the Transfer Restrictions and Exceptions.

“Tax Act” means the Income Tax Act (Canada).

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“Transfer Restrictions and Exceptions” means, in relation to the Purchaser Common Shares issuable pursuant to the Arrangement, until the Release Date, such Purchaser Common Shares may not be transferred without the consent of the Purchaser, except that a former Company Shareholder (or a permitted transferee thereof), in relation to Purchaser Common Shares owned beneficially or of record by it, may: (i) mortgage or charge such Purchaser Common Shares as collateral for a loan; (b) exercise voting rights attaching to such Purchaser Common Shares: (c) receive dividends or other distributions on such Purchaser Common Shares; (d) transfer, sell or tender such Purchaser Common Shares pursuant to a take-over bid (as defined in the Securities Act (British Columbia) or any similar transaction, including without limitation a merger, arrangement or amalgamation, involving a change of control of the Purchaser; (e) transfer such Purchaser Common Shares to any nominee or custodian (including a trust) where there is no change in beneficial ownership (other than a change in beneficial ownership resulting from a transfer to a trust for the direct or indirect benefit of the immediate family members of the former Company Shareholder (or a permitted transferee thereof); (f) effect such sales as may be contemplated by Section 4.3 hereof; or (g) where the former Company Shareholder (or a permitted transferee thereof) is a corporate entity, a transfer to an affiliate or a shareholder of that former Company Shareholder (or permitted transferee thereof); provided that any permitted transferee will receive Purchaser Common Shares that contain the Restricted Legend.

1.2 Certain Rules of Interpretation

In this Plan of Arrangement, unless otherwise specified:

(a)	Headings, etc. The division of this Plan of Arrangement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the construction or interpretation of this Plan of Arrangement.
(b)	Currency. All references to dollars or to $ are references to Canadian dollars, unless specified otherwise.
(c)	Gender and Number. Any reference to gender includes all genders. Words importing the singular number only include the plural and vice versa.
(d)	Certain Phrases, etc. The words (i) “including”, “includes” and “include” mean “including (or includes or include) without limitation,” (ii) “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of,” and (iii) unless stated otherwise, “Article”, “Section”, and “Schedule” followed by a number or letter mean and refer to the specified Article or Section of or Schedule to this Plan of Arrangement.
(e)	Statutes. Any reference to a statute refers to such statute and all rules, resolutions and regulations made under it, as it or they may have been or may from time to time be amended or re-enacted, unless stated otherwise.
(f)	Computation of Time. A period of time is to be computed as beginning on the day following the event that began the period and ending at 5:00 p.m. on the last day of the period, if the last day of the period is a Business Day, or at 5:00 p.m. on the next Business Day if the last day of the period is not a Business Day. If the date on which any action is required or permitted to be taken under this Plan of Arrangement by a Person is not a Business Day, such action shall be required or permitted to be taken on the next succeeding day which is a Business Day.
(g)	Time References. References to time herein or in any Letter of Transmittal are to local time, Vancouver, British Columbia. Time shall be of the essence in every matter or action contemplated hereunder.

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ARTICLE 2 THE ARRANGEMENT

2.1. Arrangement Agreement

This Plan of Arrangement is made pursuant to, is subject to the provisions of, and forms part of, the Arrangement Agreement, except with respect of the sequence of the steps comprising the Arrangement, which shall occur as set out below in Section 2.3.

2.2. Binding Effect

This Plan of Arrangement and the Arrangement shall become effective, and be binding on the Purchaser, the Company, all holders and beneficial owners of Company Common Shares (including Dissenting Shareholders), Company Options, Company RSUs and Agent Compensation Options, the registrar and transfer agent of the Company, the Depositary and all other Persons, at and after the Effective Time without any further act or formality required on the part of any Person.

2.3. Arrangement

Commencing at the Effective Time, each of the events set out below shall occur and be deemed to occur in the following sequence in each case, except where stated otherwise, without any further authorization, act or formality of or by the Company, the Purchaser or any other Person:

(a) at the Effective Time:

(i)

pursuant to the terms of the Company Stock Option Plan, the Board shall prior to the Effective Time: (i) approve the acceleration of the vesting of all outstanding Company Options, subject to receipt of requisite regulatory approval (if any), and upon such approval each Company Option shall be deemed to be vested and exercisable prior to the Effective Time; and (ii) approve, conditional upon completion of the Arrangement, the termination and cancellation of all Company Options that have not been exercised prior to the Effective Time without payment of any consideration to the holders of such terminated and cancelled Company Options;

(ii)

the Company Stock Option Plan and all agreements relating to Company Options shall be terminated and of no further force or effect and neither the Company nor the Purchaser shall have any liability or obligations with respect to the Company Option Plan or any agreements relating to Company Options;

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(iii)

in accordance with the terms of the Agent Compensation Options, each holder of an Agent Compensation Option outstanding immediately prior to the Effective Time shall receive upon the subsequent exercise of such holder’s Agent Compensation Option, in accordance with its terms and for the same aggregate consideration therefor, and shall accept in lieu of each Company Common Share to which such holder was theretofore entitled upon such exercise, the Consideration; and

(iv)

each Company RSU outstanding immediately prior to the Effective Time (whether vested or unvested) shall immediately vest and the Company shall allot and issue to each holder of a Company RSU such number of Company Common Shares (provided that no share certificates shall be issued with respect to such shares as are due to such holder) under the terms of the Company RSU Plan and thereafter the Company RSU Plan will terminate and none of the former holders of Company RSUs, the Company, the Purchaser or any of their respective successors or assigns shall have any rights, liabilities or obligations in respect of the Company RSU Plan.

(b) immediately after the steps in Section 2.3(a):

(i)

each Company Common Share held by a Dissenting Shareholder who is ultimately determined to be entitled to be paid the fair value of his, her or its Company Common Shares in accordance with Article 3 (a “Dissenting Share”) shall be and shall be deemed to have been transferred to the Purchaser (free and clear of all Liens) in consideration for a debt claim against the Purchaser in an amount equal to the fair value of such Dissenting Share determined and payable in accordance with Article 3; and

(ii)

with respect to each Dissenting Share transferred to the Purchaser pursuant to Section 2.3(b)(i): (A) the registered holder of such Dissenting Share will cease to be the holder thereof or to have any rights as a holder thereof (other than the right to receive fair value of such Dissenting Share in accordance with Article 3) and the name of the registered holder thereof will be removed from the central securities register of the Company, (B) the holder of such Dissenting Share shall be deemed to have executed and delivered all consents, releases, assignments and waivers, statutory or otherwise, required to transfer and assign such Company Common Shares and (C) the Purchaser shall be and shall be deemed to be the transferee of such Dissenting Share (free and clear of all Liens) and will be entered in the central securities register of the Company as the sole holder thereof; and

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(c) immediately after the steps in Section 2.3(b):

(i)	each Company Common Share outstanding immediately prior to the Effective Time (including the Company Common Shares allotted and issued pursuant to Section 2.3(a)(iv) hereof but other than Dissenting Shares and Company Common Shares directly or indirectly owned by the Purchaser) shall be and shall be deemed to be transferred to the Purchaser (free and clear of all Liens) in exchange for the Consideration, provided (A) that the Purchaser Common Shares comprising the Consideration shall be subject to the Transfer Restrictions and Exceptions and (B) the certificates or any “direct registration system” statements or advice representing the Purchaser Common Shares comprising the Consideration shall bear (or, in the case of uncertificated Purchaser Common Shares, be deemed to bear) the Restricted Legend until the Release Date;
(ii)	with respect to each Company Common Share transferred to the Purchaser pursuant to Section 2.3(c)(i), (A) the holder of such Company Common Share will cease to be the holder thereof or to have any rights as a holder thereof (other than the right to receive the consideration such holder is entitled to receive pursuant to Section 2.3(c)(i)) and the name of the holder thereof will be removed from the central securities register of the Company, (B) the holder of such Company Common Share shall be deemed to have executed and delivered all consents, releases, assignments and waivers, statutory or otherwise, required to transfer and assign such Company Common Shares and (C) the Purchaser shall be and shall be deemed to be the transferee of such Company Common Share (free and clear of all Liens) and will be entered in the central securities register of the Company as the sole holder thereof; and
(iii)	each Company Shareholder (other than a Dissenting Shareholder) will be the holder of the aggregate number of Purchaser Common Shares issued to such Company Shareholder pursuant to Section 2.3(c)(i) and the securities registers of the Purchaser will be revised accordingly.

2.4. No Fractional Shares

In no event shall any holder of Company Common Shares be entitled to receive a fractional Purchaser Common Share under this Plan of Arrangement. Where the aggregate number of Purchaser Common Shares to be issued to a Company Shareholder as consideration under this Plan of Arrangement would result in a fraction of a Purchaser Common Share being issuable, the number of Purchaser Common Shares to be issued to such Company Shareholder shall be rounded down to the closest whole number and such fraction shall be disregarded and cancelled without any additional consideration payable to the Company Shareholder.

ARTICLE 3 RIGHTS OF DISSENT

3.1 Rights of Dissent

(a) Registered holders of Company Common Shares may exercise rights of dissent (“Dissent Rights”) in connection with the Arrangement under Section 238 of the BCBCA, and in the manner set forth in Sections 237 to 247 of the BCBCA, as modified by the Interim Order and this Section 3.1; provided that, notwithstanding Section 242(1)(a) of the BCBCA, the written objection to the Arrangement Resolution and exercise of Dissent Rights must be received by the Company not later than 5:00 p.m. on the Business Day which is two Business Days prior to the Company Meeting (as it may be adjourned or postponed from time to time). Dissenting Shareholders who duly exercise their Dissent Rights and who:

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(i)	are ultimately determined to be entitled to be paid fair value by the Purchaser for the Company Common Shares in respect of which they have exercised Dissent Rights shall be and shall be deemed to have irrevocably transferred such Company Common Shares to the Purchaser pursuant to Section 2.3(b) in consideration of the fair value of such Company Common Shares determined as of the close of business on the day before the Arrangement Resolution was adopted; or
(ii)	are not ultimately determined, for any reason, to be entitled to be paid fair value by the Purchaser for the Company Common Shares in respect of which they have exercised Dissent Rights shall be and shall be deemed to have participated in the Arrangement on the same basis as a Company Shareholder who has not exercised Dissent Rights and shall be entitled to receive only the consideration that such Company Shareholder would have been entitled to receive pursuant to Section 2.3(c) if such Company Shareholder had not exercised Dissent Rights,
	and in no case will the Company, the Purchaser or any other Person be required to recognize such Dissenting Shareholders as holders of Company Common Shares after the completion of the steps set forth in Section 2.3(b) or 2.3(c), as the case may be, and each Dissenting Shareholder will cease to be entitled to the rights of a shareholder in respect of the Company Common Shares in relation to which such Dissenting Shareholder has exercised Dissent Rights and the central securities register of the Company will be amended to reflect that such former holder is no longer the holder of such Company Common Shares as and from the Effective Time.

(b) For greater certainty, only registered holders of Company Common Shares shall be entitled to exercise Dissent Rights and, in addition to any other restrictions under Section 238 of the BCBCA, neither (i) holders of Company Options, Company RSUs or Agent Compensation Options, or (ii) the Company Shareholders who vote or have instructed a proxyholder to vote such holder’s Company Common Shares in favour of the Arrangement Resolution, shall be entitled to exercise Dissent Rights.

ARTICLE 4 CERTIFICATES AND PAYMENTS

4.1 Deposit Rules and Procedures

(a)

At or before the Effective Time, the Purchaser shall deposit or cause to deposited with the Depositary one or more certificates or book-entry advice statements representing the aggregate number of Purchaser Common Shares that such Company Shareholders are entitled to receive under Section 2.3(c).

(b)

As soon as practicable following the later of the Effective Time and the surrender by a Company Shareholder to the Depositary of a certificate or book-entry advice statement which immediately prior to the Effective Time represented outstanding Company Common Shares that were transferred to the Purchaser pursuant to Section 2.3(c), together with a duly completed and executed Letter of Transmittal and such additional documents and instruments as the Depositary may reasonably require, the former holder of such Company Common Shares will be entitled to receive in exchange therefor a certificate or book-entry advice statement representing the number of Purchaser Common Shares such holder is entitled to receive under Section 2.3(c), less any amounts withheld pursuant to Section 4.3, and any certificate so surrendered shall forthwith be cancelled.

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(c)

Subject to Section 4.4, until surrendered as contemplated by this Section 4.1, each certificate or book-entry advice statement which immediately prior to the Effective Time represented Company Common Shares that were transferred under Section 2.3(c) shall be deemed after the Effective Time to represent only the right to receive a certificate representing the number of Purchaser Common Shares the former holder of such Company Common Shares is entitled to receive pursuant to Section 2.3(c) less any amounts withheld pursuant to Section 4.3.

(d)

No holder of Company Common Shares, Company Options, Company RSUs or Agent Compensation Options shall be entitled to receive any consideration with respect to such Company Common Shares, Company Options, Company RSUs or Agent Compensation Options other than consideration such holder is entitled to receive, if any, in accordance with Section 2.3 and this Section 4.1 and, for greater certainty, no such former holder will be entitled to receive any interest, dividends, premium or other payment in connection therewith.

4.2 Lost Certificates

In the event any certificate which immediately prior to the Effective Time represented one or more outstanding Company Common Shares that were transferred to the Purchaser pursuant to Section 2.3(c) has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the former holder of such Company Common Shares, the Depositary shall, in exchange for such lost, stolen or destroyed certificate, deliver to such former holder of Company Common Shares the Consideration such Company Shareholder is entitled to receive in respect of such Company Common Shares pursuant to Section 2.3(c), less any amounts withheld pursuant to Section 4.3. When authorizing such payment in relation to any such lost, stolen or destroyed certificate, the former holder of such Company Common Shares shall, as a condition precedent to the delivery thereof, give a bond satisfactory to the Purchaser and the Depositary (acting reasonably) in such sum as the Purchaser may direct, or otherwise indemnify the Purchaser, the Company and the Depositary in a manner satisfactory to Purchaser, the Company and the Depositary (acting reasonably) against any claim that may be made against any of them with respect to the certificate alleged to have been lost, stolen or destroyed.

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4.3 Withholding Rights

The Purchaser, the Company or the Depositary shall deduct and withhold from any consideration otherwise payable to any Person under this Plan of Arrangement (including, without limitation, any amounts payable to Dissenting Shareholders pursuant to Section 3.1, any Company Common Shares issued pursuant to the Company Stock Option Plan, and any Company Common Shares issued pursuant to a Company RSU under Section 2.3(a)(iv)) such Taxes or other amounts as the Purchaser, the Company or the Depositary is required to deduct and withhold with respect to such payment under the Tax Act or any provision of any other applicable Law. The Purchaser, the Company or the Depositary shall sell forthwith Purchaser Common Shares otherwise payable to such Company Shareholder on behalf of, and as agent for, the Company Shareholder to fund the required withholding. To the extent that Taxes or other amounts are so withheld, such withheld amounts shall be treated for all purposes hereof as having been paid to the Person in respect of which such withholding was made, provided that such amounts are actually remitted to the appropriate taxing authority. None of the Purchaser, the Company, the Depositary or any broker used by the foregoing will be liable for any loss arising out from any sale of Purchaser Common Shares, including any loss relating to the manner or timing or such sales, the prices at which the Purchaser Common Shares are sold or otherwise.

4.4 Extinction of Rights

Any certificate or book-entry advice statement which immediately prior to the Effective Time represented one or more outstanding Company Common Shares that were acquired by the Purchaser pursuant to Section 2.3(c) and which is not deposited with the Depositary in accordance with the provisions of Section 4.1 on or before the sixth anniversary of the Effective Date shall, on the sixth anniversary of the Effective Date, cease to represent a claim or interest of any kind or nature whatsoever, whether as a securityholder or otherwise and whether against the Company, the Purchaser, the Depositary or any other Person. On such date, the Consideration such former holder of Company Common Shares would otherwise have been entitled to receive shall be and shall be deemed to have been surrendered for no consideration to the Purchaser. None of the Company, the Purchaser nor the Depositary will be liable to any Person in respect of any cash or securities (including any cash or securities previously held by the Depositary in trust for any such former holder) which is forfeited to the Purchaser or delivered to any public official pursuant to any applicable abandoned property, escheat or similar law.

ARTICLE 5 AMENDMENTS

5.1 Amendments to Plan of Arrangement

(a)	The Company and the Purchaser may amend, modify and/or supplement this Plan of Arrangement at any time and from time to time prior to the Effective Time, provided that each such amendment, modification and/or supplement must be (i) set out in writing, (ii) approved by the Company and the Purchaser (each acting reasonably), (iii) filed with the Court and, if made following the Company Meeting, approved by the Court and (iv) communicated to or approved by the Company Shareholders if and as required by the Court.
(b)	Any amendment, modification or supplement to this Plan of Arrangement may be proposed by the Company at any time prior to the Company Meeting (provided that the Purchaser shall have consented thereto) with or without any other prior notice or communication and, if so proposed and accepted by the Persons voting at the Company Meeting (other than as may be required under the Interim Order), shall become part of this Plan of Arrangement for all purposes.
(c)	Any amendment, modification or supplement to this Plan of Arrangement that is approved or directed by the Court following the Company Meeting shall be effective only if such amendment, modification or supplement is consented to (i) in writing by each of the Company and the Purchaser (each acting reasonably), and (ii) if required by the Court, by some or all of the Company Shareholders voting in the manner directed by the Court.

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(d)

Any amendment, modification or supplement to this Plan of Arrangement may be made following the Effective Date unilaterally by the Purchaser, provided that it concerns a matter which, in the reasonable opinion of the Purchaser, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of any former holder of Company Common Shares.

(e)

This Plan of Arrangement may be withdrawn prior to the Effective Time in accordance with the terms of the Arrangement Agreement.

ARTICLE 6 FURTHER ASSURANCES

6.1 Further Assurances

Notwithstanding that the transactions and events set out in this Plan of Arrangement shall occur and shall be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality, each of the Company and the Purchaser shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by either of them in order to further document or evidence any of the transactions or events set out in this Plan of Arrangement.

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SCHEDULE B

ARRANGEMENT RESOLUTION

BE IT RESOLVED, AS A SPECIAL RESOLUTION, THAT:

1.	The arrangement (the “Arrangement”) under Part 9, Division 5 of the Business Corporations Act (British Columbia) (the “BCBCA”) involving Franchise Global Health Inc. (the “Company”) and Flora Growth Corp. (“Flora”), pursuant to the arrangement agreement between the Company and Flora dated October 21, 2022, as it may be modified, supplemented or amended from time to time in accordance with its terms (the “Arrangement Agreement”), as more particularly described and set forth in the management information circular of the Company dated ●, 2022 (the “Circular”) (as the Arrangement may be modified or amended in accordance with its terms), and all transactions contemplated thereby, are hereby authorized, approved and adopted.
2.	The plan of arrangement of the Company, as it has been or may be modified, supplemented or amended in accordance with the Arrangement Agreement and its terms (the “Plan of Arrangement”), the full text of which is set out as Appendix ●to the Circular, is hereby authorized, approved and adopted.
3.	The: (i) Arrangement Agreement and all the transactions contemplated therein; (ii) actions of the directors of the Company in approving the Arrangement and the Arrangement Agreement; and (iii) actions of the directors and officers of the Company in executing and delivering the Arrangement Agreement and any modifications, supplements or amendments thereto, and causing the performance by the Company of its obligations thereunder, are hereby ratified and approved.
4.	The Company is authorized and directed to apply for a final order from the Supreme Court of British Columbia (the “Court”) to approve the Arrangement on the terms set forth in the Arrangement Agreement and the Plan of Arrangement.
5.	Notwithstanding that this resolution has been passed (and the Arrangement adopted) by the holders of common shares of the Company (the “Company Shareholders”) or that the Arrangement has been approved by the Court, the directors of the Company are hereby authorized and empowered, without further notice to or approval of the Company Shareholders: (i) to amend, modify or supplement the Arrangement Agreement or the Plan of Arrangement to the extent permitted by their terms; and (ii) subject to the terms of the Arrangement Agreement, not to proceed with the Arrangement and any related transactions.
6.	Any one or more director or officer of the Company be and is hereby authorized and directed for and on behalf of the Company to make an application to the Court for an order approving the Arrangement, to execute, under the corporate seal of the Company or otherwise, and to deliver all such deeds, instruments, assurances, agreements, forms, waivers, notices, certificates, confirmations and such other documents as are necessary or desirable to give effect to these resolutions, the Arrangement and the Plan of Arrangement in accordance with the Arrangement Agreement.
7.	Any one or more officer or director of the Company is hereby authorized and directed, for and on behalf of the Company, to execute or cause to be executed and to deliver or cause to be delivered, all such other documents and instruments and to perform or cause to be performed all such other acts and things as, in such person’s opinion, may be necessary or desirable to give full force and effect to the foregoing resolutions, the Arrangement Agreement and the completion of the Arrangement and the matters authorized thereby, including all necessary filings and obtaining the necessary approvals, consents and acceptances of appropriate regulatory authorities, such determination to be conclusively evidenced by the execution and delivery of any such other document or instrument or the doing of any such other act or thing.

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SCHEDULE C

COMPANY REPRESENTATIONS AND WARRANTIES

1.	Organization and Qualification. The Company and each of its Subsidiaries is a corporation or other entity duly incorporated, formed or organized, as applicable, validly existing and in good standing (or equivalent) under the laws of the jurisdiction of its incorporation, organization or formation, as applicable, and has all requisite power and authority to own, lease and operate its assets and properties and conduct its business as now owned and conducted. The Company and each of its Subsidiaries is duly qualified, registered, licensed or otherwise authorized to carry on business and is in good standing in each jurisdiction in which the character of its assets and properties, whether owned, leased, licensed or otherwise held, or the nature of its activities make such qualification, registration, licensing or other authorization necessary, and has all Authorizations required to own, lease and operate its properties and assets and to conduct its business as now owned and conducted, except as to the extent that any failure of the Company or any of its Subsidiaries to be so qualified, registered, licenced or authorized or to possess such Authorizations could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company.
2.	Corporate Authorization. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance by the Company of its obligations under this Agreement and the completion of the Arrangement and the other transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the completion of the Arrangement and the other transactions contemplated hereby and thereby other than approval by the Company Shareholders in the manner set forth in this Agreement, as required by the Interim Order and Law, and approval by the Court.
3.	Execution and Binding Obligation. This Agreement has been duly executed and delivered by the Company, and constitutes a legal, valid and binding agreement of the Company enforceable against it in accordance with their terms subject only to any limitation under bankruptcy, insolvency or other Laws affecting the enforcement of creditors’ rights generally and the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.
4.	Governmental Authorization. The execution, delivery and performance by the Company of its obligations under this Agreement and the completion of the Arrangement and the other transactions contemplated hereby and thereby do not require any Authorization or other action by or in respect of, or filing with, or notification to, any Governmental Entity by the Company or by any of its Subsidiaries other than: (a) the Interim Order and any approvals required by the Interim Order; (b) the Final Order; (c) filings under the BCBCA, and (d) filings with the Securities Authorities or the TSXV.
5.	Competition Act (Canada). Neither the aggregate value of the assets in Canada nor the gross revenues from sales in or from Canada generated by such assets exceeds the threshold established at section 110(3) of the Competition Act, each determined as of the time and in the manner prescribed in accordance with the Notifiable Transactions Regulations.

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6. Non-Contravention. The execution, delivery and performance by the Company of its obligations under this Agreement and the completion of the Arrangement and the other transactions contemplated hereby and thereby do not and will not (or would not with the giving of notice, the lapse of time or both):

(a)	contravene, conflict with, or result in any violation or breach of the Company’s Constating Documents or the organizational documents of any of its Subsidiaries;
(b)	assuming compliance with the matters referred to in Paragraph 4 above, contravene, conflict with or result in a violation or breach of any Law applicable to the Company or any of its Subsidiaries, or any of their respective properties or assets;
(c)	allow any Person to exercise any rights, require any consent or notice under or other action by any Person, or constitute a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Company or any of its Subsidiaries is entitled (including by triggering any rights of first refusal or first offer, change in control provision or other restriction or limitation) under any Material Contract or any Authorization to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; or
(d)	result in the creation or imposition of any Lien (other than Permitted Liens) upon any of the properties or assets of the Company or its Subsidiaries.

7. Capitalization.

(a)

The authorized share structure of the Company consists of an unlimited number of Company Common Shares. As of close of business on October 19, 2022, there were 134,563,674 Company Common Shares issued and outstanding.

(b)

Schedule 3.1(7)(b) of the Company Disclosure Letter sets forth, as of the date hereof: (i) the number of outstanding Company Options and the aggregate number of Company Common Shares into which outstanding Company Options are exercisable; (ii) the number of outstanding Company RSUs and the aggregate number of Company Common Shares into which outstanding Company RSUs are exercisable; and (iii) the number of outstanding Agent Compensation Options and the aggregate number of Company Common Shares into which outstanding Agent Compensation Options are exercisable, and in each case, all holders thereof and the exercise price, the date of grant or issuance, the expiration date and vested amounts, where applicable.

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(c)	All outstanding Company Common Shares have been duly authorized and validly issued, are fully paid and non-assessable (and no such shares have been issued in violation of any pre-emptive or similar rights), and all Company Common Shares issuable upon the exercise of the Company Options, Company RSUs and the Agent Compensation Options have been duly authorized and, upon issuance, shall be validly issued as fully paid and non-assessable. No Company Common Shares have been issued and no Company Options, Company RSUs or Agent Compensation Options have been granted in violation of any Law on the part of the Company or any pre-emptive or similar rights applicable to them.
(d)	Other than the Company Options, Company RSUs and the Agent Compensation Options, there are no issued, outstanding or authorized options, equity-based awards, warrants, calls, conversion, pre-emptive, redemption, repurchase, stock appreciation or other rights, or any other agreements, arrangements, instruments or commitments of any kind that obligate the Company or any of its Subsidiaries to, directly or indirectly, issue, register for sale, repurchase or redeem any securities of the Company or of any of its Subsidiaries, or give any Person a right to subscribe for or acquire, any securities of the Company or of any of its Subsidiaries.
(e)	There are no issued, outstanding or authorized notes, bonds, debentures or other evidences of indebtedness or any other agreements, arrangements, instruments or commitments of any kind that give any Person, directly or indirectly, the right to vote with holders of Company Common Shares on any matter except as required by Law.

8. Subsidiaries.

(a)	The following information with respect to each Subsidiary of the Company is accurately set out in Schedule 3.1(8)(a) of the Company Disclosure Letter: (i) its name; (ii) its issued and authorized capital; (iii) the percentage of equity owned directly or indirectly by the Company, (iv) the name of and the percentage owned by registered holders of capital stock or other equity interests; and (v) its jurisdiction of incorporation, organization, formation, or governance.
(b)	The Company is, directly or indirectly, the registered and beneficial owner of all of the outstanding common shares or other equity interests of each of its Subsidiaries, free and clear of all Liens, all such shares or other equity interests so owned by the Company have been validly issued and are fully paid and non-assessable, as the case may be, and no such shares or other equity interests: (i) have been issued in violation of any Law or any pre-emptive or similar rights; or (ii) are subject to pre-emptive rights, rights of first refusal or similar rights created by statute, such Subsidiary’s organizational documents or any agreement binding upon the Company or any of its Subsidiaries. Except for the shares or other equity interests owned by the Company or by any of its Subsidiaries, directly or indirectly, in any Subsidiary of the Company, neither the Company nor any of its Subsidiaries is the registered or beneficial owner of any equity interest of any kind in, voting debt of, or any interest convertible into or exchangeable or exercisable for any equity interest in, any other Person.
(c)	Except as publicly disclosed in the Company Filings, the Company does not have any direct or indirect investment or proposed investment in any other Person.

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9.

Shareholders’ and Similar Agreements. Except as disclosed in Schedule 3.1(9) of the Company Disclosure Letter, neither the Company nor any of its Subsidiaries is subject to, or affected by, any unanimous shareholders agreement and is not a party to any shareholder, pooling, voting, escrow, lock-up or other similar arrangement or agreement relating to the ownership, registration, transfer or voting of any of the securities of the Company or of any of its Subsidiaries or pursuant to which any Person other than the Company or any of its Subsidiaries may have any right or claim in connection with any existing or past equity interest in the Company or in any of its Subsidiaries.

10.

Securities Law Matters.

(a)	The Company is a “reporting issuer” or equivalent thereof and not on the list of reporting issuers in default under applicable Securities Laws in each of the provinces of Alberta and British Columbia and is not in default of any material requirements of any Securities Laws or the rules and regulations of the TSXV. No delisting, suspension of trading in or cease trading order with respect to any of its securities and, to the knowledge of the Company, no inquiry or investigation of any Securities Authority, is pending, in effect or ongoing or threatened. The Company Common Shares are listed on the TSXV and the Frankfurt Stock Exchange (the “FSE”). The Company does not have any securities listed for trading on any securities exchange other than the TSXV and FSE. None of the Company’s Subsidiaries is subject to any disclosure requirements under any securities laws in any jurisdiction in which such Subsidiary is formed or otherwise organized or operates.
(b)	The documents comprising the Company Filings as filed or furnished in all material respects with the requirements of applicable Securities Laws and, where applicable, the rules and policies of the TSXV and did not, as of the date filed (or, if amended or superseded by a subsequent filing prior to the date of this Agreement, on the date of such filing), contain any Misrepresentation. The Company has, since March 31, 2021, complied and is in compliance with applicable Securities Laws and the rules, policies and requirements of the TSXV in all material respects. The Company has timely filed with the Securities Authorities all material forms, reports, schedules, certifications, statements and other documents required to be filed by it under applicable Securities Laws and where applicable, the rules and policies of the TSXV since March 31, 2021. The Company has not filed any confidential material change report with the Securities Authorities which at the date hereof remains confidential. There are no outstanding or unresolved comments in comments letters that the Company has received from any Securities Authority with respect to any of the Company Filings and, to the knowledge of the Company, neither the Company nor any of the Company Filings are subject of an ongoing audit, review, comment or investigation by any Securities Authority or, in the case of the Company, the TSXV.
(c)	The Company is not subject to any cease trade order of any Securities Authority (other than a trading halt on the TSXV) and, to the knowledge of the Company, no investigation or other proceedings involving the Company that may operate to prevent or restrict trading of any securities of the Company are currently in progress or pending before the TSXV, or any Securities Authority.

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11. Financial Statements.

(a)

The audited consolidated financial statements of the Company (including any of the notes or schedules thereto and the auditors’ report thereon) for the year ended December 31, 2021, the audited consolidated financial statements of Franchise Cannabis Corp. (including any of the notes or schedules thereto and the auditors’ report thereon) for the year ended December 31, 2021 (collectively, the “Company Audited Financial Statements”) and the unaudited condensed interim consolidated financial statements of the Company for the three and six months ended June 30, 2022: (i) were prepared in accordance with IFRS, (ii) fairly present, in all  material respects, the assets, liabilities (whether accrued, absolute, contingent or otherwise), consolidated financial position, results of operations or financial performance and cash flows of the Company and its respective Subsidiaries as of the dates set out in such statements and the consolidated financial position, results of operations or financial performance and cash flows of the Company and its respective Subsidiaries as at the dates and for the respective periods covered by such financial statements (except as may be expressly indicated in the notes to such financial statements) and (iii) reflect appropriate reserves in respect of contingent liabilities, if any. The Company does not intend to make any correction or restatement of, nor, to the knowledge of the Company, is there any basis for any correction or restatement of, any aspect of any of the financial statements referred to in this Paragraph (11)(a). Except as described in the notes to the Company Audited Financial Statements, there has been no material change in the Company’s or Franchise Cannabis Corp.’s accounting policies since December 31, 2021. There are no, nor are there any commitments to become a party to, any off-balance sheet transactions of the Company or of any of its Subsidiaries with unconsolidated entities or other Persons.

(b)

Since December 31, 2021, the financial books, records and accounts of the Company and each of its Subsidiaries: (i) have been maintained, in all material respects, in accordance with IFRS; (ii) are stated in reasonable detail; (iii) accurately and fairly reflect all the material transactions, acquisitions and dispositions of the Company and its Subsidiaries; and (iv) accurately and fairly reflect the basis of the Company’s financial statements for periods beginning on or after such date.

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12. Disclosure Controls and Internal Control over Financial Reporting.

(a)

The Company has established and maintains a system of internal control over financial reporting (as such term is defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings(“NI 52‑109”)) providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS and has otherwise complied with NI 52-109.

(b)

To the knowledge of the Company, none of the Company, any of its Subsidiaries, or any of their respective directors, officers, auditors, accountants or representatives has received or otherwise obtained knowledge of any material complaint, allegation, assertion, or claim, whether written or oral, regarding accounting, internal accounting controls or auditing matters, including any material complaint, allegation, assertion, or claim that the Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices, or any expression of concern from its employees regarding questionable accounting or auditing matters.

13.	Auditors. The auditors of the Company are independent public accountants as required by applicable Laws and there is not now, and, to the knowledge of the Company, there has never been, any reportable event (as defined in National Instrument 51-102 – Continuous Disclosure Obligations) with the present or any former auditors of the Company.
14.	No Undisclosed Liabilities. There are no material liabilities or obligations of the Company or of any of its Subsidiaries of any type whatsoever, whether accrued, contingent or absolute, other than liabilities or obligations: (a) reflected or reserved against in the Company Audited Financial Statements (including any notes or schedules thereto and related management’s discussions and analysis); (b) that have not had, and would not reasonably be expected to have, a Material Adverse Effect in respect of the Company; or (c) incurred in connection with this Agreement.
15.	Absence of Certain Changes or Events. Since December 31, 2021, other than the transactions contemplated in this Agreement or as publicly disclosed in the Company Filings:

(a)	the business of the Company and of each of its Subsidiaries has been conducted in the Ordinary Course; and
(b)	there has not occurred any change, event, occurrence, effect or circumstance that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect in respect of the Company.

16. Long-Term and Derivative Transactions. Neither the Company nor any of its Subsidiaries have any material obligations or liabilities, direct or indirect, vested or contingent in respect of any rate swap transactions, basis swaps, forward rate transactions, commodity swaps, commodity options, equity or equity index swaps, equity or equity index options, bond options, interest rate options, foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions or currency options or production sales transactions having terms greater than 90 days or any other similar transactions (including any option with respect to any of such transactions) or any combination of such transactions.

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17.	Related Party Transactions. Other than transactions publicly disclosed in the Company Filings, neither the Company nor any of its Subsidiaries is indebted to any director, officer, employee or agent of, or independent contractor to, the Company, any of its Subsidiaries or any of their respective Affiliates (except for amounts due in the Ordinary Course such as salaries, bonuses, director’s fees, under Employee Plans or amounts owing under any contracting agreement with any such independent contractor or the reimbursement of Ordinary Course expenses). There are no Contracts (other than employment arrangements or independent contractor arrangements or otherwise as publicly disclosed in the Company Filings) with, or advances, loans, guarantees, liabilities or other obligations to, on behalf or for the benefit of, any shareholder, officer or director of the Company, any of its Subsidiaries or any of their respective Affiliates.
18.	No “Collateral Benefit”. To the knowledge of the Company, except as will be disclosed in the Company Circular, no related party (within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions) of the Company together with its associated entities, beneficially owns or exercises control or direction over 1% or more of the outstanding Company Common Shares, except for related parties who will not receive a “collateral benefit” (within the meaning of such instrument) as a consequence of the transactions contemplated by this Agreement.
19.	Compliance with Laws. The Company and each of its Subsidiaries is, and, to the knowledge of the Company, since their respective dates of incorporation, organization or formation has been, in compliance with all applicable Laws, and neither the Company nor any of its Subsidiaries is, to the knowledge of the Company, under any investigation with respect to, has been charged or to the knowledge of the Company threatened to be charged with, or has received notice of, any violation or potential violation of any Law or a disqualification by a Governmental Entity except, in each case, as could not reasonably be expected to have a Material Adverse Effect in respect of the Company.
20.	Authorizations and Licenses.

(a)

The Company and each of its Subsidiaries own, possess or have obtained all Authorizations that are required by Law in connection with the operation of the business of the Company and each of its Subsidiaries as presently conducted, or in connection with the ownership, operation or use of the Company Assets, except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company.

(b)

The Company or its Subsidiaries, as applicable: (i) lawfully hold, own or use, and have complied with, all Authorizations that are required by Law in connection  with the operation of the business of the Company and each of its Subsidiaries as presently conducted, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company; (ii) each such Authorization is valid and in full force and effect, and is renewable by its terms or in the Ordinary Course; (iii) to the knowledge of the Company, there are no facts, events or circumstances that may reasonably be expected to result in a failure to obtain or failure to be in compliance with all Authorizations as are necessary to conduct the business of the Company or its Subsidiaries; and (iv) to the knowledge of the Company, no event has occurred which, with the giving of notice, lapse of time or both, could constitute a default under, or in respect of, any Authorization, except, in each case, as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company.

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(c)

To the knowledge of the Company, no action, investigation or proceeding is pending in respect of or regarding any such Authorization and none of the Company or any of its Subsidiaries has received notice, whether written or oral, of revocation, non-renewal or amendments of any such Authorization, or of the intention of any Person to revoke, refuse to renew or amend any such Authorization, except, in each case, as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company.

(d)

Neither the Company nor any of its Subsidiaries has given an undertaking or written assurance (whether legally binding or not) to any Governmental Entity (including any competition authority) under any anti-trust or similar legislation in any jurisdiction which remains current at the date of this Agreement.

21. Material Contracts.

(a)	Schedule 3.1(21)(a) of the Company Disclosure Letter sets out a complete and accurate list of all Material Contracts as of the date of this Agreement.
(b)	True and complete copies of the Material Contracts have been provided to the Purchaser and no such Material Contract has been rescinded, terminated or materially modified outside of the Ordinary Course.
(c)	To the knowledge of the Company, each Material Contract is a legal, valid, and binding obligation of the Company or a Subsidiary of the Company, as applicable, and in full force and effect and is enforceable by the Company or a Subsidiary of the Company, as applicable, in accordance with its terms (subject to bankruptcy, insolvency and other Laws affecting creditors’ rights generally, and to general principles of equity).
(d)	The Company and each of its Subsidiaries has performed in all material respects all respective obligations required to be performed by them to date under the Material Contracts and neither the Company nor any of its Subsidiaries is in material breach or default under any Material Contract, nor does the Company have knowledge of any condition that with the passage of time or the giving of notice or both would result in such a breach or default by the Company or any of its Subsidiaries.
(e)	Except as set out in the Company Disclosure Letter, none of the Company nor any of its Subsidiaries knows of, or has received any notice (whether written or oral) of, any material breach or default under nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a material breach or default under any such Material Contract by any other party to a Material Contract.
(f)	Except as set out in the Company Disclosure Letter, none of the Company nor any of its Subsidiaries has received any notice (whether written or oral), that any party to a Material Contract intends to cancel, rescind, terminate or otherwise adversely modify or not renew its relationship with the Company or any of its Subsidiaries and, to the knowledge of the Company, no such action has been threatened.

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22.

Intellectual Property. A true, complete and accurate list of all Intellectual Property owned or licensed by the Company that is material to the business, as presently conducted, of the Company and its Subsidiaries is set out in Schedule 3.1(22) of the Company Disclosure Letter, and: (a) the Company or one of its Subsidiaries own all right, title and interest in and to, or have validly licensed (and are not in material breach of such licenses), all Intellectual Property that is material to the business, as presently conducted, of the Company and its Subsidiaries; (b) the Intellectual Property that is owned, leased, licensed, used or held for use by to the Company and its Subsidiaries is sufficient, in all material respects, for conducting the business, as presently conducted, of the Company and its Subsidiaries; (c) the Company or one of its Subsidiaries own all right, title and interest in and to the Intellectual Property set out in Schedule 3.1(22) and all rights of the Company and its Subsidiaries in and to such Intellectual Property are unexpired and, to the knowledge of the Company, valid and enforceable; (d) to the knowledge of the Company, the conduct of the business of the Company and its Subsidiaries (including pursuant to the transactions contemplated by this Agreement) and the use by the Company and its Subsidiaries of any of the Intellectual Property owned by them did not and do not breach, violate, infringe or interfere with any Intellectual Property or other rights of any other Person; (e) to the knowledge of the Company, no third party is breaching, violating, infringing upon or interfering with the Intellectual Property owned by or licensed to the Company or any of its Subsidiaries; and (g) the Company and its Subsidiaries own or have validly licensed or leased (and are not in material breach of such licenses or leases) all IT Assets (including Software) that are material to the conduct of the business, as presently conducted, of the Company and its subsidiaries. Neither the Company nor any of its Subsidiaries has licensed others to use any material Intellectual Property or IT Assets, other than on a non-exclusive basis and in the Ordinary Course.

23.

Data Privacy and Cybersecurity. The Company and its Subsidiaries have established and implemented policies, programs, and procedures that are commercially reasonable to protect the confidentiality, integrity, and/or availability of the trade secrets and other information in their possession, custody, or control, and of their Software, IT Assets, products and services. Upon the Closing, and to the knowledge of the Company, the Company and its Subsidiaries will continue to have the right to use personal information on the same basis that the Company and its Subsidiaries were entitled to use such information immediately prior to the Closing. Except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company, to the knowledge of the Company, (i) there has been no loss, damage, or unauthorized access, disclosure, transfer or use of any personal information, trade secret, or otherwise protected business information in the possession, custody, or control of the Company or any Subsidiary, or maintained or processed on any of their behalf and (ii) there have been no material outages or breaches of, and to their knowledge there are no bugs, defects, backdoors, or malicious code in, any Software, IT Assets, product, or service owned, sold, licensed or used by the Company or any Subsidiary. Neither the Company nor any of its Subsidiaries has notified in writing, or been required to notify in writing, any Person of any personal data or network security- related incident, nor has the Company or any of its Subsidiaries received any written notice of any claims, investigations, or alleged violations of Law with respect to data security, personal data rights or privacy.

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24.	U.S. Securities Compliance. The Company has issued no class of securities registered or required to be registered under the U.S. Exchange Act, and is not required to file reports under the U.S. Exchange Act; it is not an investment company within the meaning of the U.S. Investment Company Act.
25.	No Expropriation. No property or asset of the Company or any of its Subsidiaries has been taken or expropriated by any Governmental Entity nor, to the knowledge of the Company, has any Governmental Entity given notice of or commenced any proceeding to take or expropriate any such property or asset.
26.	Work Programs. The Company has not entered into any joint venture, work program or made any similar commitment or undertaking that has not been disclosed in the Company Filings.
27.	Title and Rights re: Other Assets. The Company and its Subsidiaries, as applicable, have good and valid title to all material properties and assets (in addition to the Company Assets) reflected in the Company Audited Financial Statements or valid leasehold or licence interests in all material properties and assets not reflected in such financial statements but used by the Company or any of its Subsidiaries, free and clear of all material Liens, other than the Permitted Liens, and there are no back-in rights, earn-in rights, purchase options, rights to first refusal or similar provisions or rights which would affect the interest of the Company or any of its Subsidiaries in any of the foregoing material properties and assets. No Person has any agreement or option or any right or privilege capable of becoming an agreement or option for the purchase from the Company or any of its Subsidiaries of any of the material assets of the Company or any of its Subsidiaries other than with the Company or as described or contemplated in this Agreement.
28.	Litigation. Except as disclosed in Schedule 3.1(28) of the Company Disclosure Letter, there are no claims, actions, suits, arbitrations, inquiries, investigations or proceedings pending, or, to the knowledge of the Company threatened, against the Company or any of its Subsidiaries, or, affecting any of their respective properties or assets that if determined adverse to the interests of the Company or its Subsidiaries, could reasonably be expected to have, individually or on the aggregate, a Material Adverse Effect in respect of the Company or would be reasonably expected to prevent or delay the completion of the Arrangement or the transactions contemplated hereby, nor, to the knowledge of the Company, are there any events or circumstances which would reasonably be expected to give rise to any such claim, action, suit, arbitration, inquiry, investigation or proceeding. There is no bankruptcy, liquidation, winding-up or other similar proceeding pending or in progress, or, to the knowledge of the Company, threatened against or relating to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries, nor any of their respective properties or assets is subject to any outstanding judgment, order, writ, injunction or decree that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company or that could be reasonably expected to prevent or delay the completion of the Arrangement or the transactions contemplated hereby.

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29. Environmental Matters.

(a)	The Company and each of its Subsidiaries is, and since their respective dates of incorporation, organization or formation has been, in compliance, in all material respects, with all Environmental Laws;
(b)	except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company, none of the Company or any of its Subsidiaries have Released, and, to the knowledge of the Company, no other Person has Released, any Hazardous Substances in violation of Environmental Laws on, at, in, under or from any real property currently owned or leased by the Company or its Subsidiaries or, to the knowledge of the Company, real property previously owned or leased by the Company or any of its Subsidiaries;
(c)	there are no pending claims or, to the knowledge of the Company, threatened claims, against the Company or any of its Subsidiaries, arising out of any Environmental Laws;
(d)	the Company is not aware of, nor has it received: (i) any order or directive from a Governmental Entity which relates to environmental matters that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Company; or (ii) any written regulatory demand or notice with respect to the material breach of any Environmental Law applicable to the Company or any of its Subsidiaries or the Company Assets;
(e)	the Company and its Subsidiaries are in possession of, and in compliance with, all material Authorizations required by Environmental Laws to own, lease and operate the Company Assets and to conduct their respective businesses, as now conducted; and
(f)	the Company has provided to the Purchaser copies of all material environmental reports relating to the currently and formerly owned and leased real property that are within the possession or control of the Company or any of its Subsidiaries.
	Notwithstanding any provision in this Agreement to the contrary, this Paragraph (29) of Schedule C contains the exclusive representations and warranties in respect of Environmental Laws, Hazardous Substances or any other environmental matters or conditions, liabilities or losses relating to Environmental Laws, Hazardous Substances or any other environmental matters.

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30. Employees.

(a)	All written employment agreements of senior management of the Company have been provided to the Purchaser and such agreements are listed in Schedule 3.1(30)(a) of the Company Disclosure Letter.
(b)	Schedule 3.1(30)(b) of the Company Disclosure Letter identifies a complete list of the following information in respect of the Company Employees:

(i)	Employee number;
(ii)	Whether they are employed by the Company or a Subsidiary (and if employed by a Subsidiary, the specific Subsidiary with which they are employed);
(iii)	Position/title, classification or job band;
(iv)	Employment status (e.g. full-time, part-time, temporary, casual, seasonal, co-op student, non-union, unionized (and if unionized, the specific Collective Agreement which governs their employment));
(v)	Total annual remuneration, including a breakdown of hourly rate of pay or salary and applicable Employee Plans;
(vi)	Regular or standard hours of work per day and per week;
(vii)	Annual vacation entitlement and number of vacation days accrued and unused; and
(viii)	Original hire date or, for unionized employees, seniority date.

(c)

The Company and its Subsidiaries are in material compliance with all terms and conditions of all Laws respecting employment, including pay equity, employment equity, employment standards, labour, human rights, privacy, workers’ compensation and occupational health and safety, and there are no material pending or outstanding contractual, statutory, civil law and/or common law claims, demands, actions, applications, complaints, investigations, proceedings or orders under any such Law and to the knowledge of the Company there is no basis for such claims.

(d)

All amounts due or accrued for all salary, wages, bonuses, commissions and benefits under Employee Plans, Taxes, deductions and remittances and/or other similar accruals have either been paid or remitted or properly accrued (other than in respect of Company RSUs for which Taxes are borne by the holder(s) thereof) and are accurately reflected in the books and/or records of the Company or the applicable Subsidiary.

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(e) Other than as set forth in Schedule 3.1(30)(e) of the Company Disclosure Letter, neither the execution and delivery of this Agreement, shareholder or other approval of this Agreement nor the consummation of the transactions contemplated by this Agreement could, either alone or in combination with another event, (i) entitle any employee, director, officer or independent contractor of the Company or any of its Subsidiaries to termination or severance pay, any material increase in termination or severance pay or any change of control payment, (ii) accelerate the time of payment or vesting, or materially increase the amount of compensation due to any such employee, director, officer or independent contractor, (iii) directly or indirectly cause the Company or any of its Subsidiaries to transfer or set aside any assets to fund any material benefits under any Employee Plan, (iv) otherwise give rise to any material liability under any Employee Plan, (v) limit or restrict the right to merge, materially amend, terminate or transfer the assets of any Employee Plan on or following the Effective Time, (vi) require a “gross-up,” indemnification for, or payment to any individual for any taxes imposed under Section 409A or Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or any other tax, or (vii) result in the payment of any amount that could, individually or in combination with any other such payment, constitute an “excess parachute payment” as defined in Section 280G(b)(1) of the Code.

(f)	To the knowledge of the Company, neither the Company nor any of its Subsidiaries is subject to any claim for wrongful dismissal, constructive dismissal or any other claim, complaint or litigation relating to employment, discrimination or termination of employment of any current or former Company Employee or relating to any failure to hire a candidate for employment that, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect in respect of the Company.
(g)	The Company and its Subsidiaries are each properly registered with the applicable workplace safety and insurance board or workers’ compensation board, as applicable. To the knowledge of the Company, there are no material outstanding assessments, penalties, fines, liens, charges, surcharges, or other amounts due or owing pursuant to any workplace safety and insurance legislation or plan.
(h)	There are no material charges pending with respect to the Company or any of its Subsidiaries under applicable occupational health and safety legislation (“OHSL”). To the knowledge of the Company, the Company and each of its Subsidiaries have complied in all material respects with the material terms and conditions of OHSL, as well as any orders issued under OHSL and there are no appeals of any material orders under OHSL currently outstanding.

31. Labour and Employment.

(a) Neither the Company nor any of its Subsidiaries is a party to or otherwise bound by any Collective Agreements or engaged in any negotiations with respect to any collective bargaining or union agreement and no trade union, council of trade union, employee bargaining agency, works council or affiliated bargaining agent:

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(i)	holds bargaining rights with respect to any Company Employees or any other Person(s) who perform work or services in connection with the Company and/or any of its Subsidiaries by way of statute, certification, interim certification, voluntary recognition, designation or successor rights; or
(ii)	has applied to be certified as the bargaining agent of any Employees or any other Person(s) who perform work or services in connection with the Company and/or any of its Subsidiaries.

(b)	There are no actual or, to the knowledge of the Company, threatened or pending application for certification or bargaining rights or letter of understanding, with respect to any current or former Company Employee.
(c)	There is no labour strike, dispute, lock-out, work slowdown or stoppage, picketing, boycotts or similar activities, pending or involving or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, and no such event has occurred within the last two years.
(d)	There are no pending or, to the knowledge of the Company, threatened applications by any trade union to have the Company or any of its Subsidiaries declared a related, successor, and/or common employer pursuant to applicable Law in any jurisdiction in which the Company or any of its Subsidiaries carries on business.
(e)	Neither the Company nor any of its Subsidiaries has engaged in any unfair labour practice and there are no actual, pending or, to the knowledge of the Company, threatened unfair labour practice complaints, charges or similar disputes or proceedings pertaining to the Company or any of its Subsidiaries that, individual or in the aggregate, would reasonably be expected to have a Material Adverse Effect in respect of the Company.

32. Employee Plans.

(a)

Schedule 3.1(32)(a) of the Company Disclosure Letter lists all material Employee Plans. The Company has provided to the Purchaser true, correct and complete copies of all such Employee Plans as amended, together with all related material documentation in respect of each Employee Plan, including funding, trust and investment management agreements, insurance contracts, service agreements, award agreements, summary plan descriptions, consultants’ reports, actuarial reports, valuations, annual information returns, financial statements and asset statements and material correspondence with any Governmental Entity, for each of at least the last three years.

(b)

Except as required by Law, no Employee Plan provides for retiree or post- employment medical, disability, life insurance or other welfare benefits to any Person, and none of the Company or any of its Subsidiaries has any obligation to provide such benefits.

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33.	Insurance.
	(a)	Schedule 3.1(33)(a) of the Company Disclosure Letter sets out a complete and accurate list of all insurance policies of the Company and each of its Subsidiaries as of the date of this Agreement, true and complete copies of which have been provided to the Purchaser.
	(b)	Each insurance policy currently in effect that insures the physical properties, business, operations and assets of the Company and its Subsidiaries, is valid and binding and in full force and effect and there is no material claim pending under any such policies as to which coverage has been questioned, denied or disputed. There is no material claim pending under any insurance policy of the Company or of any of its Subsidiaries that has been denied, rejected, questioned or disputed by any insurer or as to which any insurer has made any reservation of rights or refused to cover all or any material portion of such claims. All material proceedings covered by any insurance policy of the Company or of any of its Subsidiaries, have been properly reported to and accepted by the applicable insurer.
34.	Taxes.
	(a)	The Company and each of its Subsidiaries has duly filed all Tax Returns required to be filed by them prior to the date hereof and all such Tax Returns are complete and correct in all material respects at the time of filing.
	(b)	The Company and each of its Subsidiaries has not received or claimed a refund or credit with respect to Taxes to which it is not entitled.
	(c)	The Company and each of its Subsidiaries has paid all Taxes which are due and payable, all assessments and reassessments, and all other Taxes due and payable by them on or before the date hereof, other than those which are being or have been contested in good faith and in respect of which reserves have been provided in the most recently published consolidated financial statements of the Company in accordance with IFRS. The Company and its Subsidiaries have provided adequate accruals in accordance with IFRS in the most recently published consolidated financial statements of the Company for any Taxes of the Company and each of its Subsidiaries for the period covered by such financial statements that have not been paid whether or not shown as being due on any Tax Returns. Since such publication date, no material liability in respect of Taxes not reflected in such statements or otherwise provided for has been assessed, proposed to be assessed, incurred or accrued, other than in the Ordinary Course.
	(d)	The Company and its Subsidiaries are properly registered and licensed for purposes of paying, collecting or remitting all applicable Taxes under all applicable Tax Laws.
	(e)	No material deficiencies, claims, litigation, proceedings, investigations, proposed adjustments or matters in controversy exist or have been asserted with respect to Taxes of the Company or any of its Subsidiaries, and neither the Company, nor any of its Subsidiaries, is a party to any material action or proceeding for assessment or collection of Taxes and no such event has been asserted or threatened against the Company or any of its Subsidiaries, or any of their respective assets.

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(f)	No claim has been made by any Governmental Entity in a jurisdiction where the Company and any of its Subsidiaries does not file Tax Returns that the Company, or any of its Subsidiaries, as the case may be, is or may be subject to material Tax by that jurisdiction and neither the Company nor any of its Subsidiaries carries on business in a jurisdiction in which it does not file a Tax Return in respect of income.
(g)	There are no Liens (other than Permitted Liens) with respect to Taxes upon any of the assets of the Company or any assets of its Subsidiaries.
(h)	Each of the Company and its Subsidiaries has withheld, deducted or collected all material amounts required to be withheld, deducted or collected by it on account of Taxes, has remitted all such amounts to the appropriate Governmental Entity when required by Law to do so, and complied in all material respects with all applicable Laws relating to reporting of such Taxes.
(i)	There are no outstanding agreements, arrangements or waivers extending or waiving the statutory period of limitations applicable to any material claim for, the period for the collection or assessment or reassessment of Taxes due from the Company or any of its Subsidiaries, or extending the time for filing of any Tax Returns or for the payment of any Taxes by the Company or any of its Subsidiaries for any taxable period and no request for any such waiver or extension is currently pending.
(j)	The Company and each of its Subsidiaries has provided to the Purchaser true, correct and complete copies of all material Tax Returns, examination reports and statements of deficiencies for taxable periods, or transactions completed, for which the applicable statutory periods of limitations have not expired.
(k)	Except as disclosed in Schedule 3.1(34)(k) of the Company Disclosure Letter, none of the Company nor any of its Subsidiaries is a party to or bound by (A) any agreement or arrangement with a taxing authority or (B) any obligation under any Tax sharing, Tax allocation, Tax indemnity or similar agreement or arrangement (including any transfer pricing agreement or similar agreement relating to Taxes), or (C) any agreement under which the Company or any of its Subsidiaries could be (1) liable for any material Taxes or other claims of any party or (2) required to make payments with respect to any Tax benefits (whether actual Tax benefits or deemed Tax benefits) or Tax assets, including transaction Tax benefits arising from a prior transaction.
(l)	There are no facts, circumstances or events that exist or have existed which have resulted or may result in the application of any debt forgiveness, debt parking or property seizure provisions to the Company or any of its Subsidiaries under any Law relating to Taxes, including pursuant to section 80-80.4 of the Tax Act.

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(m)	The Company and each of its Subsidiaries has complied in all material respects with the intercompany transfer pricing provisions of each applicable Law relating to Taxes, including section 247 of the Tax Act, including the contemporaneous documentation and disclosure requirements thereunder.
(n)	None of the Company nor any of its Subsidiaries has and no circumstances exist that could result in any liability for Taxes of any other Person including, for greater certainty, under sections 159 or 160 of the Tax Act (or any similar provisions of federal, state, local or foreign law).

35.	Bankruptcy and Insolvency. None of the Company or any of its Subsidiaries has made an assignment in favour of its creditors or a proposal in bankruptcy to its creditors or any class thereof nor has any petition for a receiving order been presented in respect of it. None of the Company or any of its Subsidiaries has initiated any Legal Proceedings with respect to a compromise or arrangement with its creditors or for its winding up, liquidation or dissolution and, to the knowledge of the Company, no such Legal Proceedings have been threatened by any other Person. No receiver has been appointed in respect of the Company or any of its Subsidiaries or any of their respective property or assets and no execution or distress has been levied upon any of their respective property or assets and, to the knowledge of the Company, no such Legal Proceedings have been threatened by any other Person.
36.	Opinion of Financial Advisor. The Board has received the Fairness Opinion and such Fairness Opinion has not been withdrawn or modified as of the date of this Agreement.
37.	Brokers. Except for the engagement letter between the Company and the Financial Advisor and the fees payable under or in connection with such engagement, no investment banker, broker, finder, financial advisor or other intermediary has been retained by or is authorized to act on behalf of the Company or any of its Subsidiaries or is entitled to any fee, commission or other payment from the Company or any of its Subsidiaries in connection with this Agreement or any other transaction contemplated by this Agreement. In Schedule 3.1(37) of the Company Disclosure Letter, the Company has disclosed to the Purchaser all fees, commissions or other payments that may be payable to the Financial Advisor in connection with this Agreement or any other transaction contemplated by this Agreement.
38.	Ownership of Purchaser Common Shares. As of the date hereof neither the Company nor any of its Subsidiaries, whether alone or together with any person under common control with the Company or any of its Subsidiaries or a person acting jointly or in concert with any of them, directly or indirectly, beneficially own or exercise control or direction over any securities of the Purchaser nor do they have any options, rights or entitlements to acquire any securities of the Purchaser.
39.	Board Approval. The Board after consultation with the financial and legal advisors, has unanimously (with any interested directors having abstained from voting): (i) determined that the Consideration to be received by the Company Shareholders pursuant to the Arrangement is fair to such holders and that the Arrangement is in the best interests of the Company; (ii) resolved to unanimously recommend that the Company Shareholders vote in favour of the Arrangement Resolution; and (iii) authorized the entering into of this Agreement and the performance by the Company of its obligations under this Agreement, and no action has been taken to amend, or supersede such determinations, resolutions, or authorizations.

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40.

Anti-Bribery and Corruption. None of the Company nor any of its Subsidiaries, nor any of their respective directors, officers or employees nor, to the knowledge of the Company, any of their respective agents or representatives, have directly or indirectly, (i) offered, promised, made or authorized, or agreed to offer, promise, make or authorize, any contribution, expense, payment or gift of funds, property or anything else of value to or for the use or benefit of any Government Official for the purpose of securing action or inaction or a decision of a Governmental Entity or a Government Official, influence over such action, inaction or decision, or any improper advantage; or (ii) taken any action which is or would be otherwise inconsistent with or prohibited by any Anti-Corruption Law binding on the Company or any of its Subsidiaries. The operations of the Company and its Subsidiaries have been conducted at all times in compliance with all applicable Anti-Corruption Laws and over the past six years there has been no suit, action, investigation, inquiry, litigation or proceeding by or before any Governmental Entity, customer, business partner or any arbitrator or any internal investigation involving the Company or any of its Subsidiaries or, to the knowledge of the Company, any of their directors, officers, employees, agents or representatives with respect to Anti-Corruption Laws, and, to the knowledge of the Company, there are no circumstances likely to lead or give rise to any such suit, action, investigation, inquiry, litigation or proceeding and none are pending or threatened. The Company and its Subsidiaries are not ineligible nor considered by any Governmental Entity to be ineligible, to tender for any contract or business with, or be awarded any contract or business by, such Governmental Entity, or to tender for or perform any sub-contracting work under a contract with such Governmental Entity. Each of the Company and its Subsidiaries have instituted and maintain policies and procedures designed to ensure compliance with such legislation, including those for the detection, prevention and reporting of violations.

41.

Economic Sanctions and Export Controls. Each of the Company, its Subsidiaries, and their respective directors and officers, and, to the knowledge of the Company, the employees, agents and representatives of the Company and its Subsidiaries are, and, to the knowledge of the Company, for the past six years have been, in compliance with all applicable Trade Control Laws. Each of the Company and its Subsidiaries have instituted and maintain policies and procedures designed to ensure continued compliance with such legislation, including those for the detection, prevention and reporting of violations. The operations of each of the Company and its Subsidiaries have been conducted at all times in compliance with Trade Control Laws and over the past six years there has been no suit, action, investigation, inquiry, litigation or proceeding by or before any Governmental Entity, customer, business partner or any arbitrator or any internal investigation involving each of the Company or any of its Subsidiaries or, to the knowledge of the Company, any of their respective directors, officers, employees, agents or representatives with respect to Trade Control Laws, and, to the knowledge of the Company, there are no circumstances likely to lead or give rise to any such suit, action, investigation, inquiry, litigation or proceeding and none are pending or threatened.

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42. Leased Premises.

(a)	Each of the Leased Premises are set out in Schedule 3.1(42)(a) of the Company Disclosure Letter. With respect to each of the Leased Premises, to the knowledge of the Company, each of the leases pursuant to which the Company or its Subsidiaries occupy is in good standing and in full force and effect, and the Company or its Subsidiaries has the exclusive right to occupy and use the Leased Premises to conduct the business of the Company or its Subsidiaries. The performance of obligations pursuant to and in compliance with the terms of this Agreement and the completion of the transactions, including the Arrangement, will not afford any of the parties to such leases or any other person the right to terminate such leases and to the knowledge of the Company or its Subsidiaries, no parties to such leases intend to terminate same.
(b)	To the knowledge of the Company, neither the Company nor its Subsidiaries have ever been in violation of, in connection with the ownership, use, maintenance or operation of the Leased Premises and assets, any Environmental Laws, except where such violation would not have a Material Adverse Effect.
(c)	Neither the Company nor any of its Subsidiaries has used the Leased Premises, or any facility which it previously owned or leased, to generate, manufacture, process, distribute, use, treat, store, dispose of, transport or handle any Hazardous Substances other than in compliance with Environmental Laws.

43. Real Property.

(a)	Except as disclosed in Schedule 3.1(43)(a) of the Company Disclosure Letter, the Company does not own any real property.
(b)	The Company has not entered into any agreement to sell, transfer, encumber, or otherwise dispose of or impair the right, title and interest of the Company or any Subsidiary in and to real property or the air, density and easement rights relating to the owned real property and for greater certainty has not granted to any person any right of first refusal, right of first opportunity, option or similar rights to purchase the real property or any interest therein or any part thereof.
(c)	The Company directly or indirectly is the legal and beneficial owner of the owned real property.
(d)	The Company or its Subsidiaries have good and marketable title in fee simple to the owned real property free and clear from all easements, rights-of-way, restrictions, mortgages, charges, liens, executions and other encumbrances other than those that do not, individually or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of the Subsidiaries.

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(e)	Except as would not be reasonably expected to result in Material Adverse Effect, all by-laws, zoning, licences, certificates, consents, approvals, rights, permits and agreements required to enable the real property to be used, operated and occupied in its current and intended manner are being complied with or have been obtained and are in good standing, or to the extent that any have not already been obtained, the same are not yet required and, if not yet required but the same are material, the Company has no reason to believe that the same will not be available prior to the time that the same are so required. All building services required for the proper functioning of the real property have been obtained, are functioning properly and are fit and suitable for their intended purpose.
(f)	There are no actions, suits or legal or administrative proceedings outstanding, pending, or threatened against the real property which would adversely affect the value of the real property, or the income, if any, generated by the real property.
(g)	The present use of the real property complies, in all material respects, with all; (i) applicable legal and contractual requirements with regard to the use, occupancy, construction and operation thereof, including, without limitation, all zoning, environmental, flood hazard, fire safety, health, handicapped facilities, building and other laws, ordinances, codes, regulations, orders and requirements of any Governmental Entity; (ii) building, occupancy and other permits, license and approvals; and (iii) declarations, easements, rights-of-way, covenants, conditions and restrictions of record.

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SCHEDULE D

PURCHASER REPRESENTATIONS AND WARRANTIES

1. Organization and Qualification.

(a)

The Purchaser and each of its Subsidiaries is a corporation or other entity duly incorporated, formed or organized, as applicable, validly existing and in good standing (or equivalent) under the laws of the jurisdiction of its incorporation, organization or formation, as applicable, and has all requisite power and authority to own, lease and operate its assets and properties and conduct its business as now owned and conducted.

(b)

The Purchaser and each of its Subsidiaries is duly qualified, registered, licensed or otherwise authorized to carry on business and is in good standing in each jurisdiction in which the character of its assets and properties, whether owned, leased, licensed or otherwise held, or the nature of its activities make such qualification, registration, licensing or other authorization necessary, and has all Authorizations required to own, lease and operate its properties and assets and to conduct its business as now owned and conducted, except as to the extent that any failure of the Purchaser or any of its Subsidiaries to be so qualified, registered, licenced or authorized or to possess such Authorizations could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser.

2.	Corporate Authorization. The Purchaser has the requisite corporate power and authority to enter into and perform its obligations under this Agreement. The execution, delivery and performance by the Purchaser of its obligations under this Agreement and the completion of the Arrangement and the other transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Purchaser and no other corporate proceedings on the part of the Purchaser are necessary to authorize this Agreement or the completion of the Arrangement and the other transactions contemplated hereby.
3.	Board Approval. The board of directors of the Purchaser has approved the Arrangement and the execution and performance of this Agreement.
4.	Execution and Binding Obligation. This Agreement has been duly executed and delivered by the Purchaser, and constitutes a legal, valid and binding agreement of the Purchaser enforceable against it in accordance with its terms subject only to any limitation under bankruptcy, insolvency or other Laws affecting the enforcement of creditors’ rights generally and the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.
5.	Non-Contravention. The execution, delivery and performance by the Purchaser of its obligations under this Agreement and the completion of the Arrangement and the other transactions contemplated hereby do not and will not (or would not with the giving of notice, the lapse of time or both):

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(a)	contravene, conflict with, or result in any violation or breach of the Purchaser’s Constating Documents or the organizational documents of any of its Subsidiaries;
(b)	contravene, conflict with or result in a violation or breach of any Law applicable to the Purchaser or any of its Subsidiaries, or any of their respective properties or assets; or
(c)	allow any Person to exercise any rights, require any consent or notice under or other action by any Person, or constitute a default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which the Purchaser or any of its Subsidiaries is entitled (including by triggering any rights of first refusal or first offer, change in control provision or other restriction or limitation) under any material contract or any material Authorization to which the Purchaser or any of its Subsidiaries is a party or by which the Purchaser or any of its Subsidiaries is bound unless it would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or a material adverse effect on the Purchaser’s ability to consummate the Arrangement.

6. Capitalization.

(a)	The authorized capital of the Purchaser consists of an unlimited number of Purchaser Common Shares. As of close of business on September 30, 2022, there were 77,379,469 Purchaser Common Shares issued and outstanding. A further 6,210,000 Purchaser Common Shares have been reserved for issuance upon the due and proper exercise of certain warrants of the Purchaser (the “Purchaser Warrants”) outstanding as of September 30, 2022, and a further 5,047,881 Purchaser Common Shares have been reserved for issuance upon the due and proper exercise of certain incentive options (“Purchaser Options”) outstanding as of September 30, 2022.
(b)	All outstanding Purchaser Common Shares have been duly authorized and validly issued, are fully paid and non-assessable (and no such shares have been issued in violation of any pre-emptive or similar rights), and all Purchaser Common Shares issuable upon the exercise of the Purchaser Options, and Purchaser Warrants have been duly authorized and, upon issuance, shall be validly issued as fully paid and non- assessable. No Purchaser Common Shares have been issued and no Purchaser Options or Purchaser Warrants have been granted in violation of any Law on the part of the Purchaser or any pre-emptive or similar rights applicable to them.
(c)	Except for Purchaser Common Shares issuable pursuant to the exercise of Purchaser Options and Purchaser Warrants or as disclosed in the Purchaser Filings, there are no issued, outstanding or authorized options, equity-based awards, warrants, calls, conversion, pre-emptive, redemption, repurchase, stock appreciation or other rights, or any other agreements, arrangements, instruments or commitments of any kind that obligate the Purchaser or any of its Subsidiaries to, directly or indirectly, issue, register for sale, repurchase or redeem any securities of the Purchaser or of any of its Subsidiaries, or give any Person a right to subscribe for or acquire, any securities of the Purchaser or of any of its Subsidiaries.
(d)	There are no issued, outstanding or authorized notes, bonds, debentures or other evidences of indebtedness or any other agreements, arrangements, instruments or commitments of any kind that give any Person, directly or indirectly, the right to vote with holders of Purchaser Common Shares on any matter except as required by Law.

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7.	Purchaser Common Shares. All Purchaser Common Shares to be issued under this Agreement will, when issued in accordance with the terms of the Agreement, be validly issued as fully paid and non- assessable shares in the capital of the Purchaser.
8.	Share Ownership. The Purchaser and its Affiliates and persons acting jointly or in concert with the Purchaser and its Affiliates do not beneficially own or exercise control or direction over any Company Common Shares or other securities of the Company as of the date of this Agreement.
9.	Securities Law Matters.

(a)	The Purchaser is not a “reporting issuer” in any of the provinces or territories of Canada. The Purchaser Common Shares are quoted on the Nasdaq. The Purchaser is in compliance in all material respects with all rules, policies and other requirements of the Nasdaq applicable to it. Other than as disclosed in the Purchaser Filings, the Purchaser is not required to file reports with, or furnish reports to, any securities regulatory authority other than Nasdaq and the SEC.
(b)	The documents comprising the Purchaser Filings that were required to be filed pursuant to applicable Securities Laws comply as filed or furnished in all material respects with the requirements of applicable Securities Laws and, where applicable, the rules and policies of the Nasdaq and did not, as of the date filed (or, if amended or superseded by a subsequent filing prior to the date of this Agreement, on the date of such filing), contain any Misrepresentation. The Purchaser has, since May 13, 2021, complied and is in compliance with applicable Securities Laws and the rules, policies and requirements of the Nasdaq in all material respects. The Purchaser has timely filed with the Securities Authorities all material forms, reports, schedules, certifications, statements and other documents required to be filed by it under applicable Securities Laws and where applicable, the rules and policies of the Nasdaq since May 13, 2021. The Purchaser has not filed any confidential material change report, or equivalent thereof, with the Securities Authorities which at the date hereof remains confidential. There are no outstanding or unresolved comments in comments letters that the Purchaser has received from any Securities Authority with respect to any of the Purchaser Filings and, to the Purchaser’s knowledge, neither the Purchaser nor any of the Purchaser Filings are subject of an ongoing audit, review, comment or investigation by any Securities Authority, or in the case of the Purchaser, the Nasdaq.
(c)	The Purchaser is not subject to any cease trade or other order of the Nasdaq or any Securities Authority, and, to the knowledge of the Purchaser, no investigation or other proceedings involving the Purchaser that may operate to prevent or restrict trading of any securities of the Purchaser are currently in progress or pending before the Nasdaq or any Securities Authority.

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10. Financial Statements.

(a)

The audited consolidated financial statements of the Purchaser (including any of the notes or schedules thereto, the auditors’ report thereon) for the year ended December 31, 2021 and the unaudited interim condensed consolidated financial statements of the Purchaser for the six months ended June 30, 2022: (i) were prepared in accordance with IFRS, (ii) fairly present, in all  material respects, the assets, liabilities (whether accrued, absolute, contingent or otherwise), consolidated financial position, results of operations or financial performance and cash flows of the Purchaser and its respective Subsidiaries as of the dates set out in such statements and the consolidated financial position, results of operations or financial performance and cash flows of the Purchaser and its respective Subsidiaries as at the dates and for the respective periods covered by such financial statements (except as may be expressly indicated in the notes to such financial statements) and (iii) reflect appropriate reserves in respect of contingent liabilities, if any. The Purchaser does not intend to make any material correction or restatement of, nor, to the knowledge of the Purchaser, is there any basis for any material correction or restatement of, any aspect of any of the financial statements referred to in this Paragraph (10)(a). Except as described in the notes to the Purchaser’s audited consolidated financial statements as at and for the fiscal year ended December 31, 2021 and the unaudited interim condensed consolidated financial statements for the six months ended June 30, 2022, there has been no material change in the Purchaser’s accounting policies since December 31, 2021. There are no, nor are there any commitments to become a party to, any off-balance sheet transactions of the Purchaser or of any of its Subsidiaries with unconsolidated entities or other Persons.

(b)

Since December 31, 2021, the financial books, records and accounts of the Purchaser and each of its Subsidiaries: (i) have been maintained, in all material respects, in accordance with IFRS; (ii) are stated in reasonable detail; (iii) accurately and fairly reflect all the material transactions, acquisitions and dispositions of the Purchaser and its Subsidiaries; and (iv) accurately and fairly reflect the basis of the Purchaser’s financial statements for periods beginning on or after such date.

11.

No Liabilities. Other than as set out or reflected in the interim condensed consolidated financial statements of the Purchaser for the six months ended June 30, 2022, or incurred in the Ordinary Course since the date of such financial statements or in connection with this Agreement, the Purchaser does not have any liabilities or obligations of any nature (whether absolute, accrued, contingent or otherwise).

12.

Compliance with Laws. The Purchaser and each of its Subsidiaries is, and, to the knowledge of the Purchaser, since May 13, 2021 has been, in compliance with all applicable Laws (including Environmental Laws) and neither the Purchaser nor any of its Subsidiaries is, to the knowledge of the Purchaser, under any investigation with respect to, has been charged or to the knowledge of the Purchaser threatened to be charged with, or has received notice of, any violation or potential violation of any Law or a disqualification by a Governmental Entity except, in each case, as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser.

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13.

Environmental. None of the Purchaser nor any of its Subsidiaries have Released, and, to the knowledge of the Purchaser, no other Person has Released, any Hazardous Substances in violation of Environmental Laws on, at, in, under or from any real property currently owned or leased by the Purchaser or any of its Subsidiaries or, to the knowledge of the Purchaser, any real property previously owned or leased by the Purchaser or any of its Subsidiaries.

14.

Authorizations and Licenses.

(a)

The Purchaser and each of its Subsidiaries own, possess or have obtained all Authorizations that are required by Law in connection with the operation of the business of the Purchaser and each of its Subsidiaries as presently conducted, or in connection with the ownership, operation or use of the property of the Purchaser, except as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser.

(b)

The Purchaser or its Subsidiaries, as applicable, (i) lawfully hold, own or use, and have complied with, all such Authorizations that are required by Law in connection with the operation of the business of the Purchaser and each of its Subsidiaries as presently conducted, except as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser, (ii) each such Authorization is valid and in full force and effect, and is renewable by its terms or in the Ordinary Course; and (iii) to the knowledge of the Purchaser, no event has occurred which, with the giving of notice, lapse of time or both, could constitute a default under, or in respect of, any Authorization, except, in each case, as could not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser.

15.

No Expropriation. No property or asset of the Purchaser or any of its Subsidiaries has been taken or expropriated by any Governmental Entity nor, to the knowledge of the Purchaser, has any Governmental Entity given notice of or commenced any proceeding to take or expropriate any such property or asset.

16.

Litigation. Other than as disclosed in the Purchaser Filings, there are no claims, actions, suits, orders, directives, arbitrations, inquiries, investigations or proceedings pending or threatened against the Purchaser or any of its Subsidiaries, or, to the knowledge of the Purchaser, affecting any of their respective properties or assets that if determined adverse to the interests of the Purchaser or its Subsidiaries, could reasonably be expected to have, individually or on the aggregate, a Material Adverse Effect in respect of the Purchaser or would be reasonably expected to prevent or delay the completion of the Arrangement or the transactions contemplated hereby, nor, to the knowledge of the Purchaser, are there any events or circumstances which would reasonably be expected to give rise to any such claim, action, suit, arbitration, inquiry, investigation or proceeding. There is no bankruptcy, liquidation, winding-up or other similar proceeding pending or in progress, or, to the knowledge of the Purchaser, threatened against or relating to the Purchaser or any of its Subsidiaries. Neither the Purchaser nor any of its Subsidiaries, nor any of their respective properties or assets is subject to any outstanding judgment, order, writ, injunction or decree that could be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect in respect of the Purchaser or that would or would be reasonably expected to prevent or delay the completion of the Arrangement or the transactions contemplated hereby.

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17.	Tax Status. The Purchaser is a taxable Canadian corporation within the meaning of the Tax Act.
18.	Tax Liability. The Purchaser and each Subsidiary has: (i) filed, or caused to be filed, all material Tax and information returns and reports which are required to be filed, and (ii) have paid, or caused to be paid, all material Taxes levied or imposed on it or its properties, income or assets (whether or not shown on a Tax or information return) including in its capacity as a tax withholding agent, except any Taxes that are being contested in good faith by appropriate proceedings where adequate reserves have been established in accordance with IFRS. The Purchaser and each Subsidiary has made adequate provision for the payment of all material Taxes not yet due. There are no Tax disputes existing or, to the knowledge of the Purchaser or any Subsidiary, pending involving the Purchaser or any Subsidiary which could reasonably be expected to have a Material Adverse Effect.
19.	Bankruptcy and Insolvency. None of the Purchaser or any of its Subsidiaries has made an assignment in favour of its creditors or a proposal in bankruptcy to its creditors or any class thereof nor has any petition for a receiving order been presented in respect of it. None of the Purchaser nor any of its Subsidiaries has initiated any Legal Proceedings with respect to a compromise or arrangement with its creditors or for its winding up, liquidation or dissolution and, to the knowledge of the Purchaser, no such Legal Proceedings have been threatened by any other Person. No receiver has been appointed in respect of the Purchaser or any of its Subsidiaries or any of their respective property or assets and no execution or distress has been levied upon any of their respective property or assets and, to the knowledge of the Purchaser, no such Legal Proceedings have been threatened by any other Person.
20.	Questionable Payments. Neither the Purchaser nor any Subsidiary has, and to the knowledge of the Purchaser and each Subsidiary, no director, officer, agent, employee or other Person associated with or acting on behalf of the Purchaser or its Subsidiaries or any subsidiary thereof has (i) used any corporate or entity funds for any unlawful contribution, gift, entertainment, or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate or entity funds; (iii) violated or is in violation of any provision of any applicable corrupt practices, bribery or similar Laws; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
21.	Investment Canada Act. The Purchaser is a “WTO investor” within the meaning of the Investment Canada Act.

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EX-99.2

EXHIBIT 99.2

Flora Growth Signs Definitive Agreement to Acquire Franchise Global Health, a Prominent Pharmaceutical and Medical Cannabis Distributor with Principal Operations in Germany

· The transformative deal is expected to connect Flora Growth’s Colombian-grown cannabis directly with German-based pharmaceutical and medical cannabis distribution.

· The deal would establish a foothold in Germany for medical cannabis sales across 1,200 pharmacies and the distribution of pharmaceutical products across 28 countries. This deal would provide additional upside to Flora should Germany proceed with the legalization of adult-use recreational cannabis.

· Franchise Global Health (TSXV: FGH) reported revenue of approximately CA$30.1million (US$23.4 million) for the six months ended June 30, 2022. Total aggregated reported revenues of Flora Growth and Franchise Global Health Inc. for the six months ended June 30, 2022 were US$38.6 million.

· The proposed all-stock acquisition of Franchise Global Health Inc. will result in the indirect acquisition of its subsidiaries, including the Hilzingen-based Phatebo GmbH, a leading distributor of export pharmaceuticals and medical cannabis products to the European Union and ACA Müller ADAG Pharma Vertriebs GmbH (“ACA Müller”), which holds the first German medical cannabis import and distribution license, granted in 2017.

FORT LAUDERDALE, FLORIDA, TORONTO, ONTARIO – October 24, 2022 -- Flora Growth Corp. (NASDAQ: FLGC) (“Flora'' or the “Company”), a leading all-outdoor cultivator, manufacturer and distributor of global cannabis products and brands, announced today that it has signed a definitive agreement to acquire 100% of Franchise Global Health Inc. (TSXV: FGH) (“FGH”), a multi-national operator in the medical cannabis and pharmaceutical industry, with principal operations in Germany. 

“Through this proposed acquisition, we are connecting our commercial infrastructure and medical cannabis product portfolio to the German and EU medical markets, while gaining direct access to European pharmaceutical distributions,” said Luis Merchan, Chairman and CEO of Flora Growth. “We believe Franchise will significantly increase our commercial international revenue and provide essential distribution to German pharmacies and a growing wholesale market.”

FGH's German reportable segment achieved revenues of CA$30.1 million, gross profit of CA$2.1 million and net income of CA$0.4 million in the first half of 2022¹. FGH’s German businesses operate primarily in the export pharmaceutical and medical cannabis import and distribution markets, servicing 1,200 pharmacies in Germany and providing non-cannabis medical products to 28 additional countries.    

This acquisition is expected to accelerate Flora’s expansion into the European cannabis and pharmaceutical markets with prescription medicines and would provide the Company with immediate access to a wealth of knowledge and intellectual property that FGH has developed, including 41 registered cannabis strains in Colombia and the first registered cannabis seed bank in Copenhagen, Denmark housing 286 strains. The proposed acquisition would further allow Flora to expand its CBD business in Europe by utilizing FGH’s distribution and logistics capabilities.

The combination of Flora and FGH is expected to deliver at least US$3.0 million of annualized cost synergies within the first year following the completion of the acquisition, primarily in the areas of reduced corporate administrative expenses.

“Luis and I share the same vision of establishing a leading and sustainable cannabis business. Flora has the right platform to execute on this strategy through M&A and organic growth. We are excited to join forces,” says Clifford Starke, CEO and Executive Chairman of FGH. “Together we have a solid revenue base, a proven consumer packaged goods business that can be replicated in Europe, and a successful distribution network. Over the past few months, we have worked tirelessly to identify synergies, reduce costs, and build an industry-leading team.”

__________________ 

¹ As reported by FGH in its recent public filing with respect to its financial results for the six months ended June 30, 2022.

1

About the Transaction

On October 21, 2022, Flora and FGH entered into an Arrangement Agreement (the “Arrangement Agreement”) pursuant to which Flora intends to acquire all the issued and outstanding common shares of FGH by way of a statutory plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia).  As consideration for the acquisition of 100% of the issued and outstanding FGH common shares, at the completion of the Arrangement, Flora will issue between 36,515,060 and 43,525,951 of its common shares, based upon a formula set forth in the Arrangement Agreement.  In accordance with the terms set forth in the Arrangement Agreement, upon the completion of the Arrangement, all Flora common shares to be delivered to the former shareholders of FGH shall be restricted from being sold for a period of ninety (90) days following the completion of the Arrangement. In addition, Clifford Starke, the Chairman and Chief Executive Officer of FGH, shall have the right to name two designees to serve on Flora’s board of directors immediately following the closing of the Arrangement and Mr. Starke is currently expected to be one of such designees.

Completion of the Arrangement is subject to certain closing conditions customary for transactions of this nature including, among other things, approval of the Arrangement by the Supreme Court of British Columbia and the approval of at least 66 2/3% of the votes cast by shareholders of FGH at a meeting of FGH shareholders.  For further information on the Arrangement Agreement and the Arrangement, please refer to Flora’s Report on Form 6-K, filed today with the Securities and Exchange Commission.

About Flora Growth Corp.

Flora is building a connected, design-led collective of plant-based wellness and lifestyle brands, designed to deliver the most compelling customer experiences in the world, one community at a time. As the operator of one of the largest outdoor cannabis cultivation facilities, Flora leverages natural, cost-effective cultivation practices to supply cannabis derivatives to its commercial, house of brands, and life sciences divisions. Visit www.floragrowth.com or follow @floragrowthcorp on social media for more information.

About Franchise Global Health Inc.

Franchise Global Health Inc. (“FGH”), through its subsidiaries, is a multi-national operator in the medical cannabis and pharmaceutical industries, with principal operations in Germany and with operations, assets, strategic partnerships and investments internationally. FGH’s business objective is to develop a fully-integrated, leading European medical cannabis business, with the goal of providing high-quality pharmaceutical grade medical cannabis to distribution partners and, ultimately, to patients, at competitive prices. For more information, please visit www.franchiseglobalhealth.com or visit FGH’s SEDAR profile at www.sedar.com.

Contacts

Investor Relations:

Sean Mansouri, CFA

ir@floragrowth.com 

Public Relations:

Cassandra Dowell

+1 (858) 221-8001

flora@cmwmedia.com

2

Cautionary Statement Concerning Forward-Looking Statements

This press release contains ‘‘forward-looking statements,’’ as defined by federal securities laws. Forward-looking statements reflect Flora’s current expectations and projections about future events at the time, and thus involve uncertainty and risk. The words “believe,” “expect,” “anticipate,” “will,” “could,” “would,” “should,” “may,” “plan,” “estimate,” “intend,” “predict,” “potential,” “continue,” and the negatives of these words and other similar expressions generally identify forward looking statements. Such forward-looking statements are subject to various risks and uncertainties, including those described under the section entitled “Risk Factors” in Flora’s Annual Report on Form 20-F filed with the SEC on May 9, 2022, as amended, as such factors may be updated from time to time in Flora’s periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this release and in Flora’s filings with the SEC. While forward-looking statements reflect Flora’s good faith beliefs, they are not guarantees of future performance. Flora disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this press release, except as required by applicable law. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to Flora (or to third parties making the forward-looking statements).

3

EX-99.3

EXHIBIT 99.3

Franchise Cannabis Corp.

Consolidated Financial Statements

For the years ended December 31, 2020 and 2019

Expressed in Canadian Dollars

	Contents
Independent Auditor’s Report	2
Consolidated Financial Statements
Consolidated Statements of Financial Position		4
Consolidated Statements of Comprehensive Loss		5
Consolidated Statements of Changes in Equity		6
Consolidated Statements of Cash Flows		7
Notes to the Consolidated Financial Statements	8-37

1

Independent Auditor’s Report

To the Shareholders of Franchise Cannabis Corp.:

Opinion

We have audited the consolidated financial statements of Franchise Cannabis Corp. and its subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2020 and December 31, 2019 and the consolidated statements of comprehensive loss, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2020 and December 31, 2019 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

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

Other Information

Management is responsible for the other information. The other information comprises Management’s Discussion and Analysis.

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

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

Material Uncertainty Related to Going Concern

We draw attention to Note 2 in the consolidated financial statements, which indicates that the Company has historically experienced operating losses and negative operating cash flows. As stated in Note 2, these events or conditions, along with other matters as set forth in Note 2, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

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

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

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

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

 

2

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

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

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

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

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

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;

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

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

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

Vancouver, British Columbia

Chartered Professional Accountants March 9, 2022

3

Franchise Cannabis Corp.

Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars

			December 31,			December 31,
	Notes		2020			2019
ASSETS
Current assets
Cash and cash equivalents				3,737,767		$	9,752,466
Receivables		6		251,464			152,369
Due from former shareholder		6		602,247			-
Due from related parties		18		111,163			18,959
Prepaid expenses and deposits		7		868,184			130,705
Inventory		8		9,672,375			9,662,010
Assets held for sale				-			497,473
Marketable securities		9		714,344			-
Loan receivable		10		324,700			-
Total current assets				16,282,244			20,213,982
Non-Current Assets
Prepaid expenses and deposits		7		895,598			283,762
Acquisition deposits		10		2,758,202			1,580,750
Plant and equipment		11		568,201			633,951
Investment properties				424,201			408,567
Right of use assets		12		182,681			278,395
Indefinite-life intangible assets		14		-			12,468,116
Total non-current assets				4,828,883			15,653,541
TOTAL ASSETS			$	21,111,127		$	35,867,523
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities		15	$	5,974,121		$	6,052,626
Income taxes payable		19		87,006			294,122
Loans payable		16		-			99,914
Lease liability		12		115,341			163,456
Total current liabilities				6,176,468			6,610,118
Non-Current Liabilities
Deferred revenue				5,000			8,052
Lease liability		12		84,816			121,587
Deferred income tax liability		19		-			1,780,426
Total non-current liabilities				89,816			1,910,065
TOTAL LIABILITIES				6,266,284			8,520,183
SHAREHOLDERS’ EQUITY
Share capital		17		92,519,988			92,296,847
Share subscriptions received				21,572			40,172
Reserves				1,085,525			797,446
Accumulated other comprehensive loss				111,124			6,996
Deficit				(78,893,366	)		(65,794,121	)
TOTAL SHAREHOLDERS’ EQUITY				14,844,843			27,347,340
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	21,111,127		$	35,867,523
Ability to Continue as a Going Concern (Note 2a) Commitments and contingencies (Note 22) Subsequent Events (Notes 10, 24)

Approved on behalf of the Board:
/s/ Farhan Lalani	/s/ Clifford Starke
Director	Director

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

4

Franchise Cannabis Corp. 

Consolidated Statements of Comprehensive Loss

(Expressed in Canadian Dollars)

	December 31,			December 31,
	2020			2019
Revenues	$	1,863,964		$	2,705,228
Cost of goods sold		(1,154,265	)		(1,555,523	)
Gross profit	$	709,699		$	1,149,705
Expenses:
Selling, general and administrative	$	1,526,259		$	1,993,231
Depreciation (Note 11)		191,310			189,247
Consulting fees (Note 18)		794,385			1,892,441
Share-based compensation (Note 18)		288,079			797,446
Research and development		-			123,088
Foreign exchange gain		(30,226	)		(32,373	)
Professional fees		838,652			1,364,488
Bad debt expense (Note 6)		-			27,198
Other items:	$	3,608,459		$	6,354,766
Impairment of goodwill and intangible assets (Note 5)	$	(12,470,852	)	$	(48,446,781	)
Interest expense		(25,813	)		(26,073	)
Other income		465,683			200,589
Gain on sale of property		10,219			25,326
Loss before income taxes	$	(14,919,523	)	$	(53,452,000	)
Current income tax recovery (expense)		39,852			(58,746	)
Deferred income tax recovery		1,780,426			5,084,861
Net loss	$	(13,099,245	)	$	(48,425,885	)

Cumulative translation adjustment		(104,128	)		(6,996	)
Comprehensive loss	$	(13,203,373	)	$	(48,432,881	)
Basic and diluted loss per share	$	(0.12	)	$	(0.57	)
Weighted average number of common shares outstanding		112,332,814			84,547,138

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

5

Franchise Cannabis Corp.

Consolidated Statements of Changes in Equity

(Expressed in Canadian Dollars)

						Share					Cumulative					Total
	Share Capital					subscriptions			Equity		translation					equity
	Number		Amount			received			reserve		adjustment		Deficit			(deficiency)
	$		$			$			$		$		$			$
Balance, December 31, 2018		51,971,598		49,212,845			774,270			-		-		(17,368,236	)	$	32,618,879
Shares issued for cash		10,844,319		12,640,605			(774,270	)		-		-		-			11,866,335
Share issue costs		-		(137,641	)		-			-		-		-			(137,641	)
Shares issued for acquisition of subsidiaries		49,053,330		30,216,638			-			-		-		-			30,216,638
Shares issued for consulting agreement		353,900		364,400			-			-		-		-			364,400
Share based compensation		-		-			-			797,446		-		-			797,446
Translation adjustment		-		-			-			-		6,996		-			6,996
Funds raised for which shares not yet issued		-		-			40,172			-		-		-			40,172
Net loss for the period		-		-			-			-		-		(48,425,885	)		(48,425,885	)
Balance, December 31, 2019		112,223,147		92,296,847			40,172			797,446		6,996		(65,794,121	)		27,347,340
Balance, December 31, 2019		112,223,147		92,296,847			40,172			797,446		6,996		(65,794,121	)		27,347,340
Shares issued for consulting agreement		172,040		223,141			-			-		-		-			223,141
Share based compensation		-		-			-			288,079		-		-			288,079
Translation adjustment		-		-			-			-		104,128		-			104,128
Return of share subscriptions received		-		-			(18,600	)		-		-		-			(18,600	)
Net loss for the period		-		-			-			-		-		(13,099,245	)		(13,099,245	)
Balance, December 31, 2020		112,395,187		92,519,988			21,572			1,085,525		111,124		(78,893,366	)		14,844,843

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

6

Franchise Cannabis Corp.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

	For the years ended December 31,
	2020			2019
Cash flows used in operating activities
Loss for the period:	$	(13,099,245	)	$	(48,425,885	)
Adjusted for: Depreciation (Note 11)		191,310			189,247
Impairment of goodwill and intangible assets (Note 5)		12,470,852			48,446,781
Bad debt expense		-			27,198
Share-based compensation		288,079			797,446
Consulting expenses settled in shares		223,141			364,400
Gain on sale of property		-			(25,326	)
Gain on sale of assets held for sale		(10,219	)		-
Accretion expense		23,196			23,998
Fair value adjustment on marketable securities		85,656			-
Income tax recovery		(1,820,278	)		(5,026,115	)
Income tax paid		(167,264	)		(38,917	)
Changes in non-cash working capital items:
Receivables		(99,095	)		1,190,691
Due from former shareholder		(602,247	)		-
Due from related parties		(92,204	)		(18,959	)
Prepaid expenses and deposits		(1,349,315	)		205,402
Accounts payable and accrued liabilities		(78,505	)		(1,197,214	)
Inventory		(10,365	)		(17,886	)
Deferred revenue		(3,052	)		8,052
Cash used in operating activities		(4,049,555	)		(3,497,087	)
Cash flows provided by (used) in financing activities
Proceeds from the issuance of common shares		-			11,866,335
Share issue costs		-			(137,641	)
Proceeds for shares not yet issued		-			40,172
Lease payments		(115,128	)		(87,746	)
Repayment of loans		(99,914	)		(1,694,517	)
Return of share subscriptions		(18,600	)		-
Cash (used in) provided by financing activities		(233,642	)		9,986,603
Cash flows used in investing activities
Purchase of plant, property and equipment		(42,200	)		(775,520	)
Cash used for acquisitions, net of cash acquired		(1,502,152	)		(15,231,321	)
Proceeds from sale of held for sale assets		507,692			209,747
Purchase of marketable securities		(800,000	)		-
Cash used in investing activities		(1,836,660	)		(15,797,094	)
Effect of exchange rate on cash		105,158			72,699
Increase in cash and cash equivalents for the period		(6,119,857	)		(9,307,578	)
Cash, beginning of period		9,752,466			18,987,345
Cash, end of period	$	3,737,767		$	9,752,466

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

7

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated

1. CORPORATE INFORMATION

Franchise Cannabis Corp. (the “Company” or “Franchise”) was incorporated in Ontario, Canada on April 25, 2018. The Company’s primary business is the sale of cannabis products. Through its wholly owned subsidiary ACA Muller, the Company has a sales network of over 1,200 pharmacies within Germany. ACA Muller is licensed to import and distribute registered medical cannabis products to German pharmacies under the regulatory oversight of the Bundesinstitut für Arzneimittel und Medizinprodukte (The Federal Institute for Drugs and Medical Devices, “BfArM”). ACA Muller also has a radiation license for the import of a wider range of medical cannabis products compared to cannabis wholesalers without this license.

The address of the Company’s registered office is Suite 1600, 100 King Street, Toronto, Ontario, Canada, M5X 1G5. The address of the Company’s principal place of business is Suite 320, 440 West Hastings Street, Vancouver, British Columbia, V6B 1L1.

On June 24, 2021, the Company announced that it has entered into a letter of intent with Mercury Acquisitions Corp. (“Mercury”) to complete a going-public transaction for the Company as part of a reverse takeover of Mercury.

2. BASIS OF PREPARATION

a) Statement of Compliance

The consolidated financial statements of the Company for the year ended December 31, 2020 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on March 9, 2022.

These consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realization of assets and discharge of liabilities in the normal course of business.

The Company’s ability to continue as a going concern is dependent on achieving profitable operations through the sales of its product, the acquisition of profitable operations or management’s ability to raise the necessary funding through future equity issuances, debt issuances, asset sales or a combination thereof. There is no assurance that any necessary future financing will be sufficient to sustain operations until such time that the Company can generate sufficiently profitable operations to support its requirements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern. Such adjustments could be material. While these consolidated financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and meet its obligations in the normal course of operations, there are conditions and events which constitute material uncertainties that may cast significant doubt on the validity of that assumption.

· as at December 31, 2020, the Company has an accumulated deficit of $78,893,366 (2019 - $65,794,121);

· the Company has incurred a loss of $13,099,245 for the year ended December 31, 2020 (2019 - $48,425,885);

· the Company has net cash outflows from operating activities of $4,049,555 for the year ended December 31, 2020 (2019 - $3,497,087).

8

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. To date, COVID-19 has not had any material impact on the Company’s operations; however, it is possible that estimates in these financial statements may change in the near term as a result of COVID-19. The Company continues to caution that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impacts of the COVID-19 virus on the Company remain unknown, rapid spread of the COVID-19 virus may have a material adverse effect on global economic activity and can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.

b) Basis of Measurement

These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments and investment properties that are stated at fair value.

The consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest dollar, unless otherwise indicated.

c) Functional and Presentation Currency

The Company’s functional currency is the Canadian dollar. Transactions undertaken in foreign currencies are translated into Canadian dollars at daily exchange rates prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies are translated at period-end exchange rates and non-monetary items are translated at historical exchange rates. Realized and unrealized exchange gains and losses are recognized in the consolidated statements of comprehensive loss.

The assets and liabilities of foreign operations are translated into Canadian dollars using the period-end exchange rates. Income, expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from the translation of foreign operations into Canadian dollars are recognized in other comprehensive loss and accumulated in equity.

Foreign currency gains and losses arising on translation of a monetary item receivable from or payable to a foreign operation for which settlement is neither planned, nor likely to occur in the foreseeable future are considered to form part of a net investment in the foreign operation. Such gains and losses are recognized in other comprehensive income (loss) and presented within shareholders’ equity in the foreign currency translation reserve.

d) Use of Estimates and Judgments

The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision, and further periods, if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have a significant effect on the consolidated financial statements, and estimates with a significant risk of material adjustment in the current and following fiscal years are discussed in Note 4.

9

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

e) Subsidiaries

In addition to the Company, the consolidated financial statements include its subsidiaries. Subsidiaries

consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity.

Subsidiaries are fully consolidated from the date on which the Company acquires control. They are de- consolidated from the date that control by the Company ceases.

f) Consolidation Principles

The subsidiaries of the Company are as follows:

	2020 Ownership	2019 Ownership	Functional
Name of Subsidiary	Interest	Interest	Currency
Harmony Health One Inc.	100%	100%	Canadian Dollar
ACA Muller ADAG Pharma Vertriebs GmbH	100%	100%	Euro
Sativa Verwaltungs GmbH	100%	100%	Euro
Sativa Verwaltungs GmbH and Co. KG	100%	100%	Euro
CBD Med Therapeutics Inc.	100%	100%	Canadian Dollar
Adelnor S.A.	0%	0%	U.S. Dollar
Fayber Technologies Canada Inc.	100%	100%	Canadian Dollar
Catalunia SAS	100%	100%	Colombian Peso
Green CannaHealth SAS	100%	100%	Colombian Peso
Klokken Aarhus Inc.	100%	100%	Canadian Dollar
Rangers Pharmaceuticals A/S	100%	100%	Danish Krone

CBD Med Therapeutics Inc. has an option to acquire 100% of the outstanding common shares of Adelnor S.A., which forms the basis for the Company’s control of Adelnor S.A.

Assets, liabilities, revenues, and expenses of the subsidiaries are recognized in accordance with the Company’s accounting policies. Intercompany balances and transactions are eliminated at consolidation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies which have been applied consistently to all periods presented in the accompanying consolidated financial statements are set out below:

a) Foreign Currency Translation

In preparing the financial statements of individual entities, transactions in currencies other than the entity’s functional currency are recognized at exchange rates in effect on the date of the transactions. At each reporting date monetary assets and liabilities denominated in foreign currencies are re- translated at the exchange rates applicable at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Nonmonetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Realized and unrealized exchange gains and losses are recognized through net loss. For the purposes of presenting consolidated financial statements the assets and liabilities of foreign operations, are translated into Canadian dollars at the exchange rates applicable at the balance sheet date. 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 accumulated other comprehensive loss.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

b) Cash and Cash Equivalent

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

c) Receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment. Financial assets measured at amortized cost are assessed for impairment at the end of each reporting period. Impairment provisions are estimated using the expected credit loss impairment model where any expected future credit losses are provided for, irrespective of whether a loss event has occurred at the reporting date.

Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic conditions that affect default risk. Where applicable, the carrying amount of a trade receivable is reduced for any expected credit losses through the use of an allowance for doubtful accounts (“AFDA”) provision. Changes in the AFDA provision are recognized in the statement of comprehensive loss. When the Company determines that no recovery of the amount owing is possible, the amount is deemed irrecoverable and the financial asset is written off.

d) Inventory

Inventories consist of finished goods and cannabis seeds for sale. The Company values inventories at the lower of cost and net realizable value. Inventories include costs of purchases net of vendor allowances plus other costs, such as transportation, that are directly incurred to bring the inventories to their present location and condition. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories is determined using first in, first out basis.

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining market prices. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is apparent evidence of an increase in selling price then the amount of the write down previously recorded is reversed.

e) Plant and Equipment

Recognition and Measurement

On initial recognition, plant and equipment are valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions.

Plant and equipment are subsequently measured at cost less accumulated amortization, less any accumulated impairment losses, with the exception of land, which is not depreciated.

When parts of an item of plant and equipment have different useful lives, they are accounted for as separate items (material components) of plant and equipment.

Subsequent Costs

The cost of replacing part of an item of plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its costs can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of plant and equipment are recognized in the consolidated statement of comprehensive loss as incurred.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Gains and Losses

Gains and losses on disposal of an item of plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in the consolidated statement of comprehensive loss.

Depreciation

Depreciation is recognized in the consolidated statement of comprehensive loss over the asset’s estimated useful life:

Growing and processing equipment	10%-20% declining basis
Equipment	12.5% straight line basis

Depreciation commences when an asset becomes available for us.

Depreciation methods, estimated useful lives, and residual values are reviewed at each year-end and adjusted if appropriate. The effect of any change in estimate is accounted for on a prospective basis.

f) Investment Properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the Company has elected to use the fair value model where investment properties are measured at fair value.

Investment properties are derecognized either when they have been disposed of (i.e., at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition. In determining the amount of consideration from the derecognition of investment property the Company considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the buyer (if any).

g) Assets Held for Sale

Assets are classified as held for sale if their carrying amount will be recovered primarily through a sale as opposed to continued use by the Corporation. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs of disposal. Any impairment is recognized in net earnings. Depreciation and equity accounting ceases when an asset or equity investment, respectively, is classified as held for sale. Assets classified as held for sale are reported as current assets in the Consolidated Statements of Financial Position.

h) Marketable Securities

The Company’s investments in marketable securities, which consists of publicly traded securities and warrants have been classified and accounted as fair value through profit and loss. Unrealized gains and losses are recognized in the statement of comprehensive loss.

i) Business Combination

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

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

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

In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to intangible assets. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree or a market-approach using a comparable transaction. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.

Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.

j) Intangible Assets

Intangible assets acquired in a business combination are recognized separately at their fair value at the date of acquisition. Intangible assets acquired separately are recognized at cost. Internally generated intangible assets arising from development projects are recognized when certain criteria related to the feasibility of internal use or sale, and probable future economic benefits of the intangible asset, are demonstrated.

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

k) Goodwill

Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the cash generating unit (“CGU”) or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.

l) Impairment of intangible assets and goodwill

Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.

Goodwill and indefinite life intangible assets are tested annually at December 31 for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment.

An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds it recoverable amount. The recoverable amounts of the CGUs’ assets have been determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior period. Impairment losses on goodwill are not subsequently reversed.

m) Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company applies a single recognition and measurement approach for all leases, except for short- term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

i) Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right- of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment.

ii) Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

iii) Short-term leases and leases of low-value assets

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short- term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

n) Loans and Borrowings

Loans and borrowings are classified as other financial liabilities and are measured at fair value at initial recognition and subsequently at amortized cost. Transactions costs are deferred and amortized over the term of the liability.

o) Revenue

The Company generates revenue primarily from the wholesale and retail of cannabis and cannabis related products. The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:

1. Identify the contract with a customer;

2. Identify the performance obligation(s) in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligation(s) in the contract; and

5. Recognize revenue when or as the Company satisfies the performance obligation(s).

Revenue from the sale of cannabis is generally recognized when control over the goods has been transferred to the customers which is at the time of delivery. Payments for wholesale transactions are due within a specified time period as permitted by the underlying agreement and the Company’s credit policy upon the transfer of goods to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

p) Financial Instruments

Financial assets are classified and measured either at amortized cost or fair value through profit or loss (“FVTPL”) based on the business model in which they are held and the characteristics of their contractual cash flows.

All financial assets not classified at amortized cost or FVOCI are measured at FVTPL. On initial recognition, the Company can irrevocably designate a financial asset at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:

· It is held within a business model whose objective is to hold the financial asset to collect the contractual cash flows associated with the financial asset instead of selling the financial asset for a profit or loss; and

· Its contractual terms give rise to cash flows that are solely payments of principal and interest.

All financial instruments are initially recognized at fair value on the consolidated statements of financial position. Subsequent measurement of financial instruments is based on their classification. Financial assets and liabilities classified at FVTPL are measured at fair value with changes in those fair values recognized in the consolidated statements of comprehensive loss for the period. Financial assets and liabilities classified at amortized cost are measured using the effective interest method.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

The following table summarizes the classification and measurement changes under IFRS 9 for each financial instrument:

Financial Instrument	Classification
Cash and cash equivalents	FVTPL
Marketable securities	FVTPL
Receivables	Amortized Cost
Loan receivable	Amortized Cost
Accounts payable and accrued liabilities	Amortized Cost
Loans	Amortized Cost

For trade receivables, the Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECL”) based on lifetime expected credit losses taking into considerations historical credit loss experience and financial factors specific to the debtors and general economic conditions.

q) Share-Based Payments

Share-based payments to employees and others providing similar services are measured at the estimated fair value of the instruments issued on the grant date and amortized over the vesting period. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued if it is determined the fair value of the goods or services cannot be reliably measured and are recorded at the date the goods or services are received. The offset to the recorded cost is to equity reserve.

Consideration received on the exercise of stock options is recorded as share capital and the related equity reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from equity reserve.

r) Share Capital

Share capital represents the amount received in exchange for the issuance of shares. Shares issued for goods and services are recorded for the fair value of the goods or services.

Costs directly identifiable with the raising of share capital financing are charged against share capital.

s) Loss Per Share

Basic loss per share is computed by dividing the net loss available to common shareholders of the Company by the weighted average number of common shares outstanding during the reporting period.

Diluted loss per share is computed similar to basic loss per share, except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and share purchase warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting period.

t) Income Taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income, except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive loss.

Current taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss of the current year and any adjustment to income taxes payable in respect of previous years. Current taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable income or loss.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Recognition of deferred tax assets of unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be realized.

u) Related Party Transactions

The Company considers a person or entity as a related party if such party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The Company considers a person or entity as a related party if they are a member of key management personnel including a close member of that person’s family. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

v) Recent Accounting Pronouncements

IAS 1 – Presentation of Financial Statements (“IAS 1”) and IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”)

IAS 1 and IAS 8 were amended in October 2018 to refine the definition of materiality and clarify its characteristics. The revised definition focuses on the idea that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements. The amendments are effective for annual reporting periods beginning on or after January 1, 2020. The adoption of these standards did not have a material impact on the Company.

Conceptual Framework

On March 29, 2018, the IASB issued its revised Conceptual Framework for Financial Reporting. The revised Conceptual Framework does not constitute a substantial revision from the previously effective guidance but does provide additional guidance on topics not previously covered, such as presentation and disclosure. This amendment is effective on January 1, 2020. The Company intends to adopt this amendment in its consolidated financial statements for the annual period beginning January 1, 2020. The adoption of the revised Conceptual Framework for Financial Reporting did not have a material impact on the consolidated financial statements.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive loss in the period of the change, if the change affects that period only; in the period of the change and future periods, if the change affects both. Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustments to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below.

Going Concern

Management has applied judgments in the assessment of the Company’s ability to continue as a going concern when preparing its consolidated financial statements for the period ended December 31, 2020. Management prepares the consolidated financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management considered a wide range of factors relating to current and expected profitability, expansion plans, ability to liquidate investments, and potential sources of financing, including access to a line of credit. As a result of the assessment, management concluded the going concern basis of accounting is appropriate.

Business Acquisitions

In a business acquisition, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the acquisition date at their respective fair values. The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree – the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. Management exercises judgment in considering all pertinent facts and circumstances in identifying the acquisition date.

The Company examines three elements to determine whether control exists. When all of these three elements of control are present, then an investor is considered to control an investee and consolidation is required. When one or more of the elements is not present, an investor will not consolidate but instead be required to determine the nature of its relationship with the investee. The Company exercises its judgment when determining control over an investee, in when it has all of the following attributes: power over the investee, such as the ability to direct relevant activities of the investee; exposure, or rights, to variable returns from its involvement with the investee, such as returns that are not fixed and have the potential to vary with performance of the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns, such as identifying the link between power and returns.

Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or an asset acquisition can have a significant impact on the entries made at and after acquisition. In determining the fair value of all identifiable assets, liabilities and contingent liabilities acquired, the most significant estimates relate to contingent consideration and intangible assets. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied. Purchase consideration also includes consideration of any pre-existing relationships that are effectively settled as a result of the acquisition at their fair values.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

The Company acquired a subsidiary, ACA Muller ADAG Pharma Vertriebs GmbH (“ACA Müller”), on March 6, 2019 (Note 5b). The Company determined that this acquisition satisfied the criteria outlined in IFRS 3 and therefore recorded the acquisition as a business combination.

The Company acquired a subsidiary, CBD Med Therapeutics Inc. (“CBD Med”), on May 31, 2019 (Note 5c). It estimated that the majority of the fair value of the assets made up substantially all the value of the consideration paid. The Company determined that this value satisfied the Concentration Test (IFRS 3.B7B) resulting in the Company recording the acquisition of CBD Med as an asset acquisition rather than a business combination.

The Company acquired a subsidiary, Fayber Technologies Canada Inc. (“Fayber”), on June 17, 2019 (Note 5d). It estimated that a majority of the fair value of the assets made up substantially all of the value of the consideration paid. The Company determined that this value satisfied the Concentration Test (IFRS 3.B7B) resulting in the Company recording the acquisition of Fayber as an asset acquisition rather than a business combination.

The Company acquired a subsidiary, Klokken Aarhus Inc. (“Klokken”), on June 24, 2019 (Note 5e). It estimated that a majority of the fair value of the assets made up substantially all of the value of the consideration paid. The Company determined that this value satisfied the Concentration Test (IFRS 3.B7B) resulting in the Company recording the acquisition of Klokken as an asset acquisition rather than a business combination.

Income and Other Taxes

Estimates are required in calculating current and deferred taxes. In performing these calculations, Management needs to make judgements regarding tax rules in jurisdictions where the Company performs activities. Application of judgments is required regarding the classification of transactions and in the assessing probable outcomes of claimed deductions including expectations about future operating results and the timing and reversal of temporary differences.

Impairment of Goodwill and Intangible Assets

The Company performs an annual impairment test for goodwill and intangible assets at the end of each year. In determining impairment, the Company considers internal sources of information, such as the historical and expected financial performance of the intangible assets. If impairment exists, the asset’s recoverable amount is estimated. If the carrying amount exceeds the recoverable amount (on a discounted basis), the asset value is written down to the recoverable amount.

Determination of Cash Generating Units

CGUs are defined as the lowest level of integrated assets for which there are separately identifiable cash flows that are largely independent of cash flows from other assets or groups of assets. The classification of assets and the allocation of assets into respective CGUs require significant judgment, assumption and interpretations. Areas of judgement in the classification process, include the manner in which management reviews and makes decisions about its operations. The recoverability of assets are assessed at the CGU level and therefore could have a significant impact on impairment losses.

Incremental Borrowing Rate

In the situation where the implicit interest rate in the lease is not readily determined, the Company uses judgment to estimate the incremental borrowing rate for discounting the lease payments. The Company’s incremental borrowing rate generally reflects the interest rate that the Company would have to pay to borrow a similar amount at a similar term and with a similar security.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Share-based Payments

The fair value of stock options is calculated using the Black-Scholes option pricing model. When determining the fair value of stock options, management is required to make certain assumptions and estimates related to expected lives, volatility, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date.

5. ACQUISITIONS

a) Acquisition of Phatebo GmbH

On December 29, 2020, Franchise entered into a share purchase agreement to acquire 100% of the issued and outstanding common shares of Phatebo GmbH (“Phatebo”). The purchase price was set at EUR 8 million and CAD $5 million, which was to be paid in cash over two tranches, as follows:

· First tranche due and payable on December 29, 2020 (purchase effective date) and consisting of EUR 3.5 million as a cash payment and CAD $5.0 million in form of Franchise shares (3,846,154 of FCC Shares each at an agreed price of CAD $ 1.30).

· Second tranche due and payable on closing and consists of EUR 4.5 million. This payment was made on December 31, 2021.

b) Acquisition of ACA Muller

On March 6, 2019, Franchise entered into a share purchase agreement to acquire 100% of the issued and outstanding common shares of ACA Muller ADAG Pharma Vertriebs GmbH (“ACA Müller”). ACA Muller owns 100% of the shares of Sativa Verwaltungs GmbH and Sativa Verwaltungs GmbH and Co. KG. The purchase price was set at US $18 million, which was to be paid in cash over three installments, as follows:

· First payment on January 25, 2019 for US $9.5 million (prior to closing)

· Second payment on the Transaction Date for US $4.9 million

· Third payment 18 months after the Transaction Date for US $3.6 million, subject to holdbacks for corporate tax liabilities

Consideration
US $18,000,000 cash paid over three instalments
Net assets of ACA Muller	$24,191,379
Cash and cash equivalents	$1,373,351
Inventory	118,109
Amounts receivable	1,216,834
Assets held for sale	167,177
Property, plant & equipment	1,049,221
Intangible assets	22,544,000
Goodwill	7,062,524
Amounts payable	(405,826)
Taxes payable	(274,293)
Financial liabilities	(1,794,431)
Deferred income tax liability	(6,865,287)
	$24,191,379

The value of the indefinite life intangible assets at the date of acquisition was determined using a market approach using Level 2 inputs based on a comparable transaction. Goodwill arising from the acquisition represents expected synergies and future growth.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

For the year ended December 31, 2019, ACA Müller accounted for $2,705,228 in revenues and $18,531,366 in net loss since March 6, 2019. If the acquisition had been completed on January 1, 2019, the Company estimates that ACA Müller would have contributed a total of $3,463,296 to revenues and $18,927,122 for net loss for the full year ended December 31, 2019.

c) Acquisition of CBD Med

On May 31, 2019, Franchise entered into a share purchase agreement for 100% of the outstanding shares of CBD Med Therapeutics Inc. (“CBD Med”). Franchise issued 20 million common shares of Franchise to the shareholders of CBD Med in exchange for 100% of the issued and outstanding common shares of CBD Med. The acquisition of CBD Med was a non-arm’s length related party transaction with 50% of CBD Med previously controlled by related parties. The fair value of the consideration was determined in accordance with IFRS 2 to align with the fair value of net assets acquired.

On March 15, 2019, CBD Med entered into an option agreement (the “Option Agreement”) with Franchise Acquisition Co (“FAC” or the “Optionor”), to acquire the exclusive option to acquire all of the issued and outstanding shares of Adelnor. Upon completion of a Go-Public Transaction, the option may be exercised by CBD Med at any time by (i) CBD Med delivering written notice (the “Option Exercise Notice”) to the Optionor of the completion of a Go-Public Transaction and CBD Med’s intention to exercise the Option; and (ii) payment by CBD Med to the Optionor of $200,000 at any time prior to a Go-Public Transaction and in any event by no later than within 10 days of delivery of the Option Exercise Notice. CBD Med paid FAC $200,000 on May 23, 2019.

Consideration
20,000,000 shares	$	1,163,308
Net assets of CBD Med Acquisition
Cash	$	155,349
Amounts receivable		15,782
Other current assets		11,324
Amounts payable		(269,147	)
Intangible asset		1,250,000
	$	1,163,308

For the year ended December 31, 2019, CBD Med accounted for no revenues and $1,016,351 in net loss since May 15, 2019. If the acquisition had been completed on January 1, 2019, the Company estimates that CBD Med would have contributed no revenues and $1,163,486 to net loss for the full year ended December 31, 2019.

d) Acquisition of Fayber Technologies

On June 17, 2019, Franchise entered into a share purchase agreement for 100% of the outstanding shares of Fayber Technologies Canada Inc. (“Fayber”). Fayber owns 100% of Catalunia SAS (“Catalunia”) and Green CannaHealth SAS (“Green Canna”). Franchise issued 24,053,330 common shares of Franchise to the shareholders of Fayber in exchange for 100% of the issued and outstanding common shares of Fayber and paid a cash deposit of $1,302,400 in October 2018.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Consideration
Common Shares of Franchise 24,053,330 shares at $1 per share	$	24,053,330
Cash deposit made in October 2018		1,302,400
	$	25,355,730
Net assets of Fayber Acquisition:
Cash	$	637,032
Receivables		1,652
Property, plant & equipment		36,437
ROU Asset		169,202
Payable to owners of Green Canna		(130,000	)
Amounts payable		(3,015	)
Lease liability		(171,986	)
Intangible asset		24,816,408
	$	25,355,730

For the year ended December 31, 2019, Fayber accounted for no revenues and $18,151,908 in net loss since June 17, 2019. If the acquisition had been completed on January 1, 2019, the Company estimates it would have no impact on revenues and an increase of $9,968 in net loss for the year ended December 31, 2019. If the acquisition had been completed on January 1, 2019, the Company estimates that Fayber would have contributed no revenues and $18,161,876 to net loss for the full year ended December 31, 2019.

e) Acquisition of Klokken Aarhus

On June 24, 2019, Franchise entered into a share purchase agreement for 100% of the outstanding shares of Klokken Aarhus Inc. (“Klokken”). Klokken owns 100% of Rangers Pharmaceutical A/S (“Rangers”). Franchise issued 5 million common shares of Franchise to the shareholders of Klokken in exchange for 100% of the issued and outstanding common shares of Klokken.

Consideration
5,000,000 shares at a fair value of $1 per share	$	5,000,000
Net assets of Klokken Acquisition:
Cash	$	260,797
Amounts receivable		587
Prepaids		2,515
Amounts payable		(280,909	)
Intangible asset		5,017,010
	$	5,000,000

For the year ended December 31, 2019, Klokken accounted for no revenues and $5,371,070 in net loss since June 24, 2019. If the acquisition had been completed on January 1, 2019, the Company estimates that Klokken would have contributed no revenues and $5,372,760 to net loss for the full year ended December 31, 2019.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

6. RECEIVABLES

	December 31,		December 31,
	2020		2019
Trade Receivables	$	115,358		96,998
VAT		79,962		-
GST Receivable		56,144		55,371
Total	$	251,464		152,369

The Company assesses the risk of collectability of accounts receivable on a regular basis. Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in, and forecasts of, future economic conditions that affect default risk. Where applicable, the carrying amount of receivables is reduced for any expected credit losses through the use of an allowance for credit loss provision. The allowance for credit loss reflects the Company’s best estimate of probable losses inherent in the trade receivables accounts. As at December 31, 2020 and December 31, 2019 the expected credit losses amount assessed to be $Nil and

$27,198, respectively.

As at December 31, 2020, the Company is owned $602,247 (December 31, 2019 - $Nil) by the former shareholder of ACA Muller for expenses incurred prior to the Company’s acquisition of ACA Muller. The Company has the right to offset this receivable against the payment of the third tranche (Note 15).

7. PREPAID EXPENSES AND DEPOSITS

	December 31,			December 31,
	2020			2019
Prepaid expenses	$	868,184		$	130,705
Equipment deposits		895,598			283,762
Total		1,763,782			414,467
Less: non-current portion		(895,598	)		(283,762	)
Current portion		868,184			130,705

8. INVENTORY

	December 31,		December 31,
	2020		2019
Finished Goods	$	146,360	$	97,354
Cannabis seeds for sale		9,526,015		9,526,015
Inventory	$	9,672,375	$	9,623,369

During the year ended December 31, 2020, the Company charged $1,129,634 (2019 - $1,547,048) of inventory related amounts to cost of sales.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

9. MARKETABLE SECURITIES

Balance at 31 December 2019		-
Additions during the year	$	800,000
Adjustment to fair value		(85,656	)
Balance at 31 December 2020	$	714,344

The marketable securities are comprised of listed equity investments and warrants.

10. ACQUISITION DEPOSITS

Deposits include deposits required for acquisitions of other companies.

On October 17, 2018, the Company signed a term sheet with Alfa Bet Inc. (“Alfa Bet”), a company with assets in Israel and Romania, to acquire 100% of Alfa Bet’s issued and outstanding shares in consideration for $700,000 in cash paid as a deposit and $18,000,000 in shares of the Company valued at $1.50 per share. Subsequent to December 31, 2018 the no-shop period lapsed without completing the transaction, thus terminating the term sheet. On January 25, 2019, Alfa Bet returned the deposit to the Company. On June 21, 2019, the Company signed a subsequent term sheet with Alfa Bet, to acquire 100% of Alfa Bet’s issued and outstanding shares for consideration for to be determined in a definitive agreement and $350,000 in cash paid as a non-refundable deposit.

On December 14, 2020, the Company restructured the Alfa Bet deposit described above to a loan agreement with Canx CBD processing Corp. (“Canx”) in which the Company loaned Canx $US 250,000 (the “Loan”) under the following terms:

· The Loan is non-revolving and non-interest bearing;

· The Loan shall become payable and due on the earlier of either: (a) December 31, 2021; (b) Canx going public in which the Loan would convert to the shares of Canx at a 20% discount to the go- public valuation;

· Repayment of the entire Loan shall be made in full at the end of the term. No partial repayments are required during the term of the loan. However, Canx may repay any part or parts of the principal sum outstanding at any time or times, without penalty.

The Company has accounted for the Loan as a financial instrument under IFRS 9 at amortized cost. The Company utilized Level 3 valuation techniques, including assumptions pertaining to prepayments, the likelihood of a go-public transaction for Canx, the credit risk associated with the Loan and the discount rate.

In September 2019, the Company paid a deposit in the amount of $531,900 to Satica Medical (SVG) Ltd. (“Satica”), a company in St. Vincent, with the intention of entering into a Joint Venture agreement to develop a cannabis cultivation operation. The deposit is secured by a lien on land in St. Vincent. As of the date of these financial statements, the Joint Venture agreement has not been finalized. The deposit is refundable if the joint venture is not formed between the Company and Satica.

On August 7, 2019, the Company signed a terms sheet to acquire 100% of the shares of Phatebo GmbH (“Phatebo”), a German company, in exchange for cash consideration of EUR3,500,000, $5,000,000 shares of the Company valued at the latest financing price, and EUR4,500,00 in either cash or shares of the Company at the option of the selling shareholders. On October 25, 2019, the Company paid a non- refundable deposit of EUR500,000 ($724,150 CAD) to the shareholders of Phatebo as part of the cash consideration for the acquisition.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

On December 29, 2020, the Company finalized a Share Purchase Agreement (“SPA”) to purchase 100% of the shares of Phatebo. The total consideration to be paid in exchange for the Phatebo shares is EUR 8,000,000, as well as 3,846,154 shares of the Company with a cash value of $5,000,000. Total payments of EUR 3,500,000 and the share consideration has been paid, with additional consideration of EUR 4,500,000 paid in cash on closing on December 31, 2021.

	December 31,		December 31,
	2020		2019
Alfa Bet		-		324,700
Phatebo		2,226,302		724,150
Satica		531,900		531,900
	$	2,758,202	$	1,580,750

11. PLANT AND EQUIPMENT

Cost
Balance, December 31, 2019			$	842,116
Additions				42,200
Change in foreign exchange rates				(571	)
Balance, December 31, 2020			$	883,745
Accumulated Depreciation
Balance, December 31, 2019			$	208,165
Depreciation				82,905
Change in foreign exchange rates				24,474
Balance, December 31, 2020			$	315,544
Carrying Amounts
At December 31, 2019			$	633,951
At December 31, 2020			$	568,201
	December 31,		December 31,
	2020		2019
Grow equipment	$	151,013	$	188,991
Lab equipment		28,750		35,711
Office equipment		98,265		109,976
Building and improvements		290,173		299,273
Total	$	568,201	$	633,951

Depreciation expense of $82,905 and $123,297 was recorded for the years ended December 31, 2020 and December 31, 2019, respectively.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

12. ASSETS HELD FOR SALE

Opening Balance - December 31, 2018	$	-
Transfer from Plant and Equipment		497,473
Closing Balance - December 31, 2019		497,473
Disposal		(497,473	)
Closing Balance – December 31, 2020	$	-

The assets held for sale are related to an apartment in Radolfzell, Germany and a residential building in Hilzingen, Germany. The Company has determined that these assets are not essential to the Company’s operations and set forth the intension for their disposion. In the year ended December 31, 2020, these assets were sold for total proceeds of $507,692, resulting in a gain on sale of $10,219.

13. RIGHT OF USE ASSETS

The Company adopted the new lease standard in 2019. There was no impact on the Company on initial recognition. The lease liability was measured at the present value of the remaining lease payments, discounted using incremental borrowing rates on that date ranging from 4% - 15%, depending on the jurisdiction. The Company recorded right of use assets of the same amount which relates to its long-term warehouse and land leases in Germany and Colombia. Depreciation of the right of use assets is calculated using the straight-line method over the remaining lease term.

Right-of-use assets:
Balance on December 31, 2019	$	278,964
Depreciation		(102,694	)
Change in foreign exchange rates		6,411
Balance - December 31, 2020	$	182,681
Lease Liability:
Balance on December 31, 2019	$	285,555
Lease payments		(115,128	)
Finance expense		23,196
Change in foreign exchange rates		6,533
Balance - December 31, 2020	$	200,157
Current lease liability	$	115,341
Non-current lease liability		84,816
Total	$	200,157

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Undiscounted lease payments:
Short-term portion of the lease (<1 Year)	$	123,462
Long-term portion of the lease (>1 Year)		84,373
Total	$	207,835

14. INDEFINITE-LIFE INTANGIBLE ASSETS

The Company acquired the following intangibles, which have a value of $Nil at December 31, 2020 (December 31, 2019 - $12,468,116).

a) CBDMed – the intangible assets in CBDMed relate to psychoactive and non-psychoactive cultivation licenses in Uruguay.

b) Fayber

The intangible assets in Fayber relate to psychoactive and non-psychoactive cannabis cultivation licenses and a cannabis derivative extraction license held by GreenCanna Health in Colombia

c) Klokken

The intangible assets in Klokken relate to a medical cannabis cultivation license and the registration as an exporter of seeds and processed plant products in Denmark.

d) ACA Muller

The intangible assets in ACA Muller relate to the following licenses:

· Narcotics License, allowing for the import and distribution of prescription narcotics including cannabis,

· Wholesale Dealer License, allowing for the distribution of healthcare products to pharmacies

	December 31, 2018		Initial Recognition		Impairment			December 31, 2019
ACA Muller – Goodwill	$	-	$	7,062,524		(7,062,524	)	$	-
ACA Muller- Intangible assets	$	-		22,544,000		(16,910,898	)		5,633,102
CBD Med - Intangible assets	$	-		1,250,000		(1,250,000	)	$	-
Fayber- Intangible assets	$	-		24,816,408		(17,981,394	)		6,835,014
Klokken- Intangible assets	$	-		5,017,010		(5,017,010	)	$	-
	$	-	$	60,689,942		(48,221,826	)	$	12,468,116

As at December 31, 2019, the Company performed its annual impairment test on its indefinite life intangible assets and goodwill. The recoverable amount of the German CGU to which goodwill and indefinite life intangibles relate was determined using a Fair Value Less Cost to Dispose approach using Level 2 inputs based on a comparable transaction. The Company utilized a market rate of 5% of the transaction value to determine the cost to sell. This resulted in the value for goodwill being fully impaired, and the value for intangible assets being impaired to $5,633,102 at December 31, 2019.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

For CBD Med, the Company has concluded that due to changes in the markets and a strategic shift to focus on other areas, the Company does not expect to generate future cash flows from this acquisition. The recoverable amount of the CGU to which intangibles relate was determined using a Fair Value Less Cost to Dispose approach using Level 3 inputs based on an estimate of costs incurred to replace the intangible asset. The estimate was determined to be not significant. As a result, the intangible asset was impaired to $Nil as at December 31, 2019.

For Fayber, the recoverable amount of the CGU to which the the indefinite life intangible relates was determined using a Fair Value Less Cost to Dispose approach using Level 2 inputs based on a comparable transaction. The Company utilized a market rate of 5% of the transaction value to determine the cost to sell. This resulted in the value for intangible asset to be impaired to $6,835,014 at December 31, 2019.

For Klokken, the recoverable amount of the CGU to which intangibles relate was determined using a Fair Value Less Cost to Dispose approach using Level 3 inputs based on an estimate of costs incurred to replace the intangible asset. The estimate was determined to be not significant. This resulted in the value for intangible asset to be impaired to $Nil at December 31, 2019.

	December 31, 2019		Impairment			December 31, 2020
ACA Muller- Intangible assets		5,633,102		(5,633,102	)	$	-
Fayber- Intangible assets		6,835,014		(6,835,014	)	$	-
	$	12,468,116		(12,468,116	)	S	-

As at December 31, 2020, the Company performed its annual impairment test on its indefinite life intangible assets. The recoverable amount of the CGUs to which intangibles relate was determined using a Fair Value Less Cost to Dispose approach using Level 3 inputs based on an estimate of costs incurred to replace the intangible assets. This resulted in the values for the intangible assets to be impaired to $Nil.

15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31,		December 31,
	2020		2019
Accounts payable and accrued liabilities	$	1,279,639	$	1,253,100
Accrued liability for third tranche of ACA acquisition		4,583,520		4,675,680
Accrued liability of option exercise fee for seed inventory		100,000		100,000
VAT taxes payable		10,962		23,846
Total	$	5,974,121	$	6,052,626

	December 31,		December 31,
	2020		2019
Current income taxes payable- Germany		87,006		294,122
Total	$	87,006	$	294,122

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

16. LOAN PAYABLE

Opening Balance - December 31, 2019	$	99,914
Principal payments to December 31, 2020		(99,914	)
Closing Balance - December 31, 2020	$	-

The payment related to a mortgage held by ACA Muller in Germany. The mortgage carried a variable interest rate of 1.85% per annum, with blended interest and principal payments required of €400 per month. The mortgage was repaid in full on April 24, 2020.

17. SHARE CAPITAL

a) Authorized

An unlimited number of common shares without par value.

b) Issued

During the year ended December 31, 2020, the following share capital transactions occurred:

(i) From January 22, 2020 to December 31, 2020, the Company issued 172,040 common shares valued at $1.30 per share in settlement of debt to various consultants.

During the year ended December 31, 2019, the following share capital transactions occurred:

(ii) From January 14, 2019 to December 31, 2019, the Company issued 353,900 common shares value at a price ranging from $1.00 to $1.30 per share in settlement of debt to various consultants.

(iii) From February 19, 2019 to October 25, 2019, the Company completed a six-tranche subscription by issuing 10,844,319 common shares at a price ranging from $1.00 to $1.30 per share for gross proceeds of $12,640,605. The number of common shares issued per tranche varied from 211,540 to 4,414,828.

(iv) On May 31, 2019, the Company issued 20,000,000 common for the acquisition of CBD Med Therapeutics Inc. (Note 5b).

(v) On June 17, 2019, the Company issued 24,053,330 common shares valued at $1.00 per share for the acquisition of Fayber Technologies Canada Inc. (Note 5c).

(vi) On June 24, 2019, the Company issued 5,000,000 common shares valued at $1.00 per share for the acquisition of Klokken Aarhus Inc. (Note 5d).

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

c) Stock Options

	Outstanding			Weighted average exercise price
Balance, December 31, 2018	$	-		$	-
Granted		1,709,929			1.00
Cancelled		(42,748	)		1.00
Balance, December 31, 2019		1,667,181		$	1.00
Balance, December 31, 2020		1,667,181		$	1.00

The stock options were granted to directors and officers during 2019. Their fair value was calculated using the Black-Scholes model, including the following assumptions:

Risk-free annual interest rate:	1.560%
Expected annual dividend yield:	Nil
Expected stock price volatility:	90.07%
Expected life of options:	5 years
Forfeiture rate:	Nil

18. RELATED PARTY TRANSACTIONS AND BALANCES

a) Key Management Personnel

Compensation to key management, which consists of executives and directors, for the years ended December 31, 2020 and 2019 was as follows:

	December 31, 2020		December 31, 2019
Consulting Fees	$	364,874	$	118,073
Bonus (Note 22)		-		500,000
Share based compensation		189,767		797,446
	$	554,641	$	1,415,519

For the year ended December 31, 2020, $19,001 of the consulting fees incurred to key management personnel was settled in shares (2019 - $88,400).

b) Due to Related Parties

Amounts due to related parties as at December 31, 2020 and 2019 were as follows:

	December 31, 2020		December 31, 2019
Amounts due to directors and officers of the Company for consulting fees, finder’s fees, equipment, and expenses (included in accounts payable and accruals)	$	531,962	$	515,279

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

c) Other Related Party Transactions

Transactions with related parties for the year ended December 31, 2020 and 2019 were as follows:

	December 31,		December 31,
	2020		2019
Consulting fees	$	-	$	51,000
Rent paid to a relative of a director included within premises expense		43,050		42,000
Transactions with entity controlled by a director and member of key management		241,520		-
	$	284,570	$	93,000

For the year ended December 31, 2020, $nil of the consulting fees incurred to other related parties was settled in shares (2019 - $8,500).

Refer to Note 22 for commitments and contingencies pertaining to related parties.

As at December 31, 2020, the Company is owed $111,163 (December 31, 2019 - $Nil) from two members of the Company’s key management.

19. INCOME TAXES

A reconciliation of income taxes at Canadian statutory rates of 26.5% with the reported taxes for the year ended December 31, 2020 is as follows:

	December 31,			December 31,
	2020			2019
Loss for the period before income taxes	$	(14,919,523	)	$	(53,452,000	)
Expected income tax recovery	$	(3,953,674	)	$	(14,164,780	)
Goodwill and intangible asset impairment		1,811,279			8,210,464
Items not deductible for income taxes		101,422			236,131
Unrecognized benefit of deferred income tax assets		440,264			1,320,896
Difference in statutory tax rate		(219,569	)		(628,826	)
Income tax recovery	$	(1,820,278	)	$	(5,026,115	)
Current income tax (recovery) expense		(39,852	)		58,746
Deferred income tax recovery		(1,780,426	)		(5,084,861	)
Total income tax recovery	$	(1,820,278	)	$	(5,026,115	)

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

The unrecognized deductible (taxable) temporary differences as at December 31, 2020 and 2019 are comprised of the following:

	December 31,			December 31,
	2020			2019
Plant and equipment		631,939			543,413
Marketable securities		85,949			-
Prepaid expenses		118,541			118,541
Intangible asset		-			(5,934,752	)
ROU Asset		(145,454	)		(233,293	)
Lease Liability		161,234			239,454
Financing costs		364,446			513,725
Non-capital losses		8,531,399			6,633,896
	$	9,748,053		$	1,880,984

Deferred tax benefits that may arise in respect of the Company’s deductible temporary differences have not been recognized as it is not considered probable that sufficient future taxable profit will be realized.

The Company has available non-capital losses that may be carried forward to apply against future years income for income tax purposes. The non-capital tax losses expire as follows:

2038	$	668,944
2039		5,964,952
2040		1,897,503
	$	8,531,399

20. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain a flexible capital structure that optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and makes adjustments, based on the funds available to the Company, in order to support its business activities and to safeguard the Company’s ability to continue as a going concern. The capital structure of the Company consists of components of equity attributable to common shareholders’ equity as follows:

	December 31,		December 31,
	2020		2019
Share capital	$	92,519,988	$	92,296,847
	$	92,519,988	$	92,296,847

The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain the future development of the business.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

The Company’s investment policy is to invest its excess cash in low risk, highly liquid short-term interest- bearing investments, selected with regard to the expected timing of upcoming expenditures. The Company will raise additional funds to carry its operations through its upcoming operating period and to satisfy its obligations.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

21. FINANCIAL INSTRUMENTS

Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The Company classifies its financial instruments as follows: cash and cash equivalents as FVTPL; marketable securities at FVTPL; receivables as amortized cost; loans at amortized cost; and accounts payable and accrued liabilities as amortized cost. The carrying values of these instruments approximate their fair values due to their short term to maturity.

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

(i)	Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
(ii)	Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
(iii)	Level 3 – Inputs that are not based on observable market data.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

a) Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments which subject the Company to credit risk consist of cash and cash equivalents of $3,737,767 (2019 - $9,752,466), $115,358 of trade receivables classified as receivable (2019 - $96,998), $714,344 of marketable securities (2019 – nil), $324,700 of loan receivable (2019 – nil), $2,758,202 of deposits classified as acquisition deposits (2019 - $1,580,750) of which $531,900 is secured (2019 - $531,900), and $1,763,782 of deposits classified as prepaid expenses and deposits (2019 - $414,467). These accounts represent the Company’s maximum credit risk.

The Company’s policy is to invest excess cash in investment-grade short-term, redeemable investment certificates issued by Canadian chartered banks. Management believes the risk of financial loss from cash held in its bank accounts and in guaranteed investment certificates, both are held with a Canadian chartered bank, to be remote. The Company has estimated that ECLs not to be significant on receivables.

b) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations associated with its financial liabilities as they fall due. The Company’s objective is to ensure that there are sufficient committed financial resources to meet its short-term business requirements for a minimum of twelve months. As of December 31, 2020, the Company does have sufficient funds on hand to meet current liabilities and the expected operations for the coming year. The Company has cash and cash equivalents $3,737,767 (2019 - $9,752,466), current liabilities of $6,176,468 (2019 - $6,610,118) and current net assets of $10,105,776 (2019 - $13,603,864).

The Company has no formal revolving credit facilities available at this time and, given the Company’s current stage of development, it is not expected that such credit facilities will become available to the Company in the next fiscal year.

33

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

Due to the level of net monetary assets, management regards the Company’s overall liquidity risk to be low.

c) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Interest rate risk consists of two components:

Interest Rate Risk (continued)

(i)	Interest rate cash flow risk is the risk that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates. The Company’s savings account is a variable rate instruments tied to Canadian prime interest rate. A 1% change in interest rates would have a nominal effect on net loss and comprehensive loss of the Company.
(ii)	Interest rate price risk is the risk that changes in prevailing market interest rates differ from the interest rate on the Company’s monetary assets and liabilities. The Company is not exposed to interest rate price risk.

The Company is not materially exposed to interest rate changes.

Foreign Exchange Risk

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. As at December 31, 2020, a portion of the Company’s financial assets and liabilities held in USD, EUR, COP, GBP, and DKK consist of cash and cash equivalents, receivables and accounts payable and accrued liabilities. The Company does not use any techniques to mitigate foreign exchange risk.

The Company’s net monetary position in the significant foreign currencies as of December 31, 2020 is summarized below with the effect on earnings before tax of a 1% fluctuation of each currency relative to the functional currency of the entity holding it to the CAD dollar:

	Net Monetary Position December 31, 2020 (CAD$ equivalent)	Impact of 1% variance in foreign exchange rate
US Dollars	76,119	761
Euros	665,058	6,651
	Net Monetary Position D ecember 31, 2019	Impact of 1% variance in
	(CAD$ equivalent)	foreign exchange rate
US Dollars	1,091,963	10,920
Euros	946,555	9,466

34

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

On July 21, 2020, the Company entered into a Joint Venture agreement with Mota Ventures Corp. (“Mota”), whereby the Company and Mota would be the sole shareholders of a Croatian company in order to sell and market CBD products in the European Union. Mota subsequently changed its name to Thoughtful Brands Inc. (“TBI”). As part of the agreement, the Company paid $500,000 on September 14, 2020 in subscription of 2,500,000 units of TBI consisting of one common share and one purchase warrant (the “Units”). For the purpose of fair value determination, the Units were segregated into common shares and purchase warrants. The common shares were valued using the applicable closing price of TBI – a level 1 financial instrument, and the warrants were valued using an option-pricing model – a level 2 financial instrument.

22. COMMITMENTS AND CONTINGENCIES

On October 1, 2018, the Company entered into a consulting agreement with Clifford Starke – the Company’s Chief Executive Officer. In consideration for the services provided to the Company, the Company shall pay Mr. Starke the following:

· A monthly payment as determined by the Company’s Board of Directors of at least $20,000 per month;

· A $500,000 bonus paid in cash or shares upon raising a cumulative $20,000,000 for the Company. This bonus was earned and paid in 2019.

· A $500,000 bonus paid in cash or shares upon raising a cumulative $40,000,000 for the Company;

· A $1,000,000 bonus paid in cash or shares if the Company achieves over $50,000,000 in sales over any four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $75,000,000 in sales over a four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $100,000,000 in sales over a four quarter period;

· A $3,000,000 bonus paid upon taking the Company public and achieving a market capitalization of over $100,000,000; and

On October 1, 2018, the Company entered into a consulting agreement with Farhan Lalani – a Director of the Company. In consideration for fundraising and business development services, and merger and acquisition guidance, the Company shall pay Mr. Lalani the following:

· A $420,000 bonus paid in common shares of the Company (at the go-public valuation) issuable to Mr. Lalani immediately upon the Company completing a go-public transaction involving a listing on a stock exchange (including by way of a reverse takeover or an initial public offering or other similar transaction) that values the Company at $100,000,000 or more.

On July 25, 2018, Harmony entered into an Intellectual Property License Agreement with Hampstead Private Capital Limited (“Hampstead”) – a corporation controlled by Mr. Starke. Under the terms of this agreement, Harmony shall pay Hampstead a royalty in the amount of 3.5% of the gross revenues from sale of Harmony products.

In connection with the second tranche in relation to the Phatebo acquisition, the Company must make a cash payment of EUR 4.5 million on closing. This payment was made on December 31, 2021.

On April 2, 2019, the Company entered into an executive service agreement with Morten Mortensen under the following terms:

· The Company shall pay Mr. Mortensen a salary of 90,000 Euros per year;

· Mr. Mortensen shall be grated 1,333,333 shares in the Company with a value of $2,000,000 provided an initial public offering of the Company’s shares is completed within three years from the date of signing the executive service agreement. If no initial public offering is completed within three years from the date of signing the executive service agreement, Mr. Mortensen shall instead receive a cash bonus of $2,000,000 and the opportunity to be granted shares shall automatically lapse without further notice. In 2019, Mr. Mortensen’s employment was terminated with cause and therefore he is no longer entitled to this award.

· Mr. Mortensen shall be granted a cash payment of $375,000 provided certain certificates are achieved within thirteen months from the signing of the executive service agreement. As an alternative to receiving the cash bonus of $375,000, Mr. Mortensen may choose to receive shares with a value corresponding to the cash payment. In such case, the value of each share will be the market value at the time the conditions are fulfilled. This milestone was not met and the award was not paid to Mr. Mortensen.

· Mr. Mortensen shall be granted shares with a value corresponding to $2,125,000 provided certain certifications are achieved and the first commercial shipment of cannabis flower to another country in the European Union is achieved within thirteen months from the signing of this agreement. The value of each shares will be the market value at the time the conditions are fulfilled. This milestone was not met and the award was not paid to Mr. Mortensen.

35

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

The Company may be, from time to time, subject to various administrative and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable, and the contingent liability can be reasonably estimated.

As of December 31, 2020, the Company is involved in two legal disputes with former employees of ACA Muller and Rangers. The total exposure of the Company is estimated to be $128,682 and has been fully provisioned as at December 31, 2020 ($128,682 as at December 31, 2019). Subsequent to December 31, 2020, the Company settled this legal dispute for an amount that approximated the provision recorded in the accounts.

23. SEGMENTED INFORMATION

The Company has two reportable segments – Germany and Denmark. These segments reflect how the Company’s operations are managed, how the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), allocates resources and evaluates performance.

	Germany	Denmark	Corporate & Other	Total
Year-ended December 31, 2020
Revenue	$1,764,796	-	$99,168	$1,863,964
Gross Profit	$623,431	-	$86,268	$709,699
Net Loss	($3,628,633)	($100,484)	($9,370,128)	($13,099,245)
Assets	$2,806,232	$9,526,516	$8,778,379	$21,111,127
Liabilities	$275,136	$89,816	$5,901,332	$6,266,284
Year-ended December 31, 2019
Revenue	$2,705,228	-	-	$2,705,228
Gross Profit	$1,149,705	-	-	$1,149,705
Net Loss	($18,531,366)	($5,371,070)	($24,523,449)	($48,425,885)
Assets	$8,132,971	$9,635,106	$18,899,447	$35,867,523
Liabilities	$2,522,659	$82,272	$5,915,252	$8,520,183

36

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

For the Year Ended December 31, 2020

(Expressed in Canadian Dollars, unless otherwise stated)

24. SUBSEQUENT EVENTS

On January 7, 2021, TBI and the Company announced their intention to merge via the Company’s reverse takeover of TBI. On March 8, 2021, the reverse takeover and the JV were terminated. As part of the termination, TBI agreed to pay the Company $450,000 and issue the Company 5,000,000 TBI shares at a value of $0.55/share post TBI’s share consolidation for a deemed value of $275,000 The total proceeds associated with the merger termination fee are therefore $725,000, which will be recognized in income in 2021.

On February 18th, 2021, Franchise signed a definitive sale and purchase agreement with the shareholders of 1200325 B.C. Ltd. (“Botanist”), the parent company of the Botanist Assets which include a conditionally approved retail license application which is subject to a final audit upon completion of construction blueprints of a leased 3,500 retail space in Winnipeg, Manitoba. The purchase consideration agreed was the issuance of 5,126,620 common shares in the capital of Franchise having a deemed price of $9,227,916 to be paid upon the closing date. Closing conditions include completion of 2018, 2019, and 2020 IFRS audited financials of Botanist, and the cancellation, conversion or divestment of all debts liabilities of Botanist. This transaction closed on November 12, 2021.

On June 1, 2021, the Company completed an initial tranche of a non-brokered private placement comprised of 1,038,944 Franchise shares and 5,146,429 subscription receipts at an issue price per Franchise share and subscription receipt of $1.80 for gross proceeds to the Company of $1,870,099 (in respect of Franchise shares) and $9,263,572 (in respect of subscription receipts). Through a series of additional tranches and as of the date of these financial statements, the Company completed a total of 6,274,206 subscription receipts and 1,522,791 common shares, resulting in gross proceeds of $11,293,573 in respect of subscription receipts and $2,741,023 in respect of Franchise common shares. No further tranches of subscription receipts will be issued. Franchise may complete one or more traches of Franchise shares prior to final closing.

On June 24, 2021, the Company announced that it has entered into a letter of intent with Mercury Acquisitions Corp. (“Mercury”) to complete a going-public transaction for the Company as part of a reverse takeover of Mercury. On December 2, 2021, the Company obtained conditional approval from the TSX Venture Exchange for its Qualifying Transaction with Mercury, and the funds pertaining to the subscription receipts were released from escrow and made available for the Company’s use.

On August 11, 2021, Franchise signed a strategic partnership agreement with Eve & Co Inc. (“Eve”) whereby Eve would provide up to 500,000 square feet of the 1,000,000 square foot cultivation area as well as portions of its EU GMP certified processing area located on site in Strathroy, Ontario, to supplying the Company. Franchise must make monthly payments of $125,000 beginning November 2021 for a period of 12 months with an option for Franchise to extend for an additional 24 months. Through the arrangement, Franchise must also pay for 50% of hydro, natural gas, product liability insurance and such other costs. The arrangement can be terminated at any point. The final terms of the arrangement are under negotiation and are expected to be finalized in early 2022. The strategic partnership agreement involved the Company investing $500,000 for units of Eve at a price of $0.18 per share with half a warrant at $0.25 per share. An additional financing of up to $500,000 may be extended to Eve subject to certain conditions to be agreed upon between the Company and Eve.

On December 31, 2021, the Company completed the Phatebo acquisition.

37

EX-99.4

EXHIBIT 99.4 

Franchise Cannabis Corp.

Consolidated Financial Statements   

For the years ended December 31, 2021 and 2020 

Expressed in Canadian Dollars 

	Contents
Consolidated Financial Statements
Independent Auditors’ Report	2
Consolidated Statements of Financial Position	4
Consolidated Statements of Loss and Comprehensive Loss	5
Consolidated Statements of Changes in Shareholders’ Equity	6
Consolidated Statements of Cash Flows	7
Notes to the Consolidated Financial Statements	8-41

1

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Franchise Cannabis Corp.

Opinion

We have audited the consolidated financial statements of Franchise Cannabis Corp. and its subsidiaries (the “Company”), which comprise the consolidated statement of financial position as at December 31, 2021, and the consolidated statements of loss and comprehensive loss, changes in shareholders’ equity and cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2021 and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (“IFRS”).

Basis of Opinion

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

Material Uncertainty Related to Going Concern

We draw attention to Note 2(a) to the consolidated financial statements, which indicates that for the year ended December 31, 2021 the Company incurred a net loss of $17,415,447 and had negative cash flows from operations of $4,113,308 and its continued existence is dependent on its ability to obtain additional financing. As stated in Note 2(a), these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.

Other Matter

The consolidated financial statements of the Company as at and for the year ended December 31, 2020 were audited by another auditor who expressed an unmodified opinion on those statements on March 9, 2022.

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

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

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

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

201 Bridgeland Avenue | Toronto Ontario | M6A 1Y7 | Canada zeifmans.ca T: 416.256.4000 Zeifmans LLP is a member of Nexia International, a worldwide network of independent accounting and consulting firms.

2

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

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

As part of an audit in accordance with GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

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

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

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

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

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

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

The engagement partner on the audit resulting in this independent auditors’ report is Laurence W. Zeifman, CPA, CA.

Toronto, Ontario April 27, 2022	Chartered Professional Accountants Licensed Public Accountants

3

Franchise Cannabis Corp.

Consolidated Statements of Financial Position

As at December 31, 2021 and 2020

(Expressed in Canadian Dollars)

			December 31,			December 31,
	Notes		2021			2020
ASSETS
Current assets
Cash and cash equivalents			$	4,485,096		$	3,737,767
Receivables		6		4,381,640			251,464
Due from former shareholder		6		898,905			602,247
Due from related parties		19		–			111,163
Prepaid expenses and deposits		7		113,227			868,184
Inventory		8		11,069,515			9,672,375
Marketable securities		9		461,210			714,344
Loan receivable		11		–			324,700
Total current assets				21,409,593			16,282,244
Non-Current Assets
Prepaid expenses and deposits		7		–			895,598
Acquisition deposits		10		531,900			2,758,202
Property, plant and equipment		12		1,079,331			568,201
Right of use assets		13		496,635			182,681
Investment properties		14		–			424,201
Intangible asset		15		13,104,302			–
Goodwill		15		6,478,272			–
Total non-current assets				21,690,440			4,828,883
TOTAL ASSETS			$	43,100,033		$	21,111,127
LIABILITIES
Current liabilities
Bank indebtedness		5a	$	753,072		$	–
Accounts payable and accrued liabilities		16		10,943,143			5,974,121
Income taxes payable		16		–			87,006
Loans payable	5a, 17			2,158,650			–
Lease liability		13		250,465			115,341
Total current liabilities				14,105,330			6,176,468
Non-Current Liabilities
Deferred revenue				–			5,000
Lease liability		13		294,244			84,816
Deferred tax liability		5a		3,627,256			–
Total non-current liabilities				3,921,500			89,816
TOTAL LIABILITIES				18,026,830			6,266,284
SHAREHOLDERS’ EQUITY
Share capital		18		120,038,497			92,519,988
Share subscriptions received				–			21,572
Reserves				1,253,379			1,085,525
Accumulated other comprehensive income				66,640			111,124
Deficit				(96,285,313	)		(78,893,366	)
TOTAL SHAREHOLDERS’ EQUITY				25,073,203			14,844,843
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			$	43,100,033		$	21,111,127

Ability to Continue as a Going Concern (Note 2a)	Approved on behalf of the Board:
Commitments and Contingencies (Note 23)	/s/ Clifford Starke	/s/ Farhan Lalani
Subsequent Events (Note 26)	Director	Director

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

4

Franchise Cannabis Corp.

Consolidated Statements of Loss and Comprehensive Loss

For the Years Ended December 31, 2021 and 2020

(Expressed in Canadian Dollars)

	Year Ended			Year Ended
	December 31,			December 31,
	2021			2020
Revenues	$	1,133,106		$	1,863,964
Cost of goods sold (Note 8)		(908,118	)		(1,154,265	)
Gross profit		224,988			709,699
Expenses:
Professional fees		3,494,221			838,652
Selling, general and administrative (Note 19)		2,291,232			1,526,259
Consulting fees (Note 19)		835,839			794,385
Foreign currency translation loss (gain)		344,580			(30,226	)
Depreciation (Notes 12 and 13)		217,731			191,310
Share-based compensation (Note 19)		167,854			288,079
		7,351,457			3,608,459
Other items:
Premium paid on acquisition (Note 5b)		(5,222,991	)		–
Impairment of intangible assets (Note 15)		(4,200,000	)		(12,470,852	)
Interest expense		(23,684	)		(25,813	)
Other income (loss) (Note 25)		(842,303	)		475,902
Loss before income taxes		(17,415,447	)		(14,919,523	)
Current income tax recovery		–			39,852
Deferred income tax recovery		–			1,780,426
Net loss		(17,415,447	)		(13,099,245	)
Other comprehensive income (loss)
Foreign currency gain (loss) on translation of subsidiaries		44,484			(104,128	)
Comprehensive loss	$	(17,370,963	)	$	(13,203,373	)
Basic and diluted loss per share	$	(0.15	)	$	(0.12	)
Weighted average number of common shares outstanding		117,319,696			112,332,814

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

5

Franchise Cannabis Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the Years Ended December 31, 2021 and 2020

(Expressed in Canadian Dollars)

	Share Capital						Share subscriptions			Equity		Accumulated other comprehensive
	Number			Amount			received			reserves		income			Deficit			Total
				$			$			$		$			$			$
Balance, December 31, 2019		112,223,147			92,296,847			40,172			797,446		6,996			(65,794,121	)		27,347,340
Shares issued for consulting agreement		172,040			223,141			–			–		–			–			223,141
Share based compensation		–			–			–			288,079		–			–			288,079
Foreign currency translation gain		–			–			–			–		104,128			–			104,128
Return of share subscriptions received		–			–			(18,600	)		–		–			–			(18,600	)
Net loss for the year		–			–			–			–		–			(13,099,245	)		(13,099,245	)
Balance, December 31, 2020		112,395,187			92,519,988			21,572			1,085,525		111,124			(78,893,366	)		14,844,843
Balance, December 31, 2020		112,395,187			92,519,988			21,572			1,085,525		111,124			(78,893,366	)		14,844,843
Shares issued for cash		7,796,998			14,034,597			(21,572	)		–		–			–			14,013,025
Shares issued for acquisitions:
Phatebo GmbH (Note 5(a))		3,846,154			5,000,000			–			–		–			–			5,000,000
1200325 B.C. LTD.(Note 5(b))		5,126,618			9,227,912			–			–		–			–			9,227,912
Shares issued for consulting (Note 18(b)(i))		392,351			529,500			–			–		–			–			529,500
Shares cancelled (Note 18(b)(v))		(1,268,078	)		(1,273,500	)		–			–		–			23,500			(1,250,000	)
Share-based compensation		–			–			–			167,854		–			–			167,854
Foreign currency translation loss		–			–			–			–		(44,484	)		–			(44,484	)
Net loss for the year		–			–			–			–		–			(17,415,447	)		(17,415,447	)
Balance, December 31, 2021		128,289,230			120,038,497			–			1,253,379		66,640			(96,285,313	)		25,073,203

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

6

Franchise Cannabis Corp.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

(Expressed in Canadian Dollars)

	For the Years Ended December 31,
	2021			2020
Cash flows used in operating activities
Loss for the year:	$	(17,415,447	)	$	(13,099,245	)
Adjusted for:
Premium paid on acquisition (Notes 5(b), 25)		5,222,991			–
Impairment of intangible assets (Notes 15(b), 25)		4,200,000			12,470,852
Fair value adjustment on acquisition deposit (Notes 5(a), 25)		(1,923,077	)		–
Impairment of prepaid expenses and deposits (Note 7)		1,637,018			–
Fair value adjustment on marketable securities (Notes 9, 25)		1,072,677			85,656
Fair value adjustment on share cancellation (Notes 18(b)(v), 25)		1,000,000			–
Consulting expenses settled in shares (Notes 18(b)(i))		529,500			223,141
Impairment of loan receivable (Notes 11, 25)		324,700			–
Share compensation for merger termination (Note 9)		(275,000	)		–
Depreciation		217,731			191,310
Share-based compensation		167,854			288,079
Accretion expense		11,698			23,196
Gain on sale of assets		(9,693	)		(10,219	)
Income tax recovery		–			(1,820,278	)
Income tax paid		(87,006	)		(167,264	)
Changes in non-cash working capital items:
Receivables		(178,622	)		(99,095	)
Due from former shareholder		(296,658	)		(602,247	)
Due from related parties		111,163			(92,204	)
Prepaid expenses and deposits		23,061			(1,349,315	)
Accounts payable and accrued liabilities		1,466,793			(78,505	)
Inventory		92,009			(10,365	)
Deferred revenue		(5,000	)		(3,052	)
Cash used in operating activities		(4,113,308	)		(4,049,555	)
Cash flows provided by (used in) financing activities
Proceeds from the issuance of common shares		14,013,024			–
Lease payments		(118,540	)		(115,128	)
Repayment of loans		–			(99,914	)
Return of share subscriptions		–			(18,600	)
Cash provided by (used in) financing activities		13,894,484			(233,642	)
Cash flows used in investing activities
Purchase of plant, property and equipment		–			(42,200	)
Cash for acquisitions, net of cash acquired		(8,898,756	)		(1,502,152	)
Proceeds on the sale of property		433,894			507,692
Purchase of marketable securities		(519,200	)		(800,000	)
Cash used in investing activities		(8,984,062	)		(1,836,660	)
Effect of exchange rate on cash		(49,785	)		105,158
Increase (decrease) in cash and cash equivalents for the year		797,114			(6,119,857	)
Cash and cash equivalents, beginning of year		3,737,767			9,752,466
Cash and cash equivalents, end of year	$	4,485,096		$	3,737,767

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

7

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

1. CORPORATE INFORMATION

Franchise Cannabis Corp. (“Franchise”) (with its subsidiaries, the “Company”) was incorporated in Ontario, Canada on April 25, 2018. The Company’s primary business is the sale of cannabis products. Through its wholly owned subsidiary ACA Muller ADAG Pharma Vertriebs GmbH (“ACA Muller”), the Company has a sales network of over 1,200 pharmacies within Germany. ACA Muller is licensed to import and distribute registered medical cannabis products to German pharmacies under the regulatory oversight of the Bundesinstitut für Arzneimittel und Medizinprodukte (The Federal Institute for Drugs and Medical Devices, “BfArM”). ACA Muller also has a radiation license for the import of a wider range of medical cannabis products compared to cannabis wholesalers without this license. In addition, through its wholly owned subsidiary Phatebo GmbH (“Phatebo”) that it acquired on December 31, 2021, the Company has further expanded its network in Germany. Phatebo is a licensed wholesale dealer of pharmaceutical products, medical devices and medical cannabis.

The address of Franchise’s registered office is Suite 1600, 100 King Street, Toronto, Ontario, Canada, M5X 1G5. The address of Franchise’s principal place of business is Suite 320, 440 West Hastings Street, Vancouver, British Columbia, V6B 1L1.

On June 24, 2021, Franchise entered into a letter of intent with Mercury Acquisitions Corp. (“Mercury”) to complete a going-public transaction for the Company as part of a reverse takeover of Mercury. On October 13, 2021, Franchise’s Board of Directors approved an amalgamation agreement (the “Amalgamation Agreement”) between Franchise, Mercury, and 2868303 Ontario Inc. (“Mercury Subco”), for a business combination by way of a “three-cornered” amalgamation in accordance with the provisions of the Business Corporations Act (Ontario) (the “Act”), pursuant to which Franchise would amalgamate with Mercury Subco (the “Amalgamation”) and Mercury would become the Company’s parent company.

On December 2, 2021, the Company received conditional approval from the TSX Venture Exchange (“TSXV”) for its Qualifying Transaction with Mercury. On March 9, 2022, the Company received final approval from the TSXV for the Qualifying Transaction.

The Amalgamation was completed on March 25, 2022, and Mercury was renamed Franchise Global Health Inc. (“Franchise Global”). On March 29, 2022, Franchise Global commenced trading on the TSXV under ticker symbol “FGH”. On April 18, 2022, the Company commenced trading on the Frankfurt Stock Exchange under ticker symbol “WV4A”.

2. BASIS OF PREPARATION

a) Statement of Compliance

The consolidated financial statements of the Company for the year ended December 31, 2021 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements were approved and authorized for issue by the Board of Directors of the Company on April 27, 2022.

These consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realization of assets and discharge of liabilities in the normal course of business.

8

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

The Company’s ability to continue as a going concern is dependent on achieving profitable operations through the sales of its product, the acquisition of profitable operations or management’s ability to raise the necessary funding through future equity issuances, debt issuances, asset sales or a combination thereof. There is no assurance that any necessary future financing will be sufficient to sustain operations until such time that the Company can generate sufficiently profitable operations to support its requirements. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern. Such adjustments could be material. While these consolidated financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and meet its obligations in the normal course of operations, there are conditions and events which constitute material uncertainties that may cast significant doubt on the validity of that assumption.

· as at December 31, 2021, the Company has an accumulated deficit of $96,285,313 (2020 - $78,893,366);

· the Company incurred a loss of $17,415,447 for the year ended December 31, 2021 (2020 - $13,099,245);

· the Company has net cash outflows from operating activities of $4,113,308 for the year ended December 31, 2021 (2020 - $4,049,555).

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. To date, COVID-19 has not had any material impact on the Company’s operations; however, it is possible that estimates in these financial statements may change in the near term as a result of COVID-19. The Company continues to caution that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impacts of the COVID-19 virus on the Company remain unknown, rapid spread of the COVID-19 virus may have a material adverse effect on global economic activity and can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.

b) Basis of Measurement

These consolidated financial statements have been prepared on a historical cost basis, except for financial instruments and investment properties that are stated at fair value.

The consolidated financial statements are presented in Canadian dollars and all values are rounded to the nearest dollar, unless otherwise indicated.

c) Functional and Presentation Currency

The Company’s reporting currency and Franchise’s functional currency is the Canadian dollar. Note 2(f) indicates the functional currency of each subsidiary.

Transactions undertaken in foreign currencies are translated into Canadian dollars at daily exchange rates prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies are translated at period-end exchange rates and non-monetary items are translated at historical exchange rates. Realized and unrealized foreign currency translation gains and losses are recognized in the consolidated statements of comprehensive loss.

The assets and liabilities of foreign operations are translated into Canadian dollars using the period-end exchange rates. Income, expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from the translation of foreign operations into Canadian dollars are recognized in other comprehensive loss and accumulated in shareholders’ equity.

Foreign currency gains and losses arising on translation of a monetary item receivable from or payable to a foreign operation for which settlement is neither planned, nor likely to occur in the foreseeable future are considered to form part of a net investment in the foreign operation. Such gains and losses are recognized in other comprehensive income (loss) and presented within shareholders’ equity in the foreign currency translation reserve.

9

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

d) Use of Estimates and Judgments

The preparation of these consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision, and further periods, if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have a significant effect on the consolidated financial statements and estimates with a significant risk of material adjustment in the current and following fiscal years are discussed in Note 4.

e) Subsidiaries

In addition to Franchise, the consolidated financial statements include its subsidiaries. Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date on which the Company acquires control. They are de- consolidated from the date that control by the Company ceases.

f) Consolidation

The subsidiaries of the Company are as follows:

	Ownership Interest at		Ownership Interest at
Name of Subsidiary	December 31, 2021		December 31, 2020		Functional Currency
Harmony Health One Inc. (“Harmony”)		100%		100%	Canadian Dollar
ACA Muller		100%		100%	Euro
Sativa Verwaltungs GmbH		100%		100%	Euro
Sativa Verwaltungs GmbH and Co. KG		100%		100%	Euro
CBD Med Therapeutics Inc.		100%		100%	Canadian Dollar
Adelnor S.A.		0%		0%	U.S. Dollar
Fayber Technologies Canada Inc.		100%		100%	Canadian Dollar
Catalunia SAS		100%		100%	Colombian Peso
Green CannaHealth SAS		100%		100%	Colombian Peso
Klokken Aarhus Inc.		100%		100%	Canadian Dollar
Rangers Pharmaceuticals A/S (“Rangers”)		100%		100%	Danish Krone
1200325 B.C. LTD. (“Botanist”)		100%		0%	Canadian Dollar
Phatebo		100%		0%	Euro

CBD Med Therapeutics Inc. has an option to acquire 100% of the outstanding common shares of Adelnor S.A., which forms the basis for the Company’s control of Adelnor S.A.

Assets, liabilities, revenues, and expenses of the subsidiaries are recognized in accordance with the Company’s accounting policies. Intercompany balances and transactions are eliminated on consolidation.

10

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies which have been applied consistently to all periods presented in the accompanying consolidated financial statements are set out below:

a) Foreign Currency Translation

In preparing the financial statements of individual entities, transactions in currencies other than the entity’s functional currency are recognized at exchange rates in effect on the date of the transactions. At each reporting date monetary assets and liabilities denominated in foreign currencies are re- translated at the exchange rates applicable at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Nonmonetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Realized and unrealized exchange gains and losses are recognized through net loss. For the purposes of presenting consolidated financial statements the assets and liabilities of foreign operations, are translated into Canadian dollars at the exchange rates applicable at the balance sheet date. 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 loss.

b) Cash and Cash Equivalents

Cash and short-term deposits in the statement of financial position comprise cash at banks and on hand and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

c) Receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment. Financial assets measured at amortized cost are assessed for impairment at the end of each reporting period. Impairment provisions are estimated using the expected credit loss impairment model where any expected future credit losses are provided for, irrespective of whether a loss event has occurred at the reporting date.

Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic conditions that affect default risk. Where applicable, the carrying amount of a trade receivable is reduced for any expected credit losses through the use of an allowance for doubtful accounts (“AFDA”) provision. Changes in the AFDA provision are recognized in the statement of comprehensive loss. When the Company determines that no recovery of the amount owing is possible, the amount is deemed irrecoverable and the financial asset is written off.

11

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

d) Inventory

Inventories consist of pharmaceuticals, medical devices, finished goods and cannabis seeds for sale. The Company values inventories at the lower of cost and net realizable value. Inventories include costs of purchases net of vendor allowances plus other costs, such as transportation, that non-are directly incurred to bring the inventories to their present location and condition. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories is determined using first in, first out basis.

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining market prices. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is apparent evidence of an increase in selling price then the amount of the write down previously recorded is reversed.

e) Property, Plant and Equipment   Recognition and Measurement

On initial recognition, plant and equipment are valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions.

Plant, plant and equipment are subsequently measured at cost less accumulated depreciation, less any accumulated impairment losses, with the exception of land, which is not depreciated.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (material components) of property, plant and equipment. Land is stated at cost.

Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its costs can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in the consolidated statement of loss and comprehensive loss as incurred.

Gains and Losses

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in the consolidated statement of loss and comprehensive loss.

Depreciation

Depreciation is recognized in the consolidated statement of comprehensive loss over the asset’s estimated useful life:

Growing, processing and operating equipment	10%-20% declining balance basis
Equipment	straight line basis over eight years
Building and improvements	10% declining balance basis

Depreciation commences when an asset becomes available for use.

Depreciation methods, estimated useful lives, and residual values are reviewed at each year-end and adjusted if appropriate. The effect of any change in estimate is accounted for on a prospective basis.

12

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

f) Investment Properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the Company has elected to use the fair value model where investment properties are measured at fair value.

Investment properties are derecognized either when they have been disposed of (i.e., at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition. In determining the amount of consideration from the derecognition of investment property the Company considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the buyer (if any).

g) Assets Held for Sale

Assets are classified as held for sale if their carrying amount will be recovered primarily through a sale as opposed to continued use by the Company. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs of disposal. Any impairment is recognized in net earnings. Depreciation ceases when an asset is classified as held for sale. Assets classified as held for sale are reported as current assets in the consolidated statements of financial position.

h) Marketable Securities

The Company’s investments in marketable securities, which consists of publicly traded securities and warrants have been classified and accounted as fair value through profit and loss. Unrealized gains and losses are recognized in the statement of comprehensive loss.

i) Business Combinations

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

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

In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to intangible assets. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree or a market-approach using a comparable transaction. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.

Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.

13

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

j) Intangible Assets

Intangible assets acquired in a business combination are recognized separately at their fair value at the date of acquisition. Intangible assets acquired separately are recognized at cost. Internally generated intangible assets arising from development projects are recognized when certain criteria related to the feasibility of internal use or sale, and probable future economic benefits of the intangible asset, are demonstrated.

Intangible assets with indefinite useful lives are not amortized. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss.

k) Goodwill

Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the CGU or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.

l) Impairment of intangible assets and goodwill

Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.

Goodwill and indefinite life intangible assets are tested annually at December 31 for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment.

An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds it recoverable amount. The recoverable amounts of the CGUs’ assets have been determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified.

A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in a prior period. Impairment losses on goodwill are not subsequently reversed.

m) Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company applies a single recognition and measurement approach for all leases, except for short- term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

14

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

i) Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right- of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment.

ii) Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

iii) Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short- term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

n) Loans and Borrowings

Loans and borrowings are classified as other financial liabilities and are measured at fair value at initial recognition and subsequently at amortized cost. Transactions costs are deferred and amortized over the term of the liability.

o) Revenue

The Company generates revenue primarily from the wholesale and retail of cannabis and cannabis related products. The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:

1. Identify the contract with a customer;

2. Identify the performance obligation(s) in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligation(s) in the contract; and

5. Recognize revenue when or as the Company satisfies the performance obligation(s).

15

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

Revenue from the sale of cannabis is generally recognized when control over the goods has been transferred to the customers which is at the time of delivery. Payments for wholesale transactions are due within a specified time period as permitted by the underlying agreement and the Company’s credit policy upon the transfer of goods to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

The Company’s non-cannabis revenue is comprised of resales of medical devices, and pharmaceutical products to pharmacies in Germany. The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is ready for shipment to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Sales of products are for cash or otherwise agreed-upon credit terms. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data.

Revenue for the year is comprised fully of cannabis-related products.

p) Financial Instruments

Financial assets are classified and measured either at amortized cost or fair value through profit or loss (“FVTPL”) or fair value through other comprehensive income (“FVOCI”) based on the business model in which they are held and the characteristics of their contractual cash flows.

All financial assets not classified at amortized cost or FVOCI are measured at FVTPL. On initial recognition, the Company can irrevocably designate a financial asset at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:

· It is held within a business model whose objective is to hold the financial asset to collect the contractual cash flows associated with the financial asset instead of selling the financial asset for a profit or loss; and

· Its contractual terms give rise to cash flows that are solely payments of principal and interest.

All financial instruments are initially recognized at fair value on the consolidated statements of financial position. Subsequent measurement of financial instruments is based on their classification. Financial assets and liabilities classified at FVTPL are measured at fair value with changes in those fair values recognized in the consolidated statements of comprehensive loss for the period. Financial assets and liabilities classified at amortized cost are measured using the effective interest method.

The following table summarizes the classification and measurement changes under IFRS 9 for each financial instrument:

Financial Instrument	Classification
Cash and cash equivalents	FVTPL
Marketable securities	FVTPL
Receivables	Amortized Cost
Loan receivable	Amortized Cost
Acquisition deposits	Amortized Cost
Bank indebtedness	Amortized Cost
Accounts payable and accrued liabilities	Amortized Cost
Loans payable	Amortized Cost

16

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

For trade receivables, the Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECL”) based on lifetime expected credit losses taking into considerations historical credit loss experience and financial factors specific to the debtors and general economic conditions.

ECL impairment model

IFRS 9 ‘Financial Instruments’ introduced a single ECL impairment model, which is based on changes in credit quality since initial application.

· A maximum 12-month allowance for ECL is recognized from initial recognition reflecting the portion of lifetime cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default occurring.

· A lifetime ECL allowance is recognized if a significant increase in credit risk is detected after the instruments’ initial recognition reflecting lifetime cash shortfalls that would result over the expected life of a financial instrument.

· A lifetime ECL allowance is recognized for credit impaired financial instruments.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Company in full or when the financial asset is more than 90 days past due.

The carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts.

Fair value hierarchy

The determination of fair value requires judgment and is based on market information, where available and appropriate. The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

· Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

· Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

q) Share-Based Payments

Share-based payments to employees and others providing similar services are measured at the estimated fair value of the instruments issued on the grant date and amortized over the vesting period. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued if it is determined the fair value of the goods or services cannot be reliably measured and are recorded at the date the goods or services are received. The offset to the recorded cost is to equity reserve.

Consideration received on the exercise of stock options is recorded as share capital and the related equity reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from equity reserve.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

r) Share Capital

Share capital represents the amount received in exchange for the issuance of shares. Shares issued for goods and services are recorded for the fair value of the goods or services.

Costs directly identifiable with the raising of share capital financing are charged against share capital.

s) Loss Per Share

Basic loss per share is computed by dividing the net loss available to common shareholders of the Company by the weighted average number of common shares outstanding during the reporting period.

Diluted loss per share is computed similar to basic loss per share, except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and share purchase warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting period.

t) Income Taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income, except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive loss.

Current taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss of the current year and any adjustment to income taxes payable in respect of previous years. Current taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable income or loss.

Recognition of deferred tax assets of unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be realized.

u) Related Party Transactions

The Company considers a person or entity as a related party if such party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. The Company considers a person or entity as a related party if they are a member of key management personnel including a close member of that person’s family. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

v) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Company’s Chief Executive Officer (“CEO”). The CEO, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the person who makes strategic decisions as the chief operating decision maker. The Company’s operations are limited to a single reportable segment, being pharmaceutical distribution, including medicinal cannabis and cannabis seeds.

w) Recent Accounting Pronouncements

The Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2021 (unless otherwise stated). The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedients:

· A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest

· Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued

· Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component

These amendments had no impact on the consolidated financial statements of the Company. The Company intends to use the practical expedients in future periods if they become applicable.

COVID-19-Related Rent Concessions beyond June 30, 2021 - Amendments to IFRS 16

On May 28, 2020, the IASB issued COVID-19-Related Rent Concessions - amendment to IFRS 16 Leases The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the COVID-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.

The amendment was intended to apply until June 30, 2021, but as the impact of the COVID-19 pandemic is continuing, on March 31, 2021, the IASB extended the period of application of the practical expedient to June 30, 2022.The amendment applies to annual reporting periods beginning on or after April 1, 2021. However, the Company has not received COVID-19-related rent concessions but plans to apply the practical expedient if it becomes applicable within the allowed period of application.

Amendments to IAS 37 - Provisions, Contingent Liabilities, and Contingent Assets

In May 2020, the IASB issued amendments to clarify the costs that a company should include as the cost of fulfilling a contract when assessment is made as to whether a contract is onerous. The amendment is effective January 1, 2022, with early adoption permitted. The Company has not early adopted these amendments and does not expect these amendments to have a material impact on the Company.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive loss in the period of the change, if the change affects that period only; in the period of the change and future periods, if the change affects both. Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustments to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below.

Going Concern

Management has applied judgments in the assessment of the Company’s ability to continue as a going concern when preparing its consolidated financial statements. Management prepares the consolidated financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. Management considered a wide range of factors relating to current and expected profitability, expansion plans, ability to liquidate investments, and potential sources of financing, including access to a line of credit. As a result of the assessment, management concluded the going concern basis of accounting is appropriate.

Business Acquisitions

In a business acquisition, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the acquisition date at their respective fair values. The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration, acquires the assets and assumes the liabilities of the acquiree – the closing date. However, the acquirer might obtain control on a date that is either earlier or later than the closing date. Management exercises judgment in considering all pertinent facts and circumstances in identifying the acquisition date.

The Company examines three elements to determine whether control exists. When all of these three elements of control are present, then an investor is considered to control an investee and consolidation is required. When one or more of the elements is not present, an investor will not consolidate but instead be required to determine the nature of its relationship with the investee. The Company exercises its judgment when determining control over an investee, in when it has all of the following attributes: power over the investee, such as the ability to direct relevant activities of the investee; exposure, or rights, to variable returns from its involvement with the investee, such as returns that are not fixed and have the potential to vary with performance of the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns, such as identifying the link between power and returns.

20

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

Classification of an acquisition as a business combination or an asset acquisition depends on whether the assets acquired constitute a business, which can be a complex judgment. Whether an acquisition is classified as a business combination or an asset acquisition can have a significant impact on the entries made at and after acquisition. In determining the fair value of all identifiable assets, liabilities and contingent liabilities acquired, the most significant estimates relate to contingent consideration and intangible assets. For any intangible asset identified, depending on the type of intangible asset and the complexity of determining its fair value, an independent valuation expert or management may develop the fair value, using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows. The evaluations are linked closely to the assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied. Purchase consideration also includes consideration of any pre-existing relationships that are effectively settled as a result of the acquisition at their fair values.

The Company acquired Phatebo on December 31, 2021 (Note 5(a)). The Company determined that this acquisition satisfied the criteria outlined in IFRS 3 and therefore recorded the acquisition as a business combination.

The Company acquired Botanist on November 15, 2021 (Note 5(b)). It estimated that the majority of the fair value of the assets made up substantially all the value of the consideration paid. The Company determined that this value satisfied the Concentration Test (IFRS 3.B7B) resulting in the Company recording the acquisition of Botanist as an asset acquisition rather than a business combination.

Income and Other Taxes

Estimates are required in calculating current and deferred taxes. In performing these calculations, Management needs to make judgements regarding tax rules in jurisdictions where the Company performs activities. Application of judgments is required regarding the classification of transactions and in the assessing probable outcomes of claimed deductions including expectations about future operating results and the timing and reversal of temporary differences.

Impairment of Goodwill and Intangible Assets

The Company performs an annual impairment test for goodwill and intangible assets at the end of each year. In determining impairment, the Company considers internal sources of information, such as the historical and expected financial performance of the intangible assets. If impairment exists, the asset’s recoverable amount is estimated. If the carrying amount exceeds the recoverable amount (on a discounted basis), the asset value is written down to the recoverable amount.

Determination of CGUs

CGUs are defined as the lowest level of integrated assets for which there are separately identifiable cash flows that are largely independent of cash flows from other assets or groups of assets. The classification of assets and the allocation of assets into respective CGUs require significant judgment, assumption and interpretations. Areas of judgement in the classification process, include the manner in which management reviews and makes decisions about its operations. The recoverability of assets are assessed at the CGU level and therefore could have a significant impact on impairment losses.

Incremental Borrowing Rate

In the situation where the implicit interest rate in the lease is not readily determined, the Company uses judgment to estimate the incremental borrowing rate for discounting the lease payments. The Company’s incremental borrowing rate generally reflects the interest rate that the Company would have to pay to borrow a similar amount at a similar term and with a similar security.

Share-based Payments

The fair value of stock options is calculated using the Black-Scholes option pricing model. When determining the fair value of stock options, management is required to make certain assumptions and estimates related to expected lives, volatility, risk-free rate, future dividend yields and estimated forfeitures at the initial grant date.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

5. ACQUISITIONS

a) Acquisition of Phatebo GmbH

On August 7, 2019, the Company signed an initial term sheet to acquire 100% of the shares of Phatebo. On October 25, 2019, the Company paid a non-refundable deposit of €500,000 ($724,150).

On December 29, 2020, Franchise entered into a share purchase agreement to acquire 100% of the issued and outstanding common shares of Phatebo. The purchase price was set at €8 million and $5.0 million, which was to be paid over two tranches, as follows:

· First tranche due and payable on December 29, 2020 (purchase effective date) and consisting of €3.5 million as a cash payment and $5.0 million in form of Franchise shares (3,846,154 of FCC Shares each at an agreed price of $1.30 per share). This payment was made in January 2021.

· Second tranche due and payable on closing and consists of€4.5 million. This payment was made on December 31, 2021.

As a result of changes in foreign exchange rates and the value of the Company’s shares between the payment dates and the acquisition date, the purchase consideration was revaluated and resulted in a gain of $1,923,077 on the share consideration and $431,952 foreign exchange loss on the cash consideration. Both amounts are included in other income (Note 25).

Consideration
€8,000,000 cash and $5,000,000 in shares paid over two tranches	$	18,435,877
	$	18,435,877
Net assets of Phatebo
Cash and cash equivalents	$	387,742
Inventory		1,489,149
Amounts receivable		2,898,929
VAT and current tax receivable		1,001,320
Investment in marketable securities		25,343
Property, plant & equipment		561,725
ROU asset		210,837
Intangible assets		13,104,302
Goodwill		6,478,272
Bank indebtedness		(753,072	)
Accounts payable		(959,886	)
Loans payable		(2,158,649	)
Lease liability		(222,879	)
Deferred income tax liability		(3,627,256	)
	$	18,435,877

The value of the indefinite life intangible assets at the date of acquisition was determined using a market approach using Level 2 inputs based on a comparable transaction. Goodwill arising from the acquisition represents expected synergies and future growth.

For the year ended December 31, 2021, Phatebo accounted for no revenues or net loss for the Company. If the acquisition had been completed on January 1, 2021, the Company estimates that Phatebo would have contributed $57,815,713 revenues and $365,646 to the Company’s net income for the year ended December 31, 2021.

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

b) Acquisition of Botanist

On February 18th, 2021, Franchise signed a definitive sale and purchase agreement with the shareholders of Botanist, the parent company of the Botanist Assets which include a conditionally approved retail license application upon completion of construction blueprints of a leased 3,500 retail space in Winnipeg, Manitoba. The purchase consideration was the issuance of 5,126,620 common shares of Franchise having a deemed price of $9,227,912. The Botanist acquisition closed on November 12, 2021.

Consideration
Franchise common shares ($1.80 X 5,126,618 shares)	$	9,227,912
	$	9,227,912
Net assets of Botanist
Amounts receivable		51,305
Prepaid expense		9,524
Property, plant & equipment		64,678
ROU asset		208,719
Cannabis retail license		4,200,000
Accounts payable		(35,112	)
Due to related parties		(257,231	)
Lease liability		(236,962	)
	$	4,004,921
Premium paid on acquisition	$	5,222,991

For the year ended December 31, 2021, Botanist accounted for no revenues and $9,222,991 in net loss. If the acquisition had been completed on January 1, 2021, the Company estimates that Botanist would have contributed no revenues and $10,580,935 to net loss for the full year ended December 31, 2021.

6. RECEIVABLES

	December 31,		December 31,
	2021		2020
Trade receivables		2,940,946		115,358
Value-Added Tax (“VAT”)		1,338,796		79,962
Goods & Services Tax (“GST”) receivables		101,898		56,144
Total	$	4,381,640	$	251,464

The Company assesses the risk of collectability of accounts receivable on a regular basis. Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in, and forecasts of, future economic conditions that affect default risk. Where applicable, the carrying amount of receivables is reduced for any expected credit losses through the use of an allowance for credit loss provision. The allowance for credit loss reflects the Company’s best estimate of probable losses inherent in the trade receivables accounts. As at December 31, 2021 and December 31, 2020 the expected credit losses amount assessed to be trivial.

For the year ended December 31, 2021, the Company recognized bad debts expense on its receivables amounting to $10,269 (2020 – Nil) (Note 25).

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

As at December 31, 2021, the Company has a receivable of $898,905 (December 31, 2020 - $602,247) from the former shareholder of ACA Muller for expenses incurred prior and subsequent to the Company’s acquisition of ACA Muller. On April 27, 2021, the former shareholder agreed to pay for additional expenses related to tax audits and other expenses incurred subsequent to acquisition. Net of foreign exchange, this increase is $339,526 and is included in other income (Note 25). The Company has the right to offset this receivable against the payment of the third tranche (see Note 16).

7. PREPAID EXPENSES AND DEPOSITS

	December 31,		December 31,
	2021		2020
Prepaid expenses		113,227		868,184
Equipment deposits		–		895,598
Total		113,227		1,763,782
Less: non-current portion		–		(895,598	)
Current portion	$	113,227	$	868,184

For the year ended December 31, 2021, the Company recognized impairment loss on equipment deposit amounting to $1,637,018 (2020 - $0).

8. INVENTORY

	December 31,		December 31,
	2021		2020
Purchased finished goods		1,543,500		146,360
Cannabis seeds		9,526,015		9,526,015
Inventory	$	11,069,515	$	9,672,375

For the year ended December 31, 2021, the Company charged $908,118 (2020 - $1,154,265) of inventory related amounts to cost of sales. Included in the cost of sales for the year ended December 31, 2021 is an impairment loss on its inventories amounting to $89,652.

9. MARKETABLE SECURITIES

Balance at 31 December 2019	$	-
Additions during the year		800,000
Adjustment to fair value		(85,656	)
Balance at 31 December 2020		714,344
Additions during the year (i)		519,200
Share compensation for merger termination (ii)		275,000
Additions from acquisition (Note 5 (a))		25,343
Adjustment to fair value (i,ii)		(1,072,677	)
Balance at 31 December 2021	$	461,210

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

The marketable securities are primarily comprised of listed equity investments and warrants.

(i)	On August 11, 2021, Franchise signed a strategic partnership agreement with Eve & Co Inc. (“Eve”) whereby Eve would provide up to 500,000 square feet of the 1,000,000 square foot cultivation area as well as portions of its EU GMP certified processing area located on site in Strathroy, Ontario, for the Company’s use. As part of the agreement, Franchise subscribed to $500,000 in Units of Eve, consisting of 2,777,778 shares and 1,388,889 warrants. Franchise committed to monthly payments of $125,000 beginning November 2021 for a period of 12 months with an option for Franchise to extend for an additional 24 months. Through the arrangement, Franchise is also required to pay for 50% of the facility’s hydro, natural gas, product liability insurance and such other costs. The final terms of the arrangement are under negotiation and are expected to be finalized in 2022.
	As at December 31, 2021, the fair value of the Company’s investment in Units of Eve was $416,667, comprising of $333,333 in shares and $83,333 in warrants, and resulting in a loss of $83,333 for the year included in fair value adjustment on marketable securities as part of other expenses (Note 25). On March 25, 2022, Eve filed for protection under the Companies’ Creditors Arrangement (“CCAA”). The outcome of Eve’s CCAA filings remains uncertain and there is no assurance the Company would be able to recover any value from its investment in Eve or successfully finalize the terms of the arrangement under negotiation.
(ii)	On July 21, 2020, the Company entered into a joint venture agreement with Mota Ventures Corp. (“Mota”), whereby the Company and Mota would be the sole shareholders of a Croation company in order to sell and market CBD products in the European Union. Mota subsequently changed its name to Thoughtful Brands Inc. (“TBI”). As part of the agreement, the Company paid $500,000 on September 14, 2020 in subscription of 2,500,000 units (250,000 post-consolidation) of TBI consisting of one common share and one purchase warrant (the “Units”). For the purpose of fair value determination, the Units were segregated into common shares and purchase warrants. The common shares were valued using the applicable closing price of TBI – a level 1 financial instrument, and the warrants were valued using an option-pricing model – a level 2 financial instrument.
	On January 7, 2021, TBI and the Company announced their intention to merge. On March 8, 2021, the merger and the Joint Venture were terminated. As part of the termination, TBI agreed to pay the Company a total of $450,000 in cash and issue the Company 5,000,000 TBI shares (500,000 post consolidation) valued at $275,000. Total proceeds from the termination of the merger to the Company amounted to $725,000, which was recognized in settlement due to merger termination as part of other expenses (Note 25). As at December 31, 2021, the Company holds 1,714,835 in shares and 250,000 in warrants of TBI with a fair value of nil, resulting in a loss of $989,344 for the year included in fair value adjustment on marketable securities as part of other expenses (Note 25).

The following table summarizes the composition of marketable securities:

Interest in entity as at December 31, 2020	Status	Common shares		Common share warrants		Value ($)
TBI (Note 9(ii))	Public on CSE		1,214,184		250,000	$	714,344
Total			1,214,184		250,000	$	714,344

Interest in entity as at December 31, 2021	Status	Common shares		Common share warrants		Value ($)
Eve & Co (Note 9(i))	Public on TSXV		2,777,778		1,388,889	$	442,010
TBI (Note 9(ii))	Public on CSE		1,714,835		250,000	Nil
Southern Harvest Health Corporation	Private		960,000	Nil			19,200
Total			5,452,613		1,638,889	$	461,210

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

10. ACQUISITION DEPOSITS

Deposits include non-refundable deposits required for acquisitions of other companies, as follows:

	December 31,		December 31,
	2021		2020
Satica Medical (SVG) Ltd. (“Satica”)		531,900		531,900
Phatebo		–		2,226,302
	$	531,900	$	2,758,202

In September 2019, the Company paid a deposit in the amount of $531,900 to Satica, a St. Vincent company, with the intention of entering into a joint venture agreement to develop a cannabis cultivation operation. The deposit is secured by a lien on land in St. Vincent. The joint venture agreement has yet to be finalized. The deposit is refundable if the joint venture is not formed.

11. LOAN RECEIVABLE

On December 14, 2020, the Company entered into a loan agreement with Canx CBD Processing Corp. (“Canx”) in which the Company loaned Canx $US 250,000 (the “Loan”) under the following terms:

· The Loan is non-revolving and non-interest bearing;

· The Loan became payable and due on the earlier of either: (a) December 31, 2021; (b) Canx going public in which the Loan would convert to the shares of Canx at a 20% discount to the go-public valuation;

· Repayment of the entire Loan is to be made in full at the end of the term. No partial repayments are required during the term of the loan. However, Canx may repay any part or parts of the principal sum outstanding at any time or times, without penalty.

The Company has accounted for the Loan as a financial instrument under IFRS 9 at amortized cost. Due to non-payment and uncertainty pertaining to the financial position of Canx, the Company impaired the full value of the loan, resulting in an impairment loss of $324,700 recorded as part of other expenses (Note 25).

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

12. PLANT AND EQUIPMENT

	Grow and lab equipment		Operating & transport equipment		Office equipment			Building & improvements		Land		Total
Cost at:
January 1, 2020		418,448		–		150,238			273,430		–		842,116
Additions		–		–		10,747			31,453		–		42,200
Change in foreign exchange rates		–		–		(571	)		–		–		(571	)
December 31, 2020		418,448		–		160,414			304,883		–		883,745
Accumulated depreciation at:
January 1, 2020		193,746		–		7,509			1,199		–		202,454
Additions		44,939		–		30,166			13,511		–		88,616
Change in foreign exchange rates		–		–		24,474			–		–		24,474
December 31, 2020		238,685		–		62,149			14,710		–		315,544
Cost at:
January 1, 2021		418,448		–		160,414			304,883		–		883,745
Additions		–		99,114		42,435			113,410		371,445		626,404
Change in foreign exchange rates		–		–		6,572			–		–		6,572
December 31, 2021		418,448		99,114		209,421			418,293		371,445		1,516,721
Accumulated depreciation at:
January 1, 2021		238,685		–		62,149			14,710		–		315,544
Additions		61,303		–		30,010			29,018		–		120,331
Change in foreign exchange rates		–		–		1,515			–		–		1,515
December 31, 2021		299,988		–		93,674			43,728		–		437,390
Net book value at:
December 31, 2020		179,763		–		98,265			290,173		–		568,201
December 31, 2021		118,460		99,114		115,747			374,565		371,445		1,079,331

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

13. RIGHT OF USE ASSETS

The lease liability was measured at the present value of the remaining lease payments, discounted using incremental borrowing rates on that date ranging from 4% - 15%, depending on the jurisdiction. The Company recorded right of use assets of the same amount which relates to its long-term warehouse and land leases in Germany and Colombia. Depreciation of the right of use assets is calculated using the straight-line method over the remaining lease term.

Right-of-use assets:
Balance on December 31, 2019	$	278,964
Depreciation		(102,694	)
Change in foreign exchange rates		6,411
Balance - December 31, 2020	$	182,681
Lease Liability:
Balance on December 31, 2019	$	285,555
Lease payments		(115,128	)
Finance expense		23,196
Change in foreign exchange rates		6,533
Balance - December 31, 2020	$	200,157
Current lease liability	$	115,341
Non-current lease liability		84,816
Total	$	200,157
Undiscounted lease payments – as at December 31, 2020:

Short-term portion of the lease (<1 Year)	$	123,462
Long-term portion of the lease (>1 Year)		84,373
Total	$	207,835
Right-of-use assets:
Balance on Jan 1, 2021	$	182,681
Additions from acquisitions		419,556
Depreciation		(97,400	)
Change in foreign exchange rates		(8,202	)
Balance - December 31, 2021	$	496,635

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Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

Lease Liability:
Balance on Jan 1, 2021	$	200,157
Additions from acquisition		459,841
Lease payments		(118,540	)
Finance expense		11,698
Change in foreign exchange rates		(8,447	)
Balance - December 31, 2021	$	544,709
Current lease liability included in lease	$	250,465
Non-current lease liability included in long-term lease		294,244
Total	$	544,709
Undiscounted lease payments – as at December 31, 2021:
Short-term portion of the lease (<1 Year)	$	265,111
Long-term portion of the lease (>1 Year)		427,609
Total	$	692,720

14. ASSET HELD FOR SALE

Opening Balance - December 31, 2020	$	–
Transfer from investment properties		424,201
Disposition		(424,201	)
Closing Balance – December 31, 2021	$	–

The asset held for sale were related to a commercial property in Delitzsch, Germany. The Company has determined that this asset is not essential to the Company’s operations and set forth the intension for its disposition. During the year ended December 31, 2021, this property was sold for $433,894.

15. INTANGIBLE ASSETS AND GOODWILL

The Company acquired the following intangibles, which have a value of $19,610,768 at December 31, 2021 (December 31, 2020 - $nil).

a) Phatebo

The intangible assets in Phatebo relate to intangible assets for the sale of wholesale pharmaceutical products, medical devices and medical cannabis in Germany.

	December 31, 2020		Initial Recognition		Impairment		December 31, 2021
Phatebo – Intangible assets	$	–	$	13,104,302	$	–	$	13,104,302
Phatebo – Goodwill		–		6,478,272		–		6,478,272
	$	–	$	19,582,574	$	–	$	19,582,574

29

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

b) Botanist

The intangible assets in Botanist related to a cannabis retail license, the value of which was determined in reference to a comparable transaction at acquisition date. As at December 31, 2021, the Company does not have plans to pursue this intangible asset commercially has therefore impaired the intangible asset fully.

	December 31, 2020		Initial Recognition		Impairment (Note 25)			December 31, 2021
Botanist – Cannabis retail license	$	–	$	4,200,000	$	(4,200,000	)	$	–
	$	–	$	4,200,000	$	(4,200,000	)	$	–

The Company also had the following intangible assets in prior years:

a) Fayber

The intangible assets in Fayber relate to psychoactive and non-psychoactive cannabis cultivation licenses and a cannabis derivative extraction license held by GreenCanna Health in Colombia

b) ACA Muller

The intangible assets in ACA Muller relate to the following licenses:

· Narcotics License, allowing for the import and distribution of prescription narcotics including cannabis,

· Wholesale Dealer License, allowing for the distribution of healthcare products to pharmacies

	December 31,					December 31,
	2019		Impairment			2020
ACA Muller- Intangible assets	$	5,633,102		(5,633,102	)	$	–
Fayber- Intangible assets		6,835,014		(6,835,014	)		–
	$	12,468,116		(12,468,116	)	$	–

As at December 31, 2020, the Company performed its annual impairment test on its indefinite life intangible assets. The recoverable amount of the CGUs to which intangibles relate was determined using a Fair Value Less Cost to Dispose approach using Level 3 inputs based on an estimate of costs incurred to replace the intangible assets. This resulted in the values for the intangible assets to be impaired to $Nil as at December 31, 2020.

30

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

16.  ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	December 31,		December 31,
	2021		2020
Accounts payable and accrued liabilities	$	4,029,063	$	1,279,639
Provision for share cancellation liability (Note 18(b)(v))		2,250,000		–
Accrued liability for third tranche of ACA acquisition		4,564,080		4,583,520
Accrued liability of option exercise fee for seed inventory		100,000		100,000
VAT taxes payable		–		10,962
Total	$	10,943,143	$	5,974,121

17. LOANS PAYABLE

€750,000 bank loan

The Company through Phatebo has a credit facility for €2,000,000 with Volksbank, secured by personal guaranties of the shareholders and by trade and other receivables of Phatebo. €750,000 or $1,079,325 is outstanding as at December 31, 2021. The loan is due on March 30, 2022 at a rate of Euribor plus 2.24% per annum.

€750,000 bank loan

The Company through Phatebo has a €1,000,000 credit facility agreement with Hypovereinsbank, secured by personal guaranties of the shareholders and by trade and other receivables of Phatebo. €750,000 or

$1,079,325 is outstanding as at December 31, 2021 at a rate of Euribor plus 1.65% per annum. The loan is due March 15, 2022.

18. SHARE CAPITAL

a) Authorized

An unlimited number of common shares without par value.

b) Issued

During the year ended December 31, 2021, the following share capital transactions occurred:

(i)	The Company issued 392,351 common shares valued at $529,500 for services to various consultants.
(ii)	The Company issued 3,846,154 common shares valued at $5,000,000 in conjunction with the Phatebo acquisition.
(iii)	The Company issued 5,126,618 common shares valued at $9,227,912 in conjunction with the Botanist acquisition.
(iv)	The Company issued 7,796,998 common shares valued at $14,034,597 as part of a series of non- brokered private placements for common shares and subscription receipts. In conjunction with the receipt of conditional approval from TSXV on December 6, 2021, the subscription receipts were converted to common shares of the Company.

31

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

The following table summarizes the Company’s fundraising in 2021:

	Number		Proceeds ($)
Private placement of common shares – March 4		111,111		200,000
Private placement of common shares – April 19		277,778		500,000
Private placement of common shares – July 1		555,560		1,000,008
Private placement of common shares – September 23		505,776		910,397
Private placement of common shares – September 28		38,889		70,000
Private placement of common shares – October 1		33,677		60,619
Conversion of subscription receipts – December 13		6,274,207		11,293,573
		7,796,998		14,034,597

(v) The Company cancelled 1,268,078 common shares valued at $1,273,500.

During the year the Company determined that 1,250,000 shares previously recorded as being issued to a former consultant should be retracted, as management believed that the pre-conditions set out in the applicable consulting agreement pursuant to which such shares were issuable had not been met, and therefore the shares were not fully-paid as required by applicable law. As a result of this determination, the 1,250,000 shares previously recorded as being issued were canceled by the Company. While management of the Company believes that the Company’s position is correct, at this time it is not possible to conclude that, more likely than not, the Company would prevail in the event of a legal claim. As a result, as at December 31, 2021, and without acknowledgement (explicitly or implicitly) of any amount or liability arising from such share cancellation, the Company recognized a provision for $2,250,000 to reflect the fair value of the shares cancelled. To date, the former consultant has not initiated or threatened a claim against the Company with regard to this matter; however, if any such claim were to be initiated, the Company intends to vigorously defend itself through appropriate legal proceedings. In addition, 18,078 shares value at $23,500 were cancelled as the pre-conditions set out in the applicable consulting agreement pursuant to which such shares were issuable had not been met.

During the year ended December 31, 2020, the following share capital transactions occurred:

(vi) The Company issued 172,040 common shares valued at $1.30 per share in settlement of debt to various consultants.

c) Stock Options

	Outstanding		Weighted Average Exercise Price		Exercisable		Expiry
Balance, December 31, 2020		1,667,181	$	1.00		1,108,455	May 30, 2024
Balance, December 31, 2021		1,667,181	$	1.00		1,667,181	May 30, 2024

In 2021, the Company expensed $167,854 (2020 - $288,079) as a result of vesting.

32

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

19. RELATED PARTY TRANSACTIONS AND BALANCES

a) Key Management Personnel

Compensation to key management, which consists of executives and directors, for the years ended December 31, 2021 and 2020 was as follows:

	Year Ended		Year Ended
	December 31, 2021		December 31, 2020
Key management compensation settled in cash	$	306,088	$	364,874
Share based compensation		167,854		189,767
Key management compensation settled in shares		529,500		19,001
	$	1,003,442	$	573,642

Key management compensation settled in cash consists of consulting fees of $232,108 (2020- $364,874) and selling, general and administrative expenses of $73,980 (2020- $nil)

b) Due to Related Parties

Amounts due to related parties as at December 31, 2021 and 2020 were as follows:

	December 31, 2021		December 31, 2020
Amounts due to directors and officers of the Company for consulting fees, finder's fees, equipment, and expenses (included in accounts payable and accruals)	$	583,856	$	531,962

c) Other Related Party Transactions

Other transactions with related parties for the year ended December 31, 2021 and 2020 were as follows:

	Year Ended December 31,		Year Ended December 31,
	2021		2020
Rent expense incurred with a relative of a director included within premises expense	$	43,050	$	43,050
Other rent incurred with key management personnel		11,863		–
Transactions with entity controlled by a director and member of key management		75,428		241,520
	$	130,341	$	284,570

Refer to Note 23 for commitments and contingencies pertaining to related parties.

33

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

20. INCOME TAXES

a) Rate Reconciliation

A reconciliation of income taxes at Canadian statutory rates of 26.5% with the reported taxes for the years ended December 31, 2021 and 2020 is as follows:

	Year Ended December 31, 2021			Year Ended December 31, 2020
Loss before income taxes	$	(17,415,447	)	$	(14,919,523	)
Expected income tax recovery	$	(4,615,093	)	$	(3,953,674	)
Goodwill and intangible asset impairment		2,497,093			1,811,279
Items not deductible for income taxes		222,289			101,422
Items not taxable for income taxes		(602,365	)		-
Change in deferred income tax asset valuation allowance		2,516,269			440,264
Difference in statutory tax rate		(18,193	)		(219,569	)
	$	–		$	(1,820,278	)
Current income tax recovery	$	–		$	(39,852	)
Deferred income tax recovery		–			(1,780,426	)
Total income tax recovery	$	–		$	(1,820,278	)

b)  Deferred tax assets (liabilities)

	December 31,			December 31,
	2021			2020
Plant and equipment	$	170,130		$	167,203
Prepaid expenses and deposits		376,484			31,413
Marketable securities		329,328			22,776
Provision for share cancellation		596,250			-
ROU asset		(133,046	)		(44,516	)
Lease liability		152,322			49,619
Financing costs		57,019			96,578
Intangible assets - Phatebo		(3,627,256	)		-
Non-capital losses – Canada		3,016,209			1,930,601
Non-capital losses – Germany		75,050			13,295
Non-capital losses – Colombia		342,642			277,569
Non-capital losses – Denmark		157,007			78,589
		1,512,139			2,623,127
Less: Valuation allowance		(5,139,395	)		(2,623,127	)
Deferred tax liability - Phatebo	$	(3,627,256	)	$	–

Deferred tax benefits that may arise in respect of the Company’s deductible temporary differences have not been recognized as it is not considered probable that sufficient future taxable profit will be realized.

34

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

c) Losses Carried Forwards

The Company has available non-capital losses that may be carried forward to apply against future years’ taxable income. The non-capital tax losses expire as follows:

Year of Expiry	Canada		Germany		Colombia		Denmark		Total
2038	$	668,944	$	-	$	-	$	-	$	668,944
2039		5,268,041		-		-		-		5,268,041
2040		1,276,657		-		-		-		1,176,657
2041		5,159,347		-		-		-		5,159,347
No expiry		-		196,384		1,038,310		713,668		1,948,362
Total	$	12,372,989	$	196,384	$	1,038,310	$	713,668	$	14,221,351

d) Current Income Taxes Payable

	December 31, 2021		December 31, 2020
Current income taxes payable - Germany	$	–	$	87,006
Total	$	–	$	87,006

21. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain a flexible capital structure that optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and makes adjustments, based on the funds available to the Company, in order to support its business activities and to safeguard the Company’s ability to continue as a going concern. The capital structure of the Company consists of components of equity attributable to common shareholders’ equity as follows:

	December 31,		December 31,
	2021		2020
Shareholders’ equity	$	25,073,203	$	14,844,843
	$	25,073,203	$	14,844,843

The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain the future development of the business.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

The Company’s investment policy is to invest its excess cash in low risk, highly liquid short-term interest- bearing investments, selected with regard to the expected timing of upcoming expenditures. The Company will raise additional funds to carry its operations through its upcoming operating period and to satisfy its obligations.

35

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

22. FINANCIAL INSTRUMENTS

Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The carrying values of these instruments approximate their fair values due to their short term to maturity.

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

(i)	Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. The Company classifies cash and cash equivalents, and marketable securities consisting of publicly traded shares at a value of $333,000 as level 1.
(ii)	Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly. The Company classifies warrants with a value of $127,876 as level 2.
(iii)	Level 3 – Inputs that are not based on observable market data.

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

a) Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments which subject the Company to credit risk consist of cash and cash equivalents of $4,485,096 (2020 - $3,737,767), $2,940,946 of trade receivables classified as receivable (2020 - $115,358), $461,210 of marketable securities (2020 – $714,344), nil of loan receivable (2020 – $324,700), $531,900 of deposits classified as acquisition deposits (2020 - $2,758,202), These accounts represent the Company’s maximum credit risk.

The Company's policy is to invest excess cash in investment-grade short-term, redeemable investment certificates issued by Canadian chartered banks. Management believes the risk of financial loss from cash held in its bank accounts and in guaranteed investment certificates, both are held with a Canadian chartered bank, to be remote. The Company has estimated that ECLs not to be significant on receivables.

b) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations associated with its financial liabilities as they fall due. The Company’s objective is to ensure that there are sufficient committed financial resources to meet its short-term business requirements for a minimum of twelve months. The Company has cash and cash equivalents $4,485,096 (2020 - $3,737,767), current liabilities of $14,105,330 (2020 - $6,176,468) and current net assets of $7,304,263 (2020 - $10,105,776).

The Company has no formal revolving credit facilities available at this time and, given the Company’s current stage of development, it is not expected that such credit facilities will become available to the Company in the next fiscal year.

36

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

Due to the level of net monetary assets, management regards the Company’s overall liquidity risk to be low.

$ As at December 31, 2020	Total		Within 1 year		1 to 3 years		3 to 5 years
Leases payable		200,157		115,341		84,816		-
Accounts payable & accrued liabilities		5,974,121		5,974,121		-		-
		6,174,278		6,089,462		84,816		-

$ As at December 31, 2021	Total		Within 1 year		1 to 3 years		3 to 5 years
Leases payable		544,709		250,465		294,244		-
Accounts payable & accrued liabilities		10,943,143		10,943,143		-		-
Bank indebtedness		753,072		753,072		-		-
Loans payable		2,158,650		2,158,650		-		-
		14,105,330		14,105,330		294,244		-

c) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Interest rate risk consists of two components:

(i)	Interest rate cash flow risk is the risk that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates. The Company’s savings account is a variable rate instruments tied to Canadian prime interest rate. A 1% change in interest rates would have a nominal effect on net loss and comprehensive loss of the Company.
(ii)	Interest rate price risk is the risk that changes in prevailing market interest rates differ from the interest rate on the Company’s monetary assets and liabilities. The Company is not exposed to interest rate price risk.

The Company is not materially exposed to interest rate changes.

Foreign Currency Risk

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. As at December 31, 2021, a portion of the Company’s financial assets and liabilities held in USD, EUR, COP, GBP, and DKK consist of cash and cash equivalents, receivables and accounts payable and accrued liabilities. The Company does not use any techniques to mitigate foreign exchange risk.

37

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

The Company’s net monetary position in the significant foreign currencies as of December 31, 2021 is summarized below with the effect on earnings before tax of a 1% fluctuation of each currency relative to the functional currency of the entity holding it to the CAD dollar:

	Net Monetary Position December 31, 2021 (CAD$ equivalent)			Impact of 1% variance in foreign exchange rate
US Dollars		(4,564,080	)		(45,641	)
Euros		433,561			4,336
	Net Monetary Position December 31, 2020			Impact of 1% variance in
	(CAD$ equivalent)			foreign exchange rate
US Dollars		(4,583,520	)		(45,835	)
Euros		756,510			7,565

As at December 31, 2021, the Company had the following assets and liabilities in USD:

	December 31,		December 31,
	2021		2020
Accounts payable and accrued liabilities	$	4,564,080	$	4,583,520
Net exposure to USD	$	4,564,080	$	4,583,520

As at December 31, 2021, the Company had the following assets and liabilities in Euros:

	December 31,			December 31,
	2021			2020
Cash	$	594,196		$	348,793
Accounts receivable		3,010,363			225,139
Due from former ACA shareholder		898,905			602,247
Bank indebtedness		(753,072	)		–
Accounts payable and accrued liabilities		(1,158,181	)		(332,663	)
Income tax payable		–			(87,006	)
Loans payable		(2,158,650	)		–
Net exposure to Euros	$	433,561		$	756,510

23. COMMITMENTS AND CONTINGENCIES

Commitments:

Pursuant to an agreement with Clifford Starke, the Company’s Chief Executive Officer, the Company is committed to paying Mr. Starke the following in consideration for services provided to the Company:

· A monthly payment as determined by the Company’s Board of Directors of at least $20,000 per month;

· A $500,000 bonus paid in cash or shares upon raising a cumulative $40,000,000 for the Company;

· A $1,000,000 bonus paid in cash or shares if the Company achieves over $50,000,000 in sales over any four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $75,000,000 in sales over a four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $100,000,000 in sales over a four quarter period;

· A $3,000,000 bonus paid upon taking the Company public and achieving a market capitalization of over $100,000,000; This bonus was earned in March 2022 and was settled as part of Franchise Global’s Restricted Share Units (“RSU”) plan.

38

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

On October 1, 2018, the Company entered into an agreement with Farhan Lalani – a director of the Company. In consideration for fundraising and business development services, and merger and acquisition guidance, the Company committed to pay Mr. Lalani:

· $420,000 in common shares of the Company (at the go-public valuation) upon the Company completing a go-public transaction involving a listing on a stock exchange that values the Company at $100,000,000 or more. This amount was earned in March 2022 and was settled as part of Franchise Global’s RSU plan.

On July 25, 2018, Harmony entered into an Intellectual Property License Agreement with Hampstead Private Capital Limited (“Hampstead”) – a corporation controlled by Mr. Starke. Under the terms of this agreement, Harmony is to pay Hampstead a royalty in the amount of 3.5% of the gross revenues from sale of Harmony products.

On May 1, 2021, the Company entered into a consulting agreement with Steven Thomas, the Company’s former Chief Financial Officer. Under the terms of the agreement, Mr. Thomas is to receive $1,000,000 in common shares of the Company (at the go-public valuation) upon the Company completing a go-public transaction involving a listing on a stock exchange. Mr. Thomas is also eligible to receive $50,000 in shares as a one-off increase to his compensation, arising on the stock exchange listing. These amounts are expected to be settled as part of Franchise Global’s RSU plan.

On August 1, 2021, the Company entered into a consulting agreement with Edward Woo, the Company’s President and Chief Operating Officer. Under the terms of the agreement, the Company is to pay Mr. Woo the following:

· $12,500 monthly in cash;

· $100,000 in common shares of the Company (at the go public valuation) if the Company achieves a go public listing on a stock exchange at a greater than $100,000,000 market capitalization. This amount was earned in March 2022 and was settled as part of Franchise Global’s RSU plan;

· A $500,000 bonus paid in common shares of the Company (at the 20-day Volume Weighted Average Price (“VWAP”) of the Company if public) upon achievement of $50,000,000 in sales over any 12-month period;

· $100,000 bonus paid in common shares of the Company (at the go public valuation) upon delivery of GMP EU product into Germany;

The Company has entered into agreements with various other employees, consultants and directors that make them eligible to receive a total of 1,217,223 shares or $2,191,001 upon the Company completing a go-public transaction involving a listing on a stock exchange. This bonus was earned after period end December 31, 2021 and will be settled as part of the Franchise Global’s RSU plan.

Contingencies:

The Company may be, from time to time, subject to various administrative and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable, and the contingent liability can be reasonably estimated. (See also Note 18(b)(v).)

39

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

24. SEGMENTED INFORMATION

The Company has two reportable geographic segments – Germany and Denmark. These segments reflect how the Company’s operations are managed, how the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), allocates resources and evaluates performance.

	Germany			Denmark			Corporate & Other			Total
As at and for the year ended December 31, 2021
Revenue	$	1,133,106			–			–		$	1,133,106
Gross Profit	$	224,988			–			–		$	224,988
Net Loss	$	(959,862	)	$	(358,357	)	$	(16,097,228	)	$	(17,415,447	)
Assets	$	27,508,300		$	10,113,773		$	5,477,960		$	43,100,033
Liabilities	$	7,981,622		$	9,606		$	10,035,601		$	18,026,830
As at and for the year ended December 31, 2020
Revenue	$	1,764,796			–		$	99,168		$	1,863,964
Gross Profit	$	623,431			–		$	86,268		$	709,699
Net Loss	$	(3,628,633	)	$	(100,484	)	$	(9,370,128	)	$	(13,099,245	)
Assets	$	2,806,232		$	9,526,516		$	8,778,379		$	21,111,127
Liabilities	$	275,136		$	89,816		$	5,901,332		$	6,266,284

The Company has one operating segment – pharmaceutical distribution, including medicinal cannabis and cannabis seeds.

40

Franchise Cannabis Corp.

Notes to the Consolidated Financial Statements

December 31, 2021

(Expressed in Canadian Dollars, unless otherwise stated)

25. OTHER INCOME (EXPENSES)

	Year Ended			Year Ended
	December 31, 2021			December 31, 2020
Fair value adjustment on marketable securities (Note 9)		(1,072,677	)		(85,656	)
Settlement due to merger termination (Note 9)		725,000			–
Fair value adjustment on acquisition deposits (Note 5(a))		1,923,077			–
Impairment of prepaid expenses and deposits (Note 7)		(1,637,018	)		–
Fair value adjustment on share cancellation (Note 18(b)(v))		(1,000,000	)		–
Impairment of loan receivable (Note 11)		(324,700	)		–
Due from former shareholder (Note 6)		339,526			–
Refunds and subsidies		202,002			–
Bad debts expense (Note 6)		(10,269	)		–
Gain on sale of asset held for sale		9,693			10,219
Reversal of write down of financial assets		–			413,972
Others		3,063			137,367
		(842,303	)		475,902

26. SUBSEQUENT EVENTS

Listing on the TSXV

As described in Note 1, on March 9, 2022, the Company received final approval from the TSXV for its Qualifying Transaction and on March 29, 2022, Franchise Global’s common shares commenced trading on the TSXV under ticker symbol “FGH”.

Listing on the FRA

As described in Note 1, on April 18, 2022, Franchise Global’s common shares commenced trading on the FRA under ticker symbol “WV4A”.

41

EX-99.5

EXHIBIT 99.5

Franchise Global Health Inc.

Unaudited Condensed Consolidated Interim Financial Statements

June 30, 2022 and 2021

Expressed in Canadian Dollars

	Contents
Condensed Consolidated Interim Financial Statements
Condensed Consolidated Interim Statements of Financial Position	1
Condensed Consolidated Interim Statements of Comprehensive Loss	2
Condensed Consolidated Interim Statements of Changes in Equity	3
Condensed Consolidated Interim Statements of Cash Flows	4
Notes to the Condensed Consolidated Interim Financial Statements	5 - 33

Franchise Global Health Inc.

Condensed Consolidated Interim Statements of Financial Position

As at June 30, 2022 and December 31, 2021

(Expressed in Canadian Dollars)  

(Unaudited)

		June 30,			December 31,
		2022			2021
	Notes	$			$
ASSETS
Current assets
Cash and cash equivalents		$	2,436,940		$	4,485,096
Receivables	6		3,118,929			4,381,640
Due from former shareholder	6		844,238			898,905
Due from related party	6		33,668			–
Prepaid expenses			1,827,807			113,227
Inventory	7		12,533,787			11,069,515
Marketable securities	8		41,489			461,210
Total current assets			20,836,858			21,409,593
Non-Current Assets
Acquisition deposits	9		531,900			531,900
Plant and equipment	10		754,564			1,079,331
Right of use assets	11		354,171			496,635
Intangible assets	12		13,101,248			13,104,302
Goodwill	12		6,478,272			6,478,272
Total non-current assets			21,220,155			21,690,440
TOTAL ASSETS			42,057,013			43,100,033
LIABILITIES
Current liabilities
Bank indebtedness			–			753,072
Accounts payable and accrued liabilities	13		9,247,699			10,943,143
Income taxes payable			94,215			–
Loans payable	14		2,020,050			2,158,650
Lease liability	11		217,303			250,465
Total current liabilities			11,579,267			14,105,330
Non-Current Liabilities
Lease liability	11		179,270			294,244
Deferred tax liability			3,628,104			3,627,256
Total non-current liabilities			3,807,374			3,921,500
TOTAL LIABILITIES			15,386,641			18,026,830
SHAREHOLDERS' EQUITY
Share capital	15		131,332,496			120,038,497
Reserves	15		9,910,479			1,253,379
Accumulated other comprehensive (loss) income			(193,597	)		66,640
Deficit			(114,379,006	)		(96,285,313	)
TOTAL SHAREHOLDERS' EQUITY			26,670,372			25,073,203
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY			42,057,013			43,100,033

Ability to Continue as a Going Concern (Note 2a)	Approved on behalf of the board:
Commitments and Contingencies (Note 19)	/s/ Clifford Starke	/s/ Steven Thomas
Subsequent Events (Note 19)	Director	Director

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

1

Franchise Global Health Inc.

Condensed Consolidated Interim Statements of Loss and Comprehensive Loss

For the Three and Six Months Ended June 30, 2022 and 2021

(Expressed in Canadian Dollars)

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2022			2021			2022			2021
	$			$			$			$
Revenues		13,504,236			374,774			30,092,584			732,747
Cost of goods sold (Note 7)		(12,551,905	)		(251,298	)		(27,974,286	)		(511,469	)
Gross profit		952,331			123,476			2,118,298			221,278
Expenses:
Selling, general and administrative		1,394,774			397,564			3,360,272			632,276
Professional fees		575,272			553,663			861,015			842,405
Share-based compensation (Note 15)		420,000			20,984			840,000			41,968
Consulting fees (Note 16)		155,709			180,439			347,654			583,736
Foreign exchange loss (gain)		158,201			(51,047	)		119,965			(106,620	)
Depreciation and amortization (Notes 10, 11, 12)		69,665			6,145			166,442			31,979
		2,773,621			1,107,748			5,695,348			2,025,744
Other items:
Listing expense (Notes 5, 15, 16)		–			–			(15,591,719	)		–
Asset impairment (Notes 6, 10)		–			(1,022	)		(258,667	)		(1,022	)
Interest expense		(31,997	)		(1,177	)		(67,628	)		(2,420	)
Other incomes and expenses (Note 21)		786,537			19,636			1,569,180			653,070
Loss before income taxes		(1,066,750	)		(966,835	)		(17,925,884	)		(1,154,838	)
Income tax expense		74,544			–			167,809			–
Net loss		(1,141,294	)		(966,835	)		(18,093,693	)		(1,154,838	)
Foreign currency (loss) gain on translation of subsidiaries		(128,985	)		103,590			(260,237	)		159,011
Comprehensive loss		(1,270,279	)		(863,245	)		(18,353,930	)		(995,827	)
Basic and diluted loss per share		(0.01	)		(0.01	)		(0.14	)		(0.01	)
Weighted average number of common shares outstanding		134,563,674			116,925,695			131,686,443			115,422,937

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

2

Franchise Global Health Inc.

Condensed Consolidated Interim Statements of Changes in Equity

For the Six Months Ended June 30, 2022 and 2021

(Expressed in Canadian Dollars)

(Unaudited)

	Share Capital									Accumulated
	Number		Amount		Share subscriptions received			Equity reserve		other comprehensive income (loss)			Deficit			Total equity
			$		$			$		$			$			$
Balance, December 31, 2020		112,395,187		92,519,988		21,572			1,085,525		111,124			(78,893,366	)	$	14,844,843
Shares issued for cash		388,889		700,000		(21,572	)		–		–			–			678,428
Shares issued for acquisition		3,846,154		5,000,000		–			–		–			–			5,000,000
Shares issued for consulting agreement		353,462		459,500		–			–		–			–			459,500
Share-based compensation		–		–		–			41,968		–			–			41,968
Foreign currency gain on translation of subsidiaries		–		–		–			–		159,011			–			159,011
Net loss for the period		–		–		–			–		–			(1,154,838	)		(1,154,838	)
Balance, June 30, 2021		116,983,692		98,679,488		–			1,127,493		270,135			(80,048,204	)		20,028,912
Balance, December 31, 2021		128,289,230		120,038,497		–			1,253,379		66,640			(96,285,313	)		25,073,203
Shares and options issued for RTO		5,000,000		9,000,000		–			1,156,100		–			–			10,156,100
Shares issued for consulting services		1,274,444		2,293,999		–			–		–			–			2,293,999
Go public awards upon listing		–		–		–			6,661,000		–			–			6,661,000
Share-based compensation		–		–		–			840,000		–			–			840,000
Foreign currency loss on translation of subsidiaries		–		–		–			–		(260,237	)		–			(260,237	)
Net loss for the period		–		–		–			–		–			(18,093,693	)		(18,093,693	)
Balance, June 30, 2022		134,563,674		131,332,496		–			9,910,479		(193,597	)		(114,379,006	)		26,670,372

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

3

Franchise Global Health Inc.

Condensed Consolidated Interim Statements of Cash Flows

For the Six Months Ended June 30, 2022

(Expressed in Canadian Dollars)

(Unaudited)

	For the Six Months Ended
		June 30, 2022			June 30, 2021
		$			$
Cash flows used in operating activities
Net loss for the period:			(18,093,693	)		(1,154,838	)
Adjusted for:
Listing expense (Notes 5, 15)			15,491,719			–
Revaluation of share cancellation liability			(1,687,500	)		–
Fair value adjustment on marketable securities			435,392			334,248
Share-based compensation			840,000			501,468
Impairment of assets			258,667			–
Depreciation and amortization			166,442			31,979
Accretion expense			26,380			2,509
Changes in non-cash working capital items:
Receivables			1,258,671			38,402
Due from former shareholder			54,667			(312,379	)
Due from related parties			(33,668	)		(23,627	)
Prepaid expenses and deposits			(1,714,580	)		30,160
Loan receivable			–			324,700
Inventory			(1,464,272	)		(40,470	)
Accounts payable and accrued liabilities			(89,496	)		13,651
Income taxes expense (paid)			95,063			(62,353	)
Cash used in operating activities			(4,456,208	)		(316,550	)
Cash flows provided by (used in) financing activities
Repayment of bank indebtedness			(753,072	)		–
Lease payments			(144,913	)		(21,952	)
Proceeds for shares not yet issued			–			10,490,052
Proceeds on issuance of common shares			–			678,428
Cash (used in) provided by financing activities			(897,985	)		11,146,528
Cash flows provided by (used in) investing activities
Cash from (for) acquisitions, net of cash acquired			3,700,932			(3,479,900	)
Purchase of marketable securities			(27,513	)		–
Sale of marketable securities			9,227			–
Purchase of intangible asset			–			(159,800	)
Cash provided by (used in) investing activities			3,682,646			(3,639,700	)
Effect of exchange rate on cash			(376,610	)		182,876
(Decrease) increase in cash, cash equivalents and restricted cash			(1,671,546	)		7,190,278
Cash, cash equivalents and restricted cash, beginning of period			4,485,096			3,737,767
Cash, cash equivalents and restricted cash, end of period			2,436,940			11,110,921

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

4

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

1. CORPORATE INFORMATION

Franchise Global Health Inc. (formerly Mercury Acquisitions Corp.) (“Franchise Global” and, together with its subsidiaries, the “Company”) is a company which the primary purpose of the business is the sale of pharmaceutical products, medical devices, cannabis and cannabis products.

The Company’s main operating subsidiary is Phatebo GmbH (“Phatebo”), which is a German pharmaceutical wholesaler that is focused on the worldwide export of German branded pharmaceuticals and the import and distribution of medical devices and medical cannabis. Phatebo has business partners in more than 18 countries. Phatebo is licensed to import and distribute registered medical cannabis products to German pharmacies under the regulatory oversight of the Bundesinstitut für Arzneimittel und Medizinprodukte (The Federal Institute for Drugs and Medical Devices, “BfArM”). Phatebo also has a radiation license for the import of a wider range of medical cannabis products.

Through its wholly owned subsidiary ACA Müller ADAG Pharma Vertriebs GmbH (“ACA Muller”), the Company has a sales network of over 1,200 pharmacies within Germany. ACA Muller is licensed to import and distribute registered medical cannabis products to German pharmacies under the regulatory oversight of BfArM. ACA Muller also has a radiation license for the import of a wider range of medical cannabis products compared to cannabis wholesalers without this license.

The registered address of Franchise Global is 550 Burrard Street, Suite 2900, Vancouver, British Columbia, V6C 0A3. The address of Franchise Global’s principal place of business is 550 Burrard Street, Suite 2300, Vancouver, British Columbia, V6C 2B5.

On June 24, 2021, Franchise Cannabis Corp. (“FCC”) entered into a letter of intent with Mercury Acquisitions Corp. (“Mercury”), a capital pool company under the policies of the TSX Venture Exchange (the “TSXV”), to complete a going-public transaction for FCC, which constituted Mercury’s “Qualifying Transaction” (as defined under the policies of the TSXV), through a reverse takeover of Mercury (the “Qualifying Transaction”). On October 13, 2021, FCC’s Board of Directors approved the amalgamation agreement which implemented the Qualifying Transaction (the “Amalgamation Agreement”) between FCC, Mercury, and a wholly-owned subsidiary of Mercury, 2868303 Ontario Inc. (“Mercury Subco”). The Amalgamation Agreement contemplated a business combination by way of a “three-cornered” amalgamation in accordance with the provisions of the Business Corporations Act (Ontario) (the “Act”), pursuant to which FCC amalgamated with Mercury Subco (the “Amalgamation”, with the entity resulting therefrom referred to as “FCC Amalco”) and Mercury became the parent company of FCC Amalco.

On December 2, 2021, FCC and Mercury received conditional approval from the TSXV for the Qualifying Transaction (as defined in the policies of the TSXV) with Mercury.

On March 25, 2022, Mercury completed a ten-for-one share consolidation, the Amalgamation was completed and Mercury was renamed to “Franchise Global Health Inc.”, and the TSXV issued its final acceptance of the Qualifying Transaction. On March 29, 2022, Franchise Global commenced trading on the TSXV under ticker symbol “FGH”. On April 18, 2022, the Company commenced trading on the Frankfurt Stock Exchange under ticker symbol “WV4A”.

The substance of the Amalgamation is a transaction which resulted in FCC controlling Mercury. The Qualifying Transaction is a reverse take-over (“RTO”), whereby Franchise is deemed to be the accounting acquirer and Mercury is the accounting acquiree. As such, the opening balances and comparative amounts shown within these condensed consolidated interim financial statements are those of FCC.

These condensed consolidated interim financial statements (herein referred to as “consolidated financial statements”) of the Company as at and for the three and six months ended June 30, 2022 and 2021 include the accounts of the Company and its subsidiaries.

5

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

2. BASIS OF PREPARATION

a) Statement of Compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board under the historical cost convention, other than certain financial instruments measured at fair value. These condensed consolidated interim financial statements do not include all of the disclosures required by International Financial Reporting Standards (“IFRS”) for annual financial statements and should be read in conjunction with FCC’s annual consolidated financial statements for the year ended December 31, 2021.

The condensed consolidated interim financial statements were approved and authorized for issue by the Board of Directors of the Company on August 24, 2022.

These condensed consolidated interim financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realization of assets and discharge of liabilities in the normal course of business.

The Company’s ability to continue as a going concern is dependent on achieving profitable operations through the sales of its product, the acquisition of profitable operations or management’s ability to raise the necessary funding through future equity issuances, debt issuances, asset sales or a combination thereof. There is no assurance that any necessary future financing will be sufficient to sustain operations until such time that the Company can generate sufficiently profitable operations to support its requirements. These condensed consolidated interim financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary, should the Company be unable to continue as a going concern. Such adjustments could be material. While these condensed consolidated interim financial statements have been prepared on the assumption that the Company is a going concern and will be able to realize its assets and meet its obligations in the normal course of operations, there are conditions and events which constitute material uncertainties that may cast significant doubt on the validity of that assumption.

· as at June 30, 2022, the Company has an accumulated deficit of $114,379,006 (December 31, 2021 - $96,285,313);

· the Company has incurred a loss of $18,093,693 for the six months ended June 30, 2022 (six months ended June 30, 2021 - $1,154,838);

· the Company had net cash outflows from operating activities of $4,456,208 for the six months ended June 30, 2022 (six months ended June 30, 2021 - $316,550).

In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on the Company’s business or ability to raise funds. To date, COVID-19 has not had any material impact on the Company’s operations; however, it is possible that estimates in these condensed consolidated interim financial statements may change in the near term as a result of COVID-19. The Company continues to caution that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impacts of the COVID-19 virus on the Company remain unknown, rapid spread of the COVID-19 virus may have a material adverse effect on global economic activity and can result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company.

6

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

b) Basis of Measurement

These condensed consolidated interim financial statements have been prepared on a historical cost basis, except for financial instruments and investment properties that are stated at fair value.

The condensed consolidated interim financial statements are presented in Canadian dollars and all values are rounded to the nearest dollar, unless otherwise indicated.

c) Functional and Presentation Currency

The Company’s reporting currency and Franchise’s functional currency is the Canadian dollar. Note 2(f) indicates the functional currency of each subsidiary.

Transactions undertaken in foreign currencies are translated into Canadian dollars at daily exchange rates prevailing when the transactions occur. Monetary assets and liabilities denominated in foreign currencies are translated at period-end exchange rates and non-monetary items are translated at historical exchange rates. Realized and unrealized foreign currency translation gains and losses are recognized in the condensed consolidated interim statements of loss and comprehensive loss.

The assets and liabilities of foreign operations are translated into Canadian dollars using the period-end exchange rates. Income, expenses, and cash flows of foreign operations are translated into Canadian dollars using average exchange rates. Exchange differences resulting from the translation of foreign operations into Canadian dollars are recognized in other comprehensive loss and accumulated in shareholders’ equity.

Foreign currency gains and losses arising on translation of a monetary item receivable from or payable to a foreign operation for which settlement is neither planned, nor likely to occur in the foreseeable future are considered to form part of a net investment in the foreign operation. Such gains and losses are recognized in other comprehensive loss and presented within shareholders’ equity in the foreign currency translation reserve.

d) Use of Estimates and Judgments

The preparation of these condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenues and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates and assumptions form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision, and further periods, if the revision affects both current and future periods.

Judgments made by management in the application of IFRS that have a significant effect on the condensed consolidated interim financial statements and estimates with a significant risk of material adjustment in the current and following periods are discussed in Note 4.

e) Subsidiaries

In addition to the Company, the condensed consolidated interim financial statements include its subsidiaries. Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date on which the Company acquires control. They are de-consolidated from the date that control by the Company ceases.

7

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

f) Consolidation

The subsidiaries of the Company are as follows:

Name of Subsidiary	Ownership Interest at June 30, 2022			Functional Currency
Harmony Health One Inc. (“Harmony”)		100	%	Canadian Dollar
ACA Muller		100	%	Euro
Sativa Verwaltungs GmbH		100	%	Euro
Sativa Verwaltungs GmbH and Co. KG		100	%	Euro
CBD Med Therapeutics Inc.		100	%	Canadian Dollar
Adelnor S.A.		0	%	U.S. Dollar
Fayber Technologies Canada Inc.		100	%	Canadian Dollar
Catalunia SAS		100	%	Colombian Peso
Green CannaHealth SAS		100	%	Colombian Peso
Klokken Aarhus Inc.		100	%	Canadian Dollar
Rangers Pharmaceuticals A/S (“Rangers”)		100	%	Danish Krone
1200325 B.C. LTD. (“Botanist”)		100	%	Canadian Dollar
Phatebo		100	%	Euro
FCC		100	%	Canadian Dollar

CBD Med Therapeutics Inc. has an option to acquire 100% of the outstanding common shares of Adelnor S.A., which forms the basis for the Company’s control of Adelnor S.A.

Assets, liabilities, revenues, and expenses of the subsidiaries are recognized in accordance with the Company’s accounting policies. Intercompany balances and transactions are eliminated on consolidation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies followed in these condensed consolidated interim financial statements are the same as those applied in FCC’s consolidated financial statements as at and for the year ended December 31, 2021 with the exception of a new accounting policy for reverse takeovers.

A summary of the significant accounting policies which have been applied consistently to all periods presented in the accompanying condensed consolidated interim financial statements are set out below:

a) Foreign Currency Translation

In preparing the financial statements of individual entities, transactions in currencies other than the entity’s functional currency are recognized at exchange rates in effect on the date of the transactions. At each reporting date monetary assets and liabilities denominated in foreign currencies are re-translated at the exchange rates applicable at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Nonmonetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Realized and unrealized exchange gains and losses are recognized through net loss. For the purposes of presenting condensed consolidated interim financial statements the assets and liabilities of foreign operations, are translated into Canadian dollars at the exchange rates applicable at the balance sheet date. 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 loss.

8

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

b) Cash and Cash Equivalents

Cash and short-term deposits in the condensed consolidated interim statements of financial position comprise cash at banks and on hand and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value.

c) Receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost, less any provisions for impairment. Financial assets measured at amortized cost are assessed for impairment at the end of each reporting period. Impairment provisions are estimated using the expected credit loss impairment model where any expected future credit losses are provided for, irrespective of whether a loss event has occurred at the reporting date.

Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in and forecasts of future economic conditions that affect default risk. Where applicable, the carrying amount of a trade receivable is reduced for any expected credit losses through the use of an allowance for doubtful accounts (“AFDA”) provision. Changes in the AFDA provision are recognized in the condensed consolidated statements of loss and comprehensive loss. When the Company determines that no recovery of the amount owing is possible, the amount is deemed irrecoverable and the financial asset is written off.

d) Inventory

Inventories consist of pharmaceuticals, medical devices, finished goods and cannabis seeds for sale. The Company values inventories at the lower of cost and net realizable value. Inventories include costs of purchases net of vendor allowances plus other costs, such as transportation, that non-are directly incurred to bring the inventories to their present location and condition. Net realizable value is determined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories is determined using first in, first out basis.

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining market prices. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is apparent evidence of an increase in selling price then the amount of the write down previously recorded is reversed.

e) Property, Plant and Equipment

Recognition and Measurement

On initial recognition, plant and equipment are valued at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company, including appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions.

Plant, plant and equipment are subsequently measured at cost less accumulated depreciation, less any accumulated impairment losses, with the exception of land, which is not depreciated.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (material components) of property, plant and equipment. Land is stated at cost.

9

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its costs can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in the condensed consolidated interim statements of loss and comprehensive loss as incurred.

Gains and Losses

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount, and are recognized net within other income in the condensed consolidated interim statements of loss and comprehensive loss.

Depreciation

Depreciation is recognized in the condensed consolidated interim statement of comprehensive loss over the asset’s estimated useful life:

Growing, processing and operating equipment	10%-20% declining balance basis
Equipment	straight line basis over eight years
Building and improvements	10% declining balance basis

Depreciation commences when an asset becomes available for use.

Depreciation methods, estimated useful lives, and residual values are reviewed at each year-end and adjusted if appropriate. The effect of any change in estimate is accounted for on a prospective basis.

f) Investment Properties

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, the Company has elected to use the fair value model where investment properties are measured at fair value. 

Investment properties are derecognized either when they have been disposed of (i.e., at the date the recipient obtains control) or when they are permanently withdrawn from use and no future economic benefit is expected from their disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of derecognition. In determining the amount of consideration from the derecognition of investment property the Company considers the effects of variable consideration, existence of a significant financing component, non-cash consideration, and consideration payable to the buyer (if any).

g) Assets Held for Sale

Assets are classified as held for sale if their carrying amount will be recovered primarily through a sale as opposed to continued use by the Company. Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs of disposal. Any impairment is recognized in net earnings. Depreciation ceases when an asset is classified as held for sale. Assets classified as held for sale are reported as current assets in the condensed consolidated interim statements of financial position.

h) Marketable Securities

The Company’s investments in marketable securities, which consists of publicly traded securities and warrants have been classified and accounted as fair value through profit and loss. Unrealized gains and losses are recognized in the condensed consolidated interim statements of loss and comprehensive loss.

10

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

i) Business Combinations

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

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

In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to intangible assets. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree or a market-approach using a comparable transaction. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.

Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.

j) Intangible Assets

Intangible assets acquired in a business combination are recognized separately at their fair value at the date of acquisition. Intangible assets acquired separately are recognized at cost. Internally generated intangible assets arising from development projects are recognized when certain criteria related to the feasibility of internal use or sale, and probable future economic benefits of the intangible asset, are demonstrated.

Intangible assets with indefinite useful lives are not amortized. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

An intangible asset is derecognized upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the condensed consolidated interim statements of loss and comprehensive loss.

k) Goodwill

Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the CGU or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.

11

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

l) Impairment of intangible assets and goodwill

Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.

Goodwill and indefinite life intangible assets are tested annually for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment.

An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds it recoverable amount. The recoverable amounts of the CGUs’ assets have been determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified.

A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in a prior period. Impairment losses on goodwill are not subsequently reversed.

m) Leases

The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

i) Right-of-use assets

The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment.

ii) Lease liabilities

At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate.

12

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset.

iii) Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.

n) Loans and Borrowings

Loans and borrowings are classified as other financial liabilities and are measured at fair value at initial recognition and subsequently at amortized cost. Transactions costs are deferred and amortized over the term of the liability.

o) Revenue

The Company generates revenue primarily from the wholesale and retail of cannabis and cannabis related products. The Company uses the following five-step contract-based analysis of transactions to determine if, when and how much revenue can be recognized:

1. Identify the contract with a customer;

2. Identify the performance obligation(s) in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligation(s) in the contract; and

5. Recognize revenue when or as the Company satisfies the performance obligation(s).

Revenue from the sale of cannabis is generally recognized when control over the goods has been transferred to the customers which is at the time of delivery. Payments for wholesale transactions are due within a specified time period as permitted by the underlying agreement and the Company’s credit policy upon the transfer of goods to the customer. The Company generally satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

The Company’s non-cannabis revenue is comprised of resales of medical devices, and pharmaceutical products to pharmacies in Germany. The Company’s revenue-generating activities have a single performance obligation and revenue is recognized at the point in time when control of the product transfers and the Company’s obligations have been fulfilled. This generally occurs when the product is ready for shipment to the customer, depending upon the method of distribution and shipping terms set forth in the customer contract. Revenue is measured as the amount of consideration the Company expects to receive in exchange for the sale of the Company’s product. Sales of products are for cash or otherwise agreed-upon credit terms. The Company estimates and reserves for its bad debt exposure based on its experience with past due accounts and collectability, write-off history, the aging of accounts receivable and an analysis of customer data.

13

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

p) Financial Instruments

Financial assets are classified and measured either at amortized cost or fair value through profit or loss ("FVTPL") or fair value through other comprehensive income (“FVOCI”) based on the business model in which they are held and the characteristics of their contractual cash flows.

All financial assets not classified at amortized cost or FVOCI are measured at FVTPL. On initial recognition, the Company can irrevocably designate a financial asset at FVTPL if doing so eliminates or significantly reduces an accounting mismatch. A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated at FVTPL:

· It is held within a business model whose objective is to hold the financial asset to collect the contractual cash flows associated with the financial asset instead of selling the financial asset for a profit or loss; and

· Its contractual terms give rise to cash flows that are solely payments of principal and interest.

All financial instruments are initially recognized at fair value on the condensed consolidated interim statements of financial position. Subsequent measurement of financial instruments is based on their classification. Financial assets and liabilities classified at FVTPL are measured at fair value with changes in those fair values recognized in the condensed consolidated interim statements of loss and comprehensive loss for the period. Financial assets and liabilities classified at amortized cost are measured using the effective interest method.

The following table summarizes the classification and measurement changes under IFRS 9 for each financial instrument:

Financial Instrument	Classification
Cash and cash equivalents	FVTPL
Marketable securities	FVTPL
Receivables	Amortized Cost
Loan receivable	Amortized Cost
Acquisition deposits	Amortized Cost
Bank indebtedness	Amortized Cost
Accounts payable and accrued liabilities	Amortized Cost
Loans payable	Amortized Cost

For trade receivables, the Company applies the simplified approach under IFRS 9 and has calculated expected credit losses (“ECL”) based on lifetime expected credit losses taking into considerations historical credit loss experience and financial factors specific to the debtors and general economic conditions.

ECL impairment model

IFRS 9 ‘Financial Instruments’ introduced a single ECL impairment model, which is based on changes in credit quality since initial application.

· A maximum 12-month allowance for ECL is recognized from initial recognition reflecting the portion of lifetime cash shortfalls that would result if a default occurs in the 12 months after the reporting date, weighted by the risk of a default occurring.

· A lifetime ECL allowance is recognized if a significant increase in credit risk is detected after the instruments’ initial recognition reflecting lifetime cash shortfalls that would result over the expected life of a financial instrument.

· A lifetime ECL allowance is recognized for credit impaired financial instruments.

14

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Company considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Company in full or when the financial asset is more than 90 days past due.

The carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts.

Fair value hierarchy

The determination of fair value requires judgment and is based on market information, where available and appropriate. The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

· Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

· Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

· Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

q) Share-Based Payments

Share-based payments to employees and others providing similar services are measured at the estimated fair value of the instruments issued on the grant date and amortized over the vesting period. Share-based payments to non-employees are measured at the fair value of the goods or services received or the fair value of the equity instruments issued if it is determined the fair value of the goods or services cannot be reliably measured and are recorded at the date the goods or services are received. The offset to the recorded cost is to equity reserve.

Consideration received on the exercise of stock options is recorded as share capital and the related equity reserve is transferred to share capital. Charges for options that are forfeited before vesting are reversed from equity reserve.

r) Share Capital

Share capital represents the amount received in exchange for the issuance of shares. Shares issued for goods and services are recorded for the fair value of the goods or services.

Costs directly identifiable with the raising of share capital financing are charged against share capital.

s) Loss Per Share

Basic loss per share is computed by dividing the net loss available to common shareholders of the Company by the weighted average number of common shares outstanding during the reporting period.

Diluted loss per share is computed similar to basic loss per share, except that the weighted average shares outstanding are increased to include additional shares for the assumed exercise of stock options and warrants, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options and share purchase warrants were exercised and that the proceeds from such exercises were used to acquire common stock at the average market price during the reporting period.

t) Income Taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income, except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive loss.

15

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

Current taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss of the current year and any adjustment to income taxes payable in respect of previous years. Current taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year‑end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, affects neither accounting nor taxable income or loss.

Recognition of deferred tax assets of unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be realized.

u) Related Party Transactions

The Company considers a person or entity as a related party if such party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control. The Company considers a person or entity as a related party if they are a member of key management personnel including a close member of that person’s family. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

v) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the Company’s Chief Executive Officer (“CEO”). The CEO, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the person who makes strategic decisions as the chief operating decision maker. The Company’s operations are limited to a single reportable segment, being pharmaceutical distribution, including medicinal cannabis and cannabis seeds.

w) RTOs

RTOs are accounted for in conjunction with the substance of the transaction based on the resulting controlling entity. The resulting controlling entity is deemed to be the accounting acquirer and the other entity participating in the RTO is the accounting acquiree. The opening balances and comparative amounts shown within these condensed consolidated interim financial statements are those of the accounting acquirer. The accounting acquirer applies a purchase price allocation based on the consideration and the net assets of the accounting acquiree. The difference between the consideration and the net assets of the accounting acquiree is recorded as income or expense in the condensed consolidated interim statements of loss and comprehensive loss.

x) Recent Accounting Pronouncements

The Company applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2022 (unless otherwise stated). The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

16

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR). The amendments include the following practical expedients:

i.	A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest
ii.	Permit changes required by IBOR reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued
iii.	Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component

These amendments had no impact on the condensed consolidated interim financial statements of the Company. The Company intends to use the practical expedients in future periods if they become applicable.

COVID-19-Related Rent Concessions beyond June 30, 2021 - Amendments to IFRS 16

On May 28, 2020, the IASB issued COVID-19-Related Rent Concessions - amendment to IFRS 16 Leases The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a COVID-19 related rent concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments resulting from the COVID-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.

The amendment was intended to apply until June 30, 2021, but as the impact of the COVID-19 pandemic is continuing, on March 31, 2021, the IASB extended the period of application of the practical expedient to June 30, 2022.The amendment applies to annual reporting periods beginning on or after April 1, 2021. However, the Company has not received COVID-19-related rent concessions but plans to apply the practical expedient if it becomes applicable within the allowed period of application.

Amendments to IAS 37 - Provisions, Contingent Liabilities, and Contingent Assets

In May 2020, the IASB issued amendments to clarify the costs that a company should include as the cost of fulfilling a contract when assessment is made as to whether a contract is onerous. The amendment is effective January 1, 2022, with early adoption permitted. These amendments did not have a material impact on the Company.

4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these condensed consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements, and the reported amounts during the reporting periods. Judgments, estimates and assumptions are continually evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ materially from these estimates. The significant judgements, estimates and nature of assumptions made by management in applying the Company’s accounting policies are consistent with those that applied to the annual consolidated financial statements of FCC.

17

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

5. REVERSE TAKEOVER (“RTO”) TRANSACTION

(a) On March 25, 2022, the Company completed the RTO contemplated in the Amalgamation Agreement (see Note 1).

As a result of the RTO, the shareholders of FCC obtained control of Mercury, thereby constituting a reverse acquisition of Mercury. The RTO is considered to be a purchase of Mercury’s net assets by the shareholders of FCC.

The Amalgamation is accounted for in accordance with IFRS 2, Share-based payments, and IFRS 3, Business combinations. As Mercury did not qualify as a business according to the definition in IFRS 3, this Amalgamation does not constitute a business combination; rather, it is treated as an issuance of shares by FCC for the net assets of Mercury.

Consideration
Common shares ($1.80 X 5,000,000 shares)	$	9,000,000
Fair value of replacement options
(Options on 415,000 common shares at $1.66 per option)		688,900
(Agent options on 320,000 common shares at $1.46 per option)		467,200
Total consideration		10,156,100
Net assets of Mercury
Cash		3,700,932
Accounts payable		(81,552	)
		3,619,380
RTO – Consideration over the net assets of Mercury (a)	$	6,536,720
Go Public Awards (b)		6,661,000
Tri-Volta Advisory Fee (c)		2,393,999
Total Listing Expense	$	15,591,719

The consideration is measured at the fair value of the 5,000,000 common shares that were effectively issued to the shareholders of Mercury and the replacement options issued to Mercury’s previous option holders.

(b) In conjunction with the RTO transaction, the following awards in relation to FCC’s go-public (the “Go Public Awards”) totaling $6,661,000 became due. These Go Public Awards have not yet been granted, are to be settled part of the Company’s Restricted Share Unit (RSU) plan and are included in listing expense.

· $3,000,000 bonus to the Company’s Chief Executive Officer and Executive Chairman, Clifford Starke.

· $1,050,000 bonus to FCC’s former Chief Financial Officer and the Company’s Director, Steven Thomas.

· $1,000,000 bonus to the Company’s Director, Jake Malczewski.

· $420,000 bonus to the Company’s Director, Farhan Lalani.

· $250,000 bonus to the Company’s Chief Financial Officer, Dany Vaiman.

· $250,000 bonus to the Company’s Director, Peter Simeon.

· $250,000 bonus to the Company Director, Larry Smith.

· $100,000 bonus to the Company’s President and Chief Operating Officer, Edward Woo.

· $341,000 in bonuses to other employees and consultants.

18

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

(c) In connection with the RTO in the three months ended March 31, 2022, the Company incurred an advisory fee of $2,393,999 with Tri-Volta Investments Inc., a company controlled by a former member of key management personnel.

6. AMOUNTS RECEIVABLE

(a) Receivables –

	June 30,		December 31,
	2022		2021
	$		$
Trade receivables		996,512		2,940,946
Value-Added Tax (“VAT”) and Goods & Services Tax (“GST”) recoverable		2,093,138		1,338,796
Other receivables		29,279		101,898
Total		3,118,929		4,381,640

The Company assesses the risk of collectability of accounts receivable on a regular basis. Estimates of expected credit losses take into account the Company’s collection history, deterioration of collection rates during the average credit period, as well as observable changes in, and forecasts of, future economic conditions that affect default risk. Where applicable, the carrying amount of receivables is reduced for any expected credit losses through the use of an allowance for credit loss provision. The allowance for credit loss reflects the Company’s best estimate of probable losses inherent in the trade receivables accounts. As at June 30, 2022 and December 31, 2021 the expected credit losses amount assessed to be trivial.

For the six-month period ended June 30, 2022, the Company recognized an impairment loss on its receivables amounting to $4,040 (2021 – Nil).

(b) Due from former shareholder –

As at June 30, 2022, the Company has a receivable of $844,238 (December 31, 2021 - $898,905) from the former shareholder of ACA Muller for expenses incurred prior and subsequent to the Company’s acquisition of ACA Muller.

(c) Due from other related party

On May 30, 2022, ACA Muller advanced €25,000 to Starke Deutschland Pharma Holding GmbH (“Starke Pharma”) – a company controlled by the Company’s Chief Executive Officer and Executive Chairman, Clifford Starke. As at June 30, 2022, the Company has a receivable of $33,668 (December 31, 2021 - Nil). This amount was utilized to pay for banking fees in connection with the acquisition of the Target Company (Note 19). It is expected that Starke Pharma would become a wholly-owned subsidiary of the Company upon the closing of the acquisition of the Target Company.

19

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

7. INVENTORY

	June 30,		December 31,
	2022		2021
Purchased finished goods		3,007,772		1,543,500
Cannabis seeds for sale		9,526,015		9,526,015
Inventory	$	12,533,787	$	11,069,515

For the six months ended June 30, 2022, the Company charged $27,912,466 (six months ended June 30, 2021 - $511,469) of inventory related amounts to cost of sales.

8. MARKETABLE SECURITIES

Balance at 31 December 2021	$	461,210
Additions during the period		27,513
Redemption during the period		(9,227	)
Adjustment to fair value		(435,392	)
Change in foreign exchange rates		(2,615	)
Balance at 31 March 2022		41,489

The marketable securities are primarily comprised of listed equity investments and warrants.

The following table summarizes the composition of marketable securities:

Interest in entity as at December 31, 2021	Status	Common shares		Common share warrants		Value ($)
Eve & Co Incorporated (“Eve”) (a)	Public on TSXV		2,777,778		1,388,889	$	416,667
Thoughtful Brands Inc.	Public on CSE		1,714,835		250,000		Nil
Southern Harvest Health Corp.	Private		960,000		Nil		19,200
Haus Invest	Public on DAX		426		Nil		25,343
Total			5,453,039		1,638,889	$	461,210

Interest in entity as at June 30, 2022	Status	Common shares		Common share warrants		Value ($)
Eve	Public on TSXV		2,777,778		1,388,889		Nil
Thoughtful Brands Inc.	Public on CSE		1,714,835		250,000		Nil
Southern Harvest Health Corp.	Private		960,000		Nil		19,200
Haus Invest	Public on DAX		408		Nil		22,289
Total			5,453,021		1,638,889	$	41,489

(a) On March 25, 2022, Eve filed for protection under the Companies’ Creditors Arrangement (“CCAA”). The outcome of Eve’s CCAA filings remains uncertain and there is no assurance the Company would be able to recover any value from its investment in Eve or successfully finalize the terms of the arrangement under negotiation. As of June 30, 2022, the fair value of the Company’s investment in shares and warrants of Eve was nil.

20

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

9. ACQUISITION DEPOSITS

Deposits represent a refundable deposit with Satica Medical (SVG) Ltd. (“Satica”) amounting to $531,900.

The Company paid this deposit in September 2019, to Satica, a St. Vincent company, with the intention of entering into a joint venture agreement to develop a cannabis cultivation operation. The deposit is secured by a lien on land in St. Vincent. While the joint venture agreement has yet to be finalized, the Company and Satica have a strategic alliance. The deposit is refundable if the joint venture is not formed.

10. PLANT AND EQUIPMENT

	Grow and lab equipment		Operating & transport equipment		Office equipment		Building & improvements			Land			Total
	$		$		$		$			$			$
Cost at:
January 1, 2021		418,448		–		160,414		304,883			–			883,745
Additions		–		99,114		42,435		113,410			371,445			626,404
Changes in foreign exchange rates		–		–		6,572		–			–			6,572
December 31, 2021		418,448		99,114		209,421		418,293			371,445			1,516,721
Accumulated depreciation at:
January 1, 2021		238,685		–		62,149		14,710			–			315,544
Additions		61,303		–		30,010		29,018			–			120,331
Changes in foreign exchange rates		–		–		1,515		–			–			1,515
December 31, 2021		299,988		–		93,674		43,728			–			437,390
Cost at:
January 1, 2022		418,448		99,114		209,421		418,293			371,445			1,516,721
Additions		–		–		–		–			–			–
Impairment		–		–		–		(254,627	)		–			(254,627	)
Changes in foreign exchange rates		–		–		–		–			(7,122	)		(7,122	)
June 30, 2022		418,448		99,114		209,421		163,666			364,323			1,254,972
Accumulated depreciation at:
January 1, 2022		299,988		–		93,674		43,728			–			437,390
Additions		11,846		4,853		13,430		16,732			–			46,861
Changes in foreign exchange rates		–		6,216		7,026		2,915			–			16,157
June 30, 2022		311,834		11,069		114,130		63,375			–			500,408
Net book value at:
December 31, 2021		118,460		99,114		115,747		374,565			371,445			1,079,331
June 30, 2022		106,614		88,045		95,291		100,291			364,323			754,564

21

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

On May 5, 2022, the Board of Directors decided to refocus its resources on the European market and wind-down its operations in Colombia. This resulted in an impairment expense of plant and equipment amounting to $254,627 for the six months ended June 30, 2022.

11. RIGHT OF USE ASSETS

The lease liability was measured at the present value of the remaining lease payments, discounted using incremental borrowing rates on that date ranging from 4% - 15%, depending on the jurisdiction. The Company recorded right of use assets of the same amount which relates to its long-term warehouse and land leases in Germany and Colombia. Depreciation of the right of use assets is calculated using the straight-line method over the remaining lease term.

Right-of-use assets:
Balance on Jan 1, 2022	$	496,635
Addition		10,830
Lease amendment		(17,311	)
Depreciation		(116,993	)
Change in foreign exchange rates		(18,990	)
Balance – June 30, 2022	$	354,171
Lease Liability:
Balance on Jan 1, 2022	$	544,709
Addition		10,830
Lease amendment		(19,521	)
Lease payments		(144,913	)
Finance expense		26,380
Change in foreign exchange rates		(20,912	)
Balance – June 30, 2022	$	396,573
Current lease liability included in lease	$	217,303
Non-current lease liability included in long-term lease		179,270
Total	$	396,573

22

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

12. INTANGIBLE ASSETS AND GOODWILL

The Company holds the following intangible assets and goodwill, which have an aggregate carrying value of $19,579,520 at June 30, 2022 (December 31, 2021 - $19,582,574).

The intangible assets and goodwill in Phatebo relate to the sale of wholesale pharmaceutical products, medical devices and medical cannabis in Germany.

	Supply Relationships		Licenses and Permits		Customer Relationships		Other Intangibles			Goodwill		Total
	$		$		$		$			$		$
Cost at:
January 1, 2022		4,605,120		2,878,200		5,612,490		8,492			6,478,272		19,582,574
Additions		–		–		–		–			–		–
Changes in foreign exchange rates		–		–		–		(357	)		–		–
June 30, 2022		4,605,120		2,878,200		5,612,490		8,135			6,478,272		19,582,574
Accumulated depreciation at:
January 1, 2022		–		–		–		–			–		–
Additions		–		–		–		2,588			–		2,588
Changes in foreign exchange rates		–		–		–		109			–		466
June 30, 2022		–		–		–		2,697			–		3,054
Net book value at:
December 31, 2021		4,605,120		2,878,200		5,612,490		8,492			6,478,272		19,582,574
June 30, 2022		4,605,120		2,878,200		5,612,490		5,438			6,478,272		19,579,520

23

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	June 30,		December 31,
	2022		2021
Accounts payable and accrued liabilities	$	3,946,239	$	4,029,063
Share cancellation liability (a)		562,500		2,250,000
Third tranche of ACA Muller acquisition		4,638,960		4,564,080
Option exercise fee for seed inventory		100,000		100,000
Total	$	9,247,699	$	10,943,143

(a) Effective December 31, 2021, the Company determined that 1,250,000 shares previously recorded as being issued to a former consultant were issued in error, as management believed that the pre-conditions set out in the applicable consulting agreement pursuant to which such shares were issuable had not been met, and therefore the shares were not fully-paid as required by applicable law. As a result of this determination, the 1,250,000 shares previously recorded as being issued were canceled by the Company. While management of the Company believes that the Company’s position is correct, at this time it is not possible to conclude that, more likely than not, the Company would prevail in the event of a legal claim. As a result, as at June 30, 2022, and without acknowledgement (explicitly or implicitly) of any amount or liability arising from such share cancellation, the Company recognized a provision for $562,500 (December 31, 2021 – $2,250,000) to reflect the fair value of the shares cancelled. To date, the former consultant has not initiated or threatened a claim against the Company with regard to this matter; however, if any such claim were to be initiated, the Company intends to vigorously defend itself through appropriate legal proceedings.

14. LOANS PAYABLE

€750,000 bank loan – Volkbank

The Company through Phatebo has a credit facility for €2,000,000 with Volksbank, secured by trade and other receivables of Phatebo. €750,000 or $1,010,025 is outstanding as at June 30, 2022. On June 30, 2022, the loan was renewed and is due on September 30, 2022 at a rate of Euribor plus 1.50% per annum.

€750,000 bank loan – Hypovereinsbank

The Company through Phatebo has a €1,000,000 credit facility agreement with Hypovereinsbank, secured by trade and other receivables of Phatebo. €750,000 or $1,010,025 was due on June 15, 2022 at a rate of Euribor plus 1.74% per annum. On June 24, 2022, the loan was renewed and is due on October 10, 2022 at a rate of Euribor plus 1.88% per annum.

24

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

15. SHARE CAPITAL

a) Authorized

An unlimited number of common shares without par value.

b) Issued

During the six months ended June 30, 2022, the following share capital transactions occurred:

(i)    The Company issued 1,274,444 common shares valued at $2,293,999 in settlement of debt to a consultant (Note 5(c), 16(a)).

(ii)    The Company issued 5,000,000 common shares valued at $9,000,000 in conjunction with the Amalgamation.

c) Go-Public Awards

In conjunction with the RTO, certain awards totaling $6,661,000 became due. These awards have not yet been issued and are expected to be settled as part of the Company’s RSU plan. The expense associated with the Go-Public Awards have been included in listing expense (see Note 5(b)).

d) Share-based compensation

Certain members of key management are entitled to bonuses to be settled as part of the Company’s RSU plan when the Company achieves $50 million in revenue over any 4-quarter period. Based on the Company’s performance to date, it is probable that this milestone would be achieved in the year ending December 31, 2022 and as a result the Company expensed an amount equal to 25% of the value these bonuses or $840,000 for the six months ended June 30, 2022.

e) Stock Options

	Outstanding		Weighted Average Exercise Price		Exercisable		Expiry
		1,667,181	$	1.00		1,667,181	May 30, 2024
Total, December 31, 2021		1,667,181	$	1.00		1,667,181	May 30, 2024
		1,667,181	$	1.00		1,667,181	May 30, 2024
		415,000	$	1.00		415,000	May 11, 2031
		320,000	$	1.00		320,000	May 11, 2026
Total, June 30, 2022		2,402,181	$	1.00		2,402,181

In conjunction with the Amalgamation, a total of 735,000 options were added to previously outstanding stock options of 1,667,181 related to FCC.

For the six-month period June 30, 2022, the Company expensed nil (For the six-month period June 30, 2021 - $41,968) as a result of vesting, and $1,156,100 as part of listing expense (Note 5).  

25

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

16. RELATED PARTY TRANSACTIONS AND BALANCES

a) Key Management Personnel

Compensation to key management, which consists of executives and directors, for the six-month period ended June 30, 2022 and 2021 was as follows:

	Six Months Ended
	June 30, 2022		June 30, 2021
	$		$
Key management compensation settled in cash		652,923		93,397
Share based compensation		840,000		41,968
Consulting fees settled in shares		–		459,500
Advisory fee in shares included in listing expense (Note 5(c))		2,393,999		–
Go-Public Awards included in listing expense		6,661,000		–
		10,547,922		594,865

b) Related Party Balances

Amounts due to related parties as at June 30, 2022 and December 31, 2021 were as follows:

	June 30, 2022		December 31, 2021
	$		$
Amounts due to directors and officers of the Company for consulting fees, finder's fees, equipment, and expenses (included in accounts payable and accruals)		1,113,247		583,856
Prepaid marketing expenses to an entity controlled by a director		150,000		–

c) Other Related Party Transactions

Transactions with related parties for the six months ended June 30, 2022 and 2021 were as follows:

	Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
	$		$
Rent expense incurred with a relative of a director included within premises expense		14,562		21,525
Other rent incurred with key management personnel		33,341		–
Payment processing with an entity controlled by a director and member of key management		12,879		12,476
Marketing expenses with an controlled by a director		150,000		–
Compensation to relatives of key management personnel		58,330		–
Legal expenses incurred with a law firm whose partner is a director of the Company		390,372		–
		659,484		34,001

26

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

Refer to Note 19 for commitments and contingencies pertaining to related parties.

17. CAPITAL MANAGEMENT

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain a flexible capital structure that optimizes the cost of capital within a framework of acceptable risk. The Company manages its capital structure and makes adjustments, based on the funds available to the Company, in order to support its business activities and to safeguard the Company’s ability to continue as a going concern. The capital structure of the Company consists of components of equity attributable to common shareholders’ equity as follows: 

	June 30,		December 31,
	2022		2021
Shareholders’ equity	$	26,670,372	$	25,073,203
	$	26,670,372	$	25,073,203

The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain the future development of the business.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

The Company’s investment policy is to invest its excess cash in low risk, highly liquid short-term interest-bearing investments, selected with regard to the expected timing of upcoming expenditures. The Company will raise additional funds to carry its operations through its upcoming operating period and to satisfy its obligations.

18. FINANCIAL INSTRUMENTS

Financial instruments are agreements between two parties that result in promises to pay or receive cash or equity instruments. The Company classifies its financial instruments as follows: cash and cash equivalents as FVTPL at level 1 of the fair value hierarchy; marketable securities at FVTPL at level 1 of the fair value hierarchy for shares and level 2 of the fair value hierarchy for warrants; receivables as amortized cost; provisions at FVTPL at level 3 of the fair value hierarchy; bank indebtedness at amortized cost, loans payable at amortized cost, and accounts payable and accrued liabilities as amortized cost. The carrying values of these instruments approximate their fair values due to their short term to maturity.

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

(i)	Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
(ii)	Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
(iii)	Level 3 – Inputs that are not based on observable market data.

27

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

The Company’s risk exposures and the impact on the Company’s financial instruments are summarized below:

a) Credit Risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Financial instruments which subject the Company to concentrations of credit risk consist of cash and cash equivalents of $2,436,940, $996,512 of trade receivables classified as receivable, $41,489 of marketable securities, and $531,900 of deposits classified as acquisition deposits which is secured. These accounts represent the Company’s maximum credit risk.

The Company's policy is to invest excess cash in investment-grade short-term, redeemable investment certificates issued by Canadian chartered banks. Management believes the risk of financial loss from cash held in its bank accounts and in guaranteed investment certificates, both are held with a Canadian chartered bank, to be remote. The Company has estimated that ECLs not to be significant on receivables.

b) Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulties in meeting its financial obligations associated with its financial liabilities as they fall due. The Company’s objective is to ensure that there are sufficient committed financial resources to meet its short-term business requirements for a minimum of twelve months. The Company has cash and cash equivalents $2,436,940, current liabilities of $11,579,267 and current net assets of $9,257,591.

The Company has no formal revolving credit facilities available at this time and, given the Company’s current stage of development, it is not expected that such credit facilities will become available to the Company in the next fiscal year.

Due to the level of net monetary assets, management regards the Company’s overall liquidity risk to be low.

As at December 31, 2021	Total $		Within 1 year $		1 to 3 years $		3 to 5 years $
Leases payable		692,720		265,111		427,609		–
Accounts payable & accrued liabilities		10,943,143		10,943,143		–		–
Bank indebtedness		753,072		753,072		–		–
Loans payable		2,158,650		2,158,650		–		–
		14,547,585		14,119,976		427,609		-
As at June 30, 2022
Leases payable		498,142		205,681		292,462		–
Accounts payable & accrued liabilities		9,247,699		9,247,699		–		–
Bank indebtedness		–		–		–		–
Income tax payable		94,215		94,215		–		–
Loans payable		2,020,050		2,020,050		–		–
		11,860,106		11,567,645		92,462		-

28

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

c) Market Risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to of changes in market prices. Market risk comprises three types of risk: interest rate risk, foreign currency risk and other price risk.

Interest Rate Risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. Interest rate risk consists of two components:

(i)	Interest rate cash flow risk is the risk that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates. The Company’s savings account is a variable rate instruments tied to Canadian prime interest rate. A 1% change in interest rates would have a nominal effect on net loss and comprehensive loss of the Company.
(ii)	Interest rate price risk is the risk that changes in prevailing market interest rates differ from the interest rate on the Company’s monetary assets and liabilities.

The Company is not materially exposed to interest rate changes.

Foreign Exchange Risk

Foreign exchange risk is the risk that the fair value of future cash flows will fluctuate as a result of changes in foreign exchange rates. As at June 30, 2022, a portion of the Company’s financial assets and liabilities held in USD, EUR, COP, GBP, and DKK consist of cash and cash equivalents, receivables and accounts payable and accrued liabilities. The Company does not use any techniques to mitigate foreign exchange risk.

The Company’s net monetary assets (liabilities) in the significant foreign currencies as of June 30, 2022 and December 31, 2021 is summarized below with the effect on earnings before tax of a 1% fluctuation of each currency relative to the functional currency of the entity holding it to the CAD dollar:

	Net Monetary Position June 30, 2022 (CAD$ equivalent)			Impact of 1% variance in foreign exchange rate
US Dollars		(4,638,960	)		(46,390	)
Euros		(307,195	)		(3,072	)

	Net Monetary Position December 31, 2021 (CAD$ equivalent)			Impact of 1% variance in foreign exchange rate
US Dollars		(4,564,080	)		(45,641	)
Euros		433,561			4,336

29

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

As at June 30, 2022 and December 31, 2021, the Company had the following assets and liabilities in USD (in CAD$):

	June 30,		December 31,
	2022		2021
	$		$
Accounts payable and accrued liabilities		4,638,960	$	4,564,080
Net exposure to USD		4,638,960	$	4,564,080

As at June 30, 2022 and December 31, 2021, the Company had the following assets and liabilities in Euros (in CAD$):

	June 30,			December 31,
	2022			2021
	$			$
Cash		675,223			594,196
Accounts receivable		979,636			3,010,363
Tax receivable		19,154			–
Due from former ACA shareholder		844,238			898,905
Due from other related party		33,668			–
Bank indebtedness		–			(753,072	)
Accounts payable and accrued liabilities		(839,064	)		(1,158,181	)
Loans payable		(2,020,050	)		(2,158,650	)
Net exposure to Euros		(307,195	)		433,561

19. COMMITMENTS AND CONTINGENCIES

(a) Commitments:

(i) Chief Executive Officer –

Pursuant to an agreement with Clifford Starke, the Company’s Chief Executive Officer, the Company is committed to paying Mr. Starke the following in consideration for services provided to the Company:

· A monthly payment as determined by the Company’s Board of Directors of at least $20,000 per month;

· A $500,000 bonus paid in cash or shares upon raising a cumulative $40,000,000 for the Company;

· A $1,000,000 bonus paid in cash or shares if the Company achieves over $50,000,000 in sales over any four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $75,000,000 in sales over a four quarter period;

· A $3,000,000 bonus paid in cash or shares if the Company achieves over $100,000,000 in sales over a four quarter period;

On July 25, 2018, Harmony entered into an Intellectual Property License Agreement with Hampstead Private Capital Limited (“Hampstead”) – a corporation controlled by Mr. Starke. Under the terms of this agreement, Harmony is to pay Hampstead a royalty in the amount of 3.5% of the gross revenues from sale of Harmony products.

30

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

(ii) President and Chief Operating Officer –

On August 1, 2021, the Company entered into a consulting agreement with Edward Woo, the Company’s President and Chief Operating Officer. On July 23, 2022, the consulting agreement was revised to an employment agreement. Under the terms of the agreement, the Company is to pay Mr. Woo the following:

· $12,500 monthly in cash;

· A $100,000 bonus paid in common shares of the Company (at the 20-day Volume Weighted Average Price (“VWAP”) of the Company if public) upon achievement of $50,000,000 in sales over any 12-month period; and

· $100,000 bonus paid in common shares of the Company (at the go public valuation) upon delivery of GMP EU product into Germany;

(iii) Chief Financial Officer –

On February 18, 2022, the Company appointed Dany Vaiman as the Company’s Chief Financial Officer.  Under the terms of the agreement, the Company is to pay Mr. Vaiman the following:

· $181,000 per annum, payable semi-monthly;

· Additional share compensation of:

i.	$180,000 in shares of the Company (valued at the 10-day VWAP of the shares trading price prior to the date of achievement) upon the completion of $10,000,000 of cumulative fundraising of the Company
ii.	$180,000 in shares of the Company (valued at the 10-day VWAP of the shares trading price prior to the date of achievement) upon the Company’s achievement of $50,000,000 in revenues over any four-quarter period; and
iii.	$180,000 in shares of the Company (valued at the 10-day VWAP of the shares trading price prior to the date of achievement) upon the Company’s achievement of $100,000,000 in revenues over any four-quarter period

All equity-based compensation, if earned, is expected to be settled as part of the Company’s RSU plan.  

(iv) Letter of Intent (“LOI”) to Acquire German Pharmaceutical and Medical Cannabis Products Distributor

On May 6, 2022, the Company entered into an LOI outlining the general terms and conditions pursuant to which it has agreed to acquire 100% ownership of a German pharmaceutical distributor (the “Target Company”). The Target Company offers a range of medical brands.

Under the terms of the LOI, the Company is to acquire the Target Company, all of its subsidiaries and affiliated entities that form its business, as well as all the intellectual property used in its business (the “Proposed Acquisition”), for aggregate consideration of €18 million, with €15.3 million payable in cash and €2.7 million to be paid in common shares of the Company. In addition, The Company is to pay an earn-out of up to €9 million, payable in common shares of the Company, based on financial performance of the Target Company in fiscal 2024. The common shares are to be issued at a value equal to the 10-day VWAP prior to issuance. It is expected that the cash portion of the purchase price will be funded by Company through proceeds from financing initiatives.

The LOI serves as an agreement-in-principle concerning the Proposed Acquisition, and the final structure of the Proposed Acquisition and its terms and conditions are to be subject to receipt by all parties of tax, corporate and securities law advice, and the LOI is to be superseded by a definitive agreement, which is to contain additional customary representations, warranties, covenants, opinions, conditions and indemnities. The Proposed Acquisition is to be subject to customary closing conditions including the approval of the TSXV, all other required regulatory, shareholder approval of the Target Company) and corporate approvals, compliance with covenants, no material adverse effect, absence of litigation, receipt of audited financial statements of the Target Company and completion of due diligence.

31

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

The Proposed Acquisition is expected to be a “Fundamental Acquisition” as defined in the policies of the TSXV. It is expected that the Company’s stock will remain halted until the TSXV completes its review of the Proposed Acquisition. Subject to the entering into of the definitive agreement relating to the Proposed Acquisition, and the satisfaction or waiver of all conditions precedent to closing, it is expected that the Proposed Acquisition will close in the fourth quarter of 2022.

(v) Media Services Contract with Market One Media Group Inc.

On March 21, 2021, the Company entered into a media services agreement with Market One Media Group Inc., an entity controlled by Farhan Lalani, a Director of the Company for a service fee of $500,000. Of this amount, $300,000 has been paid and of the amount paid, $150,000 remains as a prepaid expense as at June 30, 2022.

(b) Contingencies:

The Company may be, from time to time, subject to various administrative and other legal proceedings arising in the ordinary course of business. Contingent liabilities associated with legal proceedings are recorded when a liability is probable, and the contingent liability can be reasonably estimated. (See also Note 13(a))

On July 21, 2022, a statement of claim was filed by Uptown Ventures Ltd. (operating as Globe Property Management) against Alchemist Labs Ltd. and 1200325 B.C. Ltd. – both of which are wholly owned subsidiaries of the Company, in the Court of Queen’s Bench for Manitoba. The claim alleges breach of contract and non-payment of rent. The plaintiff has claimed $506,046 plus interest and costs. The Company, without acknowledgement (explicitly or implicitly) of any amount or liability arising from this legal action, has included within lease liabilities an amount of $220,311 based on the discounted future lease payments associated with this lease. The Company intends to vigorously defend itself through appropriate legal proceedings.

During the period, certain former consultants to the Company, have filed or threatened to file statements of claim against the Company arising in the ordinary course of business. The Company has accrued, without acknowledgement (explicitly or implicitly) of any amount or liability from these actual or potential legal actions, $133,011 as part of Accounts Payable and Accrued Liabilities and $91,000 as part of Reserves within Shareholders’ Equity. The Company intends to vigorously defend itself through appropriate legal proceedings.

32

Franchise Global Health Inc.

Notes to the Condensed Consolidated Interim Financial Statements

June 30, 2022

(Expressed in Canadian Dollars, unless otherwise stated)

(unaudited)

20. SEGMENTED INFORMATION

The Company has two reportable geographic segments – Germany and Denmark. These segments reflect how the Company’s operations are managed, how the Company’s Chief Executive Officer, who is the chief operating decision maker (“CODM”), allocates resources and evaluates performance.

	Germany		Denmark			Corporate & Other			Total
As at and for the six months ended June 30, 2022
Revenue	$	30,092,584		–			–		$	30,092,584
Gross Profit	$	2,118,298		–			–		$	2,118,298
Net Income (Loss)	$	439,905	$	(226,077	)	$	(18,307,521	)	$	(18,093,693	)
Assets	$	27,563,957	$	9,565,489		$	4,927,567		$	42,057,013
Liabilities	$	7,658,731	$	9,606		$	7,718,304		$	15,386,641
For the six months ended June 30, 2021
Revenue	$	732,747		–			–		$	732,747
Gross Profit	$	221,278		–			–		$	221,278
Net Income (Loss)	$	378,687		–		$	(1,533,525	)	$	(1,154,838	)
As at December 31, 2021
Assets	$	27,508,300	$	10,113,773		$	5,477,960		$	43,100,033
Liabilities	$	7,981,622	$	9,606		$	10,035,601		$	18,026,830

The Company has one operating segment – pharmaceutical distribution, including medicinal cannabis and cannabis seeds.

21. OTHER INCOME (EXPENSES)

	Six months ended June 30, 2022			Six months ended June 30, 2021
Revaluation of share cancellation liability (Note 14)	$	1,687,500		$	–
Fair value adjustment on marketable securities (Note 9)		(435,392	)		(609,248	)
Settlement due to merger termination (Note 9)		–			725,000
Other income		317,072			537,318
	$	1,569,180		$	653,070

33

EX-99.6

 EXHIBIT 99.6

Flora Growth Corp.

Unaudited Pro Forma Consolidated Financial Statements

(United States Dollars, unless otherwise noted)

June 30, 2022

Flora Growth Corp.

Unaudited Pro Forma Consolidated Statement of Financial Position

(Stated in Thousands of United States Dollars)

										Adjustments                       As at June 30, 2022
Assets	Flora Growth Corp.			Franchise Global Health Inc.			Note			Acquisition of Franchise Global Health Inc.			Consolidated
Cash and cash equivalents		10,268			1,891			2	f		(1,137	)		10,828
								2	i		(194	)
Restricted cash		1			-						-			1
Trade and amounts receivables		5,092			2,420						-			7,512
Due from former shareholder		-			655						-			655
Loans receivable and advances		262			-						-			262
Due from related party		-			26						-			26
Prepaid expenses and deposits		2,224			1,418						-			3,642
Biological assets		14			-						-			14
Inventory		9,295			9,726						-			19,021
Marketable securities		-			32						-			32
Total current assets		27,156			16,168						(1,331	)		41,993
Acquisition deposits		-			413						-			413
Plant, plant and equipment		4,565			586						-			5,151
Right of use assets		3,639			275						-			3,914
Intangible assets		13,432			10,167						-			23,599
Goodwill		28,666			5,027		2a (vi)				4,361			38,054
Investments		1,337			-						-			1,337
Other assets		273			-						-			273
Total assets		79,068			32,636						3,030			114,734
Liabilities
Trade payables and accrued liabilities		7,401			7,176			2	c		1,000			14,602
								2	d		162
								2	f		(1,137	)
Income taxes payable		-			73						-			73
Current portion of long-term debt		10			1,568						-			1,578
Current portion of lease-liability		1,120			169						-			1,289
Other accrued liabilities		20			-						-			20
Total current liabilities		8,551			8,986						25			17,562
Non-current debt		138			-						-			138
Non-current lease liability		2,441			139						-			2,580
Deferred tax		1,511			2,815						-			4,326
Other long term liabilities		3,958			-						-			3,958
Total Liabilities		16,599			11,940						25			28,564
Shareholders' equity
Share capital		119,300			101,914			2	a		25,023			144,323
							2a (vii), 2b, 2e				(102,709	)
								2	b		795
Reserves		-			7,691		2a (vii), 2e				(7,691	)		-
Options		6,611			-		2a(ii)				34			6,645
Warrants		10,047			-						-			10,047
AOCI		(1,675	)		(151	)	2a (vii)				151			(1,675	)
Deficit		(71,512	)		(88,758	)	2a (vii), 2b				89,553			(72,868	)
								2	b		(795	)
								2	c		(1,000	)
								2	d		(162	)
								2	i		(194	)
Non-controlling interest		(302	)		-						-			(302	)
Total shareholders’ equity		62,469			20,696						3,005			86,170
Total liabilities & shareholders’ equity		79,068			32,636						3,030			114,734

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

2

Flora Growth Corp.

Unaudited Pro Forma Consolidated Statement of Loss and Comprehensive Loss

(Stated in Thousands of United States Dollars)

							For the six months ended June 30, 2022
							Adjustments
	Flora Growth Corp.			Franchise Global Health Inc.			Note	Acquisition of Franchise Global Health Inc.		Consolidated
Revenue		14,917			23,671				-		38,588
Cost of goods sold		8,415			22,005				-		30,420
Gross Profit before fair value adjustments		6,502			1,666				-		8,168
Unrealized gain on changes in fair value of biological assets		46			-				-		46
Realized fair value amounts included in inventory sold		(2	)		-				-		(2	)
Gross profit		6,546			1,666				-		8,212
Expenses:
Consulting and management fees		5,243			273				-		5,516
Professional fees		2,096			677				-		2,773
Selling, general and administrative		2,429			2,643				-		5,072
Promotion and communication		4,719			-				-		4,719
Travel expenses		601			-				-		601
Share-based compensation		2,855			661				-		3,516
Research and development		422			-				-		422
Depreciation and amortization		1,712			131				-		1,843
Bad debt expense		405			-				-		405
Goodwill impairment		16,000			-				-		16,000
Other expenses (income) net		1,178			-				-		1,178
Foreign exchange loss		-			94				-		94
		37,660			4,479				-		42,139
Other items
Listing expense		-			12,264				-		12,264
Interest expense		69			53				-		122
Foreign exchange loss (gain)		200			-				-		200
Unrealized loss on fair value of investments		1,333			-				-		1,333
Asset impairment		-			203				-		203
Other incomes and expenses		-			(1,234	)			-		(1,234	)
(Loss) income before income taxes		(32,716	)		(14,099	)			-		(46,815	)
Income tax expense		-			(132	)			-		(132	)
Net loss		(32,716	)		(14,231	)			-		(46,947	)
Net loss attributable to Flora Growth Corp.		(32,611	)		(14,231	)					(46,842	)
Net loss attributable to non-controlling interests		(105	)		-						(105	)
Basic and diluted loss per share attributable to Flora Growth Corp.		(0.42	)		(0.11	)					(0.39	)
Exchange differences on foreign operations		(567	)		(205	)			-		(772	)
Comprehensive loss		(33,283	)		(14,436	)			-		(47,719	)
Comprehensive loss attributable to Flora Growth Corp.		(33,178	)		(14,436	)					(46,614	)
Comprehensive loss attributable to non-controlling interests		(105	)		-						(105	)
Weighted average number of shares – basic and dilutive		76,944,000							43,525,951		120,469,951

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

3

     Flora Growth Corp.

Unaudited Pro Forma Consolidated Statement of Loss and Comprehensive Loss

(Stated in Thousands of United States Dollars)

							For the year ended December 31, 2021
							Adjustments
	Flora Growth Corp.			Franchise Cannabis Corp.			Note			Acquisition of Franchise Global Health Inc.			Consolidated
Revenue		8,980			904						-			9,884
Cost of goods sold		6,627			725						-			7,352
Gross Profit before fair value adjustments		2,353			179						-			2,532
Unrealized gain on changes in fair value of biological assets		72			-						-			72
Gross profit		2,425			179									2,604
Expenses:
Consulting and management fees		7,324			667						-			7,991
Professional fees		4,269			2,788		2b, 2c				1,795			8,852
Selling, general and administrative		4,507			1,828			2	d		162			6,691
								2	i		194
Travel expenses		603			-						-			603
Share-based compensation		1,340			134						-			1,474
Research and development		132			-						-			132
Depreciation and amortization		765			174						-			939
Bad debt expense		1,335			-						-			1,335
Goodwill impairment		51			-						-			51
Other expenses (income) net		1,050			-						-			1,050
Foreign exchange loss		-			275						-			275
		21,376			5,866						2,151			29,393
Other items
Premium paid on acquisition		-			4,168						-			4,168
Interest expense		84			19						-			103
Foreign exchange loss (gain)		79			-						-			79
Unrealized loss on fair value of investments		2,345			-						-			2,345
Asset impairment		-			3,352						-			3,352
Other incomes and expenses		-			672						-			672
(Loss) income before income taxes		(21,459	)		(13,898	)					(2,151	)		(37,508	)
Income tax benefit (expense)		98			-						-			98
Net loss		(21,361	)		(13,898	)					(2,151	)		(37,410	)
Net loss attributable to Flora Growth Corp.		(21,249	)		(13,898	)								(37,298	)
Net loss attributable to non-controlling interests		(112	)		-									(112	)
Basic and diluted loss per share attributable to Flora Growth Corp.		(0.48	)		(0.12	)								(0.43	)
Exchange differences on foreign operations		(1,147	)		35						-			(1,112	)
Comprehensive loss		(22,508	)		(13,863	)					(2,151	)		(38,522	)
Comprehensive loss attributable to Flora Growth Corp.		(22,396	)		(13,863	)								(38,410	)
Comprehensive loss attributable to non-controlling interests		(112	)		-									(112	)
Weighted average number of shares – basic and dilutive		43,954,000									43,525,951			87,479,951

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

4

1.     Basis of Presentation

These unaudited pro forma condensed combined financial statements (the “Pro Forma Financial Statements”) are prepared to illustrate the impact of the plan of arrangement between Flora Growth Corp. (“Flora” or the “Company”) and Franchise Global Health Inc. (“Franchise”) (the “Arrangement”).

The Company is listed on the NASDAQ and is a manufacturer of global cannabis products and brands, building a connected design-led collective of plant-based wellness and lifestyle brands. Franchise is listed on the TSX Venture Exchange (the “TSXV”) and is a medical cannabis company focused on building European-focused medical cannabis operations with an understanding of the plant and heritage of European pharmaceutical distribution, while providing effective solutions to the growing health needs of the European Union.

The Transaction is to represent an acquisition of Franchise by Flora through a plan of arrangement. All Franchise shares outstanding immediately prior to the Arrangement are to be exchanged for shares in Flora based on an initial exchange ratio of 0.3234598886 Franchise common shares for each Company common share (“Initial Exchange Ratio”), provided that if the Franchise or the Company issues any common shares prior to the closing of the Arrangement, the initial exchange ratio shall be adjusted accordingly, except that:

(a)   If the 20-day Volume Weighted Average Price (“VWAP”) of the Company immediately before closing is greater than $1.25 but less than $1.50, then the exchange ratio will be calculated as (i) the initial price based on the Initial Exchange Ratio divided by (ii) the VWAP.

(b)   If the VWAP is greater than or equal to $1.50, then the exchange ratio will be calculated as (i) the initial price based on the Initial Exchange Ratio divided by (ii) $1.50; provided, however, that the aggregate consideration payable for all Company common shares will in no event be more than 43,525,951 nor be less than 36,515,060.

The Pro Forma Financial Statements are those of Flora and have been prepared for inclusion in the Information Circular of Franchise for the upcoming special meeting of the shareholders of Franchise.

These Pro Forma Financial Statements are based on Flora’s historical consolidated financial statements and Franchise’s historical consolidated financial statements as adjusted to give effect to the acquisition of Franchise expected to close in December 2022.

These Pro Forma Financial Statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. Our actual financial condition and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

There have been no adjustments made to give effect to any potential synergies or dis-synergies which may arise from the Arrangement.

The accounting policies used in the preparation of the Pro Forma Financial Statements are those set out in Flora’s annual audited financial statements for the year ended December 31, 2021, as well as the annual audited financial statements of Franchise for the year ended December 31, 2021, and as such should be read in conjunction with such audited financial statements.

The unaudited pro forma consolidated statement of financial position as at June 30, 2022 has been prepared from information derived from the following:

• Flora’s unaudited statement of financial position as at June 30, 2022;

• Franchise’s unaudited statement of financial position as at June 30, 2022, translated to United States dollars from Canadian dollars at the June 30, 2022 rate of 0.7760.

The unaudited pro forma consolidated statement of loss and comprehensive loss for the six months ended June 30, 2022 has been prepared from information derived from the following:

• Flora’s unaudited statement of loss and comprehensive loss for the six months ended June 30, 2022;

• Franchise Global Health Inc.’s unaudited statement of operations for the six months ended June 30, 2022, translated into United States dollars from Canadian dollars at the six-month average rate of 0.7866.

5

The unaudited pro forma consolidated statement of loss and comprehensive loss for the year ended December 31, 2021 has been prepared from information derived from the following:

• Flora’s audited statement of loss and comprehensive loss for the period from January 1, 2021 to December 31, 2021;

• Franchise Cannabis Corp.’s audited statement of operations for the year ended December 31, 2021, translated to United States dollars from Canadian dollars at the twelve-month average rate of 0.7980. The amalgamation between Franchise Cannabis Corp. and a wholly owned subsidiary of Mercury Acquisition Corp. (renamed Franchise Global Health Inc.) occurred on March 25, 2022. For accounting purposes, Franchise Cannabis Corp. is the acquiror and therefore its results are utilized to represent the results of Franchise Global Health Inc. for the year end ended December 31, 2021.

The pro forma adjustments include all those transactions attributable to the Arrangement for which the complete financial effects are objectively determinable.

The Pro Forma Financial Statements are not intended to reflect the results of operations or the financial position that would have actually resulted had the Arrangement been effected on the dates indicated or the results which may be obtained in the future. The Pro Forma Financial Statements should be read in conjunction with the other sections of the Management Information Circular.

The pro forma adjustments are based on certain estimates and assumptions. Management believes that such assumptions provide a reasonable basis for presenting all the significant effects of the Arrangement contemplated and that the Pro Forma Financial Statement adjustments give appropriate effect to those adjustments and are properly applied in the Pro Forma Financial Statements.

The Pro Forma Financial Statements are based on estimates and assumptions set forth in the notes herein. The Pro Forma Financial Statements are being provided solely for informational purposes and are not necessarily indicative of any future consolidated financial position or of the consolidated financial position that might have been achieved for the periods indicated; nor is it necessarily indicative of future results that may occur.

The allocation of the purchase price to reflect the fair values of the assets acquired and liabilities assumed is based on management’s estimate of such assets and liabilities and, accordingly, the adjustments that have been included in the Pro Forma Financial Statements as at June 30, 2022 may be subject to change. The preliminary purchase price allocation has been used to prepare the transaction accounting adjustments in the pro forma balance sheet and income statement. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations as described in more detail in the explanatory notes below. The final allocation is expected to be completed when the Company files its audited financial statements for the year then ended December 31, 2022, and could differ materially from the preliminary allocation used in the transaction accounting adjustments. The final allocation may include (1) changes in fair values of plant and equipment and inventories; (2) changes in allocations to intangible assets, as well as goodwill; and (3) other changes to assets and liabilities.

6

2.     Pro Forma Assumptions and Adjustments

The unaudited pro forma consolidated statement of financial position gives effect to the completion of the Arrangement – as if the Arrangement had occurred on June 30, 2022. The unaudited pro forma consolidated statement of loss and comprehensive loss gives effect to the completion of those transactions had they occurred on January 1, 2021. The Pro Forma Financial Statements are based on the following estimates and assumptions:

a)    On October 21, 2022 Flora entered into a share purchase agreement for the Arrangement. Management has assessed the Arrangement under IFRS 3 Business Combinations and concluded that it constitutes a business acquisition. Management of Flora has made a preliminary determination of the fair value of the tangible and intangible assets acquired and liabilities assumed in the Arrangement. If new information obtained within one year of the date of the Arrangement about the facts and circumstances that existed at the date of the Arrangement identifies adjustments to the amounts then the accounting for the Arrangement is to be revised. The final allocation of the fair value of the net assets acquired and aggregate consideration may be significantly different from the preliminary allocation as presented below:

43,525,951 common shares valued at $0.5749 per share (i)	$	25,023,000
103,520 agent options value at $0.33 per option (ii)		34,000
Total consideration		25,057,000
Purchase price allocation:
Cash and cash equivalents		1,891,000
Receivables		2,420,000
Due from former shareholder		655,000
Due from other related party		26,000
Prepaid expenses and deposits		1,418,000
Inventory (iii)		9,726,000
Marketable securities		32,000
Acquisition deposits		413,000
Plant and equipment (iv)		586,000
Right of use assets		275,000
Accounts payable and accrued liabilities		(7,176,000	)
Income taxes payable		(73,000	)
Lease liabilities		(308,000	)
Loans payable		(1,568,000	)
Deferred income tax liabilities		(2,815,000	)
Intangible assets (v)		10,167,000
Goodwill (vi)		9,388,000
	$	25,057,000

7

(i) The value of the purchase price will vary based on the market price of the Company’s common shares upon consummation of the Arrangement. The Company believes that the following fluctuations in the market price of its common stock is reasonably possible based on historical volatility, and the potential effect on purchase price would be:

	Company’ share price		Purchase Price
As presented	$	0.5749	$	25,057,000
50% Decrease	$	0.2875	$	12,548,000
30% Decrease	$	0.4024	$	17,549,000
50% Increase	$	0.8624	$	37,571,000
217% Increase	$	1.2500	$	54,441,000
239% Increase	$	1.3750	$	54,441,000
259% Increase	$	1.4900	$	54,441,000
261% Increase	$	1.5000	$	65,323,000
304% Increase	$	1.7500	$	76,204,000

(ii) As part of the Arrangement, 320,000 stock options in Franchise are expected to be converted to 103,520 stock options in the Company assuming an initial exchange ratio of 0.3235, and valued at $0.33 per stock option with the following assumptions utilized within a Black-Scholes valuation model:

Expiry: May 11, 2026

Stock price: $0.5749

Exercise price: $1.29

Volatility: 100%

Annual rate of dividends: 0%

Risk-free rate of interest: 3.75%

(iii)	The calculation of the fair value of inventory is subject is preliminary and subject to change. The carrying value was used as it would approximate the fair value based on Franchise’s historical net margins. For the seeds inventory, the fair value has not yet been determined. As a result of this determination, there have been no adjustments to pro forma financial statements.
(iv)	The Company has not yet determined the fair value of plant and equipment acquired and is using the carrying value.
(v)	The Company has preliminarily identified and valued $10,167,000 in intangible assets in relation to Phatebo GmbH based on their carrying values, including $3,573,000 for supply relationships, $2,233,000 for licenses and permits, and $4,355,000 for customer relationships. These intangible assets have an indefinite useful life. In addition, $6,000 of intangible assets with a definite life average of 4 years has been identified. The fair values of intangible assets for other subsidiaries have not yet been determined. Since all information required to perform a detailed valuation analysis of Franchise’s intangible assets could not be obtained as of the date of this filing, for the purposes of these pro forma financial statements, the Company used certain assumption based on previous valuations concluded for these intangible assets within the preceding twelve months. A 10% change in the valuation of intangible assets would cause a corresponding increase or decrease in the balance of goodwill of $1,073,200, and annual amortization expense of approximately $145,000, assuming an overall weighted average useful life of 7 years.
(vi)	Reflects adjustment to remove Franchise’s historical goodwill of $5,027,000 and record goodwill resulting from the Arrangement of $9,388,000.
(vii)	Reflects the elimination of Franchise’s historical equity balances.

b)	No finder’s fees or commissions were paid or are payable in connection with the Arrangement other than share-based fees to certain investment banks acting as advisors to Franchise. These fees would be valued at $795,000 incurred by Franchise prior to the closing of the Arrangement.
c)	Represents the accrual of legal, consulting and other professional fees in connection with the Arrangement and is estimated at $1,000,000. These costs will not affect the Company’s income statement beyond 12 months after the closing of the Arrangement.
d)	Certain members of Franchise’s executive management are entitled to compensation in the event of termination without cause, including termination due to a change in control. These costs total $162,000.
e)	In connection with the Arrangement, Franchise is expected to settle certain earned obligations through granting of restricted share units, which are to vest immediately prior to the Arrangement. The corresponding expense of $5,169,000 is included within listing expense in the historical income statement of Franchise for the six months ended June 30, 2022. These costs will not affect the Company’s income statement beyond 12 months after the closing of the Arrangement.
f)	In connection with the Arrangement, Franchise is expected to settle accounts payable and accrued liabilities balances as stipulated in the Arrangement.
g)	In connection with and immediately preceding the Arrangement, Flora is expected to enter into an indemnification agreement with certain shareholders of Franchise. As a result, the shares of certain shareholders would be held in escrow and utilized to indemnify the Company against certain losses which may arise out of certain pre-existing litigation against Franchise as well as litigation which may be brought in the future against Franchise and pertaining to the period prior to the Arrangement. There are no adjustments to the Pro Forma Financial Statements as a result of this indemnification agreement.
h)	The Company utilized an effective income tax rate of nil for the pro forma adjustments as these adjustments net to a taxable loss for which there is insufficient evidence to recognize a deferred income tax asset.
i)	This adjustment reflects new compensation arrangements executed with certain key executives in connection with the Arrangement, resulting in a $194,000 increase in the annual compensation for these executives from their previous compensation.

3.     Share Capital

A continuity of the pro forma consolidated share capital is as  follows:

As at June 30, 2022	Note		Number of shares		Amount
Flora common shares outstanding prior to the Arrangement				76,944,000	$	119,300,000
Shares issued to effect the Arrangement		2a		43,525,951		25,023,000
				120,469,951	$	144,323,000

8

EX-99.7

EXHIBIT 99.7

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement on Form F-3 (File No. 333-267585) and the Registration Statements on Form S-8 (File Nos. 333-259198, 333-262660 and 333-266400) of Flora Growth Corp. of our audit report dated March 9, 2022 for the year ended December 31, 2020, with respect to the consolidated financial statements of Franchise Cannabis Corp., which appears in this Report on Form 6-K.

/s/ MNP LLP

MNP LLP

Vancouver, British Columbia

October 24, 2022

EX-99.8

EXHIBIT 99.8

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement on Form F-3 (File No. 333-267585) and the Registration Statements on Form S-8 (File Nos. 333-259198, 333-262660 and 333-266400) of Flora Growth Corp. of our audit report dated April 27, 2022 for the year ended December 31, 2021, with respect to the consolidated financial statements of Franchise Cannabis Corp., which appears in this Report on Form 6-K.

/s/ Zeifmans LLP

Zeifmans LLP

Toronto, Ontario

October 24, 2022

EX-99.9

EXHIBIT 99.9

EXECUTIVE EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is entered into this ___ day of December 2022 (the “Effective Date”), by Flora Growth Management Corp., a Florida corporation with a principal business address located at3406 SW 26^th Terrace, Suite C-1, Fort Lauderdale, FL 33312 (“Flora Management”), and Clifford Starke (“Executive”). Executive and Flora Management are referred to as “Parties” or “Party” herein.

WHEREAS, Flora Management, a wholly owned subsidiary of Flora Growth Corp., a corporation formed under the laws of Ontario, Canada and publicly traded on the NASDAQ Capital Market (“Flora Growth”), desires to employ Executive as its President ; and

WHEREAS, Executive wishes to join Flora Management as President on the Effective Date as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

1. Term

Flora Management shall employ Executive, and Executive shall be employed by Flora Management, upon the terms and conditions set forth in this Agreement. Unless terminated earlier pursuant to Section 5 below, Executive’s employment pursuant to this Agreement shall be for a period of two (2) years commencing on the Effective Date and ending on December __, 2024 (the “Term”). Non-renewal of this Agreement shall not constitute a termination of Executive under this Agreement for purposes of Section 5 below. The period of Executive’s employment with Flora Management shall be the “Employment Period.”

2. Title; Duties

(a) Commencing on the Effective Date, Executive shall be employed as President. Executive shall report to the Chief Executive Officer (“CEO”) of Flora Management, who shall have the final and exclusive authority to direct, control and supervise the activities of Executive. Executive shall perform such services consistent with his position as may be assigned to him from time to time by the CEO. Executive is employed in a fiduciary relationship with Flora Management. In addition to the foregoing, Executive shall perform duties consistent with his appointment from time to time to any other executive positions with Flora Management or any of Flora Management’s related or affiliated entities including, but not limited to, Flora Growth (collectively, the “Flora Affiliates”). For the avoidance of doubt, Executive may be appointed, removed, and reappointed to or from executive and directorship positions of any Flora Affiliate and any such action, other than a removal of Executive as an executive of Flora Management shall not constitute a termination of Executive under this Agreement.

(b) Executive shall carry out his duties set forth in this Agreement at his home office or remotely; provided, however, that Executive’s duties require extensive and extended travel, which the parties expect, may involve travel approximately forty percent (40%) of the time with fluctuations based upon business exigencies.

3. Extent of Services

(a) General. Except as provided herein, Executive shall devote a substantial majority of his business time, attention, skill, and effort to the performance of his duties under this Agreement. Executive may, to the extent such activities do not impair the performance of his duties to Flora Management or the Flora Affiliates: (i) engage in personal investments and charitable, professional, and civic activities; (ii) serve on boards of directors (or other governing bodies) of non-competitive corporations (or other entities) other than Flora Management and the Flora Affiliates; and (iii) engage in such additional activities and serve on such additional boards of directors (or other governing bodies) as the Flora Growth Board shall approve (collectively, “Outside Activities”); provided, however, that Executive shall promptly cease any Outside Activity if directed to do so by the board of directors of Flora Growth (the “Flora Growth Board”) in its sole and absolute discretion. Executive shall not serve on the board of directors (or other governing body) of any corporation (or any other entity) that engages in activities in competition with those of Flora Management or the Flora Affiliates, nor shall Executive engage in activities that would create an actual or apparent conflict of interest, in each case as determined by the Flora Growth Board in its sole and absolute discretion. Executive shall perform his duties to the best of his ability, shall adhere to Flora Management’s published policies and procedures, and shall use his best efforts to promote the interests, reputation, business, and welfare of both Flora Growth and Flora Management.

4. Compensation and Benefits

(a) Salary. Flora Management shall pay Executive a gross annual base salary (“Base Salary”) of $320,000. For the avoidance of doubt, Executive shall not be entitled to receive any other salary to the extent he serves as an officer, director, or employee of any other Flora Affiliate. The Base Salary, minus such deductions as may be required by law or reasonably requested by Executive, shall be paid in accordance with Flora Management’s normal payroll practices but not less frequently than monthly. The Flora Growth Board shall review Executive’s Base Salary annually in conjunction with its regular review of executives’ salaries and make such increases, if any, to his Base Salary as the Flora Growth Board shall deem appropriate in its sole and absolute discretion.

(b) Incentive Compensation

(i) On the Effective Date, Executive shall be granted 100,000 shares of restricted stock under the Company’s 2022 Incentive Compensation Plan, which shares shall vest one year from the date of the grant. Commencing in fiscal year 2023, Executive shall be eligible to receive a “Discretionary Annual Bonus” with a target amount of eighty percent (80%) of Base Salary. The amount, if any, of each Discretionary Annual Bonus payable to Executive shall be determined by the Flora Growth Board in its sole and absolute discretion, taking into account such criteria as the Flora Growth Board shall deem appropriate and may be more or less than the target amount. The Flora Growth Board shall make its determination of the amount of the Discretionary Annual Bonus (if any) payable to Executive promptly after the Flora Growth Board’s acceptance of the financial results for the applicable year. Executive shall be entitled to receive the Discretionary Annual Bonus (if any) for a given year so long as he is an employee on the last day of the year for which the Discretionary Annual Bonus is given. Each such Discretionary Annual Bonus directed to be awarded to Executive shall be payable as soon as practical, but no later than March 15 of the year following the year of performance. Subject to the foregoing, Executive may be entitled to receive a pro-rata amount of the Discretionary Annual Bonus for any partial calendar year occurring by reason of termination of this Agreement pursuant to Section 5(b) or (c) below.

(ii) Commencing in fiscal year 2023, Executive shall be eligible to participate in any equity compensation plan under which similarly-situated senior executives of Flora Management and the Flora Affiliates are eligible to receive equity awards for service to Flora Management (the “EIP”). The terms and amounts of any EIP awards granted to Executive shall be determined by the Flora Growth Board in its sole and absolute discretion. Payments of amounts (if any) under the EIP shall be structured to provide liquidity at such times and in such amounts as is necessary to permit Executive to pay on a timely basis all income and employment taxes due by reason of any incentive compensation payable to him under the EIP.

(iii) Executive may be eligible to participate in such other incentive compensation programs as may be provided to senior executives of Flora Management or the Flora Affiliates from time-to-time.

(iv) Notwithstanding anything to the contrary contained in this Agreement, Executive’s entitlement to any Discretionary Annual Bonus and any award granted to Executive under the EIP or any other incentive compensation program shall be determined and approved by the Flora Growth Board, in each case in its sole and absolute discretion.

(c) Other Benefits. Executive shall be entitled to paid time off and holiday pay in accordance with Flora Management policies in effect from time to time, and to participate in such life, health and disability insurance, pension, deferred compensation and incentive plans, stock options and awards, performance bonuses and other benefits as Flora Management extends, as a matter of policy, to senior executive employees of Flora Management.

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(d) Reimbursement of Business Expenses. Flora Management shall reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by Executive in connection with, or related to, the performance of his duties, responsibilities or services to Flora Management and the other Flora Affiliates under this Agreement in accordance with the reimbursement policy and procedure then adopted, from time to time, by Flora Management and upon presentation by Executive of reasonable documentation, expense statements, vouchers and such other supporting information as Flora Management may reasonably request. Notwithstanding the foregoing, Executive shall not be entitled to reimbursement in any calendar month in excess of $15,000 without the prior written approval of Flora Management’s CEO.

5. Termination

(a) Termination by Flora Management for Cause. Flora Management may terminate Executive’s employment at any time for Cause upon written notice. For purposes of this Agreement, “Cause” for termination shall mean any of the following: (i) the conviction of Executive of, or the entry of a plea of guilty, first offender probation before judgment or nolo contendere by Executive to, any felony or any other crime involving dishonesty; (ii) fraud, misappropriation or embezzlement in connection with employment; (iii) breach of fiduciary duty or duty of loyalty by Executive with respect to Flora Management or any of the Flora Affiliates; (iv) Executive’s willful failure or refusal to perform assigned duties or comply with any lawful written directive of the CEO or the Flora Growth Board; (v) Executive’s gross negligence in the performance of his assigned duties for Flora Management or any Flora Affiliate; (vi) any willful act or omission of Executive that the Flora Growth Board reasonably determines to be likely to have a material adverse impact on Flora Management’s or any Flora Affiliate’s business or reputation for honesty and fair dealing; (vi) the material breach by Executive of this Agreement or any other contract with Flora Management or any Flora Affiliate that is not cured (if capable of cure, as determined by the Flora Growth Board in its reasonable judgment) within thirty (30) days following written notice to Executive describing such breach; or (vii) the material violation by Executive of any applicable policy of Flora Management or any of the Flora Affiliates that is not cured (if capable of cure, as determined by the Flora Management Board in its reasonable judgment) within thirty (30) days following written notice to Executive describing such violation. For purposes of this Section 5(a), conduct is “willful” if Executive engages in such conduct in bad faith or without a reasonable basis to believe that such conduct is required by law or otherwise in the best interests of Flora Management.

(b) Termination by Flora Management without Cause. Flora Management may terminate Executive’s employment at any time without Cause upon sixty (60) days’ written notice. At Flora Management’s sole and absolute discretion, during all or any part of such notice period, Flora Management may (i) relieve Executive of all or any part of his duties, and such action shall not constitute Good Reason, and/or (ii) provide pay in lieu of notice by paying one day of Base Salary for each day of notice not given. Any pay in lieu of notice shall not be offset against any entitlement Executive may have to the Severance Payment pursuant to Section 6(c)(i) below.

(c) Termination by Executive for Good Reason. Executive may terminate his employment with Flora Management at any time for Good Reason, upon sixty (60) days’ written notice by Executive to Flora Management. Executive may not terminate this Agreement for Good Reason hereunder unless and until he has provided Flora Management with written notice of the action which Executive contends to be Good Reason (which notice must specify that such action constitutes the basis for a “Good Reason” resignation hereunder), such written notice is provided within sixty (60) days after the first occurrence of the event which Executive contends to be Good Reason and Flora Management has failed to reasonably remedy such action within thirty (30) days after receiving such written notice. For purposes of this Agreement, “Good Reason” for termination shall mean any of the following: (i) a material diminution in Executive’s duties or responsibilities; (ii) a material reduction in Executive’s Base Salary; or (iii) a material breach of this Agreement by Flora Management. As used herein, “a material diminution in Executive’s duties or responsibilities” shall mean the assignment to Executive on a sustained basis of substantial duties and responsibilities that are materially inconsistent with, and materially below those reasonably expected to be performed by a person in, Executive’s position with Flora Management. For the avoidance of doubt, the removal of Executive from any position with a Flora Affiliate shall not constitute Good Reason.

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(d) Executive’s Death or Disability. Executive’s employment with Flora Management shall terminate immediately upon his death or, upon written notice as set forth below, his Disability. As used in this Agreement, “Disability” shall mean such permanent physical or mental impairment as would render Executive unable to perform his duties under this Agreement for more than one hundred eighty (180) days. If Executive’s employment is terminated by reason of Executive’s Disability, either party shall give thirty (30) days’ advance written notice to that effect to the other. This Section 5(d) is intended to be interpreted and applied consistent with any laws, statutes, regulations, and ordinances prohibiting discrimination, harassment, or retaliation on the basis of a disability.

(e) Termination by Executive without Good Reason. Executive may terminate his employment with Flora Management at any time without Good Reason upon giving Flora Management sixty (60) days’ written notice. At Flora Management’s sole and absolute discretion, during all or any part of such notice period, Flora Management may (i) relieve Executive of all or any part of his duties, and such action shall not constitute Good Reason, and/or (ii) provide pay in lieu of notice by paying one day of Base Salary for each day of notice not given. Any pay in lieu of notice shall not be offset against any entitlement Executive may have to the Severance Payment pursuant to Section 6(c)(i) below.

6. Effect of Termination

(a) General. Regardless of the reason for any termination of this Agreement (other than terminations due to Executive’s death or Disability, which are covered by Sections 6(e)(i) and (ii) below, respectively), Executive shall be entitled to receive each of the following: (i) payment of any unpaid portion of his Base Salary through the effective date of termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder in accordance with Section 4(d) above; (iii) continued insurance benefits to the extent required by law; and (iv) payment of any fully vested but unpaid rights as required by the terms of any bonus or other incentive pay plan, or any other employee benefit plan or program of Flora Management or a Flora Affiliate.

(b) Termination by Flora Management for Cause. If Flora Management terminates Executive’s employment for Cause, Executive shall have no rights or claims under this Agreement against Flora Management or any of the Flora Affiliates or their officers, directors, employees, or equity holders, with respect to such termination of employment or termination of any other position then held by Executive with any of the Flora Affiliates, except only to receive the payments and benefits described in Section 6(a) above.

(c) Termination by Flora Management without Cause or by Executive for Good Reason. If, Flora Management terminates Executive’s employment without Cause pursuant to Section 5(b) above or Executive terminates his employment for Good Reason pursuant to Section 5(c) above, and such termination is effective during the Term, then Executive shall only be entitled to receive, and Flora Management shall pay, in addition to the items referenced in Section 6(a) above, the following:

(i) An aggregate amount equal to his Base Salary at the rate in effect on his last day of employment (the “Severance Payment”), less all legally required payroll deductions and withholdings. Fifty percent (50%) of the Severance Payment shall be paid in a lump sum on the third business day following the Release Effective Date (the “Payment Date”), and the remaining fifty percent (50%) of the Severance Payment shall be paid in twelve (12) equal monthly instalments commencing on the effective date of termination; provided, however, that the first such payment will be made on the Payment Date and will include all payments that would have been made sooner if the Release Effective Date had occurred on the effective date of termination. The twelve (12)-month period during which Severance Payments shall be tendered is the “Severance Payment Period.”

(ii) A pro-rata share of any Discretionary Annual Bonus which Executive otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his employment terminates without Cause or for Good Reason, with such discretionary amount determined by the Flora Growth Board in good faith and prorated based on the number of days Executive is employed in the year of termination. Such pro-rated bonus shall be paid to Executive no later than March 15 of the year following the year of termination, and in no event shall any discretionary amount be determined in a manner different than such amounts are determined for still-employed senior executives of Flora Management.

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(d) Termination by Executive without Good Reason. If Executive terminates this Agreement without Good Reason, Executive shall only be entitled to receive the payments and benefits described in Section 6(a).

(e) Termination upon Death or Disability

(i) If Executive’s employment terminates in the event of his death, Executive’s estate shall be entitled to receive (a) payment of any unpaid portion of his Base Salary through the date of his death, (b) payment of any fully vested but unpaid rights as required by the terms of any bonus or other incentive pay plan or any other employee benefit plan or program of Flora Management or the Flora Affiliates and (c) a pro-rata share of any Discretionary Annual Bonus to which he otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his death occurs at no less than the target bonus percentage, paid at the time discretionary annual bonuses are paid to still-employed executives of Flora Management. Further, Flora Management shall pay the Additional Amount for a period of twelve (12) months following his date of death. Executive’s estate shall not be entitled to receive any severance pay or benefits or other amounts for termination due to his death other than as provided in this Section 6(e)(i); and

(ii) In the event Executive’s employment terminates due to his Disability, he shall be entitled to receive his Base Salary through the date he is terminated due to his Disability. Executive also shall be entitled to receive a pro-rata share of any Discretionary Annual Bonus to which he otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his employment terminates due to his Disability, paid at the time discretionary annual bonuses are paid to still-employed executives of Flora Management. Further, Flora Management shall pay the Additional Amount for a period of twelve (12) months following the date of termination of his employment; provided, however, that if such insurance coverage becomes available under another group insurance plan during the twelve (12)-month period, payment of the Additional Amount shall cease. Executive shall receive no severance pay or benefits for termination due to his Disability other than as provided in this Section 6(e)(ii).

(f) Non-Renewal of Employment. If employment terminates based upon the expiration of the Employment Term, then Executive shall only be entitled to receive the items referenced in Section 6(a) above.

(g) Termination following Change in Control. If a Change in Control (as defined below) occurs during the Term, the following provisions shall apply:

(i) Termination without Cause or for Good Reason. If Flora Management terminates Executive’s employment without Cause or Executive terminates his employment for Good Reason within twelve (12) months following a Change in Control, the termination shall be treated as a termination pursuant to Section 6(c) above; provided, however that the Severance Payment shall be increased to one and one half times (1.5X) Executive’s Base Salary.

For purposes of this Agreement, a “Change in Control” means a (i) Change in Ownership of Flora Growth, (ii) Change in Ownership of Assets of Flora Growth, or (iii) a Change in Effective Control of Flora Growth, as described herein and construed in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

(A) A “Change in Ownership of Flora Growth” shall occur on the date that any Person acquires, or Persons Acting as a Group acquire, ownership of the equity interests of Flora Growth that, together with the stock held by such Person or Group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the equity interests of Flora Growth. However, if any Person is, or Persons Acting as a Group are, considered to own more than fifty percent (50%) of the total fair market value or total voting power of the equity interests of Flora Growth, the acquisition of additional stock by the same Person or Persons Acting as a Group is not considered to cause a Change in Ownership of Flora Growth. An increase in the percentage of equity interests owned by any Person, or Persons Acting as a Group, as a result of a transaction in which Flora Growth acquires its equity interests in exchange for property shall be treated as an acquisition of equity interests.

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(B) A “Change in the Ownership of Assets of Flora Growth” shall occur on the date that any Person acquires, or Persons Acting as a Group acquire (or has or have acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such Person or Persons) assets from Flora Growth that have a total gross fair market value equal to or more than eighty-five percent (85%) of the total gross fair market value of all of the assets of Flora Growth immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of Flora Growth, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(C) A “Change in Effective Control of Flora Growth” shall occur on the date more than fifty percent (50%) of the members of the Flora Growth Board are replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed by a majority of the existing members of the Flora Growth Board.

The following rules of construction apply in interpreting the definition of Change in Control:

(D) A “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than employee benefit plans sponsored or maintained by Flora Growth and by entities controlled by Flora Growth or an underwriter of the equity interests of Flora Growth in a registered public offering.

(E) Persons shall be considered to be “Persons Acting as a Group (or a Group)” if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock or similar business transaction with Flora Growth. If a Person owns equity interests in both Flora Growth and the other corporation that enters into a merger, consolidation, purchase or acquisition of stock or similar business transaction, such holder is considered to be acting as a Group with other holders only with respect to the ownership in the entity giving rise to the change and not with respect to the ownership interest in Flora Growth. Persons shall not be considered to be acting as a Group solely because they purchase assets of the same entity at the same time or purchase or own stock of the same corporation at the same time, or as a result of the same public offering.

(F) For purposes of this definition, fair market value shall be determined by the Flora Growth Board.

(G) A Change in Control shall not include a transfer to a related person as described in Code Section 409A.

(H) For purposes of this definition, Code Section 318(a) applies to determine ownership. Equity underlying a vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for equity that is not substantially vested (as defined by Treasury Regulation §§1.83-3(b) and (j)), the equity underlying the option is not treated as owned by the individual who holds the option.

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(h) Release Agreement Required for Severance Payments. No post-employment payments by Flora Management relating to termination of employment under the provisions of Section 6(c), (d), (e), or (g) above shall commence until Executive executes and delivers a Separation and General Release Agreement (the “Release Agreement”) in the form of attached Exhibit A in all material respects and the Release Agreement has become effective and irrevocable (the date thereof, the “Release Effective Date”), all of which must occur by no later than the thirtieth (30th) day following the termination of Executive’s employment (or such later deadline as applicable law may require).

(i) Payments upon Separation. Notwithstanding any contrary payment provisions of this Section 6, all payments in connection with a separation from service under this Agreement shall be made as of the latest of the following dates: (i) the thirtieth (30th) day following the termination of Executive’s employment and his delivery without revocation of the executed Separation Agreement; (ii) to the extent required under Section 11(b) below, the first business day that is six (6) months following Executive’s separation from service; or (iii) the payment date required under the terms of any deferred compensation plan subject to the requirements of Code Section 409A. Amounts otherwise payable prior to these dates shall be delayed pursuant to this provision. Executive shall not retain the ability to elect the tax year of any payments under the Separation Agreement and to the extent any payment could be made in one (1) of two (2) tax years, such payment shall be made in the later tax year. All payments under this Agreement shall be subject to all applicable federal, state, and local tax withholding.

(j) Cooperation. Following the Employment Period, Executive shall assist and cooperate with Flora Management and the Flora Affiliates in the orderly transition of work to others if so requested by Flora Management or the Flora Affiliates. Executive shall cooperate with Flora Management and the Flora Affiliates and be responsive to requests for information by any of them relating to their respective business matters about which Executive may have information or knowledge and reasonably assist Flora Management and the Flora Affiliates, as the case may be, with any litigation, threatened litigation or arbitration proceeding relating to Flora Management’s or any Flora Affiliate’s business as to which business Executive had relevant knowledge, and Flora Management shall reimburse Executive for reasonable costs, including attorneys’ fees and expenses, actually incurred by Executive in connection with such assistance.

7. Confidentiality

(a) Definition of Proprietary Information. Executive acknowledges that he may be furnished or may otherwise receive or have access to confidential information which relates to Flora Management’s or a Flora Affiliate’s past, present or future business activities, strategies, services or products, research and development; financial analysis and data; improvements, inventions, processes, techniques, designs or other technical data; profit margins and other financial information; fee arrangements; terms and contents of leases, asset management agreements and other contracts; tenant and vendor lists or other compilations for marketing or development; confidential personnel and payroll information; or other information regarding administrative, management, financial, marketing, leasing or sales activities of Flora Management or any Flora Affiliates or of a third party which provided proprietary information to either or both on a confidential basis. All such information, including any materials or documents containing such information, shall be considered by Flora Management, the Flora Affiliates, and Executive as proprietary and confidential information of Flora Management and the Flora Affiliates (the “Proprietary Information”).

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(b) Exclusions. Notwithstanding the foregoing, Proprietary Information shall not include (i) information disseminated by Flora Management or Flora Affiliates on a non-confidential basis to third parties in the ordinary course of business; (ii) information in the public domain not as a result of a breach of any duty by Executive or any other person; or (iii) information that Flora Management or Flora Affiliates, as the case may be, does not consider confidential.

(c) Obligations. Both during the Employment Period and after termination of his employment for any reason, including expiration of the Term (the “Nondisclosure Restricted Period”), Executive shall preserve and protect the confidentiality of the Proprietary Information and all physical forms thereof, whether disclosed to him before this Agreement is signed or afterward. In addition, Executive shall not (i) disclose or disseminate the Proprietary Information to any third party, including employees of Flora Management or Flora Affiliates without a legitimate business need to know; (ii) remove the Proprietary Information from Flora Management’ or any of the Flora Affiliate’s premises without a valid business purpose; or (iii) use the Proprietary Information for his own benefit or for the benefit of any third party, in each of the foregoing cases during the Nondisclosure Restricted Period.

(d) Notice of Immunity under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 (“DTSA”)

(i) Notwithstanding any other provision of this Agreement, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:

(A) is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or

(B) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

(ii) Notwithstanding any other provision of this Agreement, if Executive files a lawsuit for retaliation by Flora Management for reporting a suspected violation of law, Executive may disclose the Flora Management’s trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive:

(A) files any document containing the trade secret under seal; and

(B) does not disclose the trade secret, except pursuant to court order.

(e) Communications with Government Agencies. Nothing in this Agreement or any other agreement between Flora Management and Executive or any policy of Flora Management:

(i) prohibits Executive from communicating with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Health and Safety Administration, the Securities and Exchange Commission, or any other government agency (each a “Government Agency”) about a potential violation of the law;

(ii) limits Executive’s ability, without notice to or approval from Flora Management:

(A) to file a charge or complaint with a Government Agency;

(B) to participate in an investigation or proceeding conducted by a Government Agency; or

(C) to provide information or documents to a Government Agency in connection with an investigation or proceeding.

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(iii) restricts Executive’s right to receive a reward or incentive for information provided to a Government Agency.

(f) Return of Proprietary Information. Executive acknowledges that all the Proprietary Information pre-existing, used or generated during the course of his employment by Flora Management is the property of Flora Management and the Flora Affiliates, as the case may be, and Executive holds and uses such as a trustee for Flora Management or the Flora Affiliates and subject to Flora Management’s and the Flora Affiliates’ sole control. Executive shall deliver to Flora Management or the Flora Affiliates, as applicable, all documents and other tangibles (including diskettes and other storage media) containing the Proprietary Information (x) at any time upon request by the Flora Growth Board or the applicable Flora Affiliate during his Employment Period and (y) immediately upon termination of the Employment Period.

8. Noncompetition

The following definitions shall apply for the purpose of this Section 8:

(i) “Competing Business” shall mean any natural person or entity engaged in the business of selling, manufacturing or distributing cannabis or cannabis related products.

(ii) “Customer” shall mean any Person with which Flora Management or Flora Affiliates has an existing sales contract with or whom purchases a material amount of goods and/or services from Flora Affiliates.

(iii) “Prospective Customer” shall mean any person or entity to whom Executive or Flora Management or any of the Flora Affiliates sent or delivered a written sales proposal, quote or contract, or with whom Executive or Flora Management or any of the Flora Affiliates had business contact for the purpose of developing that person or entity into a customer of Flora Management or a Flora Affiliate.

(iv) “Restricted Area” shall mean within the United States and any other geographic area included in Flora Management’s and any Flora Affiliate’s business plans during the Employment Period.

(v) “Restricted Period” shall mean the Employment Period and a period of twelve (12) months following the expiration, resignation, or termination of Executive’s employment for any reason.

(vi) “Solicit” shall mean to knowingly solicit, call upon, or initiate communications or contacts with a person or entity for the purpose of developing or continuing a business relationship.

(a) Restriction on Competition. During the Restricted Period, Executive shall not engage, directly or indirectly, either individually or through another person or entity, whether as an owner, employee, consultant, partner, principal, agent, representative, stockholder or otherwise, of, in, to or for any Competing Business in the Restricted Area; provided, however, that this Section 8(a) shall not prohibit Executive from (i) owning five percent (5%) or less of the outstanding stock of any publicly traded corporation, (ii) owning an equity interest in any other entity approved by the Flora Growth Board and listed on Exhibit B hereto, or (iii) serving on the board of directors of any Flora Affiliate.

(b) Non-Solicitation of Customers. During the Restricted Period, Executive shall not (except on behalf of Flora Management or a Flora Affiliate) Solicit, directly or indirectly, on his own behalf or on behalf of any other person(s), any Customer or Prospective Customer of Flora Management or any of the Flora Affiliates for any line of business that Flora Management or Flora Affiliates conducts or plans to conduct as of the date of Executive’s termination of employment for the purpose of conducting, marketing or providing for a Competing Business.

(c) Non-Solicitation of Employees. During the Restricted Period, Executive shall not, directly or indirectly, Solicit or employ or cause any business, other than an affiliate of Flora Management or Flora Growth, to Solicit or employ any person who is then or was at any time during the two (2)-year period prior to Executive’s termination as an employee of Flora Management or any of the Flora Affiliates and who is at the time of such employee’s separation from Flora Management or Flora Affiliates, a director, vice president, senior vice president, executive vice president or similar position of Flora Management or any of the Flora Affiliates, except to the extent that such action is undertaken in the ordinary course of hiring practices (e.g., an employment solicitation that is transmitted generally to the public or in the industry, rather than one that is targeted directly to any such Flora Management or Flora Affiliates’ employee).

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(d) Acknowledgement. Executive acknowledges that he will acquire much Proprietary Information concerning the past, present and future business of Flora Management and the Flora Affiliates as the result of his employment with Flora Management, as well as access to the relationships between Flora Management, Flora Growth and the other Flora Affiliates and their respective clients and employees. Executive further acknowledges that the business of Flora Management and the Flora Affiliates is very competitive and that competition by him in that business during the Employment Period and the Restricted Period would severely injure Flora Management and the Flora Affiliates, as the case may be. Executive understands that the restrictions contained in this Section 8 are reasonable and are required for Flora Management’ and the Flora Affiliates’ legitimate protection, and do not unduly limit his ability to earn a livelihood.

(e) Judicial Modification; Severability. If a court or arbitrator of competent jurisdiction determines that any provision of this Section 8 is overly broad or otherwise unenforceable, it is the intention of the parties that such court or arbitrator shall modify such provision to the minimum extent necessary to render such provision enforceable and then enforce such provision as modified. If any provision of this Agreement cannot be enforced, notwithstanding judicial modification as provided in this Section 8(e), such unenforceable provision shall be severed from this Agreement.

(f) Successors and Assigns. Flora Management and its successors and assigns may enforce these restrictive covenants.

9. Executive Representations

Executive represents and warrants to Flora Management that he is aware of the essential functions of his position set forth in Section 2 above, and that he is able to perform all of the essential functions of President with or without a reasonable accommodation under the law. Further, except as otherwise identified in this Agreement, Executive is not now under any obligation of a contractual or other nature to any person, business or other entity which is inconsistent or in conflict with this Agreement or which would prevent him from performing his obligations under this Agreement.

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10. Arbitration

(a) Jury Trial Waiver, Arbitration. ALL ISSUES, MATTERS AND DISPUTES BETWEEN THE PARTIES REGARDING THE PARTIES’ EMPLOYMENT RELATIONSHIP OR TERMINATION OF THAT RELATIONSHIP, INCLUDING THIS AGREEMENT OR ANY BREACH OF THIS AGREEMENT, SHALL BE SUBMITTED TO AND DECIDED BY BINDING ARBITRATION IN FORT LAUDERDALE, FLORIDA. Executive agrees, on behalf of Executive and his agents or assigns that, except as otherwise provided in this paragraph, all potentially litigable claims or controversies arising out of this Agreement, Executive’s employment with Flora Management, or the termination of that employment, shall be submitted to final and binding arbitration pursuant to the Federal Arbitration Act. Said arbitration will be conducted before a mutually acceptable arbitrator with JAMS under JAMS’ Commercial Arbitration Rules and Mediation Procedures. If the Parties cannot agree upon an arbitrator, the claim or controversy shall be arbitrated by a single arbitrator selected in accordance with the applicable JAMS’ rules. This Agreement to arbitrate covers all grievances, disputes, claims, or causes of action that otherwise could be brought in a federal, state, or local court or agency under applicable federal, state, or local laws, arising out of or relating to Executive’s employment with Flora Management and the termination thereof, including claims Executive may have against Flora Management or against its officers, directors, supervisors, managers, employees, or agents in their capacity as such or otherwise, or that Flora Management may have against Executive. The claims covered by this Agreement include, but are not limited to, claims for breach of any contract or covenant (express or implied), tort claims, claims for wages, or other compensation due, claims for wrongful termination (constructive or actual), claims for whistle blowing, claims for discrimination or harassment (including, but not limited to, harassment or discrimination based on race, age, color, sex, gender, national origin, alienage or citizenship status, creed, religion, marital status, partnership status, military status, predisposing genetic characteristics, medical condition, psychological condition, mental condition, criminal accusations and convictions, disability, sexual orientation, or any other trait or characteristic protected by federal, state, or local law), and claims for violation of any federal, state, local, or other governmental law, statute, regulation, or ordinance. Neither Flora Management nor the Executive may pursue or participate in any claim against the other (i) as a class action or collective action; (ii) in a representative capacity on behalf of other persons or entities who are claimed to be similarly situated; (iii) in the capacity of a class member in any action, proceeding or arbitration against any party to this agreement; or (iv) absent the written consent of all parties, on a consolidated basis. Arbitration shall be brought solely on an individual basis and not on a class, group, collective, or representative basis, and the arbitrator in any arbitration under this Agreement has no power or authority to conduct the arbitration as a class or collective action or in a representative capacity. The arbitrator has the authority to award any type of relief or damages that could otherwise be awarded by a judge or jury to the Executive or Flora Management in their individual capacities. The arbitrator shall not, however, modify or disregard any provision of this Agreement. ARBITRATION AS PROVIDED IN THIS AGREEMENT SHALL BE THE EXCLUSIVE AND BINDING REMEDY AND WILL BE USED INSTEAD OF ANY COURT ACTION OR JURY TRIAL, WHICH IS HEREBY EXPRESSLY WAIVED. Each Party shall be responsible for its or his own costs incurred in such arbitration and in enforcing any arbitration award, including attorneys’ fees and expenses. The Executive hereby consents to personal jurisdiction and exclusive venue in the Federal Courts of Broward County, Florida, if such Court can exercise jurisdiction over the matter for any action brought by Flora Management seeking injunctive relief.

(b) Injunctive Relief Pending Arbitration. Notwithstanding the foregoing, either party may apply to a court of competent jurisdiction at any time for (i) an order compelling arbitration pursuant to this Agreement and/or (ii) temporary and/or preliminary injunctive relief to preserve the status quo and prevent irreparable harm pending arbitration.

11. Miscellaneous

(a) Parachute Payments. In the event that (i) any severance payment, insurance benefits, accelerated vesting, pro-rated bonus or other benefit payable to Executive shall constitute a “parachute payment” within the meaning of Code Section 280G (“Parachute Payment”) and be subject to the excise tax imposed by Code Section 4999 (the “Excise Tax”), and (ii) if the payments to Executive were reduced to the minimum extent necessary so that such payments did not constitute Parachute Payments, the net benefits retained by Executive after the deduction of any federal, state or local income taxes would be greater than the net benefits retained by Executive if there was no such reduction after the deduction of Excise Tax and any federal, state or local income taxes, then such payments shall be so reduced. Such reduction shall be accomplished in any manner deemed appropriate by Flora Management after consultation with Executive. For purposes of making the foregoing determination: (1) Parachute Payments provided under arrangements with Executive other than this Agreement, if any, shall be taken into account in determining the total amount of Parachute Payments received by Executive so that the amount of Parachute Payments that are attributable to provisions of this Agreement is maximized; and (2) Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of taxation for Executive’s taxable year in which the Parachute Payments are includable in Executive’s income for purposes of federal, state and local income taxation. The determination of whether the Excise Tax is payable, and the amount of any reduction necessary to make the Excise Tax not payable, as well as whether such a reduction would result in greater after-tax benefits to Executive, shall be made in writing in good faith by a nationally-recognized independent certified public accounting firm approved by Flora Management and Executive, such approval not to be unreasonably withheld (the “Accounting Firm”). For purposes of making the calculations required by this Section 11(a), to the extent not otherwise specified herein, reasonable assumptions and approximations may be made with respect to applicable taxes and reasonable, good faith interpretations of the Code may be relied upon. Flora Management and Executive shall furnish such information and documents as may be reasonably requested in connection with the performance of the calculations under this Section 11(a). Flora Management shall bear all costs incurred in connection with the performance of the calculations contemplated by this Section 11(a).

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(b) Section 409A Compliance. Notwithstanding anything to the contrary in this Agreement, in-kind benefits and reimbursements provided under this Agreement shall be provided in accordance with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv), such that any in-kind benefits and reimbursements provided under this Agreement during any calendar year shall not affect in-kind benefits or reimbursements to be provided in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Code Section 105(b), and any in-kind benefits and reimbursements shall not be subject to liquidation or exchange for another benefit. Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by Executive and, if timely submitted, reimbursement payments shall be promptly made to Executive following such submission, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred. In no event shall Executive be entitled to any reimbursement payments after December 31st of the calendar year following the calendar year in which the expense was incurred.

Notwithstanding anything to the contrary in this Agreement, to the maximum extent permitted by applicable law, amounts payable to Executive pursuant to the severance pay provisions of Section 6 above and the parachute payment provisions of Section 11(a) above are intended to be exempt from treatment as nonqualified deferred compensation under Code Section 409A to the maximum extent permitted by the Code and applicable Treasury Regulations, including exemptions under Treasury Regulation Section 1.409A-1(b)(9) (separation pay plans) or Treasury Regulation Section 1.409A-1(b)(4) (short-term deferrals). If Executive is treated as a “specified employee” (as determined by the Flora Management in its discretion in accordance with applicable regulations under Code Section 409A) at the time of his separation from service (within the meaning of Code Section 409A) from Flora Management and each employer treated as a single employer with Flora Management under Code Section 414(b) or (c) (provided that in applying such Sections and in accordance with the rules of Treasury Regulations Section 1.409A-1(h)(3), the language “at least 50 percent” shall be used instead of “at least 80 percent”) and if any amounts of nonqualified deferred compensation (within the meaning of Code Section 409A) are payable under this Agreement by reason of Executive’s separation from service, then payment of the amounts so treated as nonqualified deferred compensation which would otherwise be payable during the six (6)-month period following Executive’s separation from service shall be delayed until the earlier of (i) the first business day which is at least six (6) months and one (1) day following the date of such separation from service, (ii) the death of Executive, or (iii) such earlier date on which payment is permitted under Code Section 409A(a)(2)(B), and such payment shall be increased for delayed payment based on a crediting rate of the applicable federal short-term rate under Code Section 1274(d) (as determined on the date(s) payment(s) would have otherwise been made) from the date payment(s) would have otherwise been made without regard to this provision and the date payment is actually made. Any series of payments due under this Agreement, other than a payment which is a life annuity, shall for all purposes of Code Section 409A be treated as a series of separate payments and not as a single payment. If any amount otherwise payable under this Agreement by reason of a termination of employment from Flora Management is treated as nonqualified deferred compensation (within the meaning of Code Section 409A), then instead of making such payment upon occurrence of the termination of employment, such payment shall be made at such time as Executive has a separation from service (within the meaning of Code Section 409A) from Flora Management and each employer treated as a single employer with Flora Management, as determined above.

(c) Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective (i) upon personal delivery, (ii) upon deposit with the United States Postal Service, by registered or certified mail, postage prepaid or (iii) in the case of email transmission or delivery by nationally recognized overnight deliver service, when received, addressed as follows:

(i) If to Flora Management, to:

Flora Growth Management Corp.

3406 SW 26^th Terrace, Suite C-1

Fort Lauderdale, FL 33312

Attn: Matthew Cohen, General Counsel

Email: matt.cohen@floragrowth.com

(ii) If to Executive, to:

Clifford Starke

Address on File

or to such other address or addresses as either party shall designate to the other in writing from time to time by like notice.

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(d) Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

(e) Entire Agreement. This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.

(f) Amendment. This Agreement may be amended or modified only after approval by the Flora Growth Board and by a written instrument executed by both Flora Management and Executive.

(g) Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Florida, without regard to its conflicts of laws principles.

(h) Successors and Assigns; Change in Control. This Agreement shall be binding upon and inure to the benefit of both parties and each of its successors and assigns, including any entity with which or into which Flora Management may be merged or which may succeed to its assets or business or any entity to which Flora Management may assign its rights and obligations under this Agreement; provided, however, that the obligations of Executive are personal and shall not be assigned or delegated by him.

(i) Waiver. No delays or omission by Flora Management or Executive in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by Flora Management or Executive on any one (1) occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

(j) Captions. The captions appearing in this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

(k) Severability. In case any provision of this Agreement shall be held by a court or arbitrator with jurisdiction over the parties to this Agreement to be invalid, illegal or otherwise unenforceable, such provision shall be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

(l) Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one (1) and the same instrument.

(m) Survival. The provisions of Sections 7 through 11 of this Agreement shall survive any termination of Executive’s employment.

12. Approvals

The effectiveness of this Agreement is subject to the approval of the Flora Growth Board. Delivery of this Agreement executed by Flora Management to Executive shall be deemed conclusive evidence of such approval and upon such approval this Agreement shall be deemed effective as of the Effective Date.

13.No Other Employment or Compensation

Executive (x) represents and warrants to Flora Management and the other Flora Affiliates that, and (y) agrees that during the Employment Period, (a) he is not and shall not be a party to any employment agreement or directly or indirectly involved in any employment or consulting arrangement or relationship with Flora Management or any other Flora Affiliate, except for this Agreement and as expressly permitted hereunder, and (b) except for his right to receive a three and one half percent (3.5%) royalty with respect to the sale of seeds by Harmony Health One Inc., he is not and shall not be directly or indirectly receiving any compensation, fees or payments of any other kind in exchange for any employment, consulting or other services provided to Flora Management or any other Flora Affiliate, except as provided under this Agreement and as expressly permitted hereunder.

14. Taxes

All payments to Executive pursuant to this Agreement shall be subject to withholding for taxes required by applicable law.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Agreement Date.

EXECUTIVE:	FLORA GROWTH MANAGEMENT CORP.
	By:
Clifford Starke		Name: Luis Merchan
		Title: Chairman & CEO

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EX-99.10

EXHIBIT 99.10

EXECUTIVE EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is entered into this ___ day of December 2022 (the “Effective Date”), by Flora Growth Management Corp., a Florida corporation with a principal business address located at3406 SW 26^th Terrace, Suite C-1, Fort Lauderdale, FL 33312 (“Flora Management”), and Dany Vaiman (“Executive”). Executive and Flora Management are referred to as “Parties” or “Party” herein.

WHEREAS, Flora Management, a wholly owned subsidiary of Flora Growth Corp., a corporation formed under the laws of Ontario, Canada and publicly traded on the NASDAQ Capital Market (“Flora Growth”), desires to employ Executive as its Senior VP Finance; and

WHEREAS, Executive wishes to join Flora Management as Senior VP Finance on the Effective Date as set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:

1. Term

Flora Management shall employ Executive, and Executive shall be employed by Flora Management, upon the terms and conditions set forth in this Agreement. Unless terminated earlier pursuant to Section 5 below, Executive’s employment pursuant to this Agreement shall be for a period of two (2) years commencing on the Effective Date and ending on December __, 2024 (the “Term”). Non-renewal of this Agreement shall not constitute a termination of Executive under this Agreement for purposes of Section 5 below. The period of Executive’s employment with Flora Management shall be the “Employment Period.”

2. Title; Duties

(a) Commencing on the Effective Date, Executive shall be employed as Senior VP Finance. Executive shall report to the Chief Financial Officer (“CFO”) of Flora Management, who shall have the final and exclusive authority to direct, control and supervise the activities of Executive. Executive shall perform such services consistent with his position as may be assigned to him from time to time by the CFO. Executive is employed in a fiduciary relationship with Flora Management. In addition to the foregoing, Executive shall perform duties consistent with his appointment from time to time to any other executive positions with Flora Management or any of Flora Management’s related or affiliated entities including, but not limited to, Flora Growth (collectively, the “Flora Affiliates”). For the avoidance of doubt, Executive may be appointed, removed, and reappointed to or from executive and directorship positions of any Flora Affiliate and any such action, other than a removal of Executive as an executive of Flora Management shall not constitute a termination of Executive under this Agreement.

(b) Executive shall carry out his duties set forth in this Agreement at his home office or remotely; provided, however, that Executive’s duties require extensive and extended travel, which the parties expect, may involve travel approximately twenty percent (20%) of the time with fluctuations based upon business exigencies.

3. Extent of Services

(a) General. Except as provided herein, Executive shall devote a substantial majority of his business time, attention, skill, and effort to the performance of his duties under this Agreement. Executive may, to the extent such activities do not impair the performance of his duties to Flora Management or the Flora Affiliates: (i) engage in personal investments and charitable, professional, and civic activities; (ii) serve on boards of directors (or other governing bodies) of non-competitive corporations (or other entities) other than Flora Management and the Flora Affiliates; and (iii) engage in such additional activities and serve on such additional boards of directors (or other governing bodies) as the Flora Growth Board shall approve (collectively, “Outside Activities”); provided, however, that Executive shall promptly cease any Outside Activity if directed to do so by the board of directors of Flora Growth (the “Flora Growth Board”) in its sole and absolute discretion. Executive shall not serve on the board of directors (or other governing body) of any corporation (or any other entity) that engages in activities in competition with those of Flora Management or the Flora Affiliates, nor shall Executive engage in activities that would create an actual or apparent conflict of interest, in each case as determined by the Flora Growth Board in its sole and absolute discretion. Executive shall perform his duties to the best of his ability, shall adhere to Flora Management’s published policies and procedures, and shall use his best efforts to promote the interests, reputation, business, and welfare of both Flora Growth and Flora Management.

4. Compensation and Benefits

(a) Salary. Flora Management shall pay Executive a gross annual base salary (“Base Salary”) of $210,000. For the avoidance of doubt, Executive shall not be entitled to receive any other salary to the extent he serves as an officer, director, or employee of any other Flora Affiliate. The Base Salary, minus such deductions as may be required by law or reasonably requested by Executive, shall be paid in accordance with Flora Management’s normal payroll practices but not less frequently than monthly. The Flora Growth Board shall review Executive’s Base Salary annually in conjunction with its regular review of executives’ salaries and make such increases, if any, to his Base Salary as the Flora Growth Board shall deem appropriate in its sole and absolute discretion.

(b) Incentive Compensation

(i) Commencing in fiscal year 2023, Executive shall be eligible to receive a “Discretionary Annual Bonus” with a target amount of fifty percent (50%) of Base Salary. The amount, if any, of each Discretionary Annual Bonus payable to Executive shall be determined by the Flora Growth Board in its sole and absolute discretion, taking into account such criteria as the Flora Growth Board shall deem appropriate and may be more or less than the target amount. The Flora Growth Board shall make its determination of the amount of the Discretionary Annual Bonus (if any) payable to Executive promptly after the Flora Growth Board’s acceptance of the financial results for the applicable year. Executive shall be entitled to receive the Discretionary Annual Bonus (if any) for a given year so long as he is an employee on the last day of the year for which the Discretionary Annual Bonus is given. Each such Discretionary Annual Bonus directed to be awarded to Executive shall be payable as soon as practical, but no later than March 15 of the year following the year of performance. Subject to the foregoing, Executive may be entitled to receive a pro-rata amount of the Discretionary Annual Bonus for any partial calendar year occurring by reason of termination of this Agreement pursuant to Section 5(b) or (c) below.

(ii) Commencing in fiscal year 2023, Executive shall be eligible to participate in any equity compensation plan under which similarly-situated senior executives of Flora Management and the Flora Affiliates are eligible to receive equity awards for service to Flora Management (the “EIP”). The terms and amounts of any EIP awards granted to Executive shall be determined by the Flora Growth Board in its sole and absolute discretion. Payments of amounts (if any) under the EIP shall be structured to provide liquidity at such times and in such amounts as is necessary to permit Executive to pay on a timely basis all income and employment taxes due by reason of any incentive compensation payable to him under the EIP.

(iii) Executive may be eligible to participate in such other incentive compensation programs as may be provided to senior executives of Flora Management or the Flora Affiliates from time-to-time.

(iv) Notwithstanding anything to the contrary contained in this Agreement, Executive’s entitlement to any Discretionary Annual Bonus and any award granted to Executive under the EIP or any other incentive compensation program shall be determined and approved by the Flora Growth Board, in each case in its sole and absolute discretion.

(c)Other Benefits. Executive shall be entitled to paid time off and holiday pay in accordance with Flora Management policies in effect from time to time, and to participate in such life, health and disability insurance, pension, deferred compensation and incentive plans, stock options and awards, performance bonuses and other benefits as Flora Management extends, as a matter of policy, to senior executive employees of Flora Management.

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(d) Reimbursement of Business Expenses. Flora Management shall reimburse Executive for all reasonable travel, entertainment and other expenses incurred or paid by Executive in connection with, or related to, the performance of his duties, responsibilities or services to Flora Management and the other Flora Affiliates under this Agreement in accordance with the reimbursement policy and procedure then adopted, from time to time, by Flora Management and upon presentation by Executive of reasonable documentation, expense statements, vouchers and such other supporting information as Flora Management may reasonably request.

5. Termination

(a) Termination by Flora Management for Cause. Flora Management may terminate Executive’s employment at any time for Cause upon written notice. For purposes of this Agreement, “Cause” for termination shall mean any of the following: (i) the conviction of Executive of, or the entry of a plea of guilty, first offender probation before judgment or nolo contendere by Executive to, any felony or any other crime involving dishonesty; (ii) fraud, misappropriation or embezzlement in connection with employment; (iii) breach of fiduciary duty or duty of loyalty by Executive with respect to Flora Management or any of the Flora Affiliates; (iv) Executive’s willful failure or refusal to perform assigned duties or comply with any lawful written directive of the CEO or the Flora Growth Board; (v) Executive’s gross negligence in the performance of his assigned duties for Flora Management or any Flora Affiliate; (vi) any willful act or omission of Executive that the Flora Growth Board reasonably determines to be likely to have a material adverse impact on Flora Management’s or any Flora Affiliate’s business or reputation for honesty and fair dealing; (vi) the material breach by Executive of this Agreement or any other contract with Flora Management or any Flora Affiliate that is not cured (if capable of cure, as determined by the Flora Growth Board in its reasonable judgment) within thirty (30) days following written notice to Executive describing such breach; or (vii) the material violation by Executive of any applicable policy of Flora Management or any of the Flora Affiliates that is not cured (if capable of cure, as determined by the Flora Management Board in its reasonable judgment) within thirty (30) days following written notice to Executive describing such violation. For purposes of this Section 5(a), conduct is “willful” if Executive engages in such conduct in bad faith or without a reasonable basis to believe that such conduct is required by law or otherwise in the best interests of Flora Management.

(b)Termination by Flora Management without Cause. Flora Management may terminate Executive’s employment at any time without Cause upon sixty (60) days’ written notice. At Flora Management’s sole and absolute discretion, during all or any part of such notice period, Flora Management may (i) relieve Executive of all or any part of his duties, and such action shall not constitute Good Reason, and/or (ii) provide pay in lieu of notice by paying one day of Base Salary for each day of notice not given. Any pay in lieu of notice shall not be offset against any entitlement Executive may have to the Severance Payment pursuant to Section 6(c)(i) below.

(c) Termination by Executive for Good Reason. Executive may terminate his employment with Flora Management at any time for Good Reason, upon sixty (60) days’ written notice by Executive to Flora Management. Executive may not terminate this Agreement for Good Reason hereunder unless and until he has provided Flora Management with written notice of the action which Executive contends to be Good Reason (which notice must specify that such action constitutes the basis for a “Good Reason” resignation hereunder), such written notice is provided within sixty (60) days after the first occurrence of the event which Executive contends to be Good Reason and Flora Management has failed to reasonably remedy such action within thirty (30) days after receiving such written notice. For purposes of this Agreement, “Good Reason” for termination shall mean any of the following: (i) a material diminution in Executive’s duties or responsibilities; (ii) a material reduction in Executive’s Base Salary; or (iii) a material breach of this Agreement by Flora Management. As used herein, “a material diminution in Executive’s duties or responsibilities” shall mean the assignment to Executive on a sustained basis of substantial duties and responsibilities that are materially inconsistent with, and materially below those reasonably expected to be performed by a person in, Executive’s position with Flora Management. For the avoidance of doubt, the removal of Executive from any position with a Flora Affiliate shall not constitute Good Reason.

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(d) Executive’s Death or Disability. Executive’s employment with Flora Management shall terminate immediately upon his death or, upon written notice as set forth below, his Disability. As used in this Agreement, “Disability” shall mean such permanent physical or mental impairment as would render Executive unable to perform his duties under this Agreement for more than one hundred eighty (180) days. If Executive’s employment is terminated by reason of Executive’s Disability, either party shall give thirty (30) days’ advance written notice to that effect to the other. This Section 5(d) is intended to be interpreted and applied consistent with any laws, statutes, regulations, and ordinances prohibiting discrimination, harassment, or retaliation on the basis of a disability.

(e)Termination by Executive without Good Reason. Executive may terminate his employment with Flora Management at any time without Good Reason upon giving Flora Management sixty (60) days’ written notice. At Flora Management’s sole and absolute discretion, during all or any part of such notice period, Flora Management may (i) relieve Executive of all or any part of his duties, and such action shall not constitute Good Reason, and/or (ii) provide pay in lieu of notice by paying one day of Base Salary for each day of notice not given. Any pay in lieu of notice shall not be offset against any entitlement Executive may have to the Severance Payment pursuant to Section 6(c)(i) below.

6. Effect of Termination

(a) General. Regardless of the reason for any termination of this Agreement (other than terminations due to Executive’s death or Disability, which are covered by Sections 6(e)(i) and (ii) below, respectively), Executive shall be entitled to receive each of the following: (i) payment of any unpaid portion of his Base Salary through the effective date of termination; (ii) reimbursement for any outstanding reasonable business expense he has incurred in performing his duties hereunder in accordance with Section 4(d) above; (iii) continued insurance benefits to the extent required by law; and (iv) payment of any fully vested but unpaid rights as required by the terms of any bonus or other incentive pay plan, or any other employee benefit plan or program of Flora Management or a Flora Affiliate.

(b)Termination by Flora Management for Cause. If Flora Management terminates Executive’s employment for Cause, Executive shall have no rights or claims under this Agreement against Flora Management or any of the Flora Affiliates or their officers, directors, employees, or equity holders, with respect to such termination of employment or termination of any other position then held by Executive with any of the Flora Affiliates, except only to receive the payments and benefits described in Section 6(a) above.

(c) Termination by Flora Management without Cause or by Executive for Good Reason. If Flora Management terminates Executive’s employment without Cause pursuant to Section 5(b) above or Executive terminates his employment for Good Reason pursuant to Section 5(c) above, and such termination is effective during the Term, then Executive shall only be entitled to receive, and Flora Management shall pay, in addition to the items referenced in Section 6(a) above, the following:

(i) An aggregate amount equal to his Base Salary at the rate in effect on his last day of employment (the “Severance Payment”), less all legally required payroll deductions and withholdings. Fifty percent (50%) of the Severance Payment shall be paid in a lump sum on the third business day following the Release Effective Date (the “Payment Date”) and the remaining fifty percent of the Severance Payment shall be paid in twelve monthly installments commencing on the effective date of termination; provided, however, that the first such payment will be made on the Payment Date and will include all payments that would have been made sooner if the Release Effective Date had occurred on the effective date of termination. The twelve (12)-month period during which Severance Payments shall be tendered is the “Severance Payment Period.”

(ii) A pro-rata share of any Discretionary Annual Bonus which Executive otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his employment terminates without Cause or for Good Reason, with such discretionary amount determined by the Flora Growth Board in good faith and prorated based on the number of days Executive is employed in the year of termination. Such pro-rated bonus shall be paid to Executive no later than March 15 of the year following the year of termination, and in no event shall any discretionary amount be determined in a manner different than such amounts are determined for still-employed senior executives of Flora Management.

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(d) Termination by Executive without Good Reason. If Executive terminates this Agreement without Good Reason, Executive shall only be entitled to receive the payments and benefits described in Section 6(a).

(e) Termination upon Death or Disability

(i) If Executive’s employment terminates in the event of his death, Executive’s estate shall be entitled to receive (a) payment of any unpaid portion of his Base Salary through the date of his death, (b) payment of any fully vested but unpaid rights as required by the terms of any bonus or other incentive pay plan or any other employee benefit plan or program of Flora Management or the Flora Affiliates and (c) a pro-rata share of any Discretionary Annual Bonus to which he otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his death occurs at no less than the target bonus percentage, paid at the time discretionary annual bonuses are paid to still-employed executives of Flora Management. Further, Flora Management shall pay the Additional Amount for a period of twelve (12) months following his date of death. Executive’s estate shall not be entitled to receive any severance pay or benefits or other amounts for termination due to his death other than as provided in this Section 6(e)(i); and

(ii) In the event Executive’s employment terminates due to his Disability, he shall be entitled to receive his Base Salary through the date he is terminated due to his Disability. Executive also shall be entitled to receive a pro-rata share of any Discretionary Annual Bonus to which he otherwise would have been entitled under Section 4(b)(i) above for the calendar year in which his employment terminates due to his Disability, paid at the time discretionary annual bonuses are paid to still-employed executives of Flora Management. Further, Flora Management shall pay the Additional Amount for a period of twelve (12) months following the date of termination of his employment; provided, however, that if such insurance coverage becomes available under another group insurance plan during the twelve (12)-month period, payment of the Additional Amount shall cease. Executive shall receive no severance pay or benefits for termination due to his Disability other than as provided in this Section 6(e)(ii).

(f) Non-Renewal of Employment. If employment terminates based upon the expiration of the Employment Term, then Executive shall only be entitled to receive the items referenced in Section 6(a) above.

(g) Termination following Change in Control. If a Change in Control (as defined below) occurs during the Term, the following provisions shall apply:

(i) Termination without Cause or for Good Reason. If Flora Management terminates Executive’s employment without Cause or Executive terminates his employment for Good Reason within twelve (12) months following a Change in Control, the termination shall be treated as a termination pursuant to Section 6(c) above; provided, however, that the Severance Payment shall be increased to one and one half times (1.5x) Executive’s Base Salary.

For purposes of this Agreement, a “Change in Control” means a (i) Change in Ownership of Flora Growth, (ii) Change in Ownership of Assets of Flora Growth, or (iii) a Change in Effective Control of Flora Growth, as described herein and construed in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”).

(A) A “Change in Ownership of Flora Growth” shall occur on the date that any Person acquires, or Persons Acting as a Group acquire, ownership of the equity interests of Flora Growth that, together with the stock held by such Person or Group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the equity interests of Flora Growth. However, if any Person is, or Persons Acting as a Group are, considered to own more than fifty percent (50%) of the total fair market value or total voting power of the equity interests of Flora Growth, the acquisition of additional stock by the same Person or Persons Acting as a Group is not considered to cause a Change in Ownership of Flora Growth. An increase in the percentage of equity interests owned by any Person, or Persons Acting as a Group, as a result of a transaction in which Flora Growth acquires its equity interests in exchange for property shall be treated as an acquisition of equity interests.

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(B) A “Change in the Ownership of Assets of Flora Growth” shall occur on the date that any Person acquires, or Persons Acting as a Group acquire (or has or have acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such Person or Persons) assets from Flora Growth that have a total gross fair market value equal to or more than eighty-five percent (85%) of the total gross fair market value of all of the assets of Flora Growth immediately before such acquisition or acquisitions. For this purpose, gross fair market value means the value of the assets of Flora Growth, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(C) A “Change in Effective Control of Flora Growth” shall occur on the date more than fifty percent (50%) of the members of the Flora Growth Board are replaced during any twelve (12)-month period by directors whose appointment or election is not endorsed by a majority of the existing members of the Flora Growth Board.

The following rules of construction apply in interpreting the definition of Change in Control:

(D) A “Person” means any individual, entity or group within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended, other than employee benefit plans sponsored or maintained by Flora Growth and by entities controlled by Flora Growth or an underwriter of the equity interests of Flora Growth in a registered public offering.

(E) Persons shall be considered to be “Persons Acting as a Group (or a Group)” if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock or similar business transaction with Flora Growth. If a Person owns equity interests in both Flora Growth and the other corporation that enters into a merger, consolidation, purchase or acquisition of stock or similar business transaction, such holder is considered to be acting as a Group with other holders only with respect to the ownership in the entity giving rise to the change and not with respect to the ownership interest in Flora Growth. Persons shall not be considered to be acting as a Group solely because they purchase assets of the same entity at the same time or purchase or own stock of the same corporation at the same time, or as a result of the same public offering.

(F) For purposes of this definition, fair market value shall be determined by the Flora Growth Board.

(G) A Change in Control shall not include a transfer to a related person as described in Code Section 409A.

(H) For purposes of this definition, Code Section 318(a) applies to determine ownership. Equity underlying a vested option is considered owned by the individual who holds the vested option (and the stock underlying an unvested option is not considered owned by the individual who holds the unvested option). For purposes of the preceding sentence, however, if a vested option is exercisable for equity that is not substantially vested (as defined by Treasury Regulation §§1.83-3(b) and (j)), the equity underlying the option is not treated as owned by the individual who holds the option.

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(h)Release Agreement Required for Severance Payments. No post-employment payments by Flora Management relating to termination of employment under the provisions of Section 6(c), (d), (e), or (g) above shall commence until Executive executes and delivers a Separation and General Release Agreement (the “Release Agreement”) in the form of attached Exhibit A in all material respects and the Release Agreement has become effective and irrevocable (the date thereof, the “Release Effective Date”), all of which must occur by no later than the thirtieth (30th) day following the termination of Executive’s employment (or such later deadline as applicable law may require).

(i) Payments upon Separation. Notwithstanding any contrary payment provisions of this Section 6, all payments in connection with a separation from service under this Agreement shall be made as of the latest of the following dates: (i) the thirtieth (30th) day following the termination of Executive’s employment and his delivery without revocation of the executed Separation Agreement; (ii) to the extent required under Section 11(b) below, the first business day that is six (6) months following Executive’s separation from service; or (iii) the payment date required under the terms of any deferred compensation plan subject to the requirements of Code Section 409A. Amounts otherwise payable prior to these dates shall be delayed pursuant to this provision. Executive shall not retain the ability to elect the tax year of any payments under the Separation Agreement and to the extent any payment could be made in one (1) of two (2) tax years, such payment shall be made in the later tax year. All payments under this Agreement shall be subject to all applicable federal, state, and local tax withholding.

(j) Cooperation. Following the Employment Period, Executive shall assist and cooperate with Flora Management and the Flora Affiliates in the orderly transition of work to others if so requested by Flora Management or the Flora Affiliates. Executive shall cooperate with Flora Management and the Flora Affiliates and be responsive to requests for information by any of them relating to their respective business matters about which Executive may have information or knowledge and reasonably assist Flora Management and the Flora Affiliates, as the case may be, with any litigation, threatened litigation or arbitration proceeding relating to Flora Management’s or any Flora Affiliate’s business as to which business Executive had relevant knowledge, and Flora Management shall reimburse Executive for reasonable costs, including attorneys’ fees and expenses, actually incurred by Executive in connection with such assistance.

7. Confidentiality

(a) Definition of Proprietary Information. Executive acknowledges that he may be furnished or may otherwise receive or have access to confidential information which relates to Flora Management’s or a Flora Affiliate’s past, present or future business activities, strategies, services or products, research and development; financial analysis and data; improvements, inventions, processes, techniques, designs or other technical data; profit margins and other financial information; fee arrangements; terms and contents of leases, asset management agreements and other contracts; tenant and vendor lists or other compilations for marketing or development; confidential personnel and payroll information; or other information regarding administrative, management, financial, marketing, leasing or sales activities of Flora Management or any Flora Affiliates or of a third party which provided proprietary information to either or both on a confidential basis. All such information, including any materials or documents containing such information, shall be considered by Flora Management, the Flora Affiliates, and Executive as proprietary and confidential information of Flora Management and the Flora Affiliates (the “Proprietary Information”).

(b)Exclusions. Notwithstanding the foregoing, Proprietary Information shall not include (i) information disseminated by Flora Management or Flora Affiliates on a non-confidential basis to third parties in the ordinary course of business; (ii) information in the public domain not as a result of a breach of any duty by Executive or any other person; or (iii) information that Flora Management or Flora Affiliates, as the case may be, does not consider confidential.

(c) Obligations. Both during the Employment Period and after termination of his employment for any reason, including expiration of the Term (the “Nondisclosure Restricted Period”), Executive shall preserve and protect the confidentiality of the Proprietary Information and all physical forms thereof, whether disclosed to him before this Agreement is signed or afterward. In addition, Executive shall not (i) disclose or disseminate the Proprietary Information to any third party, including employees of Flora Management or Flora Affiliates without a legitimate business need to know; (ii) remove the Proprietary Information from Flora Management’ or any of the Flora Affiliate’s premises without a valid business purpose; or (iii) use the Proprietary Information for his own benefit or for the benefit of any third party, in each of the foregoing cases during the Nondisclosure Restricted Period.

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(d)Notice of Immunity under the Economic Espionage Act of 1996, as amended by the Defend Trade Secrets Act of 2016 (“DTSA”)

(i) Notwithstanding any other provision of this Agreement, Executive shall not be held criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that:

(A) is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or

(B) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.

(ii) Notwithstanding any other provision of this Agreement, if Executive files a lawsuit for retaliation by Flora Management for reporting a suspected violation of law, Executive may disclose the Flora Management’s trade secrets to Executive’s attorney and use the trade secret information in the court proceeding if Executive:

(A) files any document containing the trade secret under seal; and

(B) does not disclose the trade secret, except pursuant to court order.

(e) Communications with Government Agencies. Nothing in this Agreement or any other agreement between Flora Management and Executive or any policy of Flora Management:

(i) prohibits Executive from communicating with the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Health and Safety Administration, the Securities and Exchange Commission, or any other government agency (each a “Government Agency”) about a potential violation of the law;

(ii) limits Executive’s ability, without notice to or approval from Flora Management:

(A) to file a charge or complaint with a Government Agency;

(B) to participate in an investigation or proceeding conducted by a Government Agency; or

(C)to provide information or documents to a Government Agency in connection with an investigation or proceeding.

(iii) restricts Executive’s right to receive a reward or incentive for information provided to a Government Agency.

(f) Return of Proprietary Information. Executive acknowledges that all the Proprietary Information pre-existing, used or generated during the course of his employment by Flora Management is the property of Flora Management and the Flora Affiliates, as the case may be, and Executive holds and uses such as a trustee for Flora Management or the Flora Affiliates and subject to Flora Management’s and the Flora Affiliates’ sole control. Executive shall deliver to Flora Management or the Flora Affiliates, as applicable, all documents and other tangibles (including diskettes and other storage media) containing the Proprietary Information (x) at any time upon request by the Flora Growth Board or the applicable Flora Affiliate during his Employment Period and (y) immediately upon termination of the Employment Period.

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8.Noncompetition

The following definitions shall apply for the purpose of this Section 8:

(i) “Competing Business” shall mean any natural person or entity engaged in the. business of selling, manufacturing or distributing cannabis or cannabis related products.

(ii) “Customer” shall mean any Person with which Flora Management or Flora Affiliates has an existing sales contract with or whom purchases a material amount of goods and/or services from Flora Affiliates.

(iii) “Prospective Customer” shall mean any person or entity to whom Executive or Flora Management or any of the Flora Affiliates sent or delivered a written sales proposal, quote or contract, or with whom Executive or Flora Management or any of the Flora Affiliates had business contact for the purpose of developing that person or entity into a customer of Flora Management or a Flora Affiliate.

(iv) “Restricted Area” shall mean within the United States and any other geographic area included in Flora Management’s and any Flora Affiliate’s business plans during the Employment Period.

(v) “Restricted Period” shall mean the Employment Period and a period of twelve (12) months following the expiration, resignation, or termination of Executive’s employment for any reason.

(vi) “Solicit” shall mean to knowingly solicit, call upon, or initiate communications or contacts with a person or entity for the purpose of developing or continuing a business relationship.

(a) Restriction on Competition. During the Restricted Period, Executive shall not engage, directly or indirectly, either individually or through another person or entity, whether as an owner, employee, consultant, partner, principal, agent, representative, stockholder or otherwise, of, in, to or for any Competing Business in the Restricted Area; provided, however, that this Section 8(a) shall not prohibit Executive from (i) owning five percent (5%) or less of the outstanding stock of any publicly traded corporation, (ii) owning an equity interest in any other entity approved by the Flora Growth Board and listed on Exhibit B hereto, or (iii) serving on the board of directors of any Flora Affiliate.

(b) Non-Solicitation of Customers. During the Restricted Period, Executive shall not (except on behalf of Flora Management or a Flora Affiliate) Solicit, directly or indirectly, on his own behalf or on behalf of any other person(s), any Customer or Prospective Customer of Flora Management or any of the Flora Affiliates for any line of business that Flora Management or Flora Affiliates conducts or plans to conduct as of the date of Executive’s termination of employment for the purpose of conducting, marketing or providing for a Competing Business.

(c) Non-Solicitation of Employees. During the Restricted Period, Executive shall not, directly or indirectly, Solicit or employ or cause any business, other than an affiliate of Flora Management or Flora Growth, to Solicit or employ any person who is then or was at any time during the two (2)-year period prior to Executive’s termination as an employee of Flora Management or any of the Flora Affiliates and who is at the time of such employee’s separation from Flora Management or Flora Affiliates, a director, vice president, senior vice president, executive vice president or similar position of Flora Management or any of the Flora Affiliates, except to the extent that such action is undertaken in the ordinary course of hiring practices (e.g., an employment solicitation that is transmitted generally to the public or in the industry, rather than one that is targeted directly to any such Flora Management or Flora Affiliates’ employee).

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(d) Acknowledgement. Executive acknowledges that he will acquire much Proprietary Information concerning the past, present and future business of Flora Management and the Flora Affiliates as the result of his employment with Flora Management, as well as access to the relationships between Flora Management, Flora Growth and the other Flora Affiliates and their respective clients and employees. Executive further acknowledges that the business of Flora Management and the Flora Affiliates is very competitive and that competition by him in that business during the Employment Period and the Restricted Period would severely injure Flora Management and the Flora Affiliates, as the case may be. Executive understands that the restrictions contained in this Section 8 are reasonable and are required for Flora Management’ and the Flora Affiliates’ legitimate protection, and do not unduly limit his ability to earn a livelihood.

(e) Judicial Modification; Severability. If a court or arbitrator of competent jurisdiction determines that any provision of this Section 8 is overly broad or otherwise unenforceable, it is the intention of the parties that such court or arbitrator shall modify such provision to the minimum extent necessary to render such provision enforceable and then enforce such provision as modified. If any provision of this Agreement cannot be enforced, notwithstanding judicial modification as provided in this Section 8(e), such unenforceable provision shall be severed from this Agreement.

(f) Successors and Assigns. Flora Management and its successors and assigns may enforce these restrictive covenants.

9. Executive Representations

Executive represents and warrants to Flora Management that he is aware of the essential functions of his position set forth in Section 2 above, and that he is able to perform all of the essential functions of Senior VP Finance with or without a reasonable accommodation under the law. Further, except as otherwise identified in this Agreement, Executive is not now under any obligation of a contractual or other nature to any person, business or other entity which is inconsistent or in conflict with this Agreement or which would prevent him from performing his obligations under this Agreement.

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10. Arbitration

(a) Jury Trial Waiver, Arbitration. ALL ISSUES, MATTERS AND DISPUTES BETWEEN THE PARTIES REGARDING THE PARTIES’ EMPLOYMENT RELATIONSHIP OR TERMINATION OF THAT RELATIONSHIP, INCLUDING THIS AGREEMENT OR ANY BREACH OF THIS AGREEMENT, SHALL BE SUBMITTED TO AND DECIDED BY BINDING ARBITRATION IN FORT LAUDERDALE, FLORIDA. Executive agrees, on behalf of Executive and his agents or assigns that, except as otherwise provided in this paragraph, all potentially litigable claims or controversies arising out of this Agreement, Executive’s employment with Flora Management, or the termination of that employment, shall be submitted to final and binding arbitration pursuant to the Federal Arbitration Act. Said arbitration will be conducted before a mutually acceptable arbitrator with JAMS under JAMS’ Commercial Arbitration Rules and Mediation Procedures. If the Parties cannot agree upon an arbitrator, the claim or controversy shall be arbitrated by a single arbitrator selected in accordance with the applicable JAMS’ rules. This Agreement to arbitrate covers all grievances, disputes, claims, or causes of action that otherwise could be brought in a federal, state, or local court or agency under applicable federal, state, or local laws, arising out of or relating to Executive’s employment with Flora Management and the termination thereof, including claims Executive may have against Flora Management or against its officers, directors, supervisors, managers, employees, or agents in their capacity as such or otherwise, or that Flora Management may have against Executive. The claims covered by this Agreement include, but are not limited to, claims for breach of any contract or covenant (express or implied), tort claims, claims for wages, or other compensation due, claims for wrongful termination (constructive or actual), claims for whistle blowing, claims for discrimination or harassment (including, but not limited to, harassment or discrimination based on race, age, color, sex, gender, national origin, alienage or citizenship status, creed, religion, marital status, partnership status, military status, predisposing genetic characteristics, medical condition, psychological condition, mental condition, criminal accusations and convictions, disability, sexual orientation, or any other trait or characteristic protected by federal, state, or local law), and claims for violation of any federal, state, local, or other governmental law, statute, regulation, or ordinance. Neither Flora Management nor the Executive may pursue or participate in any claim against the other (i) as a class action or collective action; (ii) in a representative capacity on behalf of other persons or entities who are claimed to be similarly situated; (iii) in the capacity of a class member in any action, proceeding or arbitration against any party to this agreement; or (iv) absent the written consent of all parties, on a consolidated basis. Arbitration shall be brought solely on an individual basis and not on a class, group, collective, or representative basis, and the arbitrator in any arbitration under this Agreement has no power or authority to conduct the arbitration as a class or collective action or in a representative capacity. The arbitrator has the authority to award any type of relief or damages that could otherwise be awarded by a judge or jury to the Executive or Flora Management in their individual capacities. The arbitrator shall not, however, modify or disregard any provision of this Agreement. ARBITRATION AS PROVIDED IN THIS AGREEMENT SHALL BE THE EXCLUSIVE AND BINDING REMEDY AND WILL BE USED INSTEAD OF ANY COURT ACTION OR JURY TRIAL, WHICH IS HEREBY EXPRESSLY WAIVED. Each Party shall be responsible for its or his own costs incurred in such arbitration and in enforcing any arbitration award, including attorneys’ fees and expenses. The Executive hereby consents to personal jurisdiction and exclusive venue in the Federal Courts of Broward County, Florida, if such Court can exercise jurisdiction over the matter for any action brought by Flora Management seeking injunctive relief.

(b) Injunctive Relief Pending Arbitration. Notwithstanding the foregoing, either party may apply to a court of competent jurisdiction at any time for (i) an order compelling arbitration pursuant to this Agreement and/or (ii) temporary and/or preliminary injunctive relief to preserve the status quo and prevent irreparable harm pending arbitration.

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11. Miscellaneous

(a) Parachute Payments. In the event that (i) any severance payment, insurance benefits, accelerated vesting, pro-rated bonus or other benefit payable to Executive shall constitute a “parachute payment” within the meaning of Code Section 280G (“Parachute Payment”) and be subject to the excise tax imposed by Code Section 4999 (the “Excise Tax”), and (ii) if the payments to Executive were reduced to the minimum extent necessary so that such payments did not constitute Parachute Payments, the net benefits retained by Executive after the deduction of any federal, state or local income taxes would be greater than the net benefits retained by Executive if there was no such reduction after the deduction of Excise Tax and any federal, state or local income taxes, then such payments shall be so reduced. Such reduction shall be accomplished in any manner deemed appropriate by Flora Management after consultation with Executive. For purposes of making the foregoing determination: (1) Parachute Payments provided under arrangements with Executive other than this Agreement, if any, shall be taken into account in determining the total amount of Parachute Payments received by Executive so that the amount of Parachute Payments that are attributable to provisions of this Agreement is maximized; and (2) Executive shall be deemed to pay federal, state and local income taxes at the highest marginal rate of taxation for Executive’s taxable year in which the Parachute Payments are includable in Executive’s income for purposes of federal, state and local income taxation. The determination of whether the Excise Tax is payable, and the amount of any reduction necessary to make the Excise Tax not payable, as well as whether such a reduction would result in greater after-tax benefits to Executive, shall be made in writing in good faith by a nationally-recognized independent certified public accounting firm approved by Flora Management and Executive, such approval not to be unreasonably withheld (the “Accounting Firm”). For purposes of making the calculations required by this Section 11(a), to the extent not otherwise specified herein, reasonable assumptions and approximations may be made with respect to applicable taxes and reasonable, good faith interpretations of the Code may be relied upon. Flora Management and Executive shall furnish such information and documents as may be reasonably requested in connection with the performance of the calculations under this Section 11(a). Flora Management shall bear all costs incurred in connection with the performance of the calculations contemplated by this Section 11(a).

(b) Section 409A Compliance. Notwithstanding anything to the contrary in this Agreement, in-kind benefits and reimbursements provided under this Agreement shall be provided in accordance with the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv), such that any in-kind benefits and reimbursements provided under this Agreement during any calendar year shall not affect in-kind benefits or reimbursements to be provided in any other calendar year, other than an arrangement providing for the reimbursement of medical expenses referred to in Code Section 105(b), and any in-kind benefits and reimbursements shall not be subject to liquidation or exchange for another benefit. Notwithstanding anything to the contrary in this Agreement, reimbursement requests must be timely submitted by Executive and, if timely submitted, reimbursement payments shall be promptly made to Executive following such submission, but in no event later than December 31st of the calendar year following the calendar year in which the expense was incurred. In no event shall Executive be entitled to any reimbursement payments after December 31st of the calendar year following the calendar year in which the expense was incurred.

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Notwithstanding anything to the contrary in this Agreement, to the maximum extent permitted by applicable law, amounts payable to Executive pursuant to the severance pay provisions of Section 6 above and the parachute payment provisions of Section 11(a) above are intended to be exempt from treatment as nonqualified deferred compensation under Code Section 409A to the maximum extent permitted by the Code and applicable Treasury Regulations, including exemptions under Treasury Regulation Section 1.409A-1(b)(9) (separation pay plans) or Treasury Regulation Section 1.409A-1(b)(4) (short-term deferrals). If Executive is treated as a “specified employee” (as determined by the Flora Management in its discretion in accordance with applicable regulations under Code Section 409A) at the time of his separation from service (within the meaning of Code Section 409A) from Flora Management and each employer treated as a single employer with Flora Management under Code Section 414(b) or (c) (provided that in applying such Sections and in accordance with the rules of Treasury Regulations Section 1.409A-1(h)(3), the language “at least 50 percent” shall be used instead of “at least 80 percent”) and if any amounts of nonqualified deferred compensation (within the meaning of Code Section 409A) are payable under this Agreement by reason of Executive’s separation from service, then payment of the amounts so treated as nonqualified deferred compensation which would otherwise be payable during the six (6)-month period following Executive’s separation from service shall be delayed until the earlier of (i) the first business day which is at least six (6) months and one (1) day following the date of such separation from service, (ii) the death of Executive, or (iii) such earlier date on which payment is permitted under Code Section 409A(a)(2)(B), and such payment shall be increased for delayed payment based on a crediting rate of the applicable federal short-term rate under Code Section 1274(d) (as determined on the date(s) payment(s) would have otherwise been made) from the date payment(s) would have otherwise been made without regard to this provision and the date payment is actually made. Any series of payments due under this Agreement, other than a payment which is a life annuity, shall for all purposes of Code Section 409A be treated as a series of separate payments and not as a single payment. If any amount otherwise payable under this Agreement by reason of a termination of employment from Flora Management is treated as nonqualified deferred compensation (within the meaning of Code Section 409A), then instead of making such payment upon occurrence of the termination of employment, such payment shall be made at such time as Executive has a separation from service (within the meaning of Code Section 409A) from Flora Management and each employer treated as a single employer with Flora Management, as determined above.

(c) Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective (i) upon personal delivery, (ii) upon deposit with the United States Postal Service, by registered or certified mail, postage prepaid or (iii) in the case of email transmission or delivery by nationally recognized overnight deliver service, when received, addressed as follows:

(i) If to Flora Management, to:

Flora Growth Management Corp.

3406 SW 26^th Terrace, Suite C-1

Fort Lauderdale, FL 33312

Attn: Matthew Cohen, General Counsel

Email: matt.cohen@floragrowth.com

(ii) If to Executive, to:

Dany Vaiman

Address on File

or to such other address or addresses as either party shall designate to the other in writing from time to time by like notice.

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(d) Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine, or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.

(e) Entire Agreement. This Agreement constitutes the entire agreement between the Parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement.

(f) Amendment. This Agreement may be amended or modified only after approval by the Flora Growth Board and by a written instrument executed by both Flora Management and Executive.

(g) Governing Law. This Agreement shall be construed, interpreted, and enforced in accordance with the laws of the State of Florida, without regard to its conflicts of laws principles.

(h) Successors and Assigns; Change in Control. This Agreement shall be binding upon and inure to the benefit of both parties and each of its successors and assigns, including any entity with which or into which Flora Management may be merged or which may succeed to its assets or business or any entity to which Flora Management may assign its rights and obligations under this Agreement; provided, however, that the obligations of Executive are personal and shall not be assigned or delegated by him.

(i) Waiver. No delays or omission by Flora Management or Executive in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by Flora Management or Executive on any one (1) occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

(j) Captions. The captions appearing in this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any section of this Agreement.

(k) Severability. In case any provision of this Agreement shall be held by a court or arbitrator with jurisdiction over the parties to this Agreement to be invalid, illegal or otherwise unenforceable, such provision shall be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

(l) Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one (1) and the same instrument.

(m) Survival. The provisions of Sections 7 through 11 of this Agreement shall survive any termination of Executive’s employment.

12. Approvals

The effectiveness of this Agreement is subject to the approval of the Flora Growth Board. Delivery of this Agreement executed by Flora Management to Executive shall be deemed conclusive evidence of such approval and upon such approval this Agreement shall be deemed effective as of the Effective Date.

13. No Other Employment or Compensation

Executive (x) represents and warrants to Flora Management and the other Flora Affiliates that, and (y) agrees that during the Employment Period, (a) he is not and shall not be a party to any employment agreement or directly or indirectly involved in any employment or consulting arrangement or relationship with Flora Management or any other Flora Affiliate, except for this Agreement and as expressly permitted hereunder, and (b) he is not and shall not be directly or indirectly receiving any compensation, fees or payments of any other kind in exchange for any employment, consulting or other services provided to Flora Management or any other Flora Affiliate, except as provided under this Agreement and as expressly permitted hereunder.

14. Taxes

All payments to Executive pursuant to this Agreement shall be subject to withholding for taxes required by applicable law.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Agreement Date.

EXECUTIVE:	FLORA GROWTH MANAGEMENT CORP.
	By:
Dany Vaiman		Name: Luis Merchan
		Title: Chairman & CEO

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