FORM 51-102F4

BUSINESS ACQUISITION REPORT

ITEM 1 - IDENTITY OF COMPANY

Neptune Wellness Solutions Inc.

545, Promenade du Centropolis, Suite 100 Laval, Québec H7T 0A3

References to “Neptune” or the “Company” in this business acquisition report (this “Report”) refer to Neptune Wellness Solutions Inc. and its subsidiaries or any one of them, unless the context requires otherwise.

The following is the name and business telephone number of an executive officer of Neptune who is knowledgeable about the significant acquisition and this Report:

Mario Paradis

VP & Chief Financial Officer

(450) 687-2262

ITEM 2 - DETAILS OF ACQUISITION

On July 24, 2019, Neptune completed, through an indirect wholly-owned subsidiary, its previously announced acquisition (the “SugarLeaf Acquisition”) of all of the assets of SugarLeaf Labs, LLC and Forest Remedies LLC (collectively, “SugarLeaf”). The SugarLeaf Acquisition was completed pursuant to an asset purchase agreement among Neptune and certain of its subsidiaries, SugarLeaf and Peter M. Galloway, SugarLeaf’s Chief Executive Officer (the “Acquisition Agreement”).

SugarLeaf is a registered North Carolina-based commercial hemp company providing extraction services and formulated products. Through SugarLeaf, Neptune established a U.S.-based hemp extract supply chain, gaining a 24,000 square foot facility located in the U.S. Southeast region. SugarLeaf's cold ethanol processing facility with a processing capacity of 1,500,000 kg uses hemp cultivated by licensed American growers consistent with federal and state regulations to yield high-quality full and broad-spectrum hemp extracts.

SugarLeaf also possesses established, solid relationships with local farmers and consumer product companies looking for high purity hemp extracts to add to their product lines. The existing management team at SugarLeaf consists of experienced operators who will continue to operate the North Carolina extraction facility.

SugarLeaf has highly efficient hemp extraction capabilities in an important cultivation region of the U.S., developed through years of experience in processing and extraction methods. The company has been at the center of an extensive community that supports hemp extract production and refining, and uses the most advanced extraction equipment available – from stainless centrifuges to high capacity filtering and purifying techniques. Additionally, SugarLeaf sources hemp material from local licensed hemp growers who use responsible growing practices, including organic and regenerative farming techniques. SugarLeaf uses non-GMO ethanol at extremely cold temperatures with advanced lab techniques that produce cannabinoid-rich extracts. SugarLeaf also provides private label services for finished packaged hemp oil goods and delivers premium, non-GMO consumer products with impactful health benefits, ranging from tinctures and topicals to liquid soft gel capsules and Evape products. By maintaining strong supplier relationships with farmers and consumer product companies, in addition to licenses and registrations with the relevant governmental bodies, SugarLeaf has solidified its place in the industry as a reliable, efficient and consumer-minded hemp processor. In leveraging SugarLeaf’s unique range of assets, Neptune will be able to play a broader role in the customer value chain and address a rapidly developing U.S. market.

For more information regarding the nature of the business of SugarLeaf, please refer to Neptune’s most recent annual information form (“AIF”) and management’s discussion and analysis, as well as the risk factors included therein, available on SEDAR at www.sedar.com.

July 24, 2019.

Upon closing of the SugarLeaf Acquisition, Neptune paid an initial consideration for SugarLeaf of $28.5 million (US$21.8 million) by way of a combination of $15.7 million (US$12 million) in cash and $12.8 million (US$9.8 million) in common shares of Neptune (“Common Shares”) or 1,587,301 Common Shares. Additionally, pursuant to the Acquisition Agreement and as previously disclosed, by achieving certain annual adjusted EBITDA and other performance targets, earnouts could reach US$132 million as follows: (i) an additional US$6 million in Common Shares would be paid when certain production and revenue milestones are achieved, (ii) an additional US$16 million, 50% in cash and the remainder in Common Shares, would be paid should SugarLeaf's adjusted EBITDA exceed US$8 million for any rolling 12-month period beginning April 1, 2019, and (iii) additional amounts of up to US$110 million may be paid if certain performance-based conditions, based upon a percentage incremental adjusted EBITDA in 2021 and 2022 above a minimum growth level, are met. The earnout payments over the next three years are to be paid with a combination of cash or Common Shares, with at least 50% to be paid in cash.

On July 18, 2019, the Company completed a private placement of 9,415,910 Common Shares with both existing and new institutional investors resulting in gross proceeds to the Company of approximately US$41.4 million ($53.9 million) (the “Private Placement”). A portion of the net proceeds from the Private Placement was used by the Company to fund the initial cash consideration for the SugarLeaf Acquisition.

Unless otherwise noted, all dollar ($) amounts in this Report are in Canadian dollars.

Neptune presently does not have any current plans or proposals for material changes to the respective activities of Neptune or SugarLeaf that would have a significant effect on Neptune’s financial performance or financial position.

See the unaudited pro forma consolidated financial statements of Neptune and the accompanying notes thereto included in Schedule C hereto, for information on the effect of the SugarLeaf Acquisition on the financial position of the Company.

To the knowledge of Neptune, there has been no valuation opinion obtained within the last 12 months by Neptune or SugarLeaf required by securities legislation of a Canadian exchange or market to support the consideration paid by Neptune for the SugarLeaf Acquisition.

The SugarLeaf Acquisition was not a transaction with an informed person, associate or affiliate of Neptune (as such terms are defined in National Instrument 51-102 – Continuous Disclosure Obligations).

October 4, 2019.

ITEM 3 - FINANCIAL STATEMENTS AND OTHER INFORMATION

The following financial statements, together with the notes thereto, are included as schedules to this Report:

Cautionary Note Regarding Unaudited Pro Forma Financial Statements

This Report contains the unaudited pro forma consolidated financial statements of the Company comprised of the pro forma consolidated statement of financial position as at June 30, 2019 and the pro forma consolidated statements of loss for the three months ended June 30, 2019 and the year ended March 31, 2019.

Such unaudited pro forma consolidated financial statements have been prepared using certain of the Company’s and SugarLeaf’s respective historical consolidated financial statements as more particularly described in the notes to such unaudited pro forma consolidated financial statements. In preparing such unaudited pro forma consolidated financial statements, the Company has not independently verified the financial statements of SugarLeaf that were used to prepare the unaudited pro forma consolidated financial statements. The historical unaudited consolidated financial information has been adjusted in the unaudited pro forma consolidated financial statements to give effect to events that are: (i) directly attributable to the pro forma events, for which there are firm commitments and for which the complete financial effects are objectively determinable; and (ii) with respect to the unaudited pro forma consolidated statement of comprehensive loss, expected to have a continuing impact on the combined company’s results. As such, the impact from merger-related expenses is not included in the unaudited pro forma consolidated financial statement of comprehensive loss. The unaudited pro forma consolidated financial statements do not reflect any cost savings from operational efficiencies or synergies that could result from the acquisition or for liabilities that may result from integration planning. The unaudited pro forma consolidated financial statements are presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition and results of operations would have been had the acquisition occurred on the dates indicated.

The unaudited pro forma consolidated financial statements also may not be useful in predicting the future financial condition and results of the operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The pro forma adjustments are based on preliminary estimates of the fair value of the consideration paid and the fair value of the assets acquired and liabilities assumed, currently available information and certain assumptions that the Company believes are reasonable in the circumstances, as described in the notes to the unaudited pro forma consolidated financial statements.

As a result of these factors, the actual adjustments will differ from the pro forma adjustments, and the differences may be material.

Cautionary Note Regarding Forward-Looking Statements

This Report may contain certain “forward-looking statements” or “forward-looking information” under applicable securities laws. Statements in this Report that are not statements of historical or current fact constitute “forward-looking statements” within the meaning of the U.S. securities laws and Canadian securities laws. Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of Neptune to be materially different from historical results or from any future results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms “believes”, “belief”, “expects”, “intends”, “projects”,

“anticipates”, “will”, “should”, or “plans” to be uncertain and forward-looking. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Forward-looking information in this Report includes, but is not limited to, information or statements about Neptune’s outlook, business plans, the expected results or benefits from the SugarLeaf Acquisition, including, but not limited to, its expected extraction capacity and expansion opportunities,the expected quality of extracts and range of products, Neptune’s expected strategic positioning, potential market opportunities and the anticipated growth in the consumer market, the anticipated consideration owed to SugarLeaf as part of the SugarLeaf Acquisition and the assumption by Neptune’s management that the SugarLeaf plant will operate in accordance with its current business plans and without unforeseen delays or issues.

The forward-looking statements contained in this Report are expressly qualified in their entirety by this cautionary statement and the “Cautionary Note Regarding Forward-Looking Information” section contained in Neptune’s latest AIF, which also forms part of Neptune’s latest annual report on Form 40-F, and which is available on SEDAR at www.sedar.com, on EDGAR at www.sec.gov/edgar.shtml and on the Investor section of Neptune’s website at www.neptunecorp.com. All forward-looking statements in this Report are made as of the date of this Report. Neptune does not undertake to update any such forward- looking statements whether as a result of new information, future events or otherwise, except as required by law. The forward-looking statements contained herein are also subject generally to other risks and uncertainties that are described from time to time in Neptune public securities filings with the Securities and Exchange Commission and the Canadian securities commissions. Additional information about these assumptions and risks and uncertainties is contained in the AIF under “Risk Factors”.

SCHEDULE A – AUDITED COMBINED FINANCIAL STATEMENTS OF SUGARLEAF

See attached.

Combined Financial Statements of (In US dollars)

SUGARLEAF LABS LLC AND FOREST REMEDIES LLC

(collectively known as SugarLeaf  Labs  LLC.) For the years ended December 31, 2018 and 2017

INDEPENDENT AUDITORS’ REPORT

To the Sole Member Partner of Sugarleaf Labs LLC and Forest Remedies LLC

Opinions, including Qualified Opinion on the Financial Performance and Cash Flows

We have audited the combined financial statements of Sugarleaf Labs LLC and Forest Remedies LLC (collectively, the "Entity"), which comprise:

(Hereinafter referred to as the "financial statements").

Unmodified Opinion on the Statement of Financial Position

In our opinion, the accompanying combined statement of financial position presents fairly, in all material respects, the combined financial position of the Entity as at December 31, 2018 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Qualified Opinion on the Financial Performance and Cash Flows

In our opinion, except for the possible effects of the matter described in the "Basis for Opinions, including Basis for Qualified Opinion on the Financial Performance and Cash Flows" section of our auditors’ report, the accompanying combined statement of earnings and combined statement of cash flows present fairly, in all material respects, the combined financial performance and cash flows of the Entity for the year ended December 31, 2018 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Basis for Opinions, including Basis for Qualified Opinion on the Financial Performance and Cash Flows

We were appointed as auditors of the Entity during 2019.

We were not able to observe the counting of the physical inventories at the beginning of 2018 or to be satisfied concerning those inventory quantities by alternative means.

Therefore, since opening inventories enter into the determination of the financial performance and cash flows, we were not able to determine whether adjustments might be necessary to:

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditors’ Responsibilities for the Audit of the Financial Statements" section of our auditors’ report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our unmodified opinion on the financial position and our qualified opinion on the financial performance and cash flows.

Emphasis of Matter

We also draw attention to Note 2(a) to the combined financial statements which describes the basis of presentation used in these combined financial statements and the purpose of the combined financial statements.

Our opinions are not modified in respect of this matter.

Other Matter - Comparative Information

The comparative information as at and for the year ended December 31, 2017 and as at January 1, 2017 is unaudited. Accordingly, we do not express an opinion on it.

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

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

In preparing the financial statements, management is responsible for assessing the Entity’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 Entity or to cease operations, or has no realistic alternative but to do so.

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

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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 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 the 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:

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.

Montréal, Canada July 26, 2019

*CPA auditor, CA, public accountancy permit No. A120841

SUGARLEAF LABS LLC

Combined Financial Statements (In US dollars)

For the years ended December 31, 2018 and 2017

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2

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

SugarLeaf Labs LLC and Forest Remedies LLC (collectively “Sugarleaf” or the “Business”) are registered North Carolina-based commercial hemp companies providing extraction services and formulated products. The Business has a 24,000 square foot facility located in the U.S. Southeast region. SugarLeaf’s cutting-edge cold ethanol processing facility with a processing capacity of 1,500,000 kg uses hemp cultivated by licensed American growers consistent with federal and state regulations to yield high-quality full and broad-spectrum hemp extracts. SugarLeaf has highly efficient hemp extraction capabilities in an important cultivation region of the U.S., developed through years of experience in processing and extraction methods. The Business has been at the center of an extensive community that supports  hemp extract production and refining, and  uses the most advanced extraction equipment available – from stainless centrifuges to high capacity filtering and purifying techniques. The Business is domiciled at 408 S. McLin Road, Conover, NC 28613.

These combined financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB") in connection with the sale of substantially all of the assets and liabilities of SugarLeaf to Neptune Wellness Solutions Inc. (“Neptune” or the “Purchaser”). See subsequent event note 19. The purpose of these combined financial statements is to provide general-purpose historical financial information of the Business in order to satisfy the Purchaser’s public reporting obligations.

As the Business has not previously prepared stand-alone financial statements, these combined financial statements are the first IFRS financial statements of the Business in which IFRS 1, First-time Adoption of International Financial Reporting Standards has been applied. The Business did not elect to apply any exemptions under IFRS 1. Since the Business did not previously prepare combined financial statements, and accordingly does not have any previous GAAP for purposes of the combined financial statements, the Business is not required to present reconciliations as per IFRS 1.

The businesses that make up these combined financial statements include SugarLeaf Labs LLC and Forest Remedies LLC. For all periods presented in these combined financial statements, the Business was controlled by the same sole member partner and are therefore considered to be under common management. These combined financial statements were derived from the financial statements and accounting records of the Business including all assets, liabilities, income and expenses that were directly attributable to the Business acquired. The combined financial statements have been prepared on a historical cost basis for all years presented.

All significant intercompany transactions within the Business have been eliminated.

The combined financial statements were authorized for issuance by the Board of Directors on July 26, 2019.

Certain of the Business’ accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. In establishing fair value, the Business uses a fair value hierarchy based on levels as defined below:

These combined financial statements are presented in US dollars, which is the Business’ functional currency.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

The preparation of combined financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates are based on management’s best knowledge of current events and actions that the Business may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Critical judgments in applying accounting policies and/or estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include the following:

The accounting policies set out below have been applied consistently to all periods presented in these combined financial statements.

All financial instruments are recognized in the combined statement of financial position initially at fair value when the Business becomes a party to the contractual obligations of the instrument. Transaction costs that are directly attributable to the acquisition or issuance of financial instruments that are not subsequently recognized at fair value are added or deducted from the financial asset or liability and are amortized using the effective interest rate method over the expected life of the related asset or liability.

Financial assets and financial liabilities are offset and the net amount reported in the combined statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis,   or to realize the assets and settle the liabilities simultaneously.

On initial recognition, the Business classifies its financial assets as subsequently measured at either amortized cost or fair value, depending on its business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

Financial asset measured at amortized cost:

A financial asset is subsequently measured at amortized cost using the effective interest method and net of any impairment loss if it meets both of the following conditions and is not designated as at fair value through profit or loss:

The financial assets of the Business that are measured at amortized cost consist of cash and trade and other receivables.

Derecognition of financial assets:

Financial assets are derecognized when the Business’ contractual rights to the cash flows from the respective assets have expired or the Business has transferred its rights to the cash flows from the respective assets and either (i) the Business has transferred substantially all of the risks and rewards of the assets or (ii) the Business has neither exposure to the risks inherent in those assets nor entitlement to rewards from them. Any gain or loss on derecognition is recognized in the combined statement of earnings.

Debt instruments issued by the Business are classified as financial liabilities in accordance with the substance of the contractual arrangements and the definitions of a financial liability.

On initial recognition, the Business classifies its financial liabilities as subsequently measured at either amortized cost or fair value.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

Financial liabilities measured at amortized cost:

A financial liability is subsequently measured at amortized cost, using the effective interest method. The Business currently classifies loans and borrowings, trade and other payables, due to sole member partner and due to related party as financial liabilities measured at amortized cost.

Financial liabilities measured at fair value:

Financial liabilities at fair value are initially recognized at fair value and are remeasured at each reporting date with any changes therein recognized in net income. The Business currently has no significant financial liabilities measured at fair value.

Derecognition of financial liabilities:

Financial liabilities are derecognized when the obligations under the liabilities are discharged, cancelled, expired or are replaced by a new liability with substantially modified terms. Any gain or loss on derecognition is recognized in the combined statement of earnings.

Effective interest method:

The effective interest method is a method of calculating the amortized cost of a financial asset or financial liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts/payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or (when appropriate) a shorter period, to the net carrying amount on initial recognition.

Inventories are measured at the lower of cost and net realizable value. The cost of raw materials is based on the weighted-average cost method. The cost of finished goods includes expenditures incurred in acquiring the inventories, production or conversion costs, sub- contractors costs and other costs incurred in bringing them to their existing location and condition, as well as production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and borrowing costs on qualifying assets.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

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

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 of property, plant and equipment, and are recognized in net profit or loss.

The cost of replacing a 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 Business, and its cost 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 profit or loss as incurred.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

Depreciation is calculated over the depreciable amount, which is the cost of an asset less its residual value.

Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

The estimated useful lives are as follows:

Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted prospectively, if appropriate. Depreciation of assets not yet utilized in operations commences when the assets are available for use.

Loss allowances for “expected credit losses” (“ECLs”) are measured on either of the following bases:

The Business has elected to measure loss allowances for trade accounts receivable at an amount equal to lifetime ECLs.

The Business measures loss allowances for other receivables by determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs. The Business considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Business’ historical experience and informed credit assessment, including forward-looking information.

The Business considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Business in full, without recourse by the Business to actions such as recovering inventory or the Business’ credit insurance.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Business is exposed to credit risk.

Measurement of ECLs:

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Business expects to receive). The Business establishes an impairment loss allowance on a collective and individual assessment basis, by considering past events, current conditions and forecasts of future economic conditions. Collective assessment is carried out by grouping together trade accounts receivable with similar characteristics. ECLs are discounted at the effective interest rate of the financial asset.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

Credit-impaired financial assets:

At each reporting date, the Business assesses whether financial assets carried at amortized cost are credit-impaired. A financial asset   is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Examples of events that could occur are:

It may not be possible to identify a single discrete event; instead, the combined effect of several events may have caused financial assets to become credit-impaired.

Presentation of impairment:

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. Impairment losses related to trade and other receivables are presented in selling, general and administrative expenses of the combined statement  of earnings.

Write-off:

The gross carrying amount of a financial asset is written off when the Business has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof.

The carrying amounts of the Business’ non-financial assets, other than inventories, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the ''cash-generating unit'', or ''CGU'').

An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognized in profit or loss.

Impairment losses recognized in prior periods are assessed at each reporting  date for any indications that the loss has  decreased or  no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

A provision is recognized if, as a result of a past event, the Business has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are usually determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

A provision for onerous contracts is recognized when the expected benefits to be derived by the Business from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Business recognizes any impairment loss on the assets associated with that contract.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not within the control of the Business; or a present obligation that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets, provision of services or any other transfer of economic benefits will be required to settle the obligation, or the amount of the obligation cannot be estimated reliably.

Services:

The Business recognizes revenue as extraction services are provided. For some arrangements in which the Business is entitled to non-cash consideration, revenue is measured at the fair value of exchanged assets as specified in contracts with customers.

Sale of goods:

The Business’ normal operations consist of producing high-yield hemp extracts and oils. All revenue from the sale of goods in the normal course of business operations is recognized at a point in time when control of the goods is transferred to the customer. The Business transfers control generally on shipment of the goods, or in some cases, upon reception by the customer. Revenue is measured based on the consideration the Business expects to be entitled to receive. Revenue is presented net of estimated returns.

An operating segment is a component of the Business that engages in business activities from which it may earn revenues and incur expenses. The Business has one reportable segment: the commercial extraction and formulated products of hemp. All of the Business’ assets are located in the US.

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.

Contingent lease payments are accounted for in the period in which they are incurred.

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus if the Business has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

Termination benefits are recognized as an expense when the Business is committed demonstrably, without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized as an expense if the Business has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting year, then they are discounted to their present value.

Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using the effective interest method.

Finance costs comprise interest expense and accretion on borrowings, unwinding of the discount on provisions and long-term payables and other financing costs, and bank charges. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in profit or loss using the effective interest method.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

The Business recognizes interest income as a component of investing activities and interest cost as a component of financing activities in the combined statements of cash flows.

The Limited Liability Company is not a taxable entity for federal and state income tax purposes, the results of its operations are included in the federal tax return of the partner. Accordingly, federal income taxes are not reflected in the financial statements. The Limited Liability Company is subject to property taxes. Such amounts are not material for the years ended December 31, 2018 and 2017.

The information on earnings per share pursuant to IAS 33 has not been presented as the Business is not a separate legal entity with common shares outstanding. Therefore, historical earnings per share have not been presented in the combined financial statements.

The following new standard, and amendment to standards and interpretations, is not yet effective and has not been applied in preparing these combined financial statements.

Leases:

In January 2016, the IASB issued IFRS 16, Leases, which will replace IAS 17, Leases. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, the customer (lessee) and the supplier (lessor). IFRS 16 eliminates the classification of leases as either operating leases or finance leases, introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value.

The new standard is effective for fiscal years beginning on January 1, 2019, and is available for early adoption. The Business intends to adopt IFRS 16 in its combined financial statements for the annual period beginning on January 1, 2019, and expects to use the modified retrospective method. The Business is currently completing its assessment of the impact of adoption of the standard.

Receivable from related party has no specified maturity date for reimbursement and does not bear interest. The Business’ exposure to credit risk related to trade receivables is presented in note 16 (a).

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

For the year ended December 31, 2018, the cost of sales of $1,101,555 (2017 - $948,080 (unaudited)) was comprised of inventory costs of

$868,879 (2017 – $854,590 (unaudited)) which consisted of raw materials, sub-contractor costs, changes in work in progress and finished goods and other costs of $232,676 (2017 - $93,490 (unaudited)).

6.Property and equipment:

Depreciation expense for the year ended December 31, 2018 and 2017 has been recorded in cost of sales in the statement of earnings.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

The Business’ exposure to liquidity risks related to trade and other payables is presented in note 16 (b).

This note provides information about the contractual terms of the Business’ borrowings, which are measured at amortized cost.

During the year ended December 31, 2018, interest expense of $26,669 was recognized on loans and borrowings. The Business’ exposure to liquidity risks related to loans and borrowings is presented in note 16 (b).

13

SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

During the year ended December 31, 2018, the Business recorded $75,938 (2017 - $307,759 (unaudited)) in cost of sales for labor costs charged by a related company under common control for the benefit of the Business.

Where a related business incurs specific incremental costs for the benefit of the Business, it charges those amounts directly. Costs that benefit more than one related entity are charged by allocating a fraction of costs incurred by the related party that is commensurate to the estimated fraction of services or benefits received by each entity for those items.

These charges do not necessarily represent the actual cost that the Business would have incurred had the Business been dealing directly with third parties.

Loan with an initial balance of $227,949, bearing interest at 7% per annum, reimbursable in twenty-four equal and consecutive monthly payments of principal and interest of $10,206, commencing February 1, 2017. An amount of $128,876 bearing interest at 7% was reimbursed during the year. Interest of $1,448 was recognized during the year ended December 31, 2018 (2017 - $13,193 (unaudited)) on this loan.

The key management personnel are the officers of the Business that have the authority and responsibility for planning, directing and controlling the activities of the Business.

During the year ended December 31, 2018, the Business recorded $192,567 (2017- nil (unaudited)) for short-term employee benefits, principally salaries, of the key management personnel.

The amount due to sole member partner is repayable on or before October 31, 2020 and bears interest at 24.787% per annum with a total guaranteed interest of $100,000. During the year ended December 31, 2018, interest expense of $8,285 was recognized on this loan.

The sole member partner’s direct investment in the combined activities is presented as net partner’s investment on the combined statement of financial position. Net partner’s investment is comprised of accumulated earnings of the operations and the accumulated net contribution from and distribution to the sole member partner. Net contributions or distributions from or to the sole member partner are presented on the combined statement of cash flows as capital contributions or distributions.

All the sales for the years ended December 31, 2018 and 2017 were made to customers in the United States.

14

SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

15

SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

The Business has determined that the carrying values of its liabilities approximate their fair value given the short-term nature of these instruments.

The fair value of the fixed rate loans and borrowings is determined by discounting future cash flows using a rate that the Business could obtain for loans with similar terms, conditions and maturity dates. The fair value of these instruments approximates the carrying amounts and was measured using level 3 inputs.

In the normal course of business, the Business is subject to various risks relating to credit, interest rate and liquidity. The Business manages these risk exposures on an ongoing basis. The Business’ management is responsible for determining the acceptable level of risk. The following analysis provides a measurement of risks arising from financial instruments.

Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations, and arises primarily from the Business’ trade receivables. The Business may also have credit risk relating to cash, which is managed by dealing only with highly-rated American institutions. The carrying amount of these financial assets, as disclosed in the combined statements of financial position, represents the Business’ credit exposure at the reporting date. The Business’ trade receivables and credit exposure fluctuate throughout the year. The Business’ average trade receivables and credit exposure during the year may be higher than the balance at the end of that reporting period.

Most of the Business’ customers are distributors for a given territory and are privately-held enterprises. The profile and credit quality of the Business’ customers vary significantly. Adverse changes in a customer’s financial position could cause the Business to limit or discontinue conducting business with that customer, require the Business to assume more credit risk relating to that customer’s future purchases or result in uncollectible accounts receivable from that customer. Such changes could have a material adverse effect on business, combined results of operations, financial condition and cash flows.

Customers do not provide collateral in exchange for credit, except in unusual circumstances. The Business’ extension of credit to customers involves considerable judgment and is based on an evaluation of each customer’s financial condition and payment history.

16

SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

The aging of trade receivable balances and the allowance for doubtful accounts as at December 31, 2018 and 2017 were as follows:

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates.

The Business’ exposure to interest rate risk as at December 31, 2018 and 2017 is as follows:

The fixed rate borrowings expose the Business to a fair value risk but not cash flow interest rate risk.

Liquidity risk is the risk that the Business will not be able to meet its financial obligations as they fall due. The Business manages liquidity risk through the management of its capital structure and financial leverage, as outlined in note 18. It also manages liquidity risk by continuously monitoring actual and projected cash flows.

The following are the contractual maturities of financial liabilities as at December 31, 2018 and 2017:

* Includes interest payments to be made at the contractual rate.

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SUGARLEAF LABS LLC

Notes to Combined Financial Statements, Continued (In US dollars)

For the years ended December 31, 2018 and 2017

* Includes interest payments to be made at the contractual rate.

The Business rents its premises pursuant to operating leases expiring at different dates: December 31, 2019 and October 31, 2021.

During the year ended December 31, 2018, an amount of $50,766 (2017 - $19,800 (unaudited)) was recognized as an expense in respect of operating leases. An amount of $7,887 has been recorded in selling, general and administrative expenses (2017 - $3,076 (unaudited)) and

$42,879 (2017 - $16,724 (unaudited)) has been recorded in cost of sales.

Minimum lease payments for the next three years are $119,895 in 2019, $91,514 in 2020 and $ 77,404 in 2021. A minimum lease payment amount of $30,000 included in 2019 relates to a lease agreement with a related company.

The Business’ objective in managing capital is to ensure sufficient liquidity to commercialize its products and to sustain future development of the Business. The Business is not exposed to external requirements by regulatory agencies regarding its capital.

Since inception, the Business has financed its liquidity needs primarily through the cash coming from the sole member partner, cash flows from operating activities and liquidities, as well as the issuance of promissory notes.

The Business defines capital as being the total of the net partner’s investment, due to sole member partner and loans and borrowings. The Business’ primary objectives when managing capital are to: