APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

This management discussion and analysis ("MD&A") of the financial condition and results of operations of Aphria Inc. and its subsidiaries, (the "Company" "Aphria", "we", "us" or "our"), is for the three and six months ended November 30, 2019. It is supplemental to, and should be read in conjunction with the Company's consolidated financial statements and the accompanying notes for the three and six months ended November 30, 2019, as well as the audited financial statements and MD&A for the year ended May 31, 2019. The Company's financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS").

This MD&A has been prepared by reference to the MD&A disclosure requirements established under National Instrument 51-102 "Continuous Disclosure Obligations" ("NI 51-102") of the Canadian Securities Administrators. Under the United States (U.S.)/Canada Multijurisdictional Disclosure System, we are permitted to prepare the MD&A in accordance with Canadian disclosure requirements, which may differ from U.S. disclosure requirements. Additional information regarding Aphria Inc. is available on our website at www.aphriainc.comor through the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.

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

  • "Gram equivalents" include both grams of dried cannabis as well as grams of cannabis oil as derived using an 'equivalency factor' of 1 gram per 5.75 mL of cannabis oil. Management believes this measure provides useful information as a benchmark of the Company against its competitors.
  • "All-in"cost of sales of dried cannabis per gram is equal to production costs less the costs of accessories less cannabis oil conversion costs ("cost of sales of dried cannabis") plus (minus) increase (decrease) in plant inventory divided by gram equivalents of cannabis sold in the quarter. This measure provides the cost per gram of dry cannabis and gram equivalent of oil sold before the post harvesting processing costs to create oil or other ancillary products.
  • Cash costs to produce dried cannabis per gram is equal to cost of sales of dried cannabis less amortization, packaging costs and distribution costs plus (minus) increase (decrease) in plant inventory divided by gram equivalents of cannabis sold in the quarter. Management believes this measure provides useful information as it removesnon-cash amortization and packaging costs and provides a benchmark of the Company against its competitors.
  • Cannabis gross profit is equal to gross profit less distribution revenue, insurance recovery, cost of goods purchased, thenon-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes non-similar revenue, costs and fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.
  • Cannabis gross margin is cannabis gross profit divided by net revenue from cannabis products. Management believes this measure provides useful information as it represents the gross profit based on the Company's cost to produce inventory sold and removes fair value metrics tied to increasing stock levels (decreasing stock levels) required by IFRS.
  • Distribution gross profit is equal to gross profit less revenue from cannabis products, insurance recovery, excise taxes, production costs, cost of cannabis purchased, thenon-cash increase (plus the non-cash decrease) in the fair value adjustments on sale of inventory and on growth of biological assets, if any. Management believes this measure provides useful information as it removes non-similar revenue and costs.
  • Distribution gross margin is distribution gross profit divided by distribution revenue. Management believes this measure provides useful information as it represents the gross profit based on the Company's costs to purchase inventory for resale.
  • Adjusted EBITDA is net income (loss), plus (minus) income taxes (recovery) plus (minus)non-operating (income) loss, net, plus amortization, plus share-based compensation, plus (minus) non-cash fair value adjustments on sale of inventory and on growth of biological assets, plus impairment, plus transaction costs, and certain one-timenon-operating expenses, as determined by management. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by operations.
  • Adjusted EBITDA from cannabis operations is calculated based on the same approach outlined above for Adjusted EBITDA, based on the operations of the following entities in the Company's consolidated financial statements: Aphria Inc. and Broken Coast Cannabis Ltd. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and it is a close proxy for repeatable cash generated from the Company's operations in the cannabis regulated industry.
  • Adjusted EBITDA from distribution operations is calculated based on the same approach outlined above for Adjusted EBITDA, based on the operations of the following entities in the Company's consolidated financial statements; CC Pharma GmbH, ABP, S.A. andFL-Group. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and it is a close proxy for repeatable cash generated from the Company's distribution operations.
  • Adjusted EBITDA from businesses under development is adjusted EBITDA minus adjusted EBITDA from cannabis operations and adjusted EBITDA from distribution operations. Management believes this measure provides useful information as it is a commonly used measure in the capital markets and as it is a close proxy for repeatable cash generated by the Company's businesses under development.
  • Strategic investments are the total cash out flows used in investing activities relating to investment inlong-term investments and equity investees as well as both notes and convertible notes advanced. Management believes this measure provides useful information as it helps provide an indication of the use of capital raised by the Company outside of its operating activities.

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

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

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

This MD&A is prepared as of January 13, 2020.

COMPANY OVERVIEW

Aphria Inc., a company amalgamated under the laws of the province of Ontario, is licensed to produce and sell medical and adult-use cannabis, cannabis-derived extracts, and derivative cannabis products in Canada under the provisions of theCannabis Act. Aphria received its licence to produce and sell medical cannabis on November 26, 2014, followed by its licence to sell cannabis extracts on August 18, 2016. These licences were extended to include the adult-use market on October 17, 2018 and the derivative cannabis products on October 17, 2019. Aphria's corporate office is located in Toronto, Ontario. The Company's original 1,100,000 square foot greenhouse facility, Aphria Oneis located in Leamington Ontario. Throughout this MD&A, Aphria will refer to its original Leamington campus as "Aphria One".

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

Canadian Cannabis Operations

The Company's domestic Canadian cannabis operations are comprised of the original Aphria Onegreenhouse facility (described above), wholly-owned British Columbia-based subsidiary Broken Coast, and 51% majority owned Leamington- based subsidiary, 1974568 Ontario Ltd. ("Aphria Diamond").

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

Aphria Diamondis a 51% majority owned subsidiary of the Company, incorporated in November 2017. This entity is the Company's venture with Double Diamond Farms ("Double Diamond"). As of November 4, 2019, Aphria Diamond is licensed to produce cannabis under the provisions of the Cannabis Act.

Once all licensed facilities are operating at capacity and in full crop rotation, the Company will have more than 2.4 million square feet of space capable of up to an annual production of 255,000 kgs of cannabis.

International Operations

As a leading global cannabis company driven by an unrelenting commitment to our people, the planet, product quality and innovation, we have been setting the standard for the low-cost production of cannabis at scale, grown in environmentally responsible conditions. Focusing on untapped opportunities and backed by the latest technologies, we are committed to bringing our expertise and breakthrough innovation to the global cannabis market and expanding our international footprint to address countries legalizing the use cannabis for medical purposes.

In establishing our international footprint, we have sought to create operational hubs in those continents where we have identified the biggest opportunities for growth and have designed our operations to provide for cannabis cultivation processing as well as a distribution network. In Europe, we have established our primary hub in Germany. With our acquisition of CC Pharma GmbH ("CC Pharma"), we have gained access to an established distribution network throughout

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Europe. Currently, the majority of distribution activities for CC Pharma within Europe relates to the distribution of non- cannabis medical products with plans to continue developing and incorporating cannabis medical products into the product assortment.

We are in the process of constructing cultivation and production operations in Germany and Malta. The German government recently completed a tender process to award licences for in-country cultivation. Our wholly-owned subsidiary, Aphria Deutschland GmbH ("Deutschland"), participated in the tender process and was one of the three companies selected by the German Federal Institute for Drugs and Medical Devices ("BfArM") to receive a licence for the cultivation of medical cannabis in Germany. We were granted a total of five lots, which was the most available lots within the tender process and is the only licensed producer in Germany with the permission to grow all three strains of medical cannabis approved by the BfArM.

In September 2018, we acquired LATAM Holdings Inc. ("LATAM"), which holds key licences in Colombia, Argentina and Jamaica through its various subsidiaries MMJ Colombia Partners Inc., Marigold Acquisitions Inc., Hampstead Holdings Ltd., MMJ International Investments Inc., ABP, S.A., Marigold Projects Jamaica Limited, and ColCanna S.A.S. In addition, through the LATAM acquisition, the Company obtained an option to purchase a majority interest in a Brazilian entity upon such entity obtaining a medical cannabis cultivation, processing and distribution licence in Brazil.

We have identified Columbia as our hub for South America and the Company is constructing a cultivation and production facility in Colombia to meet the demand for this region. In addition, the Company maintains a distribution network in Argentina.

The Company's controlled subsidiaries are as follows:

Subsidiaries

Jurisdiction of incorporation

Ownership interest (1)

Broken Coast Cannabis Ltd.

British Columbia, Canada

100%

LATAM Holdings Inc.

British Columbia, Canada

100%

Marigold Acquisitions Inc.

British Columbia, Canada

100%

MMJ International Investments Inc.

British Columbia, Canada

100%

Nuuvera Holdings Limited

Ontario, Canada

100%

ARA - Avanti Rx Analytics Inc.

Ontario, Canada

100%

MMJ Colombia Partners Inc.

Ontario, Canada

100%

Nuuvera Israel Ltd.(2)

Israel

100%

FL-Group

Italy

100%

Goodfields Supply Co. Ltd.

United Kingdom

100%

Hampstead International Inc.

Barbados

100%

ABP, S.A.

Argentina

100%

Nuuvera Deutschland GmbH

Germany

100%

Aphria Deutschland GmbH

Germany

100%

CC Pharma GmbH

Germany

100%

CC Pharma Research and Development GmbH

Germany

100%

Aphria Wellbeing GmbH

Germany

100%

Marigold Projects Jamaica Limited

Jamaica

95%(3)

Nuuvera Malta Ltd.

Malta

90%

ASG Pharma Ltd.

Malta

90%(4)

QSG Health Ltd.

Malta

90%(4)

ColCanna S.A.S.

Colombia

90%

CC Pharma Nordic ApS

Denmark

75%

1974568 Ontario Ltd.

Ontario, Canada

51%

Aphria Terra S.R.L.

Italy

51%

Aphria Italy S.p.A. (2)

Italy

51%

APL - Aphria Portugal, Lda.

Portugal

51%

CannInvest Africa Ltd.

South Africa

50%

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Verve Dynamics Incorporated (Pty) Ltd.

Lesotho

30%(5)

  1. The Company defines ownership interest as the interest in which the Company is entitled a proportionate share of net income. Legal ownership of some subsidiaries differs from ownership interest shown above.
  2. Represents inactive subsidiaries, which have no operations and do not own any assets, save and except for a related party balance owing to the Company, and is in the process of being dissolved.
  3. The Company holds 49% of the issued and outstanding shares of Marigold Projects Jamaica Limited, through wholly owned subsidiary Marigold Acquisitions Inc. The Company holds rights through a licensing agreement to 95% of the results of operations of Marigold Projects Jamaica Limited.
  4. The Company holds 100% of the issued and outstanding shares of ASG Pharma Ltd. and QSG Health Ltd., through 90% owned subsidiary Nuuvera Malta Ltd.
  5. The Company holds 60% of the issued and outstanding shares of Verve Dynamics Incorporated (Pty) Ltd., through 50% owned subsidiary CannInvest Africa Ltd.

STRATEGY AND OUTLOOK

Aphria, a leading global cannabis consumer packaged goods company is setting the standard for brand development, product innovation, and industrial scale cultivation automation for the production of cannabis grown in environmentally responsible conditions. The Company was one of the first licensed producers in Canada and the first Canadian licensed producer to fully exploit greenhouse cultivation and industrial-scale production to deliver sustainable operating profit margins in the emerging cannabis industry. Through its international operations, the Company also seeks opportunities to create long-term shareholder value by identifying partnership and investment opportunities where the Company can apply experience and knowledge gained in the Canadian cannabis industry to other jurisdictions where a national cannabis legalization framework is developing, and local market characteristics are expected to support the Company's competitive strengths.

We continue to focus on the developing industry in Canada and ensuring that the Company is successful through the launch of the newly legalized cannabis derivative products. Internationally, the Company has divested the majority of its ownership interest in Althea Company Pty Ltd. as the industry in Australia has with respect to medical consumption of cannabis and the legalization of adult use cannabis has not progressed at the pace initially anticipated by the Company. The Company, however, will continue to maintain multiple supply agreements around the world and is focused on developing a significant presence in jurisdictions where legalization of cannabis use, whether medical or adult use, is progressing at a faster rate. We continuously evaluate new geographies in which to expand.

Canadian Cannabis Operations

Canadian cannabis operations include the results of: (i) Canadian subsidiaries which hold investments and have no other operations; and (ii) companies which also actively produce and sell cannabis under the Cannabis Act(Aphria One, Aphria Diamond and Broken Coast).

Licences

The 1,100,000 sq. ft. facility at Aphria One is currently fully licensed and fully planted, yielding approximately 600,000 plants.

As of the date of this MD&A, the Aphria Diamond facility is complete and licensed. As of the date of this MD&A, the Company is fully planted. We expect that the Company's total production capacity(1)will be up to 255,000 kgs a year from all Canadian cultivation facilities.

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

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expected to be grown at each facility.

Canadian medical market brands

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

Canadian adult-use market brands

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

Aphria developed its initial portfolio of adult-use brands to specifically meet the evolving needs of Canada's most profitable consumer segments. The Company leveraged its strengths to offer products with unique attributes - from price through to potency and assortment - to best serve its consumers. The suite of brands created by the Company for Canada's adult-use market include Solei, RIFF, Good Supply, and Broken Coast. Each brand is unique to a specific target consumer segment with various product offerings designed to meet the needs of its targeted segments, described below:

Solei Sungrown Cannabis ("Solei") is designed for current and novice users, pairing an assortment of carefully curated strains and product formats for different experiences. Solei's signature 'Moments' based approach has received very positive feedback from retailers and consumers seeking a simplified approach to cannabis.

RIFFis a culture and community focused brand supporting the artistic community across Canada. The brand has high potency offerings available for more experienced users.

Good Supplyoffers regular cannabis users with a no- frills, yet excellent value-for-money assortment that does not sacrifice quality.

Complementing Aphria's in-house brands, the Company's wholly-owned subsidiary Broken Coastis a multi-award- winning craft grower that delivers a premium product and provides consumers with an opportunity to access a brand synonymous with British Columbia-grown cannabis. Broken Coast's craft cannabis is grown on the shores of the Salish Sea in small batches using single-strain growing rooms. All flower is hand-trimmed and slow-cured ensuring premium product quality and consistency.

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Product development

On October 17, 2019, the Canadian government legalized the production and sale of cannabis infused products. According to Headset, Inc., an organization which tracks data including sales data across the cannabis category in the U.S., the vape market makes up 17% to 30% of sales (California, Nevada, Colorado, Washington) depending on the market. Aphria has and continues to invest capital and resources in product research, development, and production technologies in anticipation of demand for this new category. The Company is equally focused on the development of other categories of cannabis derivative products. As part of these R&D efforts, the Company is investing in the following areas to develop consistent and unique formulations to be used in its end-products:

  • Industrial-scaleextraction technologies using different methods including CO2, butane and ethanol;
  • The effective isolation of terpenes, cannabinoids and other cannabis compounds; and,
  • Development ofnano-emulsification technology providing flavourless and colourless input material into derivative products such as edibles and beverages.

The Company is currently engaged in R&D, IP partnerships and formulation development for a broad suite of high margin derivative products such as vapes, edibles, beverages, concentrates, topicals and other products such as oral thin strips and transdermal patches.

Within these categories, the Company's primary focus in the near term is vape products as the Company anticipates that said products will grow to represent a similar percentage of the Canadian cannabis market as the currently represent in U.S. markets where such products are legal and is very well aligned to its superior extraction capabilities and know-how. Following the statutory notice period under the Cannabis Regulations, and as of the date of this MD&A, the Company has shipped and continues to ship vape products. The Company believes edibles and beverages will collectively represent a much smaller proportion of the market and has developed a strategy to meet this demand, which will be implemented in the coming quarter.

Distribution

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

The Company is party to an exclusive distribution agreement with Great North Distributors Inc. ("Great North Distributors"), a wholly-owned Canadian subsidiary of Southern Glazer's Wine & Spirits ("Southern Glazer's") to provide the Company with the sales force and wholesale/retail channel expertise required to efficiently distribute the Company's product through each of the provincial/territorial cannabis control agencies. As one of the leading distributors of alcoholic beverages in Canada, Great North Distributors has extensive expertise in managing compliance with the unique rules that govern the marketing of controlled substances in each of the jurisdictions where the Company has supply agreements. The Company has leveraged the Great Northern Distributors agreement by signing a subsequent agreement with We Grow BC Ltd. ("We Grow"), a Vancouver-based licensed producer of premium cannabis, to become We Grow's exclusive sales representatives across Canada. As of November 30, 2019, We Grow has listed its products in multiple provinces providing additional revenue for the Company.

In addition to the above distribution agreements for the adult-use market, the Company sees an expanded distribution path in the medical cannabis market with its five-year supply agreement with Shoppers Drug Mart.

Production

With each of the Company's Canadian cultivation facilities licensed, the combined cultivation capacity for the Company is up to 255,000 kgs a year. In addition, the Company is currently expanding its extraction and processing capacity at Aphria One in areas already licensed for cannabis processing. These expansions are expected to provide increased capacity to help meet the rising demand for derivative cannabis products following their legalization on October 17, 2019.

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Aphria One

The Company is the first licensed producer to integrate industrial horticulture production technology into the cultivation of cannabis within a greenhouse environment. This cutting-edge technology automates the following functions of the plant growing cycle:

  • Transplanting cuttings through various stages into the final pots for flowering;
  • Aiding in evaluation of the health and quality of plants to ensure plants meet the Company's stringent quality standards throughout the many stages of the growing cycle;
  • Monitoring and providing water and nutrients to the plants during the growing cycle; and
  • Transporting plants through different areas in the greenhouse including to the processing room once harvested.

With this innovative technology implemented, the only human interaction throughout the plants' growth cycle for plants grown in these areas are at the initial phase of taking the cuttings and to trim and prune the plants.

Additional state-of-the-art automation employed throughout the rest of the facilities include processes that involve:

  • Cutting the plants, and transferring them to be processed;
  • Automating thede-budding and trimming process;
  • Disposing of waste produced in the cutting,de-budding and trimming phase of production; and
  • Distributing the buds into trays in a drying rack to evenly dry and cure the harvested product.

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

The Company installed a co-generation power plant that utilizes natural gas to generate its own electricity and as a byproduct of this process, hot & cold water and CO2. This combined-cycle process not only generates electricity for use in the greenhouse to operate the lights and air conditioners, but also hot & cold water that is used to control the temperature and humidity in the greenhouse. The residual gas emissions created by this process are directed through a catalytic converter to create CO2which is used during the growing cycle. This co-generation power plant also incorporates state-of-the-art power switching capability that automatically selects between the public electrical grid and the Company's private power co- generation equipment to ensure it is constantly using the most cost-effective energy available.

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

Aphria Diamond

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

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

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Broken Coast

Broken Coast is the Company's premium brand of indoor-grown cannabis. Broken Coast provides the Company access to the quality associated with British Columbia-grown cannabis as well as an award-winning genetic bank of cannabis strains which in turn can be produced at scale through the Company's Aphria One and Aphria Diamond facilities. Broken Coast will continue the development of new premium strains and continue to represent what is the highest level of premium cannabis grown through their custom-built indoor facilities.

Licences

With respect to its Canadian Operations and sales, the Company holds two licences under the Cannabis Actfor cultivation, processing and sale: Aphria One and Broken Coast. The Company also holds a third license under the Cannabis Actfor cultivation at its Aphria Diamond location.

The Company is EU GMP ready and is awaiting EU-GMP certification by the European Medicines Authority for its Aphria One and Avanti locations.

Collectively, these licences and certification (once issued) provide the Company with the ability to cultivate, process and sell cannabis within Canada and to export its products into other countries where the sale of cannabis is nationally legal.

U.S. Expansion Strategy

The Company believes that the existing U.S. cannabis market is hindered by the federal prohibition on cannabis and unclear guidance on the use of CBD. Given the current regulatory landscape, operators are required to create cultivation and distribution centers in each state in which they wish to participate and thereby, must invest capital to build and expend ongoing working capital to operate multiple facilities in order to become a multi-state operator ("MSO"). The MSO model as we believe it results in poor capital allocation as money is invested within multiple individual states where such duplicative investments would not be made but for the current regulatory framework that restricts interstate commerce. We, however, continue to believe that the U.S. is an important market and therefore, we monitor the regulatory landscape and may engage in investments in complementary categories that may be converted to include cannabis business if and when it becomes legal on the federal level. Furthermore, the Company is evaluating potential strategic partnerships that qualify under the Company's current U.S. strategy that will accelerate and escalate the Company's brand capabilities and product offering once federally legal.

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International Operations

Outside of Canada, the Company is developing partnerships and making direct investments in countries where there is an existing or emerging legal cannabis market. The Company believes that, with its significant experience in the highly regulated Canadian cannabis market, it will be able to export its industry leading knowledge and practices to its global subsidiaries as these markets mature. Given that only two countries have legalized cannabis for adult-use (Canada and Uruguay), the Company's international strategy is currently focused on expanding its footprint to include medical cannabis markets in stable economic and political jurisdictions that have legalized the use of cannabis for medical purposes.

In establishing our international footprint, we have sought to establish operational hubs in those continents where we have identified the biggest opportunities for growth and have designed our operations to provide for cannabis production as well as a distribution network to distribute such products throughout the region served by such hub. The Company is developing such footprint by investing directly in assets and through acquisition.

Through acquisitions, the Company has secured access to key international markets as well as management team bench strength with a proven knowledge and demonstrated executional success within the industries and jurisdictions in which they operate.

Currently the Company has international operations or strategic relationships in Australia, Argentina, Colombia, Denmark, Germany, Italy, Jamaica, Lesotho, Malta, Paraguay and maintains an option for entry into Brazil. With these markets are still in their infancy, and the regulatory environment around them is still being formed, these countries are looking to Canada as a leader in developing the regulatory environment. We believe the Company is uniquely positioned to bring the knowledge and expertise gained from working within Canada during the development of the cannabis regulations to these developing global cannabis markets.

Export facility from Canada

Brampton-based ARA - RX Analytics Inc. ("Avanti"), currently holds four Canadian licences: (i) Cannabis Processing Licence; (ii) Cannabis Analytical Testing Licence; (iii) Drug Establishment Licence; and (iv) Medical Device Establishment Licence.

In addition to allowing the Company to possess and handle cannabis and cannabis derivative products, these licences allow Avanti to engage in the possession, production, packaging, sale, transportation and delivery and testing of drugs and medical devices in addition to cannabis and related cannabinoids. The Company is also able to complete testing/analysis of active pharmaceutical ingredients.

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The Avanti facility is currently ready and is waiting the issuance of its EU-GMPcertification. Avanti is then intended to be used as the Canadian staging site for internationally bound GMP certified products. The Company's expected EU-GMP certification will cover the extraction, post processing, testing, packaging and shipping process.

Pan-Asia

Australia

Aphria Inc. maintains relationships in Australia with two companies conducting medical cannabis clinical trials. Medlab Pty Ltd. is currently in a clinical trial related to oncology pain using Aphria blended cannabis strains for oil, subsequently converted in Australia into a nanocell mucosol spray. Aphria and Medlab Pty Ltd. share the rights in the intellectual property associated with the active pharmaceutical ingredient ("API") on this trial. CannPal Pty Ltd., is currently in a clinical trial related to animal pain in cats and dogs, wherein the test product is fabricated using Aphria strains. Aphria Inc. also maintains a supply relationship with Althea Company Pty Ltd., a licensed producer in Australia.

European Union

Germany

The German market is considered to be one of the most highly sought-after medical cannabis markets in the world. German law currently permits import of cannabis only. The German government recently completed a tender process to award licences for in-country cultivation. Our wholly-owned subsidiary, Aphria Deutschland GmbH ("Deutschland"), participated in the tender process and was one of the three companies selected by the German Federal Institute for Drugs and Medical Devices ("BfArM") to receive a licence for the cultivation of medical cannabis in Germany. We were granted a total of five lots, which was the most available lots within the tender process and is the only licensed producer in Germany with the permission to grow all three strains of medical cannabis approved by the BfArM. Each lot is expected to provide a minimum annual capacity of 200 kgs. Germany currently allows for the sale of medical cannabis and cannabis extracts to pharmacies. These cannabis-based products are also covered by insurance companies. This coverage provides the opportunity for a greater number of medical cannabis patients with access to the full use and benefits of these products.

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

Demand

We have developed educational programs and other means for outreach to healthcare professionals which provides the Company with access to doctors to educate on the uses of medical cannabinoids. The Company also plans to build and operate pain treatment centers including the new possibilities of digital health care throughout Germany, which will further provide access to patients once supply is available from its German facility. The Company has partnered with a leading company in digital apps and medical software to build a modern, patient centric clinic for telemedicine.

Supply

The Company will, through imports and local production, supply cannabis products into the German market. The Company entered into a strategic partnership with a prominent European flower producer to obtain access to EU GMP- certified organic medical cannabis for both the German market as well as throughout Europe. In addition, pursuant to the licence granted by BfArM, the Company is in the process of constructing its cultivation facility from which we expect to deliver the first harvest to BfArM by the end of calendar year 2020. In addition, we have completed the construction of a storage facility. The cultivation and storage facilities are being constructed in line with EU-GMP requirements. we are in the process of obtaining the wholesaler and narcotic licence to import and store cannabis products.

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Distribution

Through the acquisition of CC Pharma, the Company obtained a leading importer and distributor of EU-pharmaceuticals for the German market. With over 317 active German national pharmaceutical licences, 690 active EU pharmaceutical licences, and access to approximately 13,000 active pharmacy accounts, CC Pharma operates a production, repackaging and labelling facility. Based on regulations, pharmacies can only supply the branded product that has been named in a prescription to the patient by a physician. Substitution of the product is only possible if the particular brand of product is unavailable. As such, the Company will expand CC Pharma's operations to meet the high demand for medicinal cannabis by distributing cannabis throughout the German pharmacies, leveraging its existing business and know-how to ensure that the Company's products are sufficiently stocked in the pharmacies in Germany.

Malta

Through its subsidiary, ASG Pharma Ltd. ("ASG"), the Company received the first import permit for medical cannabis issued by the Government of Malta's Ministry of Health. The Company intends on using ASG to import cannabis resin and dried flower for processing, packaging and distribution of EU-GMP compliant cannabis products throughout Europe. The constructions of the analytical laboratory as well as the processing and packaging of bulk cannabis operations are expected to be fully operational as an EU GMP certified facility in the second half of fiscal 2020, pending certification by the European Medicines Authority.

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

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

Italy

The Company's wholly owned subsidiary, FL-Group, is authorized to import cannabis products into Italy and to distribute pharmaceutical products, including cannabis-based and cannabinoids products in Italy to pharmacies. In addition, the Company has established Aphria Terra as a grassroots organization focused on furthering the Company's presence in the Italian cannabis industry.

United Kingdom

After medicinal cannabis was legalized in the United Kingdom ("U.K."), effective November 1, 2018, the Company entered into a supply agreement for bulk product for sale in the U.K. medicinal cannabis market. In addition, the Company currently exports into the U.K., on a compassionate use basis, "Jorja's Hope", a 100:2 product to assist a three year-old control her epileptic seizures.

Africa

Lesotho

The Company invested in a venture called CannInvest Africa Ltd. ("CannInvest"), a South African corporation. Through this transaction, the Company obtained a controlling interest in Verve Dynamics Incorporated (Pty) Ltd. ("Verve"). Verve holds a licence in Lesotho for prohibited drug operations, which allows Verve to cultivate, manufacture, supply, distribute, store, export and import cannabis and cannabis resin for medical purposes or scientific use. Verve is currently constructing and licensing a large scale extraction operation.

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

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

South America

LATAM Holdings Inc.

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

Colombia

The acquisition of LATAM provided the Company with a 90% ownership of ColCanna S.A.S. ("ColCanna"). This ownership provides the Company with the ability to further develop the global Aphria brand with Aphria branded products distributed to patients across South America. ColCanna is developing its 54 acres of land for the cultivation of cannabis, which is expected to output 50,000 kgs of EU-GMP certified of dried flower annually for purposes of supplying the South American region. The Company intends to secure an export licence to distribute its production within the LATAM region. Furthermore, the Company signed an exclusive three-year agreement with the Colombian Medical Federation (FMC), a national guild that oversees the ethical exercise of the medical profession in Colombia. Under this agreement, Aphria and the FMC will jointly develop an academic curriculum on the appropriate medicinal use of cannabis, as well as execute other initiatives that will promote training and education on the use and prescription of cannabis across the medical community. The Colombian Medical Federation has nearly 2,000 affiliated doctors and a database of more than 70,000 medical professionals that access the organization for research and educational resources, including through a virtual platform that offers certified courses on a range of subjects.

Argentina

Through the acquisition of LATAM, the Company also acquired ABP, S.A. ("ABP"), a distributor of pharmaceuticals for the Argentinean market. As of the MD&A date, ABP continues shipping traditional pharmaceutical medicines and medical cannabis products coming into the Argentinian market to supply product demand made pursuant to both public and private tenders by health insurance companies. On June 6, 2019, the Ministry of Health approved a resolution authorizing public and private health insurance companies to import and stock medical cannabis inventory where previous products could only be imported on a named patient basis. This represent a significant improvement for patient access, since it would reduce the delay in patients ordering and receiving their prescribed medical cannabis. The Company believes that this recent resolution, represents an evolution of the medical cannabis regulatory framework in Argentina towards sustainable commercialization. With the ability to now store medical cannabis inventory, ABP has focused its efforts on growing its medical cannabis patient base since product can now be supplied without delay.

Importantly, the Company continues to work with Hospital Garrahan, a leading pediatric hospital in Buenos Aires which recently published favourable results in epileptic patients following treatment with Aphria products.

Jamaica

The acquisition of LATAM provided the Company with a 49% ownership interest in Marigold Projects Jamaica Limited ("Marigold"), through multiple subsidiaries and a 95% royalty on profits through a licensing agreement. This acquisition provides the Company with several key licences including a Tier 3 cultivation licence, a Tier 2 herb house licence, as well as conditional licences for import, export and research purposes. In August 2019, the Company opened its first herb house in Jamaica, subsequent to receiving the appropriate retail licence from the regulatory authorities and its first sale in Jamaica. In December 2019, we received notification that we have been granted a licence to open a second herb house and a Tier 1 Processing licence, subject to payment of the applicable licensing fee.

Brazil

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

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Aphria's Purpose

Mission

To be the premier global cannabis company through an unrelenting commitment to our people, the planet, product quality and innovation.

Vision

To be the best performing cannabis company globally, providing investors with access to the most accretive cannabis opportunities around the world.

Our Values

In an emerging and constantly evolving industry, our values unite us, informing and inspiring the way we work with our employees, patients, consumers and one another. Our commitment to our people, the planet, product quality and innovation helps us create stronger, healthier communities everywhere we do business. Our corporate social responsibility goes beyond our borders. We are committed to exporting our industry leading knowledge and practices to our global subsidiaries. For the communities we touch, we are vigilant of the impact we have and strive to be a positive contributor to their well-being.

We put people first

We're committed to the needs of our patients and consumers whether they are looking for natural options for medical needs, exploring the options in wellness, or seeking alternatives to their lifestyle. We're driven by a desire to help others live their best life.

This includes continuous product development on different methods of administering the product through oil and softgels, and eventually oral strip, and patches, as well as being proactive in aiding patients who have difficulties obtaining the required medical care. In the current year, the Company has taken the initiative to provide access to treatment on a compassionate basis for a three-year-old epileptic girl; a treatment that has decreased daily seizures from around thirty to just three or four.

We lead by example

We're passionate about pushing our industry forward. Our commitment to innovation means we're always on the lookout for new opportunities, that we attract those who share our outlook, and that we never stop focusing and imagining what's coming next.

This includes the continuous push for innovations in expansionary projects, product development and market research. In the current year, the Company has expanded its reach to Latin America and Germany through its acquisitions. Furthermore, it has partnered with various organizations to further develop the product line including transdermal patches, oral thin strips, and other cannabis-infused products.

We respect the earth

As a conscientious company, we pride ourselves on providing a natural product for our patients and consumers. We're committed to ensuring that our actions and those of our employees have a positive impact on the environment around us, no matter where we operate. Recently the Company launched Plant Positivity, Aphria's social impact platform. With a vision of social impact for communities and individuals, through Plant Positivity, Aphria is providing people with better access to plants and leading education on the role plants can play in improving everyday well-being. As part of the platform, Aphria partnered with Evergreen, a national not-for-profit dedicated to making cities flourish to create the Plant Positivity Gardens: six gardens that add more than 50 varieties of native plant species to the existing 8,000-square-metres of gardens across Evergreen Brick Works. This partnership has created new spaces for people to reflect, socialize and learn more about the natural world. Further, the themed gardens contribute to a thriving community and educational space where people can experience sustainable practices that make cities flourish.

The Company employs sustainable growing practices to provide efficiencies, cost reduction benefits and lessen our impact on the environment. This includes:

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

  • Use of computerized systems to monitor and reduce water usage, and collection and cleaning ofrun-off water so that it can be safely reused.
  • Aphria'sco-generation plant produces electricity, hot water, CO2and cold water which is more efficient and reduces impact on local communities.
  • Capture and clean the CO2from the exhaust and add it into the greenhouse to promote plant growth and reduce our carbon footprint.
  • 98% of our Canadian production will grow instate-of-the art greenhouses in Leamington, Ontario, using 1/12th the energy of traditional indoor growing operations.
  • Reduced the plastic and cardboard used in secondary packaging across all products targeting saving in excess of 35% net packaging weight.

We take responsibility to heart

We believe it is our responsibility to protect the safety of our employees, patients, consumers, and society. Our partnerships and programs reflect our ongoing commitment to the safety of our communities through education, responsible use, and meaningful corporate citizenship.

The Company places a great deal of energy and effort towards ensuring the safety of children and families in communities we serve. Our Charter Agreement with Drug Free Kids Canada and participation in the Global Cannabis Partnership, reflect our ongoing commitment to the safety of our communities through education, responsible use, and meaningful responsible corporate citizenship in our industry. Recently, the Company launched 'Aphria Educates' a program aimed to educate Canadians on responsible and safe use of all cannabis products legally available now and in the future. The first initiative was a two-city educational panel in conjunction with Drugs Free Kids Canada, a Canadian non-profit organization providing parents with evidence-based information about youth and substance use while promoting frequent, balanced parent-youth discussions about drugs. In addition to partnerships mentioned above, the Company has also partnerships with various organizations in countries like Colombia in order to jointly develop academic curriculums on the medicinal use of cannabis.

These core values serve as a compass impacting the Company's strategic decisions and its outlook. The activities and outlooks covered within each of the operations below as well as the activities within the Investor Highlights are intended to align to these core values.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

INVESTOR HIGHLIGHTS

Q2 - 2020

Q1 - 2020

Distribution revenue

$

86,442

$

95,327

Net cannabis revenue

$ 33,708

$ 30,785

Kilogram equivalents sold

7,062.4

5,969.4

Kilograms produced, net

13,866.0

10,581.4

Production costs

$

13,894

$

15,454

Cost of goods purchased

$ 75,483

$ 83,104

Cash cost to produce dried cannabis / gram1

$ 1.11

$

1.43

"All-in" cost of sales of dried cannabis / gram1

$ 1.98

$

2.52

Gross profit before fair value adjustments1

$

30,488

$

27,554

Adjusted distribution margin1

12.7%

12.8%

Adjusted cannabis margin1

56.6%

49.8%

Adjusted EBITDA from cannabis operations1

$ 3,386

$

1,329

Adjusted EBITDA from businesses under development1

$ (3,547)

$ (4,234)

Adjusted EBITDA from distribution operations1

$

2,064

$

3,940

Cash and cash equivalents & marketable securities

$ 497,694

$ 464,319

Working capital

$ 675,932

$ 612,973

Capital and intangible asset expenditures - wholly-owned subsidiaries1

$

8,230

$

19,277

Capital and intangible asset expenditures - majority-owned subsidiaries1

$

18,472

$

20,071

Strategic investments1

$ --

$

34,722

1- Non-GAAP measure

  • Closed senior secured credit facility for net proceeds of $79,400;
  • Liquidated marketable securities andlong-term investments, generating $36,376 of cash;
  • Aphria Diamond facility licensed on November 4, 2019;
  • Potential capacity of 255,000 kgs. (annualized);
  • Third consecutive quarter with positive adjusted EBITDA and positive adjusted EBITDA from cannabis operations;
  • Continued cannabis sales growth despite delay in Aphria Diamond licence approval; and
  • Aphria Inc. brands win top honours at 2019 Canadian Cannabis Awards with a total of seven awards.

RECENT EVENTS

Canadian Cannabis Demand Exceeding Company's Current Supply

As mentioned above, the Health Canada approval at the Aphria Diamond location arrived later than when had been anticipated by management. This delay led to a reduction in the amount of available finished product and necessary variety of product to meet current market demands. To better meet current market demands for our branded products, the Company supplemented its own supply by purchasing wholesale flower for re-sale during the quarter. As Aphria Diamond continues its production ramp up, the Company expects to continue to purchase wholesale flower to bridge its production versus market demand, until the first sale of product harvested from Aphria Diamond.

Fiscal 2020 Guidance

The Company, in its August 1st press release on fiscal 2019 results, provided guidance for its fiscal 2020 year-end. That guidance included forecasted net revenue of $650 to $700 million, with distribution revenue representing slightly more than one-half of the total revenue and Adjusted EBITDA of $88 - $95 million. The Company, in its October 15th conference call with analysts, as part of its first quarter financial release, reiterated that guidance for its fiscal 2020 year-end.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Since October 15th, the Company observed certain positive and negative cannabis industry dynamics impacting the markets in which it operates, including:

Positive factors:

  1. Ontario, expected to be the largest retail market foradult-use cannabis in Canada, announced changes to its licensing process which should result in a significant number of new retail locations over the next three years;
  1. The provinces of Alberta and British Colombia remain committed to increasing their retail store counts over the next two years;
  1. Aphria Diamond received its cultivation licence from Health Canada on November 4th; and,
  1. Cannabis derivative products, such as edibles drinkables and vapes, became legal on October 17th. Following the 60- day Health Canada approval period, the first sale opportunity was December 17th.

Negative factors:

  1. The slower than expectedramp-up of existing stores and roll out of new locations impacts their ability to be

operational and selling product during the Company's fourth quarter;

  1. Recent changes made by several provinces announced measures that either delayed or outlawed the sale of the certain cannabis derivative products, namely vapes, that were likely to materially reduce the barrier to covert the

illicit market to the legal one conversion;

  1. Aphria Diamond received its cultivation licence on November 4th, which is later than the Company originally contemplated. The first sale of product harvested from Aphria Diamond is not expected until the fourth quarter;
  1. While the Company was able to supplement a portion of the supply shortages from the delay in the licence issuance

for Aphria Diamond by purchasing wholesale cannabis from other Licensed Producers, the market cost for wholesale purchases was significantly higher than the internal cost to grow and harvest cannabis;

  1. The changes to CC Pharma's business model, as a result of changes to the reimbursement rates from the German government, are impacting profitability in theshort-term and will result in lower levels of sales for the remainder of

the fiscal year;

  1. Delays in the construction of the facility, and commencement of operations in Lesotho resulted in a corresponding delay in the facility securing EU GMP certification. This will result in external purchases of THC and CBD distillates as

opposed to being utilized from internal production, for the German medical market; and

  1. The Company's is still waiting to receive it'sEU-GMP certification from the Maltese Medicines Authority at its Aphria One facility and at its Avanti facility. The Company had originally anticipated receiving the certification by December 31, 2019.

After assessing all of these factors, the Company is updating its fiscal year 2020 guidance. The change in guidance is primarily driven by the following four factors:

  1. While the revised Ontario retail approvals significantly increases the Company's opportunity for net revenue and adjusted EBITDA over thelong-term, the roll-out will not result in material improvements to net revenue or adjusted EBITDA between today and the Company's fiscal year-end, in four and one-half months;
  2. The more immediate expected increase of 45 new stores in Ontario no longer appears likely to occur in sufficient time to meaningfully impact the fiscal year's results;
  3. The temporary vape delay in Alberta results in the province with the largest retail distribution opportunity, having little opportunity for sales in our current fiscal year; and,
  4. The adjusted EBITDA impact of meeting consumer demand through third party purchased cannabis, instead of internally cultivated cannabis in Q2 and Q3 due to the delay in the receipt of the licence for Aphria Diamond.

The Company now expects fiscal year 2020 world-widenet-revenue of $575 to $625 million, with slightly more than one-half of the net revenue coming from its distribution business and Adjusted EBITDA of $35-$42 million.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Major risk factors relating to the assumptions above include:

  1. No substantial crop losses. Historically Aphria has not experienced any significant crop losses and Aphria, like other growers, plants and generates product from greenhouse and indoor facilities which reduce the impact of unpredictable or damaging weather conditions. However, crop loss due to disease or pests is always a risk since cannabis is an agricultural crop. Aphria has highly experienced staff and processes in place to mitigate these risks to the extent possible.
  2. Aphria Diamond production ramp consistent with Aphria One's ramp up of Part IV or better. Aphria's experience and past performance has demonstrated a two tothree-month period before first harvest in a new expansion. Management believes that Aphria Diamond production will be consistent with past practice.
  3. Receipt ofEU-GMP certification during the third quarter ended February 2020 and any changes in government policy, regulation or licensing review process related thereto.
  4. Sufficient international demand for product that any sales headwinds in Canada are offset by international demand. Aphria believes that international demand for medicinal cannabis is on the rise as more European countries legalize its use and prescription, and will broaden Aphria's revenue base, further reducing dependence on the Canadian market.
  5. Consistent average selling price equal to fourth quarter average selling price. As of the second quarter of full sales since legalization, the Issuer is able to better determine a market price and focus on the most profitable products ensuring it is able to combat any price compression.

FAIR VALUE MEASUREMENTS

Impact of fair value metrics on biological assets and inventory

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

As at November 30, 2019, the Company's harvested cannabis and cannabis oil, as detailed in Note 5, and biological assets, as detailed in Note 6 of its financial statements, are as follows:

November 30,

August 31,

2019

2019

Harvested cannabis - at cost

$

16,918

$ 15,513

Harvested cannabis - fair value increment

20,331

20,313

Harvested cannabis trim - at cost

4,069

2,882

Harvested cannabis trim - fair value increment

5,023

3,522

Purchased cannabis - at cost

5,349

--

Purchased cannabis - fair value increment

--

--

Cannabis oil - at cost

21,615

15,957

Cannabis oil - fair value increment

21,638

13,565

Softgel capsules - at cost

298

316

Softgel capsules - fair value increment

296

272

Biological assets - at cost

24,960

19,962

Biological assets - fair value increment

9,410

9,925

Cannabis products - at fair value

$

129,907

$ 102,227

The Company has modified the size and length of time we grow the plants located in the Company's Part IV expansion to optimize the use of the automation. As a result of the reduced growing period for these plants, the Company modified its

Page 17

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

standard costs and fair value accounting of biological assets accordingly.

Aphria One's biological assets are carried at cost plus fair value increments of $0.49, $0.97, $1.46 and $1.95 per gram for weeks 11, 12, 13 and 14, respectively. Broken Coast's biological assets are carried at cost plus fair value increments of $0.73, $1.46, $2.19 and $2.92 per gram for weeks 10, 11, 12 and 13 respectively. Harvested cannabis and harvested cannabis trim are carried at fair values of $3.50 per gram and $2.75 per gram, respectively (August 31, 2019 - $3.50 and $2.75) for greenhouse produced cannabis. Harvested cannabis and harvested cannabis trim are carried at fair values of $4.00 per gram, $3.25 per gram, respectively (August 31, 2019 - $4.00 and $3.25) for indoor produced cannabis. Cannabis oil and softgel capsules include the relative fair value based on the amount of harvested cannabis or harvested cannabis trim used in the production of each product.

The individual components of fair values are as follows:

November 30,

August 31,

2019

2019

Harvested cannabis - at cost - per gram

$

1.68

$

1.59

Harvested cannabis - fair value increment - per gram

$

2.02

$

2.08

Harvested cannabis trim - at cost - per gram

$

1.27

$

1.27

Harvested cannabis trim - fair value increment - per gram

$

1.57

$

1.55

Purchased cannabis - at cost - per gram

$

3.50

$

--

Purchased cannabis - fair value increment - per gram

$

--

$

--

Cannabis oil - at cost - per mL

$

0.30

$

0.42

Cannabis oil - fair value increment - per mL

$

0.31

$

0.36

Softgel capsules - at cost - per mL

$

0.30

$

0.39

Softgel capsules - fair value increment - per mL

$

0.30

$

0.33

COST PER GRAM

Calculation of "all-in" costs of sales of dried cannabis per gram

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

Three months ended

"All-in" cost of sales of dried cannabis per gram

November 30,

August 31,

2019

2019

Production costs

$

13,894

$

15,454

Less:

Cost of accessories

$

--

$ (2)

Cannabis oil conversion costs

$

(303)

$ (426)

Adjusted "All-in" cost of sales of dried cannabis

$

13,591

$

15,026

Gram equivalents sold during the quarter1

6,861,438

5,969,436

"All-in" cost of sales of dried cannabis per gram

$

1.98

$ 2.52

1Gram equivalents sold during quarter excludes 200,924 grams of product purchased and resold during the period.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The Company continues to have a temporary increase in the "all-in" cost of sales of dried cannabis per gram and cash costs to produce dried cannabis per gram as a result of the allocation of production space in the Part III expansion to mother and vegetative plants for the Part IV and Part V and the Aphria Diamond expansions. This increased the "all-in" cost of sale of dried cannabis per gram and cash costs to produce dried cannabis per gram by an estimated $0.20. The Company received Health Canada approval for the Part IV and Part V expansions in March 2019 and Aphria Diamond in November 2019. The Company expects a temporary increase in the "all-in" cost of sale of dried cannabis per gram and cash costs to produce dried cannabis per gram until the Aphria Diamond expansion is fully planted. This is expected to partially affect the next quarter,

Calculation of cash costs to produce dried cannabis per gram

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

Three months ended

Cash costs to produce dried cannabis per gram

November 30,

August 31,

2019

2019

Adjusted "All-in" cost of sales of dried cannabis

$

13,591

$

15,026

Less:

Amortization

$

(2,254)

$

(1,895)

Packaging costs

$

(2,267)

$

(3,190)

Distribution costs

$

(1,433)

$

(1,433)

Cash costs to produce dried cannabis

$

7,637

$

8,508

Gram equivalents sold during the quarter1

6,861,438

5,969,436

Cash costs to produce per gram

$ 1.11

$ 1.43

1Gram equivalents sold during quarter excludes 200,924 grams of product purchased and resold during the period.

The Company recognized a decrease in cash costs to produce dried cannabis per gram of $0.32 as a result of efficiencies of scale with the Company's increased production as a result of the Part IV and Part V expansion ramping up.

RESULTS OF OPERATIONS

Net revenue

During the three months ended November 30, 2019 the Company recognized revenues of $120,600 versus $21,668 in the same period of the prior year and $126,112 in the first quarter of fiscal 2020, representing an increase of 456.6% from the prior year and a 4.4% decrease from the prior quarter. Included in net revenue for the three months ended November 30, 2019 is $39,772 of revenue from cannabis products, $(6,064) of excise taxes, $86,442 of distribution revenue and $450 of insurance recovery. The insurance recovery represents an interim payment on the business interruption insurance policy held at the Company's Broken Coast facility.

Net revenue for the six months ended November 30, 2019 was $246,712 versus $34,960 in the same period of the prior year, representing a 605.7% increase.

Distribution revenue

Included in distribution revenue is $84,749 and $178,250 of revenue from CC Pharma, and $1,693 and $3,519 of revenue from other distribution companies for the three and six months ended November 30, 2019.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The change in the government reimbursement program within Germany and a traditional summer slow-down had an impact on CC Pharma's distribution sales for the quarter. This has resulted in a decrease in distribution revenue of $8,752 from Q1 2020.

Revenue from cannabis products

Three months ended

Revenue from cannabis products

November 30,

August 31,

2019

2019

Revenue from dried flower

$

26,692

$

25,098

Revenue from oil

$

13,080

$

9,981

Revenue from cannabis products

$

39,772

$

35,079

During the quarter the Company sold 3,947.9 kgs of dried cannabis and 3,114.5 kg equivalents of cannabis oil products compared to 3,371.4 kgs of dried cannabis and 2,598.0 kg equivalents of cannabis oil products in the prior quarter.

Three months ended

Revenue from cannabis products

November 30,

August 31,

2019

2019

Revenue from medical cannabis products

$

10,100

$

10,242

Revenue from adult-use cannabis products

$

29,042

$

19,961

Wholesale cannabis revenue

$ 630

$

4,876

Revenue from cannabis products

$

39,772

$

35,079

Gross revenue from medical cannabis products

Revenue from medical cannabis products for the three months ended November 30, 2019 was $10,100 versus $10,841 in the same period of the prior year and $10,242 in the first quarter of fiscal 2020, representing a decrease of 6.8% from the prior year and a 1.4% decrease from the prior quarter.

Revenue from medical cannabis products for the six months ended November 30, 2019 was $20,342 versus $21,486 in the same period of the prior year, representing a decrease of 5.3% from the prior year.

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

  • Decrease in the medical cannabis sales by 117.0 kg equivalents to 1,237.3 kg equivalents sold in the current quarter. These factors were partially offset by:
  • Increase in the average retail selling price (excluding wholesale) before excise taxes to medical patients during the quarter from $7.56 to $8.16.

Gross revenue from adult-use cannabis products

Revenue from adult-use cannabis products for the three months ended November 30, 2019 was $29,042 versus $12,304 in the same period of the prior year and $19,961 in the first quarter of fiscal 2020, representing an increase of 45.5% from the prior quarter.

Revenue from adult-use cannabis products for the six months ended November 30, 2018 was $49,003 versus $12,304 in the same period of the prior year, representing an increase of 298.3%.

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APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

The increase in revenue from adult-use cannabis products during the quarter from the prior quarter was related to:

  • Increase in theadult-use cannabis sales by 2,249.5 kg equivalents to 5,566.6 kg equivalents sold in the current quarter.

These factors were partially offset by:

  • Decrease in the average selling price before excise taxes to theadult-use market from $6.02 to $5.22.

Wholesale cannabis revenue

Revenue from wholesale cannabis products for the three months ended November 30, 2019 was $630 versus $235 in the same period of the prior year and $4,876 in the first quarter of fiscal 2020.

Gross profit and gross margin

The gross profit for the three months ended November 30, 2019 was $39,589, compared to $5,983 in the same quarter in the prior year and $45,421 in the previous quarter.

Three months ended

November 30,

August 31,

2019

2019

Revenue from cannabis products

$

39,772

$

35,079

Distribution revenue

86,442

95,327

Insurance recovery

450

--

Excise taxes

(6,064)

(4,294)

Net revenue

120,600

126,112

Production costs

13,894

15,454

Cost of cannabis purchased

735

--

Cost of goods purchased

75,483

83,104

Gross profit before fair value adjustments

30,488

27,554

Fair value adjustment on sale of inventory

12,391

7,286

Fair value adjustment on growth of biological assets

(21,492)

(25,153)

(9,101)

(17,867)

Gross profit

$

39,589

$

45,421

Gross margin

32.8%

36.0%

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

  1. Production costs include all direct and indirect costs of production, related to cannabis sold. This includes costs relating to growing, cultivation and harvesting, quality assurance and quality control, cannabis oil processing, as well as packaging, labelling and amortization of production equipment and greenhouse infrastructure utilized in the production of cannabis.

Page 21

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

  1. Cost of cannabis purchased consists of Canadian cannabis purchased from other licensed producers for packaging and branding under one of the Company's brands and sold directly to consumers or through retail outlets.
  2. Cost of goods purchased consists of items purchased for resale through the Company's distribution businesses which are run through its subsidiaries ABP and CC Pharma.
  3. Fair value adjustment on sale of inventory is part of the Company's cost of sales due to IFRS standards relating to agriculture and biological assets (i.e. living plants or animals). This line item represents the effect of thenon-cash fair value adjustment of inventory sold in the period.
  4. Fair value adjustment on growth of biological assets is part of the Company's cost of sales due to IFRS standards relating to agriculture and biological assets (i.e. living plants or animals). This line item represents the effect of thenon-cash fair value adjustment of biological assets (cannabis) produced in the period. In an effort to increase transparency, inventory of harvested cannabis (Note 5 - Consolidated financial statements for the three months ended November 30, 2019) consists of harvested cannabis and harvested cannabis trim to be $3.50 and $2.75 per gram respectively, for greenhouse produced cannabis and $4.00 and $3.25 per gram respectively, for indoor produced cannabis.

Management believes that the different components of net revenue and cost of sales included in the gross profit and gross margin can be confusing. Accordingly, management believes the use of cannabis gross profit, cannabis gross margin, distribution gross profit and distribution gross margin provides a better representation of performance of the Company's different types of operations because it excludes non-cash fair value adjustments required by IFRS.

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

The following is the Company's cannabis gross profit and cannabis gross margin as compared to IFRS for the three months ended November 30, 2019:

Three months ended

Three months ended

November 30, 2019

Adjustments

November 30, 2019

(IFRS)

(Adjusted)

Revenue from cannabis products

$

39,772

$ --

$

39,772

Distribution revenue

86,442

(86,442)

--

Insurance recovery

450

(450)

--

Excise taxes

(6,064)

--

(6,064)

Net revenue

120,600

(86,892)

33,708

Production costs

13,894

--

13,894

Cost of cannabis purchased

735

--

735

Cost of goods purchased

75,483

(75,483)

--

Fair value adjustment on sale of inventory

12,391

(12,391)

--

Fair value adjustment on biological assets

(21,492)

21,492

--

81,011

(66,382)

14,629

Cannabis gross profit

$

39,589

$ (20,510)

$

19,079

Cannabis gross margin

32.8%

56.6%

The Company's adjusted cannabis gross profit and adjusted cannabis gross margin increased by $3,748 and 6.8% respectively

Page 22

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

from the prior quarter. This is mainly driven by lower wholesale sales to other licensed producers at lower selling prices compared to wholesale prices available from the provincial control boards. Also contributing were reduced cultivation costs in the quarter.

The following is the Company's distribution gross profit and distribution gross margin as compared to IFRS for the three months ended November 30, 2019:

Three months ended

Three months ended

November 30, 2019

Adjustments

November 30, 2019

(IFRS)

(Adjusted)

Revenue from cannabis products

$

39,772

$

(39,772)

$ --

Distribution revenue

86,442

--

86,442

Insurance recovery

450

(450)

--

Excise taxes

(6,064)

6,064

--

Net revenue

120,600

(34,158)

86,442

Production costs

13,894

(13,894)

--

Cost of cannabis purchased

735

(735)

--

Cost of goods purchased

75,483

--

75,483

Fair value adjustment on sale of inventory

12,391

(12,391)

--

Fair value adjustment on biological assets

(21,492)

21,492

--

81,011

(5,528)

75,483

Distribution gross profit

$

39,589

$

(28,630)

$ 10,959

Distribution gross margin

32.8%

12.7%

The Company's adjusted distribution gross profit and adjusted distribution gross margin decreased by $1,264 and 0.1% respectively from the prior quarter. This is primarily driven by lower sales due to the change in CC Pharma's business strategy described above.

The gross profit for the six months ended November 30, 2019 was $85,010, compared to $19,747 in the same period of the prior year. The increase in gross profit for the six months ended November 30, 2019 are consistent with the reasons for the increase in gross profit for the three months ended November 30, 2019.

The following is the Company's cannabis gross profit and cannabis gross margin as compared to IFRS for the six months ended November 30, 2019:

Page 23

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Six months ended

Six months ended

November 30, 2019

Adjustments

November 30, 2019

(IFRS)

(Adjusted)

Revenue from cannabis products

$ 74,851

$ --

$

74,851

Distribution revenue

181,769

(181,769)

--

Insurance recovery

450

(450)

--

Excise taxes

(10,358)

--

(10,358)

Net revenue

246,712

(182,219)

64,493

Production costs

29,348

--

29,348

Cost of cannabis purchased

735

--

735

Cost of goods purchased

158,587

(158,587)

--

Fair value adjustment on sale of inventory

19,677

(19,677)

--

Fair value adjustment on biological assets

(46,645)

46,645

--

161,702

(131,619)

30,083

Cannabis gross profit

$ 85,010

$ (50,600)

$

34,410

Cannabis gross margin

34.5%

53.4%

The following is the Company's distribution gross profit and distribution gross margin as compared to IFRS for the six months ended November 30, 2019:

Six months ended

Six months ended

November 30, 2019

Adjustments

November 30, 2019

(IFRS)

(Adjusted)

Revenue from cannabis products

$ 74,851

$

(74,851)

$ --

Distribution revenue

181,769

--

181,769

Insurance recovery

450

(450)

--

Excise taxes

(10,358)

10,358

--

Net revenue

246,712

(64,943)

181,769

Production costs

29,348

(29,348)

--

Cost of cannabis purchased

735

(735)

--

Cost of goods purchased

158,587

--

158,587

Fair value adjustment on sale of inventory

19,677

(19,677)

--

Fair value adjustment on biological assets

(46,645)

46,645

--

161,702

(3,115)

158,587

Distribution gross profit

$ 85,010

$

(61,828)

$ 23,182

Distribution gross margin

34.5%

12.8%

Page 24

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Selling, general and administrative costs

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

General and administrative

$

22,076

$

12,276

$

44,381

$

21,127

Share-based compensation

7,563

2,574

12,519

8,696

Selling, marketing and promotion

12,254

8,336

20,068

13,077

Amortization

5,896

2,617

10,904

5,891

Research and development

672

612

1,282

874

Transaction costs

691

1,123

1,426

1,988

$

49,152

$

27,538

$

90,580

$

51,653

Selling, general and administrative expenses are comprised of general and administrative, share-based compensation, selling, marketing and promotion, amortization, research and development, impairment, and transaction costs. These costs increased by $21,614 to $49,152 from $27,538 in the same quarter in the prior year. This was primarily due to CC Pharma not being included in the same quarter in the prior year which accounted for $9,920. The remaining increase from the prior quarter is a result of increases in share-based compensation by $4,989 and increase in operational costs associated with increased activities.

General and administrative costs

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

Executive compensation

$ 2,410

$ 846

$

4,247

$ 1,681

Consulting fees

4,140

1,427

7,905

2,358

Office and general

2,394

4,752

6,601

6,191

Professional fees

1,421

485

3,933

2,047

Salaries and wages

7,329

3,019

13,611

6,111

Insurance

2,700

908

5,195

1,276

Travel and accomondation

1,328

689

2,369

1,160

Rent

354

150

520

303

$

22,076

$ 12,276

$

44,381

$ 21,127

The increase in general and administrative costs from the prior year was largely related to:

  • The addition of LATAM operations occurred in September 2018;
  • The addition of CC Pharma operations occurred in January 2019;
  • Overall increase in headcounts at all employee levels;
  • Overall inflationary increase associated with compensation as well as general and administrative expenses; and,
  • Increase in overall consultant fees associated with initiation of various projects including the efficiency review of processes in the Company's Canadian operations and the Company's CSR initiatives.

Page 25

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Share-based compensation

The Company recognized share-based compensation expense of $7,563 for the three months ended November 30, 2019 compared to $2,574 for the same period in the prior year. Share-based compensation was valued using the Black-Scholes valuation model and represents a non-cash expense. The increase in share-based compensation is a result of an increase in the number of options and RSUs issued and vesting in the period. The Company issued 45,462 DSUs, 783,916 RSUs and 807,982 stock options in the current quarter compared to 3,041 DSUs, nil RSUs and 330,000 stock options in the same period of the prior year. Of the stock options granted in the quarter, 150,000 vested in the quarter.

For the six months ended November 30, 2019, the Company incurred share-based compensation of $12,519 as opposed to $8,696 for the prior year. The increase in share-based compensation is a result of an increase in the number of options and RSUs issued and vesting in the period. The Company issued 81,214 DSUs, 1,010,375 RSUs and 1,894,127 stock options in the current period compared to 3,041 DSUs, nil RSUs and 1,400,000 stock options in the same period of the prior year. Of the stock options granted in the period, 150,000 vested. The majority of the awards issued in the period relate to the company- wide bonus program for the fiscal 2019.

Selling, marketing and promotion costs

For the three months ended November 30, 2019, the Company incurred selling, marketing and promotion costs of $12,254, versus $8,336 in the same quarter last year. The current period costs are comprised of $10,891 of cannabis related selling, marketing and promotion or 32.3% of net revenue from cannabis products and $1,363 of distribution selling marketing and promotion or 1.6% of distribution revenue. These costs relate to general marketing, research and education expense, patient acquisition and maintenance, call center operations and shipping costs. Patient acquisition and ongoing patient maintenance costs include funding to individual clinics to perform medical studies as well as support to assist with operating costs incurred by clinics resulting from the education of patients using the Company's products. The increase in the current quarter was primarily driven by the increase of direct selling costs associated with the increase in sales which represented $3,844 of the $3,918 increase from the same quarter last year.

For the six months ended November 30, 2019, the Company incurred selling, marketing and promotion costs of $20,068 or 8.1% of net revenue, as opposed to $13,077 or 37.4% of net revenue, in the comparable prior period. The increase in costs in the six-month period is consistent with the increase in the three-month period.

Amortization

The Company incurred non-production related amortization charges of $5,896 for the three months ended November 30, 2019 compared to $2,617 for the same period in the prior year. The increase in amortization charges are a result of the finite- life intangibles acquired as part of the Company's acquisitions, as well as the assets that have been transferred into use from the capital expenditures incurred in the current and prior fiscal year.

The Company incurred amortization charges of $10,904 for the six months ended November 30, 2019 compared to $5,891 for the same period in the previous year. The increase for the six-month period is consistent with the increase for the three- month period.

Research and development

Research and development costs of $672, or 2.0% of revenue from cannabis products were expensed during the three months ended November 30, 2019 compared to $612 in same period last year. These relate to costs associated with the development of new cannabis products. Although the Company spends a significant amount on research and development, the majority of these costs remain in production costs, as the Company does not reclassify research and development costs on products which can still be sold.

For the six months ended November 30, 2019, the Company incurred research and development costs of $1,282 as opposed to $874 in the same period in the previous year.

Page 26

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Transaction costs

Transaction costs of $691 were expensed during the three months ended November 30, 2019 compared to $1,123 in same period last year. These relate to costs associated with the various restructuring costs and potential acquisitions the Company has considered and abandoned, or is still considering.

For the six months ended November 30, 2019, the Company incurred transaction costs of $1,426 as opposed to $1,988 in the same period in the previous year.

Non-operating income (loss)

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

Foreign exchange gain (loss)

$ 286

$ (194)

$

(8,396)

$ (253)

Gain (loss) on marketable securities

(253)

57

(338)

(110)

Gain from equity investees

--

46,896

--

58,739

Deferred gain on sale of intellectual property

--

107

--

340

Unrealized gain (loss) on convertible notes

(8,094)

2,567

(6,939)

2,862

Gain (loss) on long-term investments

(36,449)

30,503

(22,741)

53,203

Unrealized gain on convertible debentures

49,078

--

63,285

--

Unrealized loss on financial liabilities

--

(560)

--

(975)

$ 4,568

$ 79,376

$

24,871

$ 113,806

For the three and six months ended November 30, 2019, the Company recognized a loss of $36,449 and $22,741 from the change in fair value of long-term investments. Furthermore, the Company recognized a loss of $8,094 and $6,939 resulting from the change in fair value of the convertible notes receivable. These losses were offset by an unrealized gain on convertible debentures of $49,078 and $63,285. These changes in fair value result from a decline in the trading prices of participants in the cannabis market.

Net income (loss)

The Company recorded net income (loss) for the three months ended November 30, 2019 of $(11,029) or $(0.04) per share as opposed to net income of $54,774 or $0.22 per share in the same period of the prior year. The decrease in net income (loss) is a result of decreases in non-operating income and finance income (expense), net partially offset by a decrease in operating loss.

The Company recorded net income for the six months ended November 30, 2019 of $5,412 of $0.02 per share as opposed to net income of $75,950 or $0.32 per share in the same period of the prior year. The decrease for the six-month period is consistent with the increase for the three-month period.

Adjusted EBITDA

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

Page 27

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

Net income (loss)

$

(7,929)

$ 54,774

$

8,512

$ 75,950

Income taxes (recovery)

(2,072)

7,902

526

11,864

Finance (income) expense, net

5,006

(4,855)

10,263

(5,914)

Non-operating (income) loss

(4,568)

(79,376)

(24,871)

(113,806)

Amortization

12,313

4,154

21,531

8,860

Share-based compensation

7,563

2,574

12,519

8,696

Fair value adjustment on sale of inventory

12,391

8,328

19,677

12,533

Fair value adjustment on growth of biological

(21,492)

(4,154)

(46,645)

(13,665)

assets

Transaction costs

691

1,123

1,426

1,988

Adjusted EBITDA from businesses under

3,547

3,327

7,781

6,463

development

Adjusted EBITDA from distribution operations

(2,064)

130

(6,004)

130

Adjusted EBITDA from cannabis operations

$

3,386

$ (6,073)

$

4,715

$ (6,901)

For the three months ended

For the six months ended

November 30,

November 30,

2019

2018

2019

2018

Adjusted EBITDA from cannabis operations

$

3,386

$ (6,073)

$

4,715

$ (6,901)

Adjusted EBITDA from businesses under

(3,547)

(3,327)

(7,781)

(6,463)

development

Adjusted EBITDA from distribution operations

2,064

(130)

6,004

(130)

Adjusted EBITDA

$

1,903

$ (9,530)

$

2,938

$ (13,494)

The Company's adjusted EBITDA increased by $868 from $1,035 in the prior quarter to $1,903.

Page 28

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash flow for the three months ended November 30, 2019:

Q2 - 2020

Q1 - 2020

Cash used in operating activities:

Net income (loss) for the period

$ (7,929)

$ 16,441

Adjustments for:

Future income taxes

(3,526)

1,351

Fair value adjustment on sale of inventory

12,391

7,286

Fair value adjustment on growth of biological assets

(21,492)

(25,153)

Loss on marketable securities

253

85

Unrealized foreign exchange gain (loss)

1,014

(83)

Amortization

12,313

9,218

Unrealized (gain) loss on convertible notes receivable

8,094

(1,155)

Other non-cash items

5

9

Share-based compensation

7,563

4,956

(Gain) loss on long-term investments

36,449

(13,708)

Unrealized gain on convertible debentures

(49,078)

(14,207)

Change in non-cash working capital

(36,429)

(15,893)

(40,372)

(30,853)

Cash provided by (used in) financing activities:

Share capital issued on warrants, options and DSUs exercised

4,215

4,401

Proceeds from long-term debt

79,400

--

Repayment of long-term debt

(1,533)

(6,752)

Repayment of lease liabilities

(287)

(255)

Increase in bank indebtedness

2,443

--

84,238

(2,606)

Cash used in investing activities:

Proceeds from disposal of marketable securities

14,861

5,000

Investment in capital and intangible assets

(26,702)

(39,348)

Proceeds from disposal of capital assets

477

409

Proceeds from disposal of long-term investments and equity investees

15,987

528

Net cash paid on business acquisitions

--

(34,722)

4,623

(68,133)

Net increase (decrease) in cash and cash equivalents

48,489

(101,592)

Cash and cash equivalents, beginning of period

449,205

550,797

Cash and cash equivalents, end of period

$ 497,694

$ 449,205

Cash flow used in operations for the three months ended November 30, 2019 was $40,372, a $9,519 increase from $30,853 used in the prior quarter. Cash flow used in operations for the six months ended November 30, 2019 was $71,225, a $55,053 increase from $16,172 used in the prior year. The increase in cash flow used in operations is primarily a result of:

  • Increase investment in working capital primarily driven by investments in the inventory and biological assets as the Company's production ramps up to full rotation.

Cash resources / working capital requirements

The Company constantly monitors and manages its cash flows to assess the liquidity necessary to fund operations. As at November 30, 2019, Aphria maintained $497,694 of cash and cash equivalents on hand, compared to $550,797 in cash and cash equivalents plus $20,199 marketable securities at May 31, 2019. Liquid sources of cash decreased $73,302 in the six months period. This decrease is a result of the final payment on the acquisition of CC Pharma for $34,722, repayment of

Page 29

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

long-term debt of $8,285, investment in working capital of $52,307, and investment in capital and intangible assets of $66,050.

Working capital provides funds for the Company to meet its operational and capital requirements. As at November 30, 2019, the Company maintained working capital of $675,917. Management expects that the Company's existing cash and cash equivalents balance and cash flow from operations will be adequate to meet the Company's announced expansion of facilities and operational activities in the next year.

Capital and intangible asset expenditures

For the three months ended November 30, 2019, the Company invested $8,230 in capital and intangible assets through wholly-owned subsidiaries, exclusive of business acquisitions, of which $2,395 are considered maintenance CAPEX and the remaining $5,835 growth CAPEX related to new extraction capacity and facility build out in Germany.

For the three months ended November 30, 2019, the Company invested $18,472 in capital and intangible assets through majority-owned subsidiaries, of which $136 are considered maintenance CAPEX and the remaining $18,336 growth CAPEX.

Financial covenants

The Company expects to meet its financial covenants in the next year. The Company believes that it has sufficient operating room with respect to its financial covenants for the next fiscal year and does not anticipate being in breach of any of its financial covenants during this period.

Contractual obligations and off-balance sheet financing

The Company has a lease for office space from December 2018 until November 30, 2028.

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

Payments due by period

Total

Less than 1

1 - 3 years

4 - 5 years

After 5 years

year

Outstanding capital related

commitments

$ 56,466

$ 56,404

$ 62

$ --

$ --

Leases

6,591

1,290

2,129

1,647

1,525

Long-term debt

139,058

6,167

91,856

10,569

30,466

Total

$ 202,115

$ 63,861

$ 94,047

$ 12,216

$ 31,991

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

Contingencies

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

As of November 30, 2019, the Company has been served statements of claims in class action lawsuits against the Company and certain of its officers and former officers. These claims relate to alleged misconduct in connection with the Company's acquisitions of LATAM Holdings Inc. ("LATAM") and Nuuvera Inc., and the Company's June 2018 securities offering. At the present time, the representative claimants have been identified and selected in both the U.S. and Canada. The U.S. claims include alleged violations of Section 10(b) of the Exchange Act, Rule 10b-5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The

Page 30

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

Company intends to vigorously defend itself in each of these actions. With respect to the cases commenced in the United States, the Company is self-insured for the costs associated with any award or damages arising from such actions and has entered into indemnity agreements with each of the directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. With respect to the cases commenced in Canada, the Company's insurance policies may not be sufficient to cover any judgments against the Company. As at November 30, 2019, the Company has not recorded any uninsured amount related to this contingency.

On December 9, 2019, the Company was served with a statement of claim commenced by Emblem Cannabis Corporation ("Emblem") recently acquired by Aleafia Health Inc. in respect of a supply agreement whereby the Company would provide Emblem with certain cannabis product over a period of five years pursuant to the terms of the supply agreement. Emblem has terminated this supply agreement on the basis of, among other things, alleged failure by the Company to provide the requisite cannabis product pursuant to the terms of the supply agreement. The Company intends to vigorously defend itself against such claim. As at November 30, 2019, the Company has not recorded any uninsured amount related to this contingency.

Share capital

Aphria has the following securities issued and outstanding, as at January 13, 2020:

Presently

Exercisable

Exercisable

& in-the-

Fully diluted

outstanding

money

Common stock

252,928,494

--

--

252,928,494

Warrants

1,493,803

1,493,803

200,000

200,000

Stock options

6,982,212

4,035,292

858,975

858,975

Restricted share units

652,166

112,158

112,158

112,158

Deferred share units

173,172

90,342

90,342

90,342

Convertible debentures

37,297,540

37,297,540

--

--

Fully diluted

254,189,969

*Based on closing price on January 13, 2020

QUARTERLY RESULTS

The following table sets out certain unaudited financial information for each of the eight fiscal quarters up to and including the current quarter, ended November 30, 2019. The information has been derived from the Company's unaudited consolidated financial statements, which in management's opinion, have been prepared on a basis consistent with the audited consolidated financial statements filed in the Company's 2019 Annual Report and include all adjustments necessary for a fair presentation of the information presented. Past performance is not a guarantee of future performance and this information is not necessarily indicative of results for any future period.

Feb/19

May/19

Aug/19

Nov/19

Net revenue

$ 73,582

$ 128,568

$ 126,112

$ 120,600

Net income (loss)

(108,209)

15,760

16,441

(7,929)

Earnings (loss) per share - basic

(0.43)

0.05

0.07

(0.03)

Earnings (loss) per share - fully diluted

(0.43)

0.05

0.07

(0.03)

Feb/18

May/18

Aug/18

Nov/18

Net revenue

$ 10,267

$ 12,026

$ 13,292

$ 21,668

Net income (loss)

12,944

(4,992)

21,176

54,774

Earnings (loss) per share - basic

0.08

(0.06)

0.09

0.22

Income (loss) per share - fully diluted

0.08

(0.04)

0.09

0.22

Page 31

APHRIA INC.

MANAGEMENT'S DISCUSSION & ANALYSIS

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

As cannabis is currently nationally illegal in the U.S. The Company does not engage in any U.S. cannabis related activities as defined in Canadian Securities Administrators Staff Notice 51-352 (Revised). While the Company has historically held certain interests in U.S. cannabis related activities, as at the date of this MD&A it has divested itself of all such interests. The Company will only conduct business activities related to growing or processing cannabis, in jurisdictions where it is nationally legal to do so.

INDUSTRY TRENDS AND RISKS

There are a number of risk factors that could cause future results to differ materially from those described herein. The risks and uncertainties described herein are not the only ones the Company faces. Additional risks and uncertainties, including those that the Company does not know about now or that it currently deems immaterial, may also adversely affect the Company's business. If any of the following risks actually occur, the Company's business may be harmed, and its financial condition and results of operations may suffer significantly.

Risks Related to the Company's Business and the Cannabis Industry

Reliance on Licence

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

Expansion Strategy

There is no guarantee that the Company's expansion strategy (including receiving the expected Health Canada approvals in a timely fashion, if at all) will be completed in the currently proposed form, if at all, nor is there any guarantee that the Company will be able to expand into additional jurisdictions. There is also no guarantee that the Company's intentions to acquire and/or construct additional cannabis production and manufacturing facilities in Canada and in other jurisdictions with nationally legal cannabis markets, and to expand the Company's marketing and sales initiatives will be successful. Any such activities will require, among other things, various regulatory approvals, licences and permits (such as additional licences from Health Canada under the Cannabis Act, as applicable) and there is no guarantee that all required approvals, licences and permits will be obtained in a timely fashion or at all. There is also no guarantee that the Company will be able to complete any of the foregoing activities as anticipated or at all.

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

The Company's expansion into jurisdictions outside of Canada is subject to additional business risks, including new or unexpected risks or could significantly increase the Company's exposure to one or more existing risk factors, including economic instability, changes in laws and regulations and the effects of competition. In addition, international expansion could subject the Company's business to certain risks relating to fluctuating exchange rates or require a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance. These factors may limit the Company's ability to

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successfully expand its operations into such jurisdictions and may have a material adverse effect on the Company's business, financial condition and results of operations.

Highly Regulated Industry

The laws, regulations and guidelines generally applicable to the cannabis industry domestically and internationally may change in ways currently unforeseen. The Company's operations are subject to a variety of laws, regulations and guidelines relating to the manufacture, management, transportation, storage, sale, health and safety and disposal of cannabis, including the Cannabis Act, any regulations thereunder and applicable stock exchange rules and regulations. Any amendment to or replacement of existing laws may cause adverse effects to the Company's operations. The risks to the Company's business represented by subsequent regulatory changes could reduce the addressable market for the Company's products and could materially and adversely affect the Company's business, financial condition, results of operations and prospects. To the knowledge of management, other than make routine corrections that may be required by Health Canada from time to time, the Company is currently in compliance with all such laws. Achievement of the Company's business objectives is contingent, in part, upon compliance with regulatory requirements enacted by governmental authorities and, where necessary, obtaining regulatory approvals. The impact of Health Canada's compliance regime, any delays in obtaining, or failure to obtain regulatory approvals required may significantly delay or impact the development of the Company's business and operations and could have a material adverse effect on the Company's business, financial condition, results of operations and prospects. Any potential non-compliance could cause the Company's business, financial condition, results of operations and prospects to be adversely affected. Further, any amendment to or replacement of the Cannabis Act and other applicable rules and regulations governing the Company's business activities may cause adverse effects on the Company's business, financial conditions and results of operations. The risks to the Company's business associated with the decision to amend or replace the Cannabis Act, and subsequent regulatory changes, could reduce the addressable market for the Company's products and could materially and adversely affect the Company's business, financial condition, results of operations and prospects.

The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with applicable laws and regulations could subject the Company to regulatory or agency proceedings or investigations and may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include damage awards, fines, penalties or corrective measures requiring capital expenditures or remedial actions. Parties may be liable for civil or criminal fines or penalties imposed for violations of applicable laws or regulations. The outcome of any regulatory or agency proceedings, investigations, audits, and other contingencies could harm the Company's reputation and no assurance can be given that any pending or future regulatory or agency proceedings, investigations and audits will not result in substantial costs or a diversion of management's attention and resources. Amendments to current laws, regulations and permitting requirements, or more stringent application of existing laws or regulations, may have a material adverse impact on the Company's business, resulting in increased capital expenditures or production costs, reduced levels of cannabis production or abandonment or delays in the development of facilities.

Health Canada inspectors routinely assess the Company's facilities against the Cannabis Act and its regulations and provide the Company with follow up reports noting observed deficiencies. The Company is continuously reviewing and enhancing its operational procedures and facilities both proactively and in response to routine inspections. The Company follows all regulatory corrections in response to inspections in a timely manner. If the Company fails to comply with applicable laws, regulations and guidelines, the Company may incur additional costs or penalties, or the Company's operations may be restricted or shut down.

In addition, the introduction of new tax laws, regulations or rules, or changes to, or differing interpretation of, or application of, existing tax laws, regulations or rules in Canada or any of the jurisdictions in which the Company operates could result in an increase in taxes, or other governmental charges, duties or impositions. No assurance can be given that new tax laws, regulations or rules will not be enacted or that existing tax laws, regulations or rules will not be changed, interpreted or applied in a manner which could result in the Company's profits being subject to additional taxation or which could otherwise have a material adverse effect. Due to the complexity and nature of the Company's operations, various legal and tax matters may be outstanding from time to time. If the Company is unable to resolve any of these matters favorably, it may have a material adverse effect on the Company.

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Laws and Regulations Governing Cannabis in Foreign Jurisdictions

The Company's ability to achieve its business objectives in foreign jurisdictions is contingent, in part, upon its compliance with regulatory requirements enacted by governmental authorities and the Company obtaining all regulatory approvals, where necessary, for the sale of its products. The Company cannot predict the impact of the compliance regime countries such as Germany, Italy, Lesotho, Malta, Colombia, Argentina or Jamaica are implementing and the method in which their governmental authorities will implement the adult-use or medical cannabis industry. Similarly, the Company cannot predict how long it will take to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. The impact of the various compliance regimes, any delays in obtaining, or failure to obtain regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

The Company currently incurs and will continue to incur ongoing costs and obligations related to regulatory compliance. A failure on the Company's part to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions on its operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company's operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

Foreign Investment in Cannabis Companies

Certain jurisdictions may prohibit or restrict its citizens or residents from investing in or transacting with companies involved in the cannabis industry, even if such companies only conduct business in jurisdictions where cannabis is legal. For example, if an investor in the United Kingdom profits from an investment in a cannabis producer or supplier, such investment may technically violate the United Kingdom Proceeds of Crime Act 2002. Similar prohibitions or restrictions may apply in other jurisdictions where cannabis has not been legalized. In the United States, there have been certain instances of U.S. Customs and Border Protection preventing citizens of foreign countries from entering the United States for reasons related to the cannabis industry.

Operations in Foreign Jurisdictions

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

Governments in certain foreign jurisdictions intervene in their economies, sometimes frequently, and occasionally make significant changes in policies and regulations. Changes, if any, in cannabis industry or investment policies or shifts in political attitude in the countries in which the Company operates may adversely affect its operations or profitability. Operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on production, price controls, export controls, currency remittance, importation of product and supplies, income and other taxes, royalties, the repatriation of profits, expropriation of property, foreign investment, maintenance of concessions, licences, approvals and permits, environmental matters, land use, land claims of local people, water use and workplace safety. Failure to comply strictly with applicable laws, regulations and local practices could result in loss, reduction or expropriation of licences, or the imposition of additional local or foreign parties as joint venture partners with carried or other interests.

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The Company continues to monitor developments and policies in the emerging markets in which it operates and assess the impact thereof to our operations; however, such developments cannot be accurately predicted and could have an adverse effect on the Company's business, financial condition and results of operations.

Corruption and Fraud in Emerging Markets

There are uncertainties, corruption and fraud relating to title ownership of real property in certain emerging markets in which the Company operates or may operate. Property disputes over title ownership are frequent in emerging markets, and, as a result, there is a risk that errors, fraud or challenges could adversely affect the Company's ability to operate in such jurisdictions. Any of the foregoing risks and uncertainties could have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

Inflation in Emerging Markets

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

Acquisition or Use of Properties in Foreign Jurisdictions

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

International Expansion

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

Reliance on International Advisors and Consultants

The legal and regulatory requirements in the foreign countries in which the Company operates or will operate with respect to the cultivation and sale of cannabis, banking systems and controls, as well as local business culture and practices are different from those in Canada. The Company must rely, to a great extent, on local legal counsel, consultants and advisors retained by it in order to keep apprised of legal, regulatory and governmental developments as they pertain to and affect the Company's business, and to assist the Company with its governmental relations. The Company must rely, to some extent,

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on those members of management and the Board who have previous experience working and conducting business in these countries, if any, in order to enhance its understanding of and appreciation for the local business culture and practices. The Company also relies on the advice of local experts and professionals in connection with current and new regulations that develop in respect of the cultivation and sale of cannabis as well as in respect of banking, financing, labour, litigation and tax matters in these jurisdictions. Any developments or changes in such legal, regulatory or governmental requirements or in local business practices are beyond the Company's control. The impact of any such changes may adversely affect the Company's business, financial condition and results of operations.

Anti-Money Laundering Laws and Regulation Risks

The Company is subject to a variety of domestic and international laws and regulations pertaining to money laundering, financial recordkeeping and proceeds of crime, including the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, the Criminal Code (Canada) and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities internationally.

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

Corruption and Anti-Bribery Law Violations

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

Legislative or Regulatory Reform and Compliance

The commercial cannabis industry is a new industry, and we anticipate that such regulations will be subject to change as the Canadian federal government monitors licencees in action. The Company's operations are subject to a variety of laws, regulations, guidelines and policies, whether in Canada or elsewhere, relating to the cultivation, manufacture, import, export, management, packaging/labelling, advertising and promotion, sale, transportation, storage and disposal of cannabis but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment. While to the knowledge of management, the Company is currently in compliance with all such laws, any changes to such laws, regulations, guidelines and policies due to matters beyond the Company's control may cause adverse effects to the Company's operations.

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Environmental Regulations and Risks

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

Government approvals and permits are currently, and may in the future be required in connection with The Company's operations. To the extent such approvals are required and not obtained, the Company may be curtailed or prohibited from its proposed production of adult use or medical cannabis or from proceeding with the development of its operations as currently proposed.

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

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

Risks Inherent in an Agricultural Business

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

Reliance on a Single Cultivation Facility

To date, other than Broken Coast, the Company's principal activities and resources have been primarily focused on the premises in Leamington, Ontario. The Company expects to continue to focus its operation in this facility for the foreseeable future. Adverse changes or developments affecting the existing facility and location could have a material and adverse effect on the Company's ability to continue producing cannabis, its business, financial condition and prospects.

Third Party Transportation

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

Moreover, security of the product during transportation to and from the Company's facilities is critical due to the nature of the product. A breach of security during transport could have material adverse effects on the Company's business, financials and prospects. Any such breach, including any failure to comply with recommendations or requirements of Health Canada for the transportation of cannabis, could impact the Company's ability to continue operating under its licences or the prospect of renewing its licences.

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Reliance on Third Party Suppliers, Manufacturers and Contractors

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

In addition, any significant interruption, negative change in the availability or economics of the supply chain or increase in the prices for the products or services provided by any such third party suppliers, manufacturers and contractors could materially impact the Company's business, financial condition, results of operations and prospects. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the Company's business, financial condition, results of operations and prospects.

Reliance on Key Personnel

The success of the Company is dependent upon the ability, expertise, judgment, discretion and good faith of its executive management. The Company's future success depends on its continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and the Company may incur significant costs to attract and retain them. The loss of the services of member of the Company's executive management, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on the Company's ability to execute on its business plan and strategy, and the Company may be unable to find adequate replacements on a timely basis, or at all. Currently, the Company's executive management team is in transition and is led by an interim Chief Executive Officer. The retention of a permanent Chief Executive Officer and other members of the executive team, including a President and a Chief Operating Officer, Chief Commercial Officer, a Chief Medical Officer and Chief Compliance Officer, would distribute the Company's reliance on executive management among a larger group of qualified individuals. Further, as licencees under the Cannabis Act, the Company's officers and directors and each member of executive management are subject to a security clearance by Health Canada. There is no assurance that any of the Company's existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain one. A failure by a member of the Company's executive management to maintain or renew his or her security clearance, would result in a material adverse effect on the Company's business, financial condition and results of operations. In addition, if a member of the Company's executive management leaves the Company, and the Company is unable to find a suitable replacement that has a security clearance required by the Cannabis Act in a timely manner, or at all, there could occur a material adverse effect on the Company's business, financial condition and results of operations. While employment agreements are customarily used as a primary method of retaining the services of a member of the Company's executive management, these agreements cannot assure the continued services of such employees.

Limited Operating History

The Company, while incorporated in 1994, began carrying on business in 2012 and did not generate revenue from the sale of products until late 2014. The Company is therefore subject to many of the risks common to early-stage enterprises, including under-capitalization, cash shortages, limitations with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of the early stage of operations.

Product Liability

As a manufacturer and distributor of products designed to be ingested or vaporized by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. In addition, the sale of the Company's products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from

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human consumption of the Company's products alone or in combination with other medications or substances could occur. The Company may be subject to various product liability claims, including, among others, that the Company's products caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances.

A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on our results of operations and financial condition of the Company. There can be no assurances that the Company will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products.

Recent Announcements and Risks Regarding Vaporizer Products

On October 4, 2019, the U.S. Food and Drug Administration issued a warning to the public to stop using vaping liquids containing cannabis derivatives and ingredients, such as CBD and THC, in light of a potential but unconfirmed link to lung injuries such as severe pulmonary illness. Lung injuries associated with the use of cannabis derivative containing vaping liquid have also been reported in Canada. In response, Health Canada has issued an information update advising Canadians who use cannabis derivative containing vaping liquids to monitor themselves for symptoms of pulmonary illness. There may be further governmental and private sector actions aimed at reducing the sale of or prohibiting cannabis containing vaping liquids and/or seeking to hold manufacturers of cannabis containing vaping liquids responsible for the adverse health effects associated with the use of these vaping products. These actions, combined with potential deterioration in the public's perception of cannabis containing vaping liquids, may result in a reduced market for the Company's vaporizer products. Federal, provincial and local regulations or actions that prohibit or restrict the sale of the Company's vaporizer products including cannabis derivative vaping liquids, or that decrease consumer demand for the Company's products by prohibiting their use, raising the minimum age for their purchase, raising the purchase prices to unattractive levels via taxation, or banning their sale, could adversely impact the financial condition and results of operations of the Company.

The Long-term Health Impacts Associated with Use of Cannabis and Cannabis Derivative Products are Unknown

There is little in the way of longitudinal studies on the short-term and long-term effects of cannabis use on human health, whether used for recreational or medicinal purposes. As such, there are inherent risks associated with using the Company's cannabis and cannabis derivative products. The Company's cannabis and cannabis derivative products should always be used only as specifically instructed by the Company on the packaging and associated product information or product insert prepared by the Company. Consumers should never modify cannabis products or cannabis derivative products or add substances to such products as this may result in increased health risks and unpredictable adverse reactions. Previously unknown or unforeseeable adverse reactions arising from human consumption of cannabis products may occur and consumers should consume cannabis at their own risk or in accordance with the direction of a health care practitioner.

Product Recalls

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labelling disclosure. If any of the Company's products are recalled due to an alleged product defect or for any other reason, the Company could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. the Company may lose a significant amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require significant management attention. Although the Company has detailed procedures in place for testing its products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits. Additionally, if one of the Company's significant brands were subject to recall, the image of that brand and the Company could be harmed. A recall for any of the foregoing reasons could

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lead to decreased demand for the Company's products and could have a material adverse effect on the results of operations and financial condition of the Company. Additionally, product recalls may lead to increased scrutiny of the Company's operations by Health Canada or other regulatory agencies, requiring further management attention and potential legal fees and other expenses.

Wholesale Price Volatility

The cannabis industry is a margin-based business in which gross profits depend on the excess of sales prices over costs. Consequently, profitability is sensitive to fluctuations in wholesale and retail prices caused by changes in supply (which itself depends on other factors such as weather, fuel, equipment and labour costs, shipping costs, economic situation and demand), taxes, government programs and policies for the cannabis industry (including price controls and wholesale price restrictions that may be imposed by government agencies responsible for the sale of cannabis), and other market conditions, all of which are factors beyond the control of the Company. The Company's operating income may be significantly and adversely affected by a decline in the price of cannabis and will be sensitive to changes in the price of cannabis and the overall condition of the cannabis industry, as the Company's profitability is directly related to the price of cannabis. There is currently not an established market price for cannabis and the price of cannabis is affected by numerous factors beyond the Company's control. Any price decline may have a material adverse effect on the Company's business, financial condition and results of operations.

Limited Standardized Research on the Effect of Cannabis

To date, there is limited standardization in the research of the effects of cannabis, and future clinical research studies may lead to conclusions that dispute or conflict with the Company's understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis. Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids (such as CBD and THC) remains in relatively early stages.

Future research and clinical trials may draw opposing conclusions to statements in this MD&A or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for the Company's products.

Insurance Coverage

The Company has insurance to protect its assets, operations, directors and employees in Canada. While the Company believes its insurance coverage addresses all material risks to which it is exposed and is adequate and customary in its current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed. In addition, no assurance can be given that such insurance will be adequate to cover the Company's liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the Company were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if the Company were to incur such liability at a time when it is not able to obtain liability insurance, there could be a material adverse effect on the Company's business, financial condition and results of operations.

The Company is also currently pursuing additional insurance coverage over its crop, product liability claims and for business interruption. While the Company believes the insurance coverage addresses all material risks to which it is exposed and is adequate and customary in the current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed.

Unfavorable Publicity or Consumer Perception

The Company believes the cannabis industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of cannabis and related products distributed to such consumers. Consumer perception of the Company's products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention

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and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for the Company's products and the business, results of operations, financial condition and cash flows of the Company. The Company's dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on the Company, the demand for the Company's products, and the business, results of operations, financial condition and cash flows of the Company.

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

Reputational Risk to Third Parties

The parties outside of the cannabis industry with which the Company does business may perceive that they are exposed to reputational risk as a result of the Company's cannabis business activities. Failure to establish or maintain business relationships could have a material adverse effect on the Company.

Growth Targets

The Company's ability to continue the cultivation of cannabis products at the same pace as it is currently producing or at all, and the Company's ability to continue to increase both the Company's cultivation capacity and the Company's production, may be affected by a number of factors, including plant design errors, non-performance by third party contractors, increases in materials or labor costs, construction performance falling below expected levels of output or efficiency, environmental pollution, contractor or operator errors, breakdowns, aging or failure of equipment or processes, labor disputes, as well as factors specifically related to indoor agricultural and processing practices, such as reliance on provision of energy and utilities to the facility, and potential impacts of major incidents or catastrophic events on the facility, such as fires, explosions, earthquakes or storms.

Additional Financing

There is no guarantee that the Company will be able to achieve its business objectives. The continued development of the Company may require additional financing. The failure to raise such capital could result in the delay or indefinite postponement of current business objectives or the Company ceasing to carry on business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable to the Company. In addition, from time to time, the Company may enter into transactions to acquire assets or the shares of other corporations. These transactions may be financed wholly or partially with debt, which may increase the Company's debt levels above industry standards. Any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings

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may also contain provisions which, if breached, may entitle lenders or their agents to accelerate repayment of loans and/or realize upon security over the assets of the Company, and there is no assurance that the Company would be able to repay such loans in such an event or prevent the enforcement of security granted pursuant to such debt financing.

Future Acquisitions or Dispositions

Although there is no present intention to undertake any of the following transactions, material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) potential disruption of the Company's ongoing business;

  1. distraction of management; (iii) the Company may become more financially leveraged; (iv) the anticipated benefits and cost savings of those transactions may not be realized fully or at all or may take longer to realize than expected; (v) increasing the scope and complexity of the Company's operations; and (vi) loss or reduction of control over certain of the Company's assets.

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

Company's Expansion Efforts may not be Successful, and Company's Operations are Subject to Risk as a Result of Company's Expansion Efforts including Company's International Expansion

There is no guarantee that the Company's expansion strategy (including receiving the expected Health Canada approvals in a timely fashion if at all) will be completed in the currently proposed form, if at all, nor is there any guarantee that the Company will be able to expand into additional jurisdictions. There is also no guarantee that the Company's intentions to acquire and/or construct additional cannabis production and manufacturing facilities in Canada and in other jurisdictions with nationally legal cannabis markets, and to expand the Company's marketing and sales initiatives will be successful. Any such activities will require, among other things, various regulatory approvals, licences and permits (such as additional licences from Health Canada under the Cannabis Act, as applicable) and there is no guarantee that all required approvals, licences and permits will be obtained in a timely fashion or at all.

There is also no guarantee that the Company will be able to complete any of the foregoing activities as anticipated or at all. The Company's failure to successfully execute its international expansion strategy (including receiving required regulatory approvals, licences and permits) could adversely affect the Company's business, financial condition and results of operations and may result in the Company failing to meet anticipated or future demand for its cannabis products, when and if it arises.

The Company's expansion into jurisdictions outside of Canada is subject to additional business risks, including new or unexpected risks or could significantly increase the Company's exposure to one or more existing risk factors, including economic instability, changes in laws and regulations, and the effects of competition. In addition, international expansion could subject the Company's business to certain risks relating to fluctuating exchange rates or require a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance.

These factors may limit the Company's ability to successfully expand its operations into such jurisdictions and may have a material adverse effect on the Company's business, financial condition and results of operations.

Conflicts of Interest

The Company may be subject to various potential conflicts of interest because of the fact that some of its officers and directors may be engaged in a range of business activities. The Company's executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to Aphria. In some cases, the Company's executive officers, directors and consultants may have fiduciary obligations associated

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with these business interests that interfere with their ability to devote time to the Company's business and affairs and that could adversely affect the Company's operations.

In addition, the Company may also become involved in other transactions which conflict with the interests of its directors and officers who may from time to time deal with persons, firms, institutions or corporations with which the Company may be dealing, or which may be seeking investments similar to those the Company desires. The interests of these persons could conflict with the Company's interests. In addition, from time to time, these persons may be competing with the Company for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, in the event that such a conflict of interest arises at a meeting of the Board, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the Company's directors are required to act honestly, in good faith and in the Company's best interests.

Litigation

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

The Company was served statements of claims in class action lawsuits against it and certain of its current and former officers. These claims relate to alleged misconduct in connection with the Company's acquisitions of LATAM and Nuuvera, and the Company's June 2018 Offering. At the present time, the Company is aware of five such claims, two of which were commenced in the United States and three of which were commenced in Canada. The U.S. claims include alleged violations of Section 10(b) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), Rule 10b 5 under the Exchange Act and Section 20(a) of the Exchange Act. The Canadian claims include alleged statutory and common law misrepresentation and oppression. The Company intends to vigorously defend ourselves in each of these actions. With respect to the cases commenced in the United States, the Company is self-insured for the costs associated with any award or damages arising from such actions and have entered into indemnity agreements with each of the Company's directors and officers and, subject to certain exemptions, will cover any costs incurred by them in connection with any of the class action claims. With respect to the cases commenced in Canada, the Company's insurance policies may not be sufficient to cover any judgments against it.

On December 9, 2019, the Company was served with a statement of claim commenced by Emblem recently acquired by Aleafia Health Inc. in respect of a supply agreement whereby the Company would provide Emblem with certain cannabis product over a period of five years pursuant to the terms of the supply agreement. Emblem has terminated this supply agreement on the basis of, among other things, alleged failure by the Company to provide the requisite cannabis product pursuant to the terms of the supply agreement. The Company intends to vigorously defend itself against such claim.

Intellectual Property

The ownership and protection of trademarks, patents, trade secrets and intellectual property rights are significant aspects of the Company's future success. Unauthorized parties may attempt to replicate or otherwise obtain and use the Company's products and technology. Policing the unauthorized use of the Company's current or future trademarks, patents, trade secrets or intellectual property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing

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

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

Customer Acquisitions

The Company's success depends on its ability to attract and retain customers. There are many factors which could impact the Company's ability to attract and retain customers, including but not limited to the Company's brand awareness, its ability to continually produce desirable and effective cannabis products and the successful implementation of customer-acquisition plans. The failure to acquire and retain customers could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition to being subject to general business risks applicable to a business involving an agricultural product and a regulated consumer product, the Company will need to make significant investments in its business strategy. These investments include the procurement of raw material, extraction equipment, site improvements and research and development projects. The Company expects that competitors will undertake similar investments to compete with it. Competitive conditions, consumer preferences, customer requirements and spending patterns in this industry and market are relatively unknown and may have unique circumstances that differ from other existing industries and markets and cause the Company's future efforts to develop its business to be unsuccessful or to have undesired consequences for it. As a result, the Company may not be successful in its efforts to attract customers or to develop new cannabis products and produce and distribute these cannabis products, or these activities may require significantly more resources than it currently anticipate in order to be successful.

Contracts with Provincial and Territorial Governments

The Company expects to derive a significant portion of its future revenues from its supply contracts with the various Canadian provinces and territories. There are many factors which could impact the Company's contractual agreements with the provinces and territories, including but not limited to availability of supply, product selection and the popularity of the Company's products with retail customers. If the Company's supply agreements with certain Canadian provinces and territories are amended, terminated or otherwise altered, the Company's sales and results of operations could be adversely affected, which could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition, not all of the Company's supply contracts with the various Canadian provinces and territories contain purchase commitments or otherwise obligate the provincial or territorial wholesaler to buy a minimum or fixed volume of cannabis products from the Company. The amount of cannabis that the provincial or territorial wholesalers may purchase under the supply contracts may therefore vary from what the Company expects or has planned for. As a result, the Company's revenues could fluctuate materially in the future and could be materially and disproportionately impacted by the purchasing decisions of the provincial or territorial wholesalers. If any of the provincial or territorial wholesalers decide to purchase lower volumes of products from the Company than the Company expects, alters its purchasing patterns at any time with limited notice or

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decides not to continue to purchase the Company's cannabis products at all, the Company's revenues could be materially adversely affected, which could have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

Constraints on Marketing Products

In view of the restrictions on marketing, advertising and promotional activities set forth in the Cannabis Act and related regulations, the Company's business, financial condition and results of operations may be hindered by applicable restrictions on sales and marketing activities imposed by Health Canada. If the Company is unable to effectively market its products and compete for market share, or if the costs of compliance with government legislation and regulation cannot be absorbed through increased selling prices for its products, the Company's sales and results of operations could be adversely affected.

Fraudulent or Illegal Activity

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

Information Technology Systems and Cyber-Attacks

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

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

Security Risks

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

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

In addition, there are a number of federal and provincial laws protecting the privacy of personal information, including records of a patient's personal health information. Generally, these laws require the prior consent of an individual to collect, use and disclose that individual's personal information. They also require that personal information be protected by appropriate safeguards, and that the Company restrict the handling of personal information to the minimum amount of personal information necessary to carry out permitted purposes. If the Company is found to be in violation of these privacy laws, or other laws governing patient health information, the Company could be subject to sanctions and civil or criminal penalties, which could increase the Company's liabilities, harm the Company's reputation and have a material adverse effect on the Company's business, results of operations and financial condition.

Challenging Global Financial Conditions

In recent years, global credit and financial markets have experienced extreme disruptions, including with respect to, at times, severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that significant deterioration in credit and financial markets and confidence in economic conditions will not occur in the future. Any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions could have a material adverse effect on the Company's business, financial condition and results of operations.

Further, global credit and financial markets have displayed arguably increased volatility in response to global events. Future crises may be precipitated by any number of causes, including natural disasters, geopolitical instability, changes to energy prices or sovereign defaults. These factors may impact the ability of the Company to obtain equity or debt financing in the future and, if obtained, on terms favorable to the Company. Increased levels of volatility and market turmoil can adversely impact the Company's operations and the value, and the price of the Common Shares could be adversely affected.

In addition, there is a risk that one or more of the Company's current service providers may themselves be adversely impacted by difficult economic circumstances, which could have a material adverse effect on the Company's business, financial condition and results of operations.

History of Losses

The Company incurred losses in prior periods. The Company may not be able to achieve or maintain profitability and may continue to incur significant losses in the future. In addition, the Company expects to continue to increase operating expenses as it implements initiatives to continue to grow its business. If the Company's revenues do not increase to offset these expected increases in costs and operating expenses, the Company will not be profitable.

Competition

The Company expects significant competition from other companies in light of the recent coming into force of the Cannabis Act. A large number of companies appear to be applying for cultivation, processing and sale licences, some of which may

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have significantly greater financial, technical, marketing and other resources than the Company, may be able to devote greater resources to the development, promotion, sale and support of their products and services, and may have more extensive customer bases and broader customer relationships. The Company's future success depends upon its ability to achieve competitive per unit costs through increased production and on its ability to recognize higher margins through the sale of higher margin products. To the extent that the Company is not able to produce its products at competitive prices or consumers prioritize established low margin products over innovative, higher margin products, the Company's business, financial condition and results of operations could be materially and adversely affected.

Should the size of the cannabis market increase as projected the overall demand for products and number of competitors will increase as well, and in order for the Company to be competitive it will need to invest significantly in research and development, market development, marketing, production expansion, new client identification, distribution channels and client support. If the Company is not successful in obtaining sufficient resources to invest in these areas, the Company's ability to compete in the market may be adversely affected, which could materially and adversely affect the Company's business, financial condition and results of operations.

Difficulty to Forecast

The Company must rely largely on its own market research to forecast sales as detailed forecasts are, with certain exceptions, not generally available from other sources at this early stage of the cannabis industry. A failure in the demand for the Company's products to materialize as a result of competition, technological change, change in the regulatory or legal landscape or other factors could have a material adverse effect the Company's business, financial condition and results of operations.

Unsolicited Takeover Proposals

The review and consideration of any takeover proposal may be a significant distraction for the Company's management and employees and could require the expenditure of significant time and resources by the Company.

Moreover, any unsolicited takeover proposal may create uncertainty for the Company's employees and this uncertainty may adversely affect the Company's ability to retain key employees and to hire new talent. Any such takeover proposal may also create uncertainty for the Company's customers, suppliers and other business partners, which may cause them to terminate, or not to renew or enter into, arrangements with the Company. The uncertainty arising from unsolicited takeover proposals and any related costly litigation may disrupt the Company's business, which could result in an adverse effect on its business, financial condition and results of operations. Management and employee distraction related to any such takeover proposal also may adversely impact the Company's ability to optimally conduct its business and pursue its strategic objectives.

Reliance on the Veterans Affairs Canada ("VAC") Medical Cannabis Reimbursement Policies

VAC reimburses certain medical cannabis purchases for eligible Canadian Armed Forces veterans. The current reimbursement policy includes a three gram per day limit, subject to certain exceptions, and an $8.50 per gram price cap. The Company maintains a number of veterans as part of its overall medical patient list, although veteran sales have decreased in recent years. As the Company grows larger and, more particularly, since the legalization of adult-use cannabis, veteran patients have become less and less material to the Company's overall sales as a relative percentage. However, should VAC further amend its reimbursement policies this may further exacerbate demand for medical cannabis and the Company may be materially adversely affected.

Risks Related to the Company's Common Shares

Volatile Market Price of the Common Shares

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The market price of the Common Shares may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company's control. This volatility may affect the ability of holders of Common Shares to sell their securities at an advantageous price.

Market price fluctuations in the Common Shares may be due to the Company's results of operations failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts' estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions or other material public announcements by the Company or its competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Common Shares. Financial markets historically at times experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of the Common Shares may decline even if the Company's results of operations, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue, the Company's operations could be adversely impacted and the trading price of the Common Shares may be materially adversely affected.

Risks Related to Dilution

The Company may issue Common Shares in the future, which may dilute a shareholder's holdings in the Company. The Company's articles permit the issuance of an unlimited number of Common Shares, and shareholders will have no preemptive rights in connection with such further issuance. The Board has discretion to determine the price and the terms of issue of further issuances. Issuances of the Company's securities may involve the issuance of a significant number of Common Shares at prices less than the current market price for the Common Shares. Issuances of substantial numbers of Common Shares, or the perception that such issuances could occur, may adversely affect prevailing market prices of the Common Shares. Any transaction involving the issuance of previously authorized but unissued Common Shares, or securities convertible into Common Shares, would result in dilution, possibly substantial, to security holders. Moreover, additional Common Shares will be issued by the Company on the exercise of options under the Company's stock option plan and upon the exercise of outstanding warrants.

The Company may sell equity securities in offerings (including through the sale of securities convertible into equity securities). The Company cannot predict the size of such issuances of equity securities or the size and terms of future issuances of debt instruments or other securities convertible into equity securities or the effect, if any, that future issuances and sales of the Company's securities will have on the market price of the Common Shares.

Sales of substantial amounts of the Company's securities by the Company or its existing shareholders, or the availability of such securities for sale, could adversely affect the prevailing market prices for the Company's securities and dilute investors' earnings per Common Share. Exercises of presently outstanding share options or warrants may also result in dilution to security holders. A decline in the market prices of the Company's securities could impair the Company's ability to raise additional capital through the sale of securities should the Company desire to do so.

Dividends

The Company has not paid any dividends on the outstanding Common Shares, and the Company has no current intention to declare dividends on the Common Shares in the foreseeable future. Any decision to pay dividends on the Common Shares in the future will be at the discretion of the Board and will depend on, among other things, the Company's results of operations, current and anticipated cash requirements and surplus, financial condition, any future contractual restrictions and financing agreement covenants, solvency tests imposed by corporate law and other factors that the Board may deem relevant. Additionally, the Company's ability to pay dividends is currently restricted by the terms of its credit facilities with WFCU, which requires that dividends may only be paid after satisfaction of all terms, conditions and covenants contained therein.

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As a result, investors may not receive any return on an investment in the Common Shares unless they are able to sell their Common Shares for a price greater than that which such investors paid for them.

Regulated Nature of the Company's Business May Impede or Discourage a Takeover

The Company requires and holds various licences to operate its business, which would not necessarily continue to apply to an acquiror of the Company's business following a change of control. These licensing requirements could impede a merger, amalgamation, takeover or other business combination involving the Company or discourage a potential acquirer from making a tender offer for Common Shares, which, under certain circumstances, could reduce the market price of the Common Shares.

Listing Standards of the TSX and NYSE

The Company must meet continuing listing standards to maintain the listing of the Common Shares on the TSX and NYSE. If the Company fails to comply with listing standards and the TSX or NYSE delists the Common Shares, the Company and its shareholders could face significant material adverse consequences, including: (i) a limited availability of market quotations for the Common Shares; (ii) reduced liquidity for the Common Shares; (iii) a determination that the Common Shares are "penny stock," which would require brokers trading in the Common Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for the Common Shares; (iv) a limited amount of news about us and analyst coverage of the Company; and (v) a decreased ability for the Company to issue additional equity securities or obtain additional equity or debt financing in the future.

TSX Restrictions

On October 16, 2017, the TSX provided clarity regarding the application of Sections 306 (Minimum Listing Requirements) and 325 (Management) and Part VII (Halting of Trading, Suspension and Delisting of Securities) of the TSX Company Manual (collectively, the "Requirements") to TSX listed issuers with business activities in the cannabis sector. In TSX Staff Notice 2017 0009, the TSX notes that issuers with ongoing business activities that violate U.S. federal law regarding cannabis are not in compliance with the Requirements. The TSX reminded issuers that, among other things, should the TSX find that a listed issuer is engaging in activities contrary to the Requirements, the TSX has the discretion to initiate a delisting review. Failure to comply with the Requirements could have an adverse effect on the Company.

Liquid Trading Market

The Company's shareholders may be unable to sell significant quantities of Common Shares into the public trading markets without a significant reduction in the price of their Common Shares, or at all. There can be no assurance that there will be sufficient liquidity of the Common Shares on the trading market, and that the Company will continue to meet the listing requirements of the TSX or the NYSE or achieve listing on any other public listing exchange.

Emerging Growth Company

The Company is an "emerging growth company," as defined in the U.S. Jumpstart Our Business Start-ups Act, and it uses the exemption provided to emerging growth companies from the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act of 2002 ("SOX"). Therefore, the Company's internal controls over financial reporting ("ICOFR") will not receive the level of review provided by the process relating to the auditor attestation included in annual reports of issuers that are not using an exemption.

The Company may fail to maintain the adequacy of the Company's ICOFR as such standards are modified, supplemented or amended from time to time, and may not be able to ensure that the Company can conclude, on an ongoing basis, that the Company has effective ICOFR in accordance with Section 404 of SOX or equivalent Canadian legislation. Failure to satisfy the requirements of Section 404 of SOX and equivalent Canadian legislation on an ongoing, timely basis could result in the loss of investor confidence in the reliability of the Company's financial statements, which in turn could harm the Company's

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business and negatively impact the trading price of the Common Shares or the market value of the Company's other securities. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company's results of operations or cause it to fail to meet reporting obligations. Future acquisitions of companies, if any, may provide the Company with challenges in implementing the required processes, procedures and controls in the Company's acquired operations. No evaluation can provide complete assurance that the Company's ICOFR will detect or uncover all failures of persons to disclose material information otherwise required to be reported. The effectiveness of the Company's processes, procedures and controls could also be limited by simple errors or faulty judgments. In addition, as the Company expands, the challenges involved in implementing appropriate ICOFR will increase and will require that the Company continues to improve its ICOFR.

In addition, the Company cannot predict if investors will find the Common Shares less attractive because it relies on the aforementioned exemption. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and trading price for the Common Shares may be negatively affected.

Foreign Private Issuer Status

In order to maintain the Company's status as a foreign private issuer, a majority of the Common Shares must be either directly or indirectly owned by non-residents of the United States if the Company has one or more other connections to the United States prescribed by the foreign private issuer test. The Company may in the future lose its foreign private issuer status if a majority of the Common Shares are held in the United States and if the Company fails to meet the additional requirements necessary to avoid loss of its foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer eligible to use the multijurisdictional disclosure system ("MJDS"). If the Company is not a foreign private issuer, the Company would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer. In addition, the Company would lose the ability to rely upon exemptions from NYSE corporate governance requirements that are available to foreign private issuers.

Passive Foreign Investment Company

The Company may be characterized as a passive foreign investment company ("PFIC"). Under the PFIC rules, for any taxable year that the Company's passive income or the Company's assets that produce passive income exceed specified levels, the Company will be characterized as a PFIC for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences for the Company's U.S. holders, which may include having certain distributions on the Common Shares and gains realized on the sale of Common Shares treated as ordinary income, rather than as capital gains income, and having potentially punitive interest charges apply to the proceeds of sales of Common Shares and certain distributions. Based on current business plans and financial expectations, although there can be no assurance, the Company expects that it will not be a PFIC for the Company's current taxable year and expect that it will not be a PFIC for the foreseeable future.

Certain elections may be made to reduce or eliminate the adverse impact of the PFIC rules for holders of the Common Shares, but these elections may be detrimental and/or unavailable to the shareholders under certain circumstances. The PFIC rules are extremely complex and U.S. investors are urged to consult independent tax advisers regarding the potential consequences to them of the Company's classification as a PFIC.

Risks Related to Changes in Laws, Regulations and Guidelines

The Company's operations are subject to various laws, regulations and guidelines relating to the manufacture, management, packaging/labelling, advertising, sale, transportation, storage and disposal of adult use or medical cannabis but also including laws and regulations relating to drugs, controlled substances, health and safety, the conduct of operations and the protection of the environment. Changes to such laws, regulations and guidelines due to matters beyond the control of the Company may cause adverse effects business, financial condition and results of operations of the Company. The Company endeavours

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to comply with all relevant laws, regulations and guidelines. To the best of the Company's knowledge, the Company is in compliance or in the process of being assessed for compliance with all such laws, regulations and guidelines.

The Cannabis Act and Cannabis Regulations came into force on October 17, 2018. The Cannabis Act and Cannabis Regulations prohibit testimonials, lifestyle branding and packaging that is appealing to youth. The restrictions on advertising, marketing and the use of logos and brand names could have a material adverse impact on the Company's business, financial condition and results of operations. In addition, the Cannabis Act allows for licences to be granted for outdoor cultivation, which may reduce start-up capital required for new entrants in the cannabis industry. It may also ultimately lower prices, as capital expenditure requirements related to outdoor growing are typically much lower than those associated with indoor growing. Such results may also have a material adverse impact on the Company's business, financial condition and results of operations.

The legislative framework pertaining to the Canadian adult-use cannabis market is uncertain. In addition, the governments of every Canadian province and territory have, to varying degrees, announced regulatory regimes for the distribution and sale of cannabis for adult-use purposes within those jurisdictions. There is no guarantee that provincial legislation regulating the distribution and sale of cannabis for adult-use purposes will be enacted according to all the terms announced by such provinces and territories, or at all, or that any such legislation, if enacted, will create the growth opportunities that the Company currently anticipates. While the impact of any new legislative framework for the regulation of the Canadian adult- use cannabis market is uncertain, any of the foregoing could result in a material adverse effect of the Company's business, financial condition and results of operations.

To date, only fresh cannabis, dried cannabis and cannabis oil products are permitted for sale in Canada. Pursuant to the Cannabis Act, certain classes of cannabis products, such as edibles, concentrates and other ingestibles are currently prohibited from sale, but new regulations under the Cannabis Act will come into force on October 17, 2019 to permit edibles, concentrates and other ingestibles to be available for sale no earlier than mid-December 2019. While regulations have been released, the impact of these regulatory changes on the business of the Company is unknown, and the proposed regulations may not be implemented at all or, if they are, may change significantly.

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

Risks Inherent to the Cannabis Industry

The Company operates in a highly regulated and rapidly evolving market. Sometimes new risks emerge and management may not be able to predict all of them, or be able to predict how they may cause actual results to be different from those contained in any forward-looking statements. Failure to comply with the requirements of the licence(s) or any failure to maintain the licence(s) would have a material adverse impact on the business, financial condition and operating results of the Company.

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

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure controls and procedures are designed to provide reasonable assurance that material information required to be publicly disclosed by a public company is gathered and reported to senior management, including the Chief Executive Officer

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("CEO") and the Chief Financial Officer ("CFO"), on a timely basis so that appropriate decisions can be made regarding public disclosure. An evaluation of the effectiveness of the Company's disclosure controls and procedures was conducted as of May 31, 2019, based on the criteria set forth in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") by and under the supervision of the Company's management, including the CEO and the CFO. Based on this evaluation, the CEO and the CFO concluded that the Company's disclosure controls and procedures (as defined in National Instrument 52-109 - Certification of Disclosure in Issuers' Annual and Interim Filings of the Canadian Securities Administrators) were effective in providing reasonable assurance that material information relating to the Company is made known to them and information required to be disclosed by the Company is recorded, processed, summarized and reported within the time periods specified in such legislation.

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

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

There have been no changes in the Company's internal controls over financial reporting during the three months ended November 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

Subsequent Events

  • Received confirmation of compliance with the requirements of the European Union's Commission Directive 2003/94/EC relating to the Good Manufacturing Practices in respect of medicinal products for human use and investigational medicinal products for human use, from the Malta Medicines Authority at the Company's ARA - Avanti Rx Analytics.
  • Company's Jamaican subsidiary Marigold Projects Jamaica Limited ("Marigold") received a Processing (Tier 1) Licence from Jamaica's Cannabis Licensing Authority ("CLA") which permits the processing ofcannabis-based products for medical, therapeutic and scientific purposes.
  • Marigold also received its second Retail (Herb House) licence from Jamaica's CLA to open a store in Negril, Jamaica.

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

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

  • the expected increased capacity in respect of the Company's facilities;
  • the planned international expansion of the Company
  • the expected cost to produce a gram of dried cannabis;
  • the expected cost to process cannabis oil;
  • expectation with respect to product development and the market share thereof;
  • expectations with respect to crop rotation and harvest; and,
  • the anticipated future gross margins of the Company's operations.

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Aphria Inc. published this content on 14 January 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 14 January 2020 14:12:01 UTC