Auxly Cannabis : Management Discussion and Analysis - Q2 2021

AUXLY CANNABIS GROUP INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021

Dated August 13, 2021

Table of Contents
MANAGEMENT'S DISCUSSION AND ANALYSIS..............................................................	3
DESCRIPTION OF BUSINESS................................................................................................	3
OUTLOOK..................................................................................................................................	11
COVID-19PANDEMIC.............................................................................................................	12
RECENT DEVELOPMENTS: SECOND QUARTER 2021 TO DATE..............................	13
FINANCIAL HIGHLIGHTS AND KEY PERFORMANCE INDICATORS.........................	16
RESULTS OF OPERATIONS.................................................................................................	17
SUMMARY OF QUARTERLY RESULTS ............................................................................	20
TRANSACTIONS WITH RELATED PARTIES....................................................................	21
LIQUIDITY AND CAPITAL RESOURCES ...........................................................................	22
OUTSTANDING SHARE DATA.............................................................................................	23
NON-GAAPFINANCIAL MEASURES .................................................................................	23
COMMITMENTS AND OFF-BALANCE SHEET ARRANGEMENTS..............................	25
CRITICAL ACCOUNTING ESTIMATES...............................................................................	25
DISCLOSURE AND INTERNAL CONTROLS AND PROCEDURES..............................	27
CHANGES IN ACCOUNTING POLICIES ............................................................................	27
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ...............................................	28
RISK FACTORS........................................................................................................................	28
FORWARD LOOKING STATEMENTS.................................................................................	29

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MANAGEMENT'S DISCUSSION AND ANALYSIS

This Management's Discussion and Analysis ("MD&A") was prepared as of August 13, 2021 unless otherwise indicated. This MD&A reviews the operating results, financial position and liquidity of Auxly Cannabis Group Inc. ("Auxly", "we", "our", or the "Company"). All amounts are stated in millions of Canadian dollars unless otherwise noted, except common shares ("Shares"), options, and per Share amounts. This MD&A should be read in conjunction with the interim condensed consolidated financial statements and the notes thereto for the three and six months ended June 30, 2021, as well as the Company's audited consolidated financial statements and accompanying notes thereto and annual MD&A for the year ended December 31, 2020.

This MD&A may contain forward-looking information that is based on the Company's expectations, estimates and projections regarding its business and the economic environment in which it operates. Forward-looking information contained herein is made as of the date of this MD&A and is not a guarantee of future performance and involves risks and uncertainties that are difficult to control or predict. Readers should refer to the "Forward Looking Statements" section in this MD&A.

Certain comparative amounts have been retrospectively restated in this MD&A as a result of the sale of KGK Science Inc. ("KGK") which occurred during the second quarter of 2021. Results of operations and cash flows associated with KGK have been aggregated and presented as discontinued operations as applicable, with Adjusted EBITDA presented on a continuing operations basis.

DESCRIPTION OF BUSINESS

Our Business

We are a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in Toronto, Canada. Our focus is on developing, manufacturing and distributing branded cannabis products that delight wellness and recreational consumers.

Our vision is to be a global leader in branded cannabis products that deliver on our consumer promise of quality, safety and efficacy.

Canadian Market

On October 17, 2018, the Cannabis Act came into force, initially permitting the recreational sale of certain classes of cannabis products, including dried cannabis, fresh cannabis, cannabis plants, cannabis seeds, and cannabis oil (collectively referred to as "Cannabis 1.0 Products"). On October 17, 2019, edible cannabis, cannabis extracts and cannabis topicals were added to the authorized classes of cannabis (collectively referred to as "Cannabis 2.0 Products", and together with Cannabis 1.0 Products, collectively referred to as "Cannabis Products") and such Cannabis

2.0 Products were first available for sale on December 16, 2019. Since 2019, Health Canada undertook a consultation, established a Scientific Advisory Committee, and has been engaged in discussions regarding the possible legalization of Cannabis Health Products, which would permit the making of health claims in respect of cannabis products without the required oversight of a practitioner such as a doctor but such products are not currently permitted.

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Canadian Strategy and Capabilities

Brand Portfolio and Product Offering

We have created a portfolio of brands designed for a broad market of cannabis consumers, with differentiation in price points across targeted consumer segments.

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Based upon consumer insights, Auxly has developed a broad portfolio of Cannabis Products to meet the evolving needs and preferences of Canadian cannabis consumers. Our initial focus has been on the development of Cannabis 2.0 Products and we were one of the first cannabis companies to distribute and sell Cannabis 2.0 Products across Canada following their legalization.

We were the top-selling licensed producer of Cannabis 2.0 Products nationally in 2020 and continue to be a leader in the Cannabis 2.0 Product segment in 2021, the Company has also begun introducing additional Cannabis 1.0 Products to the market and is now the #6 licensed producer in Canada by total market revenue as of the date of this MD&A as reported by Headset1.

Our Cannabis Products available during the second quarter of 2021 are described below by brand and product format:

Our Cannabis Products have been well received by consumers. We plan to further strengthen our brand recognition and use consumer insights to drive innovation as we continue to introduce new Cannabis Products to the Canadian market, with an emphasis on expanding our dried flower and pre-roll offerings over the course of 2021.

1 Data provided by Headset as at August 9, 2021.

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