CannAmerica Brands : Audited annual financial statements - English

CANNAMERICA BRANDS CORP.

ANNUAL REPORT

For the Year Ended

March 31, 2021

CannAmerica Brands Corp.

Management's Discussion and Analysis for the Year Ended March 31, 2021

All amounts expressed in CAD dollars, unless otherwise stated)

INTRODUCTION

The following management discussion and analysis ("MD&A") of the results of operations and financial condition of CannAmerica Brands Corp. ("CannAmerica") should be read in conjunction with the consolidated financial statements for the years ended March 31, 2021 and 2020 of CannAmerica and the accompanying notes thereto for CannAmerica, CannAmerica Holdings Corp. and DAFF International, LLC. The consolidated financial statements comprise the financial statements of CannAmerica and its legal subsidiaries (collectively referred to as the "Company").

The financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") and all amounts are expressed in Canadian dollars unless noted otherwise. The effective date of this MD&A is October 5, 2021.

DESCRIPTION OF BUSINESS

CannAmerica Brands Corp. (formerly Transform Capital Corp.) ("CannAmerica") was incorporated in the province of British Columbia on March 13, 2017, under the Business Corporations Act of British Columbia. CannAmerica's head office and its registered and records office is located at 10th Floor, 595 Howe Street, Vancouver, British Columbia, V6C 2T5.

On May 30, 2018, CannAmerica entered into an agreement with the shareholders of CannAmerica Holdings Corp. ("CannAmerica Holdings") whereby 100% of the common shares and warrants of CannAmerica Holdings were exchanged for common shares of CannAmerica (the "CannAmerica Holdings Acquisition"). The CannAmerica Holdings Acquisition is considered a reverse takeover of a non-operating company whereby CannAmerica Holdings, the legal subsidiary, has been determined to have acquired control of CannAmerica and to be the acquirer for accounting purposes. In accordance with the principles of reverse takeover accounting, CannAmerica will report the operations of CannAmerica Holdings and its related historical comparatives as its continuing business, except for the legal capital shown in the Consolidated Statements of Changes in Shareholders' Equity, which have been adjusted to reflect the share capital of CannAmerica.

CannAmerica Holdings was incorporated in the Province of British Columbia on December 11, 2017, under the Business Corporations Act of British Columbia and was formed to identify an appropriate business for acquisition or investment. CannAmerica Holdings completed a business combination on May 18, 2018, and now owns a portfolio of brands in the medical and recreational cannabis space in the United States through its wholly owned subsidiary DAFF International, LLC ("DAFF"). The Company's principal business is to build on and maximize the value of its brands by promoting, marketing and licensing these brands through various distribution channels, including dispensaries, wholesalers and distributors. The Company currently has four brand licensing agreements with licensees in the states of Colorado, Nevada, Oklahoma, and Massachusetts. On October 15, 2018, the Company listed on the Canadian Securities Exchange ("CSE") under the ticker symbol "CANA".

Brands and Licensees

The Company's brand in the cannabis space, CannAmerica, is licensed to manufacturers and wholesale licensees in the United States. The brand has been in existence since early 2016.

As of the date of this report, the Company has four branded licensing agreements with licensees in the states of Colorado, Nevada, Oklahoma, and Massachusetts.

Arsenal Oils and Extracts: Arsenal Oils and Extracts is a Veteran-owned, Colorado licensed marijuana extraction and wholesale distribution company. Arsenal's mission is to create, innovate, and supply quality products to cannabis consumers and wholesalers throughout the great state of Colorado. With this core philosophy, the team at Arsenal pushes the boundaries beyond what is accepted as the status quo in the marijuana industry as a manufacturer of superior quality concentrates with safety in mind. The staff at Arsenal are adamant connoisseurs of everything that makes America great including enjoying these magnificent times of legally producing, selling, and consuming cannabis.

CannAmerica Brands Corp.

Management's Discussion and Analysis for the Year Ended March 31, 2021

(All amounts expressed in CAD dollars, unless otherwise stated)

Flower One Holdings Inc: Flower One is one of the leading cannabis cultivators, producers and innovators in the highly lucrative Nevada market. Flower One owns and operates a 25,000 square foot cultivation and production facility in North Las Vegas, with nine grow rooms, and owns the established NLV Organics consumer brand of cannabis products. The Company is also rapidly converting its 455,000 square-foot greenhouse and production facility, which is the largest in the State of Nevada, for cultivating and processing high-quality cannabis at scale. Combined, the flagship greenhouse facility and production facility (once fully operational) and the North Las Vegas facility provide Flower One with 480,000 square feet of capacity for cultivation and processing, production and high-volume packaging of dry flower, cannabis oils, concentrates and infused products. The Company is fully licensed for medical marijuana cultivation and production, as well as recreational marijuana cultivation and production in the state of Nevada and currently holds licensing agreements with their Brand Partners, Flyte Concentrates, Rapid-Dose Therapeutics' Quick Strip, Old Pal, Palms, HUXTON, and CannAmerica Brands.

THC, Inc.: THC Total Herbal Care (THC) is licensed to cultivate, process, and dispense cannabis in Oklahoma. THC provides products to help patients improve their quality of life, aiming to deliver only the finest premium cannabis solutions and medicine.

Canna Provisions Inc.: Located in Massachusetts, Canna Provisions is the next generation of cannabis dispensary focusing on a unique and thoughtful customer experience. Founded by established industry pioneers with extensive cultivation, regulation and consumer sales experience, Canna Provisions stores provide a broad range of top-grade craft cannabis products that are locally sourced and thoughtfully produced.

The Company generates revenue through license agreements whereby licensees are granted rights to utilize the Brands, substrate, packaging and labelling, and related intellectual property. Licensees are responsible for assembling the branded products by infusing the substrate with clear cannabis distillate and packaging for sale to the end consumer. The Company is not involved in the cultivation, extraction, or infusion of any cannabis or cannabis derivatives.

The Company's license agreements require a licensee to pay royalties to the Company based on a fixed price per unit or as a percentage of the licensee sales and apply to specific geographical territories and distribution channels in which the licensed products may be sold. The Company's agreements also contain an upfront fee component, where the licensee agrees to pay a license fee to CannAmerica in exchange for an exclusive license to manufacture and distribute the Company's products during the term of the agreement. Fees are $500k USD for recreational licensees and $250k USD for medical, with 50% of the fee due upon execution of the agreement and 50% due upon the one-year anniversary of the agreement.

Other significant terms outlined in the license agreements typically include the duration of the contract, payment frequency and applicable minimum thresholds for purchase.

The Company intends to expand primarily through additional licenses in new territories, the development and acquisition of new brands, and through partnerships and other arrangements. The Company aims to acquire additional well-known consumer brands in the cannabis space with high potential for growth and strong brand awareness and select licensees who have demonstrated the ability to cultivate, manufacture, produce and sell quality products in their respective licensed categories and territories.

For the year ended March 31, 2021, DAFF revenues were concentrated within four licensees: TR Scientific (previous licensee in Colorado) and Arsenal Oils and Extracts in Colorado, Flower One in Nevada, THC in Oklahoma and Canna Provisions in Massachusetts. Revenues included fees earned from packaging to licensees along with the recognition of the initial upfront fees from Flower One, THC, Canna Provisions, and Leaf & Mark.

In February 2019, the Company signed a new brand licensing agreement with a subsidiary of Flower One Holdings Inc. (CSE: FONE) (OTCQB: FLOOF) in the state of Nevada. This brand licensing agreement replaces the Company's previous brand licensing agreement with Matrix NV, which terminated during March 2019. Flower One began placing orders of the Company's branded products in April 2019 and receiving payment on orders in June 2019.

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CannAmerica Brands Corp.

Management's Discussion and Analysis for the Year Ended March 31, 2021

(All amounts expressed in CAD dollars, unless otherwise stated)

The Company expects to achieve revenue growth from its existing licensees and through obtaining additional license agreements in new territories. On June 28, 2019, the Company entered into a long-term licensing agreement and brand partnership with THC Total Herbal Care Corporation ("THC") under which THC will have an exclusive license to manufacture and distribute CannAmerica branded cannabis infused gummy products, disposable vape pens, distillate droppers and shatter and wax concentrate product in Oklahoma.

Terms of the Agreement include:

• The initial term will be for a period of 5 years.
• 50% upfront license fee paid within two business days of the agreement with the remaining 50% paid on the one-year anniversary date.
• The Licensee will purchase all un-infused consumable ingredients, packaging supplies, and branded hardware exclusively from the Company.
• THC will follow formulations and processes provided by the Company.
• During the first 180 days of the initial term, THC will employ two full-time salespeople in Oklahoma to promote, market, advertise, and sell the Licensed Products.

On October 28, 2019, CannAmerica entered into a long-term licensing agreement and brand partnership with Canna Provisions Inc. under which the Licensee will have an exclusive license to manufacture and distribute CannAmerica branded cannabis infused gummy products and Live Labs branded concentrate products in the Commonwealth of Massachusetts. Live Labs is a brand created by the founders of CannAmerica, wholly owned by the Company, and is being introduced in the Northeastern United States recreational cannabis marketplace.

Terms of the Agreement are as follows:

• the initial term will be for a period of 3 years;
• Canna Provisions Inc. will follow formulations and processes provided by the Company;
• If Licensor wishes to grant a license to a third-party licensee with respect to the marketing, sale, and distribution of Licensed Products in New York, Connecticut, Vermont, New Hampshire, Maine, or Rhode Island, Canna Provisions Inc. has the right of first refusal;
• during the first 180 days of the initial term, the licensee will employ one full-time salesperson in Massachusetts to promote, market, advertise, and sell the Licensed Products;
• In addition to the fees contained in the agreement, a licensee fee of US$500,000 due to the Company in installments, payable as follows:
  o US$50,000 within two days after the mutual execution of the Agreement;
  o US$200,000 in installment payments (US$50,000 per month for a period of four months) with the first installment due two days after the Licensee obtains a license for its production facility from the Commonwealth of Massachusetts;
  o US$250,000 due 12 months after the Effective date of the Agreement
• The Company is obligated to issue $500,000 worth of common shares to Canna Provisions Inc. with $250,000 worth of common shares issuable within two days after the US$200,000 installment is made and the second $250,000 worth of common shares issuable within two days of the final US$250,000 being made from Canna Provisions Inc. to the Company.

On August 26, 2020, the Company announced that it entered into a long-term licensing agreement and brand partnership with Arsenal Oils and Extracts under which Arsenal will have an exclusive license to manufacture and distribute CannAmerica branded products and Live Labs in Colorado.

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CannAmerica Brands Corp.

Management's Discussion and Analysis for the Year Ended March 31, 2021

(All amounts expressed in CAD dollars, unless otherwise stated)

Terms of the Agreement include:

• The initial term will be for a period of 5 years;
• Payments are a flat fee per unit based on the use of the Company's Intellectual Property;
• The Licensee will purchase all consumable ingredients, packaging supplies, and branded hardware exclusively from the Company;
• The Licensee will follow formulations and processes provided by the Company; and
• The Licensee will distribute CannAmerica branded products throughout the territory (Colorado).

On November 30, 2020, CannAmerica entered into a long-term licensing agreement for use of the Company's technology and processes with VIII Brands, LLC., a privately held company based in Colorado, with the intent of creating Consumer Packaged Goods (CPG's) in the United States.

VIII Brands is a hemp branding house started in 2019 for the purposes of introducing hemp-based cannabinoid CPG's into major retailers across the United States, where food, beverages, topicals and other consumption products are allowed.

Terms of the agreement include:

• The initial term will be for a period of 5 years;
• A licensing fee of US$1,000,000 due 24 months after the effective date of the Agreement;
• Ongoing monthly fees for use of the Company's equipment to commence six months after the effective date of the Agreement;
• The Company is granted an option to purchase the Licensee;

Additionally, on December 10, 2020, the Company has entered into a license application agreement with GA Bioscience Research Inc. ("GABRI"), a Georgia company formed for the purpose of obtaining a Cannabis licensure in the State of Georgia (the "License"). The License will allow GABRI to conduct business operations for the cultivation and manufacture of legal cannabis products for medical use. CannAmerica will be assisting GABRI by providing the Company's expertise for the license application and, if the license application is successful, providing services for the design, build, installation of equipment and launching the operations.

Terms of the Agreement include:

• The initial term will be for the application window which will expire on December 28, 2020;
• Upon successful issuance of a License to GABRI, CannAmerica will provide expertise for the build-out of the project, equipment set-up, and training in all areas of cannabis cultivation, processing and manufacturing for a six-month term.
• The Agreement will be extended on a month-to-month basis until complete if the project continues past the six- month term; and
• The Company has a right of first refusal to enter into a separate licensing agreement with GABRI to bring the Company's branded products to the State of Georgia marketplace.

Expansion

In addition to existing licensee relationships in the United States, the Company is continuously seeking opportunities to expand into new markets in the U.S. while also pursuing prospects for growth in Canada.

On August 8, 2019, CannAmerica entered into a long-term licensing agreement and brand partnership with Swiss Lux Products, Inc. Under the terms of agreement, Swiss Lux will have use of the Company's Intellectual Property, Branding, and Formulation processes in exchange for a royalty on all sales of the Company's products within Canada.

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