Flower One : Q1-22 Financial Report

Management's Discussion and Analysis

For the Three‐Months Ended March 31, 2022

This Management's Discussion and Analysis ("MD&A") is prepared as of July 22, 2022 and is to assist the reader in understanding the nature and importance of changes and trends as well as the risks and uncertainties that may affect the operating results and financial position of Flower One Holdings Inc. (the "Company" or "Flower One") for the three‐months ended March 31, 2022. This MD&A should be read in conjunction with the unaudited condensed consolidated interim financial statements for the three‐months ended March 31, 2022, together with the related notes thereto (collectively, the "financial statements"). All dollar amounts included in the financial statements and in this MD&A are expressed in United States dollars ("$") or Canadian dollars ("CAD$").

This MD&A has been prepared in accordance with the MD&A disclosure requirements established under National Instrument 51‐102 - Continuous Disclosure Obligations. Management is responsible for the preparation and integrity of the financial statements, including the maintenance of appropriate information systems, procedures, and internal controls. Management is also responsible for ensuring that information disclosed externally, including the information within the financial statements and this MD&A, is complete and reliable. Additional information regarding the Company, including its Annual Information Form for the year ended December 31, 2020, as well as other information filed with the Canadian securities regulatory authorities is available under the Company's profile on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

The financial information in this MD&A contains certain financial and operational performance measures that are not defined by and do not have any standardized meaning under International Financial Reporting Standards ("IFRS"). These financial and operational performance measures are used by management to assess the financial and operational performance of the Company.

The Company believes that these non‐IFRS financial measures, in addition to conventional measures prepared in accordance with IFRS, enable investors to evaluate the Company's operating results, underlying performance and prospects in a similar manner to the Company's management. These non‐IFRS financial performance measures are defined and reconciled to IFRS in the sections in which they appear. As there are no standardized methods of calculating these non‐IFRS measures, the Company's approaches may differ from those used by others, and accordingly, the use of these measures may not be directly comparable. Accordingly, these non‐IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. (See "Non‐IFRS Measures")

CAUTIONARY STATEMENT REGARDING FORWARD‐LOOKING INFORMATION

This MD&A may contain "forward‐looking statements" about the Company. In addition, the Company may make or approve certain statements in future filings with Canadian securities regulatory authorities, in press releases, or in oral or written presentations by representatives of the Company that are not statements of historical fact and may also constitute forward‐looking statements. All statements, other than statements of historical fact, made by the Company that address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward‐looking statements, including, but not limited to, statements preceded by, followed by or that include words such as "may", "will", "would", "could", "should", "believes", "estimates",

"projects", "potential", "expects", "plans", "intends", "anticipates", "targeted", "continues", "forecasts", "designed", "goal", or the negative of those words or other similar or comparable words and includes, among others, relating to the business and future activities of, and developments related to, the Company after the date of this MD&A; future business strategy, competitive strengths, goals, expansion and growth of the Company's business; projections of revenue performance in 2022, effectiveness of new management, the ability of the Company to close revenues or repay loans; operations and plans, including cultivation and licensing assets, distribution, production levels and the grant of licenses or renewals; receipt of regulatory approvals in a timely manner or at all; the transfer, acquisition and/or maintenance of licenses and third‐party consents in a timely manner or at all; the expansion of existing cultivation and production facilities; any potential future legalization of adult‐use and/or medical cannabis under United States federal law; expectations of market size and growth in the United States and the State of Nevada; expectations for other economic, business, political, regulatory and/or competitive factors related to the Company or the cannabis industry generally; and other events or conditions that may occur in the future.

These statements speak only as at the date they are made and are based on information currently available and on the then current expectations of the party making the statement and assumptions concerning future events, which are subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from that which was expressed or implied by such forward‐looking statements, including, but not limited to risks and uncertainties related to: (1) marijuana is illegal under United States federal law, (2) marijuana is strictly regulated in those states which have legalized it for medical or recreational use, (3) newly established legal regime, (4) restricted access to banking, (5) heightened scrutiny by Canadian and United States regulatory authorities, (6) COVID‐19 pandemic, (7) foreign investors in Flower One and its directors, officers, and employees may be subject to entry bans into the United States, (8) constraints on developing and marketing products, (9) unfavorable tax treatment of cannabis businesses, (10) risk of civil asset forfeiture, proceeds of crime statutes, (12) limited intellectual property protection, (13) lack of access to United States bankruptcy protections, (14) potential FDA regulation, (15) legality of contracts, (16) limited operating history, (17) actual results of operations may differ materially from the expectations of the Company's management, (18) significant ongoing costs and obligations related to its investment in infrastructure, growth, regulatory compliance, and operations, (19) voting control, (20) Flower One being a holding company,

1. Flower One's products, (22) unfavorable publicity or consumer perception, (23) potential default in the Company's obligations to pay its indebtedness, (24) strategic alliances, (25) risks inherent in an agricultural business, (26) energy costs, (27) reliance on key personnel, (28) reliance on a single jurisdiction, (29) environmental and employee health and safety regulations, (30) unknown environmental risks, (31) security risks,

1. information technology risks, (33) product recalls, (34) results of future clinical research, (35) competition,

1. failure to retain existing clients or acquire new clients, (37) liquidity, financial resources, and access to capital,

1. licenses, (39) future acquisitions or dispositions, (40) insurance and uninsured risks, (41) dependence on key inputs, suppliers , and skilled labor, (42) difficulty to forecast, (43) management of growth, (44) internal controls,

1. failure to comply with anti‐bribery laws, (46) conflict of interest, (47) litigation, (48) product liability, (49) general economic and political risks, (50) Flower One being a Canadian company and shareholder protections differ from shareholder protections in the United States and elsewhere, (51) volatile market price for Flower One's securities, (52) Flower One may not pay dividends, (53) future revenues or issuances of securities could decrease the value of the securities, dilute investors' voting power and reduce earnings per share, (54) the regulated nature of Flower One's business may impede or discourage a takeover, which could reduce the market price of Flower One's securities, (55) there is no assurance Flower One will continue to meet the listing or quotation standards of the CSE, the OTCQX, or the FSE (56) and currency fluctuations.

Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which may have been used. Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward‐looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward‐looking information and statements as

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statements containing forward‐looking information involve significant risks and uncertainties and should not be read as guarantees of future results, performance, achievements, prospects, and opportunities. The forward‐ looking information and statements contained herein are presented for the purposes of assisting readers in understanding the Company's expected financial and operating performance and the Company's plans and objectives and may not be appropriate for other purposes.

The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward‐looking statements that the Company and/or persons acting on its behalf may issue. The Company does not undertake any obligation to update or revise any forward‐looking statements, whether as a result of new information, future events or otherwise, other than as required under securities legislation.

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OVERVIEW OF THE COMPANY

Flower One is Nevada's largest cannabis cultivation, production, licensing, and wholesale company; and, through its subsidiaries, holds a variety of strategic investments including: Nevada's largest commercial‐scale cannabis greenhouse (the "NLV Greenhouse") and Nevada's largest cannabis production facility (the "NLV Production", and collectively the NLV Greenhouse and NLV Production facilities are referred to herein as the "Bruce Street Facility"). Bruce Street Facility includes the NLV Greenhouse; a 400,000 square foot, fully canopied, high‐tech greenhouse modified for cannabis cultivation attached to a 55,000 square foot, state‐of‐the‐art cannabis production facility dedicated to the extraction, production, manufacturing, and packaging of a wide range of cannabis‐derived products including, but not limited to: flower, oils, concentrates, pre‐rolls, edibles and other infused products. The Bruce Street Facility is strategically positioned less than eight miles from the Las Vegas Strip and Clark County, Nevada ‐ where a majority of that state's cannabis sales occur. The Bruce Street Facility is considered to be one of the most technologically advanced and highest yielding cannabis facilities in North America*.

*There are a number of different methods used to identify and report cannabis cultivation capacity and yield around the world, and further, to quantify a facility such as the NLV Greenhouse as a top producing facility. The NLV Greenhouse houses approximately 110,000 plants at any given time, of which 70,000 are in flower zones, and is capable of approximately six harvest cycles per annum. Currently, the NLV Greenhouse has a capacity of 60,000 to 85,000 pounds of sellable cannabis flower per year assuming a yield that ranges from 70 to 130 grams per plant. The Company is reporting its capacity based on flower that is actually sellable as flower and has chosen to exclude its excess trim and green waste to give the most accurate number of the true value of each plant. If the Company included trim and green waste, its capacity would reflect upwards of 100,000 to 120,000 pounds per annum.

Additional investments include the Company's indoor cultivation facility and commercial kitchen space, known as the "Neeham Facility." The Neeham Facility is 25,000 square feet with approximately 14,000 square feet of indoor canopy space capable of producing up to 10,000 pounds of premium craft indoor cannabis annually at full capacity. The Neeham Facility also contains a fully licensed commercial kitchen used to produce some of Nevada's leading edible brands. The Neeham Facility is utilized to produce top quality indoor cannabis for several of the Company's premium brands and brand partners. The Company's ability to offer premium indoor cannabis is a critical component to the Company's value proposition for both its brand partners and retail customers. The Neeham Facility also satisfies the Company's research and development needs, allowing the Company to test new genetics, technology, and cultivation techniques on a smaller scale, prior to implementing them at the NLV Greenhouse.

The Company and its subsidiaries own or operate eight Nevada state‐issued marijuana licenses and certain real property. The company owns one of Nevada's top selling cannabis brands, NLVO and also holds more than 12 brand licenses with world‐class cannabis brands such as: Cookies, Old Pal, Kiva, Heavy Hitters, The Clear, 22Red, Lift Tickets, Huxton, Miss Grass, ALTWELL, Palms and Natures Lab Extracts.

The Company is a Canadian company incorporated on January 9, 2007 under the Business Corporations Act (British Columbia). The Company is listed on the Canadian Securities Exchange ("CSE") under the symbol "FONE", the OTCQX Best Market in the United States ("OTCQX") under the symbol "FLOOF", and under the Frankfurt Stock Exchange ("FSE") under the symbol "F11". The records and registered office of the Company is located at 1055 West Hastings Street, Suite 1700, The Guinness Tower, Vancouver, BC V6E 2E9.

STRATEGY AND OPERATIONS

The Company began its comprehensive restructuring in Q1‐21, which included: (1) the closing of its convertible debenture offering raising gross proceeds of over $19,000,000, (2) updating its board of directors, (3) the appointment of Kellen O'Keefe as the Company's President, Chief Executive Officer and Board Director, as well as the promotion of Salpy Boyajian to Executive Vice President and Board Chairman. With the new board and

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management in place, the Company was able to successfully restructure a significant amount of its debt, reduce total operating expenses, achieve two consecutive quarters of record revenue through Q1‐21 and Q2‐21 and year‐over‐year quarterly revenue growth in Q3‐21.

Following the completion of Q2‐21, the Company entered its most difficult season, Summer, and faced many challenges directly related to its need for capital improvements in several key areas of the facility. As indicated since the beginning of the restructuring, several aspects of the facility have required improvements, in particular its water systems, cutting cells, and dry, cure, and mother rooms. The NLV Greenhouse experienced several challenges during the summer months directly related to each of those critical improvements resulting in the loss or reduction in both the quality and volume of our flower production over the third quarter. These production issues resulted in a significant loss of potential revenue and reinforced the critical nature of addressing these issues as quickly as possible. A number of these capital improvements are necessary to assure that the Company is able to produce at the quality and consistency levels required to achieve its objectives. All of these improvements will bring the NLV Greenhouse closer to optimization and ultimately full capacity.

To begin to address these concerns, in Q3‐21 the Company announced the closing of an above‐market priced non‐brokered private placement raising aggregate gross proceeds of $5,000,000. With the closing, the Company immediately began to implement improvements and introduce automation, all with the goals of increasing productivity and profitability. The improvements being implemented at the NLV Greenhouse involve its: (1) cutting cells, which include introducing new state of the art lighting and improved airflow, both resulting in immediately recognizable quality and yield improvements in the plants early stages, (2) upgrading the water systems, which will allow improved quality of water for plants as well as reduce overall water usage, driving both production and quality increases, cost savings, and perhaps most importantly environmental and sustainability benefits to the planet, (3) improving the dry and cure rooms, which will provide the ability to process more cannabis and increase yield and capacity, and (4) a new mother room space that will significantly improve the quality of cuttings and help with repopulating the facility faster, and with healthier plants.

In Q4‐21, the Company hired its new Chief Financial Officer, Araxie Grant. With the addition of Ms. Grant, along with her revamped financial team, and the implementation of ongoing improvements, the Company is seeing the positive impact of its financial processes and operational changes in terms of product allocation, pricing, product yield, and cost of cultivation. Management continues to focus on these areas and expects further incremental improvements over the coming quarters.

As the Company entered 2022, it continued its restructuring efforts through the first half of the year, which included: (1) completed a term loan financing for $10,100,000 in aggregate gross proceeds through the participation from an existing shareholder, (2) the receipt of a $5,000,000 loan from the Company's term lender, and (3) significant debt modifications and maturity extensions with its term and equipment financing debt. These significant restructuring efforts and financial proceeds will allow the Company to preserve capital, while completing the critical improvements to the facility. Once complete, these critical improvements will allow the Company to increase capacity and will further improve the quality and consistency of its product.

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