Nextleaf : Q3 2022 MDA

Nextleaf Solutions Ltd.

Management's Discussion & Analysis

For the nine months ended

June 30, 2022

NEXTLEAF SOLUTIONS LTD.

MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A")

The following discussion and analysis of the financial condition and results of operations of Nextleaf Solutions Ltd. ("Nextleaf" or the "Company") for the nine months ended June 30, 2022 should be read in conjunction with the Company's condensed interim consolidated financial statements for the nine months ended June 30, 2022 (the "financial statements"), and the annual consolidated financial statements for the year ended September 30, 2021. The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"). All monetary amounts in this MD&A are expressed in Canadian dollars, or as otherwise indicated.

The information contained herein is presented as at August 29, 2022 (the "MD&A Date").

Additional information relating to the Company, including the Annual Information Form ("AIF") dated November 15, 2021, is filed with Canadian securities regulatory authorities (www.sedar.com)and on the Company's website at www.nextleafsolutions.com.

For the purposes of preparing this MD&A, Management, in conjunction with the Board of Directors, considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of Nextleaf's common shares; or (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board of Directors, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this MD&A, constitute "forward-looking information" and "forward-looking statements". All statements other than statements of historical fact contained in this MD&A, without limitation, those regarding the future financial position and results of operations, strategy, plans, objectives, goals, targets and future developments of the Company in the markets where the Company participates or is seeking to participate, and any statements preceded by, followed by or that include the words "believe", "expect", "aim", "intend", "plan", "continue", "will", "may", "would", "anticipate", "estimate", "forecast", "predict", "project", "seek", "should" or similar expressions or the negative thereof, are forward-looking statements.

Forward-looking statements include, without limitation, the information concerning possible or assumed future results of operations of Nextleaf set out throughout this MD&A, including statements regarding: the impact of COVID-19 on the Company's business; the Company's expectations regarding the market for cannabis concentrates; the Company's expectations regarding legislation, regulations and licensing related to the import, export, processing and sale of cannabis products by the Company; the ability to enter and participate in international market opportunities; the ability to secure dried cannabis inventory through long-term supply contracts or otherwise; product diversification and future corporate development; anticipated results of research and development; production capacity expectations including discussions of plans or potential for expansion of capacity at existing or new facilities; expectations with respect to future expenditures and capital activities; and statements about expected use of proceeds from fundraising activities.

These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Management provides forward-looking statements because it believes they provide useful information to readers when considering their investment objectives and cautions readers that the information may not be appropriate for other purposes. Consequently, all of the forward- looking statements made in this MD&A are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of this MD&A and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.

The forward-looking statements in this MD&A are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future, including assumptions regarding business and operating strategies, and the Company's ability to operate on a profitable basis.

RISKS AND UNCERTAINTIES

Risk is inherent in all business activities and cannot be entirely eliminated. An investment in the Company's common shares involves risk. Investors should carefully consider the risks and uncertainties described below and, in the AIF, filed with Canadian securities regulators (www.sedar.com) which may not be a comprehensive list of risks and uncertainties as additional risks and uncertainties, including those unknown by the Company at this time, or are currently considered immaterial, may exist, and other risks may apply.

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In March 2020, the World Health Organization declared coronavirus COVID-19 a global pandemic, which has adversely affected workforces, economies, and financial markets globally. The Company has taken various measures to prioritize the health and safety of its employees, customers, and partners, including restricted work travel and site access; improved safety and hygiene; and the requirement of nonessential staff members to work remotely. As a manufacturer of bulk products which are utilized in the production of consumable and medicinal products, the Company maintains robust quality standards with strict hygiene practices and mandated personal protective equipment. The Company has received various Government subsidies and a loan to assist with operating costs during the pandemic.

COMPANY OVERVIEW

Nextleaf is a federally regulated manufacturer and distributor of cannabis vapes and oils under its award-winningprohibition-era brand, Glacial Gold™. The Company's multi-patented ingredient processing technology transforms cannabis and hemp biomass into high-purity distillate at an industrial scale. Through its wholly-owned subsidiary Nextleaf Labs Ltd. ("Nextleaf Labs"), a licenced processor, the Company is a low-cost producer of cannabis distillate. Nextleaf Labs holds a Standard Processing Licence from Health Canada that authorizes the sale of cannabis extracts, edibles, and topical products, directly to provincially-authorized distributors and retailers across Canada.

Nextleaf is a global leader in cannabis innovation, as a processor that owns a global portfolio of patents for the extraction, purification, and delivery of cannabinoids. The Company has been issued 18 U.S. patents, and over 95 patents globally, on cannabinoid processing including distillation and acetylation. Nextleaf is commercializing its issued and pending patents through licensing of intellectual property, providing extraction services, supplying cannabis ingredients to qualified Canadian business-to-business partners, and selling cannabis products under the Company's brand Glacial Gold.

Nextleaf develops proprietary cannabinoid-based formulations and delivery technology through its Health Canada Research Licence with sensory evaluation of cannabis via human testing.

Nextleaf has engaged CannDelta with respect to its application for a Dealer's Licence and has received acceptance of its application, now formally under review by Health Canada. Assuming approval from Health Canada, the Dealer's Licence is expected to allow Nextleaf Labs to conduct a variety of activities relating to psilocybin and psilocin including R&D, IP development, production of base substance materials, laboratory analysis, as well as the sale and distribution of the substances to authorized individuals, including researchers and for its use in clinical trials.

The Company was incorporated under the Business Corporations Act (British Columbia) (the "BCBCA") on December 8, 2016 under the name "1099582 B.C. Ltd.". The Company changed its name to "Legion Metals Corp." on March 28, 2017 and to "Nextleaf Solutions Ltd." on March 14, 2019. The Company's head office is located at #304 - 68 Water Street, Vancouver, British Columbia, V6B 1A4 and its registered and records office is located at #600 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7.

The Company's common shares are listed for trading on the Canadian Securities Exchange (the "Exchange") under the trading symbol "OILS", on the OTCQB Market in the United States under the symbol "OILFF".

OVERALL PERFORMANCE

For the nine months ended June 30, 2022, and through to the MD&A Date, the Company's performance is highlighted by key milestones as listed below.

During fiscal Q3 2022:

• The Company announced validation of its technology to produce THC-free Broad Spectrum CBD distillate ("THC- Free CBD") from industrial hemp feedstock. Under the Cannabis Act, a pure CBD product is defined as CBD containing less than 0.3% THC. The Company's intellectual property stack covers the extraction and distillation of industrial hemp and uses the new technology to further refine the CBD distillate below the defined threshold. The result is an excise tax-free,broad-spectrum,THC-Free CBD ingredient that may have mass market therapeutic and wellness appeal for consumers looking for all the benefits of CBD with the minor cannabinoids found within the plant, without the THC effects.
• The Company announced that it produced D9-tetrahydrocannabinol acetate (D9-THC-OAc,delta-9-THC-OAc,THC-OAc), colloquially referred to as THC-O("THC-O"). The Company has received strong interest in its THC Alternative Ingredients from provincial government buyers and other manufacturers. Federal Regulators have confirmed the Company's understanding that THC-O is not subject to excise tax as it does not meet the definition of "Total THC" as defined under the Excise Act 2001, which is aligned with the definition of the same in the Cannabis Act. With THC-O, Nextleaf sees potential for market disruption by launching its novel cannabinoid ingredient as a tax-free alternative to delta-9-THC.

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• Excise tax on delta-9-THC extracts makes up a large portion of the price consumers pay, with some delta-9-THC products subject to excise tax over 40% of the duty paid landed cost to provincial government distributors and medical cannabis pharmacies. Nextleaf is commercializing its plant-basedTHC-O ingredient as a therapeutic product sold under the Company's brands through provincial distributors and medical cannabis sales partners. With the addition of THC-Free CBD Distillate, the Company can now offer its licensed manufacturing partners two distinct tax-free cannabinoids through bulk ingredient purchase.
• The Company announced a strategic agreement with Hempcrete Natural Building Ltd. ("Hempcrete Natural"), an international construction company creating carbon neutral communities, whereby Hempcrete Natural, on a non- exclusive basis, intends to commercialize certain of the Company's intellectual property, specifically, a U.S. patent related to hemp biomass processing for the production of hemp ash.
• The Company was awarded a U.S. patent for technology that maximizes cannabinoid yield and reduces waste.
  This is the Company's 18th issued U.S. patent.
• Glacial Gold softgels (Summer 2022) were launched, signifying the Company's expansion into the "Capsules" category. Three new Glacial Gold vape SKUs were also launched in B.C., including two new flavours.

During fiscal Q2 2022:

• Cannavolve Inc. ("Cannavolve") was engaged by the Company to provide field coverage at cannabis retailers and support the national rollout of Glacial Gold products. Cannavolve has a wide network of cannabis sales reps throughout every major provincial market in Canada. The partnership will help Nextleaf drive increased distribution and same-store sales of Glacial Gold.
• The Company supplied Canada's first cannabis pharmacy with Glacial Gold products.
• The Company provided the following data on the sales of its Glacial Gold™ cannabis vapes and oils for the three months ended December 31, 2021, in British Columbia:
• • Nextleaf Labs is a top-10 supplier of vapes and oils
  • Glacial Gold™ Anytime Vape is the #1 selling CBD focused vape
  • Glacial Gold™ is the #7 brand in oils by revenue (5.5% market share)
  • Glacial Gold™ is the #7 brand in vape cartridges by units sold (4.1% market share)
  • 12 total Glacial Gold™ product listings in B.C. - including seven high volume 1-gram vape SKUs
  • Multiple Top 20 product rankings within the vape and oil categories in B.C.
  • Approval was received from the Ontario Cannabis Store (OCS) to list Glacial Gold branded products for sale throughout the province of Ontario.
• Glacial Gold CBD and THC products became available in Nova Scotia through Nova Scotia Liquor Corporation cannabis stores.
• Distilled CBD 100 Oil and Distilled CBD 200 Oil became available nationally through its medical cannabis distribution partner, Mendo.

During fiscal Q1 2022:

• The Company completed a public offering of 15,844,208 units at $0.20 per unit (the "Units") for gross proceeds of $3,168,842 under a prospectus supplement dated December 15, 2021. Each Unit consisted of one common share and one common share purchase warrant. Each warrant is exercisable at a price of $0.275 each for a period of 24 months until December 22, 2023.
• Two new branded products were launched under the Glacial Gold brand: Distillate CBD 100 and Distilled CBD 200, both distilled bottle oil products. Upon announcement, Distillate CBD 200 contained the highest potency of CBD available in Canada in an ingestible oil format.
• Nextleaf Labs received acceptance of its application for a Dealer's Licence, now formally under review by Health Canada.
• The Company filed a short form base shelf prospectus relating to the offering for sale of equity securities of the Company for a 25-month period, with a total offering price of up to $20,0000,000.
• The Company entered into an agreement with Medicibis (Mendo), a Québec-based cannabis product distributor, for the sale and distribution of Glacial Gold branded products through Medicibis' national medical platform.

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• The Company entered into an agreement with National Cannabis Distribution Inc., a wholly-owned subsidiary of Kiaro Holdings Corp., for the sale and distribution of Glacial Gold branded products throughout Saskatchewan.

CHANGE IN MANAGEMENT AND BOARD OF DIRECTORS

During the nine months ended June 30, 2022 and to the MD&A Date, the Company had the following changes to its Executive Officers and Board of Directors:

• Effective April 28, 2022, Mr. Kevin Keagan replaced Mr. Charles Ackerman as CFO. Additionally. Mr. Kevin Keagan was appointed to the Board of Directors while Mr. Charles Ackerman stepped down from his position on the Board.
• Effective May 31, 2022, Mr. Sam Kassem was appointed to the Company's Board of Directors. Mr. Kassem's appointment replaces the resignation of Tim Gillis.

DISCUSSION OF OPERATIONS

For the three and nine months ended June 30, 2022 and June 30, 2021

The Company's performance for the nine months ended June 30, 2022 and June 30, 2021 was as follows (amounts are rounded):

	June 30,	June 30,
	2022	2021	Change
Three months ended	$	$	$
Revenue	1,203,000	656,000	547,000
Gross margin	(111,000)	(108,000)	(3,000)
Loss and comprehensive loss	(1,047,000)	(1,340,000)	293,000
Cash used in operating activities	(455,000)	(1,065,000)	610,000
Cash used in investing activities	-	(142,000)	142,000
Cash (used in) provided by financing activities	(152,000)	94,000	(246,000)
	June 30,	June 30,
	2022	2021	Change
Nine months ended	$	$	$
Revenue	3,497,000	2,043,000	1,454,000
Gross margin	653,000	(493,000)	1,146,000
Loss and comprehensive loss	(2,574,000)	(3,440,000)	866,000
Cash used in operating activities	(1,041,000)	(1,874,000)	833,000
Cash used in investing activities	(109,000)	(185,000)	76,000
Cash provided by financing activities	492,000	3,082,000	(2,590,000)

Revenue

During the nine months ended June 30, 2022, the Company earned processing revenues from cannabis concentrate and product sales of approximately $3,497,000 from multiple customers. During the current period, the Company continued to diversify and scale its revenue by growing cannabis product sales through both provincial and medical sales channels.

Over the next year, the Company expects its investment in research and development, and cannabis product development, to support scaling of revenue as the Company enters new provincial and expands distribution of its Glacial Gold branded products. The Company expects to maintain opportunities and sales activity as the cannabis industry continues to mature and work towards market equilibrium for supply and demand. The Company is focused on launching its Glacial Gold branded products in Ontario and other provincial adult-use markets, building on existing B2B clients, and expanding from one-off orders to longer-term more consistent supply agreements over the course of fiscal 2022.

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