CANN GROUP LIMITED — Annual Report 2021

Sep 23, 2021

DRIVING INNOVATIVE PROGRESS IN A DISRUPTED WORLD

ANNUAL REPORT 2021

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CONTENTS

• 1 Driving innovative progress in a disrupted world 2 Growth strategy continues to gain momentum

• 2 FY21 progress & achievements

• 4 Cann Group’s supply chain model

• 6 Satipharm’s platform underpins Cann’s strategic global growth plans

8	Mildura project
10	Message from the Chairman and Chief Executive Officer
12	Operations review
16	Directors’ report
34	Auditor’s independence declaration
35	Consolidated statement of profit or loss and other comprehensive income
36	Consolidated statement of financial position
37	Consolidated statement of changes in equity
38	Consolidated statement of cash flows
39	Notes to the consolidated financial statements
71	Directors’ declaration
72	Independent auditor’s report
77	Corporate governance statement
78	Shareholder information
80	Corporate directory

Corporate Information

These are the full financial statements of Cann Group Limited (Company) and its subsidiaries, including Cannproducts Pty Ltd, Cannoperations Pty Ltd, Cann IP Pty Ltd, Botanitech Pty Ltd, all incorporated and domiciled in Victoria, Australia and the Satipharm business, comprising Satipharm Europe, Satipharm Limited, Satipharm AG, Satipharm Australia Pty Ltd, Satipharm Canada Limited and Phytotech Therapeutics Ltd (together, the Group).

Cann Group Limited is an ASX‑listed public company incorporated and domiciled in Victoria, Australia. These financial statements are for the year ended 30 June 2021. Unless otherwise stated, all amounts are presented in $AUD.

A description of the Group’s operations and of its principal activities is included in the review of operations and activities in the attached Directors’ Report.

Directors

Mr Allan McCallum AO (Chairman) Mr Philip Jacobsen (Deputy Chairman) Mr Douglas Rathbone AM Mr Geoffrey Pearce Ms Jennifer Pilcher Mr John Sharman

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DRIVING innovative progress in a disrupted world

Cann Group is building a world-class business focused on breeding, cultivating, manufacturing and supplying medicinal cannabis for sale and use within Australia and for approved overseas export markets. Cann’s Satipharm business has exclusive rights to unique product delivery technology that is the basis of currently commercialised low‑dose CBD capsules and is a platform for new proprietary THC medicinal cannabis formulations.

Cann has established research and cultivation facilities in Melbourne and is developing a state‑of‑the‑art cultivation and manufacturing facility near Mildura, Victoria. Cann Group’s leading position in plant genetics, breeding, extraction, analysis and production techniques facilitates the supply of medicinal cannabis for a range of diseases and medical conditions. The Company is commercialising a range of imported and locally sourced and manufactured medicinal cannabis products.

Throughout the year ended 30 June 2021 and to the date of this report, both the Australian and global economies have experienced disruption related to COVID‑19 triggered lockdowns and restrictions. It has been a challenging time for business and for us all. Despite these challenges, Cann has made important and positive progress towards building a platform that enables innovation, scale and quality and drives sustainable growth.

www.canngrouplimited.com | www.satipharm.com

Annual Report 2021 | 1

GROWTH strategy continues to gain momentum

With its integrated supply chain model and the imminent commissioning of its Mildura facility, Cann’s strategy to consolidate its leadership position in Australia and grow significant market share globally is gathering momentum.

Cann is executing its strategy by securing near term revenue opportunities underpinned by contracts with multiple customers and in multiple markets.

Business fundamentals are in place:

• Proven capability to produce and supply to an international cGMP standard;

• Commissioning of large scale, state of the art production and extraction (manufacturing) facility scheduled for end of CY21 – expected to deliver cost savings and efficiency gains;

• Export supply agreements in place with repeat customer orders – shipment of 20,000+ units to Germany; growing domestic customer base;

• Registration program on track in Australia for Over‑the‑Counter (OTC) S3 low‑dose CBD capsules – incorporates unique and proprietary Gelpell formulation technology and addresses a significant market opportunity;

• Extensive genetics program and focused R&D to support pipeline product opportunities; proven regulatory approval expertise; and

• Highly experienced and stable management team to drive the growth strategy forward.

FY21 progress & achievements

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August 2020 $40.2 million capital raising completed to support growth

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November 2020 Licences granted by ODC for Mildura facility

November 2020 $50 million bank debt facility approved with NAB to finance construction of Mildura facility

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December 2020 First order shipped to UK supply partner Astral Health

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2 | Cann Group Limited

“The investment we are making in Mildura is providing the technology, capability and scale to support a step-change in both our cost base and margins and a platform to support meaningful growth as we secure new customers and access new markets and market segments around the world.”

Peter Crock Chief Executive Officer

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January 2021 First order received from German supply partner iuvo Therapeutics & strategic investment completed

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March 2021 Partnered with Olivia Newton‑John Cancer Research Institute to supply medicinal cannabis for clinical trial in advanced cancer patients

February 2021 Acquisition of Satipharm for up to CAD$4 million

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April 2021 Shipped more than 20,000 units to iuvo Therapeutics in Germany

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Annual Report 2021 | 3

CANN’S investment in a fully integrated supply chain at the new Mildura facility will take cultivated flower through the testing, drying, extracting, formulating and packaging processes to create multiple products for sale. This is in addition to the smaller scale cGMP manufacturing at Cann’s Southern facility and is targeted to come online before the end of 2021.

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4 | Cann Group Limited

It gives the company important control over timelines in fulfilling orders and meaningful cost reductions, compared to using outside contractors. Once Stage 1A of the new Mildura

Cann’s model of complete supply chain integration provides the capability to produce specific formulations and finished products to satisfy customer demand.

Cann’s Mildura facility will make intermediate and finished product formulations under cGMP conditions to meet strong global demand

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facility is complete it will have the capacity to produce 12,500kg of dried flower annually and will be cost competitive with other scaled production facilities around the world.

Gel Capsules Resin for Finished Oil Products Bulk Extract (API) Finished Dose Dried Flower Bulk Dried Flower

Annual Report 2021 | 5

SATIPHARM’S platform underpins Cann’s strategic global growth plans

Satipharm platform

The Satipharm business was acquired during the year and brings an existing patent-protected technology that gives Cann an immediate position in the rapidly growing low-dose CBD market segment and fast-tracks development of new, novel THC-based medicinal cannabis formulations.

The micro‑encapsulation technology is the basis of a product that is superior and more attractive to prescribing doctors in a number of ways:

1. Over 3x more effective absorption into bloodstream compared to oil‑based formulations

2. Superior dosage accuracy and efficacy

3. Capsule presentation is familiar to patients and prescribers

The Satipharm CBD capsules are currently on pharmacy and wellness store shelves in the UK and are prescribed by Australian doctors under the TGA SAS cat‑B program.

Cann has commenced a program to secure S3 registration for Satipharm low‑dose CBD capsules in the Australian OTC market, which is expected to have around two million customers at maturity.

The proprietary Satipharm technology will also be a platform for developing registrable, differentiated THC medicinal cannabis products for global distribution.

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6 | Cann Group Limited

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Cann has opened commercial pathways in the UK and other European markets for Satipharm capsules, and will continue to expand distribution into new global markets as they open up.

The proprietary Satipharm technology will be a platform for developing registrable, differentiated THC medicinal cannabis products for global markets.

Satipharm CBD capsules will be the basis of an application for S3 registration in the Australian Over‑the‑Counter (OTC) market, which is expected to have around 2 million customers at maturity.

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• UK Products only – products not available in Australia.

Annual Report 2021 | 7

MILDURA Project

State-of-the-art facility

The Mildura facility is a large scale, state-of-the-art production and manufacturing facility, being developed to comply with cGMP standards, and expected to deliver scale benefits, substantial cost savings and improved supply chain security.

During the year the company determined to add laboratory, extraction and Satipharm manufacturing equipment to achieve supply chain security and secure substantial cost of production savings.

The Mildura facility will be able to produce a full range of medicinal cannabis products for supply to global and local markets. These will include bulk dried flower, finished dose dried flower, bulk extract (API) and Satipharm capsules.

Total cost of the facility is expected to be $117 million, which is partly debt‑funded by a $50 million construction loan facility with the NAB.

At full production the facility will employ 130 staff, many of whom are expected to be from the local and regional community around Mildura.

When fully commissioned, the initial Stage 1A will have a production capacity of 12,500kg of dried flower.

During the year the company determined to add laboratory, extraction and Satipharm manufacturing equipment to achieve supply chain security and secure substantial cost of production savings.

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8 | Cann Group Limited

Annual Report 2021 | 9

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MESSAGE from the Chairman and Chief Executive Officer

Dear Shareholders

Despite the challenges of the past 12 months, Cann Group has continued to consolidate our leadership in the medicinal cannabis industry. This period has seen Cann accomplish several key milestones as we reinforce our position as an Australian front-runner in cultivating, manufacturing and supplying medicinal cannabis products and leveraging our combined technology and scale to be a significant supplier domestically and overseas.

Impacts of the global COVID‑19 pandemic continue to affect many businesses including our own, most notably resulting in delays to approvals and shipments, which in turn affected our ability to generate revenue. Despite this, we achieved full year sales of $4.293 million, representing a substantial increase on last year’s sales of approximately $0.65 million.

Our commercial achievements included successful shipments to Germany and the United Kingdom, where our customers included iuvo Therapeutics, a leading independent German GMP certified importer and distributor, and Astral Health. We completed a strategic investment in iuvo which will enable iuvo to expand its patient reach throughout Germany and Europe. In addition, we secured new supply agreements with Australian customers, giving us a more diverse group of business‑to‑business clients with which to grow.

These accomplishments are helping us to execute our strategy by securing near‑term revenue opportunities by working with a range of customers across multiple markets.

In February 2021, we announced plans to acquire the Satipharm business from Harvest One Cannabis Inc. Satipharm is a Europe‑based business that owns exclusive rights to develop and market a proprietary delivery system for cannabinoids. The acquisition gives Cann an immediate position in the rapidly growing low‑dose CBD market segment and fast‑tracks development of new, novel THC‑based medicinal cannabis formulations. It also widens our market, with Satipharm having existing commercial supply agreements with retail channels in the UK, Ireland and Europe. Completing this acquisition in March 2021, we have successfully integrated the Satipharm business into our own, giving Cann a strong platform on which to develop differentiated products in multiple market segments.

In parallel to the Satipharm acquisition, we continued with the construction of our state‑of‑the‑art cultivation and manufacturing facility in Mildura in north‑west Victoria to complement our existing Melbourne‑based operations. We were able to secure a $50 million debt facility from National Australia Bank (NAB) in November 2020, and this will enable Cann to complete the construction of Stage 1A at Mildura.

The fact that we were able to negotiate market‑competitive terms to fund the construction, particularly at a time when there was considerable economic uncertainty, is another endorsement of our strategic growth plans. First draw down of this facility was completed in late July 2021.

Mildura is a staged project, with the initial stage allowing Cann to produce 12,500kg of cannabis dried flower per annum. The first stage of cultivation activity is scheduled to commence before the end of the 2021 calendar year, however we continue to experience delays and interruptions caused by repeated COVID‑19‑related restrictions and lockdown periods in Victoria which have the potential to impact our construction timetable. Despite those challenges, we have commenced the initial commissioning phase, starting with the laboratory, and installation of the resin extraction and manufacturing suite is also well underway.

The addition of laboratory, extraction and Satipharm capsule manufacturing capability at Mildura will strengthen and secure our supply chain. Our investment in these capabilities is also expected to deliver substantial cost savings, helping Cann achieve a globally competitive cost position. Completion of the Mildura facility, combined with the acquisition of Satipharm, will strengthen Cann’s position as one of Australia’s largest cGMP medicinal cannabis producers.

In February 2021, we announced plans to acquire the Satipharm business from Harvest One Cannabis Inc. Satipharm is a Europe-based business that owns exclusive rights to develop and market a proprietary delivery system for cannabinoids.

10 | Cann Group Limited

Our immediate focus is on completing the initial stage of our Mildura production facility while continuing to build our revenue base via expanded business to-business and business-to-consumer supply and distribution arrangements that target both overseas export and Australian domestic markets.

During the year, Cann continued to invest in important research and development projects with several partners. Our stage 1 trial of new genetic lines in partnership with Agriculture Victoria resulted in the selection of 10 new high THC lines for a second stage commercial evaluation trial. This trial will enable selection of commercially viable candidate lines that are expected to lead to an improvement in production costs. A second research trial of new cannabis lines commenced, aiming to identify improved high yielding CBD and further THC lines for commercial use. These trials / genetics will feed into the Company’s accelerated breeding program. Recent results generated by La Trobe University – which has a research program with Cann – provided insight into improvement of nutritional requirements and management of Cann’s commercial lines that will improve yields at the Mildura facility.

Post year‑end, in August 2021, Cann confirmed it was proceeding with a registration program aimed at securing Australian approval for a Schedule 3 (S3) over‑the‑counter low‑dose CBD product based on the proprietary microsphere technology in the Satipharm products.

The unique Satipharm formulation and delivery platform enables us to develop a low‑dose CBD product that has excellent stability and bioavailability properties and a medicine presentation familiar to consumers and pharmacists. We have prioritised Australia as a key market, where consumer interest and demand for CBD products continues to grow, and we aim to be one of the first to market in Australia.

To this end, Cann successfully raised $10 million in additional capital via an institutional placement to fund the move to supply chain independence and production ramp up at Mildura. This was strongly supported by both existing and new shareholders and by Cann Directors and related parties. As at the date of this report, we are also undertaking a Share Purchase Plan (SPP) to raise up to $10 million through the participation of our existing shareholders. We thank our shareholders for their continued support of Cann, which allows us to invest in projects and activities that are expected to accelerate our growth and generate substantial cost savings.

Our immediate focus is on completing the initial stage of our Mildura production facility while continuing to build our

revenue base via expanded business‑ to‑business and business‑to‑consumer supply and distribution arrangements that target both overseas export and Australian domestic markets. Driving additional volume through our expanded manufacturing base will ensure we can capture the full benefit of the cost‑efficiencies that Mildura has to deliver.

We acknowledge the hard work and commitment of our staff, management team and everyone involved in our operations for their efforts over the past 12 months. It is an exciting time in our Company’s growth and we look forward to continued positive progress in the year ahead.

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Allan McCallum AO Chairman

Peter Crock Chief Executive Officer

Annual Report 2021 | 11

OPERATIONS review

The 30 June 2021 financial year was a period of significant investment to support Cann’s business and growth objectives. Substantial progress was achieved in relation to the development and acquisition of assets that are expected to generate value for shareholders over coming years.

This included ongoing work on the Company’s new cultivation and manufacturing facility at Mildura and the purchase of the Satipharm business, providing a proprietary platform for new product development and expansion into markets around the world.

The Company is seeking to establish and maintain a leadership position in Australia and to be a major producer and supplier to international markets, with a globally cost‑competitive position and a strong pipeline of proprietary, differentiated products.

Growth strategy

The Company’s growth strategy is underpinned by four pillars:

Pillar One

Pillar Two

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Completion of a world‑class cultivation and manufacturing facility at Mildura, providing scale and price competitive medicinal cannabis product for local and international markets.

Control and ownership of production supply chain by installing testing, extraction and manufacturing capabilities at the Mildura facility.

Pillar Three

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Pillar Four

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Integration and expansion of the Satipharm business and its patented technology to produce a differentiated product for global markets.

Leadership and investment in research and development initiatives to create more efficacious and differentiated products.

Progressing our strategy

In FY21, Cann focused on the funding and construction of the Mildura facility, the integration of the Satipharm business and shipments to international and local customers, which included

breakthrough sales into Europe and an expansion of business‑to‑business supply arrangements in Australia. This was all achieved whilst navigating the considerable challenges of COVID‑19.

12 | Cann Group Limited

Production and sales

Cultivation at the Company’s Southern facility was unaffected by COVID-19 restrictions as the medicinal cannabis industry is classified as an essential service. The Company was able to continue harvesting and then utilise third party manufacturers to process raw material into various stages of resin, oils and finished product. The largest impact that COVID-19 has had on the business is through significant delays in various licensing and permitting processes that had to be met in order to ship product offshore and, more recently, delays to the delivery of equipment and restrictions on the number of construction workers and contractors on the Mildura project site.

Timelines have extended in relation to international regulatory submissions to open pathways for market release, and third‑party manufacturing and starting material supplier issues (as announced on 29 April 2021) have both caused delays in shipping product to Cann’s customers. These delays are temporary, and a clearer path to revenue receipts is anticipated following the initial shipments to Cann’s local and export customers.

A strategic alliance was established with iuvo Therapeutics Limited (“iuvo”) in Germany and some 20,000 bottles of cannabis extract have been shipped to iuvo during the reporting period. Those products have been cGMP‑ released for sale in the German market and early indications with respect to sales by iuvo are promising. Despite regulatory delays due to COVID‑19 the Company was also able to ship product to the Lyphe Group UK.

Supply agreements in the Australian market accelerated in the second half of the year. Contracts are now in place with multiple domestic business‑to‑business clients and first orders have been completed and shipped to all of them, including the shipment of over 33,000 units to customers during FY21.

The addition of a cannabis extraction capability to the manufacturing facility will provide the Company with end-to-end direct control of its supply chain and manufacturing requirements and will significantly lower manufacturing costs. Estimated annual cost savings of $23 million (compared to current external cost base) are expected to be achieved.

Mildura facility

Large scale extraction equipment is expected to arrive on site later in the calendar year, to enable commissioning and verification batches to be produced. Larger scale commercial batches are expected to commence early in CY22. Cann has ensured sufficient cGMP extract is available through this transition phase to meet existing customer requirements.

Work recommenced on site at Mildura, as Qanstruct (principal contractor) returned to site in late February. The Dutch specialist contractors (with particular expertise in the construction of glasshouses) arrived on site in early-mid March and commenced planning and works with Qanstruct.

The installation of the Satipharm capsule manufacturing line at Mildura is expected to save considerable time and costs. Extracted resin will be further processed into the patented micro‑encapsulation form and in‑house packaged, providing additional manufacturing capability to the current manufacture of Satipharm capsules at the Gelpell facility in Switzerland, and enabling the manufacture of THC‑containing capsules in Australia.

The analytical lab is completed and now undergoing commissioning. Completing the analytical lab is expected to save the Company considerable processing time and costs.

During the year, the Company determined to add large‑scale extraction and Satipharm capsule manufacturing capability to the Mildura facility. The extraction facility will allow for the dried cannabis flower to undergo extraction to a concentrated extract, or ‘resin’, for further processing. The addition of a cannabis extraction capability to the manufacturing facility will provide the Company with end‑to‑end direct control of its supply chain and manufacturing requirements and will significantly lower manufacturing costs. Estimated annual cost savings of $23 million (compared to current external cost base) are expected to be achieved by bringing this in‑house when running at full capacity of 12,500kg. Pilot scale extraction equipment is currently being installed for Office of Drug Control (ODC) inspection with cGMP qualification, inspection and certification which is expected to be complete by the end of 2021.

The cultivation facility is expected to commence commissioning prior to end of the year, dependent on timelines not being impacted by COVID‑19‑related restrictions. The Company expects to have the first stage of the Mildura facility fully commissioned in the first half of CY22, with subsequent ramp‑up to an annual capacity of 12,500kg of raw flower.

During the period, the Company received licences issued under the Narcotics Drug Act in respect of the new Mildura facility. The licences relate to the research, cultivation, production, manufacturing, packaging, storage, transport, and disposal of medicinal cannabis in final dose and intermediate forms. Cann will apply for a permit to cultivate once the final inspection of the completed facility has been conducted by the ODC.

Annual Report 2021 | 13

OPERATIONS review (cont’d)

Research and development

Cann has an ongoing collaboration with Agriculture Victoria to develop novel genetics using accelerated breeding with Cann’s existing genetics. Phenotypic trials have progressed with new genetics grown from seed. Genotypic analysis of the new lines has commenced and chemotypic analysis of the flowers is now underway.

This data will be used to design a breeding plan that will lead to new lines with improved yields of cannabinoids. Cann has also validated results from experiments performed by the NSW Department of Primary Industries to improve root production in a key cannabis cultivar. The improvement will now be transferred to Cann’s commercial operations.

In March 2021, it was announced that Cann is partnering with the Olivia Newton‑John Cancer Research Institute (ONJCRI), the La Trobe School of Cancer Medicine, and Austin Health, in a clinical trial to assess medicinal cannabis for symptom management in people with advanced cancer. A Phase I trial commenced in 2020, focused on the titration and safety of administering this new formulation of medicinal cannabis in a controlled manner. Should the Phase I study demonstrate safety and tolerability of the drug, Phase II (a double blind, randomised, placebo – controlled trial) will see the enrolment of 108 participants with advanced cancers, subject to meeting trial specific eligibility criteria. The Phase II study will evaluate the efficacy of the drug by assessing global Quality of Life in these participants, as well as other domains including pain, anorexia, nausea, anxiety and sleep. For the purpose of these studies, Cann is supplying a locally grown and cultivated full spectrum cannabis extract that contains both cannabidiol (CBD) and tetrahydrocannabinol (THC) formulated into an oil that is taken up to three times a day.

In addition to the ONJCRI trial, Cann is also supporting a first of its kind study into severe Tourette’s syndrome in children, which will be undertaken by the Murdoch Children’s Research Institute located at Melbourne’s Royal Children’s Hospital.

Funding

A funding package for the first stage development of the Mildura facility was finalised during the year involving both debt and equity.

In August 2020 the Company raised $40.2 million by way of an institutional placement of $14.3 million and Share Purchase Plan of $25.9 million. The Company received very strong support from investors and all shares were issued at a price of $0.40 each.

Cann Group has its corporate office within the Research and Innovation precinct at La Trobe University, and is the lead commercial partner in the $24 million La Trobe led Australian Research Council (ARC) Industry Transformation Research Hub for Medicinal Agriculture (ARC MedAg Hub). The Hub combines academic and industry research and expertise to drive better cultivation, breeding and manufacturing practises to support Australia’s medicinal agriculture industry and ultimately improve health outcomes for patients.

In December 2020, the Company executed a debt facility of up to $50 million from the National Australia Bank for the construction of the Mildura project. The debt facility is a standard form construction draw‑down facility, which converts to a loan amortising over 8 years. The base interest rate will be the Bank Bill Swap Bid Rate (BBSY), a drawn margin rate of 3.20% p.a. and a facility fee of 1.80% p.a.

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14 | Cann Group Limited

Subsequent to year end, the Company raised $10 million via an institutional placement which was completed in early August. At an EGM in September, shareholders approved a Share Purchase Plan which aims to raise a further $10 million. These funds are being used to invest in projects and activities which are expected to enable the Company to accelerate growth and generate substantial cost savings.

Acquisition of the Satipharm business

On 10 March 2021, the Company announced the completion of an all-scrip acquisition of the Satipharm business from Harvest One for a total consideration of CAD$3.25 million, including deferred consideration of up to CAD$0.75 million. The initial payment of CAD$2.5 million was completed by the issue of 4,278,615 new fully-paid ordinary shares in Cann at an issue price of $0.602. Subsequent to year end, Cann issued a further 2,725,863 fully paid ordinary shares to Harvest One (at an issue price of $0.295) and 24,083 fully paid ordinary shares (at an issue price of $0.403) by way of deferred consideration following receipt of manufacturing equipment and confirmation of adjusted earnout payments.

The acquisition of Satipharm gives the Company a differentiated product to offer the market. It includes exclusive use of the patented manufacturing process for cannabinoids that uses a micro‑encapsulation technique that embeds the Active Pharmaceutical Ingredient (API) in small spheres, which are encapsulated inside a gut resistant hard‑shell capsule. This allows the API to bypass the stomach acids and minimises first‑pass metabolism in the liver that can destroy up to 95% of the cannabinoids before reaching the blood stream.

The process has been shown to be over three times more effective at getting cannabinoids into the blood stream compared to using standard oil‑based formulations. The micro‑encapsulated delivery system also protects the API from deterioration from light, temperature and oxygen resulting in longer shelf life.

An existing Satipharm low‑dose CBD product is already sold in the UK through large pharmacy chains where CBD products are classified as wellness products not requiring a doctor’s prescription. The Company expects to see sales of the product in this market accelerate with extra marketing support provided by Cann.

Application for S3 registration of Satipharm CBD capsules

In February 2021, the Australian Government’s Therapeutic Goods Administration (TGA) announced its decision to down-schedule certain low-dose CBD preparations from Schedule 4 (Prescription Medicine) to Schedule 3 (Pharmacist Only Medicine).

Capitalising on Cann’s Satipharm products, Cann is seeking to be one of the first companies to apply for the registration of a low‑dose, CBD only capsule as a Schedule 3 product. Cann anticipates there will be a large patient demand for a TGA registered CBD medicine that is convenient to patients and demonstrates the highest standards of quality, safety and efficacy.

COVID-19 related impacts

Throughout the year ended 30 June 2021 and to the date of this report, both the Australian and global economies have experienced disruption related to COVID-19 triggered lockdowns and restrictions.

The Group has not experienced a significant impact on its cultivation operations, however, COVID‑19 has had an impact on the timing of sales (with COVID‑19‑related delays affecting regulatory clearances) and on the logistics for sourcing overseas personnel with expertise in glasshouse construction for the Company’s Mildura facility. Restrictions have also been placed on the number of workers who can be present on the Mildura construction site.

The Group did not receive any Government subsidies by way of Job Keeper.

The Group continues to manage its operations to navigate through the uncertainty that the COVID‑19 pandemic has brought and will continue to adapt to any further challenges which may arise.

Board and management changes

During the period, Cann made two appointments to its Board of Directors – Ms Jenni Pilcher was appointed to Cann’s Board of Directors in September 2020 and her re-election to that role was approved by shareholders at Cann’s AGM in November 2020. In April 2021, Mr John Sharman was appointed to the Board of Directors.

Post year‑end, Cann announced that Ms Deborah Ambrosini had been appointed to the role of Chief Financial Officer, with effect on 1 September 2021. Ms Ambrosini brings significant experience as a CFO and in senior finance roles with ASX‑listed companies and was most recently CFO and Company Secretary with listed pharmaceutical company, Acrux Limited (ASX:ACR). Ms Ambrosini has also held CFO and senior finance and management roles in the health, technology and resources sectors and has a broad skillset that extends into business strategy, contract negotiations and investor relations.

Annual Report 2021 | 15

Directors’ report

The Directors present their report, together with the financial statements, on the consolidated entity (Group) consisting of Cann Group Limited (Company or parent entity) and the entities it controlled at the end of, or during, the year ended 30 June 2021.

Information on Directors

The names and details of the Directors in office during the year and until the date of this report are as follows. Directors have been in office for this entire year unless otherwise stated.

	Name:	Allan McCallum AO
	Title:	Non‑executive Chairman
	Qualifications:	Dip. AgScience, FAICD
	Experience	Allan has broad experience as a public company director in agribusiness and healthcare who has
	and expertise:	strong ethics, proven leadership capabilities and extensive experience in strategy development
		and implementation and mergers and acquisitions. Allan is the current Chair of Tassal Group Ltd
		(ASX:TGR) from 7 October 2003, Australia’s largest producer of Atlantic salmon and prawns, and
		is a member of Rabobank Australia Limited’s Advisory Board (wholesale banking).
		He has previously been a director of ASX listed companies Medical Developments International
		Ltd (ASX:MVP) from 27 October 2003 to 17 December 2018, Incitec Pivot Ltd (ASX:IPL) from
		30 January 1998 to 19 December 2013 and Graincorp Ltd (ASX:GNR) from 26 February 1998
		to 26 August 2005.
		Director since 30 January2015.
	Other current	Tassal Group Ltd (ASX:TGR)
	directorships:
	Former directorships	Medical Developments International Ltd (ASX:MVP) (left 17 December 2018)
	(last 3years):
	Special	Member of Audit and Risk Committee and Chairman of the Remuneration
	responsibilities:	and Capital Committees.
	Interests in shares:	6,155,000 fully paid ordinaryshares
	Name:	Philip Robert Nicholas Jacobsen
	Title:	DeputyChairman
	Qualifications:	CPA
	Experience	An experienced public company director, he co‑founded Premier Artists in 1975 and The Frontier
	and expertise:	Touring Company in 1979. He serves as a director of Liberation Music, Premier Artists, The Harbour
		Agency and Jacobsen Bloodstock. Former Chair of MCM Entertainment Group, Philip brings to
		the Board a 45 plus year history of applying solid fiscal accounting perspectives to an emerging
		business model in a constantly changing, high demand marketplace. Philip is also an Associate
		of the Chartered Institute of Secretaries (ACIS).
		Philip is not, and has not in the past three years been, a director of any other ASX‑listed companies.
		Director since 30 January2015.
	Other current	N/A
	directorships:
	Former directorships	N/A
	(last 3years):
	Special	Chairman of Audit and Risk Committee (until September 2020) and thereafter Member of Audit
	responsibilities:	and Risk Committee; Member of Remuneration Committee.
	Interests in shares:	6,319,518 fully paid ordinaryshares

16 | Cann Group Limited

	Name:	Douglas John Rathbone AM
	Title:	Non‑executive Director
	Qualifications:	AM FATSE, FI ChemE, ARMIT B Comm, TTC
	Experience	An experienced public company director, he is the former Managing Director and CEO of
	and expertise:	Nufarm Limited (ASX:NUF) from 21 August 1987 to 4 February 2015. He is Chairman of the
		Rathbone Wine Group, Director of Cotton Seed Distributors, Leaf Resources Ltd (ASX:LER) from
		1 November 2016, Go Resources, Queenscliff Harbour Pty Ltd and AgBiTech. He is Chairman
		of Fancy Plants Australia Pty Ltd and Delta Agribusiness Pty Ltd. Doug is a former Director of
		CSIRO, an Honorary Life Governor of the Royal Children’s Hospital and a former Director of the
		Burnett Centre for Medical Research. He is President of My Room Children’s Cancer Charity
		Limited and founder of Children’s Cancer Foundation. Doug brings to the Board experienced
		management and corporate governance skills together with a passion to grow the business.
		Director since 16 March 2015.
	Other current	Leaf Resources Ltd (ASX:LER)
	directorships:
	Former directorships	N/A
	(last 3 years):
	Special	Member of Audit and Risk Committee (until September 2020) and Chair of Capital Committee.
	responsibilities:
	Interests in shares:	2,821,580 fully paid ordinary shares
	Name:	Geoffrey Ronald Pearce
	Title:	Non‑executive Director
	Experience	Geoff is a successful entrepreneur and businessman with more than 40 years’ experience in the
	and expertise:	personal care industry. He established and owned Scental Pacific Pty Ltd and grew the business
		to become Victoria’s largest manufacturer of personal care products before selling it to the
		Smorgon Family. He later built a contract manufacturing business, Beautiworx Australia Pty Ltd,
		which was also sold. Geoff currently owns The Continental Group, which supplies pharmaceutical
		packaging and raw materials and has developed alliances with some of the world’s leading
		herbal extract manufacturers. He has extensive experience in areas including manufacturing,
		procurement, distribution and regulatory affairs. He held the role of Chairman of Probiotec Ltd
		(ASX:PBP) from November 2016 until 30 June 2020 and has been a Director of McPherson’s
		Limited (ASX:MCP) since 20 February 2018.
		Director since 11 April 2016.
	Other current	McPherson’s Limited (ASX:MCP)
	directorships:
	Former directorships	Probiotec Ltd (ASX:PBP) (left 30 June 2020)
	(last 3 years):
	Special	Member of Remuneration and Capital Committees.
	responsibilities:
	Interests in shares:	1,754,195 fully paid ordinary shares

Annual Report 2021 | 17

Directors’ report (cont’d)

	Name:	Jennifer Pilcher
	Title:	Non‑executive Director
	Qualifications:	Member of the Chartered Accountants of Australia & New Zealand, BBus (Accounting)
	Experience	Jenni joined the Cann Board as a director in August 2020. Jenni has senior executive experience in
	and expertise:	the medical and biotechnology sectors and is currently the Chief Financial Officer and Company
		Secretary of Mach7 Technologies Limited (ASX:M7T). Jenni served as director of Mach7 Technologies
		Limited from 11 November 2019 until 1 January 2020. She has previously held executive roles with
		Alchemia Limited (ASX:ACL) and Mesoblast Limited (ASX:MSB), as well as senior finance roles at
		ASX200 company Spotless Group, and in finance teams at Cadbury Schweppes plc, and international
		pharmaceutical group Medeva plc., based in London, UK. Jenni is a member of Chartered
		Accountants Australia & New Zealand; a Graduate of the Governance Institute of Australia; and has
		a Bachelor of Business Studies (majoring in accounting) from Massey University in New Zealand.
		Director since 8 September 2020.
	Other current	N/A
	directorships:
	Former directorships	Mach7 Technologies Limited (ASX:M7T) (left 1 January 2020)
	(last 3 years):
	Special	Chair of Audit and Risk Committee
	responsibilities:
	Interests in shares:	125,000 fully paid ordinary shares
	Name:	John Sharman
	Title:	Non‑executive Director
	Qualifications:	Bachelor of Economics from Monash University
		Master of Applied Finance from Macquarie University.
		Member of the Institute of Chartered Accountants in Australia.
		Member of the Australian Institute of Company Directors.
	Experience	John joined the Cann Board as a director in April 2021. He has extensive international business
	and expertise:	experience as a Managing Director, CEO, CFO and non‑executive director with public and private
		companies, including several ASX listed entities. John is not, and has not in the past three years
		been, a director of any other ASX‑listed companies.
		He has a comprehensive understanding of the medical manufacturing industry as well as the
		pharmaceutical and nutraceutical sectors. John is currently the CEO of Universal Biosensors Inc
		(ASX:UBI). Prior to that he served 10 years as CEO of Medical Developments International (ASX:MVP).
		Previous roles included Managing Director of CVC Venture Managers (private equity managers),
		Managing Director of Vita Life Sciences (ASX:VSC) and Cyclopharm (ASX:CYC), as well as roles
		at PriceWaterhouseCoopers, National Australia Bank and KPMG in both London and Melbourne.
		He has a Bachelor of Economics from Monash University and a Master of Applied Finance from
		Macquarie University. He is a Member of the Institute of Chartered Accountants in Australia and
		a Member of the Australian Institute of Company Directors.
		Director since 27 April 2021.
	Other current	N/A
	directorships:
	Former directorships	N/A
	(last 3 years):
	Interests in shares:	Nil

18 | Cann Group Limited

Company secretary

Geraldine Farrell

B.Sc., LLB, LLM (Intellectual Property), GAICD, Grad Dip ACG, FGIA, FCIS

A senior executive, lawyer and Company Secretary in listed environments (ASX and NASDAQ), with over 25 years’ working as a corporate and technology/intellectual property lawyer (in private practice and in‑house), seven years of Company Secretary experience, and more than 12 years of non‑executive director experience. Gerry is a Fellow and Graduate of the Governance Institute of Australia, and a Fellow of the Institute of Chartered Secretaries and Administrators. She has an extensive background in corporate governance, capital raisings, and risk and compliance in the education and biotechnology sectors.

Chief Executive Officer

Peter Crock

B.Ag.Sci (Hons); MBA

Peter Crock joined Cann Group as CEO in 2016 and led the Company through its successful initial public offering and listing on the Australian Stock Exchange. An experienced executive across marketing, business and technology development, as well as mergers and acquisitions, Peter has overseen the growth and advancement of Cann Group to be a vertically integrated business with strong capabilities across genetics, cultivation, manufacturing and supply and a leader in the Australian medicinal cannabis industry. Peter previously held senior management roles during a three decade long career at global agribusiness company Nufarm Limited (ASX:NUF). Peter is also the inaugural Chairman of Australia’s peak industry Group, Medicinal Cannabis Industry Australia, where he has led the development of an industry Code of Conduct and helped represent industry‑related interests and issues to Government.

Chief Financial Officer

Greg Bullock

MAppFin, MPA, CFTP

A senior executive and finance professional, with over 30 years’ experience, including 10 years in consumer durables and commodity products. Greg’s recent experiences include Group Treasury Manager at Wilmar Sugar Australia Limited as part of the Executive Finance Team, P&O Maritime Services and Pacific Brands Holdings Limited (ASX:PBG).

Dividends

There were no dividends paid, recommended or declared during the current or previous financial year.

Principal activities

The principal activities of the Group during the year consisted of cultivation of medicinal cannabis for both medicinal and research purposes pursuant to the licences and permits issued to the Group; the development and manufacture (via third party arrangements) of finished product formulations; and the pursuit and execution of various supply agreements with third parties.

Annual Report 2021 | 19

Directors’ report (cont’d)

Operating results for the year

The loss for the Group after providing for income tax was $25.10 million for the year ended 30 June 2021 (2020: $16.94 million).

The Group’s basic and diluted loss per share is $0.097 or 9.75 cents (2020: $0.1191 or 11.91 cents).

The Weighted Average number of Shares used to calculate the basic and diluted earnings per share is 257,388,229 (2020: 142,187,418).

The net assets of the Group are $91.87 million as at 30 June 2021 (2020: $61.07 million).

Sales revenue increased by $3.64 million to $4.29 million for the year ended 30 June 2021 (30 June 2020: $0.65 million).

For further details, please refer to the Message from the Chairman and Chief Executive Officer and the Operations Review which forms part of this annual report.

Significant changes in the state of affairs

On 17 July 2020, the Company announced Ms Jenni Pilcher was appointed to the Board of Directors subject to clearance by the Office of Drug Control. The appointment became effective on 8 September 2020.

On 23 July 2020, the Company issued 32,953,920 fully paid ordinary shares at an issue price of $0.40 per share pursuant to an institutional placement of shares.

On 29 July 2020, the Company issued 17,185,723 fully paid ordinary shares at an issue price of $0.34 per share pursuant to the conversion of 5,600,000 convertible notes, each with a face value of $1.00 per note.

On 11 August 2020, the Company issued 103,846 fully paid ordinary shares at an issue price of $0.65 as consideration for services provided during the March 2020 quarter by the CSIRO to the Company under a Research Services Umbrella Agreement.

On 11 August 2020, the Company issued 74,840 fully paid ordinary shares at an issue price of $0.94 as consideration for services provided during the June 2020 quarter by the CSIRO to the Company under a Research Services Umbrella Agreement.

On 11 August 2020, the Company issued 1,983,890 fully paid ordinary shares at an issue price of $0.465 pursuant to a share subscription deed dated 21 April 2020 between Zalm Therapeutics Limited (formerly Pure Cann NZ Limited) and Botanitech Pty Ltd. Under the agreement, Botanitech Pty Limited agreed to subscribe for ordinary shares in Zalm Therapeutics Limited and Zalm Therapeutics Limited agreed to subscribe for the Company’s ordinary shares.

On 20 August 2020, the Company issued 64,744,452 fully paid ordinary shares at an issue price of $0.40 pursuant to the share purchase plan announced on 17 July 2020.

On 14 September 2020, the Company announced the issuing of 145,007 options over ordinary shares which have an exercise price of $0.945 and an expiry date of 31 March 2022, with those options having been issued on 8 April 2020 pursuant to the conversion of 100,000 convertible notes issued by the Company on 11 February 2020.

On 14 September 2020, the Company announced the issuing of a further 17,330,730 options over ordinary shares which have an exercise price of $0.46 and expiry date of 31 March 2022, with those options having been issued on 29 July 2020 pursuant to the conversion of 5,600,000 notes in accordance with the terms of convertible notes issued by the Company on 11 February 2020.

On 15 September 2020, the Company issued 2,796,080 fully paid ordinary shares at an issue price of $0.40 to Directors who had participated in the institutional placement, following receipt of shareholder approval for them to do so (under Listing Rule 10.11) at the General Meeting of the Company held on 7 September 2020.

On 30 September 2020, the Company issued 7,175,285 fully paid ordinary shares at an issue price of $0.34 per share pursuant to the conversion of 2,300,000 convertible notes, each with a face value of $1.00 per note.

On 30 September 2020, the Company issued 7,175,285 options over ordinary shares which have an exercise price of $0.46, and an expiry date of 31 March 2022. These options were issued pursuant to the conversion of 2,300,000 notes in accordance with the terms of convertible notes issued by the Company on 11 February 2020.

20 | Cann Group Limited

On 12 October 2020, the Company announced that its major shareholder Aurora Cannabis, exited its 11.84% ownership position in the Cann Group. The sale was part of Aurora’s divestment of non‑core assets.

The technical services agreement between Aurora & Cann remains active and work on Mildura facility with Aurora Larssen Projects is not impacted.

On 27 November 2020, the Company issued 75,000 fully paid ordinary shares at an issue price of $0.42 per share as consideration for services provided during the September 2020 quarter by the CSIRO to the Company under a Research Services Umbrella Agreement.

On 8 January 2021, the Company announced the receipt of a $3.2 million research and development (R&D) tax incentive refund pursuant to eligible R&D activities. The refund will be reinvested in the development of CAN’s expansion, commercial activities and product portfolio.

On 11 January 2021, the Company issued 990,000 performance rights pursuant to the Performance Rights 2020 Series in accordance with the Company’s Long‑Term Incentive Programme (LTI), approved by shareholders on 24 November 2020. Each right is over one fully paid ordinary share, subject to meeting defined performance objectives and the terms of the LTI.

On 12 January 2021, the Company issued 89,668 fully paid ordinary shares for no consideration in accordance with the employee share gift plan. The number of shares issued were based on the number of shares to be issued up to the value of $1,000 per employee and with reference to the 5 day VWAP ending 11 January 2021, being $0.6466. Shares issued pursuant to the share gift plan will be held in trust until the earlier of the termination of employment or three years from the date of issue.

On 28 January 2021, the Company issued 306,846 fully paid ordinary shares pursuant to the exercise of CANAF options with an exercise price of $0.46 and an expiry date of 31 March 2022. The options had been issued by the Company following the conversion of convertible notes issued on 11 February 2020 into shares.

On 8 February 2021, the Company announced a cyber security incident in respect of $3.6 million in payments intended for an overseas contractor in relation to works to be undertaken at the Mildura facility being unlawfully received by an unknown third party.

On 29 March 2021, the Company announced the commencement of civil proceedings in the High Court of the Hong Kong Special Administrative Region against a third‑party defendant Er Ya Trade Ltd (the defendant) seeking recovery of EURO 2.25 million, the amount subject to the aforementioned cyber security incident. An injunction was granted to freeze certain of the defendant’s assets and compel disclosure of ancillary information relating to assets held by it. On 9 July 2021, Cann announced that it had received $1.2 million in connection with those court proceedings.

On 19 February 2021, the Company issued 113,157 fully paid ordinary shares at an issue price of $0.57 per share as consideration for services provided during the December 2020 quarter by the CSIRO to the Company under a Research Services Umbrella Agreement.

On 19 February 2021, the Company issued 3,070,791 fully paid ordinary shares pursuant to the exercise of options with an exercise price of $0.46 and an expiry date of 31 March 2022. The options had been issued by the Company following the conversion of convertible notes issued on 11 February 2020 into shares.

On 10 March 2021, the Company announced the completion of an all‑scrip acquisition of the Satipharm business from Harvest One for a total consideration of CAD$3.25 million, including deferred contingent consideration of up to CAD$0.75 million. The initial payment of CAD$2.5 million was completed by the issue of 4,278,615 new fully paid ordinary shares in Cann at $0.602.

The deferred contingent consideration of up to CAD$0.75 million is payable through the issuance of further new Cann ordinary shares or cash (at Cann’s discretion), subject to the satisfaction of the:

• [CAD$0.750 million following delivery of the Gelpell Manufacturing Equipment in accordance with the required ] specifications and satisfactory working conditions to Cann’s nominated facility in Australia;

• [first earn out payment of up to CAD$0.250 million linked to an agreed Revenue of the Satipharm business for the 6 months ] to 30 June 2021 set out in the transaction document – if the actual Revenue for the 6 months to 30 June 2021 is below the agreed Revenue for that period, the first earn out payment will be effectively reduced to an amount equal to an agreed fraction of the actual Revenue for that period set out in the transaction document;

Annual Report 2021 | 21

Directors’ report (cont’d)

• [second earn out payment of up to CAD$0.250 million linked to Gross Profit of the Satipharm business for the financial ] year ended 30 June 2021 set out in the transaction document – if the actual Gross Profit for the financial year ended 30 June 2021 is below the agreed Gross Profit for that period, the second earn out payment will be effectively reduced to an amount equal to an agreed multiple of the actual Gross Profit for that period set out in the transaction document;

• [third earn out payment payable of up to CAD$0.250 million linked to an agreed EBITDA loss of the Satipharm business for the ] 6 months to 30 June 2021 set out in the transaction document – if the actual EBITDA loss for the 6 months to 30 June 2021 is greater than the agreed EBITDA loss for that period, the third earn out payment will be effectively reduced by CAD$1 for every CAD$1 that the actual EBITDA loss for that period is greater than the agreed EBITDA loss for that period.

If the deferred contingent consideration above is settled in shares, the 30 day VWAP prior to delivery of Gelpell manufacturing equipment and 30 day VWAP prior to 30 June 2021 for the three earnout clauses shall be applied in determining the number of fully paid ordinary shares to be issued.

On the acquisition date, management assessed that the hurdles would not be met and accordingly no liability was recorded in the accounts for the deferred contingent consideration.

In note 24 the Group has disclosed a capital commitment in respect of the delivery of the Gelpell Manufacturing Equipment in accordance with the required specifications and satisfactory working conditions to Cann’s Mildura facility in Australia, settlement of which may be performed in shares. If the commitment is settled in shares, the number and deemed price of fully paid ordinary shares to be issued will be determined on the basis of the 30 day VWAP prior to the delivery of the Gelpell manufacturing equipment.

On 27 April 2021, Mr John Sharman was appointed to the Board of Directors, the appointment taking effect immediately.

On 14 May 2021, the Company issued 67,543 fully paid ordinary shares at an issue price of $0.57 per share as consideration for services provided during the March 2021 quarter by the CSIRO to the Company under a Research Services Umbrella Agreement.

There were no other significant changes in the state of affairs of the Group during the financial year.

Future developments, prospects and business strategies

Other than matters referred to elsewhere in this report and above, further information as to likely developments in the operations of the Group and the expected results of operations have not been included in this report as the Directors believe it would be likely to result in unreasonable prejudice to the Group.

Environmental regulation

The Group’s operations comply with all relevant environmental standards and regulations.

Matters subsequent to the end of the financial year

The Group announced on 26 July an institutional placement (Placement) and a Share Purchase Plan (SPP) (which will be subject to shareholder approval) to raise a total of $20 million (Capital Raising) at a price of $0.275 per fully paid ordinary share. The proceeds from the Capital Raising will be used to invest in initiatives which are expected to deliver substantial cost savings as the Group moves to large scale production with the commissioning of its new manufacturing facility near Mildura. Funding will be used to expedite and strengthen its in‑house extraction, laboratory and manufacturing capabilities, which are expected to de‑risk the Group’s supply chain and lower COGS by reducing the Group’s reliance on third party manufacturers and service providers. $8.9 million of the first tranche has been received by the Group on 2 of August 2021. Receipt of the remaining funds from the Placement relate to the proposed issue of shares under the Placement to Directors and related entities, which requires shareholder approval under ASX Listing Rule 10.11. A meeting of shareholders is scheduled to occur on 7 September 2021.

Proceeds of the Capital Raising will also be used to expand and grow the Satipharm business, including fast‑tracking the preparation of applications to register Satipharm’s low‑dose CBD capsules on the Australian Register of Therapeutic Goods classed as Schedule 3 (Pharmacist Only Medicine). Satipharm’s low‑dose CBD capsules incorporate proprietary “Gelpell” technology and access a significant market opportunity.

22 | Cann Group Limited

On 9 July 2021, Cann announced that it had received $1.2 million in connection with those court proceedings regarding the cybercrime court action announced to the market on 29 March 2021.

No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years.

Meetings of Directors

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----- Start of picture text -----

Audit & Risk Remuneration
Board Meetings Committee Committee Capital Committee
Meetings Meetings Meetings Meetings Meetings Meetings Meetings Meetings
Held Attended Held Attended Held Attended Held Attended
Allan McCallum AO 18 18 4 4 1 1 1 1
Philip Jacobsen 18 15 4 4 1 1 – –
Douglas Rathbone AM 18 17 – – 1 1 1 1
Geoff Pearce 18 18 – – 1 1 1 1
Jenni Pilcher (appointed
8 September 2020) 14 14 3 3 – – – –
John Sharman
(appointed 27 April 2021) 3 2 – – – – – –
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Remuneration report (audited)

This Remuneration Report outlines the Company’s remuneration strategy for the financial year ended 30 June 2021 and provides detailed information on the remuneration outcomes for the year for the Directors, the Chief Executive Officer (CEO) and other Key Management Personnel.

For the purpose of this report, Key Management Personnel are defined as persons having authority and responsibility for planning, directing and controlling the Group’s activities, directly or indirectly, and include all Directors of the Company.

The Directors of the Company are pleased to present the Remuneration Report (Report) for the Company and its subsidiaries (Group) for the financial year ended 30 June 2021. This Report forms part of the Directors’ Report and has been prepared and audited in accordance with the requirements of the Corporations Act 2001 .

Key Management Personnel

The following changes are noted to the KMP for the year ended 30 June 2021:

• [Ms Jenni Pilcher was appointed as a Non‑executive Director, effective 8 September 2020]

• [Mr John Sharman was appointed as a Non‑executive Director, effective 27 April 2021]

The KMP whose remuneration is disclosed in this year’s report are:

Non‑executive Directors

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Name Title
----- End of picture text -----

A. McCallum AO	Chairman
P. Jacobsen	Deputy Chairman
D. Rathbone AM	Non‑executive Director
G. Pearce	Non‑executive Director
J. Pilcher (appointed 8 September 2020)	Non‑executive Director
J. Sharman (appointed 27 April 2021)	Non‑executive Director

Annual Report 2021 | 23

Directors’ report (cont’d)

Chief Executive Officer (CEO) and Disclosed Executives

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----- Start of picture text -----

Name Title
----- End of picture text -----

P. Crock	Chief Executive Officer
S. Duncan	Chief Operating Officer
G. Aldred	Chief Projects & Information Officer
G. Farrell	Company Secretary and Chief Compliance Officer
G. Bullock	Chief Financial Officer

Principles used to determine the nature and amount of remuneration

Remuneration philosophy

The Remuneration Committee is responsible for making recommendations to the Board on remuneration policies and packages applicable to Directors, the CEO and other Key Management Personnel and consists of three of the six members of the Board. The Remuneration Committee is subject to the Company’s Remuneration Policy, with that policy having the objectives to provide a competitive, benchmarked and flexible structure, being tailored to the specific circumstances of the Company and which reflect the person’s duties and responsibilities so as to attract, motivate and retain people of the appropriate quality.

The Company’s Remuneration Policy is reviewed at least once a year and is subject to amendment to ensure it reflects best market practice. Remuneration levels are competitively set to attract appropriately qualified and experienced Directors and executives. The Remuneration Committee obtains market data on remuneration levels. The remuneration packages of the Chief Executive Officer and Senior Executives may include a short‑term incentive component that is based on specific Company goals pertaining to financial and operational performance. The Chief Executive Officer and Senior Executives may also be invited to participate in the Company’s Long‑term Incentive Plan, the benefits of which are conditional upon the Company achieving certain performance criteria, the details of which are outlined below.

In accordance with the ASX Corporate Governance Principles and Recommendations, the structure of Non‑executive Director remuneration is separate from executive remuneration.

Relationship between the Remuneration Policy and Company performance

Currently, the consolidated entity assesses its performance from achievement of operational goals and shareholder value. The performance measures for both the Company’s Short‑term Incentive Plan (STI Plan) and Long‑term Incentive Plan (LTI Plan) will be tailored to align at‑risk remuneration and performance hurdle thresholds to the delivery of operational and future financial objectives and sustained shareholder value growth.

Components of remuneration – Non‑executive Directors

The Constitution of the Company and the ASX Listing Rules require that the aggregate remuneration of non‑executive Directors shall be determined from time to time by a resolution approved by shareholders at a general meeting. Currently the aggregate remuneration threshold is set at $500,000 per annum as approved by shareholders at the AGM held on 14 November 2018. Legislated superannuation conditions made on behalf of non‑executive Directors are included within the aggregate remuneration threshold.

Non‑executive Directors receive a cash fee for their service and have no entitlement to any performance‑based remuneration or any participation in any share‑based incentive schemes. Presently no additional fee is paid to non‑executive Directors for being a member of any Board committees.

24 | Cann Group Limited

Fees payable to the non‑executive Directors for the 2021 financial year inclusive of superannuation contributions were as follows:

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$
Chairman 120,000
Non‑executive Directors 60,000
Chair of Audit and Risk Committee (in addition to Non‑executive Director fee) 15,000
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Components of remuneration – Chief Executive Officer and other senior executives

(a) Structure

The Company aims to reward the Chief Executive Officer and Senior Executives with a level and mix of remuneration commensurate with their position and responsibilities within the Group, so as to:

• [reward them for Company and individual performance against targets set by reference to appropriate benchmarks ] and key performance indicators;

• [align their interest with those of shareholders; and]

• [ensure total remuneration is competitive by market standards.]

Remuneration consists of both fixed and variable remuneration components. The variable remuneration consists of the STI Plan and the LTI Plan.

The proportion of fixed and variable remuneration is established for the Chief Executive Officer by the Board and for each Senior Executive by the Board following recommendations from the Chief Executive Officer and the Remuneration Committee. The Chief Executive Officer’s and Senior Executives’ remuneration packages are all subject to Board approval.

(b) Fixed remuneration

The fixed remuneration component of the Chief Executive Officer and Senior Executives’ total remuneration package is expressed as a total package consisting of base salary and statutory superannuation contributions.

Fixed remuneration reflects the complexity of the individual’s role and their experience, knowledge and performance. Internal and external benchmarking is regularly undertaken, and fixed remuneration levels are set with regard to the external market median, with scope for incremental increase for superior performance.

Fixed remuneration is reviewed annually, taking into account the performance of the individual and the Group. There are no guaranteed increases to fixed remuneration in any contracts of employment.

The Chief Executive Officer and Senior Executives have the option to receive their fixed annual remuneration in cash and a limited range of prescribed fringe benefits. The total cost of any remuneration package, including fringe benefits tax, is taken into account in determining an employee’s fixed annual remuneration.

(c) Variable remuneration – STI Plan

The STI Plan component of an Executive’s total remuneration is an annual cash incentive plan. The STI Plan links a portion of executive remuneration opportunity to specific financial and non‑financial measures.

From a governance perspective, all performance measures under the STI Plan must be clearly defined and measurable. The Remuneration Committee approves the targets and assesses the performance outcome of the Chief Executive Officer. The Board and the Chief Executive Officer set the targets and assess the performance of Senior Executives. The Board approves STI Plan payments for the Chief Executive Officer and Senior Executives. Under the STI Plan, the Board has discretion to adjust STI Plan outcomes based on the achievements which are consistent with the Group’s strategic priorities and, in the opinion of the Board, enhance shareholder value.

Annual Report 2021 | 25

Directors’ report (cont’d)

One hundred percent (100%) of awarded STI is paid in cash at a time determined by the Board, however for future years the timing will be upon Board approval of the audited year‑end accounts. In future years the financial performance measures will be assessed and, for the Executives to qualify for a payment of an STI, a pre‑agreed level of Group profit must first be achieved. Once this has been achieved, the level of payment the Executive receives is determined based on the achievement of their pre‑determined financial and non‑financial measures.

For the financial year ended 30 June 2021, required performance achievements for the STI Plan were not obtained and therefore no STI payments were awarded.

(d) Variable remuneration – LTI Plan

The long‑term incentive plan (LTI Plan) component of an Executive’s total remuneration is based on performance‑based rights over the ordinary shares of the Company. The LTI Plan links a portion of executive remuneration opportunity to specific financial and non‑financial measures. The LTI Plan was approved at the Annual General Meeting on 24 November 2020 and currently incorporates measures linked to share price performance, completion of business critical operational and strategic objectives whilst also considering term of service.

Chief Executive Officer (CEO) and Disclosed Executives

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LTI range
calculated on
fixed annual
Current Name remuneration
P. Crock 20% – 40%
S. Duncan 10% – 20%
G. Aldred 10% – 20%
G. Farrell 10% – 20%
G. Bullock 10% – 20%
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(e) Contract for services – Chief Executive Officer

The structure of the Chief Executive Officer’s remuneration is in accordance with his employment agreement. The Chief Executive Officer’s employment agreement is for an indefinite term. The Company may terminate the agreement by providing four months’ notice and the Chief Executive Officer may terminate the agreement by providing four months’ notice. There are no termination benefits beyond statutory leave and superannuation entitlements associated with termination in accordance with the above notice requirements or in circumstances where notice is not required pursuant to the employment agreement.

The Chief Executive Officer is entitled to participate in the Company’s long‑term incentive (“LTI”) scheme, further details of the LTI scheme are outlined in section (d) of “Components of remuneration – Chief Executive Officer and other senior executives”.

(f) Contract for services – senior executives

The terms on which the senior executives are engaged provide for termination by either the executive or the Company on notice periods ranging from three to four months’ notice, or the minimum entitlements contained in the National Employment Standards – whichever is greater.

The senior executives are entitled to participate in the Company’s LTI Plan, approved at the Annual General Meeting on 24 November 2020. Further details of the LTI Plan are outlined in section (d) of “Components of remuneration – Chief Executive Officer and other senior executives”.

In accordance with best practice corporate governance, the structure of Non‑executive Director and executive Director remuneration is separate.

26 | Cann Group Limited

Voting and comments made at the Company’s 2020 Annual General Meeting (‘AGM’)

At the 24 November 2020 AGM, 96.73% of the votes received supported the adoption of the remuneration report for the year ended 2020. The Company did not receive any specific feedback at the AGM regarding its remuneration practices.

Additional information

The performance of the Group for the five years to 30 June 2021 are summarised below:

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2021 2020 2019 2018 2017
$000 $000 $000 $000 $000
Sales revenue 4,293 647 2,348 1,503 8
Net loss before income tax (25,103) (16,939) (10,926) (4,726) (2,588)
Net loss after income tax (25,103) (16,939) (10,926) (4,726) (2,588)
Loss per share (cents) (9.75) (11.91) (7.82) (3.8) (5.1)
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Details of remuneration

Amounts of remuneration

During the course of the year the Key Management Personnel was defined as the Directors; the Chief Executive Officer; Chief Operations Officer; Chief Financial Officer; Company Secretary & Chief Compliance Officer; and Chief Projects & Information Officer.

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Post‑
Employment
benefits
Equity
settled
Salary and STI cash Super‑ share‑based
Fees bonus annuation payments Total
$ $ $ $ $
Non‑executive Directors
A. McCallum AO 2021 109,589 – 10,411 – 120,000
2020 109,589 – 10,411 – 120,000
P. Jacobsen 2021 54,795 – 5,205 – 60,000
2020 54,795 – 5,205 – 60,000
D. Rathbone AM 2021 54,795 – 5,205 – 60,000
2020 54,795 – 5,205 – 60,000
G. Pearce 2021 54,795 – 5,205 – 60,000
2020 54,795 – 5,205 – 60,000
J. Pilcher 2021 56,479 – 5,365 – 61,844
2020 – – – – –
J. Sharman 2021 9,740 – 925 – 10,665
2020 – – – – –
N. Belot (i) 2021 – – – – –
2020 29,090 – – – 29,090
----- End of picture text -----

(i) N. Belot resigned on 16 December 2019

Annual Report 2021 | 27

Directors’ report (cont’d)

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----- Start of picture text -----

Post‑
Employment
benefits
Equity
settled
Salary and STI cash Super‑ share‑based
Fees bonus annuation payments Total
$ $ $ $ $
Other Key Management Personnel and Executive Officers
P. Crock 2021 291,191 – 22,278 51,500 364,969
2020 277,769 21,199 25,387 167,710 492,065
S. Duncan 2021 265,731 – 21,971 26,250 313,952
2020 267,885 6,060 24,499 – 298,444
G. Aldred 2021 200,731 – 19,069 26,250 246,050
2020 196,023 8,200 18,622 – 222,845
G. Farrell 2021 197,154 – 18,629 26,250 242,033
2020 148,204 – 14,079 – 162,283
G. Bullock 2021 217,192 – 20,174 26,250 263,616
2020 76,535 – 7,309 – 83,844
Total 2021 1,512,192 – 134,437 156,500 1,803,129
2020 1,269,480 35,459 115,922 167,710 1,588,571
Disclosed Executives – Former
R. Baker (ii) 2021 – – – – –
2020 303,522 7,201 8,045 – 318,768
R. Dahiya (iii) 2021 – – – – –
2020 115,868 – 10,392 – 126,260
N. Gripper (iv) 2021 – – – – –
2020 292,463 8,760 25,350 – 326,573
Total 2021 – – – – –
2020 711,853 15,961 43,787 – 771,601
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(ii) R. Baker resigned on 6 December 2019

(iii) R. Dahiya resigned on 28 April 2020

(iv) N. Gripper resigned on 12 June 2020

28 | Cann Group Limited

The proportion of remuneration linked to performance and the fixed proportion are as follows:

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Fixed remuneration At risk – STI At risk – LTI
30 June 30 June 30 June 30 June 30 June 30 June
Name 2021 2020 2021 2020 2021 2020
Non‑Executive Directors:
A. McCallum AO 100% 100% – – – –
P. Jacobsen 100% 100% – – – –
D. Rathbone AM 100% 100% – – – –
G. Pearce 100% 100% – – – –
J. Pilcher 100% 100% – – – –
J. Sharman 100% 100% – – – –
N. Belot (i) – 100% – – – –
Other Key Management Personnel:
P. Crock 86% 62% – 4% 14% 34%
S. Duncan 92% 98% – 2% 8% –
G. Aldred 90% 96% – 4% 10% –
G. Farrell 90% 100% – – 10% –
G. Bullock 90% 100% – – 10% –
R. Baker(ii) – 98% – 2% – –
R. Dahiya (iii) – 100% – – – –
N. Gripper (iv) – 97% – 3% – –
----- End of picture text -----

(i) N. Belot resigned on 16 December 2019

(ii) R. Baker resigned on 6 December 2019

(iii) R. Dahiya resigned on 28 April 2020

(iv) N. Gripper resigned on 12 June 2020

Annual Report 2021 | 29

Directors’ report (cont’d)

Additional disclosures relating to Key Management Personnel

Equity holdings

The number of shares in the Company held during the financial year by each Director and other members of Key Management Personnel of the Group, including their personally related parties, is set out below:

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----- Start of picture text -----

Balance as at Balance at
date of Received as Acquisitions, resignation
Balance as at appointment part of disposals or date (if Balance at Balance held
1 July 2020 (if applicable) remuneration transfers applicable) 30 June 2021 nominally
Non‑Executive Directors:
A. McCallum AO 5,580,000 – – 575,000 – 6,155,000 –
P. Jacobsen 4,094,518 – – 2,225,000 – 6,319,518 –
D. Rathbone AM 2,331,185 – – 490,395 – 2,821,580 –
G. Pearce 1,554,195 – – 200,000 – 1,754,195 –
J. Pilcher – 125,000 – – – 125,000 –
J. Sharman – – – – – – –
Other Key Management Personnel:
P. Crock 340,852 – 1,546 62,500 – 404,898 1,000,000
S. Duncan – – 1,546 25,000 – 26,546 –
G. Aldred 1,107 – 1,546 27,500 – 30,153 –
G. Farrell – – 1,546 25,000 – 26,546 –
G. Bullock – – 1,546 25,000 – 26,546 –
–
13,901,857 125,000 7,730 3,655,395 17,689,982 1,000,000
----- End of picture text -----*

Each employee received $1,000 of gift shares and these amounts are included in the amounts disclosed as shares received as part of remuneration in the table above.

Performance rights holdings

The number of performance rights over ordinary shares in the Company held during the financial year by each Director and other members of Key Management Personnel of the Group, including their personally related parties, is set out below:

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----- Start of picture text -----

Balance at Expired/ Balance at
the start forfeited/ the end of
of year Granted Vested other the year
Performance rights over ordinary shares
P. Crock 1,000,000 200,000 – (1,000,000) 200,000
S. Duncan – 100,000 – – 100,000
G. Bullock – 100,000 – – 100,000
G. Aldred – 100,000 – – 100,000
G. Farrell – 100,000 – – 100,000
–
1,000,000 600,000 (1,000,000) 600,000
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The terms and conditions of each grant of performance rights over ordinary shares affecting remuneration of Directors and other Key Management Personnel in this financial year or future reporting years are as follows:

30 | Cann Group Limited

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----- Start of picture text -----

Number Share price Fair value per
of rights hurdle for right at
Name granted Grant date Expiry date vesting grant date
Performance Rights Class C
P. Crock 250,000 17 November 2017 19 January 2021 $1.00 $2.46
P. Crock 350,000 17 November 2017 19 January 2021 $1.50 $2.46
P. Crock 400,000 17 November 2017 19 January 2021 $2.00 $2.46
Performance Rights 2020 Series
P. Crock 200,000 24 November 2020 11 January 2024 $0.00 $0.50
S. Duncan 100,000 24 November 2020 11 January 2024 $0.00 $0.50
G. Aldred 100,000 24 November 2020 11 January 2024 $0.00 $0.50
G. Farrell 100,000 24 November 2020 11 January 2024 $0.00 $0.50
G. Bullock 100,000 24 November 2020 11 January 2024 $0.00 $0.50
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The Performance Rights Class C expired during the financial year.

The Performance Rights 2020 Series vest upon final commissioning of the first stage of the Group’s Mildura facility.

This concludes the remuneration report, which has been audited.

Shares under option

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Exercise Price Number under
Grant Date Expiry date ($) option
8 April 2020 31 March 2022 0.945 145,007
29 July 2020 31 March 2022 0.460 13,808,086
30 September 2020 31 March 2022 0.460 7,175,285
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Shares issued on the exercise of options

The following ordinary shares of Cann Group Limited were issued during the year ended 30 June 2021 and up to the date of this report on the exercise of options granted:

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----- Start of picture text -----

Exercise Price Number of
Date options granted ($) shares issued
29 July 2020 $0.46 3,377,637
Shares under performance rights
Unissued ordinary shares of Cann Group Limited under performance rights at the date of this report are as follows:
Number under
Grant date Expiry date rights
11 January 2021 11 January 2024 990,000
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No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate.

Annual Report 2021 | 31

Directors’ report (cont’d)

Shares issued on the exercise of performance rights

There were no ordinary shares of Cann Group Limited issued on the exercise of performance rights during the year ended 30 June 2021 and up to the date of this report.

Indemnifying officers and auditors

No indemnities have been given, however, a Directors and Officers insurance premium of $307 thousand has been paid during the year for any person who is or has been an officer of the Group. No indemnities have been given during or since the end of the year for any person who has been an auditor of the Group.

Proceedings on behalf of the Group

There were two court proceedings issued by the Group during the year, both of which have now been completed.

• [On 16 February 2021, an application by the Company to the Victorian Registry of the Federal Court of Australia was ] heard to rectify the non‑issue of a cleansing notice for the issue of 306,846 ordinary shares in the Company on 28 January 2021. The court granted the orders sought by the Company and the matter is now closed.

• [On 29 March 2021, the Company announced the commencement of civil proceedings in the High Court of the ] Hong Kong Special Administrative Region against a third‑party defendant Er Ya Trade Ltd (the defendant) seeking recovery of EURO 2.25 million, the amount subject to the aforementioned cyber security incident. An injunction was granted to freeze certain of the defendant’s assets and compel disclosure of ancillary information relating to assets held by it. On 9 July 2021, Cann announced that it had received $1.2 million in connection with those court proceedings. This matter is now closed.

There were no other proceedings during the year.

Rounding of amounts

The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Auditor

William Buck Pty Ltd continues in office in accordance with section 327 of the Corporations Act 2001 .

Non‑audit services

The Company’s Audit and Risk Committee (Committee) is responsible for the maintenance of audit independence. Specifically, the Committee Charter ensures the independence of the auditor is maintained by:

• [limiting the scope and nature of non‑audit services that may be provided; and]

• [requiring that permitted non‑audit services must be pre‑approved by the Chairman of the Committee.]

During the year William Buck, the Group’s auditor, has performed certain other services in addition to the audit and review of the financial statements. The Board has considered the non‑audit services provided during the year by the auditor and in accordance with the advice provided by the Committee, is satisfied that the provision of those non‑audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• [All non‑audit services were subject to the corporate governance procedures adopted by the Group and have been ] reviewed by the Committee to ensure they do not impact the integrity and objectivity of the auditor; and

32 | Cann Group Limited

• [The non‑audit services provided do not undermine the general principles relating to auditor independence as set out ] in APES 110 Code of Ethics for Professional Accountants (including Independence Standards) as they did not involve reviewing or auditing the auditors own work, acting in a management or decision‑making capacity for the Group, acting as an advocate for the Group or jointly sharing risks and rewards.

Details of the amounts paid to the auditor of the Group, William Buck, for audit and non‑audit services provided during the year are set out in note 11.

Auditor’s independence declaration

A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors’ report.

CEO and CFO declaration

The CEO and CFO have given a declaration to the Board concerning the Group’s financial statements under section 295A(2) of the Corporations Act 2001 and recommendations 4.2 and 7.2 of the ASX Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations in regards to the integrity of the financial statements.

This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001 .

On behalf of the Directors

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Allan McCallum AO Chairman

23 August 2021 Cann Group Limited

Annual Report 2021 | 33

Auditor’s independence declaration

AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF CANN GROUP LIMITED

I declare that, to the best of my knowledge and belief during the year ended 30 June 2021 there have been:

• no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

• no contraventions of any applicable code of professional conduct in relation to the audit.

William Buck Audit (VIC) Pty Ltd ABN: 59 116 151 136

A. A. Finnis Director

Melbourne, 23 August 2021

34 | Cann Group Limited

Consolidated statement of profit or loss and other comprehensive income FOR THE YEAR ENDED 30 JUNE 2021

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----- Start of picture text -----

30 June 2021 30 June 2020
Note $’000 $’000
Revenue from customer contracts 5 4,293 647
Other income 5 4,275 1,215
Total revenue and other income 8,568 1,862
Expenses
Administration and corporate costs 6 (23,128) (13,846)
Research and development costs (2,031) (1,283)
Fair value adjustment of biological assets (48) (641)
Depreciation and amortisation expense (2,631) (2,160)
Total expenses (27,838) (17,930)
Loss before finance costs, investment loss,
and income tax expense (19,270) (16,068)
Finance costs (4,151) (869)
Loss on fair value of investment 15 (1,682) –
Loss before income tax expense (25,103) (16,937)
– –
Income tax expense
Loss after income tax expense for the year (25,103) (16,937)
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss
–
Foreign currency translation (42)
–
Other comprehensive loss for the year, net of tax (42)
Total comprehensive loss for the year (25,145) (16,937)
Cents Cents
Basic loss per share 9 (9.75) (11.91)
Diluted loss per share 9 (9.75) (11.91)
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The above consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes.

Annual Report 2021 | 35

Consolidated statement of financial position

AS AT 30 JUNE 2021

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30 June 2021 30 June 2020
Note $’000 $’000
ASSETS
Current assets
Cash and cash equivalents 3,105 1,554
Trade and other receivables 7 4,196 92
Prepayments 8 1,896 842
Inventories 12 12,066 9,433
Biological assets 829 610
Total current assets 22,092 12,531
Non‑current assets
Property, plant and equipment 13 75,789 60,891
Intangible assets 14 2,046 828
Financial assets at fair value through profit or loss 15 1,136 1,010
Rental bonds 85 85
Right‑of‑use assets 16 644 1,058
Total non‑current assets 79,700 63,872
Total assets 101,792 76,403
LIABILITIES
Current liabilities
Trade and other payables 17 8,333 5,527
Contract liabilities 141 –
Lease liability 19 409 485
Provisions 18 766 478
Total current liabilities 9,649 6,490
Non‑current liabilities
Lease liability 19 271 642
Convertible notes 20 – 8,195
Total non‑current liabilities 271 8,837
Total liabilities 9,920 15,327
Net assets 91,872 61,076
EQUITY
Issued capital 21 149,673 97,137
Reserves 22 3,363 2,143
Accumulated losses (61,164) (38,204)
Total equity 91,872 61,076
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The above consolidated statement of financial position should be read in conjunction with the accompanying notes.

36 | Cann Group Limited

Consolidated statement of changes in equity

FOR THE YEAR ENDED 30 JUNE 2021

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Share‑based
payments Accumulated
Issued capital Reserves losses Total equity
$’000 $’000 $’000 $’000
Balance at 1 July 2019 96,502 1,975 (21,179) 77,298
Adjustment for change in accounting policy
– AASB 16 Leases – – (88) (88)
Balance at 1 July 2019 – restated 96,502 1,975 (21,267) 77,210
– –
Loss after income tax expense for the year (16,937) (16,937)
– – – –
Other comprehensive income for the year, net of tax
– –
Total comprehensive loss for the year (16,937) (16,937)
Transactions with owners in their capacity as
owners:
Contributions of equity, net of transaction costs
(note 21) 635 – – 635
Share‑based payments – 168 – 168
Balance at 30 June 2020 97,137 2,143 (38,204) 61,076
Foreign
Share‑based currency
payments translation Accumulated
Issued capital reserve reserve losses Total equity
$’000 $’000 $’000 $’000 $’000
–
Balance at 1 July 2020 97,137 2,143 (38,204) 61,076
Loss after income tax expense for
– – –
the year (25,103) (25,103)
Other comprehensive loss for the
– – –
year, net of tax (42) (42)
Total comprehensive loss
– –
for the year (42) (25,103) (25,145)
Transactions with owners
in their capacity as owners:
Contributions of equity, net of
– –
transaction costs (note 21) 52,536 3,155 55,691
Share‑based payments – 250 – – 250
Transfer – expiry of Performance
– – –
Rights Class C (2,143) 2,143
Balance at 30 June 2021 149,673 3,405 (42) (61,164) 91,872
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The above consolidated statement of changes in equity should be read in conjunction with the accompanying notes.

Annual Report 2021 | 37

Consolidated statement of cash flows

FOR THE YEAR ENDED 30 JUNE 2021

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----- Start of picture text -----

30 June 2021 30 June 2020
Note $’000 $’000
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers 1,484 1,671
Payments to suppliers and employees (26,168) (20,505)
Interest received 41 263
Other income received 3,813 952
Net cash used in operating activities 26 (20,830) (17,619)
CASH FLOWS FROM INVESTING ACTIVITIES
–
Payments for investments (1,025)
Payments for property, plant and equipment 13 (15,712) (33,122)
Payments for intangibles 14 (558) (1,240)
Proceeds from disposal of investments 211 –
Net cash used in investing activities (17,084) (34,362)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares 21 40,198 –
Proceeds from issue of options 22 1,553 –
Proceeds from issues of convertible notes 20 – 8,000
–
Costs of issuing convertible notes (442)
Share issue transaction costs 21 (1,839) –
Repayment of lease liabilities (447) (411)
Net cash from financing activities 39,465 7,147
Net increase/(decrease) in cash and cash equivalents 1,551 (44,834)
Cash and cash equivalents at the beginning of the financial year 1,554 46,388
Cash and cash equivalents at the end of the financial year 3,105 1,554
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The above consolidated statement of cash flows should be read in conjunction with the accompanying notes.

38 | Cann Group Limited

Notes to the consolidated financial statements

30 JUNE 2021

Note 1. Corporate information

These are the financial statements of Cann Group Limited (Company) and its subsidiaries, including Cannproducts Pty Ltd, Cannoperations Pty Ltd, Cann IP Pty Ltd, Botanitech Pty Ltd, all incorporated and domiciled in Victoria, Australia and the Satipharm business, comprising Satipharm Europe, Satipharm Limited, Satipharm AG, Satipharm Australia Pty Ltd, Satipharm Canada Limited and Phytotech Therapeutics Ltd (together, the Group). Cann Group Limited is an ASX‑listed public company incorporated and domiciled in Victoria, Australia.

These financial statements are for the year ended 30 June 2021. Unless otherwise stated, all amounts are presented in thousands of $AUD ($’000), which is the functional and presentation currency of all entities in the Group with the exception of the Satipharm business, whose functional currency is the Euro.

The financial statements were authorised for issue by the Directors on the date of signing the attached Directors’ Declaration.

Note 2. Significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

New or amended Accounting Standards and Interpretations adopted

The Group has adopted all of the new or amended Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (‘AASB’) that are mandatory for the current reporting period.

Any new or amended Accounting Standards or Interpretations that are not yet mandatory have not been early adopted.

Basis of preparation

The financial statements are general purpose financial statements that have been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative announcements of the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 as appropriate for‑profit oriented entities.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in financial statements containing relevant and reliable information about transactions, events and conditions. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of these financial statements are presented below. They have been consistently applied unless otherwise stated.

The financial statements have been prepared on an accruals basis and are based on historical costs unless otherwise stated.

Unless otherwise stated, amounts in this report have been rounded to the nearest thousand dollars.

Historical cost convention

The financial statements have been prepared under the historical cost convention, except for, where applicable, the revaluation of financial assets and liabilities at fair value through profit or loss, financial assets at fair value through other comprehensive income, investment properties, certain classes of property, plant and equipment and derivative financial instruments.

Critical accounting estimates

The preparation of the financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

Annual Report 2021 | 39

Notes to the consolidated financial statements (cont’d)

Parent entity information

In accordance with the Corporations Act 2001 , these financial statements present the results of the Group only. Supplementary information about the parent entity is disclosed in note 29.

Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all the subsidiaries of the Group as at 30 June 2021 and the results of all its subsidiaries for the reporting period.

Subsidiaries refer to entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one‑half of the voting rights. The existence and effect of the potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de‑consolidated from the date that control ceases.

The financial statements of the subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting date as the Group. Consistent accounting policies are applied to like transactions and events in similar circumstances.

Intercompany transactions, balances and unrealised gains on transactions between entities in the consolidated entity are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

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Percentage Percentage
Shareholding Shareholding
Subsidiary Name Date Acquired 2021 2020
Cannproducts Pty Ltd (ACN 600 887 189) 27 February 2015 100.00% 100.00%
Cannoperations Pty Ltd (ACN 603 323 226) 27 February 2015 100.00% 100.00%
Cann IP Pty Ltd (ACN 169 764 407) 27 February 2015 100.00% 100.00%
Botanitech Pty Ltd (ACN 604 834 488) 18 March 2015 100.00% 100.00%
Satipharm Europe Ltd 10 March 2021 100.00% –
Satipharm Limited 10 March 2021 100.00% –
Satipharm AG 10 March 2021 100.00% –
Satipharm Australia Pty Ltd 10 March 2021 100.00% –
Satipharm Canada Limited 10 March 2021 100.00% –
Phytotech Therapeutics Ltd 10 March 2021 100.00% –
----- End of picture text -----

Foreign currency translation

The financial statements are presented in Australian dollars, which is Cann Group Limited’s functional and presentation currency.

Foreign currency transactions

Foreign currency transactions are translated into Australian dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at financial year‑end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss.

40 | Cann Group Limited

Foreign operations

The assets and liabilities of foreign operations are translated into Australian dollars using the exchange rates at the reporting date. The revenues and expenses of foreign operations are translated into Australian dollars using the average exchange rates, which approximate the rates at the dates of the transactions, for the period. All resulting foreign exchange differences are recognised in other comprehensive income through the foreign currency reserve in equity.

The foreign currency reserve is recognised in profit or loss when the foreign operation or net investment is disposed of.

Revenue recognition

The Group recognises revenue as follows:

Revenue from contracts with customers

The Group generates revenue primarily from the sale of medicinal cannabis products as well as from the provision of services. The Group uses the following five‑step contract‑based analysis of transactions to determine whether, how much and when revenue is recognised:

1. Identify the contract with a customer;

2. Identify the performance obligation(s) in the contract;

3. Determine the transaction price;

4. Allocate the transaction price to the performance obligation(s) in the contract; and

5. Recognise revenue when or as the Company satisfies the performance obligation(s).

Revenue from the sale of cannabis is generally recognised when control over the goods has been transferred to the customer. Payment for medicinal cannabis products is due within a specified time period as permitted by the underlying agreement and the Group’s credit policy upon the transfer of goods to the customer. The Group satisfies its performance obligation and transfers control to the customer upon delivery and acceptance by the customer. Revenue is recorded at the estimated amount of consideration to which the Company expects to be entitled.

Interest income

Interest income is recognised as interest accrues using the effective interest method. This is a method of calculating the amortised cost of a financial asset and allocating the interest income over the relevant period using the effective interest rate, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the net carrying amount of the financial asset.

Other revenue

Other revenue is recognised when it is received or when the right to receive payment is established.

Government grants

Government grants are recognised when they are received or when the right to receive payment is established.

Inventory

Inventory is valued depending upon the specific purpose of that inventory class. Costs incurred for inventory held as research and development expenses are expensed as incurred.

Biomass plant inventory is valued at fair value less costs to sell, and where fair value is not readily available, at cost or net realisable value, whichever is less.

Annual Report 2021 | 41

Notes to the consolidated financial statements (cont’d)

Resin inventory is valued at cost or net realisable value, whichever is less.

Oil inventory is valued at cost or net realisable value whichever is less.

Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

Fair value of financial instruments

A financial asset is classified and measured at amortised cost or at fair value. The classification and measurement of financial assets is based on the Group’s business models for managing its financial assets and whether the contractual cash flows represent solely payments of principal and interest (SPPI). Financial assets are initially measured at fair value and are subsequently measured at either (i) amortised cost; (ii) fair value through other comprehensive income (FVTOCI), or (iii) at fair value through profit or loss (FVTPL).

Financial assets that are held for the purpose of collecting contractual cash flows that are SPPI are classified as amortised cost. Amortised cost financial assets are initially recognised at their fair value and are subsequently measured at amortised cost using the effective interest rate method. Transaction costs of financial instruments classified as amortised cost are capitalised and amortised in profit or loss on the same basis as the financial instrument. Cash and cash equivalents compromises cash at bank and on hand. Term deposits with maturity of less than three months are also classified as cash and cash equivalents.

Equity instruments are measured at fair value with changes in fair value recognised through profit and loss (FVTPL). Dividends received on these investments are recognised in profit or loss unless the distribution clearly represents a recovery of part of the cost of the investment (e.g., a return of capital).

Financial liabilities include – a contractual obligation to deliver cash or another financial asset to another entity, or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or a contract that will or may be settled in the entity’s own equity instruments and is:

• [a non‑derivative for which the entity is or might be obliged to deliver a variable number of the entity’s own equity ] instruments; or

• [a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial ] asset for a fixed number of the entity’s own equity instruments.

The following table summarizes the classification of the Company’s financial instruments under AASB 9:

	Financial assets	Classification as per AASB 9
	Cash and Cash Equivalents	Amortised cost
	Trade and other receivables excluding GST	Amortised cost
	Marketable securities	FVTPL
	Equity interest in other entities	FVTPL
	Financial Liabilities	Classification as per AASB 9
	Accounts Payable and accrued liabilities	Amortised cost
	Loans and Borrowings	Amortised cost
	Convertible Note/Debentures	FVTPL
	Lease liabilities	Amortised cost

42 | Cann Group Limited

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses on financial assets which are either measured at amortised cost or fair value through other comprehensive income. The measurement of the loss allowance depends upon the consolidated entity’s assessment at the end of each reporting period as to whether the financial instrument’s credit risk has increased significantly since initial recognition, based on reasonable and supportable information that is available, without undue cost or effort to obtain.

Where there has not been a significant increase in exposure to credit risk since initial recognition, a 12‑month expected credit loss allowance is estimated. This represents a portion of the asset’s lifetime expected credit losses that is attributable to a default event that is possible within the next 12 months. Where a financial asset has become credit impaired or where it is determined that credit risk has increased significantly, the loss allowance is based on the asset’s lifetime expected credit losses. The amount of expected credit loss recognised is measured on the basis of the probability weighted present value of anticipated cash shortfalls over the life of the instrument discounted at the original effective interest rate.

Property, plant and equipment

Each class of property, plant and equipment is carried at cost less any accumulated depreciation and impairment losses.

The carrying amount of property, plant and equipment is reviewed annually by Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of property, plant and equipment constructed within the Group includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads.

The depreciable amount of all property, plant and equipment is depreciated on a straight‑line basis over the asset’s useful life to the Group commencing from the time the asset is held ready for use.

As at 30 June 2021, the Group’s asset classes had effective useful lives as follows:

Cultivation plant and equipment	1‑7 years
Manufacturing plant and equipment	2‑7 years
Computer and network equipment	1‑3 years
Other plant and equipment	1‑3 years
Buildings	20 years
Land	N/A

The residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each reporting date.

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated useful life of the assets, whichever is shorter.

An item of property, plant and equipment is derecognised upon disposal or when there is no future economic benefit to the Group. Gains and losses between the carrying amount and the disposal proceeds are included in the statement of profit of loss and other comprehensive income.

Annual Report 2021 | 43

Notes to the consolidated financial statements (cont’d)

Lease liabilities

Lease liabilities are initially measured at the present value of the lease payments discounted using the interest rate implicit in the lease. If that rate cannot be determined, the Consolidated Group’s incremental borrowing rate is used.

Lease liabilities are subsequently measured by:

• [increase the carrying amount to reflect interest on the lease liabilities;]

• [reduce the carrying amount to reflect lease payments made; and]

• [remeasuring the carrying amount to reflect any reassessment or lease modifications.]

Interest on the lease liabilities and any variable lease payments not included in the measurement of the lease liabilities are recognised in the Consolidated Statement of Comprehensive Income in the period in which they relate.

Right‑of‑use assets

Right‑of‑use assets are measured at cost less depreciation and impairment and adjusted for any remeasurement of the lease liability.

The cost of the asset includes:

• [the amount of the initial measurement of the lease liability;]

• [any lease payments made at or before lease commencement date less any lease incentives received;]

• [any initial direct costs; and]

• [restoration costs.]

Right‑of‑use assets are depreciated on a straight‑line basis from the commencement date of the lease to the earlier of the end of the useful life of the right‑of‑use asset or the end of the lease term.

The Group tests right‑of‑use assets for impairment where there is an indicator that the asset may be impaired. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

The Group determines the lease term as the non‑cancellable period of a lease together with both:

• [the periods covered by an option to extend the lease if it is reasonably certain to exercise that option; and]

• [periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.]

Management considers all the facts and circumstances that create an economic incentive to exercise an extension option or not exercise a termination option. This assessment is reviewed if a significant event or a significant change in circumstances occurs which affects this assessment and that is within the control of the lessee.

Payments associated with short‑term leases and leases of low value assets are recognised on a straight‑line basis as an expense in the Consolidated Statement of Comprehensive Income. Short‑term leases are leases with a lease term of 12 months or less. Low‑value assets comprise IT equipment and small items of office furniture.

Biological assets

The Group defines the biological assets as cannabis plants up to the point of harvest. Biological assets are measured at the lower of their cost and net realisable value at the end of each reporting period.

44 | Cann Group Limited

Impairment of non‑financial assets

At each reporting date, the Group’s Directors review the carrying values of the Group’s tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less cost to sell and value in use, is compared to the assets carrying value. Any excess of the assets carrying value over its recoverable amount is expensed to the statement of profit or loss and other comprehensive income.

Recoverable amount is the higher of an asset’s fair value less costs of disposal and value‑in‑use. The value‑in‑use is the present value of the estimated future cash flows relating to the asset using a pre‑tax discount rate specific to the asset or cash‑generating unit to which the asset belongs. Assets that do not have independent cash flows are grouped together to form a cash‑generating unit.

Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of the financial year and which are unpaid. Due to their short‑term nature they are measured at amortised cost and are not discounted. The amounts are unsecured and are usually paid within 30 days of recognition.

Contract liabilities

Contract liabilities represent the Group’s obligation to transfer goods or services to a customer and are recognised when a customer pays consideration, or when the Group recognises a receivable to reflect its unconditional right to consideration (whichever is earlier) before the Group has transferred the goods or services to the customer.

Borrowings

Loans and borrowings are initially recognised at the fair value of the consideration received, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method.

The component of the convertible notes that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs.

On the issue of the convertible notes the fair value of the liability component is determined using a market rate for an equivalent non‑convertible bond and this amount is carried as a non‑current liability on the amortised cost basis until extinguished on conversion or redemption. The increase in the liability due to the passage of time is recognised as a finance cost. The remainder of the proceeds are allocated to the conversion option that is recognised and included in shareholders equity as a convertible note reserve, net of transaction costs. The carrying amount of the conversion option is not remeasured in the subsequent years. The corresponding interest on convertible notes is expensed to profit or loss.

Finance costs

Finance costs attributable to qualifying assets are capitalised as part of the asset. All other finance costs are expensed in the period in which they are incurred.

Annual Report 2021 | 45

Notes to the consolidated financial statements (cont’d)

Employee benefits

Short‑term employee benefits

Liabilities for wages and salaries, including non‑monetary benefits, annual leave and long service leave expected to be settled wholly within 12 months of the reporting date are measured at the amounts expected to be paid when the liabilities are settled.

Other long‑term employee benefits

The liability for annual leave and long service leave not expected to be settled within 12 months of the reporting date are measured at the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on high quality corporate bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

Share‑based payments

Equity‑settled and cash‑settled share‑based compensation benefits are provided to employees.

The Group reflects in its comprehensive income (or loss) and its financial position the effects of share‑based payment transactions, including expenses associated with transactions in which shares are granted to related parties, Key Management Personnel and employees.

For share‑based payments received by employees and Key Management Personnel of the Group, fair value is measured by reference to the fair value of the equity instruments granted at their grant date, being the date that both the recipient and the Group have a shared understanding of the terms and conditions connected to the share‑based payment. Any market‑based vesting conditions are incorporated into the valuation of the share‑based payment arrangement as at the grant date of the share‑based payment. Share‑based payments with non‑market‑based performance conditions vest according to the pro‑rata achievement of those conditions. Share‑based payments with non‑performance‑based conditions are valued using the Black‑Scholes model and payments with market‑based performance conditions are valued using a binomial model which incorporates from both the performance rights arrangement and market data that existed at grant date.

Fair value measurement

When an asset or liability, financial or non‑financial, is measured at fair value for recognition or disclosure purposes, the fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date; and assumes that the transaction will take place either: in the principal market; or in the absence of a principal market, in the most advantageous market.

Fair value is measured using the assumptions that market participants would use when pricing the asset or liability, assuming they act in their economic best interests. For non‑financial assets, the fair value measurement is based on its highest and best use. Valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, are used, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

Issued capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

46 | Cann Group Limited

Business combinations

The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired.

The consideration transferred is the sum of the acquisition‑date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non‑controlling interest in the acquiree. For each business combination, the non‑controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree’s identifiable net assets. All acquisition costs are expensed as incurred to profit or loss.

On the acquisition of a business, the Group assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions in existence at the acquisition‑date.

Where the business combination is achieved in stages, the Group remeasures its previously held equity interest in the acquiree at the acquisition‑date fair value and the difference between the fair value and the previous carrying amount is recognised in profit or loss.

Contingent consideration to be transferred by the acquirer is recognised at the acquisition‑date fair value. Subsequent changes in the fair value of the contingent consideration classified as an asset or liability is recognised in profit or loss. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity.

The difference between the acquisition‑date fair value of assets acquired, liabilities assumed and any non‑controlling interest in the acquiree and the fair value of the consideration transferred and the fair value of any pre‑existing investment in the acquiree is recognised as goodwill. If the consideration transferred and the pre‑existing fair value is less than the fair value of the identifiable net assets acquired, being a bargain purchase to the acquirer, the difference is recognised as a gain directly in profit or loss by the acquirer on the acquisition‑date, but only after a reassessment of the identification and measurement of the net assets acquired, the non‑controlling interest in the acquiree, if any, the consideration transferred and the acquirer’s previously held equity interest in the acquirer.

Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition‑date. The measurement period ends on either the earlier of

• (i) 12 months from the date of the acquisition; or

• (ii) when the acquirer receives all the information possible to determine fair value.

Loss per share

Basic loss per share

Basic loss per share is calculated by dividing the loss attributable to the owners of Cann Group Limited, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the financial year.

Diluted loss per share

Diluted loss per share adjusts the figures used in the determination of basic loss per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

Annual Report 2021 | 47

Notes to the consolidated financial statements (cont’d)

Goods and Services Tax (‘GST’) and other similar taxes

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office (ATO).

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the ATO is included with other receivables or payables in the statement of financial position.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to, the ATO are presented as operating cash flows included in receipts from customers or payments to suppliers.

Commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to, the tax authority.

Commitments

The Group recognises contractual obligations as and when the performance obligations inherent in the execution of an agreement are achieved. Binding contractual arrangements where the Group is a party to a contractual obligation to exchange economic resources in the future upon the fulfilment of certain contract terms, are disclosed as contractual commitments to the extent to which they are not recognised in the financial statements.

Rounding of amounts

The Company is of a kind referred to in Corporations Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding‑off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar.

Note 3. Critical accounting judgements, estimates and assumptions

The preparation of the financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts in the financial statements. Management continually evaluates its judgements and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgements, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgements and estimates will seldom equal the related actual results. The judgements, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities (refer to the respective notes) within the next financial year are discussed below.

Key judgments – non‑recognition of carry‑forward tax losses

The balance of future income tax benefit estimated as $4.88 million (2020: $4.80 million) arising from current year tax losses of $25.10 million (2020: $16.94 million) and timing differences has not been recognised as an asset because it is not clear when the losses will be recovered. The cumulative future income tax benefit estimated to be $14.38 million, which has not been recognised as an asset, will only be obtained if:

• i. the Group derives future assessable income of a nature and an amount sufficient to enable the benefit to be realised;

• ii. the Group continues to comply with the conditions for deductibility imposed by law; and

• iii. no changes in tax legislation adversely affecting the Company realising the benefit.

Key judgments – valuation of performance rights (refer note 22 for details)

Performance rights issued during the year are measured at the fair value on grant date. These were independently valued using Black‑Scholes option pricing model. The data input into this model included the dividend yield of 0% and risk‑free rate of 0.95%.

48 | Cann Group Limited

Key judgments – non‑recognition of research and development tax incentive benefits

The balance of research and development tax incentive arising from operations of the Group has not been recognised as an asset because receipt at this stage cannot be reliably calculated. The research and development tax incentive, which has not been recognised as an asset, will only be obtained if:

• i. the Group’s activities fulfil the eligibility criteria of the research and development tax initiative and it is successful in registering for the research and development tax initiative;

• ii. the Group continues to comply with the conditions for registration of the research and development tax initiative imposed by law; and

• iii. no changes in tax legislation adversely affecting the Group realising the tax incentive from research and development.

Key judgments – impact of COVID‑19

As with many other businesses, the Group implemented changes in order to comply with Government‑imposed COVID‑19 restrictions and guidelines in FY21, safeguarding the Group’s commitment to the health and welfare of its employees and business partners.

The Group implemented a business continuity plan which included moving to a shift‑based operation for its cultivation facilities and all other staff working from home. As a supplier of medical products to Australian patients, the Group’s operations are an essential service and the Group expects to continue operating throughout the COVID‑19 pandemic.

Key judgments – impairment of inventories (refer note 12 for details)

The provision for impairment of inventories assessment requires a degree of estimation and judgement. The level of the provision is assessed by taking into account the recent sales experience, the ageing of inventories and other factors that affect inventory obsolescence.

Key judgments – Fair value measurement hierarchy (refer to notes 15 and 27 for details)

The fair value of assets and liabilities classified as level 3 is determined by the use of valuation models. These include discounted cash flow analysis or the use of observable inputs that require significant adjustments based on unobservable inputs.

Key judgments – Goodwill and other indefinite life intangible assets (refer note 14 for details)

The Group tests annually, or more frequently if events or changes in circumstances indicate impairment, whether goodwill and other indefinite life intangible assets have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash‑generating units have been determined based on value‑in‑use calculations. These calculations require the use of assumptions, including estimated discount rates based on the current cost of capital and growth rates of the estimated future cash flows.

Key judgments – Capitalisation of the cost of software hosted on infrastructure (refer note 14 for details)

The Group capitalises the cost of software hosted on infrastructure in accordance with the Group accounting policy for software stated in note 2. In determining the nature and extent of software related costs to be capitalised, the Group is required to consider whether it can control the resources received. When the Group concludes it can control the resources and future economic benefits which accrue, it capitalises the associated costs and amortises the cost over the expected period during which the benefits can be controlled and obtained.

Annual Report 2021 | 49

Notes to the consolidated financial statements (cont’d)

Key judgments – Business combinations (refer note 30 for details)

As discussed in note 2, business combinations are initially accounted for on a provisional basis. The fair value of assets acquired, liabilities and contingent liabilities assumed are initially estimated by the Group taking into consideration all available information at the reporting date. Fair value adjustments on the finalisation of the business combination accounting is retrospective, where applicable, to the period the combination occurred and may have an impact on the assets and liabilities, depreciation and amortisation reported.

Note 4. Operating segments

Determination and presentation of operating segments

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components. An operating segment’s results are regularly reviewed by the CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete information is available.

Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly corporate assets, head office expenses, and income tax assets and liabilities.

Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

The Group operates in one operational sector and has identified only one reportable segment being cultivation of medicinal cannabis and further processing into manufactured medicinal cannabis products, as well as the corporate office.

Geographical information of total sales and total non‑current assets is disclosed as below.

Geographical information

==> picture [483 x 105] intentionally omitted <==

----- Start of picture text -----

Revenues from external Geographical non‑current
customer contracts assets
30 June 2021 30 June 2020 30 June 2021 30 June 2020
$’000 $’000 $’000 $’000
Australia 2,256 647 79,690 63,872
Europe 2,037 – 10 –
4,293 647 79,700 63,872
----- End of picture text -----

Note 5. Revenue and other income

==> picture [483 x 114] intentionally omitted <==

----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Revenue from customer contracts 4,293 647
Research and development tax incentives and other government grants 4,234 938
Interest 41 263
Other income – 14
8,568 1,862
----- End of picture text -----

50 | Cann Group Limited

Note 6. Administration and corporate costs

==> picture [483 x 184] intentionally omitted <==

----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Employee salaries and wages 7,806 6,961
Cultivation and manufacturing expenses 7,045 2,353
Legal and consultancy expenses 1,680 1,714
Insurance expenses 1,042 723
Employee superannuation 547 662
Share registry and listing expenses 457 316
Share‑based employee remuneration 307 168
Other corporate and administration expenses 4,244 949
23,128 13,846
----- End of picture text -----*

• Other corporate and administration expenses include the $2.4 million cyber security incident value, net of $1.2 million recovery receivable at reporting date.

Note 7. Trade and other receivables

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Overseas customer receivables 1,594 67
Local customer receivables 1,398 25
Other receivables 1,204 –
4,196 92
----- End of picture text -----*

• Other receivables in FY21 include a $1.2million cyber security incident receivable, which was subsequently received in July 2021.

==> picture [483 x 115] intentionally omitted <==

----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Not overdue 4,004 25
0 to 3 months overdue 134 67
3 to 6 months overdue – –
Over 6 months overdue 58 –
4,196 92
----- End of picture text -----

Management assess the ability to recover trade and other receivables on a regular basis. Where it is deemed that it is probable the counterparty will not be able to settle their obligations, management commensurately recognise a provision for expected credit losses.

Annual Report 2021 | 51

Notes to the consolidated financial statements (cont’d)

Note 8. Prepayments

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
–
Advances for Gelpell machinery 1,142
Prepaid insurance 412 828
Other prepayments 342 14
1,896 842
----- End of picture text -----

Note 9. Loss per share

==> picture [483 x 162] intentionally omitted <==

----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Loss after income tax (25,103) (16,937)
Number Number
Weighted average number of ordinary shares used in calculating basic loss per share 257,388,229 142,187,418
Weighted average number of ordinary shares used in calculating diluted loss per share 257,388,229 142,187,418
Cents Cents
Basic loss per share (9.75) (11.91)
Diluted loss per share (9.75) (11.91)
----- End of picture text -----

Performance rights have not been included in the weighted average number of ordinary shares as the Group presently has accumulated losses and no certainty of future profits to offset those losses.

The potentially dilutive effects of any contingently issuable ordinary shares have not been considered in the diluted loss per share calculation because the Group is in a loss‑making position and such an effect would be anti‑dilutive.

Note 10. Key management personnel disclosures

Directors

The following persons were Directors of Cann Group Limited during the financial year:

Mr Allan McCallum AO Chairman Mr Philip Jacobsen Deputy Chairman Mr Douglas Rathbone AM Non‑executive Director Mr Geoff Pearce Non‑executive Director Ms Jenni Pilcher (from 8 September 2020) Non‑executive Director Mr John Sharman (from 27 April 2021) Non‑executive Director

52 | Cann Group Limited

Other Key Management Personnel

The following persons also had the authority and responsibility for planning, directing and controlling the major activities of the Group, directly or indirectly, during the financial year:

Mr Peter Crock Chief Executive Officer Mr Shane Duncan Chief Operating Officer Mr Greg Bullock Chief Financial Officer Ms Geraldine Farrell Chief Compliance Officer & Company Secretary Mr Geoff Aldred Chief Projects & Information Officer

Compensation

The aggregate compensation paid to Directors and other members of Key Management Personnel of the Group is set out below:

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----- Start of picture text -----

30 June 2021 30 June 2020
$ $
Short‑term employee benefits 1,512,192 2,032,753
Post‑employment benefits 134,437 159,709
Share‑based payments 156,500 167,710
1,803,129 2,360,172
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Note 11. Remuneration of auditors

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----- Start of picture text -----

30 June 2021 30 June 2020
$ $
(i) Audit and other assurance services – William Buck
Audit and review of financial statements 80,000 73,500
Other audit and assurance related services 3,016 5,011
Total remuneration for audit and other assurance services 83,016 78,511
(ii) Non‑assurance services – William Buck
Tax compliance services 91,573 39,520
Total remuneration of William Buck 174,589 118,031
(iii) Remuneration of other auditors:
Audit and review of financial statements 20,202 –
194,791 118,031
----- End of picture text -----

Annual Report 2021 | 53

Notes to the consolidated financial statements (cont’d)

Note 12. Inventories

==> picture [483 x 167] intentionally omitted <==

----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Finished goods – biomass 4,834 1,836
Finished goods – crude extract resin 4,131 6,915
–
Finished goods Gelpell 1,282
Finished goods – oil 1,391 451
Cultivation materials & work in progress 739 231
–
Less: Provision for impairment of finished goods – oil (61)
–
Less: Provision for impairment of finished goods Gelpell (250)
12,066 9,433
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Note 13. Property, plant and equipment

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Land and buildings – at cost 13,852 13,852
Less: Accumulated depreciation (200) (99)
13,652 13,753
Capital work in progress 58,867 43,158
Cultivation plant & equipment 7,104 6,838
Less: Accumulated depreciation (4,912) (3,483)
2,192 3,355
Manufacturing plant & equipment 1,142 531
–
Less: Accumulated depreciation (136)
1,006 531
Other plant & equipment 373 345
Less: Accumulated depreciation (301) (251)
72 94
75,789 60,891
----- End of picture text -----

54 | Cann Group Limited

Reconciliations

Reconciliations of the written down values at the beginning and end of the current financial year are set out below:

	Balance at	Land and buildings $’000	Cultivation plant and equipment $’000	Manufacturing plant and equipment $’000	Other plant and equipment $’000	Capital work in progress $’000	Total $’000
	1 July 2020	13,753	3,355	531	94	43,158	60,891
	Additions	–	65	605	4	15,915	16,589
	Transfers in/(out)	–	200	5	–	(205)	–
	Depreciation
	expense	(101)	(1,428)	(136)	(26)	–	(1,691)
	Balance at	13,652	2,192	1,005	72	58,868	75,789
	30 June 2021
	Balance at	Land and buildings $’000	Cultivation plant and equipment $’000	Manufacturing plant and equipment $’000	Other plant and equipment $’000	Capital work in progress $’000	Total $’000
	1 July 2019	11,404	4,569	448	147	12,442	29,010
	Additions	2,448	220	83	48	30,716	33,515
	Depreciation	(99)	(1,434)	–	(101)	–	(1,634)
	Balance at
	30 June 2020	13,753	3,355	531	94	43,158	60,891

During the year ended 30 June 2021, the Group spent $15.5 million (2020: $30.7 million) in Mildura for construction of a greenhouse facility and support building. Materials to construct the greenhouse and to modify the existing building plus preliminary design and other services are classified as capital‑work‑in‑progress until such time as the facility is completed and commissioned for use.

As at 30 June 2021 the Directors conducted an impairment test of the cultivation plant and equipment which was applied as at 30 June 2021 whereby the Directors compared the carrying values of all of the cultivation plant and equipment to the selling values of comparable assets and concluded that no impairment existed relating to these assets.

Annual Report 2021 | 55

Notes to the consolidated financial statements (cont’d)

Note 14. Intangible assets

During the year ended 30 June 2020, the Group entered into manufacturing agreement with a third‑party contract manufacturer for production of GMP extracted locally manufactured resin and GMP‑formulated locally manufactured oil. The initial cost of development of the production lines were one‑off set‑up costs at the third‑party contract manufacturer’s facilities, and have been recognised as intangible assets. In the opinion of management these costs will be recovered over a period of five years.

Software costs have been recognised during the year ended 30 June 2021 and in the opinion of management these costs are recovered over a period of three years.

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Intangible assets – at cost 2,612 919
Less: Accumulated amortisation (566) (91)
2,046 828
Other intangi‑
Goodwill ble assets Software Total
$’000 $’000 $’000 $’000
Balance at 1 July 2019 – 113 – 113
Additions – 765 – 765
– –
Amortisation expense (50) (50)
Balance at 1 July 2020 – 828 – 828
Additions – – 1,013 1,013
Additions through business combinations (note 30) 661 – 9 670
–
Amortisation expense (285) (180) (465)
661 (285) 842 1,218
Balance at 30 June 2021 661 543 842 2,046
----- End of picture text -----

Note 15. Financial assets at fair value through profit or loss

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Shares in Zalm Therapeutics Ltd 111 935
–
Shares in Iuvo Therapeutics Ltd 1,025
Shares in Emyria Limited (formerly Emerald Clinics Limited) – 75
1,136 1,010
----- End of picture text -----

56 | Cann Group Limited

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Movement in financial assets at fair value through profit or loss:
Subscription shares Zalm Therapeutics Ltd (formerly Pure Cann NZ Limited)
Opening balance 935 951
Additional subscription shares 924 –
Fair value movement during the period (1,748) (16)
Closing balance 111 935
Shares in Iuvo Therapeutics Ltd
–
Acquisition of shares 1,025
Shares in Emyria Limited (formerly Emerald Clinics Limited)
Opening balance 75 250
Fair value movement during the period 66 (175)
–
Disposal of shares (141)
Closing balance – 75
1,136 1,010
----- End of picture text -----

The Groups financial assets are measured and disclosed at fair value, using a three‑level hierarchy, based on the lowest level of input that is significant to the entire fair value measurement, being:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: Unobservable inputs for the asset or liability.

The financial assets listed above are valued at the fair value at the end of the reporting period. The gains/(losses) on the financial assets have been recognised in the statement of profit or loss and other comprehensive income.

Details of the Groups investments are as follows:

Zalm Therapeutics Ltd (“Zalm”) – Level 3 investment

The Group, through its wholly owned subsidiary Botanitech, holds 8.4% of the Zalm business and has increased its holding from 3.9% during the financial year. The Group has no further obligation to invest further funds into the Zalm business.

Iuvo Therapeutics Ltd (“Iuvo”) – Level 3 investment

The Group has made a strategic CAD 1 million investment in Iuvo Therapeutics Ltd (“Iuvo”), resulting in the Group holding approximately 2% of Iuvo’s issued ordinary shares. Following the investment, the Group has exclusive external rights to supply Iuvo Therapeutics GmbH, Iuvo’s wholly owned subsidiary, with medicinal cannabis extracts until 31 December 2021, with those rights then converting to preferred non‑exclusive status.

Emyria Limited (“Emvria”) Level 1 investment

The investment in Emyria was disposed of during the year.

Annual Report 2021 | 57

Notes to the consolidated financial statements (cont’d)

Consideration of fair value at 30 June 2021

The investments in the Zalm and Iuvo are considered by the Directors of the Group as level 3 investments in accordance with the AASB 13 Fair Value Measurement , as investments in shares of unlisted specialist proprietary limited companies, for which there is no active market nor readily observable valuation inputs.

Accordingly, the Directors have determined at the reporting date that it is reasonable to assess the Iuvo assets at fair value based on the most recent, or expected future, arm’s length transactions in these shares. Based on these criteria, the Directors have determined that the Iuvo assets carrying value is not materially different to the fair value at the reporting date.

With regard to Zalm the Directors have assessed the carrying value of the investment at reporting date and determined that based on a number of factors the most appropriate valuation methodology for this investment is to value the investment based on the Group’s share of Zalm’s net assets as at the reporting date. Consequently, a fair value loss of $1,748 thousand has been recorded in the statement of profit or loss and other comprehensive income as at 30 June 2021.

At each reporting date the Directors will reassess the carrying value of its investments and if new information becomes available the investments will be revalued in accordance with AASB 13 – Fair value measurement .

Note 16. Right‑of‑use assets

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30 June 2021 30 June 2020
$’000 $’000
Land and buildings – right‑of‑use 1,533 1,533
Less: Accumulated depreciation (889) (475)
644 1,058
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The Group leases land and building for its offices and greenhouse under agreements of between three to five years with, in some cases, options to extend. The leases have various escalation clauses. On renewal, the terms of the leases are renegotiated.

Note 17. Trade and other payables

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30 June 2021 30 June 2020
$’000 $’000
Mildura construction 4,660 1,463
Accrued expenses 1,087 747
Contract manufacturing 1,050 2,137
Cultivation vendors 438 335
Research and development 114 50
Other vendors 984 973
Total trade and other payables 8,333 5,705
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Note 18. Provisions

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----- Start of picture text -----

30 June 2021 30 June 2020
$’000 $’000
Annual leave 520 478
Long service leave 246 –
766 478
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58 | Cann Group Limited

Note 19. Lease liability

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

The Group has two existing leases for premises as follows:

Northern Facility

The term of the lease is three years finishing on 31 March 2023. The lease started in April 2017 for three years and an option was exercised in March 2020 to extend the lease for a further three years. It is reasonably certain that the Group will renew the lease again.

Corporate Office

The term of the lease is one year commencing 1 July 2020. The lease started in July 2018 for two years and an option was exercised to extend the lease for one year in June 2020. As of 1 July 2021, the lease has reverted to a monthly tenancy, on the same monthly financial terms as were in place prior to 1 July 2021.

All the leased premises are located in Melbourne, Victoria. Lease commitments for the Company are:

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30 June 2021 30 June 2020
$’000 $’000
Lease liability – current (within 12 months) 409 485
Lease liability – non‑current 271 642
680 1,127
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Note 20. Convertible notes

The Group issued 8,000,000 convertible notes to six investors (Noteholders) at a face value of $1.00 per convertible note on 10 February 2020, in respect of which the Group received net funds of $7,560,000 (after costs) in aggregate at the time of issue.

100,000 convertible notes were converted in April 2020, which along with applicable interest, resulted in the allotment of 145,007 ordinary equity shares to the relevant Noteholders. As per the agreement between the Group and Noteholders, along with the conversion of convertible notes into equity, Noteholders were also issued one option for each equity share issued. Accordingly, 145,007 options were granted at the time of the conversion of 100,000 notes and had not yet been exercised as at 30 June 2021.

5,600,000 convertible notes were converted in July 2020, which along with applicable interest, resulted in the allotment of 17,185,723 ordinary equity shares to the relevant Noteholders. As per the agreement between the Group and Noteholders, along with the conversion of convertible notes into equity, Noteholders were also issued one option for each equity share issued. Accordingly, 17,185,723 options were granted at the time of the conversion of 5,600,000 notes. Of those options, 3,377,637 have been exercised (306,846 options were exercised on 22 January 2021 and a further 3,070,791 options were exercised on 16 February 2021). A further 13,808,086 options have not yet been exercised as at 30 June 2021.

2,300,000 convertible notes were converted in September 2020, which along with applicable interest, resulted in the allotment of 7,175,285 ordinary equity shares to the relevant Noteholders. As per the agreement between the Group and Noteholders, along with the conversion of convertible notes into equity, Noteholders were also issued one option for each equity share issued. Accordingly, 7,175,285 options were granted at the time of the conversion of 2,300,000 notes and had not yet been exercised as at 30 June 2021.

		30 June 2021 $’000	30 June 2020 $’000
	Convertible notes	–	8,195

Annual Report 2021 | 59

Notes to the consolidated financial statements (cont’d)

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Note 21. Issued capital
30 June 2021 30 June 2020 30 June 2021 30 June 2020
Shares Shares $’000 $’000
Ordinary shares – fully paid 277,911,998 142,892,342 149,673 97,137
Movements in ordinary share capital
Details Date Shares Issue price $’000
Balance 1 July 2019 141,804,247 96,502
Settlement of invoice for services 4 October 2019 67,538 $2.08 140
Settlement of invoice for services 24 December 2019 550,278 $0.46 254
Conversion of 100,000 convertible notes 8 April 2020 145,007 $0.70 101
Settlement of invoice for services 15 June 2020 325,272 $0.43 140
Balance 30 June 2020 142,892,342 97,137
SPP Offer 23 July 2020 32,953,920 $0.40 13,182
Conversion of 5,600,000 convertible notes 29 July 2020 17,185,723 $0.34 5,843
Settlement of invoice for services 11 August 2020 74,840 $0.94 70
Settlement of invoice for services 11 August 2020 103,846 $0.65 68
Issue of shares to Zalm Therapeutics 11 August 2020 1,983,890 $0.47 923
SPP Offer 20 August 2020 64,744,452 $0.40 25,898
SPP Offer 15 September 2020 2,796,080 $0.40 1,118
Conversion of 2,300,000 convertible notes 30 September 2020 7,175,285 $0.34 2,440
Settlement of invoice for services 27 November 2020 75,000 $0.42 32
Share gift plan 12 January 2021 89,668 $0.65 57
Exercise of convertible note options 28 January 2021 306,846 $0.46 141
Exercise of convertible note options –
transfer from reserve 28 January 2021 – $0.15 47
Exercise of convertible note options 16 February 2021 3,070,791 $0.46 1,412
Exercise of convertible note options –
transfer from reserve 16 February 2021 – $0.15 467
Settlement of invoice for services 19 February 2021 113,157 $0.57 64
Acquisition of Satipharm 10 March 2021 4,278,615 $0.60 2,575
Settlement of invoice for services 14 May 2021 67,543 $0.57 38
Transaction costs associated with capital raising (1,839)
Balance 30 June 2021 277,911,998 149,673
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60 | Cann Group Limited

Ordinary shares

Ordinary shares participate in dividends and the proceeds on winding up of the Group in proportion to the number of shares held. At shareholders’ meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

CSIRO share‑based payments

During the year ended 3o June 2021, the Company issued fully paid ordinary shares to the CSIRO for research and development services rendered. Research and development costs in the consolidated statement of profit or loss and other comprehensive income includes $272 thousand of equity settled share‑based payments made to the CSIRO during the year ended 30 June 2021 (2020: $534 thousand).

Note 22. Reserves

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30 June 2021 30 June 2020
$’000 $’000
–
Foreign currency reserve (42)
Share‑based payments reserve 3,405 2,143
3,363 2,143
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Movements in reserves

Movements in reserves during the current and previous financial year are set out below:

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Foreign
Share‑based currency
payments translation
reserve reserve Total
$’000 $’000 $’000
–
Balance at 1 July 2019 1,975 1,975
Performance rights 168 – 168
Balance at 30 June 2020 2,143 – 2,143
–
Foreign currency translation (42) (42)
–
Options issued as settlement for convertible notes 3,669 3,669
Performance rights 250 – 250
–
Transfer of Performance rights Class C to accumulated losses (2,143) (2,143)
–
Transfer of options exercised to accumulated losses (514) (514)
Balance at 30 June 2021 3,405 (42) 3,363
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For share‑based payments received by employees and Key Management Personnel of the Group, fair value is measured by reference to the fair value of the equity instruments granted at their grant date, being the date that both the recipient and the Group have a shared understanding of the terms and conditions connected to the share‑based payment. Any market‑based vesting conditions are incorporated into the valuation of the share‑based payment arrangement as at the grant date of the share‑based payment. Share‑based payments with non‑market‑based performance conditions vest according to the pro‑rata achievement of those conditions. Share‑based payments with non‑performance‑based conditions are valued using the Black‑Scholes model and payments with market‑based performance conditions are valued using a binomial model which incorporates from both the performance rights arrangement and market data that existed at grant date.

Employee remuneration costs incurred in respect of performance rights for the year ended 30 June 2021 is $250 thousand (2020: $167 thousand).

Annual Report 2021 | 61

Notes to the consolidated financial statements (cont’d)

Performance rights over ordinary shares

On 21 November 2017 1,000,000 Performance Rights Class C were issued to the Chief Executive Officer with a total vesting value of $2,465 thousand. These rights lapsed on 19 January 2021.

On 24 November 2020, 990,000 Performance Rights 2020 Series were issued to the Chief Executive Officer and other employees with a total vesting value of $500 thousand.

The Performance Rights 2020 Series vest upon final commissioning of the first stage of the Group’s Mildura facility.

The fair value of the performance rights has been calculated on the basis of the Black‑Scholes model using the following key assumptions:

Grant of performance rights	Number of performance rights	Spot price on issue date	Risk‑free rate %	Expiry date	Volatility rate	Fair value
Performance
Rights 2020
Series	990,000	0.51	0.05%	11/01/2024	N/A*	500

The weighted average remaining contractual life of performance rights outstanding at 30 June 2021 was 2.53 years (2020: 0.56 years).

• Given a nil exercise price of the Performance Rights, adopting different volatility assumptions does not have an impact on the Performance Rights’ valuation.

Options over ordinary shares

During the year ended 30 June 2021, 24,361,008 options over fully paid ordinary shares were issued with an exercise price of $0.46 or 46 cents per share (2020; 145,007 with an exercise price of $0.95 or 95 cents per share), in accordance with the terms of the convertible notes issued in the year ended 30 June 2020, further details of which are in note 20.

During the year ended 30 June 2021, 3,377,637 options over fully paid ordinary shares were exercised at a price of $0.46 or 46 cents per share.

2021

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Exer‑ Balance at Expired/ Balance at
cise the start of forfeited/ the end of
Grant date Expiry date price the year Granted Exercised other the year
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4 April 2020	31 March 2022	$0.95	145,007	–	–	–	145,007
29 July 2020	31 March 2022	$0.46	–	17,185,723	(3,377,637)	–	13,808,086
30 September 2020	31 March 2022	$0.46	–	7,175,285	–	–	7,175,285
			145,007	24,361,008	(3,377,637)	–	21,128,378
Weighted average
exercise price			$0.95	$0.46	$0.46	$0.00	$0.46

62 | Cann Group Limited

The fair value of the options has been calculated on the basis of the Black Scholes model using the following key assumptions:

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----- Start of picture text -----

Grant of Number of Spot price at Options Risk‑free rate Options expiry Volatility Fair
options options grant of option exercise price % date % value
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Tranche	1	145,007	0.70	0.95	0.26%	31/03/2022	85.00%	37
Tranche	2	17,185,723	0.40	0.46	0.26%	31/03/2022	85.00%	2,611
Tranche	3	7,175,285	0.42	0.46	0.26%	31/03/2022	85.00%	1,020
		24,506,015	1.52	1.87				3,668

2020

Grant date	Expiry date	Exercise price Balance at the start of the year	Granted	Exercised	Expired/ forfeited/ other	Balance at the end of the year
4 April 2020	31 March 2022	$0.95 –	145,007	–	–	145,007

The weighted average remaining contractual life of options outstanding at 30 June 2021 was 1.75 years (2020: 0.74 years).

Note 23. Related party transactions

Parent entity

Cann Group Limited is the parent entity.

Key management personnel

Disclosures relating to Key Management Personnel are set out in note 10 and the remuneration report included in the Directors’ report.

Transactions with related parties

Transactions between the Group and related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated. There were no related party transactions not otherwise disclosed in these financial statements during the period ended 30 June 2021.

Note 24. Contingent liabilities and commitments

The Group has a bank guarantee of $50 thousand for the operating premises lease of the Company’s Northern Facility. Except for the bank guarantee, as at the end of the reporting period, the Group had no contingent liabilities.

At the reporting date, the Group had capital commitments of $39.9 million, of which $38.3 million is in respect of the Mildura glasshouse construction commitments and $0.80 million deferred contingent consideration following delivery of the Gelpell Manufacturing Equipment to Cann’s Mildura glasshouse facility in Australia.

Annual Report 2021 | 63

Notes to the consolidated financial statements (cont’d)

Note 25. Events after the reporting period

The Group announced on 26 July an institutional placement (Placement) and a Share Purchase Plan (SPP) (which will be subject to shareholder approval) to raise a total of $20 million (Capital Raising) at a price of $0.275 per fully paid ordinary share. The proceeds from the Capital Raising will be used to invest in initiatives which are expected to deliver substantial cost savings as the Group moves to large scale production with the commissioning of its new manufacturing facility near Mildura. Funding will be used to expedite and strengthen its in‑house extraction, laboratory and manufacturing capabilities, which are expected to de‑risk the Group’s supply chain and lower COGS by reducing the Group’s reliance on third party manufacturers and service providers. $8.9 million of the first tranche has been received by the Group on 2 of August 2021. Receipt of the remaining funds from the Placement relate to the proposed issue of shares under the Placement to Directors and related entities, which requires shareholder approval under ASX Listing Rule 10.11. A meeting of shareholders is scheduled to occur on 7 September 2021.

Proceeds of the Capital Raising will also be used to expand and grow the Satipharm business, including fast‑tracking the preparation of applications to register Satipharm’s low‑dose CBD capsules on the Australian Register of Therapeutic Goods classed as Schedule 3 (Pharmacist Only Medicine). Satipharm’s low‑dose CBD capsules incorporate proprietary “Gelpell” technology and access a significant market opportunity.

On 9 July 2021, Cann announced that it had received $1.2 million in connection with those court proceedings regarding the cybercrime court action announced to the market on 29 March 2021.

On 4 August 2021, Cann announced that 1,000,000 Performance Rights Class C issued to Cann’s Chief Executive Officer (CEO) had expired, with effect on 19 January 2021.

No other matter or circumstance has arisen since 30 June 2021 that has significantly affected, or may significantly affect the Group’s operations, the results of those operations, or the Group’s state of affairs in future financial years.

Note 26. Reconciliation of loss after income tax to net cash used in operating activities

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30 June 2021 30 June 2020
$’000 $’000
Loss after income tax expense for the year (25,103) (16,937)
Adjustments for:
Equity settled trade payables 272 534
Cost of issuing convertible notes (finance costs) – 443
Vesting of performance rights 308 168
Interest on convertible notes – 295
Decrease in the value of financial assets 1,683 191
Depreciation, Amortisation and loss on sale of assets 2,630 2,160
Short‑term incentive accrual 487 –
–
Finance cost of issuing convertible notes 3,665
Change in operating assets and liabilities:
Decrease/(increase) in trade and other receivables (4,104) 1,023
Increase in inventories (2,852) (6,564)
Increase in prepayments (1,054) (120)
Increase in trade and other payables 3,238 1,188
Net cash used in operating activities (20,830) (17,619)
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64 | Cann Group Limited

Note 27. Financial instruments

Financial risk management objectives

The Group’s material financial instruments consist of deposits with banks and its accounts payable and other liabilities. The Board is responsible for managing the Group’s significant financial risks, which are its liquidity risk, which it does through regularly reviewing rolling cash flow forecasts and examining its levels of available working capital against such forecasts and its interest rate risk exposure.

Market risk

The Group does not believe it has any material market risk of loss arising from adverse movements of market instruments including foreign exchange and interest rates.

Interest rate risk

The Group has, as of the reporting date, a minimal direct exposure to interest rate risk, which is the risk that a financial instrument’s market value will fluctuate as a result of changes in market interest rates. The effective weighted average interest rates on classes of financial assets and financial liabilities are as follows:

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Weighted
average Floating Non‑
effective interest 1 year or 1 to 5 over 5 interest
interest rate less years years bearing Total
2021 rate $’000 $’000 $’000 $’000 $’000 $’000
Assets:
Cash and bank balances – – – – – 3,069 3,069
Deposits – – – – – 36 36
Rental bonds 1.50 – 85 – – – 85
Financial assets at fair value – – – – – 1,136 1,136
Trade and other receivables – – – – – 4,196 4,196
– – – – –
Prepayments 1,896 1,896
Total financial assets – 85 – – 10,333 10,418
Liabilities:
Trade and other creditors – – – – – (8,333) (8,333)
– – – – –
Lease liability (680) (680)
Provisions – – – – – (907) (907)
Total financial liabilities – – – – (9,920) (9,920)
Net financial assets – 85 – – 413 498
(liabilities)
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Annual Report 2021 | 65

Notes to the consolidated financial statements (cont’d)

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Weighted
average
effective Floating Non‑
interest interest 1 year or 1 to 5 over 5 interest
rate rate less years years bearing Total
2020 % $’000 $’000 $’000 $’000 $’000 $’000
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Assets:
Cash and bank balances	–	–	–	–	–	1,554	1,554
Receivables	–	–	–	–	–	92	92
Rental bonds	1.50	–	85	–	–	–	85
Financial assets at fair value	–	–	–	–	–	1,010	1,010
		–	85	–	–	2,656	2,741
Liabilities:
Trade and other creditors	–	–	–	–	–	(5,527)	(5,527)
Lease liability	–	–	–	–	–	(1,127)	(1,127)
Convertible Notes	9.50	–	–	(8,195)	–	–	(8,195)
Provisions	–	–	–	–	–	(478)	(478)
Total financial liabilities		–	–	(8,195)	–	(7,132)	(15,327)
Net financial assets
(liabilities)		–	85	(8,195)	–	(4,476)	(12,586)

Credit risk

The Group does not believe it has any material risk from a counterparty defaulting on its contractual obligations or commitments resulting in financial loss as such risk is managed by implementing a policy of only dealing with creditworthy counterparties in accordance with established credit limits for all future transactions with customers. The Group also reviews the overall financial strength of its customers by monitoring publicly available credit information.

The Directors have assessed that the fair values of the Group’s financial assets and liabilities reasonably approximate their carrying values, as represented in these financial statements.

Liquidity risk

Liquidity risk arises from the possibility that the Group may encounter difficulty in meeting its obligations for its financial liabilities, which at 30 June 2021 were primarily accounts payable with due terms of between 0‑45 days. During the reporting period, the Company undertook a capital raising from the market to finance its working capital and near term growth requirements.

Remaining contractual maturities

The following tables detail the Group’s remaining contractual maturity for its financial instrument liabilities. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the financial liabilities are required to be paid. The tables include both interest and principal cash flows disclosed as remaining contractual maturities and therefore these totals may differ from their carrying amount in the statement of financial position.

66 | Cann Group Limited

	30 June 2021	Weighted average interest rate %	1 year or less $’000	Between 1 and 2 years $’000	Between 2 and 5 years $’000	Over 5 years $’000	Remaining contractual maturities $’000
	Non‑derivatives
	Non‑interest bearing
	Trade and other creditors	–	8,333	–	–	–	8,333
	Interest‑bearing – fixed rate
	Lease liability	–	409	271	–	–	680
	Total non‑derivatives		8,742	271	–	–	9,013
	30 June 2020	Weighted average interest rate %	1 year or less $’000	Between 1 and 2 years $’000	Between 2 and 5 years $’000	Over 5 years $’000	Remaining contractual maturities $’000
	Non‑derivatives
	Non‑interest bearing
	Trade and other creditors	–	5,527	–	–	–	5,527
	Interest‑bearing – fixed rate
	Convertible notes payable	9.50%	–	8,195	–	–	8,195
	Lease liability	–	485	642	–	–	1,127
	Total non‑derivatives		6,012	8,837	–	–	14,849

The cash flows in the maturity analysis above are not expected to occur significantly earlier than contractually disclosed above.

Foreign currency risk

Subsequent to the acquisition of Satipharm, the Group is exposed to fluctuations in foreign currencies arising from the sale and purchase of goods and services in currencies other than the Group’s measurement currency. The management managed the foreign currency transactions on a monthly basis to avoid the fluctuation on the exchange rate, while the Group does not have any material foreign currency risk exposure. Where exposures do arise, forward foreign exchange contracts will be applied.

Note 28. Capital management

The Board of Directors are charged with determining the optimal mix of debt and equity which is suitable for the needs of the Group. For the year ended 30 June 2021 the Group held no material commercial borrowings drawn down and a $50,000,000 loan facility available for the purpose of funding the construction of the Mildura Facility. The Board considers it appropriate that the construction of the Mildura Facility be sourced through a mix of equity and long‑term debt financing. The Group’s treasury function reports to the Board periodically with forecast cash flow information that enables the Company to conduct its capital raising activities in an orderly fashion at a dilutive cost to existing shareholders that is appropriate and reasonable.

Annual Report 2021 | 67

Notes to the consolidated financial statements (cont’d)

Note 29. Parent entity information

Set out below is the supplementary information about the parent entity.

Statement of profit or loss and other comprehensive income

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Parent
30 June 2021 30 June 2020
$’000 $’000
Loss after income tax (11,028) (9,005)
Total comprehensive loss (11,028) (9,005)
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Statement of financial position

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----- Start of picture text -----

Parent
30 June 2021 30 June 2020
$’000 $’000
Total current assets 4,464 85,331
Total assets 124,591 87,268
Total current liabilities 2,097 1,492
Total liabilities 2,097 9,687
Equity
Issued capital 149,673 97,137
Share‑based payments reserve 3,405 2,143
Accumulated losses (30,584) (21,699)
Total equity 122,494 77,581
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The subsidiary companies have expenditure commitments under the premises lease. The parent entity has committed to providing funds to ensure the subsidiary companies can fulfil these commitments as well as any other operating commitments.

Capital commitments – Property, plant and equipment

The parent entity had a contingent liability in respect of a $50 thousand bank guarantee and no capital commitments for property, plant and equipment as at 30 June 2020 and 30 June 2021.

Significant accounting policies

The accounting policies of the parent entity are consistent with those of the Group, as disclosed in note 2, except for the following:

• [Investments in subsidiaries are accounted for at cost, less any impairment, in the parent entity.]

• [Investments in associates are accounted for at cost, less any impairment, in the parent entity.]

• [Dividends received from subsidiaries are recognised as other income by the parent entity and its receipt may ] be an indicator of an impairment of the investment.

68 | Cann Group Limited

Note 30. Business combinations

Satipharm Acquisition

On 10 March 2021 Cann Group Limited acquired 100% of the ordinary shares of Satipharm.

In accordance with the share sale agreement executed by the parties on 15 February 2021 (and as announced by the Company on that date), the acquisition involves a total maximum consideration of CAD$3.25 million (including contingent consideration of up to CAD$0.75 million).

The initial payment of CAD$2.5 million was completed on 10 March 2021 by the issue of 4,278,615 new Cann shares, based on the value of the AUD equivalent of CAD2.5 million at an issue price of $0.602 per share, calculated as the VWAP of Cann’s shares during the 5 full trading days on the ASX ending on 9 March 2021.

The balance of up to CAD$0.75 million is payable on a deferred basis on achieving agreed operational and financial results. This contingent consideration is payable by the issuance of further new Cann shares or cash, at the option of Cann Group. A key summary of the arrangements relating to the contingent consideration was included as an annexure to the Company’s announcement on 15 February 2021. The Group did not recognise a liability for the deferred contingent consideration on acquisition date and have disclosed in note 24 a capital commitment for the element of deferred consideration in respect of delivery of Gelpell machinery.

Details of the acquisition are as follows:

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Fair value
$’000
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Trade receivables	78
Other receivables	12
Inventories	1,888
Prepayments	811
Office equipment	4
Intangible assets	9
Trade payables	(575)
Otherpayables	(312)
Net assets acquired	1,915
Goodwill	661
Acquisition‑date fair value of the total consideration transferred	2,576
Representing:
Cann GroupLimited shares issued to vendor	2,576

i. Consideration transferred

Acquisition‑related costs amounting to $691 thousand are not included as part of the consideration for the acquisition and have been recognised as transaction costs in the profit and loss statement.

ii. Identifiable net assets

The fair value of the trade and other receivables acquired as part of the business combination amounted to $90 thousand. As of the acquisition date, the Company’s best estimate is that all cash will be collected.

Annual Report 2021 | 69

Notes to the consolidated financial statements (cont’d)

iii. Goodwill

Goodwill of $661 thousand was primarily related to the Company’s growth expectations through customer expansion.

The Group operates as one operating segment and goodwill was allocated to the cultivation of medicinal cannabis and further processing into manufactured medicinal cannabis products cash generating unit as at acquisition date. The goodwill that arose from this business combination is not deductible for tax purposes.

iv. Contribution to the Group’s results

Satipharm generated $625 thousand in revenues for the year ended 30 June 2021, of which it contributed revenues of $226 thousand to the Group from the date of the acquisition to 30 June 2021.

Satipharm incurred a net loss of $1,497 thousand for the year ended 30 June 2021, of which it contributed a net loss after tax of $781 thousand to the Group from the date of the acquisition to 30 June 2021.

70 | Cann Group Limited

Directors’ declaration

30 JUNE 2021

In the Directors’ opinion:

• [the attached financial statements and notes comply with the ] [Corporations Act 2001][, the Accounting Standards, ] the Corporations Regulations 2001 and other mandatory professional reporting requirements;

• [the attached financial statements and notes comply with International Financial Reporting Standards as issued ] by the International Accounting Standards Board as described in note 2 to the financial statements;

• [the attached financial statements and notes give a true and fair view of the Group’s financial position as at ] 30 June 2021 and of its performance for the financial year ended on that date; and

• [there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become ] due and payable.

The Directors have been given the declarations required by section 295A of the Corporations Act 2001 .

Signed in accordance with a resolution of Directors made pursuant to section 295(5)(a) of the Corporations Act 2001 . On behalf of the Directors

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Allan McCallum AO Chairman

23 August 2021

Annual Report 2021 | 71

Independent auditor’s report

Cann Group Limited Independent auditor’s report to members Report on the Audit of the Financial Report Opinion We have audited the financial report of Cann Group Limited (the Company) and its controlled entities (the Group), which comprises the consolidated statement of financial position as at 30 June 2021, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information, and the directors’ declaration. In our opinion, the accompanying financial report of the Group, is in accordance with the Corporations Act 2001 , including: (i) giving a true and fair view of the Group’s financial position as at 30 June 2021 and of its financial performance for the year then ended; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001 . Basis for Opinion We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial report of the current period. These matters were addressed in the context of our audit of the financial report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

72 | Cann Group Limited

ACQUISITION OF THE SATIPHARM GROUP OF COMPANIES Area of focus

How our audit addressed it Our audit procedures included:

• Refer also to notes 2, 3, and 30

• The Group acquired the Satipharm group of Our audit procedures included: companies (“Satipharm”) on 10 March 2021 for a total consideration of CAD 3.25  Assessing that the acquired entity meets the definition million; inclusive of CAD 0.75 million of of a business under AASB 3 – Business contingent consideration. Combinations; Accounting for this transaction is complex  Reviewing the sale and purchase agreement to and required significant judgements and understand the key terms and conditions of the estimation by management, specifically: acquisition, including the date that control passed to the Group;

• to determine the fair value of assets and liabilities acquired in the context of  Assessing the Group’s determination of fair values of Australian Accounting Standards; and assets acquired by performing specific audit procedures on opening balances at acquisition date;

• to determine the fair value of the and contingent consideration on acquisition date.  We tested the appropriateness that a liability for the contingent consideration was not recorded on

• As such this matter has been determined acquisition data and verified that no material payment as a key area of focus for our audit. was required at the end of the contingent consideration measurement period, on 30 June 2021.

We assessed the adequacy of the Group’s disclosures in respect of the acquisition in the financial report.

PROPERTY, PLANT AND EQUIPMENT

Area of focus

How our audit addressed it

Refer also to notes 2, 3, and 13 During the financial year the Group significantly invested in its cultivation capacity through the development of is Mildura Facility.

• Our audit procedures included:

• Vouching material purchases of property, plant and

• capacity through the development of is equipment to support documentation;

• Mildura Facility. The work at the Mildura site includes  Examining the underlying material plant and construction of an additional greenhouse equipment costs which have been capitalised in the and support buildings. The works have year to determine whether or not such plant and been classified as capital-work-in progress equipment is held and ready for use and therefore until such time as the facility is completed. subject to depreciation;

• The Group’s accounting policy for  Assessing the classification of property, plant and depreciating such property, plant and equipment between categories, including capitalequipment is over the term of the useful life work-in progress; of the asset, from when it is held ready for  Recalculating the arithmetic accuracy of the use.

• Recalculating the arithmetic accuracy of the depreciation charge expensed in the financial report; and

During the year management has not changes its estimation of useful life of its assets.

• Reviewing for impairment triggers in relation to the carrying value of property, plant and equipment.

Property, plant and equipment has been a We have also assessed the adequacy of disclosures in key area of focus for our audit. relation to property, plant and equipment in the financial report.

Annual Report 2021 | 73

Independent auditor’s report cont’d

INVENTORY Area of focus How our audit addressed it Refer also to notes 2 and 12 The Group’s inventory of $12.1 million; is Our audit procedures included: significant to the financial report and has increased by $2.7 million from the prior  Performing inventory stock verification procedures in respect of inventory held at the Northern and year. Southern facilities; The Groups inventory balance has also increased due to obtaining control over the  Reviewing inventory confirmations in relation to Satipharm inventory as a result of the inventory held by third parties; business combination completed during the  Reviewing reporting for inventory procedures year. (including physical verification) completed by the The Groups inventory primary consists of component auditor with regards to inventory held biomass and resin. The biomass is valued outside of Australia; at fair value less costs to sell as at the date  Evaluating management’s judgments and of harvest and resin is valued at the lower assumptions used in calculation cost per gram of of cost or net realisable value. biomass; The valuation of inventory involves  Verifying that the carrying value of resin and biomass judgement by management in particular inventory has been calculated appropriately including when determining the value per gram of verification of third-party manufacturing costs to biomass. In addition, consideration is given supporting documentation; and to directly attributable costs which can be capitalised to the into cost of inventory.  Evaluating management’s judgements and assumptions used in determining the need for As such this matter has been determined inventory provisions and inventory write downs. as a key area of focus for our audit. We have also assessed the adequacy of disclosures in relation to inventory in the financial report.

SHARE BASED PAYMENTS

Area of focus

How our audit addressed it

Refer also to notes 2, 3, 22 and the Remuneration Report

In the current year the Group has issued performance rights to the CEO and the Executive Management team. The performance rights included a non-market based vesting condition attached to the completion of the Mildura facility.

• Our audit procedures included:

• Evaluating the fair values of share-based payment

• Executive Management team. The arrangements by agreeing assumptions to third party

• performance rights included a non-market evidence. In determining the grant dates, we

• based vesting condition attached to the evaluated what were the most appropriate dates

• completion of the Mildura facility. based on the terms and conditions of the share-based

• The performance rights issued require payment arrangements; significant judgements and estimations by management, including the following:  Evaluating the progress of the vesting of share-based payments within the service period; and

• Determination of the grant date, and the evaluation of the fair value of the  For the specific application of the Black Scholes performance rights at grant date; model, we assessed the experience of the expert used to advise the value of the arrangement. We

• The evaluation of the vesting charge retested some of the assumptions used in the model taken to the profit and loss in-respect of and recalculated those fair values.

• The evaluation of the vesting charge taken to the profit and loss in-respect of the vesting conditions attached to the performance rights; and

We also considered the adequacy of the Group’s disclosures in the notes to the financial report.

74 | Cann Group Limited

SHARE BASED PAYMENTS (CONTINUED)

 The evaluation of key inputs into the Black Scholes model, including the significant judgement of the forecast volatility of the performance right over its exercise period.

The value of these share-based payment arrangements has been deemed a key area of focus for our audit.

Other Information The directors are responsible for the other information. The other information comprises the information included in the Group’s annual report for the year ended 30 June 2021 but does not include the financial report and the auditor’s report thereon.

Our opinion on the financial report does not cover the other information and accordingly we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Directors for the Financial Report

The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error.

In preparing the financial report, the directors are responsible for assessing the ability of the Group to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Financial Report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report.

Annual Report 2021 | 75

Independent auditor’s report cont’d

A further description of our responsibilities for the audit of these financial statements is located at the Auditing and Assurance Standards Board website at:

http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf

This description forms part of our independent auditor’s report.

Report on the Remuneration Report

Opinion on the Remuneration Report

We have audited the Remuneration Report included in the directors’ report accompanying these financial statements for the year ended 30 June 2021.

In our opinion, the Remuneration Report of Cann Group Limited, for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001 .

Responsibilities

The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001 . Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards.

William Buck Audit (Vic) Pty Ltd

ABN: 59 116 151 136

A. A. Finnis Director

Melbourne, 23 August 2021

76 | Cann Group Limited

Corporate governance statement

FOR THE YEAR ENDED 30 JUNE 2021

The Company’s directors and management are committed to conducting the business of the Group in accordance with the Group’s core values: trust and accountability; leading edge behaviour; and acting in the best interests of our people and community. This includes conducting ourselves in an ethical manner and in accordance with the highest standards of corporate governance. The Group has adopted and substantially complies with the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (4th edition) (Recommendations), as is appropriate for the size and nature of the Group’s operations.

For the 2021 financial year, the Group has prepared a corporate governance statement that discloses the extent to which the Group has followed the Recommendations, identifies any Recommendations that have not been followed, and the reasons for the Group not doing so (Corporate Governance Statement).

In accordance with ASX Listing Rules 4.7.4 and 4.10.3, the Corporate Governance Statement will be available for review on the Company’s website (www.canngrouplimited.com), and, together with an Appendix 4G, will be lodged with the ASX at the same time that this annual report is lodged with the ASX. The Appendix 4G will provide information on each Recommendation that needs to be reported against by the Company, and provide shareholders with guidance on where the relevant governance disclosures are located. The Company’s corporate governance documents, including policies and charters, are all available on the Company’s website www.canngrouplimited.com

Annual Report 2021 | 77

Shareholder information

Equity security holders

As at 2 September 2021 the Company had 310,591,617 ordinary shares on issue. Further details of the Company’s equity securities are as follows:

Largest holders

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2 September
Rank Name 2021 %IC
1 NATIONAL NOMINEES LIMITED 9,202,765 2.96
2 MR PHILIP JACOBSEN & MRS MAXINE JACOBSEN 6,319,518 2.03
3 FLAG CAPITAL PTY LTD 6,114,881 1.97
4 MULLACAM PTY LTD 5,155,000 1.66
5 SUPERNOVA FUND PTY LTD 3,590,909 1.16
6 CITICORP NOMINEES PTY LIMITED 2,987,457 0.96
7 HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED 2,703,456 0.87
8 HARVEST ONE CANNABIS INC 2,248,615 0.72
9 INVIA CUSTODIAN PTY LIMITED 2,225,395 0.72
10 HARDMAIL PTY LTD 1,931,852 0.62
11 MS SAMIRA OLIVEIRA VESCOVI 1,800,000 0.58
12 COMMONWEALTH SCIENTIFIC AND
INDUSTRIAL RESEARCH ORGANISATION 1,675,533 0.54
13 BNP PARIBAS NOMINEES PTY LTD 1,525,000 0.49
14 AUSTRALIAN BUSINESSPOINT PTY LTD 1,350,000 0.43
15 MR RAYMOND THOMAS HOBSON & MRS RHONDA ELLEN HOBSON 1,250,000 0.40
16 MS LIFANG HAO 1,200,000 0.39
17 EGEA PTY LTD 1,200,000 0.39
18 ESTELVILLE NOMINEES PROPRIETARY LIMITED 1,149,050 0.37
19 BNP PARIBAS NOMINEES PTY LTD SIX SIS LTD 1,127,148 0.36
20 EIREEN PTY LTD 1,062,000 0.34
Total 55,818,579 17.96
Balance of register 254,773,038 82.04
Grand total 310,591,617 100.00
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78 | Cann Group Limited

Distribution of equity holders

Holdings distribution

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Range No. of holders Securities
100,001 and Over 360 137,068,980
10,001 to 100,000 3,946 115,957,449
5,001 to 10,000 3,135 24,093,051
1,001 to 5,000 11,358 28,159,606
1 to 1,000 9,355 5,312,531
Total 28,154 310,591,617
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Unmarketable parcels

The number of investors holding less than a marketable parcel of 1,661 ($0.301 on 2 September 2021) is 13,083 and they hold 10,303,829 securities.

Unquoted equity securities

The number of unquoted equity securities on issue as at 2 September 2021 are as follows:

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Number
Unquoted equity securities No. of holders on issue
Unlisted options – exercisable at $0.945, expire 31 March 2022 3 145,007
Unlisted options – exercisable at $0.46, expire 31 March 2022 7 20,983,371
Performance rights – 2020 series 10 890,000
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Voting rights

The voting rights attaching to each ordinary share are that holders of ordinary shares have the right to vote at every general meeting of the Company. At a general meeting every holder of ordinary shares present in person or by proxy has, on a poll, one vote for each ordinary share held.

There are no voting rights attached to any of the unquoted equity securities.

Securities exchange

The Company is listed on the Australian Securities Exchange. The home exchange is Melbourne.

Other information

Cann Group Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.

Annual Report 2021 | 79

Corporate directory

Company

Cann Group Limited

ACN 603 949 739

Registered office

Walter and Eliza Hall Institute of Medical Research

4 Research Avenue La Trobe University, Victoria, 3083

Phone: 03 9095 7088 Email: contact@canngrouplimited.com

Share registry Link Market Services Limited

Tower 4, 727 Collins Street Melbourne, Victoria, 3008

Ph: 1300 554 474

Auditors

William Buck

Level 20, 181 William Street Melbourne, Victoria, 3000

Ph: 03 9824 8555

Directors

Mr Allan McCallum AO (Chairman) Mr Philip Jacobsen (Deputy Chairman) Mr Douglas Rathbone AM Mr Geoffrey Pearce Ms Jennifer Pilcher Mr John Sharman

Stock exchange

(ASX:CAN)

Company secretary

Ms Geraldine Farrell

Chief Executive Officer

Mr Peter Crock

80 | Cann Group Limited

www.colliercreative.com.au #CNG0035

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canngrouplimited.com