EXMceuticals Inc. — Management Reports 2020

Dec 29, 2020

EXMCEUTICALS INC. Management Discussion and Analysis For the YearEnded June 30, 2020

The following management discussion and analysis ("MD&A") of the financial condition and results of operations of EXMceuticals Inc. (the "Company" or "EXM") should be read in conjunction with the consolidated financial statements for the year ended June 30, 2020, and the related notes contained therein which have been prepared under International Financial Reporting Standards ("IFRS"), and all other disclosure documents of the Company. All monetary amounts, unless otherwise indicated, are expressed in Canadian dollars. Additional information relating to the Company and other regulatory filings can be found on SEDAR website at www.sedar.com.

The Company's head office and principal business address is 421 – 7th Avenue SW, 30th Floor, Calgary, Alberta T2P 4K9, Canada. The Company's common shares are listed on the Canadian Securities Exchange (the "CSE") under the symbol "EXM". In April 2019, the Company began trading on the Frankfurt Stock Exchange under the securities identification code "WKN: A2PAW2" and "ISIN: CA30207T1049".

This MD&A is dated December29th, 2020.

DESCRIPTION OF BUSINESS AND REVIEW

The accounts hereby reviewed represent a year of transition for the company. During the last year EXM's focus has shifted materially as it has focused away from cannabis cultivation and ceased it's nascent cultivation operations. EXM's core activities are now solely centred around the strategic matching of natural bioactive ingredients extracted from the cannabis plant with the needs of the nutraceutical, cosmeceutical, and pharmaceutical industries. The Company's Exmceuticals Portugal subsidiary possesses unique authorizations for cannabis importation and research and development at its specially equipped laboratory in Lisbon, Portugal. EXM's team comprises highly qualified scientific and management professionals covering all areas demanded by the cannabis industry -- organic and analytical chemistry, biology, biochemistry, genetics, compliance, IP, partnerships, and legal and regulatory issues.

Overall progress during 2020 has been significantly slower than anticipated as a result of the effects of the pandemic which have included the temporary closure of all facilities, delayed various financing discussions, as well as forcing the furloughing of all Portuguese staffIn addition to operating the licensed cannabis laboratory, The Company is in the final stages of detailed planning for an industrial-scale pharmaceutical standard facility in Portugal which will complement its existing R&D lab and pilot refinery. An existing property has been secured in Setubal, south of Lisbon, which requires retro-fitting to EU-GMP / API standards. The refinery will be able to process cannabis biomass, extracts, and distillates from Portugal, as well as from international sources where the regulatory import requirements of INFARMED have been met. EXM has multiple MOU's in place which will ensure the refinery can be operated to initial capacity from day 1 and then scaled further. This refinery, once licensed, will distribute medical cannabis ingredients on a B2B basis, to produce API's and cannabis-based compounds in a reliable, consistent, and standardized process. EXM targets and maintains the highest

certification standards to meet the needs of the pharmaceutical, nutraceutical, and cosmetic industries worldwide.

On November 20, 2019, the Company announced changes to its management structure following the recent granting of the Portugal R&D license. The Portuguese R&D license for cannabis enables EXM to import raw material into Portugal and refine it inside the existing R&D facility and pilot refinery. The Company is in the process of applying for a commercial license.

On March 25, 2020, the Company announced that while focusing all resources on its Portuguese operations, the Company would delay the further development of its Exmceuticals farming operations in Uganda. On November 5, 2020, EXMceuticals Holdings B.V., a wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement with a non-related party to sell its 70% interest in Prime Ranchers Limited, the company's majority-owned cultivation and extraction company in Uganda, for proceeds of USD \$150,000 which proceeds will be utilized to pay down the debt of Prime Ranchers Limited.

On March 25, 2020, the Company announced that Comexaf, the company's existing joint venture company in the Democratic Republic of the Congo, has an annual renewal requirement, which would not be pursued in April, 2020.

On May 7, 2020, the Company announced that it secured a supply agreement in principle of pharmaceutical/medical grade cannabis ingredients totalling a minimum of 8,400 litres of extracts in 2021. The Company signed these agreements to ensure access to GMP-compliant pharmaceutical and medical grade cannabis for its planned Portugal-based refinery. The Company also signed an outline letter of intent with one of these counterparties for the offtake of the eventual supply of finished ingredients.

On June 6, 2020, the Company announced that it entered into a letter of intent with Econnabis SAS, an operating subsidiary of Plena Global Holdings Inc., a large-scale producer and supplier of medical-grade cannabis ingredients, to supply the Company's proposed Portugal refinery with up to 200 kilograms of GMP (good manufacturing practice) compliant tetrahydrocannabinol distillate. This agreement continues the Company's focus on being the gateway to the European market for the existing legal cannabis industry.

On August 25, 2020, the Company announced it has advanced its research and development operations at its Lisbon, Portugal, facility. The company applied for a P2020 Research Grant under the project name SkanABility for a proof-of-concept study of the biological activity of cannabinoids and terpenes in cosmeceutical applications. The project seeks to demonstrate the commercial viability of cannabis compounds in cosmetic and aromatherapy products, as well as develop sustainable, functional packaging based on biodegradable cannabis materials (fibers and waxes), which will allow for the extension of product shelf-life and the preservation of formulations and properties. Additionally, the Company submitted an application to the Portuguese Government through the I&D COVID-19 initiative and has begun investigating the virucidal efficacy of cannabis and terpene molecules in combatting SARS-CoV-2, the virus that causes COVID-19. Early indications suggest that the molecules may inhibit the virus' permanence on surfaces by attacking its cellular structure. If proven effective, these molecules could become key elements in commercial solutions used to combat the spread of the virus.

SIGNIFICANT EVENTS/OVERALL PERFORMANCE FOR THE YEAR ENDED JUNE 30, 2020 AND TO THE DATE OF THIS REPORT

On July 5, 2019, the Company entered into loan facility agreement with the Chairman with a maturity date of January 5, 2021 (the "Loan Facility Maturity Date") with the Lender, pursuant to which the Lender provided to the Company a loan facility for the principal amount of \$1,400,000 (received) (the "Loan Facility"). The Loan Facility bears an interest rate of 12% per annum up to the Loan Facility Maturity Date. The Company may elect to pay any outstanding principal amount and any interest accrued on the principal amount of the Loan Facility in cash or through the issuance of common shares of the Company.

As additional consideration for the loan, the Company agreed to issue Special Warrants to the Lender to acquire up to 207,407 common shares of the Company equal to 20% of the principal amount of the loan at a conversion rate of \$1.35 per Special Warrant Share. Conversion of the Special Warrants to Special Warrant Shares is subject to the closing of one or more private placements in which the Lender will have subscribed for securities of the Company at an aggregate subscription price of no less than the principal amount of the loan. Upon closing of a Qualifying Financing, the Special Warrants automatically convert into Special Warrant Shares. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 207,407 Special Warrants (2019 – nil) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$125,731 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$135,781 (2019 - \$nil) in interest and accreted \$66,530 (2019- \$nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$59,201.

The Loan Facility also provides for the grant of performance-based warrants (the "Bonus Warrants"), entitling the Lender to acquire a percentage of the principal amount funded under the loan in common shares of the Company at a price of \$1.35 per share. The percentage of Bonus Warrants the Lender will receive will be determined based on the Company's share price at the time the loan is fully repaid as follows:

• (i) equal to 10% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$1.35 and \$2.00 per share;

• (ii) equal to 20% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$2.00 and \$3.00 per share;

• (iii) equal to 30% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$3.00 and \$4.00 per share;

• (iv) equal to 40% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$4.00 and \$6.00 per share; and
• (v) equal to 50% of the principal amount of the Loan Facility if the fair market value of the Company's shares is above \$6.00 per share.

As the value of these Bonus Warrants cannot be determined until the repayment date, no value has been recognized for the Bonus Warrants as at June 30, 2020.

On July 1, 2020, the parties renegotiated the accrued interest on this loan (see next paragraph).

On July 7, 2019, the Company received loan proceeds from the Chairman of the Company (the "Lender") totalling \$267,599 (2019 - \$332,401) as partial proceeds from a loan agreement signed on June 7, 2019 for total proceeds of \$600,000. The loan bears interest of 10% per annum and matured on December 6, 2019.

As additional consideration, the Company also agreed to issue special warrants (the "Special Warrants") to the Lender to acquire up to 88,889 common shares (the "Special Warrant Shares") equal in value to 20% of the principal amount at a conversion rate of \$1.35 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender subscribing for securities of the Company at an aggregate subscription price of no less than the principal amount of the loan (the "Qualifying Financing"). Upon closing of a Qualifying Financing, the Special Warrants automatically convert into Special Warrant Shares. The Special Warrants are otherwise not convertible, and as the Lender did not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants expired.

As at June 30, 2020, the Company had issued 39,647 Special Warrants (2019 – 49,242) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$9,236 (2019 - \$29,050) which was accreted over the life of the loan. During the year ended June 30, 2020, the Company accrued \$59,560 (2019 - \$nil) in interest and accreted \$34,097 (2019 - \$4,189) of the discount which is included in interest expense. As at June 30, 2020, the June Loan is in default. On July 1, 2020, the parties renegotiated this loan. On July 1, 2020, the Company and the Lender signed a new loan agreement in the principal amount of \$854,171, which includes the following amounts: (i) principal and interest due and owing under the June 7, 2019 loan agreement in the amount of \$664,500 as at July 1, 2020; (ii) accrued and unpaid expenses owing to the Lender in the amount of \$25,671; and (iii) accrued and unpaid interest on the \$1,400,000 July 5, 2019 loan agreement (see next paragraph). This loan bears an interest rate of 10% per annum for a term of six months.

On October 21, 2019, the Company entered into a loan facility agreement with the Chairman of the Company with a maturity date of December 31, 2020 with the Lender, pursuant to which the Lender provided to the Company a loan in the principal amount of \$500,000 which was received at June 30, 2020. The loan bears an interest rate of 15% per annum up to the maturity date, and 20% thereafter. The loan is repayable in cash, and the accrued interest is convertible into common shares of the Company at the option of the Lender.

As additional consideration for the loan, the Company also agreed to issue Special Warrants to the Lender to acquire up to 74,074 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of \$1.35 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of the loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 74,074 Special Warrants (2019 – nil) to the Lender. The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$25,939 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$52,192 (2019 - \$nil) in interest and accreted \$11,938 (2019- \$nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$14,001.

The loan also provides for the grant of performance-based Bonus Warrants entitling the Lender to acquire a percentage of the principal amount funded under the loan in common shares of the Company at a price of \$1.35 per share. The percentage of Bonus Warrants the Lender will receive will be determined based on the Company's share price at the time the loan is fully repaid as follows:

i (i) equal to 15% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$1.35 and \$2.00 per share;

i (ii) equal to 25% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$2.00 and \$3.00 per share;

i (iii) equal to 35% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$3.00 and \$4.00 per share;

i (iv) equal to 45% of the principal amount of the Loan Facility if the fair market value of the Company's shares is between \$4.00 and \$6.00 per share; and

i (v) equal to 60% of the principal amount of the Loan Facility if the fair market value of the Company's shares is above \$6.00 per share.

As the value of these Bonus Warrants cannot be determined until the repayment date, no value has been recognized for the Bonus Warrants as at June 30, 2020.

During the year ended June 30, 2020, the Company received loans from four third parties for a total of \$820,000. The loans bear an interest rate of 12% per annum.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lenders to acquire up to 218,667 common shares of the Company equal to 20% of the principal amount under the loans at a conversion rate of \$0.75 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lenders participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loans. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 218,667 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$83,606 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$51,372 (2019 - \$nil) in interest and accreted \$22,166 (2019 - \$nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$61,440.

During the year ended June 30, 2020, the Company received loans from four third parties for a total of \$820,000. The loans bear an interest rate of 12% per annum.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lenders to acquire up to 218,667 common shares of the Company equal to 20% of the principal amount under the loans at a conversion rate of \$0.75 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lenders participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loans. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 218,667 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$83,606 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$51,372 (2019 - \$nil) in interest and accreted \$22,166 (2019 - \$nil) of the discount which is included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$61,440.

On January 24, 2020, the Company received a loan from a third party totalling \$1,250,000. This loan bears interest of 12% per annum and matures on the earlier of June 20, 2021 and the closing of a Qualifying Financing.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lender to acquire up to 500,000 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of \$0.50 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 500,000 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$119,398 which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$64,932 in interest (2019 - \$nil) and accreted \$27,914 (2019 - \$nil) of the discount (2019 - \$nil) which has been included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$91,484 (June 30, 2019 - \$nil).

During the year ended June 30, 2020, the Company received a loan from a third party totaling \$286,000. The loan bears interest of 12% per annum and matures on the earlier of July 31, 2021 and the closing of a Qualifying Financing.

As additional consideration for the loans, the Company also agreed to issue Special Warrants to the Lender to acquire up to 114,400 common shares of the Company equal to 20% of the principal amount under the loan at a conversion rate of \$0.50 per Special Warrant Share. Conversion of the Special Warrants is subject to the Lender participating in a Qualifying Financing, as described above, for an aggregate subscription price of no less than the principal amount of their respective loan. The Special Warrants are otherwise not convertible, and in the event the Lender does not participate in a Qualifying Financing on or prior to the maturity date, the Special Warrants will expire.

As at June 30, 2020, the Company had issued 114,400 Special Warrants (2019 – nil). The fair value of the Special Warrants was based on a market rate of 20%. The Company recorded a discount of \$29,298 (June 30, 2019 - \$nil) which will be accreted over the term of the loan. During the year ended June 30, 2020, the Company accrued \$14,292 (2019 - \$nil) in interest and accreted \$5,957 (2019 - \$nil) of the discount which has been included in interest expense. As at June 30, 2020, the unaccreted portion of the discount was \$23,341 (June 30, 2019 - \$nil).

In relation to the loans in the amounts of \$820,000, \$1,250,000 and \$286,000 disclosed above, as the terms of the loans stipulate that the interest accrued on the loans be paid through the issuance of shares, the Company has recognized an amount of \$130,595 as obligation to issue shares.

On July 15, 2019, the Company entered into an amendment to the term sheet relating to the acquisition of MM (Operations) Limited. As the owner invested a further amount of USD\$1,500,000 to fully fund operations until March 31, 2020, the Company has agreed to revise the terms of the term sheet as follows: USD\$6,500,000 in cash and USD\$25,000,000 in a convertible note.

During the year ended June 30, 2020, the Company decided not to pursue the acquisition of MM (Operations), an agro-processing facility in Malawi, and recorded a write-down of advances of \$671,760.

On October 21, 2019, the Company entered into an additional loan facility agreement (the "October Loan Facility Agreement") with the CEO with a maturity date of December 31, 2020

(the "October Loan Facility Maturity Date") with the Lender, pursuant to which the Lender provided to the Company a loan in the principal amount of \$500,000 (the "October Loan Facility") of which \$83,403 was received at December 31, 2019. The October Loan Facility bears an interest rate of 15% per annum up to the October Loan Facility Maturity Date. The October Loan Facility is repayable in cash, and the accrued interest is convertible into common shares of the Company at the option of the Lender.

On October 22, 2019, the Company entered into a settlement with Palisade Global Investments Ltd. to terminate the Consulting Agreement and Loan Agreement effective July 12, 2019.

On November 20, 2019, the Company announced changes to its management structure following the recent granting of the Portugal R&D license. The Portuguese R&D license for cannabis enables EXM to import raw material into Portugal and refine it inside the existing R&D facility and pilot refinery. EXM is now actively pushing forward with an initial cannabis importation, as well as the fit out and licensing of the sizable industrial facility that has been leased to the south of Lisbon. Once licensed and constructed, this facility will require a substantial amount of raw and processed cannabis material to be available for refining. Given this license development and his background, Michel Passebon has offered to refocus his time and energy on EXM's production activities, both biomass and isolate. EXM is now seeking to significantly expand its cultivation footprint and acreage, as well as build the larger refining facility in Portugal. As a result of this, Michel will voluntarily step away from being the CEO of the Company and will instead be the Chairman of EXMceuticals Farming BV as well as overall Head of Production for the EXM group. The board has asked Jonathan Summers to perform the role of CEO initially on an interim basis until the Company's AGM.

On January 14, 2020, the Company named Paulo Martins as Chief Executive Officer for Portugal operations and announced the resignations of Messrs. Michel Passebon as CEO and Scott Davis as CFO. Jonathan Summers will act as interim CEO until a successor is appointed.

On January 14, 2020 and February 3, 2020, the Company named Nick Davis and Prf. Dr. Eurico Castro Alves as Board Advisors. The Company also announced the resignation of Marc Bernier as Chief Strategy Officer. Mr. Bernier now moves on to a consultancy relationship with EXM and has been appointed to EXM's board of directors. In connection with his appointment to the board of directors, the Company has granted Mr. Bernier incentive stock options to purchase up to 1,500,000 common shares of the Company pursuant to the Company's Omnibus Equity Compensation Plan. The stock options are exercisable at a price of \$2.00 per share for a period of 10 years from the date of grant.

On February 6, 2020, the Company appointed Michael Kinley CPA, CA as CFO.

On February 6, 2020, the Company and the minority shareholders of EXMceuticals Portugal, Lda ("EXM Portugal"), signed an agreement, under the terms of which the Company acquired the minority stake (30% of EXM Portugal) for its nominal value. As a result of the acquisition of EXM Portugal at the present date, the Company holds, directly and indirectly, 100% of the share capital of EXM Portugal. EXM Portugal is the entity that holds a license for cannabis research and development issued by INFARMED, the Portuguese National Authority of Medicines and Health Products. This license authorizes the Company to import, research and refine cannabinoids and cannabis by-products in Portugal. EXM Portugal operates a state-of-the-art pilot-scale refinery in Portugal for the transformation of cannabis-based ingredients on a R&D environment and conditions. The Company also owns 100% of the share capital of EXMceuticals Portugal II Lda ("EXM Portugal II"), which is the industrial company currently finalising the internal design and equipment plans for the factory building located in Setubal, just south of Lisbon. The EXM Portugal II facility will consist of both extraction and refining installations, be designed and operated to GMP standards, and once licensed will distribute pure cannabinoids to commercial buyers.

On March 25, 2020, the Company announced that Comexaf, the company's existing joint venture company in the Democratic Republic of the Congo, has an annual renewal requirement, which will not be pursued in April, 2020.

RESULTS OF OPERATIONS

Quarterly Results

The following table summarizes the results of operations for the eight most recent quarters:

	2020, Q3	2020, Q3	2020, Q2	2020, Q1
Expenses	\$ 2,194,257	\$ 2,620,619	\$ 1,861,744	\$ 1,768,717
Net loss	(2,698,302)	(2,965,107)	(1,753,744)	(1,768,717)
Total assets	1,251,646	2,592,963	3,416,756	2,929,956
	2019, Q4	2019, Q3	2019, Q2	2019, Q1
Expenses	\$ 3,073,293	\$ 1,262,920	\$ 86,613	\$ 464,377
Net loss	(3,599,867)	(5,681,952)	(83,350)	(464,377)
Total assets	2,458,370	1,449,534	2,797,059	358,647

During Q3 2019, the Company recorded a listing fee of \$4,750,508 in related to the RTO transaction.

Results of Operations – For the Year Ended June 30, 2020 Compared to the Year Ended June 30, 2019

During the year ended June 30, 2020, net comprehensive loss increased to \$9,929,048 compared to \$9,833,999 for the nine months ended June 30, 2019. The difference in net comprehensive loss activities is mainly made up of:

• Accounting and audit increased to \$264,405 for the year ended June 30, 2020 compared to \$78,937 for the year ended June 30, 2019 to (i) \$56,281 under-accrued for the prior year financial statement audit and (ii) the increased number of transactions to account for in the current year;

• Consulting fees increased to \$3,382,230 for the year ended June 30, 2020 compared to \$1,571,892 for the year ended June 30, 2019 due to the addition of multiple consultants during the current year;
• Interest expense increased to \$553,489 for the year ended June 30, 2020 compared to \$13,652 for the year ended June 30, 2019 due to the increase in loans payable during the current period;
• Office and administration decreased to \$52,994 for the year ended June 30, 2020 compared to \$145,173 for the year ended June 30, 2019 due to the curtailment of operations in Africa during the current year;
• Operating expenses decreased to \$467,497 for the year ended June 30, 2020 compared to \$629,515 for the year ended June 30, 2019 due to the curtailment of operations in Africa during the current year;
• Project development costs decreased to \$39,594 for the year ended June 30, 2020 compared to \$617,166 for the year ended June 30, 2019 due to an advance recorded in the prior year related to operations in Africa that were curtailed in the current year;
• Wages and benefits increased to \$916,589 for the year ended June 30, 2020 from \$159,895 for the year ended June 30, 2019 due to the increase in operations in Portugal during the current year;
• . The increases are all a result of the activities engaged in the Company's corporate and foreign operations in the current period as compared to the same period of the prior year including the Company's subsidiaries in Portugal and Uganda.

During the year ended June 30, 2020, the Company sold its 100% interest in EXMP to a former director for nominal proceeds of \$1 and recorded a gain on of subsidiary of \$151,048.

During the year ended June 30, 2020, the Company entered into a debt settlement with a former officer of the Company and recorded a gain on settlement of related party debt of \$117,594.

During the year ended June 30, 2020, the Company entered into a settlement with Palisade Global Investments Ltd. to terminate the Consulting Agreement and Loan Agreement effective July 12, 2019 and recorded a gain on settlement of loans payable of \$108,000. During the year ended June 30, 2020, the Company recorded an impairment of property and equipment of \$1,108,175 resulting from the curtailment of its operations in Africa.

For the three months ended June 30, 2020 Compared to the three months ended June 30, 2019

The Company incurred expenses of \$2,194,257 for the period ended June 30, 2020 compared with \$2,383,513 for period ended June 30, 2019. Expense details are as follows:

• Advertising and promotion decreased to \$245,893 for the three months ended June 30, 2020 compared to \$557,347 for the three months ended June 30, 2019 due to the termination of a significant marketing campaign in June of 2019;
• Consulting fees increased to \$1,420,352 for the three months ended June 30, 2020 compared to \$557,347 for the year ended June 30, 2019 due to the addition of multiple consultants during the current year;
• Interest expense increased to \$150,043 for the three months ended June 30, 2020 compared to \$451 for the three months ended June 30, 2019 due to the increase in loans payable during the current period;
• Legal fees decreased to \$56,608 for the three months ended June 30, 2020 compared to \$448,801 for the three months ended June 30, 2019 due to the legal fees associated with the activities of the Company's subsidiaries in Portugal and Uganda in the three months ended June 30, 2019;
• Office and administration for the three months ended June 30, 2020 decreased to a recovery of (\$129,152) compared to an expense of \$87,939 for the three months ended June 30, 2019 due to the reallocation of insurance and rent expense in the three months ended June 30, 2020;
• Professional fees for the three months ended June 30, 2020 increased \$222,693 to \$Nil compared to a recovery of (\$222,693) for the three months ended June 30, 2019 due to the reallocation of accounting and legal fees in the three months ended June 30, 2019;
• Project development costs decreased \$617,666 to \$Nil for the three months ended June 30, 2020 compared to \$617,166 for the three months ended June 30, 2019 due to (i) the reallocation of costs from operating expenses in the three months ended June 30, 2019 and (ii) the curtailment of operations in Africa in the three months ended June 30, 2020;
• Share-based compensation increased to \$398,213 for the three months ended June 30, 2020 compared to \$Nil for the three months ended June 30, 2019 as a result of the recognition for the fair value of vested Restricted Share Units that were issued during the year ended June 30, 2020;
• Travel decreased from \$70,710 to Nil for the three months ended June 30, 2020 compared to \$617,166 for the three months ended June 30, 2019 due to the curtailment of operations and expenses of former CEO, Michel Passenbon, in Africa;

Cash Flow

Operating Activities

Cash outflow from operating activities was \$3,357,402 for the year ended June 30, 2020 compared to \$5,182,800 for the year ended June 30, 2019. The outflow from operating activities is the result of the activities described in the results of operations above.

Financing Activities

Cash inflow from financing activities was \$4,581,000 for the year ended June 30, 2020 compared to \$6,662,008 for the year ended June 30, 2019. The inflow from financing activities during the year ended June 30, 2020 is primarily the result of loans from related parties and arm's length parties.

Investing Activities

Cash outflow from investing activities was \$1,097,293 for the year ended June 30, 2020 compared to \$1,482,355 for the year ended June 30, 2019 which is the result of the acquisition of property and equipment.

LIQUIDITY AND CAPITAL RESOURCES

The Company is not in commercial production and, accordingly, it does not generate cash from operations. The Company finances development and activities by raising capital from equity markets from time to time and the issuance of debt. As at June 30, 2020, the Company had cash of \$264,752 (June 30, 2019 - \$139,865).

As at June 30, 2020, the Company had a working capital deficiency of \$7,934,424 compared to a working capital deficiency of \$1,341,714 as at June 30, 2019.

On July 22, 2019, the Company issued 75,554 common shares of the Company at a price of \$1.35 per share and 200,000 common shares of the Company at a price of \$1.2803 per share to its creditors for debt settlements in the aggregate amount of \$358,058.

On September 26, 2019, the Company's Board of Directors approved an equity compensation plan and on December 31, 2019, granted 500,000 restricted share units to the CEO subject to shareholder approval. Each restricted share unit entitles the holder to purchase one common share of the Company at \$1.35 per share until December 31, 2022 and is subject to vesting in equal annual installments for three years.

On February 6, 2020, the Company announced that it has granted incentive stock options to a director of the Company to purchase up to an aggregate of 466,931 common shares of the Company pursuant to the Company's Omnibus Equity Compensation Plan (the "Plan"). The stock options are exercisable at a price of \$2.00 per share for a period of 10 years from the date of grant. The Company has also issued an aggregate of 2,250,000 restricted share units ("RSUs") under the Plan to executive officers of the Company. The RSUs have a deemed price of \$0.50 per unit and entitle the holder to receive one share of the Company per RSU, subject to vesting in equal annual instalments over a three-year period.

During the year ended June 30, 2020, the Company issued 95,713 common shares of the Company at \$0.595 per share for proceeds of \$56,949 and 67,857 common shares of the Company at \$0.35 per share for proceeds of \$23,750 pursuant to the exercise of warrants.

On July 22, 2020, the Company completed a private placement of 5,180,000 units at a price of \$0.20 per unit for total gross proceeds of \$1,036,000. Each unit consists of one common share of the Company and one share purchase warrant. Each warrant entitles the holder to purchase one additional common share of the Company at an exercise price of \$0.30 per share for a period of 18 months from closing of the private placement. The Company issued 71,400 units as finders' fees, with the units having the same terms as the private placement units.

On July 22, 2020, the Company issued 30,237 common shares for gross proceeds of \$9,000.

On November 5, 2020, EXMceuticals Holdings B.V., a wholly-owned subsidiary of the Company, entered into a Share Purchase Agreement with a non-related party to sell its 70% interest in PRL for proceeds of USD \$150,000.

SHARE CAPITAL

As at the date of this report, the Company had the following outstanding:

• 75,167,510 common shares.
• Warrants

Number of Warrants	Exercise Price (\$)	Expiry Date
1,463,741	0.595	January 24, 2023
Stock options
Number of Options	Exercise Price (\$)	Expiry Date

OFF BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements.

RELATED PARTY TRANSACTIONS

Related parties include the Board of Directors, officers, key management personnel, close family members and enterprises that are controlled by these individuals. Key management personnel are those having authority and responsibility for planning and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.

During the year ended June 30, 2020, the Company incurred consulting fees and management fees of \$693,088 (2019 - \$1,281,950) to related parties.

As at June 30, 2020, the Company owed \$713,990 (June 30, 2019 – \$722,922) to officers and directors of the Company.

As at June 30, 2020, the Company owed \$649,529 (2019 - \$360,177) to related parties which has been included in accounts payable and accrued liabilities.

As at June 30, 2020, the Company advanced \$46,520 (June 30, 2019 – \$111,749) to officers of the Company.

The amounts due to and from related parties are unsecured, non-interest bearing, and have no fixed terms of repayment.

On June 7, 2019, the Company entered into a loan agreement with a related party for \$600,000. The loan bears interest at 10% per annum and was due on December 7, 2019, and is in default as at June 30, 2020. As at June 30, 2020, principal and interesting outstanding on this loan total \$663,505. On July 1, 2020, the Company and the Lender signed a new loan agreement in the principal amount of \$854,171, which includes the following amounts: (i) principal and interest due and owing under the June 7, 2019 loan agreement in the amount of \$664,500 as at July 1, 2020; (ii) accrued and unpaid expenses owing to the Lender in the amount of \$25,671; and (iii) accrued and unpaid interest on the \$1,400,000 July 5, 2019 loan agreement (Note 11(c)). This loan bears an interest rate of 10% per annum for a term of six

On July 5, 2019, the Company entered into a loan agreement with a related party for \$1,400,000. The loan bears interest at 12% per annum and is due on January 5, 2021. As at June 30, 2020, the principal and interesting outstanding on this loan total \$1,535,781.

On October 21, 2019, the Company entered into a loan agreement with a related party for \$500,000. The loan bears interest at 15% per annum and is due on December 31, 2020. As at June 30, 2020, principal and interesting outstanding on this loan total \$552,192.

During the year ended June 30, 2020, the Company granted 6,966,931 (2019 – nil) stock options with a fair value of \$265,916 (2019 -\$nil) and 3,500,000 (2019 - nil) RSUs with a fair value \$546,265 (2019 - \$nil) to related parties.

Key management personnel comprise the current and former President, Chief Executive Officer, Chief Financial Officer, and Directors and Officers of the Company. The remuneration of the key management personnel for the year ended June 30, 2020 and 2019 consisted of consulting fees and management fees of \$1,075,068 (2019 - \$1,041,277).

GOING CONCERN

The consolidated financial statements for the year ended June 30, 2020 have been prepared on the basis that the Company will continue as a going concern, which assumes the realization of assets and settlement of liabilities in the normal course of business. The appropriateness of the going concern assumption is dependent upon the Company's ability to generate future profitable operations and/or generate continued financial support in the form of equity or other financings.

Management feels that sufficient working capital will be obtained from public share offerings to meet the Company's liabilities and commitments as they come due. The consolidated interim financial statements do not reflect any adjustments to the carrying values of assets and liabilities and the reported expenses and balance sheet classification that would be necessary if the going concern assumption were not appropriate and such adjustments could be material.

CONTRACTUAL COMMITMENTS

As at June 30, 2020, the Company did not have any contractual commitments.

CRITICAL ACCOUNTING ESTIMATES

The information provided in this report, including the financial statements, is the responsibility of management. In the preparation of these statements, estimates are sometimes necessary to make a determination of future values for certain assets or liabilities. Management believes such estimates have been based on careful judgments and have been properly reflected in the financial statements.

ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

Please refer to the June 30, 2020 consolidated financial statements on www.sedar.com.

FINANCIAL INSTRUMENTS

Please refer to the June 30, 2020 consolidated financial statements on www.sedar.com.

RISK AND UNCERTAINTIES

As at the date of this report, the Company had no income generating assets and is not able to finance day-to-day activities through operations. The Company's continuation as a going concern is dependent upon its ability to attain profitable operations and generate funds and/or raise equity capital or borrowings sufficient to meet current and future obligations. These factors indicate the existence of a material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern. Management intends to finance operating costs over the next twelve months with cash on hand, issuance of common shares in private placements and loans from related parties as required.

Risks Related to the Operations of the Company

Operating Risk and Insurance Coverage

Any adverse changes or developments affecting EXM Portugal for its Laboratory operations can affect the company conserving its R&D license and pilot scale refinery. Furthermore, the capacity to upscale to an industrial scale facility. The industrial scale facility can be further delays without proper financing. There is a risk that these changes or developments could adversely affect the business by a variety of factors, including some that are discussed elsewhere in these risk factors and the following: delays in obtaining, or conditions imposed by, regulatory approvals; plant design errors; environmental pollution; non-performance by third party contractors; increases in materials or labour costs; construction performance falling below expected levels of output or efficiency; breakdown, aging or failure of equipment or processes; contractor or operator errors; labour disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; or major incidents and/or catastrophic events such as fires, explosions, earthquakes or storms.

The Company plans to purchase insurance to protect its assets, operations and employees. While the Company believes its insurance coverage will address all material risks to which it may be exposed to and will be adequate and customary in its state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which the Company is exposed. In addition, no assurance can be given that such insurance will be adequate to cover the Company's liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. If the Company were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if the Company were to incur such liability at a time when it is not able to obtain liability insurance, its business, results of operations and financial condition could be materially adversely affected.

Transportation risks

Due to the perishable nature of the Company's proposed products, the Company expects to depend on expedient and efficient third party transportation services to distribute its product. Any prolonged disruption of third party transportation services could have an adverse effect on the financial condition and results of operations of the Company. The increased costs associated with the third party transportation services to ship the Company's proposed products may also adversely impact the business of the Company and its ability to operate profitably.

Limited Operating History

The Company is new to the cannabis sector, therefore subject to many of the risks common to early-stage enterprises, including limitations with respect to personnel, financial, and other resources and lack of revenues. There is no assurance that the Company will be successful in achieving a return on shareholders' investment and the likelihood of success must be considered in light of the early stage of operations.

Reliance on Management

The success of the Company is dependent upon the ability, expertise, judgment, discretion and good faith of its senior management. The Corporation's future success depends on its continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and the Corporation may incur significant costs to attract and retain them. In addition, the loss of any of the Corporation's senior management or key employees could materially adversely affect its ability to execute its business plan and strategy, and it may not be able to find adequate replacements on a timely basis, or at all. Loss of key personnel named would result in delays in obtaining the licences and adversely impact the Corporation's ability to execute the business plan. The Corporation does not maintain key man insurance.

Management of Growth

The Company may be subject to growth-related risks, including capacity constraints and pressure on its internal systems and controls. The Company intends to manage its growth effectively by continuing to implement and improve its operational and financial systems and to expand, train and manage its employee base. Mismanagement of such growth could have a material adverse effect on the Company's business, financial condition, results of operations and prospects.

Conflicts of Interest

The Company may be subject to various potential conflicts of interest because of the fact that some of its officers and directors may be engaged in a range of business activities. In addition, the Company's executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to the Company. In some cases, the Company's executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to the Company's business and affairs and that could adversely affect the Company's operations. These business interests could require significant time and attention of the Company's executive officers and directors.

In addition, the Company may also become involved in other transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons, firms, institutions or Companies with which the Company may be dealing, or which may be seeking investments similar to those desired by it. The interests of these persons could conflict with those of the Company. In addition, from time to time, these persons may be competing with the Company for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, in the event that such a conflict of interest arises at a meeting of the Company's directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.

The Company is Not a Licensed Producer, Importer or Distributor under the ACMPR

The Company may apply to Health Canada to become a licensed importer to allow for the importation and sale of medical marijuana in Canada. The Company has not yet received the licences and there is no guarantee that it will receive a licence. Health Canada has received many applications and only a small fraction have been approved to date. Furthermore, the timing and success of the Company at the various steps in the licensing process is beyond its control and the sole discretion thereof lies with Health Canada. The Company's ability to grow, store and sell medical marijuana in Canada is dependent on receiving the importation and sales licences from Health Canada and there can be no assurance that the Company will obtain such licences.

Even if the Company is successful in obtaining the importation and sales licences, such licences will be subject to ongoing compliance and reporting requirements. Failure to comply with the requirements of the licences or any failure to maintain the licences would have a material adverse impact on the business, financial condition and operating results of the Company. Although the Company believes that it will meet the requirements of the ACMPR, there can be no guarantee that Health Canada will grant the licences. Should Health Canada not grant the licences, the business, financial condition and operating results of the Company would be materially adversely affected. To the extent such licences are not obtained, the Company may be curtailed or prohibited from its proposed importation of medical marijuana or from proceeding with the development of its business as currently proposed.

For additional Risk Factors, refer to the filing statement on www.sedar.com on January 30, 2019.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

Venture issuers are not required to include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in National Instrument 52-109 Certification of Disclosure in Issuer's Annual and Interim Filings ("NI 52- 109"). In particular, the Company's certifying officers are not making any representations relating to the establishment and maintenance of:

• 1. controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
• 1. a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the Company's generally accepted accounting principles.

The Company's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they make. Investors should be aware that inherent limitations on the ability of the Company are certifying officers to design and implement on a cost effective basis.

FORWARD LOOKING STATEMENTS

Forward looking statements are statements that are not historical facts and are generally, but not always identified by the words "expects", "plans", "anticipates", "believes", "intends", "estimates", "projects", "potential", "interprets" and similar expressions, or that events or conditions "will", "may", "could" or "should" occur. The information contained herein may contain forward looking statements including expectations of future production, cash flows or earnings. These statements are based on current expectations that involve a number of risks and uncertainties which could cause actual results to differ from those anticipated. Factors that could cause the actual results to differ materially from those in forward looking statements, but are not limited to: the risk associated with the oil and gas industry (e.g. operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserves estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price, price and exchange rate fluctuation and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. The foregoing list of assumptions is not exhaustive. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's reports on file with Canadian securities regulatory authorities. Events or circumstances could cause results to differ materially.