Fiore Cannabis Ltd. — Interim / Quarterly Report 2021

Aug 27, 2021

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FIORE CANNABIS LTD.

(Formerly Citation Growth Corporation.)

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

For the three and six months ended June 30, 2021 and 2020 (Expressed in thousands of Canadian Dollars)

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Consolidated Statements of Financial Position

(In thousands of Canadian dollars except for share data)

Consolidated Statements of Financial Position (In thousands of Canadian dollars except for share data)
Notes	June 30, 2021 December 31,2020
Assets Current assets Cash Accounts receivable Biological assets 5 Inventory 6 Prepaid expenses and deposits Assets held for sale 11	$ $ 366 406 660 496 246 359 1,424 526 1,367 596 7,665 7,710
Property, plant and equipment 7 Intangible assets 9 Promissory note receivable 10	11,728 10,093 9,241 9,879 2,262 2,994 1,673 -
	24,904 22,966
Liabilities Current liabilities Accounts payable and accrued liabilities Income Tax Payable Loans and borrowings 13 Convertible debentures 14 Current portion of lease liabilities 12 Derivative liabilities 14 Liabilities associated with assets held for sale 11	5,119 5,674 347 356 4,487 3,084 1,543 2,006 33 133 708 1,565 3,607 3,498
Lease liabilities 12 Convertible debentures 14 Loans and borrowings 13	15,844 16,316 - 155 2,155 2,367 1,128 1,080
	19,127 19,918
Shareholders’ equity Share Capital 15 Reserves Accumulated other comprehensive loss Deficit	112,593 108,730 8,172 8,743 (251) 193 (114,737) (114,618)
	5,777 3,048
	24,904 22,966

The accompanying notes are an integral part of the consolidated financial statements.

Nature of operations and ability to continue as a going concern (Note 1) Commitments and contingencies (Note 19) Segmented information (Note 20) Subsequent events (Notes 11(b), 14(a) & 24)

Approved on behalf of the Board: “Erik Anderson”

“Marcel LeBlanc”

Erik Anderson, Director

Marcel LeBlanc, Director

1

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Consolidated Statements of Comprehensive Loss For the Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

		Three Months Ended	Three Months Ended		Six Months Ended
	Notes	2021	2020	2021	2020
		$	$	$	$
Revenues		605	578	1,692	1,108
Excise taxes		(80)	(50)	(169)	(108)
Net revenue		525	528	1,523	1,000
Cost of sales		485	345	1,591	587
Gross profit (loss) before fair value adjustments		40	183	(68)	413
Change in fair value of inventory sold		(50)	(553)	57	(853)
Unrealized gain on changes in fair value of
biological assets	5	347	(87)	570	75
Goss profit (loss)		337	(457)	559	(365)
Expenses
General and administrative expenses	16, 18(b)	1,138	2,283	2,045	5,256
Depreciation and amortization	7, 9	171	225	344	603
Share-based compensation	15(e),15(f)	990	1,267	1,002	91
		2,299	3,775	3,391	5,950
Loss from operations		(1,962)	(4,232)	(2,832)	(6,315)
Other income (expenses)
Finance and other costs	17	(675)	(797)	(1,212)	(1,137)
Foreign exchange gain (loss)		43	-	44	(150)
Impairment of intangible assets		-	-	-	(9,211)
Impairment of assets held for sale		-	-	-	(3,510)
Impairment on investment		-	-	-	(305)
Unrealized gain on derivative liabilities	14	610	(10)	616	82
Loss on deemed disposal of subsidiary		-	-	-	(12,254)
Gain on disposal of assets		1,232	(4)	1,232	(4)
Gain on settlement of debt	15(b)(iii)	123	-	198	(12)
		1,333	(811)	878	(26,501)
Loss before income taxes		(629)	(5,043)	(1,954)	(32,816)
Current income tax expense		-	-	-	(149)
Future income tax recovery (expense)		-	-	-	(510)
Net loss from continuing operations		(629)	(5,043)	(1,954)	(33,475)
Net loss from discontinued operations		-	-	-	(18)
Net loss for the period		(629)	(5,043)	(1,954)	(33,493)
Other comprehensive income (loss)
Foreign currencytranslation		(266)	(612)	(444)	907
Comprehensive loss		(895)	(5,655)	(2,398)	(32,586)
Net loss per share, basic and diluted		-	(0.04)	(0.01)	(0.26)
Weighted average number of shares outstanding
Basic and diluted		151,198,116	135,948,120	144,406,356	127,324,182

The accompanying notes are an integral part of the consolidated financial statements

2

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Consolidated Statements of Changes in Equity For the Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

Note	ShareCapital Reserves Common Shares Amount Treasury Reserve Stock Options Share Purchase Warrants Contributed Surplus Total Reserves Accumulated other comprehensive loss Deficit Total Equity
	# $ $ $ $ $ $ $ $ $
Balance, March 31, 2020 Shares issued for cash 15(b)(i) Shares issued for services 15(b)(ii) Shares issued for debt 15(b)(iii) Redemption of restricted share units 15(b)(v) Shares returned to treasury Warrants issued for debenture 14(b) Warrants issued for debt Share-based compensation 15(e),15(f) Forfeited stock options and warrants Comprehensive loss for theperiod	123,007,147 106,672 (1,574) 2,698 6,126 560 7,810 1,778 (98,622) 17,638
	3,930,721 589 - - - - - - - 589
	16,361,711 1,671 - - - - - - - 1,671
	825,000 70 - - - - - - - 70
	8,701,108 1,302 - (1,302) - - (1,302) - - -
	(18,515,424) (1,574) 1,574 - - - 1,574 - - -
	- - - - 129 - 129 - - 129
	- - - - 30 - 30 - - 30
	- - - 1,257 - - 1,257 - - 1,257
	- - - (755) (820) 820 (755) - 755 -
	- - - - - - - (1,585) (16,751) (18,336)
Balance, December 31, 2020 Shares issued for cash 15(b)(i) Shares issued for services 15(b)(ii) Shares issued for debt 15(b)(iii) Shares issued for conversion of debenture 15(b)(vi) Shares issued for exercise of warrants 15(b)(iv) Shares issued for settlement of convertible bond 15(b)(iii) Redemption of restricted share units 15(b)(v) Warrants issued for debenture 14(b) Warrants issued for debt Share-based compensation 15(e),15(f) Forfeited stock options and warrants Comprehensive loss for theperiod	134,310,263 108,730 - 1,898 5,465 1,380 8,743 193 (114,618) 3,048
	8,539,124 1,281 - - - - - - - 1,281
	7,497,956 1,173 - - - - - - - 1,173
	2,175,000 399 - - - - - - - 399
	629,692 211 - - - - - - - 211
	700,000 131 - - (26) - (26) - - 105
	3,846,153 353 - - - - - - - 353
	2,100,000 315 - (315) - - (315) - - -
	- - - 407 - 407 - - 407
	- - - - 197 - 197 - - 197
	- - - 1,013 - - 1,013 - - 1,013
	- - - (1,564) (4,658) 4,375 (1,847) - 1,835 (12)
	- - - - - - - (444) (1,954) (2,398)
Balance, June 30, 2021	159,798,188 112,593 - 1,032 1,385 5,755 8,172 (251) (114,737) 5,777

The accompanying notes are an integral part of the consolidated financial statements.

3

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)
Notes	2021 2020
Operating activities Net loss Non-cash items Unrealized gain on changes in fair value of biological assets 5 Change in fair value of inventory sold Depreciation and amortization 7, 9 Share-based compensation 15(e), 15(f) Accretion expense 17 Accrued interest expense Future tax expense Loss on deemed disposal of subsidiary Unrealized gain on derivative liabilities 14 Gain on settlement of debt Gain on disposal of assets Finder’s shares issued for business acquisition Shares issued for services 15(b)(ii)	$ $ (1,954) (33,475) (570) (75) (57) 853 799 14,233 1,002 91 205 504 261 426 - 510 - 12,254 (616) (82) 3 12 (1,232) 4 - 1,219 360 2,540
Changes in non-cash working capital Accounts receivable Biological assets Inventory Prepaid expenses and deposits Accounts payable and accrued liabilities Income taxpayable	(1,799) (986) (164) (64) (116) (208) (52) 136 41 (178) (279) 148 - 245
Net cash used in operatingactivities	(2,369) (907)
Investing activities Acquisition of property, plant and equipment 7 Proceeds from sale of property, plant and equipment, net Acquisition of intangible assets 9	(321) (180) 186 3 (51) (77)
Net cash used in investingactivities	(186) (254)
Financing activities Loans and borrowings 13 Repayment of lease liabilities 12 Shares issued for cash,net of issuance costs 15(b)(i)	1,411 137 (18) (80) 1,166 1,006
Net cashprovided byfinancingactivities	2,559 1,063
Effect of foreign currencytranslation on cash	(44) 175
Increase (decrease) in cash Cash,beginningof theperiod	(40) 77 406 362
Cash, end of the period	366 439
Supplemental cash flow information: Addition to Property, plant and equipment included in accounts payable Interest paid	64 1,338 430 15

The accompanying notes are an integral part of the consolidated financial statements.

4

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

1. Nature of operations and going concern

Fiore Cannabis Ltd. (formerly Citation Growth Corp.) (the “Company”) is governed by the Business Corporations Act (British Columbia). The head office is located at Suite 102 – 1561 Sutherland Avenue, Kelowna, British Columbia, Canada V1Y 5Y7. The Company's common shares are traded on the Canadian Stock Exchange (“CSE”) under the trading symbol "FIOR" and OTCQX markets under the ticker symbol “FIORF”. On October 28, 2020, the Company changed its name from Citation Growth Corp. to Fiore Cannabis Ltd.

The Company was established to enter into the emerging market of regulated medical marijuana and has applied to Health Canada to become a licensed producer under the Cannabis Act (Canada) (“Cannabis Act”) which is still pending. The Company has operations in the United States, in the states of Nevada and California. The Company has six state approved licenses in Nevada which consist of medical and recreational marijuana cultivation, medical and recreational production licenses, and a distribution license with a dispensary in California.

These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue its operations for the foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business.

The Company has incurred losses and negative operating cash flows since inception. As at June 30, 2021, the Company had accumulated deficit of $114,737 (December 31, 2020 - $114,618), and working capital deficiency of $4,116 (December 31, 2020 - working capital deficiency of $6,223). The Company’s ability to continue as a going concern is dependent on obtaining continued financial support, securing debt and/or equity financing and generating profitable operations in the future. Management is committed to raising additional capital to meet its financial obligations and commitments, fund its growth initiatives, capital expenditures and sustain its operations in the normal course of business. Although the Company has raised funds in the past, there can be no assurance that the Company will be able to secure additional adequate financing. Management is aware, in making its assessment, of material uncertainties related to events or condition that any cast substantial doubt upon the Company’s ability to continue as a going concern.

These consolidated financial statements do not reflect the adjustments to the carrying values and classifications of assets and liabilities that would be necessary should the Company be unable to continue as a going concern.

2. Significant accounting policies

(a) Basis of presentation

These condensed interim consolidated financial statements (“consolidated financial statements”) have been prepared in accordance with International Accounting Standards 34, “Interim Financial Reporting” (“IAS 34”), using accounting policies consistent with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the nine months ended December 31, 2020.

5

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

2. Significant accounting policies (continued)

(b) Basis of consolidation

These consolidated financial statements were approved and authorized for issue by the Board of Directors on August 27, 2021.

These consolidated financial statements include the accounts of the Company and the following wholly owned subsidiaries (collectively, the “Company”). Intercompany balances and transactions are eliminated on consolidation.

	Country of		Functional
Entity	Incorporation	Ownership	Currency
Marapharm Inc.	Canada	100%	Canadian Dollar
Full Spectrum Medicinal Inc. (“Full
Spectrum”)	Canada	100%	Canadian Dollar
Marapharm Las Vegas LLC (“MLV”)	United States	100%	U.S. Dollar
Marapharm Washington LLC (“MWA”)	United States	100%	U.S. Dollar
EcoNevada LLC (“EcoNevada”)	United States	100%	U.S. Dollar
Phenofarm NV LLC (“Phenofarm”)	United States	100%	U.S. Dollar
MWA Management LLC	United States	100%	U.S. Dollar
Marapharm DHS California LLC (“MDHS”)	United States	100%	U.S. Dollar
420 Express Delivery Inc., dba, Green Leaf
Wellness LLC (“Green Leaf”)	United States	100%	U.S. Dollar

• (c) Basis of measurement

These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments, biological assets and other investments which are measured at fair value.

3. Significant accounting judgments, estimates and assumptions

The preparation of the Company’s consolidated financial statements in conformity with IFRS requires management to exercise judgment and to make estimates and assumptions that affect the application of accounting policies and the reported amounts of revenues, expenses, assets, liabilities and disclosures. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Significant estimates and assumptions that have the most significant effect on the amounts recognized in the consolidated financial statements are described as follows.

6

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

3. Significant accounting judgments, estimates and assumptions (continued)

(a) Biological assets and inventory

The Company measures biological assets consisting of cannabis on plants at fair value less cost to sell up to the point of harvest. Determining the fair value requires management to make a number of estimates, including costs incurred for each stage of growth of the plants up to the point of harvest, expected yield per plant, wastage of plants, selling prices per gram and post-harvest costs.

The Company measures inventory at the lower of cost and net realizable value and estimates the sales price, costs of completion and selling costs.

(b) Business combination

Judgment is used in determining whether an acquisition is a business combination or an asset acquisition. On initial recognition, the assets and liabilities of the acquired business and the consideration paid for them are included in the consolidated financial statements at their fair values. In measuring fair value, management uses estimates of future cash flows and discount rates. Any subsequent change in these estimates would affect the amount of goodwill if the change qualifies as a measurement period adjustment. Any other change would be recognized in the income statement in the subsequent period.

(c) Assets held for sale

Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Among other conditions, management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. However, in some cases, an asset may remain classified as held for sale for a period exceeding one year if it remains unsold due to events or circumstances beyond the Company’s control. If the recognition criteria for assets held for sale are no longer met or if management’s plans change, the Company will cease to classify the assets as held for sale.

(d) Impairment of property, plant and equipment and intangible assets

An impairment loss is recognized for the amount by which the asset’s or CGU’s carrying amount exceeds its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of those cash flows. In the process of measuring expected future cash flows, management makes assumptions about future operating results. In addition, when determining the applicable discount rate, estimation is involved in determining the appropriate adjustments to market risk and asset-specific risk factors. These assumptions relate to future events and circumstances. Actual results may vary and may cause significant adjustments to the Company’s assets within the next financial year.

(e) Useful lives of property, plant and equipment and intangible assets

Depreciation and amortization are dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. Management reviews the useful lives of property, plant and equipment and intangible assets at each reporting date and makes assessments of any impairment considering factors such as economic and market conditions, anticipated changes in laws and technological improvements.

7

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

3. Significant accounting judgments, estimates and assumptions (continued)

(f) Share-based compensation

The fair value of share-based compensation is subject to the limitations of the Black-Scholes option pricing model that incorporates market data and involves uncertainty in estimates used by management in the assumptions. Because the Black-Scholes option pricing model requires the input of highly subjective assumptions, including the volatility of share prices, changes in subjective input assumptions can materially affect the fair value estimate.

• (g) Deferred tax assets

Deferred tax assets, including those arising from unutilized tax losses, require management to assess the likelihood that the Company will generate sufficient taxable earnings in future periods in order to utilize recognized deferred tax assets. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, future changes in tax laws could limit the ability of the Company to obtain tax deductions in future periods. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the Company to realize the net deferred tax assets recorded at the reporting date could be impacted. The Company has recorded a full valuation allowance against its deferred tax assets due to the uncertainty in the realization of these assets.

4. Accounting standards adopted in the current year

IBOR reform

In recent years, global regulators have prioritized the reform and replacement of benchmark interest rates such as LIBOR and other interbank offered rates (IBORs). As a result, public authorities and other market participants are selecting new benchmark interest rates in key currencies with the objective that such rates will be based on liquid underlying market transactions. With this reform, the IASB have provided amendments to IFRS 9 - Financial Instruments, IFRS 7 - Financial Instruments: Disclosures and IAS 39 - Financial Instruments: Recognition and Measurement. These amendments were adopted effective January 1, 2021 and did not have a material impact on the unaudited condensed consolidated financial statements

5.

Biological assets

The Company’s biological assets consist of cannabis seeds and cannabis plants. The changes in the carrying value of biological assets are as follows:

	$
Carrying amount, March 31, 2020	383
Production costs capitalized	717
Genetics purchased	25
Changes in fair value less cost to sell due to biological transformation	(62)
Transferred to inventory upon harvest	(664)
Foreign currency	(40)
Carrying amount, December 31, 2020	359

8

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

5. Biological assets (continued)

	$
Carrying amount, December 31, 2020	359
Production costs capitalized	1,016
Changes in fair value less cost to sell due to biological transformation	570
Transferred to inventory upon harvest	(1,691)
Foreign currency	(8)
Carrying amount, June 30, 2021	246

As at June 30, 2021, the fair value of biological assets included $246 in cannabis plants, and the weighted average fair value less cost to complete and cost to sell was $3.73 per gram.

Biological assets are classified as level 3 on the fair value hierarchy. Significant unobservable inputs used to fair value biological assets include the Company’s selling price per gram of dried cannabis and yield of cannabis per plant. The Company expects that a $1.00 increase or decrease in the selling price per gram of dried cannabis would increase or decrease the fair value of biological assets by $81. A 10% increase or decrease in the estimated yield per cannabis plant would result in an increase or decrease in the fair value of biological assets by $24. Other unobservable inputs are less variable and will not result in significantly higher or lower fair value measurement.

During the three and six months ended June 30, 2021, the Company produced approximately 175,858 grams and 359,402 grams of dried cannabis respectively. As of June 30, 2021, the biological assets were on average 56% complete and it was expected that the Company’s biological assets would yield approximately 109,884 grams of cannabis when harvested. The Company’s estimates are, by their nature, subject to change. Changes in the anticipated yield will be reflected in future changes in the fair values of biological assets.

6. Inventory

	June 30, 2021 December 31,2020
Harvested cannabis Consumable inventory Finishedgoods	$ $ 1,259 385 45 30 120 111
	1,424 526

7. Property, plant and equipment

			Buildings
		Furniture &	and leasehold	Right-of-use
	Land	equipment	improvements	assets	Total
	$	$	$	$	$
Cost
Balance, March 31, 2020	1,681	2,273	9,032	466	13,452
Additions	-	282	4	324	610
Foreign currency	(172)	(198)	(923)	(35)	(1,328)
Balance, December 31, 2020	1,509	2,357	8,113	755	12,734
Additions	-	201	16	35	252
Early termination of lease	-	-	-	(324)	(324)
Foreign currency	(51)	(215)	(40)	(8)	(314)
Balance, June 30, 2021	1,458	2,343	8,089	458	12,348

9

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

7. Property, plant and equipment (continued)

			Buildings
		Furniture &	and leasehold	Right-of-use
	Land	equipment	improvements	assets	Total
Accumulated depreciation and	impairment losses
Balance March 31, 2020	792	716	487	384	2,379
Depreciation	-	272	279	138	689
Foreign currency	(81)	(38)	(62)	(32)	(213)
Balance December 31, 2020	711	950	704	490	2,855
Depreciation	-	195	173	16	384
Early termination of lease	-	-	-	(72)	(72)
Foreign currency	(14)	(19)	(19)	(8)	(60)
Balance, June 30, 2021	697	1,126	858	426	3,107
Carrying value
Balance, December 31, 2020	798	1,407	7,409	265	9,879
Balance, June 30, 2021	761	1,217	7,231	32	9,241

8. Asset acquisitions and business combination

For details of the acquisition of ACC, Full Spectrum and the Joint Venture Agreements, please refer to Note 8 of the audited Consolidated Financial Statements for the nine months ended December 31, 2020 and year ended March 31, 2020.

9. Intangible assets

	Intellectual property Marijuana licenses Sublease right Creation costs Total
Cost Balance, March 31, 2020 Additions Foreign exchange	$ $ $ $ $
	17,017 4,649 3,094 33 24,793 - 57 - - 57 - (480) - (3) (483)
Balance, December 31, 2020 Additions Dispositions Foreign exchange	17,017 4,226 3,094 30 24,367
	- 51 - - 51
	- (701) - - (701)
	- (109) - (1) (110)
Balance, June 30, 2021	17,017 3,467 3,094 29 23,607

10

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

9. Intangible assets (continued)

Intellectual property Marijuana licenses Sublease right Creation costs Total	Intellectual property Marijuana licenses Sublease right Creation costs Total
$ $ $ $ $ Accumulated amortization and impairment losses Balance, March 31, 2020 8,500 1,273 3,094 14 12,881 Amortization - 111 - 1 112 Impairment 8,517 - - - 8,517 Foreign exchange - (136) - (1) (137)
	8,500 1,273 3,094 14 12,881
	- 111 - 1 112
	8,517 - - - 8,517
	- (136) - (1) (137)
Balance, December 31, 2020 Amortization Dispositions Foreignexchange	17,017 1,248 3,094 14 21,373
	- 69 - 1 70
	- (63) - - (63)
	- (34) - (1) (35)
Balance, June 30, 2021	17,017 1,220 3,094 14 21,345
Net book value Balance, December 31, 2020 Balance, June 30, 2021	- 2,978 - 16 2,994
	- 2,247 - 15 2,262

During the three and six months ended June 30, 2021, the Company disposed two marijuana licenses for a consideration of US$1,500. The Company recorded a gain of $1,232 from the sale of the licenses.

The Company has agreed to pay a 5% finders fee on this transaction by installment.

During the nine months ended December 31, 2020, the Company recorded an impairment charges to intellectual property in the amount of $8,517 relating to the acquisition of Full Spectrum.

10. Promissory note receivable

During the three and six months ended June 30, 2021, the Company disposed two marijuana licenses for a consideration of US$1,500. The Company received US$150 in cash and entered into a promissory note for a principal amount of $1,673 (US$1,350) with the Debtor. The Promissory note bore interest of 0.11% per annum for a term of two years expiring March 31, 2023. The Debtor will remit to the Company, on quarterly basis, no less than fifty percentage of the net operating income that the Debtor receive in connection with the cultivation facility in Nevada.

11. Assets and liabilities held for sale

	June 30, 2021December 31, 2020
Land located at Desert Hot Springs, California (a) Celista project (b)	$ $
	1,611 1,656
	6,054 6,054
Assets held for sale	7,665 7,710
Mortgage loan (b) Loan payable (b)	600 600 3,007 2,898
Liabilities associated with assets held for sale	3,607 3,498

(a) The assets classified as held for sale consist of certain lands located in the state of California which have been listed for sale. These assets are expected to be sold within a twelve-month period and are no longer productive assets as there is no interest to develop them for future use.

11

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

11. Assets and liabilities held for sale (continued)

• (b) On April 19, 2021, the Company entered into a Memorandum of Understanding to transfer ownership of certain lands, buildings and equipment located in Celista, British Columbia. These assets are expected to be sold within a twelve-month period and are no longer productive assets as there is no interest to develop them for future use. Subsequent to June 30, 2021, the Company signed a Definitive Agreement to transfer ownership of Marapharm Inc and Full Spectrum Medicinal Inc. in consideration for debt and liabilities associated with the purchaser.

12. Lease liabilities

	$
As at March 31, 2020	108
Lease liability recognized	314
Cash principal and interest payments	(152)
Accretion	21
Foreign exchange	(3)
As at December 31, 2020	288
Lease liability recognized	35
Early termination of lease	(274)
Cash principal and interest payments	(17)
Accretion	1
As at June 30, 2021	33
Less: current portion	33
	-

13. Loans and borrowings

Note Interest perannum Maturity	June 30, 2021 December 31, 2020
Loan from Veritas - - Promissory Note (a) 12% March 31, 2021 Loans from Directors (b) 12% May 1, 2021 Canada Emergency Business Account (c) - - Equipment loan (d) 29% August 21, 2021 Non-convertible debenture (e) 10% August 20, 2022 October 21, 2022 December 17, 2022 Revolving Credit Promissory Note (f) 10% December 22, 2021 Secured short term loan (g) 13% September 18, 2021	$ $ 1,000 1,000 521 506 - 855 30 30 20 81 747 231 150 724 223 133 2,264 612 652 -
	5,615 4,164

(a) On June 30, 2020, the Company entered into a new unsecured promissory note of US$375 which bears interest of 12% per annum and is repayable upon the earlier of (i) the receipt by Company of the US$375 from the United States Internal Revenue Service after filing a successful application for a FIRPTA Withholding Certificate from the sale of the properties or (ii) nine months from the date of the promissory note.

12

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

13. Loans and borrowings (continued)

• (b) During the nine months ended December 31, 2020, the Company entered into short term loan agreements with the directors and an executive of the Company for an aggregated principal amount of $765. The loans are unsecured, mature on May 1, 2021 and bear an average interest rate of 12% per annum payable on maturity date. During the six months ended June 30, 2021, the Company repaid $628 of principal and $75 of interest. On June 18, 2021, the unpaid balance of $152 was converted into a secured short term loan.(Note 13 (g)).

• (c) On May 5, 2020, the Company received a “Canada Emergency Business Account” government assistance in the amount of $40 as a revolving line of credit. The line of credit was interest-free until January 1, 2023. After December 31, 2020, any outstanding balance on the revolving $40 line of credit will be converted into a non-revolving 5-year term loan maturing on December 31, 2025, at which time the balance must be paid in full. If payment can be made on or before December 31, 2022, $10 of the principal amount will be forgiven. Commencing on January 1, 2023, interest accrues on the balance of the term loan at the rate of 5% per annum.

• (d) On July 30, 2020, the Company entered into an equipment loan agreement in the amount of $121 (US$96). The loans are secured by certain lighting equipment, mature on September 21, 2021 and bear interest at 29% per annum.

• (e) During the nine months ended December 31, 2020, the Company closed a non-convertible debenture private placement of 1,207 units at $1 per unit for gross proceeds of $1,207. Each unit consisted of $1 principal amount of 10% unsecured subordinated debentures and 2,000 common share purchase warrants. Each whole warrant is exercisable into one common share of the Company at a price of $0.15 per share for a period of twenty-four months. The Company paid $52 in cash and issued 103,000 common share purchase warrants at a fair value of $4 as finder’s fee.

• (f) On December 22, 2020, the Company entered into a secured revolving credit promissory note with a company controlled by a director of the Company for a principal amount US$2,000 with 10% interest per annum expiring December 22, 2021 with an option to extend for another year. This loan is secured by a deed of trust lien and assignment of rents and lease on the facility located in North Las Vegas, Nevada and unlimited corporate guarantee of MLV, EcoNevada, Phenofarm and Green Leaf. As consideration, the Company issued 825,000 common shares for a fair value of $70 and 550,000 warrants for a fair value of $30. The warrants expire on December 22, 2023 and have an exercise price of $0.15. As at June 30, 2021, the Company received a $2,553 (US$2,000) loan from the revolving credit and accrued $54 in interest.

• (g) On June 18, 2021, the Company entered into secured short term loan agreements for an aggregated principal amount of $652 in which $152 was converted from the unsecured loan from a director of the Company (Note 13 (b)). The short term loans are secured by a deed of trust lien on the facility located in North Las Vegas, Nevada and bear interest at 13% per annum. The lenders have agreed to convert the principal & unpaid interest into units of a debenture financing expected to be closed in 90 days.

13

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

14. Convertible debentures

	May 1, 2017 (a) October 23, 2018 (b) May 9, 2019, July 10, 2019 (c) Total
Balance, March 31, 2020 Conversion feature Accretion expense Accrued interest Foreign exchange	$ $ $ $
	1,642 2,209 391 4,242
	- (593) - (593)
	18 555 88 661
	- 196 37 233
	(170) - - (170)
Balance, December 31, 2020 Conversion of debentures Accretion expense Accrued interest Interest paid Foreign exchange	1,490 2,367 516 4,373
	(496) (129) - (625)
	- 104 60 164
	- 128 25 153
	- (315) - (315)
	(52) - - (52)
Balance, June 30, 2021	942 2,155 601 3,698

• (a) On May 1, 2017, the Company closed a private placement of 117 convertible bonds at an issue price of US$10,000 per bond for total gross proceeds of $1,556 (US$1,170) (the “Bonds”). The Bonds are convertible into common shares of the Company at a price of $4 per share in the first year, $8 per share in the second year and $12 per share in the third year. The Bonds mature on May 1, 2020 and bear compound interest at 8.5% per annum, payable monthly.

During the six months ended June 30, 2021, the Company entered into a settlement agreement with certain bond holders to convert an aggregated amount of $577 to Units of the Company at a conversion price of $0.15. Each Unit consists of one common share and one common share purchase warrant with an exercise price of $0.22 for a period of eighteen months. A total of 3,846,153 Units were issued at a total fair value of $601. 3,846,153 shares issued were held in escrow to be released in quarterly over eighteen months. The Company recognized a loss of $24 from the settlement of bond. Subsequent to June 30, 2021, the remaining balance of the bond of $942 were settled through the sale of Celista project.

• (b) On October 23, 2018, the Company closed private placement of a one-year 10% unsecured convertible debentures for total gross proceeds of $3,293. The debentures matured on October 23, 2019, and were convertible into units of the Company at a price of $0.80 per unit. Each unit consisted of one common share and one share purchase warrant exercisable at $2.00 per share expiring October 23, 2019. The holders were entitled to convert all or any part of the debentures into units of the Company at a price equal to 10% less than the offering price of the Company’s short form prospectus offering carried out on or prior to the maturity date.

On October 23, 2019, the Company extended and amended the terms of the debentures (the “Amended Debentures”) as follows:

• (i) All accrued and unpaid interest were paid in common shares of the Company at market price. As a result, the Company issued 635,642 common shares to the holders in settlement of accrued interests of $261;

• (ii) The Amended Debentures mature on October 23, 2020;

• (iii) The Amended Debentures are convertible into common shares of the Company at $0.70 per share subject to accelerated maturity if the VWAP of the Company’s common shares is equal to or above $1.05 for ten consecutive trading days; and

14

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

14. Convertible debentures (continued)

• (iv) Interest shall be paid in cash at maturity, however, if the Amended Debentures are converted into common shares prior to the maturity date, interest shall be paid in shares on the conversion date at a price equal to the conversion price.

In consideration for the amendment, the Company issued 3,723,033 warrants to the holders at an exercise price of $1.25 per share for a period of eighteen months expiring April 23, 2021, subject to acceleration if the VWAP of the Company’s common shares is equal or above $1.88 for ten consecutive trading days. Additionally, the Company’s CEO agreed to personally pay the debenture holders an additional $261 or 10% of the principal amount outstanding in common shares upon receipt of his bonus shares on achievement of performance milestones. The Company’s CEO resigned on January 13, 2020.

The fair value of the 3,723,033 warrants of $283 was determined using the Black-Scholes option pricing model based on the following weighted average assumptions: share price of $0.35; risk-free rate of 1.65%; stock price volatility of 112%; dividend yield of 0%; and expected life of warrants of 1.50 years.

On October 23, 2020, the Company further extended and amended the terms of the debentures (the “Second Amended Debentures”) as follows:

• (i) The Second Amended Debentures mature on October 23, 2022;

• (ii) All accrued and unpaid interest from the period from October 24, 2019 to January 23, 2021 will be paid in cash or in common shares of the Company at $0.09, at the discretion of the Company, on January 23, 2021;

• (iii) The Second Amended Debentures are convertible into common shares of the Company at $0.25 per share;

• (iv) Two common share purchase warrants will be issued upon conversion. The warrant exercise price will be $0.15 per share expiring October 23, 2022; The estimated fair value as at December 31, 2020 of these potential issuances of warrants should the holder convert was $159. The estimate fair value is based on Black-Scholes option pricing model based on the following weighted average assumptions: probability of conversion at 5.8% based on known conversion and warrants issuance subsequent to December 31, 2020 in 2021; share price of $0.20; conversion price of $0.15; risk-free rate of 0.20%; stock price volatility of 125%; dividend yield of 0% and expected life of warrants of 1.81 years. The estimated fair value of $159 was recognized as derivative liability associated with these amended convertible debentures as the potential issuance of additional warrants fails the fixto-fix test for embedded derivatives.

• (v) Interest will be paid in cash on the anniversary date and maturity date;

• (vi) The Company, upon providing ten prior business days’ notice to the debenture holders in writing, may, at its option, on any one or more occasion, redeem and repay all or a part of the principal amount.

All other terms of the debentures remain the same.

15

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

14. Convertible debentures (continued)

The Amended Debentures consisted of a financial liability and a derivative liability. On amendment date, the debentures were recorded at its amortized cost of $2,014 which represented the remaining fair value from the debenture balance of $2,606 after the allocation of $593 from the conversion feature. The conversion feature was determined using the Black-Scholes option pricing model based on the following weighted average assumptions: share price of $0.09; risk-free rate of 0.21%; stock price volatility of 121.70%; dividend yield of 0%; and expected life of 2 years.

During the three and six months ended June 30, 2021, the Company recorded an unrealized gain on the derivative liability of $595 and $567 respectively (June 30, 2020 – unrealized loss of $2 and unrealized gain of $74 respectively). As at June 30, 2021, the fair value of the conversion feature of $706 (December 31, 2020 - $1,318) was determined using the Black-Scholes option pricing model based on the following weighted average assumptions: share price of $0.125; risk-free rate of 0.44%; stock price volatility of 132.31%; dividend yield of 0%; and expected life of warrants of 1.32 years.

• (c) During the year ended March 31, 2020, the Company closed a private placement of two-year 10% unsecured convertible debentures for total gross proceeds of $500. The debentures are convertible into units of the Company at a price of $0.80 per unit. Each unit consists of one common share and one share purchase warrant exercisable at $1.40 per share for a period of eighteen months. In the event the Company issues shares (or securities convertible into shares) at a purchase price less than $0.80 per share, the conversion price shall be reduced to such lower price and the exercise price of the warrant shall be reduced on a commensurate basis.

The debentures consisted of a financial liability and a derivative liability. At inception, the debentures were recorded at its amortized cost of $283 which represented the remaining fair value from the net proceeds of $500 after the allocation of $204 from the conversion feature and transaction costs of $13. The conversion feature was determined using the Black-Scholes option pricing model based on the following weighted average assumptions: share price of $0.72; risk-free rate of 1.61%; stock price volatility of 108.12%; dividend yield of 0%; and expected life of warrants of 0.94 year.

During the three and six months ended June 30, 2021, the Company recorded an unrealized gain on the derivative liability of $15 and $51 respectively (June 30, 2020 – unrealized loss of $8 and gain of $14 respectively). As at June 30, 2021, the fair value of the conversion feature of $2 (December 31, 2020 - $52) was determined using the Black-Scholes option pricing model based on the following weighted average assumptions: share price of $0.125; risk-free rate of 0.44%; stock price volatility of 70.96%; dividend yield of 0%; and expected life of warrants of 0.03 years. As at June 30, 2021, the Company is in default of the principal amount of $250 and its interest obligation of $50 under the debentures. Subsequent to June 30, 2021, the debenture holder agreed to extend the expiry date to October 31, 2021

15. Share capital

• (a) Authorized share capital

The Company is authorized to issue an unlimited number of common shares without par value.

(b) Issued and outstanding

As at June 30, 2021, the Company had 159,798,188 common shares (December 31, 2020 – 134,310,263) issued and outstanding.

16

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

• (b) Issued and outstanding (continued)

• (i) Shares issued for cash (continued)

Six months ended June 30, 2021

On April 21, 2021, the Company closed a non-brokered private placement of 6,445,880 units at $0.15 per unit for gross proceeds of $967. Among the 6,445,880 units issued, 2,497,667 units are issued for settlement of short-term loan from directors & officers of the Company of an aggregated amount of $375. Each unit consists of one common share and one common share purchase warrant. Each warrant is exercisable into one common share of the Company at a price of $0.22 per share for a period of 18 months expiring October 21, 2022, subject to an accelerated expiry if the VWAP of the Company’s common shares is equal to or above $0.50 for a period of ten consecutive trading days.

On May 3, 2021, the Company closed a non-brokered private placement of 2,093,244 units at $0.15 per unit for gross proceeds of $314. Each unit consists of one common share and one common share purchase warrant. Each warrant is exercisable into one common share of the Company at a price of $0.22 per share for a period of 18 months expiring November 3, 2022, subject to an accelerated expiry if the VWAP of the Company’s common shares is equal to or above $0.50 for a period of ten consecutive trading days.

Nine months ended December 31, 2020

On June 24, 2020, the Company closed a non-brokered private placement of 3,930,721 units at $0.15 per unit for gross proceeds of $589. Each unit consists of one common share and one share purchase warrant. Each warrant is exercisable into one common share of the Company at a price of $0.22 per share for a period of 18 months expiring December 25, 2021, subject to an accelerated expiry if the VWAP of the Company’s common shares is equal to or above $0.50 for a period of ten consecutive trading days.

• (ii) Shares issued for services

Six months ended June 30, 2021

During the six months ended June 30, 2021, the Company issued an aggregate of 7,497,956 common shares at a fair value of $1,173 to certain directors, officers and consultants of the Company.

Nine months ended December 31, 2020

During the nine months ended December 31, 2020, the Company issued an aggregate of 16,361,711 common shares at a fair value of $1,670 to certain directors, officers and consultants of the Company.

• (iii) Shares issued for debt

Six months ended June 30, 2021

During the six months ended June 30, 2021, the Company issued an aggregate of 2,175,000 common shares at a fair value of $399 to a company controlled by a director as consideration for the US$1,450 loan received during the period. (Note 13(f))

17

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

(b) Issued and outstanding (continued)

• (iii) Shares issued for debt (continued)

During the six months ended June 30, 2021, the Company issued an aggregate of 3,846,153 common shares at a fair value of $353 for settlement of outstanding convertible bond and interest of $577 (Note 14(a))

Nine months ended December 31, 2020

During the nine months ended December 31, 2020, the Company issued an aggregate of 825,000 common shares at a fair value of $70 to a company controlled by a director as consideration for the US$550 loan received during the period. (Note 13(f))

• (iv) Shares issued on exercise of warrants

Six months ended June 30, 2021

During the six months ended June 30, 2021, the Company issued a total of 700,000 common shares on the exercise of warrants for gross proceeds of $105.

• (v) Shares issued under the Restricted Share Unit Plan

Six months ended June 30, 2021

During the six months ended June 30, 2021, 2,100,000 common shares were issued to employees, consultants and directors of the Company at a fair value of $315 on redemption of vested RSUs.

Nine months ended December 31, 2020

During the nine months ended December 31, 2020, 8,701,108 common shares were issued to employees, consultants and directors of the Company at a fair value of $1,302 on redemption of vested RSUs.

• (vi) Shares issued on conversion of convertible debentures

Six months ended June 30, 2021

During the six months ended June 30, 2021, the Company issued a total of 629,692 common shares at a fair value of $211 on conversion of debentures.

18

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

(c) Share purchase warrants

The continuity of warrants for the six months ended June 30, 2021 is as follows:

Expiry Date Exercise Price December 31, 2020	Issued Exercised Expired/ Cancelled June 30, 2021
January 31, 2021 $11.60 10,937,263 April 23, 2021 $1.25 3,723,035 August 2, 2021 $2.50 11,500,000 September 30, 2021 $0.22 2,783,793 October 30, 2021 $0.60 500,000 December 25, 2021 $0.22 3,930,721 August 20, 2022 $0.15 1,560,000 October 21, 2022 $0.15 504,000 December 17, 2022 $0.15 350,000 December 23, 2023 $0.15 550,000 October 23, 2023 $0.15 - October 21, 2022 $0.22 - November 3, 2022 $0.22 - November 30, 2022 $0.22 -	- - 10,937,263 -
	- - 3,723,035 -
	- - - 11,500,000
	- - - 2,783,793
	- - - 500,000
	- - - 3,930,721
	- 700,000 - 860,000
	- - - 504,000
	- - - 350,000
	1,450,000 - - 2,000,000
	1,259,384 - - 1,259,384
	6,445,880 - - 6,445,880
	2,093,244 - - 2,093,244
	3,846,153 - - 3,846,153
36,338,812	15,094,661 700,000 14,660,298 36,073,175

The continuity of warrants for the nine months ended December 31, 2020 is as follows:

Expiry Date Exercise Price March 31, 2020	Issued Exercised Expired/ Cancelled December 31, 2020
April 2, 2020 $3.48 61,701 May 19, 2020 $2.00 539,000 September 25, 2020 $0.80 2,311,250 September 25, 2020 $1.40 265,625 January 31, 2021 $11.60 10,937,263 April 23, 2021 $1.25 3,723,035 August 2, 2021 $2.50 11,500,000 September 30, 2021 $0.22 2,783,793 October 30, 2021 $0.60 1,807,500 December 25, 2021 $0.22 - August 20, 2022 $0.15 - October 21, 2022 $0.15 - December 17, 2022 $0.15 - December 23, 2023 $0.15 -	- - 61,701 -
	- - 539,000 -
	- - 2,311,250 -
	- - 265,625 -
	- - - 10,937,263
	- - - 3,723,035
	- - - 11,500,000
	- - - 2,783,793
	- - 1,307,500 500,000
	3,930,721 - - 3,930,721
	1,560,000 - - 1,560,000
	504,000 - - 504,000
	350,000 - - 350,000
	550,000 - - 550,000
33,929,167	6,894,721 - 4,485,076 36,338,812

• (d) Finders’ warrants

The continuity of finders’ warrants for the six months ended June 30, 2021 is as follows:

ExpiryDate Exercise Price December 31,2020	Issued Exercised Expired/ Cancelled June 30, 2021
# August 20, 2022 $0.15 78,000 October 21,2022 $0.15 25,000	# # # #
	- - - 78,000
	- - - 25,000
103,000	- - - 103,000

19

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

(d) Finders’ warrants (continued)

The continuity of finders’ warrants for the nine months ended December 31, 2020 is as follows:

Expiry Date Exercise Price March 31, 2020	Issued Exercised Expired/ Cancelled December 31, 2020
# August 20, 2022 $0.15 - October 21, 2022 $0.15 -	# # # #
	78,000 - - 78,000
	25,000 - - 25,000
-	103,000 - - 103,000

(e) Stock options

Under the Company’s Stock Option Plan, the maximum number of shares that may be reserved for issuance under the Company’s Fixed Share Option Plan as of June 30, 2021 was 13,858,098 common shares (December 31, 2020 – 12,011,108). Under the Plan, the exercise price of an option may not be less than the closing market price of the Company’s shares prevailing on the day that the option is granted. The options may be granted up to a maximum term of 5 years and vested at the discretion of the board of directors.

As at June 30, 2021, 13,314,858 options, with an average exercise price of $0.13 per share and an average remaining life of 2.41 years have vested.

Expiry Date Exercise Price December 31, 2020	Granted Exercised Expired/ Cancelled June 30, 2021
# January 8, 2021 $0.98 300,000 March 3, 2021 $1.08 2,267,500 April 1, 2024 $0.88 18,750 April 22, 2024 $0.88 60,000 April 22, 2022 $0.085 1,200,000 May 15, 2023 $0.10 2,400,000 May 19, 2023 $0.10 3,900,000 May 20, 2023 $0.105 136,108 October 10, 2026 $0.20 - May 5, 2024 $0.15 - May 6, 2024 $0.15 - May 21, 2024 $0.13 -	# # # #
	- - 300,000 -
	- - 2,267,500 -
	- - - 18,750
	- - - 60,000
	- - 1,000,000 200,000
	- - - 2,400,000
	- - 750,000 3,150,000
	- - - 136,108
	100,000 - 100,000 -
	5,450,000 - - 5,450,000
	200,000 - - 200,000
	1,700,000 - - 1,700,000
10,282,358	7,450,000 - 4,417,500 13,314,858

20

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

(e) Stock options (continued)

As at December 31, 2020, 10,282,358 options, with an average exercise price of $0.35 per share and an average remaining life of 1.96 years, have vested.

Expiry Date Exercise Price March 31, 2020	Granted Exercised Expired/ Cancelled December 31, 2020
# October 4, 2020 $1.04 1,196,250 October 30, 2020 $1.16 25,000 January 8, 2021 $0.98 300,000 March 3, 2021 $1.08 2,267,500 June 21, 2021 $0.80 300,000 April 1, 2024 $0.88 18,750 April 22, 2024 $0.88 60,000 April 22, 2022 $0.085 - May 15, 2023 $0.10 - May 19, 2023 $0.10 - May20,2023 $0.105 -	# # # #
	- - 1,196,250 -
	- - 25,000 -
	- - - 300,000
	- - - 2,267,500
	- - 300,000 -
	- - - 18,750
	- - - 60,000
	1,250,000 - 50,000 1,200,000
	2,400,000 - - 2,400,000
	4,200,000 - 300,000 3,900,000
	136,108 - - 136,108
4,167,500	7,986,108 - 1,871,250 10,282,358

During the three and six months ended June 30, 2021, the Company recognized share-based compensation of $687 and $689 respectively (June 30, 2020 - $506 and $1,176 credit adjustment) for stock options granted and vested during the period.

The fair value of stock options at the date of grant was estimated at $0.09 per option (December 31, 2020 - $0.06 per option) using the Black-Scholes option pricing model with the following weighted average assumptions:

	June 30, 2021 December 31,2020
Risk-Free Annual Interest Rate Expected Stock Price Volatility Expected Life of Options and Warrants Expected Annual Dividend Yield
	0.30% 0.26% - 0.34%
	131% 104% - 116%
	2 years 2.0 – 3.0 years
	0% 0%

(f) Restricted share units (“RSU”)

On October 10, 2017, the Company adopted a RSU Plan as approved by the shareholders of the Company. The RSU Plan is designed to provide the Company with an additional tool to compensate directors, officers, consultants and other key employees of the Company. As of June 30, 2021, the maximum number of shares that may be reserved for issuance under the RSU plan was 13,858,098 (December 31, 2020 – 12,011,108) common shares. Under the plan, each vested RSU gives the eligible person the right to receive one common share of the Company.

The continuity of RSUs for the six months ended June 30, 2021 is as follows:

Issuance date December 31,2020	Issued Redeemed Cancelled June 30,2021
May 20, 2020 -
	2,100,000 2,100,000 - -
-	2,100,000 2,100,000 - -

21

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

15. Share capital (continued)

• (f) Restricted share units (“RSU”) (continued)

The continuity of RSUs for the nine months ended December 31, 2020 is as follows:

Issuance date March 31, 2020	Issued Redeemed Cancelled December 31, 2020
April 22, 2019 1,006,250 May 19, 2020 - May 20, 2020 -
	- 850,000 156,250 -
	5,650,554 5,650,554 - -
	2,300,554 2,300,554 - -
1,006,250	7,951,108 8,801,108 156,250 -

During the three and six months ended June 30, 2021, the Company recognized share-based compensation of $315 (June 30, 2020 - $369 credit adjustment) for 2,100,000 (2020 – 7,951,108) RSUs granted and vested during the period. The weighted average fair value of RSUs granted during the six months ended June 30, 2021 was $0.15 (2020 - $0.10) per share.

16. General and administrative expenses

	Three months ended June 30,		Six months ended June 30,
	2021	2020	2021	2020
	$	$	$	$
Consulting fees	317	144	350	1,316
Business acquisition costs	-	-	-	842
Shareholder and investor relations	(1)	571	137	721
Office and general	312	288	615	537
Professional fees	70	173	180	444
Management fees and wages	440	1,107	763	1,396
	1,138	2,283	2,045	5,256

17. Finance and other costs

	Three months ended June 30,		Six months ended June 30,
	2021	2020	2021	2020
	$	$	$	$
Accretion expenses	98	246	209	504
Loan interest	268	544	502	598
Financing fees	172	-	344	-
Bank charges	137	7	157	35
	675	797	1,212	1,137

18. Related party transactions

Details of transactions between the Company and related parties, in addition to those transactions disclosed elsewhere in these consolidated financial statements, are described as follows.

(a) Related party balances

The Company had the following amounts due to related parties which are unsecured and have no specific terms of repayment.

22

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

18. Related party transactions (continued)

(a) Related party balances (continued)

	June 30, 2021 December31,2020
Short term loans from directors and officers(1) Revolving credit promissory note from a director (Note 13 (f)) Due to an officer and a director for fees pursuant to consulting agreements Due to officers and a director for expense reimbursements	$ $ 152 855 2,264 612 98 163 10 113

(1) The short term loans from directors and officers bear an average fixed interest at 12% and are payable on demand.

(b) Compensation of key management personnel

Key management personnel includes the Company’s directors and officers. During the three and six months ended June 30, 2021 and 2020, the compensation paid or accrued to directors and officers consisted of the following:

	Three months ended June 30,	Three months ended June 30,	Six months ended June 30,	Six months ended June 30,
	2021	2020	2021	2020
	$	$	$	$
Consulting fees	-	16	-	289
Management fees	265	979	455	1,561
Share-based compensation(1)	756	1,264	756	1,580
	1,021	2,259	1,211	3,430

(1) During the six months ended June 30, 2021, an aggregate of 5,300,000 stock options and 1,800,000 RSUs were issued to officers of the Company (June 30, 2020 – 7,336,108 stock options and 9,476,108 RUSs).

19. Commitments and contingencies

(a) Office and operating leases

• (i) MDHS entered into a commercial lease agreement for the lease of its dispensary operating premises for a monthly rent of US$5. The lease expired on December 8, 2020, with 3 additional 5-year term renewal options. The Company is currently in negotiations with the landlord on the share of certain leasehold improvement costs and is expected to renew the lease agreement in the near future.

• (ii) The Company entered into a lease agreement for rental of an office space in Kelowna, British Columbia for an annual rent payment of $23 in the first year and $25 in the second year. The lease expired on May 31, 2021 and was renewed for one year for an annual rent payment of $25.

• (iii) The Company entered into a lease agreement for rental of an office space in Calgary, Alberta for an annual rent payment of $25 in the first year, $29 in the second year and $33 in the third year. The lease expires on April 30, 2023. During the six months ended June 30, 2021, the lease agreement was terminated.

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FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

19. Commitments and contingencies (continued)

(b) Claim and litigation

(i) Veritas vs. Citation

On February 28, 2019, a claim was commenced against the Company by Veritas to recover a loan in the principal amount of $1,000 plus accrued interests. Veritas claims that the loan is in default and has made a demand for repayment of the loan and interests on or before January 21, 2019.

On April 12, 2019, the Company filed a counterclaim against Veritas alleging, among other things, that the Company and Veritas entered into a loan agreement which included repayment terms consisting of $100 and the assignment of the Company’s ownership interest in the Property.

The Company intends to vigorously defend itself against the claim made by Veritas. As set out in the Company’s response to civil claim, it believes that the allegations are without merit and that the loan agreement is in full force and effect.

(ii) Bridgemark Class Action

In July 2019, a proposed class action was commenced against Fiore and certain of its former officers and directors (among many other defendants) in relation to the Consulting Agreements. The claim alleges a "conspiracy" amongst certain issuers and consultants under which the consultants effectively obtained shares of the issuers at far below the disclosed private placement value and then sold them into the secondary market at inflated prices. The claim also alleges misrepresentations to the secondary market in relation to certain news releases and other filings related to the private placements entered into with the consultants.

The value of the claim is currently not known.

As is typical in class actions, the defendants, including Fiore, have not yet filed defences. Fiore has, however, been defending itself. As of June 30, 2021, all upcoming steps in the litigation have been adjourned generally as against Fiore and its former officers and directors.

(iii) ACC Enterprises LLC, Howard Misle, Belmeko LLC

On January 13, 2020, Howard Misle resigned as Chief Executive Officer and director of the Company, which led to litigation over various issues regarding his tenure as Chief Executive Officer and the Company's acquisition of Mr. Misle's cannabis company, ACC. On August 18, 2020, the Company, Mr. Misle, and ACC, among others, entered into the Settlement Agreement resulting in the return of 18,515,424 Common Shares. On August 25, 2020, the 18,515,424 Common Shares were returned to treasury for cancellation. Each party to the Settlement Agreement provided mutual releases in respect of the above-described disputes.

24

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

20. Segmented information

The assets and operations of the Company are located in Canada and the United States.

	Canada US Total
Six months ended June 30, 2021 Net revenue Gross profit Loss from operations Net profit (loss) from continuing operations	$ $ $
	- 1,523 1,523
	- 559 559
	(2,415) (417) (2,832)
	(2,715) 761 (1,954)
Six months ended June 30, 2020 Net revenue Gross profit (loss) Loss from operations Net loss from continuing operations	- 1,000 1,000 - (365) (365) (4,701) (1,614) (6,315) (26,839) (6,636) (33,475)
	Canada US Total
As at June 30, 2021 Current assets Total assets Total liabilities	$ $ $
	7,272 4,456 11,728
	7,324 17,580 24,904
	17,143 1,984 19,127
As at December 31, 2020 Current assets Total assets Total liabilities	6,656 3,437 10,093 6,948 16,018 22,966 17,942 1,976 19,918

21. Fair value of financial instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

The Company uses the following hierarchy for determining fair value measurements:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.

Level 3: Techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data.

The carrying values of cash, accounts receivable, accounts payables and accrued liabilities, loans and borrowings and convertible debentures approximate their fair values due to their short-term nature. The fair value of marketable securities is based on quoted prices in active markets. The fair values of derivative asset and derivative liability are determined using the Black-Scholes option pricing model. During the year, there were no transfers of amounts between level 1, 2 and 3 of the fair value hierarchy.

25

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

21. Fair value of financial instruments (continued)

The following table summarizes the Company’s financial instruments as at June 30, 2021:

	FVTPL Amortized cost Total Fair value hierarchy
Financial assets Cash Accounts receivable Financial liabilities Accounts payable and accrued liabilities Income tax payable Loans and borrowings Convertible debentures(1) Derivative liabilities(1)	$ $ $
	366 - 366 N/A
	- 660 660 N/A
	- 5,119 5,119 N/A
	- 347 347 N/A
	- 5,615 5,615 Level 2
	- 3,698 3,698 Level 2
	708 - 708 Level 3

(1) The fair value of convertible debentures includes the financial liability and derivative liability.

22. Financial risk management

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework and reviews the Company’s policies on an ongoing basis.

The Company is exposed to various risks in relation to financial instruments. The most significant financial risks to which the Company is exposed are described below.

(a) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company ensures, as far as reasonably possible, that it will have sufficient capital in order to meet its working capital and other operating requirements, fund capital expenditures, settle liabilities and meet its scheduled debt repayments. Management and the Board of Directors are actively involved in the review, planning and approval of significant expenditures and commitments. Please refer to Note 1 for discussion on the Company’s ability to cover its current liabilities.

The Company has the following gross contractual obligations:

	Total < 1year 1 – 3years 3 – 5years
Accounts payable and accrued liabilities Loans and borrowings Lease liabilities Convertible debentures	$ $ $ $
	5,119 5,119 - -
	5,615 4,487 1,128 -
	33 33 -
	3,698 1,543 2,155 -
	14,465 11,182 3,283 -

26

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

FIORE CANNABIS LTD

22. Financial risk management (continued)

(b) Currency risk

The Company operates internationally and is exposed to foreign currency risk arising from currency exposures to Canadian dollars. The main currency to which the Company has exposure is the U.S. dollar. The Company is exposed to currency risk to the extent of its cash, accounts payables and accrued liabilities, liabilities associated with assets held for sale and convertible bonds payable that are denominated in U.S. dollars. The Company does not hedge its exposure to fluctuations in the related foreign exchange rates.

As at June 30, 2021, the Company has determined that a 10% change in US dollars against the Canadian dollar on financial assets and liabilities would result in an increase or decrease of approximately $1,560 for the six months ended June 30, 2021 (June 30, 2020 - $1,406) to net income and comprehensive income.

(c) Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. Interest on the Company’s loans and borrowings and convertible bonds payable are based on fixed rates, and as such, the Company is not exposed to significant interest rate risk.

(d) Covid-19

On March 11, 2020, the current outbreak of COVID-19 (Coronavirus) was declared a global pandemic, which has had a significant impact on businesses through the restrictions put in place by the Canadian, provincial and municipal governments regarding travel, business operations and isolation/quarantine orders. As a result, global equity markets and oil prices have experienced significant volatility and weakness. At this time, it is unknown the extent of the impact the COVID-19 outbreak may have on the Company as this will depend on future developments that are highly uncertain and that cannot be predicted with confidence. These uncertainties arise from the inability to predict the ultimate geographic spread of the disease, and the duration of the outbreak, including the duration of travel restrictions, business closures or disruptions, and quarantine/isolation measures that are currently, or may be put, in place by Canada and other countries to fight the virus.

(e) Credit risk

Financial instruments that subject the Company to credit risk primarily consist of accounts receivable. The Company maintains an allowance for estimated credit losses using an expected credit loss provision for accounts receivable. To measure expected credit losses on a collective basis, trade receivables are grouped based on similar credit risk and aging. The expected loss rates are based on the Company’s historical credit losses experienced over previous periods.

The Company sells its product in Nevada but its credit risk is not concentrated to any particular customer. The Company mitigates the risk by reviewing accounts receivable past due on an ongoing basis and by managing and monitoring the relationships with its customers. The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk.

As at June 30, 2021, a $465 (US$375) receivable from Internal Revenue Service ("IRS") for the FIRPTA income tax withheld was aged over 90 days. There was a service delay from IRS due to the outbreak of COVID-19 in 2020. Management expects to receive the full amount in fiscal 2021.

27

FIORE CANNABIS LTD

(Formerly Citation Growth Corp.)

Notes to the Consolidated Financial Statements Three and Six Months Ended June 30, 2021 and 2020 (In thousands of Canadian dollars except for share data)

22. Financial risk management (continued)

• (e) Credit risk (continued)

As at June 30, 2021, the Company’s aging of receivables was as follows:

	June 30, 2021 December 31, 2020
0 – 30 days 31 – 60 days 61 – 90 days 91 days and over	$ $ 71 19 73 - 39 - 477 477
Gross accounts receivable Provision fordoubtfulaccounts	660 496 - -
	660 496

23. Capital management

The Company manages its share capital as capital, which as at June 30, 2021, was $112,593. The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to pursue the development and expansion of its business and to maintain a flexible capital structure which optimizes the costs of capital at an acceptable risk level.

The Company manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust its capital structure, the Company may attempt to issue new shares or debt, dispose of assets, or adjust the amount of cash and cash equivalents. There can be no assurance that the Company will be able to obtain debt or equity capital in the case of operating cash deficits.

In order to facilitate the management of its capital requirements, the Company prepares expenditure budgets that are updated as necessary depending on various factors, including successful capital deployment and general industry conditions. The Company does not pay out dividends in order to conserve cash reserves and to maximize ongoing development efforts. The Company’s share capital is not subject to external restrictions. The Company has not paid or declared any dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

24. Subsequent events

• (a) Share issuances

6,566,225 common shares were issued for services at a fair value of $985.

• (b) Stock options grants

The Company granted to an employee stock options to purchase 250,000 common shares at an exercise price of $0.08 per share expiring August 23, 2026.

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