Indigenous Bloom Hemp Corp. — Capital/Financing Update 2021

Aug 31, 2021

FORM 51-102F3

MATERIAL CHANGE REPORT

1. Name and Address of Company:

Veritas Pharma Inc. 3200 – 650 West Georgia Street Vancouver, BC, V6B 4P7

(the “ Company ”)

2. Date of Material Change:

September 1, 2021

3. Press Release:

A press release was disseminated on August 31, 2020 and was subsequently filed on SEDAR.

4. Summary of Material Change:

The Company has obtained the conditional approval of the Canadian Securities Exchange (the “ CSE ”) in respect of its business combination (the “ Business Combination ”) whereby it will acquire all of the issued and outstanding common shares (the “ Hempco Shares ”) of Indigenous Bloom Hemp Corporation (“ Hempco ”). Listing is subject to the Company completing the Business Combination and completion and filing of all outstanding documentation with the CSE. Details of the Business Combination are in the Company’s Information Circular dated March 1, 2021, the amendment thereto dated March 24, 2021 (collectively the “ Information Circular ”) and in the Company’s news release dated September 9, 2020. Further details are set forth below.

Prior to closing of the Business Combination, the Company will consolidate its common shares (the “ Consolidation ”) on the basis of one post-consolidation share for every two pre-consolidation shares. The Consolidation will become effective on September 1, 2021, and the Company’s common shares will commence trading on a consolidated basis on September 1, 2021. The new CUSIP number will be 92347A304 and the new ISIN number will be CA92347A3047.

5. Full Description of Material Change:

The Company has obtained the conditional approval of the Canadian Securities Exchange (the “ CSE ”) in respect of its business combination (the “ Business Combination ”) whereby it will acquire all of the issued and outstanding common shares (the “ Hempco Shares ”) of Indigenous Bloom Hemp Corporation (“ Hempco ”). Listing is subject to the Company completing the Business Combination and completion and filing of all outstanding documentation with the CSE. Details of the Business Combination are in the Company’s Information Circular dated March 1, 2021, the amendment thereto dated March 24, 2021 (collectively the “ Information Circular ”) and in the Company’s news release dated September 9, 2020. Further details are set forth below.

Prior to closing of the Business Combination, the Company will consolidate its common shares (the “ Consolidation ”) on the basis of one post-consolidation share for every two pre-consolidation shares. The Consolidation will become effective on September 1, 2021, and the Company’s common shares will commence trading on a consolidated basis on September 1, 2021. The new CUSIP number will be 92347A304 and the new ISIN number will be CA92347A3047.

Following the Consolidation, which was approved by the shareholders of Veritas by special resolution at the Annual General & Special Meeting of shareholders held on April 29, 2021, the Company’s issued and outstanding common shares will be reduced from 16,694,644 common shares to approximately 8,347,330 common shares. Any resulting fractional share entitlement remaining after conversion at 0.5 or over will be rounded up to the nearest whole number and below 0.5 will be cancelled.

A letter of transmittal will be sent by mail to registered shareholders advising that the Consolidation has taken effect. The letter of transmittal will contain instructions on how registered shareholders can exchange their share certificates evidencing their pre-consolidation common shares for new share certificates representing the number of post-consolidation common shares to which they are entitled. No action is required by non-registered shareholders (shareholders who hold their shares through an intermediary) to effect the Consolidation.

Pursuant to the Business Combination, Hempco will amalgamate with the Company’s wholly owned subsidiary, 12302161 Canada Inc, the amalgamated corporation will become a wholly owned subsidiary of the Company, and the shareholders of Hempco will receive post-consolidation common shares of the Company having an aggregate value of $28,000,000. The aggregate number of post-consolidation common shares issuable to the Hempco shareholders will be determined on the basis of the following formula: $28,000,000 ÷ closing price of the Company’s consolidated common shares on the CSE on the last trading day prior to the effective date of the Business Combination. On completion of the Business Combination, the Company will change its name to “Indigenous Bloom Hemp Corp.”

It is anticipated that the Company’s common shares will be halted from trading on the CSE effective September 16, 2021 pending closing of the Business Combination, which is expected to occur on or before October 1, 2021. There is no assurance, however, that the Business Combination will be completed as proposed or at all.

At the Company’s Annual General and Special Meeting of shareholders held on April 29, 2021, shareholders of Veritas approved the Business Combination by both special resolution and minority approval. Lorne Mark Roseborough, the CEO, Chairman of the Board and a director of Veritas, Blair Lowther, a director of Veritas, Sharon Blady, a director of Veritas, Peter McFadden, the CFO of Veritas and Michael Matvieshen, who holds more than 10% of the issued and outstanding Veritas Common Shares, and Nick Standish, a former director of Veritas, are also shareholders of Hempco (the foregoing collectively the “ Interested Parties ”). Mr. Roseborough owns 2,414,214 Hempco Shares representing 12.07% of the issued and outstanding Hempco Shares, Mr. Lowther owns 345,266 Hempco Shares representing 1.73% of the issued and outstanding Hempco Shares, Ms. Blady owns 226,415 Hempco Shares representing 1.13% of the issued and outstanding Hempco Shares, Mr. McFadden owns 322,624 Hempco Shares representing 1.61% of the issued and outstanding Hempco Shares, Mr. Matvieshen owns, or controls or directs, directly or indirectly, 3,432,387 Hempco Shares representing 17.16% of the issued and outstanding Hempco Shares and Mr. Standish owns 387,754 Hempco shares representing 1.94% of the issued and outstanding Hempco Shares.

The Business Combination constitutes a “related party transaction” in accordance with the provisions of MI 61-10 and, unless exemptions are available, would require a formal valuation and minority approval of shareholders. Veritas has an exemption from the formal valuation requirements of MI 61-101 under section 5.5(b) thereof in that no securities of Veritas are listed on the Toronto Stock Exchange, Aequitas NEO Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock market, or a stock exchange outside of Canada and the United States other than the Alternative Investment market of the London Stock Exchange or the PLUS markets operated by PLUS Markets Group plc.

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Under MI 61-101 there is no exemption available from the minority approval requirement, so in addition to being passed as a special resolution, the resolution approving the Business Combination required minority shareholder approval. A separate tabulation of votes was done to determine minority shareholder approval. Pursuant to the minority shareholder approval requirements of MI 61-101, the votes attached to Veritas common shares which were beneficially owned by, or over which control or direction was exercised by, the Interested Parties, were excluded from voting on the resolution approving the Business Combination. The total number of votes which were excluded was 4,637,146 votes representing 27.78% of the votes attached to all of the issued and outstanding Veritas common shares (Bair Lowther – 560,000 Veritas common shares; Peter McFadden – 553,813 Veritas common shares; Michael Matvieshen – 3,100,000 Veritas common shares; Nick Standish – 423,333 Veritas common shares). The resolution approving the Business Combination was approved by a simple majority of affirmative votes cast by the shareholders, other than the Interested Parties, present in person or represented by proxy at the Meeting and entitled to vote thereat.

About Indigenous Bloom Hemp Corporation

Hempco currently operates a large-scale industrial hemp farm in Southern Manitoba on approximately 310 acres of zoned farmland. The farmland is leased by Chris Federowich and Delores Federowich, pursuant to a lease agreement dated April 2, 2021. The lease is for a term of two years expiring on April 1, 2023 and covers 310 acres. Lease costs are $75 plus GST per acre per year and are paid by Hempco.

Hempco has entered into a contract for farming services dated July 20, 2020, as extended May 18, 2021 (the ” Independent Contractors Services Agreement ”) with Federowich Farms (the “ Contractor ”) to provide farming, cultivating and harvesting services for industrial hemp on the leased farmland. The agreement expires on May 31, 2022. The Contractor is operating under a licence from Health Canada which allows for the cultivation of hemp and the sale of seed, grain, flowering heads, leaves and branches. The licence expires on April 16, 2026. In consideration for the farming services, Hempco pays the contactor a fee of $200 per acre planted. The Contactor has also been granted the option to purchase 50,000 post-consolidation common shares of the Company at a price of $0.34 per share on or before June 1, 2022. Under the Independent Contractors Services Agreement, the Contractor is required to farm, cultivate and harvest 200 acres.

Hempco has made an application to Health Canada for an Industrial Hemp Licence which will allow for the cultivation and sale of industrial hemp in the form of seed, grain, flowering heads, leaves and branches. Hempco’s licence application is currently being processed by Health Canada and Hempco has been advised by Health Canada that its application is in the final stage.

The primary business of Hempco is the sale of hemp biomass and flower for processing into phytocannabinoid rich (“ PCR ”) extracts derived from hemp biomass. Hempco is currently planting crops using cannabidiol (“ CBD ”) dominant genetics. Hempco also intends to develop or acquire the rights to additional hemp products such as health supplements, nutritional products, food stuffs and beauty products for general consumer end-use. All of the PCR hemp, hemp extracts and hemp products produced or sold by Hempco will contain less than 0.3% THC, ensuring that they are compliant with the Industrial Hemp Regulations, thus falling under the definition of industrial hemp. Plans include the development of various product lines and propagation through A-Sexual reproduction which is expected to increase production capacity and accelerate the development of genetic stock.

Cultivation Operations

The growing region in Manitoba is widely regarded in the industry as one of the best climates in North America for the cultivation of hemp. Hempco intends to seed and harvest one crop per year.

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During 2020, Hempco seeded 200 acres and harvested approximately 50,000 kilograms of hemp biomass. The biomass was processed through the proprietary separation technology referred to below, achieving a throughput of 18,600 kilograms in a two hour period. The resulting CBD content was concentrated up to an average of 8% and reduced the biomass content by 96%. The resulting material has been sent to Bioscision in Winnipeg, MB for analytical testing. Hempco currently has approximately 1200 kilograms of CBD rich product moving through additional research and development.

During 2021, Hempco seeded 200 acres of which 160 acres are planted with Abound seed and 40 acres are planted with a combination of female clones of the Cherry Blossom and Sentium varieties. The anticipated yield from the seed is estimated to be between approximately 36,000 kilograms and 54,000 kilograms of biomass which is anticipated to be reduced to a concentrated kief with a 9% CBD concentration. The anticipated yield from the clones is estimated to be approximately 15,000 kilograms of biomass which is anticipated to be reduced to a concentrated kief with a 10% to 12% CBD concentration.

As part of its long-term growth and efficiency protocols, Hempco has mechanized substantial parts of its operation, including the use of combines for harvesting, and tunnel/barrel dryers for post harvesting. Hempco has acquired an exclusive worldwide license to patent pending technology (the “ Licensed Technology ”) for separating hemp and cannabis plant matter during the harvesting process that management of the Company believes will provide a cost-effective, energy efficient, carbon neutral process of separation.

Hempco acquired the license to use and sell products utilizing the Licensed Technology pursuant to an agreement (the “ Technology License Agreement ”) dated November 30, 2020 with 1251683 B.C. Ltd. (the “ Licensor ”). As consideration for the license, Hempco is required to pay the Licensor $1,200,000 and a royalty of 8% of any monies received by Hempco from the sale, lease, rental, sublicense or other disposition of products utilizing the Licensed Technology. Payments to the Licensor over the ensuing twelve months are expected to be $1,993,000. Michael Matvieshen, who will be the controlling shareholder of the Company on completion of the Business Combination, owns a one-third interest in the Licensor.

Processing and Sales

Hempco is negotiating with a Health Canada licenced extraction firm to perform contract extraction services of CBD from the hemp produced by Hempco.

Hempco’s Products

Hempco currently has two products which it plans to sell and is in the process of expanding its product line. Hempco’s primary product to date is hemp biomass, which will be sold pre-processed to customers and partners who process the biomass into CBD oil. Its secondary product consists of bulk hemp material such as grain (seeds) for both food and agriculture (replanting) and separated CBD rich kief for further extraction and processing into consumer goods.

Development of Business

The Licensed Technology will allow for onsite processing as the 2021 crop is harvested. Hempco intends to apply for a licence from Health Canada to process hemp extract and is investigating the viability and cost of constructing its own extraction facility.

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Financial Data – Hempco

The following table summarizes financial information of Hempco for the period from July 31, 2019 (date of incorporation) to May 31, 2020 and for the nine month period ended February 28, 2021. This summary financial information should be read in conjunction with the audited financial statements of Hempco for the period from July 31, 2019 (date of incorporation) to May 31, 2020 and with the unaudited financial statements of Hempco for the nine month period ended February 28, 2021, which are available under the Company’s profile on the SEDAR website at www.sedar.com.

	For the Period July 31,
	2019 (date of Nine Month Period
	incorporation) to May 31, Ended
	2020 February 28, 2021
	(Audited) (Unaudited)
	($) ($)
Total Revenues Net Loss from operations Loss Per Share – Basic and Diluted Total Assets Total Liabilities Working Capital (Deficit) Shareholders’ Equity (Deficiency) Weighted Average Common Shares Issued and Outstanding (end of period)	Nil Nil (384,449) (341,274) (3,844) (0.02)
	607,281 734,104 991,729 1,112,326 (792,620) (819,667) (384,448) (378,222) 100 18,901,104

Pro-forma Financial Information

The following table summarizes pro-forma financial information of the Company as at January 31, 2021. Pro-forma consolidated financial statements of the Company as at January 31, 2021, after giving effect to the Business Combination, are available under the Company’s profile on the SEDAR website at www.sedar.com.

EDAR website at www.sedar.com.
	January31, 2021
	(Unaudited)
	($)
Total Current Assets	142,323
Total Assets	723,096
Total Current Liabilities	2,160,983
Total Liabilities	2,300,311
Working Capital (Deficit)	(2,018,660)
Shareholders’ Equity (Deficiency)	(1,577,215)

Since January 31, 2021, the current liabilities of the Company and Hempco, on a consolidated basis, have been reduced by $1,370,800, which amounts are now classified as long term liabilities.

Valuation

A valuation report dated August 31, 2020 and titled Fair Market Value of the Shares of Indigenous Bloom Hemp Corp.” (the “ Valuation Report ”) was prepared for Hempco by Maarschalk Valuations Inc. (the “ Valuator ”). Within the scope, assumptions and limitations of its engagement,

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the Valuator concluded that the fair market value of Hempco’s business enterprise on August 31, 2020 was in the range of $25,500,000 to $31,800,000. This is the estimated value of the net business assets of Hempco (including goodwill), before taking account of assumed and contingent liabilities. After deducting long-term loans and long-term lease liabilities and making a notional adjustment for the latent or notional tax on goodwill, the Valuator concluded that the fair market value of Hempco’s shares on August 31, 2020 was in the range $24,000,000 to $30,000,000. The Valuator’s calculations are contained in the Valuation Report, a copy of which is available under the Company’s profile on the SEDAR website at www.sedar.com. The Valuation Report is available for inspection during normal business hours at the Company’s registered office, 3200 – 650 West Georgia Street, Vancouver, British Columbia, V6B 4P7, and a copy will be sent to any security holder of the Company without charge upon request to the Company.

Fair market value (FMV) is value in a “fair” market and for the purposes of the Valuation Report is defined as “the highest price available in an open and unrestricted market, between informed and prudent parties, acting at arm’s length and under no compulsion to act. Fair market value is expressed in terms of current cash or money’s worth.” FMV is a notional concept and its calculation does not involve exposing the business to the market for sale. FMV is not the same as price. The price at which a business may ultimately be sold is influenced by many factors, such as unique negotiating positions, non-cash settlement terms or differing motivations for undertaking the sale, which are not usually considered in determining FMV.

In the calculation of the fair market value of the shares of Hempco, the Valuator used the discounted cashflow method. This method is considered suitable for businesses that have limited financial history, but which are expected to generate strong cash flows for at least the next few years, within a changing risk environment.

Key assumptions made in the Valuation Report include the following:

1. That all contracts required for the fulfillment of management’s projections, none of which were verified by the Valuator, will be in place in a timely manner and that the crop will be grown, processed and sold commencing in the 2021 calendar year;

2. That management’s inputs used for the base case scenario are broadly achievable, notwithstanding that it is realistic to expect some variations and shortfalls;

3. That production will reach full capacity in 2021;

4. That the final market for Hempco’s products will be sufficient to absorb all of Hempco’s production of oil starting in 2021; and

5. That the impact of the Covid-19 pandemic on Hempco’s business would be limited.

The Valuation Report was an update and replacement to two previous reports by the Valuator, one dated February 29, 2020 and one dated April 30, 2020.

In the February 29, 2020 report, the Valuator concluded that the fair market value of Hempco’s business enterprise on February 29, 2020 was in the range of $51,000,000 to $62,000,000. This is the estimated value of the net business assets of Hempco (including goodwill), before taking account of assumed and contingent liabilities. After deducting an assumed liability to related parties for capital inputs and making a notional adjustment for the latent or notional tax on goodwill, the Valuator concluded that the fair market value of Hempco’s shares on February 29, 2020 was in the range $48,000,000 to $59,000,000.

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In the April 30, 2020 report, the Valuator concluded that the fair market value of Hempco’s business enterprise on April 30, 2020 was in the range of $24,700,000 to $30,100,000. This is the estimated value of the net business assets of Hempco (including goodwill), before taking account of assumed and contingent liabilities. After deducting an assumed liability to related parties for capital inputs and making a notional adjustment for the latent or notional tax on goodwill, the Valuator concluded that the fair market value of Hempco’s shares on April 30, 2020 was in the range $23,000,000 to $28,000,000.

Both the February 29, 2020 report and the April 30, 2020 report are available under the Company’s profile on the SEDAR website at www.sedar.com. Both the February 29, 2020 report and the April 30, 2020 report are available for inspection during normal business hours at the Company’s registered office, 3200 – 650 West Georgia Street, Vancouver, British Columbia, V6B 4P7, and a copy will be sent to any security holder of the Company without charge upon request to the Company.

6. Reliance on Subsection 7.1(2) of the National Instrument 51-102 Continuous Disclosure Obligations :

Not applicable.

7. Omitted Information:

Not applicable.

8. Executive Officer Knowledgeable of Material Change:

Peter McFadden, CFO Telephone: (604) 827-5520

1. Date of Report:

August 31, 2021

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