PharmaCielo Ltd. — Interim / Quarterly Report 2021

Aug 20, 2021

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PHARMACIELO LTD.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX MONTHS ENDED JUNE 30, 2021 (EXPRESSED IN CANADIAN DOLLARS) (UNAUDITED)

Notice to Reader

The accompanying unaudited condensed interim consolidated financial statements of PharmaCielo Ltd. (the "Company") have been prepared by and are the responsibility of management. The unaudited condensed interim consolidated financial statements have not been reviewed by the Company's auditors.

PHARMACIELO LTD.

Condensed Interim Consolidated Statements of Financial Position (Expressed in Canadian Dollars) (unaudited)

	As at June 30, 2021	As at December 31, 2020
ASSETS
Current assets
Cash and cash equivalents	11,021,742	8,859,714
Trade receivables (Note 3)	430,079	352,674
Marketable securities (Note 4)	466,500	71,152
Investment - XPhyto Therapeutics Corp. (Note 9)	152,235	678,898
Prepaid expenses and other receivable (Note 5)	1,031,942	1,303,476
Inventory and Biological assets (Note 6)	1,180,781	1,252,568
Total current assets	14,283,279	12,518,482
Non-current assets
Property, plant, and equipment (Note 7)	26,833,264	29,754,630
Right-of-use assets (Note 8)	1,004,485	1,065,800
Investment in joint ventures (Note 19)	879,717	565,396
Intangible assets	-	120,113
Total non-current assets	28,717,466	31,505,939
Total assets	43,000,745	44,024,421
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities	9,291,334	11,708,396
Current portion of lease obligations (Note 8)	149,651	150,046
RSU obligations (Note 14)	111,780	105,258
Current portion of debt (Note 10)	82,393	92,804
Total current liabilities	9,635,158	12,056,504
Non-current liabilities
Non-current portion of lease obligations (Note 8)	1,123,280	1,171,344
Non-current portion of debt (Note 10)	2,675,715	3,058,880
Other non-current liabilities	207,586	997,689
Deferred income (Note 9)	356,378	493,010
Total non-current liabilities	4,362,959	5,720,923
Total liabilities	13,998,117	17,777,427
Shareholders' Equity
Share capital (Note 11)	153,676,137	138,082,419
Shares to be issued (Note 11)	1,371,666	559,999
Reserves (Notes 12, 13, and 14)	34,324,251	31,456,069
Other comprehensive income (loss)	(5,334,658)	(2,583,161)
Retained earnings (deficit)	(155,034,768)	(141,268,332)
Total shareholders' equity	29,002,628	26,246,994
Total liabilities and shareholders' equity	43,000,745	44,024,421

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements

Nature of operations (Note 1) Commitments (Note 17) Subsequent events (Note 21)

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PHARMACIELO LTD.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Expressed in Canadian Dollars)

(Unaudited)

(Unaudited) Condensed Interim Consolidated Statements of Loss and PHARMACIELO LTD. (Expressed in Canadian Dollars)	Comprehensive Loss	Comprehensive Loss
	Three Months Ended		Six Months	Ended
	June 30, 2021	June 30, 2020	June 30, 2021	June 30, 2020
Revenue:
Sale of Cannabis derivative products	429,451	1,208,975	1,086,292	1,703,007
Revenue from Telemedicine services	16,500	23,566	34,923	43,943
Total revenue	445,951	1,232,541	1,121,215	1,746,950
Cost of goods sold - Cannabis derivative products	397,508	671,768	1,145,091	1,133,003
Cost of goods sold - Telemedicine services	446	-	446	-
Cost of goods sold-Inventory impairment	714,744		1,322,256	-
Gross profit before fair value adjustments	(666,747)	560,773	(1,346,578)	613,947
Realized fair value on inventory sold (Note 6)	(72,682)	(374,150)	(135,893)	(473,019)
Unrealized gain (loss) on fair value of biological
assets (Note 6)	(68,271)	(34,154)	(180,838)	(145,178)
Gross profit	(807,700)	152,469	(1,663,309)	(4,250)
Operating expenses
Agricultural operating costs (Note 6)	685,408	73,068	842,645	73,068
Selling, general, and administrative expenses
General and administrative
Consulting fees	278,536	1,021,179	570,322	1,409,443
Office and general	471,388	179,869	1,116,016	1,001,093
Professional fees	635,008	1,034,276	1,707,285	2,932,639
Salaries and wages	1,025,221	1,721,084	2,422,255	3,333,486
Travel and accommodation	34,748	19,630	37,530	241,512
Share-based compensation	1,983,992	2,162,108	3,793,181	3,877,863
Selling, marketing, and promotion	244,859	74,253	554,343	391,588
Amortization and depreciation (Notes 7 and 8)	193,387	514,558	657,007	838,331
Expected credit losses	50,934	1,048,777	94,242	1,048,777
Total selling, general, and administrative expenses	4,918,073	7,775,734	10,952,181	15,074,732
Other (income) expense
Bank charges and interest expense	130,843	55,753	272,176	98,172
Change in unrealized (gain) loss on marketable
securities	239,500	(17,625)	251,000	30,375
Exchange (gain) loss	(19,633)	(83,555)	(130,641)	(227,894)
Other non-operating (income) expenses	-	(130,907)	-	(130,907)
Interest income	(187)	(1,418)	(1,598)	(12,915)
Change in fair value of consideration payable	-	-	-	(11,949)
Amortization of deferred income (Note 9)	-	(97,597)	(136,632)	(162,662)
Change in unrealized (gain) loss on Xphyto
investment (Note 9)	358,133	83,523	(110,839)	(911,765)
Realized (gain) loss on sale of marketable securities	-	(66,769)	(35,937)	(66,769)
Share of (gain) loss of investment in
joint ventures (Note 19)	104,543	282,125	200,772	282,125
Total other (income) expenses	813,199	23,530	308,301	(1,114,189)
Net income(loss) for theperiod	(7,224,380)	(7,719,863)	(13,766,436)	(14,037,861)

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PHARMACIELO LTD.

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss (Expressed in Canadian Dollars) (Unaudited)

(Unaudited) (Expressed in Canadian Dollars)
	Three Months Ended		Six Months	Ended
	June 30, 2021	June 30, 2020	June 30, 2021	June 30, 2020
Other comprehensive income (loss)
Currency translation adjustment	(420,587)	877,079	(2,751,496)	(2,750,979)
Net comprehensive income (loss)	(7,644,967)	(6,842,784)	(16,517,932)	(16,788,840)
Basic and diluted lossper share(Note 15)	(0.05)	(0.07)	(0.10)	(0.14)
Weighted average number of common shares
outstanding- basic and diluted	146,383,269	104,856,355	142,920,738	101,953,901

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements

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PHARMACIELO LTD.

Condensed Interim Consolidated Statements of Changes in Shareholders' Equity (Expressed in Canadian Dollars) (unaudited)

(unaudited) (Expressed in Canadian Dollars)
					Accumulated
	Number of				other
	Common		Shares to be		comprehensive	Retained
	Shares	Share Capital	issued	Reserves	income(loss)	earnings (deficit)	Total
Balance at December 31,2019	98,965,173	116,827,833	-	26,243,564	(93,573)	(97,512,523)	45,465,301
Common shares issued related
to the acquisition of Ubiquo	18,967	45,900	-	-	-	-	45,900
Shares issued pursuant to Special
Warrants at price of $0.65 per share	12,428,002	8,078,201					8,078,201
Cost to issue	150,000	(885,976)	-	71,000			(814,976)
Common shares issued pursuant to
debt settlement	74,906	54,681					54,681
Options exercised	50,000	62,724	-	(30,244)	-	-	32,480
Exercise of warrants	172	864	-	(659)	-	-	205
Vested RSUs	190,000	1,493,900	-	(1,493,900)	-	-	-
Share-based compensation	-	-	-	3,897,301	-	-	3,897,301
Currency translation adjustment
for the period	-	-	-	-	(2,750,979)	-	(2,750,979)
Net income(loss)for theperiod	-	-	-	-	-	(14,037,861)	(14,037,861)
Balance at June 30, 2020	111,877,220	125,678,127	-	28,687,062	(2,844,552)	(111,550,384)	39,970,253

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements

					Accumulated
	Number of				other
	Common		Shares to be		comprehensive	Retained
	Shares	Share Capital	issued	Reserves	income(loss)	earnings (deficit)	Total
Balance at December 31,2020	138,747,660	138,082,419	559,999	31,456,069	(2,583,162)	(141,268,332)	26,246,993
Options exercised(Note 11(b)(viii))	760,835	1,056,818	-	(491,909)	-	-	564,909
Warrants exercised (Note 12(ii))	944,369	822,989	-	(209,149)	-	-	613,840
Vested RSUs (Note 11(b)(ix))	347,500	1,443,250	811,667	(2,254,917)	-	-	-
Issued DSUs (Note 14(iii))	-	-	-	2,037,500			2,037,500
April 2021 issuance (Note 11(b)(x))	6,301,866	13,549,012					13,549,012
Issuance costs for April 2021
equity financing (Note 11(b)(x))	-	(1,278,351)	-	-	-	-	(1,278,351)
Share-based compensation	-	-	-	3,786,657	-	-	3,786,657
Currency translation adjustment
for the period	-	-	-	-	(2,751,496)	-	(2,751,496)
Net income(loss)for theperiod	-	-	-	-	-	(13,766,436)	(13,766,436)
Balance at June 30, 2021	147,102,230	153,676,137	1,371,666	34,324,251	(5,334,658)	(155,034,768)	29,002,628

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements

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PHARMACIELO LTD.

Condensed Interim Consolidated Statements of Cash Flows (Expressed in Canadian Dollars) (unaudited)

(unaudited) PHARMACIELO LTD. Condensed Interim Consolidated Statements of Cash Flows (Expressed in Canadian Dollars)
	Six Months Ended
	June 30, 2021	June 30, 2020
Operating Activities
Net income (loss)	(13,766,436)	(14,037,861)
Items not affecting cash:
Amortization and depreciation	657,007	899,915
Expected credit losses	94,242	1,048,777
Unrealized (gain) loss on fair market value of biological assets	180,838	145,178
Unrealized (gain) loss on fair market value of XPhyto investment	(110,839)	(911,765)
Share of (gain) loss on investment in joint ventures	200,772	282,125
Amortization of deferred income	(136,632)	(162,662)
Fair value adjustment on sale of inventory	135,893	473,019
Change in fair value of consideration payable	-	(11,949)
Lease and loan interest expense	90,299	100,085
Non-cash salary expense	(562,500)	-
Share-based compensation	3,793,181	3,877,863
Inventory impairment	1,322,256	-
Exchange (gain) loss	(633,193)	(1,040,184)
Unrealized (gain) loss on marketable securities	251,000	30,375
Realized (gain)/loss on marketable securities	(35,937)	-
Changes in non-cash working capital items
Trade receivables	(32,809)	(1,674,671)
Prepaid expenses and other receivables	196,323	96,490
Inventory and biological assets	(1,319,620)	(1,693,492)
Accountspayable and accrued liabilities	(203,620)	2,275,301
Net cash and cash equivalents used in operating activities	(9,879,775)	(10,303,456)
Investing Activities
Investment in joint ventures	(515,093)	(645,671)
Investment - XPhyto Therapeutics Corp.	-	(500,000)
Exercise warrants held in Xphyto Therapeutics Corp.	(750,000)	-
Proceeds on sale of XPhyto marketable securities	777,089	409,366
Purchase of property, plant, and equipment	(718,912)	(4,620,925)
Advances forproperty, plant and equipment	-	(72,478)
Net cash and cash equivalents used in investing activities	(1,206,916)	(5,429,708)
Financing Activities
Options and warrants exercised	1,178,749	32,685
Cash received for shares issued	13,549,012	8,078,201
Share issue costs	(1,278,351)	(814,976)
Loan principal payments	(41,619)	-
Leasepayments	(159,072)	(168,210)
Net cash and cash equivalentsprovided by financing activities	13,248,719	7,127,700
Net increase (decrease) in cash and cash equivalents	2,162,028	(8,605,464)
Cash and cash equivalents, beginning ofperiod	8,859,714	13,673,299
Cash and cash equivalents, end ofperiod	11,021,742	5,067,835

The accompanying notes to the unaudited condensed interim consolidated financial statements are an integral part of these statements

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

1. Nature of operations

PharmaCielo Ltd. ("PharmaCielo" or the "Company") was incorporated pursuant to the Business Corporations Act (British Columbia) on May 30, 2017 under the name "AAJ Capital 1 Corp." Upon completion of its Qualifying Transaction (as such term is defined in Policy 2.4 – Capital Pool Companies of the TSX Venture Exchange (“TSXV”) Corporate Finance Manual (“Policy 2.4”)) in accordance with the policies of the TSXV, on January 15, 2019, the Company changed its name to “PharmaCielo Ltd.” The Company carries on business under the name “PharmaCielo Ltd.”.

On January 18, 2019, PharmaCielo's common shares (the "Common Shares") started trading on the TSXV under the symbol "PCLO". On June 21, 2019, Common Shares started trading on the OTC Markets under the symbol "PCLOF". The head office is located at 1 Toronto Street, Suite 805, Toronto, Ontario, M5C 2V6.

Through the Company’s wholly-owned subsidiary, PharmaCielo Colombia Holdings S.A.S. (“PharmaCielo Colombia”), the Company is licensed by the Colombian Ministry of Health and Social Protection and the Colombian Ministry of Justice and Law to cultivate, produce, and distribute (domestically and internationally) both THC (tetrahydrocannabinol) and CBD (cannabidiol) medicinal cannabis extracts.

2. Significant accounting policies

Basis of presentation

The unaudited condensed interim consolidated financial statements of the Company have been prepared under International Financial Reporting Standards ("IFRS") in accordance with International Accounting Standards 34, “Interim Financial Reporting” (“IAS 34”) as issued by the International Accounting Standards Board (“IASB”) and interpretations of the IFRS Interpretations Committee (“IFRIC”). The policies applied in these unaudited condensed interim consolidated financial statements are based on IFRS' issued and outstanding as at August 19, 2021, the date the Board of Directors approved these unaudited condensed interim consolidated financial statements.

These unaudited condensed interim consolidated financial statements follow the same accounting policies and method of computation as the Company’s annual audited consolidated financial statements for the year ended December 31, 2020, with the exception of certain disclosures that are normally required to be included in annual consolidated financial statements which have been condensed or omitted. These condensed interim consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.

Basis of measurement

These unaudited condensed interim consolidated financial statements have been prepared on a historical cost basis, with the exception of financial instruments classified at fair value through profit or loss ("FVTPL"). In addition, these unaudited condensed interim consolidated financial statements have been prepared using the accrual basis of accounting except for cash flow information.

Principles of consolidation

The unaudited condensed interim consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. Subsidiaries are included in the consolidated financial results of the Company from the date of acquisition up to the date of disposition or loss of control. All intercompany balances and transactions are eliminated upon consolidation in preparing these financial statements.

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

As at June 30, 2021, the following companies have been included within the unaudited condensed interim consolidated financial statements:

Company	Location	Principal activity
PharmaCielo Ltd.	Toronto, Canada	Parent company
PharmaCielo Holdings Ltd.(1)	Toronto, Canada	Holding company
Ubiquo Telemedicina S.A.S.(2)	Medellin, Colombia	Telemedicine software company
PharmaCielo Colombia Holdings S.A.S.(2)	Medellin,Colombia	Cultivationand processing company

(1) 100% owned by PharmaCielo Ltd. and controlled and consolidated by the parent company. Any intercompany transactions are eliminated on consolidation

(2) 100% owned by PharmaCielo Holdings Ltd.

Significant accounting judgments and estimates

The preparation of these unaudited condensed interim consolidated financial statements in conformity with IFRS requires management to make judgments, estimates, and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses, and related disclosures.

Judgment is used mainly in determining how a balance or transaction should be recognized in the unaudited condensed interim consolidated financial statements. Estimates and assumptions are used mainly in determining the measurement of recognized transactions and balances. Estimates and judgements made by management in the preparation of these unaudited condensed interim consolidated financial statements are subject to a higher degree of measurement uncertainty due to the impacts of COVID19.

These unaudited condensed interim consolidated financial statements follow the same significant accounting judgments and estimates as the Company’s annual audited consolidated financial statements for the year ended December 31, 2020. These condensed interim consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements for the year ended December 31, 2020.

Going concern

Management has applied judgments in the assessment of the Company’s ability to continue as a going concern when preparing these unaudited condensed interim consolidated financial statements. Management prepares the unaudited condensed interim consolidated financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading or has no realistic alternative but to do so. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, twelve months from the end of the reporting period. The assessment of the Company’s ability to execute its strategy and finance the operations through achieving positive cash flow from operations or by obtaining additional funding through debt or equity financing involves judgments. Management monitors future cash requirements to assess the Company’s ability to realize assets and discharge its liabilities in the normal course of operations.

Management believes that the going concern assumption is appropriate for these unaudited condensed interim consolidated financial statements and that the Company will be able to meet its budgeted administrative and development costs during the upcoming year and beyond when considering the Company’s current financial forecast. PharmaCielo continues to enter into strategic agreements and finance offerings to source funds and maintain its operations. As outlined in Note 11, during April, 2021, the Company completed an overnight marketed offering of Common Shares for aggregate gross proceeds of $13,549,012. The assessment of the appropriateness of the going concern assumption includes significant judgements. From the Company’s

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

perspective this includes the assumption that a significant portion of warrant and option holders will continue to exercise their instruments during the year and also that if the Company were required to limit its variable costs on cultivation and production, it would be able to do so in a short time frame with limited additional restructuring costs. The construction in progress on the Company’s facility was completed subsequent to year end.

The Company may need to seek further financing in the future to maintain its current level of activity. To date, PharmaCielo has been successful in raising funds to sustain operations. However, there can be no assurance that adequate funding will be available in the future, or under terms favourable to the Company.

Should the going concern assumption not be appropriate and the Company is not able to realize its assets and settle its liabilities, these unaudited condensed interim consolidated financial statements would require adjustments to the amounts and classifications of assets and liabilities.

New, amended and future IFRS pronouncements

The following IFRS standards have been recently issued by the IASB but are not yet effective. The Company has assessed the impact of these new standards, and found they do not have a material impact on the financial statements of the Company as at June 30, 2021.

Amendments to IAS 1: Classification of Liabilities as Current or Non-Current

In January 2020, the IASB issued Classification of Liabilities as Current or Non-Current (“Amendments to IAS 1”). The Amendments to IAS 1 aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The Amendments to IAS 1 include clarifying the classification requirements for debt a company might settle by converting it into equity. The Amendments to IAS 1 are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted.

Amendments to IAS 37: Onerous Contracts – Cost of Fulfilling a Contract

In May 2020, the IASB issued Onerous Contracts – Cost of Fulfilling a Contract (“Amendments to IAS 37”) amending the standard regarding costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. The amendment is effective for annual reporting periods beginning on or after January 1, 2022.

3. Trade receivables

			As	at December
	As at June 30, 2021			31, 2020
For sale of cannabis derivative products		2,629,725		2,684,017
For revenue from telemedicine services		6,560		11,192
Allowancefordoubtfulaccounts		(2,206,206)		(2,342,535)
Closing balance	$	430,079	$	352,674

The majority of the Company’s sales consist of bulk cannabis products sold internationally to various customers. Some of these companies may have been operational for a short period of time and may have limited working capital and have limited credit history. As such, the Company has considered these factors in establishing an expected credit loss. During the three and six months ended June 30, 2021, the Company recorded an expected credit loss of $50,934 and $94,242 respectively (three and six months ended June 30, 2020 - $1,048,777). This amount is included within the allowance for doubtful accounts. The remaining balance in the allowance for doubtful accounts relates to expected credit losses recorded in prior years.

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

4. Marketable securities

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Unrealized gain/
Number of shares Cost loss Fair value
June 30, 2021
Khiron Life Sciences Corp. ("Khiron") 100,000 $ 12,500 $ 31,500 $ 44,000
XPhyto Therapeutics Corp. (Note 9) 250,000 680,000 197,500 422,500
Total marketable securities $ 692,500 $ 229,000 $ 466,500
December 31, 2020
Khiron Life Sciences Corp. ("Khiron") 100,000 $ 12,500 $ 25,000 $ 37,500
XPhyto Therapeutics Corp. (Note 9) 17,900 51,261 (17,609) 33,652
Total marketable securities $ 63,761 $ 7,391 $ 71,152
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5. Prepaid expenses and other receivables

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||||||
|---|---|---|---|---|
|As at December|
|As|at|June|30, 2021|31, 2020|
|Prepaid expenses|50,419|732,075|
|Other receivables|981,523|571,401|
|Closing balance|$ 1,031,942|$ 1,303,476|

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6. Inventory

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||||||
|---|---|---|---|---|
|As at December|
|As|at|June|30, 2021|31, 2020|
|Agricultural supplies and other|245,870|308,665|
|Work-in-process|189,195|551,874|
|Finished|products|745,716|392,029|
|Closing balance|$ 1,180,781|$ 1,252,568|

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During the three and six months ended June 30, 2021, inventory recognized as cost of goods sold was $1,184,934 and $2,603,240, respectively (three and six months ended June 30, 2020 - $1,103,190 and $1,606,021 respectively), consisting of $72,682 and $135,893 (three and six months ended June 30, 2020 – $374,149 and $473,019 respectively) of realized fair value changes on inventory sold, $714,744 and $1,322,256 (three and six months ended June 30, 2020 - $nil) in impairment costs reducing the inventory value to its net realizable value and $397,508 and $1,145,091, respectively (three and six months ended June 30, 2020 - $671,768 and $1,133,003 respectively) of capitalized post-harvest costs expensed during the period as cannabis inventory is sold.

Biological assets

Determination of the fair values of the biological assets requires the Company to make various estimates and assumptions. The fair value of biological assets is considered a Level 3 categorization in the IFRS fair value hierarchy.

The significant estimates and inputs used to assess the fair value of biological assets include the following assumptions as at June 30, 2021:

• a. Selling prices – selling prices are based on the Company's expected selling price per kilogram based on selling history,

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

adjusted for current market conditions. A selling price of $620 per kilogram of CBD isolate was used to calculate the biological assets at June 30, 2021 (December 31, 2020 - $796).

• b. Post-harvest costs – the costs are based on actual processing costs incurred by drying, trimming, extracting, testing and packaging activities incurred in the period, including overhead allocations for these activities. Post-harvest processing costs averaged $589 per kilogram of CBD isolate (December 31, 2020 - $1,683).

• c. The stage of plant growth – the stage of plant growth is estimated by the number of days into the growing stage compared to the estimated growing time for a full harvest. The estimated stage of growth of the cannabis plants as at June 30, 2021 averaged 44% (December 31, 2020 - 42%).

• d. Expected yield – the expected yield per plant is based on the Company’s historical adjusted average yield per plant. Expected yield per plant is 0.86 grams of CBD isolate (December 31, 2020 - 3.66).

As at June 30, 2021, the Company’s biological assets consist of cannabis plants. The changes in the fair value of biological assets are as follows:

Carrying amount, December 31, 2020	-
Production costs capitalized	1,098,858
Changes in fair value less costs to sell due to biological transformation	(180,838)
Transferred to inventory upon harvest	(918,020)
Effectof foreigncurrency exchange differences Balance, June 30, 2021	- - $

The Company expects that a 10% increase or decrease in the wholesale market price per kilogram of dried cannabis would increase or decrease the fair value of biological assets by $227,701. 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 $18,323. Additionally, an increase or decrease of 10% in the post-harvest costs would decrease or increase the fair value of biological assets by $142,751.

Net effect of changes in fair value of biological assets and inventory include:

Unrealized change in fair value of biological assets	(180,838)
Realized fair value loss on inventorysold	(135,893)

During the three and six months ended June 30, 2021, the Company incurred $685,408 and $842,645 in non-capital related agricultural operating costs at the Company’s cultivation facility in Colombia (three and six months ended June 30, 2020 - $73,068).

• 11 -

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

PHARMACIELO LTD.

7. Property, plant and equipment

										Office	Computer and	Computer and
			Construction in				Machinery and		furniture and		communication				Equipment in
COST		Land		progress		Building		equipment		fixtures		equipment		Vehicles		transit		Total
Balance, December 31, 2019	$	7,868,503	$	6,346,102	$	3,607,128	$	7,368,767	$	994,403	$	1,064,741	$	141,137	$	2,247,612	$	29,638,393
Additions		-		3,322,558		43,199		1,074,030		67,659		124,525		-		801,809		5,433,780
Reclassification		-		681,772		-		118,047		-		-		-		(799,819)		-
Disposals		-		-		-		-		-		-		-		-		-
Effect of foreign currency
exchange differences		(333,957)		(393,055)		(119,316)		(456,394)		(17,505)		(62,164)		(8,741)		(141,183)		(1,532,315)
Balance, December 31, 2020	$	7,534,546	$	9,957,377	$	3,531,011	$	8,104,450	$	1,044,557	$	1,127,102	$	132,396	$	2,108,419	$	33,539,858
Additions		-		684,512		-		50,664		-		17,261		-		-		752,437
Reclassification		-		(7,791,376)		5,671,208		4,136,778		-		-		-		(2,016,610)		-
Disposals		-		-		-		-		-		-		(33,525)		-		(33,525)
Effect of foreign currency
exchange differences		(565,943)		(1,118,557)		(207,035)		(1,103,874)		(31,306)		(119,280)		(14,814)		(40,818)		(3,201,627)
Balance, June 30, 2021	$	6,968,603	$	1,731,956	$	8,995,184	$	11,188,018	$	1,013,251	$	1,025,083	$	84,057	$	50,991	$	31,057,143
ACCUMULATED DEPRECIATION
Balance, December 31, 2019	$	-	$	-	$	876,528	$	708,297	$	227,302	$	481,612	$	60,370	$	-	$	2,354,109
Additions		-		-		253,858		594,351		280,633		352,746		29,251		-		1,510,839
Disposals		-		-		-		-		-		-		-		-		-
Effect of foreign currency
exchange differences		-		-		(19,028)		(27,056)		(4,694)		(25,836)		(3,106)		-		(79,720)
Balance, December 31, 2020	$	-	$	-	$	1,111,358	$	1,275,592	$	503,241	$	808,522	$	86,515	$	-	$	3,785,228
Additions		-		-		187,833		370,839		130,167		109,507		9,894		-		808,240
Disposals		-		-		-		-		-		-		-		-		-
Effect of foreign currency
exchange differences		-		-		(61,495)		(158,358)		(21,545)		(90,130)		(38,061)		-		(369,589)
Balance, June 30, 2021	$	-	$	-	$	1,237,696	$	1,488,073	$	611,863	$	827,899	$	58,348	$	-	$	4,223,879
CARRYING AMOUNT
Balance, December 31, 2020	$	7,534,546	$	9,957,377	$	2,419,653	$	6,828,858	$	541,316	$	318,580	$	45,881	$	2,108,419	$	29,754,630
Balance, June 30, 2021	$	6,968,603	$	1,731,956	$	7,757,488	$	9,699,945	$	401,388	$	197,184	$	25,709	$	50,991	$	26,833,264

• 12 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

PharmaCielo Colombia Holdings S.A.S. is developing a farm and a processing plant, located in Rio Negro in the municipality of La Cieja (Antioquia), for the purpose of cultivating and sowing, as well as assembly of the cannabis oil. The farm includes greenhouses, offices, and agricultural areas.

For the three and six months ended June 30, 2021, depreciation costs of $179,278 and $364,834 respectively (three and six months ended June 30, 2020 - $141,506 and $271,161 respectively) was capitalized to biological assets and inventory.

8. Leases

Right-of-use assets Balance, December 31, 2020	1,065,800
Remeasurement adjustment	39,356
Depreciation	(87,069)
Foreignexchange adjustment Balance, June 30, 2021	(13,602) 1,004,485 $

Right-of-use assets consist of office spaces. Right-of-use assets are depreciated over 48 to 122 months.

Maturity analysis - contractual undiscounted cash flows

Maturity analysis - contractual undiscounted cash flows
As at June 30, 2021 Less than one year	312,993
One to three years	814,232
Three to five years	496,158
More than fiveyears Total undiscounted lease obligation	413,465 2,036,848 $

Lease obligations

On August 24, 2018, the Company entered into a sixty-month lease agreement (plus extension periods) for new office space to serve as our corporate headquarters in Toronto, Ontario, commencing on January 1, 2019. Under the lease, the Company is required to pay a base rent of $13,875 per month. In addition to the base rent, the Company must pay its proportionate share of utilities, maintenance and other related costs for the leased premises. Lease payments are discounted over 122 months using an interest rate of 13.95%.

Upon initial recognition of a lease liability and right-of-use asset, the Company has elected to use the practical expedient not to separate non-lease components from lease components, and instead accounts for each lease component and any associated nonlease components as a single lease component.

• 13 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

The following table illustrates the lease agreements as at June 30, 2021:

==> picture [512 x 180] intentionally omitted <==

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

PharmaCielo
Colombia Holding
PharmaCielo Ltd. S.A.S
Country Canada Colombia
City Toronto Medellín
March 1, 2019 to October 1, 2018 to
Initial contract period February 29, 2024 September 30, 2021
Auto renewal No Yes
Monthly lease payments: CAD$
2021 $ 20,529 $ 4,532
2022 20,673 5,577
2023 20,673 6,029
2024 20,673 -
Interest rate 13.95% 10.71%
----- End of picture text -----

The continuity of the lease liability is presented in the table below:

==> picture [515 x 138] intentionally omitted <==

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

Balance, December 31, 2020 1,321,390
Remeasurement adjustments 39,356
Interest expense 89,916
Lease payments (159,072)
Foreign exchange adjustment (18,659)
Balance, June 30, 2021 $ 1,272,931
As at June 30, 2021
Lease obligations 1,272,931
Less current portion (149,651)
Non-current portion $ 1,123,280
----- End of picture text -----

9. XPhyto agreement and investment

Supply agreement with XPhyto

On January 27, 2020, the Company entered into a three-year agreement (the "Agreement") with XPhyto, whereby PharmaCielo will supply medicinal-quality cannabis extract oils and isolates, including those containing THC, to XPhyto for analysis, further processing, product development and manufacturing at its European Union Good Manufacturing Practice-certified ("EU GMP") facility in Biberach in the state of Baden-Württemberg, and thereafter for sale into the German market.

As part of the Supply Agreement, on January 31, 2020 XPhyto granted the Company 500,000 Warrants with an exercise price of $2.00 per Common Share. The warrants were valued at $356,378 on the grant date using the Black-Scholes pricing model. The following assumptions were used: share price - $1.59; expected annualized volatility – 95%, risk-free rate – 1.47%; and an expected life of 2 years.

Because no consideration was paid to XPhyto for the warrants, the Company recognized an initial gain of the full value of the warrants of $356,378. As required under IFRS 9, this initial gain has been deferred and will be recognized into income based on kilograms

• 14 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

delivered under the Supply Agreement. During the six months ended June 30, 2021, no product had yet been delivered to XPhyto, and therefore no deferred income was recognized in the statements of loss and comprehensive loss.

The following table illustrates the value at the transaction date and at June 30, 2021:

==> picture [524 x 124] intentionally omitted <==

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

Supply agreement warrants Warrants
Initial value 356,378
Unrealized gain/loss (63,005)
Exercise -
Balance, December 31, 2020 293,373
Balance, December 31, 2020 293,373
Unrealized gain/loss (141,138)
Exercise -
Balance, June 30, 2021 $ 152,235
----- End of picture text -----

Investment with XPhyto

On January 31, 2020, the Company purchased 500 convertible debenture units of XPhyto for $500,000. Each debenture unit consisted of: (i) $1,000 principal amount of 8.0% unsecured convertible debenture and (ii) 1,000 common share purchase warrants. The debenture bore interest at 8.0% per annum, calculated and payable semi-annually, and was scheduled to mature two years following the date of issuance. The debenture was convertible at the option of the Company into common shares of XPhyto (the “XPhyto shares”) at a conversion price of $1.00 per XPhyto share. Conversion of the debenture could be forced in part or in whole at the option of XPhyto if the 15-day volume-weighted average price of the XPhyto shares on the Canadian Securities Exchange ("CSE") exceeded $2.50 per share. Each warrant was exercisable to acquire one XPhyto share at an exercise price of $1.50 per share until January 31, 2022.

The initial fair value of the convertible debenture investment was calculated using a discounted cashflow model with a discount rate of 16%. The conversion feature and warrants were initially valued at January 31, 2020 using a Black-Scholes pricing model with a share price of $1.59, risk free rate of 1.47%, 2 year conversion period and volatility of 95%.

On June 4, 2020, the Company converted 250 of the convertible debentures into 250,000 XPhyto shares at a fair value of $599,784. On July 23, 2020, the Company converted the remaining 250 debentures into 250,000 XPhyto shares at a fair value of $715,942. As at June 30, 2021, the Company had sold all 500,000 of the XPhyto shares obtained through the conversion of the convertible debenture for proceeds of $1,456,070.

As at June 30, 2021, the Company had converted all 500,000 warrants issued as part of the convertible debenture units into shares. As at June 30, 2021, the Company had sold 250,000 shares for proceeds of $723,332 and held 250,000 XPhyto shares (see note 4).

Based on the initial valuation of the debenture investment, conversion option, and warrants the Company recognized an initial gain of $780,777. As required under IFRS 9, this initial gain was deferred and recognized into income over the life of each component of the investment. As at December 31, 2020, the amount remaining in deferred income associated with the debenture investment and related warrants was $136,632, as $644,145 had been amortized in the statements of loss and comprehensive loss during the year ended December 31, 2020. Since all of the debentures and related warrants have been converted and exercised for shares, the Company recognized the remaining $136,632 of deferred income as income in the consolidated statements of loss and comprehensive loss during the six months ended June 30, 2021.

The following table illustrates the valuation at the grant date and as at June 30, 2021.

• 15 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

	Initial value	June 20, 2021
Convertible Debenture Investment (Receivable Component)	438,271	-
Convertible Debenture Investment(Conversion Component)	428,727	-
Total Value	866,998	-
Warrants	413,779	-
Total Valuation of Convertible Debenture Investment	1,280,777	-

		Convertible
	Convertible debt -	debt - conversion
	receivable component	feature	Warrants	Total
Initial value	438,271	428,727	413,779	1,280,777
Unrealized gain/loss	11,213	437,515	(28,254)	420,474
Conversion of convertible debentures	(449,484)	(866,242)	-	(1,315,726)
Exercise of warrants			(385,525)	(385,525)
Balance, June 30, 2021	-	-	-	-

10. Loans and Borrowings

As at June 30, 2021 the company had the following loans and borrowings:

==> picture [531 x 125] intentionally omitted <==

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

Term loan Revolving Loan Total
Balance, December 31, 2020 $ 2,966,076 $ 185,608 $ 3,151,684
Accrued interest - - -
Accretion 129,268 6,196 135,464
-
Principal payment (41,619) (41,619)
Interest payment (128,973) (6,107) (135,080)
Foreign exchange adjustment (331,920) (20,421) (352,341)
Balance, June 30, 2021 2,634,451 123,657 2,758,108
Current portion of debt - (82,393) (82,393)
Non-current portion of debt $ 2,634,451 $ 41,264 $ 2,675,715
----- End of picture text -----

In December 2020, the Company entered into a loan agreement with Banco Agrario de Colombia S.A. (“Banco Agrario”), consisting of term and revolving components for a total value of $8,500,000,000 COP ($3,151,684 CAD). The term loan is for seven (7) years and makes up $8,000,000,000 COP ($2,966,076 CAD) of the initial loan proceeds received. Per the details of the agreement, the term loan will bear interest at a variable rate of IBR + 7.85%, payable semi-annually during the first 24 months, and quarterly thereafter. The term loan is subject to a capital amortization grace period of up to 24-months. The revolving loan consists of $500,000,000 COP ($185,608 CAD) available to be drawn down by the Company. As at December 31, 2020, the Company had drawn the full amount down. The revolving loan is payable semi-annually, over a period of 24 months. The revolving loan bears interest at a variable rate of IBR + 6%, payable semi-annually. There are certain externally imposed capital requirements as a result of the loan. The Loan is secured against part of the Company's La Margarita property.

11. Share capital

a) Authorized share capital

The authorized share capital consists of an unlimited number of Common Shares. The Common Shares do not have a par value. All currently issued and outstanding Common Shares are fully paid.

• b) Common Shares issued and outstanding

• 16 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

147,102,230 Common Shares (December 31, 2020 - 138,747,660 Common Shares).

For the year ended December 31, 2020

• (i) On February 19, 2020, the Company issued the remaining 18,967 Common Shares owed on the Ubiquo Telemedicina S.A.S transaction issued at a price of $2.42 per share.

• (ii) On January 3, 2020, cash proceeds for $32,480 (USD$25,000) were received towards 50,000 options that were exercised, resulting in the issuance of 50,000 Common Shares. In addition, the Company issued 172 Common Shares for net proceeds of $205 upon the exercise of warrants.

• (iii) During the year ended December 31, 2020, 1,347,166 RSUs were fully vested, which resulted in the issuance of 671,500 Common Shares, with 666,666 shares pending issuance at year end and the remaining 9,000 RSUs to be settled in cash. As at June 30, 2021 the 666,666 shares pending have not yet been issued and thus remain recorded in shares to be issued in the statement of changes in shareholders’ equity.

• (iv) On April 15, 2020, the Company settled an outstanding debt in the amount of $54,681 with two former Medical Advisory Board members. As a result, the Company issued an aggregate of 74,906 Common Shares at a fair value of $0.73 per Common Share, with all such issued Common Shares being subject to a statutory hold period of four months plus a day from the date of issuance.

• (v) On April 15, 2020, the Company closed its first 2020 private placement financing by issuing 12,578,002 special warrants of the Company (the “Special Warrants”) at $0.65 per Special Warrant. Each Special Warrant entitled the holder thereof to receive one Common Share upon exercise. The Company issued 12,246,190 Special Warrants for cash, raising gross proceeds of $7,960,024. The Company incurred related costs of $1,178,780, including 181,812 Special Warrants issued as agents’ fees (valued at $118,178) and 150,000 Special Warrants as a finder’s fee (valued at $97,500). On May 20, 2020, all 12,578,002 Special Warrants were converted to Common Shares by the Company.

• (vi) On July 3, 2020, the Company closed its second 2020 private placement financing by issuing 6,388,940 Common Shares of the Company at a price of $0.72 per Common Share, raising gross proceeds of $4,600,037. The Company incurred related costs of $568,884.

• (vii) On November 20, 2020, the Company closed its third 2020 private placement financing by issuing 20,000,000 units at a price of $0.50 per unit, raising gross proceeds of $10,000,000. Each unit consists of one Common Share and one-half a warrant with an exercise price of $0.65 and a life of 2 years. The warrant fair value was determined based on a Black-Scholes model (see note 12(i)(c)). The Company has allocated $7,800,910 of the private placement to share capital and $2,199,090 to warrants. Related issuance costs of $1,254,946, including 1,000,000 broker warrants to purchase one unit each at a price of $0.50 issued as agents’ fees (valued at $250,418), were allocated to share capital ($978,972) and warrants (275,974).

For the six months ended June 30, 2021

• (viii) During the six months ended June 30, 2021, cash proceeds of $564,909 were received towards 760,835 options that were exercised, resulting in the issuance of 760,835 Common Shares. In addition, the Company issued 944,369 Common Shares for cash proceeds of $613,840 upon the exercise of warrants.

• (ix) During the six months ended June 30, 2021, 1,189,834 RSUs were fully vested, which resulted in the issuance of 347,500 Common Shares, with 833,334 shares pending issuance at June 30, 2021 and the remaining 9,000 RSUs to be settled in cash.

• (x) During April 2021, the Company completed an overnight marketed offering of Common Shares by issuing 6,301,866 shares at a stock price of $2.15 for aggregate gross proceeds of $13,549,012. The Company incurred related costs of $1,278,351.

• 17 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

12. Warrants

The following table reflects the continuity of warrants for the periods ended June 30, 2021 and December 31, 2020:

==> picture [523 x 189] intentionally omitted <==

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

Weighted average exercise Weighted average exercise
Number of warrants price (USD) price (CAD)
Balance, December 31, 2019 37,054 2.06 1.19
April 15 Private Placement(i)(a) 190,212 - 0.65
November 20 Private Placement(i)(b) 10,000,000 - 0.65
November 20 Private Placement - Broker warrants(i)(c) 1,000,000 - 0.50
Exercised(i)(d) (172) - 1.194
Expired (27,882) 2.00 -
Balance, December 31, 2020 11,199,212 2.25 0.64
Balance, December 31, 2020 11,199,212 2.25 0.64
Exercised(ii)(a) (944,369) - 0.65
Balance, June 30, 2021 10,254,843 2.25 0.64
----- End of picture text -----

(i) Warrants issued in the year ended December 31, 2020 include the following:

• a. The Company paid a portion of the broker fees on the Special Warrants in the form of 190,212 broker warrants (the “Broker Warrants”). The Broker Warrants are separate instruments from the Special Warrants. Each Broker Warrant is exercisable for one Common Share at an exercise price of $0.65 for a period of 24 months. The Broker Warrants were valued using a Black-Scholes pricing model with the following assumptions: share price of $0.73, exercise price of $0.65, expected stock price volatility of 91%, expected dividend yield of 0%, risk-free interest rate of 0.33%, and term of 24 months. As at December 31, 2020, none of the Broker Warrants had been exercised.

• b. As part of the November private placement, the Company issued 10,000,000 warrants exercisable at $0.65 per warrant. The Company used a Black-Scholes pricing model to value the warrants, with the following assumptions: share price of $0.84, exercise price of $0.65, expected stock price volatility of 95%, expected dividend yield of 0%, risk-free interest rate of 0.69%, and term of 24 months.

• c. Also as part of the November private placement, the Company issued 1,000,000 broker warrants exercisable at $0.50 per unit . Each warrant is exercisable for one unit, consisting of one Common Share and one half warrant, with each full warrant exercisable for one Common Share at an exercise price of $0.65 for a period of 24 months. The broker warrants were valued using a Black-Scholes pricing model, with the following assumptions: share price of $0.84, exercise price of $0.50, expected stock price volatility of 95%, expected dividend yield of 0%, risk-free interest rate of 0.69%, and term of 24 months.

• d. A total of 172 other warrants were exercised at an exercise price of $1.194 each.

(ii) Warrants exercised in the six months ended June 30, 2021 include the following:

• a. A total of 944,369 other warrants were exercised at an exercise price of $0.65 each.

The following table reflects the warrants issued and outstanding as at June 30, 2021:

• 18 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

Number of warrants	Exercise price	Exercise price
outstanding	(USD)	(CAD)	Expiry date
38,043	-	0.65	April 15, 2022
1,000,000	-	0.50	November 20, 2022
9,207,800	-	0.65	November 20, 2022
9,000	2.25	-	December 15,2022
10,254,843

13. Stock options

The following table reflects the continuity of options for the periods ended June 30, 2021 and December 31, 2020:

		Weighted average exercise price	Weighted average exercise price
Balance, December 31, 2019	Number of options 12,606,000	1.18 (USD)	3.33 (CAD)
Granted(i)	5,183,336	-	0.80
Exercised	(50,000)	0.50	-
Expired/Forfeited	(4,117,000)	1.32	3.35
Balance, December 31, 2020	13,622,336	1.51	1.69
Balance, December 31, 2020	13,622,336	1.51	1.69
Granted(ii)	1,346,748	-	2.04
Exercised	(760,835)	0.59	0.72
Balance, June 30, 2021	14,208,249	1.61	1.71

• (i) Options issued in the year ended December 31, 2020 include the following:

• a. On May 4, 2020, the Company granted incentive stock options to an officer of the Company of 1,500,000 Common Shares exercisable at a price of $1.02 per Common Share on or before May 4, 2030. The options vest as follows: 500,000 immediately; 333,333 after the first anniversary of the date of grant; 333,333 after the second anniversary of the date of grant; and 333,334 after the third anniversary of the date of grant. The fair value of each option has been estimated at $0.85 as at the date of the grant using the Black-Scholes option pricing model. The following assumptions were used: share price - $0.99; expected annualized volatility – 93.13%, risk-free rate – 0.57%; and an expected life of 10 years. During the year ended December 31, 2020, the Company recorded $866,808 in sharebased payments expense related to these stock options in the consolidated statements of loss and comprehensive loss.

• b. On July 2, 2020, the Company granted a total of 383,336 compensation stock options (the “Compensation Options”) to the underwriters of the July 2, 2020 private placement. Each option is exercisable for one Common Share at a price of $0.72 on or before July 2, 2022. All options vest immediately. The fair value of each option has been estimated at $0.34 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $0.71, exercise price of $0.72, expected stock price volatility of 90%, risk-free rate of 0.56%, and expected life of 24 months. During the year ended December 31, 2020, the Company recorded $129,184 in share-based payments expense related to these stock options in the consolidated statements of loss and comprehensive loss.

• c. On November 20, 2020, the Company granted a total of 3,000,000 incentive stock options to a director of the Company. Each option is exercisable for one Common Share at a price of $0.63 on or before November 20, 2025.

• 19 -

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

PHARMACIELO LTD.

The options vest as follows: 1,000,000 immediately; 1,000,000 on the six-month anniversary of the grant date; and the remaining 1,000,000 on the one-year anniversary of the grant date. The fair value of each option has been estimated at $0.63 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $0.84, exercise price of $0.63, expected stock price volatility of 95%, risk-free rate of 0.56%, and expected life of 5 years. During the year ended December 31, 2020, the Company recorded $847,891 in share-based payments expense related to these stock options in the consolidated statements of loss and comprehensive loss.

• d. On December 2, 2020, the Company granted a total of 200,000 incentive stock options to an officer of the Company. Each option is exercisable for one Common Share at a price of $1.11 on or before December 2, 2030. All options vest immediately. The fair value of each option has been estimated at $1.19 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $1.23, exercise price of $1.11, expected stock price volatility of 101%, risk-free rate of 0.76%, and expected life of 10 years. During the year ended December 31, 2020, the Company recorded $237,942 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

• e. On December 17, 2020, the Company granted a total of 100,000 incentive stock options to a consultant of the Company. Each option is exercisable for one Common Share at a price of $2.18 on or before December 17, 2023. The options vest as follows: 25,000 immediately; 25,000 on the four-month anniversary of the grant date; 25,000 on the eight-month anniversary of the grant date, and the remaining 25,000 on the one-year anniversary of the grant date. The fair value of each option has been estimated at $1.44 as at the date of the grant based on the BlackScholes option pricing model. The following assumptions were used: share price of $2.18, exercise price of $2.18, expected stock price volatility of 103%, risk-free rate of 0.74%, and expected life of 3 years. During the year ended December 31, 2020, the Company recorded $43,549 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

• (ii) Options issued in the six months ended June 30, 2021 include the following:

• a. On April 7, 2021, the Company granted a total of 314,163 incentive stock options as broker options, issued as part of the April 7[th] capital rase. Each option is exercisable for one Common Share at a price of $2.15 on or before April 7, 2026. All options vest immediately. The fair value of each option has been estimated at $1.41 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $1.90, exercise price of $2.15, expected stock price volatility of 103%, risk-free rate of 1.50%, and expected life of 5 years. During the six months ended June 30, 2021, the Company recorded $443,441 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

• b. On April 29, 2021, the Company granted a total of 212,585 incentive stock options to a consulting company as part of their agreement. Each option is exercisable for one Common Share at a price of $1.47 on or before April 29, 2026. The options vest as follows: 70,862 on the first anniversary of the grant date; 70,862 on the second anniversary of the grant date; 70,862 on the third anniversary of the grand date. The fair value of each option has been estimated at $1.17 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $1.54, exercise price of $1.47, expected stock price volatility of 102%, risk-free rate of 1.56%, and expected life of 5 years. During the six months ended June 30, 2021, the Company recorded $25,861 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

• c. On May 13, 2021, the Company granted a total of 200,000 incentive stock options to the Board of Directors. Each option is exercisable for one Common Share at a price of $2.15 on or before May 13, 2026. The options vest as follows: 66,667 on the first anniversary of the grant date; 66,667 on the second anniversary of the grant date; 66,666 on the third anniversary of the grand date. The fair value of each option has been estimated at $1.05 as at the date

• 20 -

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

PHARMACIELO LTD.

of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $1.49, exercise price of $2.15, expected stock price volatility of 101%, risk-free rate of 1.56%, and expected life of 5 years. During the six months ended June 30, 2021, the Company recorded $59,046 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

• d. On June 10, 2021, the Company granted a total of 620,000 incentive stock options to the Board of Directors. Each option is exercisable for one Common Share at a price of $2.10 on or before June 10, 2026. The options vest as follows: 206,667 on the first anniversary of the grant date; 206,667 on the second anniversary of the grant date; 206,666 on the third anniversary of the grand date. The fair value of each option has been estimated at $1.16 as at the date of the grant based on the Black-Scholes option pricing model. The following assumptions were used: share price of $1.63, exercise price of $2.10, expected stock price volatility of 100%, risk-free rate of 1.38%, and expected life of 5 years. During the six months ended June 30, 2021, the Company recorded $4,674 in share-based payments expense related to these stock options in the consolidated statement of loss and comprehensive loss.

Details of the stock options outstanding as at June 30, 2021 are as follows:

Number of options	Number of options	Exercise price	Exercise price	Weighted-average
outstanding	exercisable	(USD)	(CAD)	life (years)	Expiry date
100,000	100,000	0.50	-	1.08	July 31, 2022
172,501	172,501	-	0.72	1.01	July 2, 2022
40,000	40,000	2.25	-	1.08	July 31, 2022
100,000	50,000	-	2.18	2.46	December 17, 2023
2,535,000	2,535,000	2.25	-	3.58	January 29, 2025
39,000	39,000	2.25	-	3.59	February 4, 2025
550,000	550,000	0.25	-	3.88	May 15, 2025
50,000	50,000	-	3.35	3.92	June 1, 2025
25,000	25,000	0.50	-	4.33	October 27, 2025
3,000,000	2,000,000	-	0.63	4.39	November 20, 2025
314,163	314,163	-	2.15	4.77	April 7, 2026
212,585	212,585	-	1.47	4.83	April 29, 2026
200,000	200,000	-	2.15	4.87	May 13, 2026
620,000	620,000	-	2.10	4.94	June 10, 2026
50,000	50,000	1.00	-	4.39	November 20, 2025
550,000	366,667	-	3.10	5.35	November 5, 2026
450,000	450,000	1.00	-	5.51	January 2, 2027
100,000	100,000	1.00	-	5.58	January 27, 2027
850,000	850,000	1.00	-	5.92	June 1, 2027
300,000	300,000	2.00	-	6.01	July 5, 2027
2,250,000	1,750,000	-	3.35	7.00	July 1, 2028
1,500,000	833,334	-	1.02	8.84	May4,2030
14,208,249	11,808,250	1.61	1.76	5.34

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

14. Restricted share units (“RSUs”) and Deferred Share Units (“DSUs”)

	Number of unvested
	RSUs and DSUs outstanding
Balance, December 31, 2020	1,639,834
Granted(i) (ii) (iii)	1,950,000
Vested(iv)	(1,023,167)
Balance, June 30, 2021	2,566,667

• (i) On February 1, 2021, the Company issued 200,000 RSUs to a consultant of the company. The RSUs vested immediately as of the grant date.

• (ii) On June 10, 2021, the Company issued 500,000 RSUs to the newly appointed Chairman of the Board. The RSUs vest as follows: 166,667 on the first anniversary of the grant date; 166,667 on the second anniversary of the grant date; 166,666 on the third anniversary of the grand date.

• (iii) On June 10, 2021, the Company approved a DSU plan and issued 1,250,000 DSUs to a former officer of the Company. The DSUs settle on the business day following the termination date of an at-will consulting agreement entered into with the former office. The Company has the option to settle the DSUs as a cash payment of an amount equal to the number of DSUs multiplied by the closing market price of the common share of the Company, or by issuing a number of common shares equal to the number of DSUs at the time of settlement, net of any applicable withholding tax.

• (iv) During the six months ended June 30, 2021, 1,189,834 RSUs were fully vested which resulted in the issuance of 347,500 Common Shares, with 833,334 shares pending issuance as at June 30, 2021 and the remaining 9,000 RSUs to be settled in cash.

As at June 30, 2021, there were 2,566,667 unvested RSUs and DSUs outstanding.

15. Net loss per Common Share

The calculation of basic and diluted loss per share for the three and six months ended June 30, 2021 was based on the loss attributable to common shareholders of $7,224,380 and $13,766,436, respectively (three and six months ended June 30, 2020 - $7,719,863 and $14,037,861, respectively) and the weighted average number of Common Shares outstanding of 146,383,269 and 142,920,738, respectively (three and six months ended June 30, 2020 - 104,856,355 and 101,953,901 respectively). Diluted loss per share is equal to basic diluted loss per share as any effects of the potential convertible securities would be anti-dilutive.

16. Transactions with related parties

During the three and six months ended June 30, 2021, the Company had the following related party transactions:

• a) The Company incurred consulting fees of $1,500 and $3,000, respectively (compared to the three and six months ended June 30, 2020 of $1,500 and $3,000, respectively) from Laitinen Consulting Inc., a company controlled by a former Officer of the Company. As of June 30, 2021, the amount of $500 (June 30, 2020 - $500) is owing to Laitinen Consulting Inc. Mr. Laitinen was employed early in 2019, and since then his remuneration is included as part of Management salaries. Laitinen Consulting Inc. continues to provide payroll services, T4 processing & filing, and government remuneration for the payroll in Canada.

• b) The Company incurred consulting fees of $Nil (compared to the three and six months ended June 30, 2020 of $25,000 and $75,000, respectively) from Konssult Assessoria Empresarial Ltda, a company controlled by an Officer and Director of the Company. As of June 30, 2021, the amount of $Nil (June 30, 2020 - $Nil) is owing to Konssult Assessoria Empresarial Ltda.

• c) The Company incurred consulting fees of $Nil (compared to the three and six months ended June 30, 2020 of $29,400) from DHBache & Company Inc., a company controlled by a Director of the Company. As of June 30, 2021, the amount of $Nil (June 30, 2020 - $Nil) is owing to DHBache & Company Inc.

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

Compensation of Key Management

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling activities of the Company, directly or indirectly. The key management personnel of the Company are the members of the Company’s executive management team and the Board of Directors, as well as certain key officers and board members of the Company's subsidiary.

	Three Months	ended June 30	Six Months	ended June 30
Management compensation	2021 254,605 $	2020 492,279 $	2021 502,817 $	2020 961,124 $
Directors' fees(1)	46,195	84,091	73,695	84,091
Share-based compensation(2) Total management compensation	1,743,041 2,043,841 $	1,852,634 2,429,004 $	3,011,440 3,587,952 $	3,314,740 4,359,955 $

(1) Includes meeting fees and commitment chair fees.

• (2) Share-based compensation represents the fair value of options and RSUs granted and vested to key management personnel and directors of the Company under the Company's share-based compensation plans.

The above related party transactions were in the normal course of operations and have been valued in the unaudited condensed interim consolidated financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The amounts owing to related parties are non-interest bearing and due on demand.

17. Commitments and Contingencies

Commitments

• a) The Company has a technology license agreement with Harmony Grove Services, LLC, to exploit the extraction technology on biomass. The Company will pay to Harmony Grove Services, LLC a royalty fee for cannabis oil processed with the Technology-enabled process scale chromatography and Technology-enabled process scale crystallization. The agreement dated May 15, 2019 is for two years and royalties will be paid on a quarterly basis. Royalties are calculated based on a fixed fee (USD$) per kilogram of oil processed with the Technology-enabled process scale chromatography and Technologyenabled process scale crystallization. On July 1, 2021, Harmony Grove Services, LLC gave notice to the Company that it is terminating the License Agreement. Termination will be effective as of January 1, 2022.

• b) The Company has supply agreement with Tahami & Cultiflores SA en Reorganización to supply destemmed and pre-dried cannabis flower from their non-psychoactive Tahami & Cultiflores SA en Reorganización cannabis crops. The Company will pay to Tahami & Cultiflores SA en Reorganización a set price per kilogram of plant material that will supplied to the Company. The agreement dated July 27, 2020 is for one year and the total cost of the contract is estimated to be $1.7 million. As of the date of these Financial Statements, the supply agreement with Tahami & Cultiflores SA en Reorganización has been extended while negotiations are in progress on a new agreement. Also, the company has paid Tahami & Cultiflores SA en Reorganización $1.2 million for the supply of plant material.

• c) Included in accounts payable and accrued liabilities, and other non-current liabilities are accruals for certain provisions, including termination related commitments to former officers and directors of approximately $1.5 million. In addition, the company had a commitment to a current and a former Company executive to issue 275,000 Deferred Stock Units (“DSU”) and 100,000 Restricted Share Units (“RSU”). As of the date of this Financial Statements, accounts payable and accrued liabilities include a liability of $495,000 relating to the DSU commitment.

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Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

PHARMACIELO LTD.

• d) The Company has lease commitments for office space rented in Toronto, Canada and Medellín, Colombia. Payments occur on a monthly basis in accordance with the table presented in Note 8.

Legal

The Company is involved in claims that arise in the ordinary course of business. Accruals for the claims are provided to the extent that losses are deemed both probable and estimable. Although the ultimate outcome of this claim or lawsuit cannot be ascertained, based on present information and advice received from counsel, the Company recognized a provision as of December 31, 2020 in accounts payable and accrued liabilities. As of the date of these financial statements, the provision remains in accounts payable and accrued liabilities.

A former director of the Company, and his company have filed a Statement of Claim in Ontario’s Superior Court of Justice against the Company in connection with the director’s alleged employment by the Company and the consulting relationship between the Company and the director’s company. The Company filed a Statement of Defence on February 4, 2021. The reply of the director and his company was served on March 8, 2021.

On March 6, 2020 and April 24, 2020, two proposed securities class actions were filed against the Company, David Attard and Scott Laitinen in the United States District Court for the Central District of California (the “Court”). In June 2020, the Court consolidated the two lawsuits into one case and assigned lead plaintiffs (“Plaintiffs”) and lead counsel to represent the proposed class in the litigation. On August 21, 2020, Plaintiffs filed an amended complaint and named David Gordon and Andres Botero as additional defendants (together with the Company, David Attard, and Scott Laitinen, “Defendants”). The proposed class action is comprised of stockholders who purchased or acquired publicly-traded PCLO securities from June 21, 2019 to March 2, 2020. The amended complaint alleges violations of the U.S. Securities Exchange Act of 1934 (the “Securities Exchange Act”) against Defendants. Plaintiffs contend that the market price of the Company’s securities were artificially inflated due to misrepresentations Plaintiffs allege were made by the Company and Defendants, and that the senior officers of the Company are liable due to their control and authority over the Company’s public statements. The amended complaint seeks damages and an award of Plaintiffs’ costs, including attorneys’ fees and expenses. On October 22, 2020, Defendants filed a motion to dismiss the U.S. action. On December 21, 2020, Plaintiffs filed opposition to the motion to dismiss. On February 5, 2021, Defendants filed a reply in support of their motion to dismiss. On April 16, 2021, the Court issued an order granting the Defendants’ motion to dismiss and granting the Plaintiffs leave to amend the complaint by May 21, 2021. On May 21, 2021, Plaintiffs filed an amended complaint alleging substantially the same violations of the Securities Exchange Act and seeking the same relief.

The Company believes the class action to be without merit.

18. Segmented information

An operating segment is a component of the Company (a) that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and (c) for which discrete financial information is available. The Company is considered to be operating in one segment based on its business nature and strategic decision- making method. The Company is located and operates in Canada and Colombia, as well as having joint control over ventures in Italy and Mexico.

The Company’s net loss by geographic locations are as follows:

• 24 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021

(Expressed in Canadian Dollars) (Unaudited)

Three months ended June 30	Six months ended June 30
Net loss for theperiod ended 2021 2020 Canada 4,448,912 $ 5,198,814 $	2021 2020 8,099,518 $ 9,512,520 $
Colombia 2,775,468 2,521,049 Total 7,224,380 $ 7,719,863 $	5,666,918 4,525,341 13,766,436 $ 14,037,861 $

The Company’s total assets by geographic location are as follows:

						December 31,
Total assets as at Canada			June 30, 2021 17,537,496 $		$	2020 12,728,282
Colombia Total			$	25,463,249 43,000,745	$	31,296,139 44,024,421
Operating segment -June 30, 2020 Revenues	$	Corporate	Cannabis - 1,746,950 $			Total 1,746,950 $
Cost of sales			-	1,133,003		1,133,003
Loss for theperiod		9,512,520		4,525,341		14,037,861
Operating segment - June 30, 2021		Corporate		Cannabis		Total
Revenues	$	-	$	1,121,215	$	1,121,215
Cost of sales		-		1,145,537		1,145,537
Loss for theperiod		8,099,518		5,666,918		13,766,436
Revenues by country				Cannabis		Total
United Kingdom			$	751,386	$	751,386
Colombia				130,662		130,662
Czech Republic				124,703		124,703
Paraguay				45,601		45,601
Switzerland				30,113		30,113
Brasil				25,963		25,963
Canada				4,147		4,147
Denmark				3,234		3,234
Mexico				2,592		2,592
Italy				1,813		1,813
Argentina				1,000		1,000
Total Revenue			$	1,121,215	$	1,121,215

Revenue Concentration

The Company's business is such that, at any given time, it sells its products and services to a relatively small number of customers. During the three and six months ended June 30, 2021, one customer accounted for 100% of cannabis revenue in the United Kingdom, which represents 67% of total revenue.

19. Investment in joint ventures

The Company has two investments in Italy and Mexico, PharmaCielo Italia S.R.L. (70% owned) ("Italia") and PharmaCielo S.A. de C.V. (50% owned).

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PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

Management assessed that the Company’s investment in Italia and PharmaCielo S.A. de C.V., was a joint venture in accordance with IFRS 11 - Joint Arrangements. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer recognizes its interest in a joint venture as an investment and accounts for that investment using the equity method in accordance with IAS 28 - Investments in Associates and Joint Ventures.

Investment in joint ventures at June 30, 2021 was $879,717 (December 31, 2020 - $565,396) and consisted of the following amounts:

Balance, December 31, 2020	$	565,396
Investment in joint ventures		515,093
Share of loss on investmentinjointventures Balance, June 30, 2021	$	(200,772) 879,717

The following tables summarize the financial information of Italia and PharmaCielo S.A. de C.V. joint ventures:

As at June 30, 2021

As at June 30, 2021
	PharmaCielo Italia		PharmaCielo S.A.
		SRL		de C.V.
Cash and cash equivalents	$	21,009	$	46,822
Other current assets		18,817		119,759
Total current assets		39,826		166,581
Non-current assets Total assets	$	454,950 494,776	$	- 166,581
Current liabilities Total liabilities	$	41,473 41,473	$	- -
Net assets(1)	$	453,303	$	166,581

(1) Balances represent 100% share of Italia and PharmaCielo S.A. de C.V.

For the six months ended June 30, 2021

For the six months ended June 30, 2021
	PharmaCielo Italia		PharmaCielo S.A.
		SRL		de C.V.
Selling, general, and administrative expenses	$	198,766	$	122,547
Other expense		518		-
Net loss(1)		199,284		122,547

(1) Balances represent 100% share of Italia and PharmaCielo S.A. de C.V.

20. COVID-19

To protect the health of PharmaCielo’s staff and the community amid the global outbreak of COVID-19, PharmaCielo adjusted operations at the Rionegro, Colombia facilities of its subsidiary PharmaCielo Colombia Holdings S.A.S. (“PharmaCielo Colombia”). The Company’s measures supported President Duque and the Colombian government's proactive COVID-19 mitigation efforts. The new workplace procedures reflected the Colombian government's nation-wide essential business policy (Decree 457), that came into effect at 12:00 am on March 25, 2020 requiring certain quarantining measures (the "Decree"). While as an agricultural enterprise PharmaCielo Colombia is excluded from the Decree, all agronomic operations at the greenhouses, lab and processing

• 26 -

PHARMACIELO LTD.

Notes to the Condensed Interim Consolidated Financial Statements June 30, 2021 (Expressed in Canadian Dollars) (Unaudited)

facility that include breeding, tissue culture, propagation, cultivation, harvest, drying, separation and storage continued to operate in rotating shifts with reduced staff and onsite adjustments to enable the important practice of social distancing. Voluntarily, PharmaCielo Colombia temporarily ceased activities at the processing facility, and temporarily halted construction of the new processing and extraction centre in the interests of employee health in the enclosed facilities. These decisions took into consideration the ability to minimize losses and to ensure a fast recovery of normal operation. The reduction in the use of ethanol led to reduced processing costs and eliminated the Company’s use of a commodity required for the production of hand sanitizers by the health industry. As a result, the monthly burn rate for expenses declined.

Since initiation of reduced activity, and as consistent with the allowances of the Decree, the Company has sought to gradually increase operations within the agriculture and industrial teams, while maintaining proper safety measures and being mindful of employee health and wellness. While operations have returned to normal levels, COVID-19 related lockdowns in Colombia or other countries could reduce the quantity of product produced by the Company and / or limit the Company’s ability to ship product to end customers. International border shutdowns have affected international shipping to/from various markets and the Company is assessing the impact of potential delays in both equipment import and product export.

Following the COVID-19 pandemic, PharmaCielo’s Health Safety Protocols remain in line with the national guidelines Decree. Thus, governmental health entities carried out a verification of the biosafety protocols adopted by the company in the facilities where 100% compliance with the measures generated by the government were evidenced. Furthermore, the Special Situation Committee continues to review and update actions around the COVID protocol, providing resources to ensure social distancing, delivery of appropriate personal protection equipment and infrastructure that fulfills the defined standards.

At the beginning of July 2020, PharmaCielo conducted a simulated employee positive case drill to validate that proper systems, procedures and measurements have been put in place. Additionally, several additional workplace safety investments have been carried out to ensure social distancing in common areas (i.e. dressing rooms and cafeteria) and additional stations for hand washing and sanitizing were installed on facility. Of note that COVID-19 infection rate in the company has been lower than 10% (May 2021), with no outbreaks in the facility itself, no serious illnesses or fatalities.

In addition, measures to reinforce prevention, raise awareness and promote good workplace hygiene practices, such as educational sessions with epidemiologists to clarify doubts and share best practices, have been carried out to help combat the third wave of the pandemic. Finally, PharmaCielo has continued with a rotating work schedule, to avoid occupational exposure during the peaks of the pandemic, while continuing to support the process needs, at all times.

21. Subsequent events

• a. Subsequent to June 30, 2021, a total of 34,300 warrants were exercised resulting in proceeds of $22,295 and a total of 10,000 options were exercised resulting in proceeds of $3,129. Additionally, the Board approved and granted 100,000 Restricted Share Units (“RSUs”) to an officer of the Company.

• b. On August 19, 2021, Henning von Koss stepped down as Chief Executive Officer (“CEO”) and as a director of the Company. Bill Petron was appointed as the new CEO in addition to his role as the Chairman of the Board.

• 27 -