Steep Hill Inc. — Management Reports 2021

May 1, 2021

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CANBUD DISTRIBUTION CORPORATION (formerly Cannabis Clonal Corporation) MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2020

MANAGEMENT’S DISCUSSION & ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide a review of the financial position and results of operations of Canbud Distribution Corporation (“CBDX,” the “Company”, “we,” “our,” “us”) for the year ended December 31, 2020. This MD&A should be read in conjunction with the Company’s audited consolidated financial statements for the years ended December 31, 2020 and December 31, 2019. Those financial statements are presented in Canadian dollars and prepared in accordance with International Financial Reporting Standards (“IFRS”). Unless otherwise indicated, all dollar amounts refer to Canadian funds. Information herein includes any significant developments up to April 29, 2021, the date on which this MD&A was approved by the Company's board of directors.

For the purposes of preparing this MD&A, management, in conjunction with the board of directors (the “Board”), considers the materiality of information. Information is considered material if: (i) such information results in, or would reasonably be expected to result in, a significant change in the market price or value of the Company’s common shares; (ii) there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision; or (iii) it would significantly alter the total mix of information available to investors. Management, in conjunction with the Board, evaluates materiality with reference to all relevant circumstances, including potential market sensitivity.

This MD&A contains statements and information that, to the extent that they are not historical fact, may constitute "forward-looking information" within the meaning of applicable securities legislation. Forwardlooking information is typically, but not always, identified by the use of words such as "will", "intends", "scheduled", "to be" and "may be" and similar words, including negatives thereof, or other similar expressions concerning matters that are not historical facts. Forward-looking information in this MD&A includes, but is not limited to, statements regarding: the anticipated timeframe to complete the retreat buildout; the anticipated closing date of the acquisition; and statements regarding the Company's goals or future plans relating to the build-out of the retreat. Such forward-looking information is based on various assumptions and factors that may prove to be incorrect, including, but not limited to, factors and assumptions with respect to: the ability of the Company to complete the acquisition within the specified time frame; the receipt of all necessary regulatory and other approvals or consents; the ability of the Company to successfully implement its strategic plans and initiatives relating to the acquisition and the retreat buildout, and whether such strategic plans and initiatives will yield the expected benefits; approvals and authorizations from regulatory authorities, and the timing thereof; the ability of the Company to obtain the necessary approvals, permits and licenses within the specified time frame to complete the build out; there being no material delay in the build out; the availability of materials; the availability of labour, contractors, employees and/or personnel necessary to undertake the retreat build-out; and the ability of the Company to close the acquisition within the anticipated time frame. Although the Company believes that the assumptions and factors on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because the Company can give no assurance that it will prove to be correct or that any of the events anticipated by such forward-looking information will transpire or occur, or if any of them do so, what benefits the Company will derive therefrom. Actual results could differ materially from those currently anticipated due to a number of factors and risks including, but not limited to: conditions in the psychedelics industry in Jamaica; fluctuations in market conditions, including in securities markets; economic factors; the risk that the retreat build out will not be completed as anticipated within the specified timeframe, including the risk that the Company will not receive the approvals/permits/licenses necessary in connection with the retreat build out; the ability of management to execute its business strategy, objectives and plans; and the impact of general economic conditions and the travel restrictions imposed as a result of the COVID-19 global pandemic. Additional information regarding risks and uncertainties relating to the Company's business are contained under the heading "Risk Factors" in the Company's management discussion and analysis filed on SEDAR. The forward-looking information included in this MD&A is made as of the date of this MD&A and the Company does not undertake an obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise, except as required by applicable law.

This MD&A should be read in conjunction with the risk factors described in the "Risks and Risk Management" and the "Cautionary Statement on Forward-Looking Information" sections at the end of this MD&A.

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THE COMPANY

Canbud Distribution Corporation ("Canbud" or the "Company") was initially incorporated on October 4, 2018 under the Canada Business Corporations Act as "Cannabis Clonal Corporation" and on September 19, 2019, the Company filed articles of amendment to (i) change its name to "Canbud Distribution Corporation"; (ii) re-designate its Class A shares to common shares; (iii) decrease the authorized capital of the Company by canceling the unissued Class B shares and deleting the rights, privileges, restrictions and conditions attaching to the Class B shares of the Company; and (iv) remove the private company restrictions.

On April 30, 2020, the Company filed a preliminary non-offering long form prospectus with the Ontario Securities Commission (“OSC”), and on July 29, 2020, the Company filed an amended and restated preliminary non-offering long form prospectus with the OSC. On September 30, 2020, the OSC cleared the Company to file its final prospectus and become a reporting issuer in the province of Ontario.

On October 9, 2020, the Company’s common shares commenced trading on the Canadian Securities Exchange ("CSE") under the symbol CBDX.

The Company’s registered office is located at 120 Adelaide Street West, Suite 2500, Toronto, Ontario, Canada M5H 1T1.

Overview

Canbud is an early stage science and technology company focused on the hemp space inclusive of hemp cannabinoids (CBD). Currently the Company, through its subsidiaries, Canbud D580H124 Inc., Canbud D2385NR Inc., and Canbud D1726KC Inc., holds three industrial hemp licenses for the purposes of supplying the global market with medicinal and wellness cannabidiol and other cannabinoid-based products on leased lands located in Ontario. As part of its annual review process, the Company is evaluating the need to maintain three cultivation locations, based on current plans, market conditions including demand, competitor dynamics and changes in regulations.

Through its three (3) licensed subsidiaries, the Company is licensed to grow hemp CBD for the purposes of supplying the global market with medicinal and wellness cannabidiol and other cannabinoids-based products on leased lands located in McKellar, Ontario, Lakefield Ontario and Kettleby, Ontario, respectively, under three (3) industrial hemp licenses issued by Health Canada as follows:

• Canbud D58 operates the business on fifty (50) acres of farmland (of which, fifteen (15) acres is cultivation ready) located in McKellar, Ontario under its industrial hemp license number LIC-OBXIONVJ0K-2019 issued by Health Canada on August 16, 2019 (the "Canbud D58 License");

• Canbud D23 operates the business on approximately fifty-five (55) acres of farmable and tillable land located in Lakefield, Ontario, under its industrial hemp license number LIC7S62J6ZAZR-2019 issued by Health Canada on November 15, 2019 (the "Canbud D23 License"); and

• Canbud D17 operates the business on approximately eighty-five (85) acres of farmable and tillable land including three buildings located in Kettleby, Ontario, under its industrial hemp license number LIC-MGG9LOM6BH-2019 issued by Health Canada on November 29, 2019 (the "Canbud D17 License")

Each of the Canbud D58 License, the Canbud D23 License and the Canbud D17 License (collectively, the "Hemp License") allows the Company to grow, harvest and sell hemp CBD flowers. Each Hemp License is valid for 2 years and is renewable. Under each Hemp License, the Company is permitted to cultivate legally allowed strains of hemp in which the concentration of tetrahydrocannabinol (" THC ") is 0.3% (weight by weight) or less in the flowers and stems. Each Hemp License allows the Company to cultivate for the flowering heads, leaves and branches of the plant, and to sell industrial hemp (e.g. a cannabis plant or any part of that plant in which the concentration of THC does not exceed 0.3%) to an extraction company for further processing into hemp products/derivatives, or to a Cannabis licensed producer (LP). The Company works with third party cannabis licensed extraction and manufacturing entities to process the hemp flowers

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into CBD and other cannabinoid extracts, as well as consumer products. The three leased properties provide the Company with a total of approximately 190 acres (or 8.2 million square feet) of cultivation acreage.

The Company focuses on cost-effective efficient outdoor operations, providing for low capital expenditures as well as low operating expenses, by leasing farmlands and partnering with the landowners. Utilizing natural energy from the sun further reduces the high energy costs faced by typical indoor producers. In addition, the Company’s proprietary clonal system result in overall cost advantages.

The Company has researched, and continues to refine its business model, based on global best practices.

The Company vision is to build out a world class, sustainable science and technology-based hemp full plant utilization game changing company.

Its mission is to satisfy global needs for green and sustainable hemp-based products, and to be a 3P company: People, Planet, Profit.

The Company has three strategic pillars:

• Science and technology

• Quality and compliance

• Cost

Since the fourth quarter of 2020, the Company has expanded its focus into complementary areas with the aim to research, develop, and produce natural products to promote overall physical and/or psychological wellness value from various other types of mushrooms, truffles, and plants, which are permitted by applicable regulations. To support this expanded focus, the Company undertook the following 2 significant measures:

• (i) on December 4, 2020, the Company entered the emerging psychedelics market by entering into a definitive agreement to acquire 2688453 Ontario Ltd., a private company developing a 2-acre psilocybin production site on leased lands near Westmoreland, Jamaica (the "Facility"). Through this acquisition, Canbud secured the Facility with an allowance for expansion up to 20 acres. The acquisition provides an opportunity for high-quality production in a low-cost environment serving local and export markets. To date, the progress on the development of the Facility is on-target. In addition to the Facility development, the Company has commenced several discussions to engage technical partners to commence research & development activities in Jamaica and Canada; and

• (ii) subsequent to year-end, on January 25, 2021, Canbud entered into the plant-based protein market through its wholly owned subsidiary, Empathy Plant Company Inc. ("Empathy Plant Co.") formed primarily to launch and operate the Company’s plant-based protein brand with 100% compostable packaging to support the Company's sustainability vision. Empathy Plant Co. is expected to be the revenue driver for the Company during the next 12 to 18 months.

The Company currently has 10 consultants primarily based in Ontario, Canada, including the executives. There are currently no employees.

The Company is an early stage entity, and has not generated significant revenues to-date. The Company has relied on equity financings to date to support business endeavours and may continue to do so until significant revenue and profitability is achieved. The Company has sufficient funds, in view of management, to maintain its current operational objectives for the next 16 to 24 month period.

Intercorporate Relationships

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The following diagram illustrates the intercorporate relationships between the Company and its subsidiaries, as well as the jurisdiction of incorporation of each entity.

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CANBUD DISTRIBUTION CORPORATION
(Federal)
60% 80% 80% 90% 100%
Canbud Canbud Canbud Canbud Empathy
Plant
D580H124 D2385NR D1726KC DEPL Corp. [(4)]
Inc. [(1)] Inc. [(2)] Inc. [(3)] (Ontario) Company
Inc. [(5)]
(Ontario) (Ontario) (Ontario) (Ontario)
Notes:
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(1) Incorporated on July 23, 2019 and holds the Canbud D58 Hemp License.

(2) Incorporated on October 22, 2019 and holds the Canbud D23 Hemp License.

(3) Incorporated on October 31, 2019 and holds the Canbud D17 Hemp License.

(4) Incorporated on November 20, 2019.

(5) Incorporated on January 22, 2021

SELECTED ANNUAL INFORMATION

The following is a summary of certain selected audited financial information of the Company for the years ended December 31, 2020 and 2019:

	2020	2019
Revenue	- $	- $
Loss	(2,119,866)	(470,787)
Loss per share (basic and diluted)(1)	(0.05)	(0.02)
Total assets	1,702,899	1,886,482
Total current liabilities	184,817	222,572
Total long-term liabilities	367,030	-
Business development costs	180,868 $	408,772 $

(1) The basic and diluted loss per share calculations result in the same amount due to the anti-dilutive effect of outstanding stock options and warrants.

2020 CORPORATE HIGHLIGHTS

On June 2, 2020, the Company entered into a share purchase agreement with Alami Beauty Corporation ("Alami Beauty"), Anthony Murira and Robert Tjandra, being all of the directors and shareholders of Alami Beauty, pursuant to which the Company sold its 51% interest in Alami Beauty to Anthony Murira (the "Alami Share Purchase Agreement"). Under the Alami Share Purchase Agreement, Mr. Murira purchased 5,100 Class A shares in the capital of Alami Beauty, being all of the Class A shares held by the Company, at an aggregate purchase price of $22,000. Upon execution of the Share Purchase Agreement, (i) $11,000 is payable immediately, (ii) the remaining $11,000, plus interest at a rate of 10% per annum, compounded semi-annually not in default, is payable on or before June 30, 2021 and (iii) Mr. Tjandra, President and Director of Canbud, resigned as a director of Alami Beauty.

On June 4, 2020, the Company completed the sale of its 51% interest in Alami Beauty to Mr. Murira. Upon closing of the transaction, the Company has no stake in Alami Beauty and Alami Beauty is no longer a subsidiary of the Company.

On October 9, 2020, the Company’s common shares commenced trading on the Canadian Securities Exchange ("CSE") under the symbol CBDX.

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On November 16, 2020, Canbud announced the development of an outdoor hemp cultivation system including a proprietary onsite clonal system and continued emphasis on development of DNA markers to create superior cultivars. Management also announced that it is exploring scalable hemp-based technologies as it relates to the automotive, energy and construction sectors and reviewing opportunities with a health and wellness theme, including organic based therapies. The Company granted 6,050,000 options to purchase common shares exercisable at a price of $0.125 per share for a period of five years expiring on November 13, 2025 to directors, officers and consultants of the Company.

On November 24, 2020, Canbud closed a non-brokered private placement financing for gross proceeds of $500,000 through the issuance of 5,000,000 units at a price of $0.10 per Unit. Each Unit is comprised of one common share and one common share purchase warrant (each, a "Warrant"). Each Warrant entitles the holder thereof to purchase one additional common share at an exercise price of $0.20 per share on or before November 24, 2021. If the closing price of the common shares on the CSE is equal to or greater than $0.30 for a period of five (5) consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the date that is 30 days following the date on which the Company issues notice to all the Warrant holders of the new expiry date.

On December 3, 2020, Canbud announced its common shares were accepted for listing on the Frankfurt Stock Exchange (FSE) under the trading symbol "CD0". As a result, the Company's common shares were cross-listed on the CSE and the FSE.

On December 4, 2020, Canbud entered into a definitive agreement with 2688453 Ontario Ltd. ("268 Ont"), pursuant to which Canbud will acquire all of the shares of 268 Ont in exchange for 7,600,000 common shares in the capital of the Company at a deemed price per share equal to $0.195. This is an arm's-length transaction and the Company agreed to pay a finder's fee of 760,000 common shares in connection with the acquisition. 268 Ont is a private company formed under the laws of Ontario, which owns the lease to a psilocybin cultivation production facility on 2 acres of land near Westmoreland, Jamaica. Through 268 Ont, Canbud has secured an approved 2-acre psilocybin production site with an allowance for expansion up to 20 acres. The acquisition also includes plans for the Company to complete up to a 40,000 square foot facility for the cultivation and operations areas. Additionally, given the ideal location of the facility, Canbud plans to build an exclusive retreat which promotes mental wellness through workshops and specially formulated micro doses of psilocybin.

On December 17, 2020, Canbud announced that it has initiated the scientific application of DNA markers for mushroom improvement. The Company will be able to identify and develop strains with specific substances to satisfy consumers that are conscious of their physical and mental well-being. The Company initiated the application process to include DNA markers for mushroom improvement as an extension of the DNA markers for hemp. Due to Covid-19 restrictions, the process was halted and the Company is evaluating the requirements to complete the process.

On December 29, 2020, Canbud announced that it had signed an agreement with a cannabis clinic to develop a CBD patient distribution network. The clinic is a family run business that helps Canadians through the Access to Cannabis for Medical Purposes Regulations or ACMPR program to access quality medical cannabis legally and in a dignified way. The clinic offers a wide array of services to its members designed to educate and empower them to manage their own health using safe and natural therapies. The clinic has over 1,500 patient files. This agreement was signed in anticipation to develop a medical patient network when the Company receives licenses for the federal sale for medical purposes. The purpose of this agreement is to have the clinic educate potential patients on the benefits of hemp derived CBD.

On January 7, 2021, Canbud announced the appointment of Adrian Burke to the position of Vice-President, Marketing. He has twenty-four years of brand development, marketing, and business development experience. Adrian's previous focus in the nutraceutical space, and his insights on the current state of attention and distribution of nutraceutical health and wellness products will add value as Canbud seeks to differentiate its consumer-packaged goods (CPG) offerings. Adrian's focus on the plant-based space and empathic approach to environmentally sustainable packaging will be instrumental in building out and scaling the Company's intellectual property (IP) portfolio.

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On January 18, 2021, the Company announced it will advance its development of a decentralized based consumer feedback and chain of custody platform for its psychedelics/functional mushrooms, CBD and plant-based product offerings named "CanbudProve" using blockchain technology. The Company is in the process of working with an Ontario college to apply for an NSERC grant to develop a user experience platform and adoption of blockchain solutions.

On January 19, 2021, Canbud signed a Letter of Intent (LOI) with privately-held Hempsana Inc. to develop and manufacture CBD products for distribution to the medical-patient channel. Hempsana's Health Canada Licenced European Union (“EU”) Good Manufacturing Practices (“GMP”) compliant facility provides Canbud with access to wholesale and retail channels internationally, including Europe, Asia, South America, United States, and Canada. The definitive agreement is being negotiated and once settled, will enable the Company to monetize the current hemp stock on hand.

On January 19, 2021, Canbud granted 300,000 incentive stock options to a consultant of the Company. The options have an exercise price of $0.22 and a term of 4 years expiring on January 15, 2025.

On January 25, 2021, Canbud announced the launch of Empathy Plant Co., the Company's plant-based protein brand with 100% compostable packaging to support the Company's sustainability vision. Empathy Plant Co. products are naturally sweetened, zero sugar added, produced without genetic engineering (nonGMO) project verified, gluten-free, soy-free, and available in multiple flavours.

On January 29, 2021, Canbud was issued a Federal Sales License for Medical Purposes by Health Canada (the "Federal Sales License") which permits Canbud to sell cannabis products to registered medical patients. The Company intends to continue building relationships with processors that are not currently engaged in the medical market to provide its clients with a wide offering of medical cannabis products. The Federal Sales License also allows Canbud to execute trades of cannabis products between license producers. Furthermore, as a licence holder, the Federal Sales License allows the Company to apply for cannabis products export permit from Health Canada on a case-by-case basis.

On February 9, 2021, Canbud confirmed the commencement of its psychedelics related activity in Jamaica, through 268 Ont. which holds a lease to the psilocybin site. Construction has started on the psilocybin facility which will allow for cultivation and extraction. The Company plans to build modular facilities that enable cultivation of psychedelic mushrooms and extraction in the most cost-efficient manner.

On February 24, 2021, Canbud closed the first tranche ("First Tranche") of a non-brokered private placement pursuant to which the Company issued 21,992,333 units ("Units") at price of $0.12 per Unit, for gross proceeds of $2,639,080. Each Unit is comprised of one common share and one common share purchase warrant (each, a "Warrant") of the Company. Each Warrant entitles the holder thereof to purchase one additional common share at an exercise price of $0.22 until February 24, 2023. If the closing price of the common shares on the CSE is equal to or greater than $0.25 for a period of five (5) consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the date that is 30 days following the date on which the Company issues notice to all the Warrant holders of the new expiry date. In connection with the First Tranche, the Company paid finder's fees in the amount of $84,470.39 in cash and issued 703,920 broker warrants to a syndicate of arm's-length finders, with the exception of $53,594.80 and 446,623 Broker Warrants paid to Florence Wealth Management Inc. ("Florence"). Raj Ravindran, the CFO and a director of the Company, is the ultimate designated person and CEO of Florence. The Broker Warrants were issued on the same terms as the Warrants.

On March 8, 2021, Canbud closed the second and final tranche ("Second Tranche") of its non-brokered private placement pursuant to which the Company issued 17,424,333 units ("Units") at price of $0.12 per Unit for aggregate gross proceeds of $2,090,920. Each Unit is comprised of one common share and one common share purchase warrant (each, a "Warrant"). Each Warrant entitles the holder thereof to purchase one additional common share at an exercise price of $0.22 until March 8, 2023. If the closing price of the common shares on the CSE is equal to or greater than $0.25 for a period of five (5) consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the date that is 30 days following the date on which the Company issues notice to all the Warrant holders of the new expiry date. In connection with the Second Tranche, the Company paid finder's fees in the aggregate amount of $68,690.97 in cash and issued 572,425 broker warrants to a syndicate of arm's-length finders, with the

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exception of $33,831.00 and 281,925 broker warrants paid to Florence Wealth Management Inc. ("Florence"). Raj Ravindran, the CFO and a director of the Company, is the ultimate designated person and CEO of Florence. The Broker Warrants were issued on the same terms as the Warrants.

In total, pursuant to the First Tranche and the Second Tranche, the Company paid an aggregate of $151,481.36 in finders’ fees and issued an aggregate of 1,262,345 broker warrants to registered finders. The proceeds raised from the offering will be used by the Company for working capital, business development and general corporate purposes. Two directors of the Company subscribed for a combined total of $10,000 in the offering.

On March 15, 2021, Canbud announced an LOI with Molecular Science Corp. ("MSC"), a privately-held Toronto-based Licensed Dealer. MSC is in the process of obtaining approval from Health Canada for testing of controlled substances, including psychedelic compounds, in addition to its current Analytical Testing Licence for Cannabis and Drug Establishment Licence (DEL). Under the terms of the LOI, upon MSC obtaining approval from Health Canada, the Company and MSC will work together to enable Canbud to import psychedelics into Canada for testing and research and development purposes.

On March 23, 2021, Canbud announced that its subsidiary Empathy Plant Co. has placed an initial production order for Complete Plant Protein product, having recently finalized the product formulation and packaging design. Empathy Plant Co.'s complete protein will offer the following:

• A variety of flavours including Chocolate, Vanilla and Cookies & Cream, with many more in development

• Contains 20 grams of protein per serving

• All 9 essential amino acids

• Digestive Enzymes

• Natural anti-inflammatory properties

• Omega-6 and omega-3

On April 7, 2021, Canbud entered into a research partnership with Brock University for the potential application of fungi as a Climate Smart Sustainable Natural Fungi Biofertilizer for crop cultivation, inclusive of hemp plants. The project was recently launched after the Brock research team obtained the required license from Health Canada.

On April 14, 2021, Canbud provided an update on its subsidiary, Empathy Plant Co.'s developmental pipeline and momentum. Empathy Plant Co. submitted the first production order for its Complete Plant Protein product line. The Company finalized the formulation for 8 additional flavours which are scheduled. The flavours include:

• Strawberry & Cream Chocolate Peanut Butter Chocolate Hazelnut Banana Bread

• Peanut Butter & Jam

• Pralines & Cream

• Shamrock Shake

• Chocolate Covered Strawberry

Additionally, Empathy Plant Co. has finalized the formulation for a new product offering called Green Energy Powder

BUSINESS OVERVIEW

Hemp Cultivation

The introduction of the Cannabis Act in October 2018 instituted, amongst other things, the framework for outdoor cannabis cultivation (noting cultivation previously was confined to indoor operations). The Company identified this trend towards outdoor cultivation, noting its cost advantages over indoor and greenhouse cultivation, as a market shift towards lower cost production and cannabis derivatives (such as oils and extracts). The Company has concentrated its efforts on low cost outdoor Hemp cultivation which requires limited capital expenditure including the use of land lease agreements.

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For 2020 cultivation, in light of Covid-19 challenges, the Company decided to concentrate on one property only and started to cultivate its Kettleby farm. The Company activities started in March 2020 with preparation to select female only mother plants for creating clones. Two cost effective custom built 40-foot containers were used to perform the mother plants selection. Female mother plants were then planted in several cold frame doubly poly plastic hoop houses.

Kettleby Property

On October 31, 2019, the Company entered into a definitive agreement (the "Kettleby Agreement") with Mahshid Seraji and Homayon Zehtab ("MSHK"), Terrence Rodrigues ("TYR"), Lee Ann Terry ("LAT") pursuant to which the parties agreed to further the development of an outdoor hemp CBD cultivation business (the "Business") on approximately one hundred (100) acres of land including three buildings commonly identified as 17260 Keele Street, Kettleby, Ontario L0G 1J0 (the "Kettleby Lands"). Pursuant to the terms of the Kettleby Agreement, the Company agreed to incorporate an Ontario company to be named "Canbud D1726KC Inc.", to be used primarily for the operation of the Business on the Kettleby Lands, excluding the CBD storage and drying facility, and to enter into a land lease agreement pursuant to which MSHK would lease the Kettleby Lands to Canbud D17. MSHK are the land owners. TYR and LAT facilitated introductions and other steps necessary to finalize the Kettleby Agreement.

Also, on October 31, 2019, in accordance with the terms of the Kettleby Agreement, the Company incorporated a subsidiary, Canbud D1726KC Inc. ("Canbud D17"), for the primary purpose of operating the Business on the Kettleby Lands. Pursuant to the terms of the Kettleby Agreement, the Company through its subsidiary Canbud D17 (the "Tenant"), entered into a commercial land lease agreement (the "Kettleby Land Lease Agreement") dated October 31, 2019, with MSHK (the "Landlord") pursuant to which the Landlord agreed to lease to the Tenant commercial land consisting of approximately 100 acres of farm land (of which eighty-five (85) acres is farmable and tillable), including three buildings, known municipally as 17260 Keele Street, Kettleby, Ontario L0G 1J0 (the "Kettleby Lands"), to cultivate, harvest and process industrial hemp CBD crops in accordance with its industrial hemp license to be issued from Health Canada under the Cannabis Act and the Industrial Hemp Regulations. The Company or a subsidiary of the Company will be permitted to use the three buildings for operations of drying facilities and housing its mobile 40-foot retrofitted container unit. The initial term of the Kettleby Land Lease Agreement is three (3) years (the "Initial Term") commencing on January 1, 2020 (the "Commencement Date") and ending on December 31, 2023 (the "Termination Date"), unless earlier terminated by the Tenant upon one hundred twenty (120) days’ prior written notice, prior to the end of the second year of the Initial Term, following which, the Tenant would be liable for the payment of the Base Rent (as defined below) for only the remaining years in the Initial Term. The Landlord is entitled, under the Kettleby Land Lease Agreement, to ten (10) percent of the net income ("Net Income", "Net Earnings" or "Net Profit") from the operations of Canbud D17 (calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses resulting from the cultivation and sale of hemp CBD on the Kettleby Lands) in each respective calendar year from January to December, ending on December 31 of each year. On November 29, 2019, Canbud D17 received its hemp license from Health Canada and was issued license number LIC-MGG9LOM6BH- 2019 (the "Canbud D17 License"). The CanBud D17 License expires on November 29, 2021, and the Company intends to apply for a renewal of the license.

The Company has moved swiftly, and with calculated decision making to implement the business plan amidst the Covid-19 challenges. The Company has successfully proved out its proprietary clonal system, and at the same time gain many useful insights on the challenges of both greenhouse and outdoor cultivation. The 2020 cultivation season was the first year for the Company to translate its clonal system to outdoor field cultivation. The Company managed to prove out its clonal system by creating over 20,000 clones. Despite the challenges the Company manage to produce about 550 kilogram of dried flower Hemp CBD biomass. The Company expects to continuously improve the cultivation system to perfection, especially in the development of superior Hemp CBD cultivars.

Entry into the psychedelics and functional mushroom market

Canbud believes that there is presently a sizeable legal market for psychedelic pharmaceutical and nutraceutical products and, further, believes that there is a promising prospect for a strong, legal psychedelic pharmaceutical and nutraceutical industry to emerge globally. In particular, although the legal market for psychedelic pharmaceutical products is presently limited, globally, and in some jurisdictions it is

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still in its early stages, the Company believes that the recent wave of deregulation and legalization of recreational cannabis across the globe will provide jurisdictions with the impetus to shift their focus to psychedelics, and, in time, give way to the emergence of numerous and sizable opportunities for market participants, including the Company.

Psychedelics are progressively emerging as potential alternative candidates for conventional therapies for individuals suffering from elusive maladies like post-traumatic stress disorder (“PTSD”), addiction, anxiety, and depression. For example, in August of 2020, as a result of the efforts of TheraPsil, a non-profit coalition that advocates for a legal, Special Access Programme access to psilocybin therapy for palliative care of Canadians, four Canadians with incurable cancer were approved by the Canadian federal Minister of Health, to use psilocybin therapy in the treatment of their end-of-life distress.

As of the date of this document, certain synthetic psychoactive tryptamines and phenthylamines are being researched as candidates for the treatment of several psychiatric conditions, such as PTSD and depression. At present, treatments for such conditions are limited in effectiveness, with some traditional treatment methods posing a heightened risk of complications. By contrast, the Company expects that like the various key compounds in cannabis, which are presently being used in a variety of medical products and formulations, these psychoactive compounds, such as psilocybin, may in time also emerge as a safer and healthier medical treatment alternative for various ailments.

The Company’s target market is focused on psychedelic pharmaceutical and non-psychedelic products. The Company expects that its naturally extracted psychedelic substances will be utilized as boosters for the brain that can potentially rebuild pathways and break negative patterns all while looking at nonpsychedelic medical mushroom extracts as the next wave of nutraceuticals that can potentially optimize overall health.

On December 4, 2020 (the "Effective Date"), Canbud entered into a definitive agreement with 2688453 Ontario Ltd. ("268 Ont"), pursuant to which the Company will acquire all of the shares of 268 Ont in exchange for 7,600,000 common shares in the capital of the Company at a deemed price per share equal to $0.195. The share issuance is structured in four tranches: (i) 1,520,000 shares to be issued within thirty (30) days of the Effective Date; (ii) 1,900,000 shares to be issued (the "Second Distribution") upon the earlier of: (i) completion of phase 1 of the business plan as agreed upon, or (ii) six (6) months from the Effective Date; (iii) 2,280,000 shares to be issued (the "Third Distribution") on the date that is four months from the date of the Second Distribution; and (iv) 1,900,000 shares to be issued on the date that is four months from the date of the Third Distribution. The share issuance under the Second Distribution is expected to be completed in May 2021.

The acquisition of 268 Ont was the first step by the Company to expand in the emerging psychedelic and functional mushroom nutraceuticals space. The Company also plans to undertake and support clinical studies through strategic academic and institutional partnerships and plans to launch psilocybin-based products in jurisdictions where permissible. The progress on this initiative is underway and is in line with internal plans.

Following closing of the transaction upon the issuance of the 7,600,000 shares, 268 Ont will become a wholly-owned subsidiary of the Company.

The intention behind the acquisition transaction is to create health supplements division dedicated to the cultivation and distribution of mushroom derived products and associated consumer packaged goods. It is anticipated that the Company’s mushroom derived products will not contain ingredients that are currently classified as controlled substances in Canada and the United States and will not be regulated as controlled substances, the products may be distributed through conventional channels in the food supplement category throughout Canada and the United States. In addition, given the current regulatory framework in Jamaica, the Company intends to utilize that facility to grow specific type of psychedelic mushrooms for the purposes of research and development and creation of new products that are approved by Health Canada. The Company intends to license such developments to pharmaceutical type companies that can utilize the authorized formulations for treatment of various ailments. Additionally, the Company intends to supply organic psychedelic mushrooms to other corporate buyers to supplement their R&D efforts.

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The Company is in the process of assembling a team comprised of its incumbent Board and management as well as its Advisory Board, who have expertise in various areas of business and science, that are essential to providing the Company with the support necessary to successfully develop and market mushroom-based products. The Company has entered into discussions with several universities to assess the economics of utilizing the skills and technology available within such institutions.

The Company will continue to build core skills in managing pre-clinical studies, product formulation, manufacturing, supply chain and commercialization by adding in-house personnel as required.

For the psychedelics project in Jamaica, the emphasis is on cultivation of mushroom types that have specific molecules with empirical medicinal properties such as psilocybin, which with supportive psychotherapy, have produced rapid and large reductions in depressive symptoms as Johns Hopkins Medicine researchers have reported.

The project is to be carried out in 4 phases which includes completion of the cultivation facility, initial cultivation in conjunction with a research project with a local university to identify specific spores that maximize yields in that environment, expansion of the cultivation site to increase production tied in with needs of specific customers and, ultimately, the establishment of a medical retreat which is permitted in Jamaica.

Currently, the Company is only focussed on the facility competition and discussions with potential research partners. The facility design and construction were completed at a cost of less than USD $50,000 and the installation at the approved site is underway. During the current phase, which is expected to be completed by September 2021, the company will commence the process of taking delivery of the spores and hiring of trained staff. The company has budgeted an annual spend of approximately USD $100,000 towards this aspect, which all staff will be hired as consultants to minimize the financial commitment at this time. On completion of this stage and receipt of commitments from potential corporate customers, the company may adjust the financial commitment accordingly. The total allocation of funding is not expected to exceed USD $250,000 over the course of the next six quarters, unless required to accelerate operations and potential revenue.

Non-Psychedelics

Medicinal mushroom extracts from species such as Lions Mane, Cordyceps, Reishi, Chaga and others offer potential health benefits. Initial research is showing potential indications for immune boosting, mental wellness, detoxification, anti-tumor, antiviral and other benefits. The Company’s efforts in this area has progressed significantly since the fourth quarter of 2020 with the establishment of Empathy Plan Co. as a wholly owned subsidiary.

Psychedelics

Currently, this is a research and development initiative and has no revenue. in Jamaica, the focus will be on cultivation of spores for several psychedelic mushrooms with the intent on medical R&D in Jamaica and Canada. To support this initiative, the Company entered into a letter of intent with Molecular Science Corp. on March 15, 2021 which will enable import, testing and formulation of products utilizing the psychedelics cultivated in Jamaica.

In order to establish its business operations, the Company intends to leverage the extensive professional network of its management to build working partnerships with (i) existing producers of registered psychedelic and nutraceutical products in Canada, the United States, and Europe to sell through the psychedelic pharmaceutical and nutraceutical products the Company intends to develop and distribute under its specific brand, and (ii) to facilitate the development and distribution and sale of its specific brand of psychedelic pharmaceutical and nutraceutical products.

Research and Development

Demonstrating product safety at pre-determined levels of dosage is an integral part of the regulatory process to register products with the FDA and Health Canada. The Company is engaged with discussions with various service providers that will guide the Company through the dietary supplement and NHP

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regulatory processes with the FDA and Health Canada, respectively, and associated pre-clinical studies and identity characterization to demonstrate the safety of the formulated products.

Trends, Commitments, Events or Uncertainties

The Company has no history of operations in the health supplement industry. Even if the Company is successful in commencing commercial operations, there is no guarantee that the business model of producing and selling the plant and mushroom-derived products will be a viable business. Significant funds are required to establish operations, distribution channels, hire and retain staff and initiate marketing efforts. There are no current trends in the Company’s business that are likely to have an impact on the Company’s performance.

Consumer demand for plant and mushroom-based products has seen steady growth over the past decade as consumers have become more aware of their nutritional profile and have sought to incorporate functional foods and nootropics (Nootropics is a colloquial term that refers to drugs, supplements, and other substances that may improve cognitive function, particularly executive functions, memory, creativity, or motivation, in healthy individuals) in their diets. One of the types of functional foods being incorporated includes various types of mushrooms, such as reishi, cordyceps, chaga and others, which are believed to contain various nutrients and vitamins, and antioxidant properties presenting various health benefits, such as improving antioxidant activity in the body and reducing inflammation. According to Technavio, a London, United Kingdom based market research firm, the global functional mushrooms market is poised to grow by US$13.88 billion during the period between 2018 2022, progressing at a capitalized annual growth rate of more than 9% during that period 2 In addition, Food Navigator, a website that provides market leading business information for the food and drink industry, found that year on year sales for food products incorporating mushroom extracts have risen between 200 800%, depending on the variety. 3 The global functional mushroom market was estimated at US$5.8 billion in 2018 according to Avinash Desamangalam at Modor Intelligence, a revenue funded organization that delivers precise data and actionable insights.

North American and European eating trends reflect a changing pattern towards health foods. These changes show increased consumer awareness towards organic foods and foods that confer health benefits, as well as nutrition and general health. According to Imbibe Inc., an Illinois-based beverage developer, a number of niche brands are gaining mainstream attention using ingredients with adaptogenic properties3,5 – non-toxic substances and especially plant extracts that support the body’s response to stress as well as promote physiological functions. Accordingly, the Company believes increased demand for mushroombased products will assist it in completing its business objectives.

Cyclicality and Seasonality

The Company does not anticipate results to be impacted by any factors related to seasonality.

Changes to Contracts

The Company does not anticipate that its business will be affected by renegotiation or termination of contracts or sub contracts during the current financial year. The Company currently relies on per use short term contracts for its supply and distribution arrangements.

The Company is reliant on the services of contractors. However, the Company does not consider these contracts material as there are many potential partners that the Company can work with and there are no significant intellectual property advantages that the Company believes exists in working with one contractor versus another at the current stage of product development.

Canada

Psychedelics

In Canada, oversight of healthcare is divided between the federal and provincial governments. The federal government is responsible for regulating, among other things, the approval, import, sale, and marketing of drugs such as psilocybin and other psychedelic substances, whether natural or novel. The provincial/territorial level of government has authority over the delivery of health care services, including

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regulating health facilities, administering health insurance plans such as the Ontario Health Insurance Plan, distributing prescription drugs within the province, and regulating health professionals such as doctors, psychologists, psychotherapists and nurse practitioners. Regulation is generally overseen by various colleges formed for that purpose, such as the College of Physicians and Surgeons of Ontario. Certain psychoactive compounds, such as psilocybin, are considered controlled substances under Schedule III of the CDSA. In order to conduct any scientific research, including pre-clinical and clinical trials, using psychoactive compounds listed as controlled substances under the CDSA, an exemption under Section 56 of the CDSA (“Section 56 Exemption”) is required. This exemption allows the holder to possess and use the controlled substance without being subject to the restrictions set out in the CDSA. The Company has not applied for a Section 56 Exemption from Health Canada.

The possession, sale or distribution of controlled substances is prohibited unless specifically permitted by the government. A party may seek government approval for a Section 56 Exemption to allow for the possession, transport or production of a controlled substance for medical or scientific purposes. Products that contain a controlled substance such as psilocybin cannot be made, transported or sold without proper authorization from the government. A party can apply for a Dealer’s Licence under the Food and Drug Regulations (Part J). In order to qualify as a licensed dealer, a party must meet all regulatory requirements mandated by the regulations including having compliant facilities, compliant materials and staff that meet the qualifications under the regulations of a senior person in charge and a qualified person in charge. Assuming compliance with all relevant laws (Controlled Drugs and Substances Act, Food and Drugs Regulations) and subject to any restrictions placed on the licence by Health Canada, an entity with a Dealer’s Licence may produce, assemble, sell, provide, transport, send, deliver, import or export a restricted drug (as listed in Part J in the Food and Drugs Regulations – which includes psilocybin and psilocin) (see s. J.01.009 (1) of the Food and Drug Regulations). The Company intends to sponsor and work with licensed third parties to conduct any clinical trials and research and does not handle controlled substances. If the Company were to conduct this work without the reliance on third parties, it would need to obtain additional licences and approvals described above. The Company has signed a LOI with Molecular Science Corp, a Toronto based Licensed Dealer that is in the process of obtaining approval from Health Canada for testing of controlled substances, including psychedelic compounds, in addition to its current Analytical Testing Licence for Cannabis and Drug Establishment Licence (DEL). Under the terms, once MSC obtains its Health Canada approval which is expected shortly, the Company and MSC will work together to enable Canbud to import psychedelics into Canada for testing and R&D purposes.

Non-Psychedelics

NHPs, prescription drugs, and non-prescription drugs are all classified and regulated under the Canadian FDA. The product safety, quality, manufacturing, packaging, labeling, storage, importation, advertising, distribution, sale and clinical trials of NHPs, drugs, cosmetics and foods are subject to regulation primarily under the Canadian FDA and associated regulations, including the Food and Drug Regulations, Cosmetic Regulations and the Natural Health Products Regulations, and related Health Canada guidance documents and policies (collectively, the “Canadian Regulations”). In addition, drugs and NHPs are regulated under the federal Controlled Drugs and Substances Act if the product is considered a “controlled substance” or a “precursor,” as defined in that statute or in related regulatory provisions.

Health Canada is primarily responsible for administering the Canadian FDA and the Canadian Regulations. The Canadian FDA and Canadian Regulations also set out requirements for establishment and site licences, market authorization for drugs and NHP licences. Each NHP must have a product licence or a Homeopathic Medicine Number (“DIN-HM”) issued by Health Canada before it can be sold in Canada. Health Canada assigns a natural health product number (“NPN”) to each NHP once Health Canada issues the licence for that NHP. The Canadian Regulations require that all drugs and NHPs be manufactured, packaged, labeled, imported, distributed and stored under Canadian Good Manufacturing Practices (“GMP”) or the equivalent thereto, and that all premises used for manufacturing, packaging, labeling and importing drugs and NHPs have a site licence (NHPs) or establishment licence (drugs), which requires GMP compliance. The Canadian Regulations also set out requirements for labeling, packaging, clinical trials and adverse reaction reporting.

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The Canadian FDA and Canadian Regulations, among other things, govern the manufacture, formulation, packaging, labeling, advertising and sale of NHPs and drugs, and regulate what may be represented on labels and in promotional materials regarding the claimed properties of products. The Canadian Regulations also require NHPs and drugs sold in Canada to affix a label showing specified information, such as the proper and common name of the medicinal and non- medicinal ingredients and their source, the name and address of the manufacturer/product licence holder, its lot number, adequate directions for use, a quantitative list of its medical ingredients and its expiration date. In addition, the Canadian Regulations require labeling to bear evidence of the marketing authorization as evidenced by the designation drug identification number, DIN-HM or NPN, followed by an eight-digit number assigned to the product and issued by Health Canada.

The Company’s expected nutraceutical products will be considered “food” and, as such, will be principally regulated under the Canadian FDA and the Canadian Regulations. The Company must ensure that the labelling, marketing and selling of any of its products comply with the Canadian FDA, including by ensuring that the Company’s products are not packaged or marketed in a manner that is misleading or deceptive to a consumer.

Jamaica

Psilocybin mushrooms do not fall within the definition of a dangerous drug under the Dangerous Drugs Act (the “DDA”) in Jamaica. The Company’s future business activities in Jamaica involve the import of psychedelic and pharmaceutical based medicines (derived from mushrooms) for the purposes of conducting research and development as well as testing on human subjects i.e., clinical trials in Jamaica. It is intended that the clinical trials will be conducted by a local approved entity based on current negotiations and the Company will act as a sponsor (the “Clinical Trials”).

The process of conducting clinical trials in Jamaica is governed by the Ministry of Health, Jamaica Guidelines for the Conduct of Research on Human Subjects (the “Guidelines”). The Company and the potential research partner would be required to ensure that the clinical trials are being conducted in accordance with these Guidelines. The Guidelines provide that prior to conducting research on human subjects, all researchers (i.e., academics, scientists, students, and investigators) are required to prepare a research protocol/proposal.

Research protocols are required to be submitted to the Medical Officer of Health in the parish where the proposed research is to be conducted, for evaluation of the ethical and scientific merits. Where the site of the proposed research includes a hospital, the Senior Medical Officer of the facility should also receive a copy of the research protocol, and his/her approval to conduct the study should be obtained.

The regulation of the sale, manufacturing, importation and distribution of drugs in Jamaica is largely governed by the Food & Drugs Act, 1964 (the “Jamaica FDA”) and the Food and Drugs Regulations, 1975 (the “Regulations”). Section 4 of the Jamaica FDA prohibits the importation of any drug into Jamaica unless it conforms to the law of the country in which it was manufactured or produced and is accompanied by a certificate declaring that the drug does not contravene any known laws of that country and that its sale therein for consumption or use by or for man or animal, as the case may be, would not constitute a violation of the laws of that country.

Regulation 40 stipulates that, a person shall not sell, manufacture, import or distribute a drug unless that drug has been registered with the MOH. The Regulations further state that a permit must be obtained from the MOH for the sale, manufacturing, importation and distribution of drugs into Jamaica. Additionally, Regulation 65 states that a person shall not import, sell, advertise for sale, or manufacture a new drug in Jamaica unless that person has obtained a licence from the MOH.

Failure to comply with section 4 of the Jamaica FDA shall result in such person being guilty of an offence and liable to a fine not exceeding J$1,000,000 (approximately US$7,093) or to imprisonment with or without hard labour for a term not exceeding twelve months. Where a person committing an offence under the Jamaica FDA is a corporation, the chairman, president, the officers and every director thereof concerned in the management of such corporation, shall also be guilty of the same offence unless he/she proves that the act or omission constituting the offence took place without his/her knowledge or that he/she exercised all due diligence to prevent the commission thereof.

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Regulation 87 provides that any person who fails to comply with the Regulations shall be guilty of an offence and shall be liable to a fine not exceeding J$2,000 (approximately US$15) or to imprisonment for a term not exceeding twelve months. In the event that the Clinical Trials include the preparation and manufacture of precursor chemicals, then the Precursor Chemicals Act (the “PCA”) may be applicable to the Clinical Trials. As per section 6 of the PCA, any person who proposes to engage in any prescribed activity shall apply to the Pharmaceutical & Regulatory Affairs Department of the MOH for a licence to engage in such prescribed activity.

Section 23 under the PCA stipulates that any person who engages in any prescribed activity without obtaining the requisite licence shall be guilty of an offence and liable to a fine not exceeding J$3,000,000 (approximately US$21,277) or to imprisonment for a term not exceeding three years or to both such fine and imprisonment.

As of the date hereof, the Company’s sponsorship of the Clinical Trials has not commenced.

United States

The Company does not intend to have any operations and/or sales of psychedelic mushroom derived products, whether intended for research and development or other uses by its customers, in the United States.

Empathy Plant Co.

Canbud’s plant-based protein product initiative is intended to address the fast-growing consumer demand for sustainable plant-based protein as replacement to meat-based protein. The Company’s plant-based protein products are intended to be best-in-class with a unique all-natural composition and environmentally friendly packaging of certified compostable packets using algae-based compostable ink.

On January 25, 2021, Canbud announced the launch of Empathy Plant Co., the Company's plant based protein brand with 100% compostable packaging to support the company's sustainability vision. Empathy Plant Co. products are naturally sweetened, zero sugar added, produced without genetic engineering (nonGMO) project verified, gluten-free, soy-free, and available in multiple flavours.

Since the announcement, the Company has undertaken several measures to develop products and brand awareness of its products, such as:

• appointing Adrian Burke as Vice-President, Marketing to lead the efforts. Adrian is a serial entrepreneur with multiple exits. He has 24 years of brand development, marketing, and business execution experience that lends support to Canbud’s management team. Adrian’s previous focus in the nutraceutical space, and his insight into the current state of attention and distribution, is expected to add value as Canbud differentiates its consumer-packaged goods (CPG) offerings. Adrian’s focus in the plant-based space and empathic approach to environmentally sustainable packaging is seen as instrumental in building out and scaling the portfolio.

• Empathy Plant Co. placed an initial production order for Complete Plant Protein product, following the finalization of the product formulation and packaging design.

• Empathy Plant Co. engaged a certified plant-based nutritionist, Melissa Melnychuk as its official spokesperson for the brand. Melissa is a Plant-Based Certified expert from Cornell University. Melissa started her practice in 2010 and has worked with women from all walks of life including entrepreneurs, traveling executives, professional athletes, etc. Given her background, the Company believes she adequately reflects the Empathy Plant Co. culture and messaging tone of inclusivity and change through thoughtful conversations.

• Empathy Plant Co. submitted its first production order for its Complete Plant Protein product line scheduled to hit the market. Empathy Plant Co. finalized the formulation for 8 additional flavours, which include: (i) Strawberry & Cream, (ii) Chocolate Peanut Butter, (ii) Chocolate Hazelnut, (iv) Banana Bread, (v) Peanut Butter & Jam, (vi) Pralines & Cream, (vii) Shamrock Shake, and (viii) Chocolate Covered Strawberry.

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Industry

Empathy operates in the emerging plant-based protein market, which is rapidly evolving and experiencing significant growth, exemplified by the recent success of companies like Beyond Meat and Impossible Foods. Consumer interest in plant-based proteins, particularly among millennial and younger generations, has been driven by growing awareness of the long-term health, environmental and animal-welfare impacts of animal-based meat consumption. The Plant-Based Foods Association commissioned data that showed sales of plant-based products in the retail channel generated just over $670 million of retail sales over the 52- week period ending June 16, 2018.1 According to Reports and Data, the global plant-based protein market was valued at U$ 10.10 billion in 2018 and is expected to reach USD 30.92 billion by the year 2026, at a compound aggregate growth rate of 14.8%.2 We anticipate recognition of these issues to continue to grow and have a positive impact on consume demand for our products. We believe that the following factors are shaping consumer preferences:

Health

The negative impact on health caused by certain meats has been well publicized in recent years. In 2004, the World Health Organization published materials, which highlighted positive associations between eating red meat and developing colorectal cancer.3 These materials also indicated that processed meats cause cancer. A similar conclusion was presented at the American Heart Association. In this study, researchers reviewed dietary patterns of over 15,000 participants, over a ten-year time period.4 Additionally, animals and livestock are also susceptible to various diseases such as mad cow (beef), swine flu (pork) and avian influenza (poultry) that may cause further health risks from consuming potentially infected animal meats.

Climate Change

The global livestock industry is estimated to be responsible for a significant portion of global greenhouse gas emissions, such as methane and nitrous oxide.5 The IPCC Report highlighted that climate change is expected to cause "severe, pervasive, and irreversible impacts" on the natural environment unless carbon emissions are cut sharply and rapidly. The IPCC Report highlighted that behavioral changes, including dietary changes such as eating less meat, can have a significant role in cutting emissions.

Empathy Products

Empathy Plant Co. currently has 3 different flavours of Complete Plant Protein in production: Chocolate, Vanilla and Cookies & Cream. Management expects products sales to commence in Q3/2021. There are 5 additional fully developed products and production is planned for later in 2021 and 2022. The developmental pipeline also includes Greens Energy Powder and Women’s Multivitamin

The distribution strategy is an omnichannel approach. Initially, Empathy Plant Co. will deploy a DTC (Direct to Consumer) strategy supported by social advertising deployment and influencer engagement. Following the results of this strategy, Canbud intends to begin rollout of a brick-and-mortar strategy starting with 200 specialty channel stores which is expected to scale up to 800 locations in Canada. Discussions with distributors is ongoing and is led by relationships built by management. Once fully executed, management intends to revaluate the performance and return on investment, prior to moving onto a club channel and international growth strategy.

Product Shelf-Life and Inventory

Empathy has placed an initial purchase order for trial run of less than $100,000, with 50% advance payment to Synergy Private Label for manufacturing/production of the SKUs. The PO was for the following SKUs:

• Chocolate (600 gm) – 1,000 units

• Vanilla (600 gm) – 1.000 units Cookies & Cream (600 gm) – 1,000 units

• Chocolate (single serve) – 5,000 units

• Vanilla (single serve) – 5,000 units

• Cookies & Cream (single serve) – 5,000 units

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The quantity for the other products will depend on initial success on execution on the above SKUs. From a production standpoint, management expects a similar quantity per SKU. The shelf life on all products is 2 years.

Production

All Empathy production is currently manufactured by a co-packer- Synergy Private Label – based on Ontario, Canada. Canbud choose the vendor based on their expertise in nutraceutical production in powder, pill and capsule form. Secondarily, Synergy will also provide 3PL DTC integration and execution.

Production Facilities and Capacity

The relationship between Empathy Plant Co. and Synergy is established through Canbud VP of Marketing, who has 25 years of experience in the nutraceutical space. Empathy Plant Co. and Synergy have developed a strong understanding of execution expectations and to this date, the execution is in line with internal targets.

Certifications

To date, none of the products in production require NPN submission. However, moving forward submissions to Health Canada will be made through Natural Products Consulting Corporation in Toronto, Ontario. Synergy’s facility has both Health Canada and Canadian Food Inspection Agency production licenses required to manufacture Empathy products.

Ingredient Sourcing and Suppliers

All product ingredient sourcing and testing is done by Synergy Private Label, both in-house and by a 3rd party. Historically the pricing of nutraceutical ingredients is very stable with an estimated 2-4% increase per annum. The production of the 100% compostable packaging is done by Rootree in Ontario. As the technology is very new, production delays are expected but will improve as Canbud strengthens its supply chain logistics.

Competitive Conditions

Empathy operates in a highly competitive environment in which it competes with large established plantbased protein brands such as Beyond Meat, the Field Roast Grain Meat Co., as well as medium and smaller companies including Sol Cuisine and VG Gourmet. We believe the principal competitive factors in our industry include:

• taste;

• nutritional profile, e.g. protein, fiber and salt content;

• organic, natural, or highly processed ingredients;

• product texture;

• soy, gluten and GMO content;

• ease of integration into consumer diet;

• convenience;

• cost;

• brand awareness and loyalty among consumers;

• product variety and packaging;

• access to retailer shelf space and retail locations; and

• access to restaurant and foodservice outlets and integration into menus.

Management believes Empathy can compete effectively with respect to the majority of these factors and that it has a meaningful advantage in our minimal processing and production methods and use of natural, and as available, organic, ingredients. Some of the companies in industry have substantially greater financial resources, more comprehensive product lines, broader market presence, longer standing relationships with distributors and suppliers, longer operating histories, greater production and distribution capabilities, stronger brand recognition and greater marketing resources than it has.

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Government Regulation

The food industry is highly regulated and is subject to changing political, legislative, regulatory, and other influences. Empathy is governed by Canadian federal, provincial and municipal laws and regulations. In Canada, the primary federal agencies governing the manufacture, distribution, labelling and advertising of the consumer food products are the Canadian Food Inspection Agency (the "CFIA") and Health Canada. Together these agencies regulate product composition, manufacturing, labelling and other marketing and advertising to consumers. Given that manufacturing is outsourced, there is risk mitigation measure in place as vendors need to meet regulatory requirements, however, Empathy retain certain risks.

Additionally, the CFIA requires that certain nutrition and product information appear on product labels. The Company is also restricted from making certain types of claims about products, including nutrient content claims, health claims, and claims regarding the effects of our products on any structure or function of the body, whether express or implied, unless the Company satisfy certain regulatory requirements.

Trade Secrets

The Company's success is dependent, in part, upon the proprietary rights to products. Management considers proprietary information related to recipes, formulas and production methods to be trade secrets. Vendors, employees and consultants with access to such information are subject to confidentiality provisions contained in their agreements which prohibit them from disclosing information, including information relating to recipes and production methods, acquired by them during, as a consequence of or in connection with the contract. Canbud relies on these agreements to protect proprietary information. The URL addresses, social media addresses, business names, and brand portfolio are assets, which add distinctive value and recognition to customers. Canbud also considers the specifics of marketing, promotions and products as a trade secret, and information the Company wishes to keep confidential.

Hemp CBD Extraction and Processing

The Company has signed a revenue growth partnership non-binding LOI with Hempsana, an EU GMP extraction company with the state of art extraction facility focusing on CBD, CBG and CBN as primary extracts. While the Company anticipates signing a definitive agreement in May 2021, there may be additional delays given the discussions on specific products, registration of those products and more importantly, the acceptance of such products for distribution through the Clinic Patient Distribution Network which has approximately 1,500 patients.

With an estimated 50% margin on such products and the increased acceptance of efficacy of CBD products, the Company is anticipating strong sell through. Initial manufacturing projections are for 100,000 units per quarter, with an average retail sale price of $50.00 for each 30-millilitre unit, or equivalent.

Product and Brand Development

For product development company is reassessing its strategy and plans to adapt its product and brand development based on the new realities. In June The Company completed the sale of Alami Beauty Corp to the Joint venture partner Anthony Murira and formulation from the Israeli company are paid for and waiting for right timing for developing this business.

On January 29, 2021, The Company was issued a Federal Sales License for Medical Purposes by Health Canada. The Sale for Medical Purposes Licence permits Canbud to sell cannabis products to registered medical patients. The licence also allows Canbud to execute trades of cannabis products between license producers. Furthermore, as a licence holder, the Sales for Medical Purposes licence allows the Company to apply for cannabis products export permit from Health Canada on a case by case basis.

Combining the Federal cannabis sale for medical purposes with the partnership with Hempsana, the Company intends to develop a higher margin medical sales channel in Canada. Through Hempsana partnership the first product notification under the brand “My SeeBD” is expected to be submitted to Health Canada by mid May 2021.

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Information and Communication Technology

The ICT partner “CannaProve” pulled out of the project and reimbursed the expense incurred so far, The Company has taken over the CannaProve development to keep it as a proprietary system and renaming it CanbudProve.

CanbudProve solution will allow The Company to track provenance, consistency, and quality of products, and to understand users personalized CBD (and other cannabinoids) need. The solution will also allow The Company to track its compliance to industry and regulatory requirements and to demonstrate transparency to The Company stakeholders as well as providing consistent potency and quality products to industrial buyers and end user consumers.

Research and Development

The Company is actively pursuing opportunities to develop additional IP through collaboration with Canadian universities and institutions. The Company has entered a research agreement with Brock University.

The first research partnership with Brock University investigates the potential application of fungi as a Climate Smart Sustainable Natural Fungi BioFertilizer for crop cultivation, inclusive of hemp plants. The Company aims to develop a game-changing Climate Smart Sustainable Natural Fungi BioFertilizer for crops cultivation which could reduce and replace chemical fertilizer, likewise applicable to hemp plants, therefore supporting sustainable global hemp and food production.

The Company continues to explore research and development partnership to create intellectual property and game changing solutions encompassing its business lines.

Financing

On November 24, 2020, the Company closed a non-brokered private placement financing with gross proceeds of $500,000 through issuance of 5,000,000 units at a price of $0.10 per Unit. Each unit is comprised of one common share and one warrant of the Company. Each warrant entitles the holder to purchase one additional Common Share at an exercise price of $0.20 on or before November 24, 2021, provided, however that if the closing price of the common shares is $0.30 or greater per common share for a period of five (5) consecutive trading days at any time after the closing date of the private placement, the Company may accelerate the warrant term such that the warrants shall expire on the date which is 30 business days following the date a press release is issued by the Company announcing the reduced warrant terms.

SELECTED QUARTERLY FINANCIAL INFORMATION

Selected financial information for the previous six quarters since inception is set out below.

	Quarter ended December 31, 2020 $	Quarter ended September 30, 2020 $	Quarter ended June 30, 2020 $	Quarter ended March 31, 2020 $
Loss before other income (expenses)	(1,275,299)	(287,896)	(324,547)	(233,603)
Other income (expense)	(29,271)	(259)	28,370	2,639
Net income (loss)	(1,304,570)	(288,155)	(296,177)	(230,964)
Total comprehensive income (loss)	(1,304,570)	(288,155)	(296,177)	(230,964)
Netloss pershare*	(0.02)	(0.01)	(0.01)	(0.01)

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	Quarter ended December 31, 2019 $	Quarter ended December 31, 2019 $	Quarter ended June 30, 2019 $	Quarter ended March 31, 2019 $
Loss before other income (expenses)	(214,621)	(243,709)	(20,223)	(487)
Other income	3,166	3,354	1,733	−
Net loss	(211,455)	(240,355)	(18,490)	(487)
Total comprehensive loss	(211,455)	(240,355)	(18,490)	(487)
Net loss per share*	(0.01)	(0.01)	(0.01)	(0.00)

Note:* Fully diluted income (loss) per share is not presented since it would be anti-dilutive.

• The Company has yet generated any revenue from its operations. In 2019, the Company’s focus was to develop a proprietary clonal system to deliver cost competitive and quality cannabinoid ingredients to consumer-packaged group companies. In 2020, the Company successfully cultivated and harvested hemp plants using the proprietary clonal system developed in 2019. The Company is in the final process to develop and manufacture such ingredients to CBD products for distribution to medical patients in 2021.

• The Company commenced its operation in the second quarter of prior year, incurring $2,119,866 in net loss in the year ended December 31, 2020. The operating loss increased by $ $1,649,079 compared to the year ended December 31, 2019 mainly due to 2020 being the first full-fledged operation year for the Company.

SUMMARY OF QUARTERLY RESULTS

Results of Operations

For the year ended December 31, 2020

The Company generated no operating revenues during the year ended December 31, 2020, which is unchanged from the year ended December 31, 2019. The Company commenced its inaugural cultivating season in the spring of 2020, using the proprietary clonal system, and harvested in the last quarter of 2020. The Company has processed the harvested hemp plants into dried hemp plants and will further process them to CBD products for distribution through the medical-patient channel.

In 2019, the Company’s focus was to develop proprietary clonal system to deliver cost competitive and quality cannabinoid ingredients to consumer-packaged group companies. In 2020, the Company has successfully cultivated and harvested hemp plants using the proprietary clonal system developed in 2019. The Company is in the final process to develop and manufacture such plants into CBD products for distribution to medical patients in 2021.

The Company recorded an operating loss of $2,121,345 for the year ended December 31, 2020, compared to $479,040 for the year ended December 31, 2019. The increase of $1,642,305 is attributed primarily to the following:

• Consulting for the year ended December 31, 2020 increased by $607,410, compared to comparative period primarily due to increased number of consultants as well as a total of 760,000 common shares (valued at $148,200) issued as finder fee in connection the impending acquisition of 2688453 Ontario Ltd. Additionally, key management’s compensation in 2019 were capitalized to intangible assets as majority of the key management’s time was dedicated to the development of clonal system whilst all of the key management compensation in the year ended 2020 of $258,000 have been recorded in the consulting expense.

• Professional fees amounted to $192,231 for the year ended December 31, 2020, an increase of $148,852 compared to $43,379 in the comparative period. The increase is due to prospective listing-related fees, consisted of fees to legal and accounting professionals as well as audit fee.

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• Share-based compensation amounted to $682,446 for the year ended December 31, 2020 (209 - $Nil). The Company granted a total of 6,050,000 options to directors, officers and consultant of the Company for the first time since its inception.

• Amortization of property, plant and equipment amounted to $113,341 for the year ended December 31, 2020 (2019 - $Nil). The Company recognized amortization as it began to utilize the property, plant and equipment in 2021.

• The Company wrote-off biological assets of $118,776 (2019 - $Nil) as the fair value of the harvested dried hemp plants which was estimated to exceed the production costs incurred during the year ended December 31, 2020. The production costs incurred comprised of salaries, wages and consulting of $82,184, utilities of $24,405, and equipment rental of $12,187.

The increase in the operating loss was offset by the decrease of $224,166 in business development costs in the year ended December 31, 2020, compared to the comparative period, due to completion of the development of proprietary clonal systems in early 2020.

The Company recorded other income of $1,479 for the year ended December 31, 2020, compared to $8,253 for the year ended December 31, 2019. The decrease of $6,774 is attributed primarily to the finance expense related to the office and farm leases and CEBA loan of $30,078 and offset by the net gain from the sale of its 51% interest in Alami of $20,966 and $6,758 income related to the $40,000 CEBA loan received from the Government of Canada.

For the three months ended December 31, 2020

The Company generated no operating revenues during the three months ended December 31, 2020, which is unchanged from the three months ended December 31, 2019. During the three months ended December 31, 2020, the Company harvested and dried its hemp plants. Further processing of dried hemp plants is planned for 2021 to manufacture them to CBD products.

The Company recorded a net loss of $1,304,570 or $0.02 per share for the three months ended December 31, 2020, compared to $211,942 or $0.01 per share for the three months ended December 31, 2019. The increase of $1,092,628 is attributed primarily to the following:

• Share-based compensation amounted to $682,446 for the year ended December 31, 2020 (2019 - $Nil). On November 13, 2020, the Company granted a total of 6,050,000 options to directors, officers, and consultant of the Company for the first time since its inception.

• Consulting for the year ended December 31, 2020 increased by $375,359, compared to comparative period primarily due to completion of the clonal system in early 2020. In addition, the Company incurred $148,200 in relation to 760,000 common shares issued as finder fee in connection the impending acquisition of 2688453 Ontario Ltd.

LIQUIDITY AND CAPITAL RESOURCES

The Company does not generate revenue as of the date hereof. As at December 31, 2020, the Company had a deficit of $2,543,323 (2019 - $470,787). For the year ended December 31, 2020, the Company’s net loss was $2,119,866 (2019- $470,787), working capital of $317,511 (2019 - $1,420,089) and negative cash flows from operating activities was $1,251,291 (2019 - $302,438). The Company’s ability to continue as a going concern is dependent upon its existing working capital and obtaining the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come due. The Company’s working capital may not meet corporate, development, administrative and property obligations for the coming year. As a result, the Company may require additional financing and, while the Company has been successful in raising equity financing through the issuances of common shares in the past, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be available on acceptable terms. As such, there remains significant doubt as to the Company’s ability to continue as a going concern

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Year ended December 31, 2020

Cash used in operating activities was $1,251,291 during the year ended December 31, 2020, an increase of $948,853 from the comparative period. The increase is primarily due to the increase in operation expenses $1,642,305 compared to comparative period, in particular, the increases of consulting fees of $620,917, professional fees of $148,852, salaries and wages of $13,418. During the year ended December 31, 2020, the Company completed the development of its clonal system and had its first cultivation season. The Company became a publicly listed company on the CSE in October 2020 and the associated costs of going public resulted in an increase in consulting and professional fees for the year ended December 31, 2020.

Cash used in investing activities was $280,031, an increase of $15,710 from comparative period. The increase is due to the purchase of various equipment such as hoop house, trans planter, drying machine, vehicle and computers for a combined total of $287,231 (2019 - $Nil), offset by decrease of the addition to intangible assets of $217,571. The Company received $11,000 from the sale of its 51% interest in Alami (2019 - $Nil) as well as $16,950 from CannaProve subsequent to the termination of Master Service Agreement entered into in October 21, 2019 with CannaProve. The Company received a total of $5,500 (2019 – spent $20,500) from HIP Beverages Corporation during the year ended December 31, 2020.

Cash used in financing activities was $402,017, a decrease of $1,732,680 from comparative period. During the year ended December 31, 2020, the Company raised a net $479,962 from a private placement, compared to $2,134,697 cash received from founders rounds and private placements in the comparative period. The Company received $40,000 (2019 - $nil) CEBA loan in June 2020.

Three months ended December 31, 2020

Cash used in operating activities was $356,855 during the year ended December 31, 2020, an increase of $99,686 from the comparative period. The increase is primarily due to the increase in operating costs, primarily related to consulting and professional fees.

Cash used in investing activities was $581 (2019 - $79,189) consists primarily of fees paid related to the Clonal system’s development of $84,709 for the three months ended December 31, 2019.

Cash generated from the financing activities was $431,517 (2019 – $521,780). During the three months ended December 31, 2020, the Company closed a non-brokered private placement with a net proceed of $479,962 through of 5,000,000 units at a price of $0.10 per Unit. In the comparative period, the Company completed several trances of non-brokered private placements with a net proceed of $521,780.

CAPITAL MANAGEMENT

The Company actively manages its capital structure and adjust accordingly. There is no return on capital measure imposed on the management rather board provides the opportunity to the management to use their expertise and business acumen to generate value for the Company and its stakeholders.

Management with the board reviews its capital management policies regularly. There were no changes to The Company’s approach to capital management in the current period.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements that would potentially affect current or future operations or the financial condition of the Company.

RELATED PARTY TRANSACTIONS

A related party is a person or entity that is related to the Company; that has control or joint control over the Company; that has significant influence over the Company; or is a member of the key management personnel of the Company.

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An entity is related to a Company if the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

A related party transaction is a transfer of resources, services or obligations between a Company, and a related party, regardless of whether a price is charged. All transactions with related parties are in the normal course of business and are measured at fair value.

Compensation awarded to key management personnel

Key management personnel refer to the Company's members of its executive management team and directors.

directors.
For the year ended		December 31, 2020	December 31, 2019
Consulting fee	$	258,000$	105,000
Shares issued		280,272	7,000
	$	538,272$	112,000

SUBSEQUENT EVENTS AFTER DECEMBER 31, 2020

Stock Options

On January 15, 2021, the Company granted 300,000 stock options to a consultant with exercise price of $0.22 for 4 years, expiring on January 15, 2025.

On January 18, 2021, the Company granted 300,000 stock options to a consultant with exercise price of $0.22 for 4 years, expiring on January 18, 2025.

On January 20, 2021, the Company granted 300,000 stock options to a consultant with exercise price of $0.22 for 4 years, expiring on January 20, 2025.

On March 30, 2021, the Company granted 600,000 stock options to a consultant with exercise price of $0.22 for 4 years, expiring on March 30, 2025.

Letter of Intent

On January 19, 2021, the Company entered into a non-binding Letter of Intent (LOI) with Hempsana Inc. to develop and manufacture CBD products for distribution to the medical-patient channel. Hempsana's Health Canada Licenced EU GMP compliant facility provides access to wholesale and retail channels internationally, including Europe, Asia, South America, the United States, and Canada.

Empathy Plant Company Inc.

On January 22, 2021, the Company incorporated Empathy Plant Company Inc. (“Empathy Plant Co.”), a wholly owned subsidiary of the Company, formed primarily to launch and operate the Company’s plantbased protein brand with products that are naturally sweetened, zero sugar added, produced without genetic engineering (non-GMO) project verified, gluten-free, soy-free with 100% compostable packaging.

Private Placements

In February and March 2021, the Company closed two tranches of a non-brokered private placement for combined total gross proceeds of approximately $4,730,000. The Company issued 39,409,346 units ("Units") at $0.12 per Unit, with each Unit comprised of one common share in the capital of the Company and one common share purchase warrant (each, a "Warrant').

Each Warrant entitles the holder thereof to purchase one additional common share at an exercise price of $0.22 per share until the date that is 24 months from the closing of the offering. If the closing price of the common shares on the CSE is equal to or greater than $0.25 for a period of five (5) consecutive trading days, then the Company may accelerate the expiry date of the Warrants to the date that is 30 days following the date on which the Company issues notice to all the Warrant holders of the new expiry date.

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The Company paid finder's fees in the aggregate amount of $151,481 in cash and issued an aggregate of 1,262,345 broker warrants ("Broker Warrants") to a syndicate of arm's-length finders, with the exception of $87,426 and 728,548 Broker Warrants paid to Florence Wealth Management Inc. ("Florence"). Raj Ravindran, the CFO and a director of the Company, is the ultimate designated person and CEO of Florence. The Broker Warrants were issued on the same terms as the Warrants.

Covid-19 Strategy

Given the current reality that started in March 2020 which we expect to continue through the year 2020 at the minimum. Our farming season is affected in many ways even though farming is considered essential service. We are affected in many ways including travel restrictions, getting temp workers, getting supplies in a timely manner. Considering all the current conditions management has come to decision to scale down the total outdoor cultivation acreage for the 2020 season by focusing on one of the three farm properties.

Cultivation

2020 cultivation season was the Company's first year pilot project to translate its clonal system into large acreage outdoor field cultivation. The Covid-19 pandemic created challenges for the Company to execute its cultivation development. Furthermore, it was the first year the Company tested some of the hemp cultivars approved by Health Canada. Despite the Covid-19 challenges, the Company successfully proved its clonal system by creating 20,000 clones, and have them planted in the field in stages to understand how planting period effect the timing to harvest.

Product and Brand Development

The Company will focus on development of its own product brand called “My SeeBD”. “My SeeBD” brand logo and packaging design has been carried out by a Cannabis focused design company based in Israel.

DISCUSSION OF OPERATIONS

Cultivation

The Company centered its efforts on low-cost outdoor cultivation acreage capital expenditure using land lease and collaborative scheme with land owners. Due to effects of Covid, the Company temporarily paused it’s operations, and reassessed the overall strategy for Cultivation. After deciding to concentrate on only land package (the Kettleby Property), the Company the cultivation process. The Covid-19 goods and labor supply challenges resulted in some delays in timing, and hence The Company adjusted its cultivation execution to prove out its clonal system.

On the Kettleby property the Company has set up six-30 meters by 27 meters cold frame doubly poly hoop houses housing approximately 600 female mother plants, and two hoop houses for clones. The female mother plants were used for cloning as well as to develop into full flowering plants in the hoop house/greenhouse environment for a comparison with outdoor field plants. The Company has successfully developed approximately 20,0000 female clones. The clones were planted in the outdoor field form harvesting. Some clones were also planted for experiment purpose.

The other two leased properties were put in the maintenance mode. The Company’s plan for this cultivation season is to successfully harvest a plot of land in the Kettleby property. This will help showcase the efficiency of the Company’s clonal system as well as understand and work on the processes to fine tuning the model.

Distribution Channel Development

On January 29, 2021, Health Canada issued to the Company a Federal Sales License for Medical Purposes.

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The Company has signed a revenue growth partnership LOI with Hempsana, an EU GMP extraction company with the state of art extraction facility focusing on cannabidiol as primary extracts. The Company expects to settle a definitive agreement by May 2021.

Combining the Federal cannabis sale for medical purposes with the partnership with Hempsana, the Company intends to develop a higher margin medical sales channel in Canada. Through Hempsana partnership the first product notification under the brand “My SeeBD” is expected to be submitted to Health Canada in May 2021.

Information Technology Platform Development

The CannaProve Master Service Agreement was terminated effective January 10, 2020, and upon termination, the Company received a refund of the amount paid to CannaProve under the Master Service Agreement. In addition, the developer of CannaProve, 2665397 Ontario Inc. provided the Company with the project design and blueprint to allow the Company to continue developing the “clone to consumer” IT platform under the Company’s proprietary platform, to be renamed “CanbudProve”.The Company is currently in the process to start a project to develop the users/patients experience sub-platform. The objective is to understand individual user/patient response to the Company's product to eventually able to satisfy “personalised” CBD (and other cannabinoids) need of an individual user/patient.

Research and Development

The research partnership with Brock University investigates the potential application of fungi as a Climate Smart Sustainable Natural Fungi BioFertilizer for crop cultivation, inclusive of hemp plants is progressing well. The research stems from the ground-breaking study conducted in 2012 by the Brock researchers, who found certain fungi, which feast upon over 200 different kinds of soil-borne insects, exhibit the ability to transfer nitrogen from the dead bugs into plants through the plant’s root system. A subsequent study in 2017 found that plants transfer carbohydrates back into the fungus, supplying the fungus with much-needed energy, making the fungus-plant relationship truly symbiotic and self-sustaining. The Company aims to develop a game-changing Climate Smart Sustainable Natural Fungi BioFertilizer for crops cultivation which could reduce and replace chemical fertilizer, likewise applicable to hemp plants, therefore supporting sustainable global hemp and food production.

The Company continues to explore research and development partnership to create intellectual property and game changing solutions encompassing its business lines. The Company is currently negotiating an additional research and development project with Brock University that focuses on superior hemp cultivar development (“breeding with DNA markers”).

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the period. These estimates are, by their nature, uncertain. The impacts of such estimates are pervasive throughout the consolidated financial statements and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods. The estimates and underlying assumptions are based on current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

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

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Expected credit losses

The Company applies the simplified approach as permitted by IFRS 9 for the expected credit loss (ECL) associated with financial assets. The simplified approach to the recognition of expected losses does not require the Company to track the changes in credit risk; rather, the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date from the date of the trade receivable.

Biological assets and inventory

Biological assets, consisting solely of hemp plants, are measured at fair value less costs to sell up to the point of harvest. The valuation of biological assets at the point of harvest is the cost basis for all hempbased inventory and thus, any critical estimates and judgements related to the valuation of biological assets are also applicable for inventory. In calculating the value of the biological assets and inventory, the estimates management make include estimating the stage of growth of the help up to the point of harvest, harvesting costs, selling costs, average or expected selling prices and expected yields for the hemp plants. In calculating final inventory values, the Company compares the inventory cost to estimated net realizable value.

Capitalization and write-off of intangible assets

An intangible asset arising from development is recognised on satisfying the following criterions by the entity:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale.

• • Its intention to complete the intangible asset and use or sell it.

• Its ability to use or sell the intangible asset.

• How the intangible asset will generate probable future economic benefits. Among other things, the entity can demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset.

• The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset.

• Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

Estimated useful lives and amortization of long-lived assets

Depreciation of Property and equipment and intangible assets are dependent upon estimates of useful lives which are determined through the exercise of judgments. The assessment of any impairment of these assets is dependent upon estimates recoverable amounts that take into account factors such as economic and market conditions and the useful lives of the assets.

Impairment of long-lived assets

Long-lived assets, including property and equipment and intangible assets are reviewed for indicators of impairment at each statement of financial position date or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the CGU). The recoverable amount of an asset or a CGU is the higher of its fair value, less costs to sell, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

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Goodwill is tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of goodwill has been impaired. In order to determine if the value of goodwill has been impaired, the cash-generating unit to which goodwill has been allocated must be valued using present value techniques. When applying this valuation technique, the Company relies on a number of factors, including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates can significantly affect the assessed value of goodwill.

Incremental borrowing rate and lease term on leases

The incremental borrowing rates are based on judgments including economic environment, term, currency, and the underlying risk inherent to the asset. The carrying balance of the right-of-use assets, lease obligations, and the resulting interest and depreciation expense, may differ due to changes in the market conditions and lease term. Lease terms are based on assumptions regarding extension terms that allow for operational flexibility and future market conditions. The Company’s incremental rates at the commencement of the leases on January 1, 2020 ranged from 4% to 10%.

Share-based compensation

In calculating share-based compensation expense, key estimates such as the rate of forfeiture of awards granted, the expected life of options, the volatility and the risk-free interest rate used.

Deferred tax

The determination of deferred income tax assets or liabilities requires subjective assumptions regarding future income tax rates and the likelihood of utilizing tax loss carry forwards. Changes in these assumptions could materially affect the recorded amounts, and therefore, do not necessarily provide certainty as to their recorded values.

Going concern

The Company’s ability to execute its strategy by funding future working capital requirements requires significant judgment. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, such as expectations of future events that are believed to be reasonable under the circumstances.

New accounting standards, amendments and interpretations issued but only effective for the Company beginning on or after January 1, 2021 are as follows:

Amendment to IAS 1

In January 2020, the IASB issued amendments to IAS 1, Presentation of Financial Statements, to provide a more general approach to the presentation of liabilities as current or non ‐ current based on contractual arrangements in place at the reporting date. These amendments:

• specify that the rights and conditions existing at the end of the reporting period are relevant in determining whether the Company has a right to defer settlement of a liability by at least twelve months;

• provide that management’s expectations are not a relevant consideration as to whether the Company will exercise its rights to defer settlement of a liability; and

• clarify when a liability is considered settled.

On July 15, 2020, the IASB issued a deferral of the effective date for the new guidance by one year to annual reporting periods beginning on or after January 1, 2023 and is to be applied retrospectively. The Company has not yet determined the impact of these amendments on its financial statements.

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Amendment to IAS 16

On May 14, 2020, the IASB amended IAS 16 “Property, Plant and Equipment” to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognizes the proceeds from selling such items, and the cost of producing those items, in profit or loss. The amendments are effective for annual periods beginning on or after January 1, 2022 with early adoption permitted.

The Company is currently assessing the financial impact of these amendments and expects to apply the amendments at the effective date.

SHARE CAPITAL

The exercise of outstanding options, and other future issuances of securities, will result in dilution of our common shares.

As at December 31, 2020, share capital consisted of:

• 45,568,000 issued and outstanding common shares;

• 6,050,000 options outstanding with an exercise price of $0.13 and weighted average remaining contractual life of 4.90 years; and

• 5,000,000 outstanding warrants with exercise price of $0.20 and weighted average remaining contractual life of 0.90 years.

As at April 29, 2021, share capital consisted of:

• 86,083,597 issued and outstanding common shares;

• 7,250,000 outstanding options with exercise prices ranging from $0.13 to $0.22;

• 45,671,691 outstanding warrants with exercise prices ranging from $0.20 to $0.25.

RISKS AND RISK MANAGEMENT

No Profits or Significant Revenues

The Company has no history upon which to evaluate its performance and future prospects. The Company’s proposed operations are subject to all the business risks associated with new enterprises. Such risks include, but are not limited to, likely fluctuations in operating results as the Company makes significant investments in research, development and product opportunities, and reacts to developments in its market, including purchasing patterns of customers, and the entry of competitors into the market. The Company will only be able to pay dividends on any shares once its directors determine that it is financially able to do so. The Company cannot make any assurances that it will be profitable in the next three years or generate sufficient revenues to pay dividends to the holders of the Common Shares.

Plans for Growth

The Company intends to grow rapidly and significantly expand its operations within 24 months. This growth will place a significant strain on the Company’s management systems and resources. The Company will not be able to implement its business strategy in a rapidly evolving market, without an effective planning and management process. In particular, the Company may be required to manage multiple relationships with various strategic industry participants and other third parties, which relationships could be strained in the event of rapid growth. Similarly, a large increase in the number of third-party relationships the Company has, may lead to management of the Company being unable to manage growth effectively. The occurrence of such events may result in the Company being unable to successfully identify, manage and exploit existing and potential market opportunities.

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Limited Products

The Company will be heavily reliant on the production and distribution of psychedelics, nutraceuticals and related products. If they do not achieve sufficient market acceptance, it will be difficult for the Company to achieve profitability.

The Company’s revenue will be derived almost exclusively from sales of pharmaceutical and nutraceuticalbased products, and the Company expects that its pharmaceutical and nutraceutical-based products will account for substantially all of its revenue for the foreseeable future. If the market declines or fails to achieve substantially greater market acceptance than it currently enjoys, the Company will not be able to grow its revenues sufficiently for it to achieve consistent profitability. Even if products to be distributed by the Company conform to international safety and quality standards, sales could be adversely affected if consumers in target markets lose confidence in the safety, efficacy, and quality of psychedelic pharmaceutical and nutraceutical-based products. Adverse publicity about products that the Company sells may discourage consumers from buying products distributed by the Company.

No Assurance of Commercial Success

The successful commercialization of the Company’s products will depend on many factors, including, the Company’s ability to establish and maintain working partnerships with industry participants in order to market its products, the Company’s ability to supply a sufficient amount of its products to meet market demand, and the number of competitors within each jurisdiction within which the Company may from time to time be engaged. There can be no assurance that the Company or its industry partners will be successful in their respective efforts to develop and implement, or assist the Company in developing and implementing, a commercialization strategy for the Company’s products.

Nature of Regulatory Approvals

The Company’s development and commercialization activities are significantly regulated by a number of governmental entities, including Health Canada. The Company may fail to obtain the necessary approvals to commence or continue clinical testing. The Company must comply with regulations concerning the manufacture, testing, safety, effectiveness, labeling, documentation, advertising, and sale of products and ultimately must obtain regulatory approval before it can commercialize a product. The time required to obtain approval by such regulatory authorities is unpredictable.

If there are changes in the application of legislation, regulations or regulatory policies, or if problems are discovered with the Company products, or if one of its distributors, licensees or co-marketers fails to comply with regulatory requirements, the regulators could take various actions. These include imposing fines on the Company, imposing restrictions on the Company’s products or its manufacture and requiring the Company to recall or remove its products from the market. If any of these events occurs, the Company’s ability to sell its products may be impaired, and it may incur substantial additional expense to comply with regulatory requirements, which could materially adversely affect its business, financial condition and results of operations.

Cultivation Risk

Risks inherent in the outdoor agriculture operations apply to the Company operations. The Company will carry out risk management to mitigate the potential damage due to climate. Proper farm-land management will be carried out to anticipate too much rain falls. Drought will be anticipated by having stand-by water wells whenever feasible. In the longer run, plant genetic breeding work would produce a more drought and frost resistant strains or cultivars The Company will also be implementing its technology platform “CanbudProve” which will include IOT sensors to provide cultivation environment data analytics. To manage risk of pest and plant disease, the Company will develop an integrated pest and disease management system.

Extraction and Processing Risk

The Company will develop relationship with several third-party extraction and processing companies to mitigate the risk of not having a capacity to extract and process the cultivated hemp CBD flowers.

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Distribution and Trading Risk

The CBD market is highly competitive despite it is a new industry. The competitiveness is mainly due to regulatory requirements in marketing and sales of products containing CBD. Furthermore, many jurisdictions globally are still not permitting use of CBD for medical and wellness purposes.

The Company will manage the risk by exploring and developing numerous partnerships in offtake and distribution.

CBD Price Risk

Due to fierce competition in limited Canadian market, and United States' CBD supplies, there is a risk of decreasing CBD extracts pricing. The Company will continuously develop its cost leadership strategy to anticipate competitive pricing.

Access to Capital Market Risk

The capital market may not be conducive to raising additional capital in the near future. The Company has built a business model that demonstrates sustainability.

Regulatory Risk

The industry is highly regulated and the regulations in Canada as well as overseas jurisdictions continue to evolve. The Company will mitigate the regulatory risk by working with experts/consultants to monitor, anticipate, and comply with respective regulations.

Liquidity Risk

Liquidity risk is the risk that the Company may be unable to meet its short-term financial obligations as they come due. The Company has developed a planning and budgeting process to help determine the funds required to support The Company’s ongoing liquidity needs. Historically, the Company's sole source of funding has been funds raised from the investors through private placements. The Company’s access to financing is always uncertain and depends on the capital markets. There can be no assurance of continued access to significant equity funding. Liquidity risk is assessed as high.

Foreign Exchange Risk

The Company does most of its business in Canada but buys machinery and other agricultural equipment from United States and abroad. Also, company plans to sell its products in Europe once its export license is approved. Since most of the equipment purchase is complete and foreign sales are not expected this year, the Company is not exposed to foreign exchange risk.

Interest Rate Risk

Interest rate risk is the potential loss from investments in financial instrument due to changes in market interest rates. As at December 31, 2020, the Company is not exposed to interest rate risk.

Emerging Market Risks

The Company, through its wholly owned subsidiary, 268 Ont following completion of the acquisition of 268 Ont, will have secured a lease to develop a psilocybin site in Jamaica, an emerging market country. Such operations expose the Company to the socio-economic conditions as well as the laws governing the activities of the Company in Jamaica and any other jurisdiction where the Company may have operations in the future. Inherent risks with conducting foreign operations include, but are not limited to: high rates of inflation; extreme fluctuations in currency exchange rates, military repression; war or civil war; social and labour unrest; organized crime; hostage taking; terrorism; violent crime; expropriation and nationalization; renegotiation or nullification of existing licences, approvals, permits and contracts; changes in taxation policies; restrictions on foreign exchange and repatriation; and changing political norms, banking and

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currency controls and governmental regulations that favour or require the Company to award contracts in, employ citizens of, or purchase supplies from, the jurisdiction.

Global economic crises could negatively affect investor confidence in emerging markets or the economies of emerging markets, including Jamaica. Such events could materially and adversely affect the Company's business, financial condition and results of operations.

In the event of a dispute arising in connection with the Company's operations in Jamaica or another a foreign jurisdiction where the Company may conduct business, the Company may be subject to the exclusive jurisdiction of foreign courts or may not be successful in subjecting foreign persons to the jurisdictions of the courts of Canada or enforcing Canadian judgments in such other jurisdictions. The Company may also be hindered or prevented from enforcing its rights with respect to a governmental instrumentality because of the doctrine of sovereign immunity. Accordingly, the Company's activities in foreign jurisdictions could be substantially affected by factors beyond the Company's control.

Other risks include the potential for fraud and corruption by suppliers or personnel or government officials which may implicate the Company, compliance with applicable anti-corruption laws, including the Corruption of Foreign Public Officials Act (Canada) by virtue of the Company's operating in jurisdictions that may be vulnerable to the possibility of bribery, collusion, kickbacks, theft, improper commissions, facilitation payments, conflicts of interest and related party transactions and the Company 's possible failure to identify, manage and mitigate instances of fraud, corruption, or violations applicable regulatory requirements.

To mitigate risk when operating in Jamaica, the Company may, in part, engage local counsel and/or consultants to advise on applicable regulatory and/or operational matters, as applicable.

COMPLIANCE PROGRAM

The Company oversees and monitors compliance with applicable laws in each jurisdiction in which it operates. In addition to the Company's senior executives and staff responsible for overseeing compliance, the Company has local counsel engaged in every jurisdiction in which it operates and has received legal opinions or advice in each of these jurisdictions regarding (a) compliance with applicable regulatory frameworks, and (b) potential exposure to, and implications arising from, applicable laws in jurisdictions in which the Company has operations or intends to operate.

The Company works with third parties who require regulatory licensing to handle products and raw material. The reliance on third party certifications is crucial to operations and loss of licenses and/or approvals by such third parties may impact the Company. Management is working to implement risk mitigation measures to ensure such entities comply with applicable regulations. The Company will continue to work closely with external counsel and other compliance experts, and is evaluating the engagement of one or more independent third party providers to further develop, enhance and improve its compliance and risk management and mitigation processes and procedures in furtherance of continued compliance with the laws of the jurisdictions in which the Company operates.

The Company and, to its knowledge, each of its third-party researchers, suppliers and manufacturers have not received any non-compliance, citations or notices of violation which may have an impact on the Company’s licences, business activities or operations.

CONTINGENCIES

The Company is not aware of any contingencies or pending legal proceedings as of December 31, 2020 and as of the date of this report.

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CAUTIONARY STATEMENT ON FORWARD LOOKING INFORMATION

This Management Discussion and Analysis ("MD&A") includes forward-looking statements concerning the Company's future performance, operations, and financial performance and financial condition. These forward-looking statements may include, among others, statements with respect to our objectives and strategies to achieve those objectives, as well as statements with respect to our beliefs, plans, expectations, anticipations, estimates, and intentions. When used herein, the words “plan”, “believe”, “anticipate”, “may”, “should”, “intend”, “estimate”, “expect”, “project”, and similar expressions are intended to identify forwardlooking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on management's current expectations. We caution that all forward-looking information is inherently uncertain and actual results may differ materially from the assumptions, estimates, or expectations reflected or contained in the forward-looking information, and that actual future performance will be affected by a number of factors including economic conditions, technological change, regulatory change, and competitive factors, many of which are beyond our control.

Future events and results may vary significantly from what is expected. We are under no obligation (and we expressly disclaim any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise.

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