CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2019 and 2018 (Expressed in thousands of Canadian dollars)

Management's Responsibility for Financial Reporting

The preparation and presentation of the accompanying consolidated financial statements of Alcanna Inc. (“the Company”), which have been prepared in accordance with International Financial Reporting Standards, are the responsibility of management and have been approved by the Board of Directors.

The consolidated financial statements include certain amounts that are based on the best estimates and judgments of management and in their opinion present fairly, in all material respects, Alcanna Inc.’s financial position, financial performance and cash flows. The Company’s accounting procedures and related systems of internal controls are designed to provide reasonable assurance that its assets are safeguarded and its financial information is reliable.

The consolidated financial statements have been audited by PricewaterhouseCoopers LLP, the Company’s external auditor. The external auditor is responsible for examining the consolidated financial statements and expressing its opinion on the fairness of the financial statements in accordance with International Financial Reporting Standards. The auditor’s report outlines the scope of its audit examination and states its opinion.

The Board of Directors, through the Audit Committee, is responsible for overseeing management’s responsibility for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Audit Committee meets regularly with management and the external auditor to satisfy itself that each group is discharging its responsibilities with respect to internal controls and financial reporting. The Audit Committee reports its findings to the Board of Directors for their consideration when approving the consolidated financial statements for issuance to the shareholders. The external auditor has full and open access to the Audit Committee, with and without the presence of management. The Audit Committee also considers, for review by the Board of Directors and approval by the shareholders, the engagement or re-appointment of the external auditor.

Signed “James Burns” Signed “David Gordey” James Burns David Gordey Vice Chair & Chief Executive Officer Executive Vice President Corporate Services & Chief Financial Officer

Independent auditor’s report

To the Shareholders of Alcanna Inc.

Our opinion

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of Alcanna Inc. and its subsidiaries (together, the Company) as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

What we have audited The Company’s consolidated financial statements comprise:  the consolidated statements of financial position as at December 31, 2019 and 2018;  the consolidated statements of changes in equity for the years then ended;  the consolidated statements of loss for the years then ended;  the consolidated statements of comprehensive loss for the years then ended;  the consolidated statements of cash flows for the years then ended; and  the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Basis for opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.

PricewaterhouseCoopers LLP Stantec Tower, 10220 103 Avenue NW, Suite 2200, Edmonton, Alberta, Canada T5J 0K4 T: +1 780 441 6700, F: +1 780 441 6776

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership. Other information

Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.  Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.  Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.  Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.  Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The engagement partner on the audit resulting in this independent auditor’s report is Richard Probert.

(Signed) “PricewaterhouseCoopers LLP”

Chartered Professional Accountants

Edmonton, Alberta March 11, 2020

Alcanna Inc. Consolidated Statements of Financial Position (in thousands of Canadian dollars)

December 31, December 31, 2019 2018 Note $ $ Assets Current assets: Cash 11,707 64,393 Accounts receivable 24 1,624 3,715 Income taxes recoverable 3,691 1,184 Inventory 6 104,819 89,584 Prepaid expenses and deposits 10,574 9,543 Assets held for sale 3s, 5 454 2,758 132,869 171,177 Deposits 1,734 852 Deferred tax assets 16 14,559 10,092 Property and equipment 7 92,262 71,754 Intangible assets 3s, 8 38,716 38,344 Right-of-use assets 3s, 9 215,099 - Goodwill 4, 10 14,599 - 509,838 292,219 Liabilities Current liabilities: Accounts payable and accrued liabilities 3s, 24 43,774 50,936 Current portion of provisions 3s, 11 430 1,440 Derivative warrant liabilities 17 193 105 Current portion of long-term debt 12 - 48 Current portion of lease liabilities 3s, 9 18,288 - Liabilities directly associated with assets held for sale 3s, 5 567 1,461 63,252 53,990 Long-term debt 12 84,969 73,139 Provisions 3s, 11 - 3,281 Lease liabilities 3s, 9 286,900 - 435,121 130,410 Shareholders’ Equity: Equity attributable to shareholders 3s 74,023 161,746 Equity attributable to non-controlling interest 694 63 74,717 161,809 509,838 292,219 Subsequent event 4

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

Approved on behalf of the Board of Directors:

Signed “John Barnett” Signed “Karen Prentice” John Barnett Karen Prentice Director Director

Alcanna Inc. | 2019 Consolidated Financial Statements 1

Alcanna Inc. Consolidated Statements of Changes in Equity (in thousands of Canadian dollars)

Attributable to Shareholders of the Company Equity Accumulated component other of comprehen- Non- Share convertible Contributed sive controlling Total capital debentures surplus income Deficit Total interest equity $ $ $ $ $ $ $ $

Opening balance – January 1, 2018 252,413 3,006 178,499 11,734 (251,952) 193,700 85 193,785 Net (loss) earnings for the period - - - - (158,812) (158,812) 156 (158,656) Foreign currency translation adjustment - - - 3,250 - 3,250 - 3,250 Comprehensive earnings (loss) for the period - - - 3,250 (158,812) (155,562) 156 (155,406)

Private placement issuance of common shares (i) (note 17) 130,445 - - - - 130,445 - 130,445 Private placement issuance of sunshine warrants (i) (note 17) - - 889 - - 889 - 889 Share-based payments (note 19) - - 1,231 - - 1,231 - 1,231 Settlement of equity-based payments (note 17) 225 - (225) - - - - - Dividends declared (note 15) - - - - (9,807) (9,807) - (9,807) Dividend reinvestment plan issuance (note 15) 850 - - - - 850 - 850 Dividends declared by subsidiaries ------(178) (178) Transactions with owners 131,520 - 1,895 - (9,807) 123,608 (178) 123,430

Balance – December 31, 2018 383,933 3,006 180,394 14,984 (420,571) 161,746 63 161,809

Adjustment on adoption of IFRS 16 (note 3s) - - - - (64,481) (64,481) - (64,481) Restated opening balance – January 1, 2019 383,933 3,006 180,394 14,984 (485,052) 97,265 63 97,328 Net loss for the year - - - - (30,446) (30,446) (1,843) (32,289) Foreign currency translation adjustment - - - (1,138) - (1,138) - (1,138) Comprehensive loss for the year - - - (1,138) (30,446) (31,584) (1,843) (33,427)

Issuance of Alliance partnership units (note 4) - - 6,602 - - 6,602 2,582 9,184 Accelerated amortization of PSUs (note 19) - - 1,699 - - 1,699 - 1,699 Share-based payments (note 19) - - 382 - - 382 - 382 Settlement of equity-based payments (note 17) 248 - (248) - - - - - Dividends declared by subsidiaries - - - - (341) (341) (108) (449) Transactions with owners 248 - 8,435 - (341) 8,342 2,474 10,816

Balance – December 31, 2019 384,181 3,006 188,829 13,846 (515,839) 74,023 694 74,717 (i)Net of transaction costs and tax.

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

Alcanna Inc. | 2019 Consolidated Financial Statements 2

Alcanna Inc. Consolidated Statements of Loss Years Ended December 31, 2019 and 2018 (in thousands of Canadian dollars, except for per share amounts)

2019 2018 Note $ $

Sales 801,742 658,931 Cost of sales 623,453 500,911

Gross margin 178,289 158,020

Selling and distribution expenses 21 119,254 131,371 Administrative expenses 22 26,976 24,803

Operating profit before amortization and provision charges 32,059 1,846

Property and equipment depreciation 7 15,252 14,478 Right-of-use assets depreciation 9 18,056 - Intangible assets amortization 8 1,198 399 Lease remeasurements 9 283 - Provision for impairment of property and equipment 7 2,732 1,245 Provision for impairment of intangible assets 8 1,816 937 Provision for impairment of right-of-use assets 9 8,612 - Provision for impairment of goodwill 10 - 145,519 Provision for onerous lease contracts 11 - 4,238

Operating loss (15,890) (164,970)

Finance costs 13 25,526 5,196 Net loss on foreign exchange 247 6 Net loss (gain) on fair value adjustments 14 88 (5,794) Other income (998) -

Loss before income taxes (40,753) (164,378)

Income tax (recovery) expense Current 16 (3,571) 2,505 Deferred 16 (4,608) (8,553) (8,179) (6,048)

Net loss from continuing operations (32,574) (158,330)

Net earnings (loss) from discontinued operations 5 285 (326) Net loss (32,289) (158,656)

Net (loss) earnings attributable to: Equity shareholders (30,446) (158,812) Non-controlling interest (1,843) 156 (32,289) (158,656)

Basic and diluted loss per share from continuing operations 18 (0.83) (4.48) Basic and diluted loss per share 18 (0.82) (4.49)

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

Alcanna Inc. | 2019 Consolidated Financial Statements 3

Alcanna Inc. Consolidated Statements of Comprehensive Loss Years Ended December 31, 2019 and 2018 (in thousands of Canadian dollars, except for per share amounts)

2019 2018 Note $ $

Net loss (32,289) (158,656)

Other comprehensive (loss) income Items that may be reclassified subsequently to net earnings: Continuing operations: Currency translation difference on foreign subsidiaries (2,121) 4,831

Discontinued operations: Currency translation difference on foreign subsidiaries 5 983 (1,581) Comprehensive loss for the year (33,427) (155,406)

Comprehensive (loss) income attributable to: Equity shareholders (31,584) (155,562) Non-controlling interest (1,843) 156 (33,427) (155,406)

Comprehensive (loss) income attributable to: Continuing operations (34,695) (153,499) Discontinued operations 5 1,268 (1,907) (33,427) (155,406)

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

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Alcanna Inc. Consolidated Statements of Cash Flows Years Ended December 31, 2019 and 2018 (in thousands of Canadian dollars)

2019 2018 Note $ $ Cash provided by (used in) Operating activities: Net loss (32,289) (158,656) Adjustments to reconcile net loss to net cash flows from operating activities: Depreciation of property and equipment 7 15,252 14,478 Depreciation of right-of-use assets 9 18,554 - Amortization of intangible assets 8 1,198 399 Amortization of financing charges 13 172 213 Non-cash interest on convertible debentures 13 1,465 1,436 Deferred financing fees paid on loans and borrowings (517) - Accretion expense 13 - 132 Provision for impairment of goodwill, intangible assets, property and equipment and right-of-use assets 7, 8, 9, 10 13,160 147,701 Provision for onerous lease contracts 11 - 4,238 Fair value adjustments 14 88 (5,794) Lease remeasurement 9 (662) - Other income (250) - Deferred income tax 16 (4,608) (8,553) Equity-settled share-based payments 19 2,081 1,231 Cash provided by (used in) operating activities before changes in non-cash working capital 13,644 (3,175) Net change in non-cash working capital items 23 (7,430) 663 6,214 (2,512)

Investing activities: Purchase of property and equipment (25,726) (36,733) Purchase of intangible assets (3,364) (3,021) Acquisitions, net of cash acquired 4 (23,936) 8,259 Proceeds on sale of liquor stores 1,090 - (51,936) (31,495)

Financing activities: Principal portion of lease payments 9 (17,179) - Issuance of common shares, net of share issuance costs 17 - 136,942 Proceeds of long-term debt 24 74,923 - Repayments from long-term debt 24 (64,080) (30,773) Proceeds from settlement of interest rate swap 24 - 781 Dividends paid 15 - (11,446) Dividends paid to non-controlling interest by subsidiaries (445) (178) (6,781) 95,326 Foreign exchange (loss) gain on cash held in foreign currency (183) 919 (Decrease) increase in cash (52,686) 62,238 Cash – Beginning of year 64,393 2,155 Cash – End of year 11,707 64,393 Discontinued operations 5 The accompanying notes are an integral part of the consolidated financial statements.

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Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

1 Nature of the business

Alcanna Inc. (the “Company” or “Alcanna”) was incorporated under the Canada Business Corporations Act. The address of the Company’s registered office is 101, 17220 Stony Plain Road, Edmonton, Alberta. The Company’s common shares and convertible unsecured subordinated debentures trade on the Toronto Stock Exchange (the “TSX”) under the symbols “CLIQ” and “CLIQ.DB”.

The Company’s principal activities are the retailing of wines, beers and spirits (“Liquor Operations”) and the retailing of cannabis (“Cannabis Operations”). As at December 31, 2019, the Company operated 255 (2018 – 223) retail liquor stores, of which 200 were in Alberta (2018 – 168), 33 were in British Columbia (2018 – 33), 21 were in Alaska (2018 – 21) and one was in Connecticut (2018 – one).

On June 19, 2018, Canadian federal legislation, Bill C-45 “The Cannabis Act”, was passed and sets out the legislation for legalized retailing, use and consumption of recreational cannabis, which started on October 17, 2018. The Company launched its retail cannabis business on this date and, as of December 31, 2019, the Company operated 21 (2018 – 5) retail cannabis locations in Alberta and had entered into an agreement with a Retail Operator License holder, that permits the use of the Nova Cannabis brand and provides financing, consulting and management services to one retail cannabis location in Toronto, Ontario.

The consolidated financial statements (the “financial statements”) were approved and authorized for issuance by the Board of Directors on March 11, 2020.

2 Basis of preparation

a) Statement of compliance

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

b) Basis of measurement

The financial statements have been prepared under the historical cost convention, except for the interest rate swap derivative, derivative warranty liabilities, the Directors’ deferred share units and cash-settled awards under the incentive award plan, which are measured at fair value. Assets and liabilities held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

c) Basis of consolidation

These financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date of acquisition, which is the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases to exist.

Alcanna Inc. | 2019 Consolidated Financial Statements 6

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

All subsidiaries, with the exception of holding companies, are retailers of wine, beer, spirits and cannabis. The financial statements of the subsidiaries are prepared under the same reporting period as the Company, using consistent accounting policies. All intercompany balances, income and expenses and unrealized gains and losses resulting from intercompany transactions are eliminated on consolidation. The Company applies the direct method of consolidation.

Non-controlling interests (“NCI”) represent equity interests in subsidiaries owned by outside parties. NCIs are measured at their proportionate share of the Company’s identifiable net assets at the date of acquisition. The share of net assets of subsidiaries attributable to NCI is presented as a component of equity. Their share of net earnings (loss) is recognized directly in equity. Changes in the Company’s ownership interest in its subsidiaries that do not result in a loss of control are accounted for as equity transactions.

As at December 31, 2019, the Company, through its wholly owned subsidiaries, held a 71% ownership interest in Canadian Liquor Retailers Alliance (the “Alliance”). The remaining NCI of the Company consists of non- controlling equity interests in certain subsidiaries owned by outside parties.

d) Significant estimates and judgments

The preparation of these consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from those estimates.

Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying value of assets and liabilities within the next financial year are discussed below.

Estimates:

i) Impairment of non-financial assets

The Company reviews goodwill and intangible assets with indefinite lives at least annually, and other non- financial assets when there is any indication that the asset may be impaired. The recoverable amounts of cash-generating units (“CGU”) have been determined, where applicable, using discounted cash flow models that require assumptions about future cash flows and discount rates.

Refer to notes 7, 8, 9 and 10 for further details regarding estimation of recoverable amounts.

ii) Deferred taxes

Determining deferred taxes involves a number of assumptions and variables that could reasonably change, including: the useful lives of recorded property and equipment and definite life intangible assets that determine the amount of amortization recorded thereon, the amount of discretionary tax deductions the Company will claim from its existing tax depreciation pools, the rates of tax applicable to various jurisdictions in which the Company is taxable, the allocation of taxable income to those jurisdictions, and the acceptance of the Company's tax filing positions by taxation authorities. Changes in these assumptions and variables, which are re-evaluated at each Consolidated Statement of Financial Position date, could result in changes in the recorded amount of deferred taxes and these changes could be material.

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Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Deferred tax assets are assessed to determine the likelihood that they will be realized from future taxable income. Details of tax losses expected to be utilized on the basis of future taxable income are provided in note 16.

iii) Net realizable value of inventory

Inventories are carried at the lower of cost and net realizable value, which requires the Company to utilize estimates related to fluctuations in future retail prices, seasonality and costs necessary to sell the inventory.

iv) Contingent consideration from Kentucky sale

In 2017, the Company sold its 15 retail locations in Kentucky (“Kentucky assets”) to a third party. Included in the consideration for the Kentucky assets, was a contingent payment based upon the percentage of sales achieved in three future years of operation above a minimum threshold. Management has determined that the fair value of the contingent consideration was negligible based on future sales projections of the Kentucky assets.

v) Business combinations

The Company applies judgment on the recognition and measurement of assets acquired and liabilities assumed, and estimates are used to calculate and measure such adjustments. In measuring the fair value of the acquiree’s assets and liabilities, management uses estimates about future cash flows and discount rates. Any measurement changes after initial recognition would affect the measurement of goodwill. Refer to note 4 for further details over the significant assumptions and estimates applied.

vi) Provisions

The Company evaluates all provisions at each reporting date. These provisions can be significant and are prepared using estimates of the costs of future activities. In certain instances, management may determine that these provisions are no longer required or that certain provisions are insufficient as new events occur or as additional information is obtained. Provisions are separately identified and disclosed in the Company’s consolidated financial statements. Changes to these estimates may affect the value of provisions, net loss, and comprehensive loss in future periods.

vii) Leases

In 2019, the Company estimates the incremental borrowing rate used to measure our lease liability for each lease contract. This includes estimation in determining the asset-specific security impact. There is also estimation uncertainty arising from certain leases containing variable lease terms that are linked to operational results.

In 2018, prior to the adoption of IFRS 16, an estimation related to leases did not exist.

Alcanna Inc. | 2019 Consolidated Financial Statements 8

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Critical judgments:

i) Consolidation

The Company uses judgment in determining the entities that it controls and therefore consolidates. The Company controls an entity when the Company has the existing rights that give it the current ability to direct the activities that significantly affect the entities’ returns. The Company consolidates all of its wholly owned subsidiaries. Judgment is applied in determining whether the Company controls the entities in which it does not have full ownership rights. Most often, judgment involves reviewing contractual rights to determine if rights are participating (giving power over one entity) or protective rights (protecting the Company’s interest without giving it power).

ii) Valuation of non-financial assets

Management is required to use judgment in determining the grouping of assets to identify their CGUs for the purposes of testing non-financial assets for impairment. As the grouping of CGUs determines the level at which property and equipment, goodwill and intangible assets are tested for impairment, the grouping of CGUs can impact the outcome of impairment testing.

iii) Assets held for sale and discontinued operations

The Company applies judgment in determining whether non-current assets and disposal groups meet the criteria to be classified as held for sale. Operations associated with a disposal group that meet the criteria as held for sale, are required to classify its assets and liabilities as held for sale.

iv) Onerous contracts

In 2018, the Company applied judgment in determining whether the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received from it. Management measures onerous contracts as a provision.

v) Leases

The Company estimates the lease term by considering the facts and circumstances that can create an economic incentive to exercise an extension option, or not exercise a termination option by assessing relevant factors such as store profitability. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Potential future cash outflows have not been included in the lease liability because it is not reasonably certain that the lease will be extended. The assessment of the lease term is reviewed if a significant event or a significant change in circumstances occurs, which affects this assessment and that is within the control of the lessee.

Alcanna Inc. | 2019 Consolidated Financial Statements 9

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

3 Summary of significant accounting policies

a) Revenue recognition

Revenue is generated from sales to customers through retail stores for liquor and cannabis and licensee liquor sales to wholesale customers. Revenue from retail sales is recognized at the point of sale and from wholesale sales at the time of shipment.

b) Cash

Cash consists of cash on hand, credit card deposits in transit and demand deposits held with banks.

c) Inventory

Inventory consists primarily of liquor, cannabis and related merchandise for resale and is valued at the lower of cost, determined using the weighted average method, and net realizable value. Net realizable value is the estimated selling price less applicable selling costs. All inventories are finished goods. Writedowns to net realizable value may be reversed in a subsequent period if circumstances that previously caused a writedown no longer exist.

d) Property and equipment

Property and equipment are recorded at cost less accumulated amortization and accumulated impairment charges. Amortization is calculated using the straight-line method over the estimated useful lives of assets. Land has an indefinite useful life and, as such, is not amortized. Property and equipment under construction, and not yet available for use, are not amortized until they are available for use. Depreciation methods and useful lives are reviewed at each financial year-end and are adjusted for, as required, prospectively. Estimated useful lives are as follows:

Buildings 25 years Leasehold improvements Lesser of lease term and useful life Fixtures and equipment 5 - 10 years Vehicles 5 years Assets held under finance leases (prior to adoption of IFRS 16) Lesser of lease term and useful life

The Company tests its property and equipment for impairment when events and circumstances warrant such a review, as described in note 3h.

e) Intangible assets

Intangible assets, consisting of retail liquor licenses, trade names, non-compete agreements, software and property leases acquired at less than market rates, are recorded at cost.

i) In 2018, amounts attributed to property leases acquired at less than market rates, which have a finite useful life, are carried at cost less accumulated amortization. Amortization is calculated using the

Alcanna Inc. | 2019 Consolidated Financial Statements 10

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

straight-line method over the term of the lease. In 2019, amounts attributed to property leases acquired at above or below market rates are included in the determination of the right-of-use asset.

ii) Retail liquor licenses to operate a retail liquor store have an indefinite life and are therefore not amortized. These retail liquor licenses do not expire, but rather are subject to an administrative extension process each year indefinitely.

iii) Trade names have an indefinite life and are not amortized as there is no foreseeable limit on the period of time over which they are expected to contribute to the net cash flows of the Company.

iv) Non-compete agreements are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the term of the agreement.

v) Software is comprised of acquired licenses, which have finite lives and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the life of the license.

vi) Intangible assets under development are not amortized when under development, but once ready for use will be amortized according to the relevant category discussed above.

The Company assesses the carrying value of finite life intangible assets for impairment when events or circumstances warrant such a review as described in the “Impairment of non-financial assets” policy. Useful lives, residual values and amortization methods for intangible assets with finite useful lives are reviewed at least annually.

The Company assesses the carrying value of indefinite life intangible assets for impairment annually, or more frequently, if events or changes in circumstances indicate that their carrying value may not be recoverable as described in the “Impairment of non-financial assets” policy.

f) Leases

2019 accounting policies:

At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, we assess whether:

• The contract involves the use of an identified asset; • The Company has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use; and • The Company has the right to direct the use of the assets.

Alcanna Inc. | 2019 Consolidated Financial Statements 11

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Lessee accounting

Effective January 1, 2019, leases are recognized as a right-of-use asset and a corresponding lease liability at the date at which the leased asset is available for use. Each lease payment is allocated between the lease liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the lease liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

Lease payments included in the measurement of the lease liability include the net present value of the following:

• Fixed payments (including in-substance fixed payments), less any lease incentives receivable; • Variable lease payments that are based on an index or a rate; • Amounts expected to be payable by the lessee under residual value guarantee; • The exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and • Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be determined, the lessee’s incremental borrowing rate is used. The incremental borrowing rate is the rate that the lessee would have to pay to borrow at prevailing interest rates, market precedents and the Company’s specific credit spread, on similar terms and security.

Right-of-use assets are initially measured at cost, comprising the following:

• The amount of the initial measurement of the lease liability; • Any lease payments made at or before the commencement date less any lease incentives received; • Any initial direct costs; and • Restoration costs.

The right-of-use assets are typically depreciated on a straight-line basis over the lease term, unless we expect to obtain ownership of the leased asset at the end of the lease. The lease term consists of:

• The non-cancellable period of the lease; • Periods covered by options to extend the lease, where we are reasonably certain to exercise the option; and • Periods covered by options to terminate the lease, where we are reasonably certain not to exercise the option.

If the Company expects to obtain ownership of the leased asset at the end of the lease, we depreciate the right- of-use asset over the underlying asset’s estimated useful life. The right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

Alcanna Inc. | 2019 Consolidated Financial Statements 12

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

2018 accounting policies:

Leases are classified as finance leases whenever the terms of the lease transfer substantially all risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Operating lease rent payments are charged to net income on a straight-line basis over the term of the lease. Lease incentives are amortized on a straight-line basis over the terms of the respective leases.

Assets under finance leases are recognized as assets of the Company at the lower of their fair value or present value of minimum lease payments, determined at the inception of the lease. The corresponding liability is included in the Consolidated Statements of Financial Position as a finance lease obligation and lease payments are allocated between finance costs and a reduction to lease obligations.

g) Business combinations and goodwill

i) Acquisitions

Acquisitions of businesses and subsidiaries that meet the definition of a business are accounted for using the acquisition method. The consideration of an acquisition is measured as the fair value of the identifiable assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition in exchange for control of the acquired business. Acquisition-related costs are recognized into net earnings (loss) as incurred, other than those associated with the issue of debt or equity securities. Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable net assets acquired.

ii) Goodwill

Goodwill reflects the excess of the consideration transferred, amount of non-controlling interest in the acquired entity, and the acquisition date fair value of any prior equity interest in the acquired entity over the fair value of the net identifiable assets acquired.

Goodwill is not amortized, but is assessed for impairment at least annually or when events and circumstances indicate that the carrying value may not be recoverable as described in the “Impairment of non-financial assets” policy.

h) Impairment of non-financial assets

At each Consolidated Statement of Financial Position date, the Company reviews the carrying value of its non- financial assets, other than inventories and deferred tax assets, to determine whether there is any indication of impairment. If any such indication exists, the asset is then tested for impairment by comparing its estimated recoverable amount to its carrying value. Goodwill and indefinite life intangible assets are tested for impairment at least annually.

For the purposes of impairment testing, assets are grouped together in the smallest group of assets that generate cash inflows from continuing use that are largely independent of cash inflows of other assets or groups of assets. This grouping is referred to as a CGU. The Company has determined the following CGUs for purposes of impairment testing:

Alcanna Inc. | 2019 Consolidated Financial Statements 13

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

i) Property and equipment, right-of-use assets, favorable leases acquired and retail liquor licenses – each separate store location is a distinct CGU.

ii) Goodwill, trade names and other – grouped at the lowest level at which these assets are monitored for internal management purposes.

(1) Goodwill relates to the Alberta liquor CGU (2018 – Canada liquor CGU).

(2) Trade names and other intangible assets relate to either the Canadian or U.S. liquor CGU.

Corporate assets, which include head office facilities and warehouses, do not generate separate cash inflows. Corporate assets are tested for impairment at the minimum grouping of CGUs to which the corporate assets can be reasonably and consistently allocated. Goodwill arising from a business combination is tested for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination.

The recoverable amount of a CGU or CGU grouping is the higher of its estimated value in use (“VIU”) and its estimated fair value less costs of disposal (“FVLCD”). The VIU is based on the estimated future cash flows from the CGU or CGU grouping, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU or CGU group. The FVLCD is based on the best information available to reflect the amount that could be obtained from the disposal of the CGU in an arm’s length transaction between knowledgeable and willing parties, net of estimates of the costs of disposal.

An impairment loss is recognized if the carrying value of a CGU or CGU group exceeds its estimated recoverable amount. For asset impairments other than goodwill, the impairment loss reduces the carrying value of the non- financial assets in the CGU on a pro-rata basis. Any loss identified from goodwill impairment testing is first applied to reduce the carrying value of goodwill allocated to the CGU grouping, and then to reduce the carrying value of the other non-financial assets in the CGU or CGU group on a pro-rata basis. Impairment losses are recognized in net earnings (loss).

Goodwill is carried at cost less accumulated impairment charges adjusted for foreign exchange where applicable. An impairment loss with respect to goodwill is not reversed. For assets other than goodwill, an impairment loss is reversed only to the extent that the asset’s carrying value does not exceed the carrying value that would have been determined, net of amortization, if no impairment loss had been recognized.

i) Income tax

Current income tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of prior years.

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying values in the financial statements. The deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit nor loss. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the Consolidated Statement of Financial Position date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled.

Alcanna Inc. | 2019 Consolidated Financial Statements 14

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

j) Share-based payment plans

The Company’s share-based payments consist of a deferred share plan for the benefit of the Company’s Directors, and an incentive award plan comprised of restricted awards and performance awards for employees of the Company. These plans are further described in note 19.

i) Equity-settled share-based payment plans

The Company’s equity-settled share-based payment arrangements include restricted awards and performance awards.

The fair value of the Company’s equity-settled restricted awards as determined at the grant date are expensed on a graded-vesting basis with a corresponding increase in equity. The fair value of the Company’s performance awards as determined at the grant date is expensed on a cliff-vesting basis with a corresponding increase in equity. The number of awards expected to vest is reviewed at least annually with any adjustments being recognized in the period they are determined.

Upon settlement of awards issued under equity-settled share-based payment plans, amounts previously recorded in equity reserves are recorded as an increase in share capital.

ii) Cash-settled share-based payment plans

The Company’s cash-settled share-based payment arrangements include a deferred share plan and restricted awards.

The fair value of awards granted under these plans is recognized as an expense with a corresponding increase in the liability as employees become entitled to the payments. The liability is recorded in accounts payable and accrued liabilities. The fair value of the liability is re-measured at the end of each reporting period and at the date of the settlement. Changes in fair value are recognized in net earnings (loss).

k) Provisions

Provisions are liabilities of the Company for which the amount and timing of settlement is uncertain. A provision is recognized in the financial statements when the Company has a present legal or constructive obligation because of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability.

l) Financial instruments

Financial assets measured at amortized cost are non-derivative financial assets with fixed or determinable payments and include cash and accounts receivable. They are recognized initially at their face value, except when fair value is materially different, and are subsequently measured at amortized cost using the effective interest

Alcanna Inc. | 2019 Consolidated Financial Statements 15

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

rate method, less a provision for impairment. A provision for impairment is established using a forward-looking expected credit loss model.

Accounts payable and accrued liabilities and dividends payable are non-interest bearing and are recognized initially at their face amount, except when fair value is materially different, and are subsequently measured at amortized cost using the effective interest method. Long-term debt is recognized initially at fair value, net of any directly attributable transaction costs, and are subsequently measured at amortized cost using the effective interest method.

Derivative instruments are recognized at fair value through profit and loss on the date the Company becomes party to the contract and are subsequently marked to market at each reporting period with changes in fair value reported in net loss.

m) Convertible debentures

The Company’s convertible debentures have been classified as a financial liability with a portion of the proceeds representing the value of the conversion option bifurcated to equity. Transaction costs related to the convertible debenture issuance have been initially recognized in the carrying value of the associated liability and are recognized in net earnings (loss) using the effective interest method. Upon conversion, portions of debt and the conversion option are transferred into common shares.

n) Non-current assets (or disposal groups) held for sale and discontinued operations

The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. The criteria for held for sale classification is regarded as met when a sale is highly probable, the asset or disposal group is available for immediate sale in its present condition, and management is committed to the sale, which is expected to be completed within one year from the date of classification. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are not depreciated once classified as held for sale.

A discontinued operation is a component of the Company’s business that has either been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations, and can be clearly distinguished from the rest of the Company, both operationally and for financial reporting purposes. Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be classified as held for sale. When an operation is classified as a discontinued operation, the comparative consolidated statements of earnings (loss) and comprehensive income (loss) are restated as if the operation had been discontinued from the start of the comparative year. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount net of tax as net earnings (loss) from discontinued operations in the consolidated statement of earnings (loss).

o) Foreign currency translation

Items included in the financial statements of each of the Company’s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the “functional currency”). The financial statements are presented in Canadian dollars, which is the Company’s functional currency.

Alcanna Inc. | 2019 Consolidated Financial Statements 16

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Transactions in foreign currencies are translated at the actual rates of exchange. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the Canadian dollar at the exchange rate for that date. Foreign exchange differences arising on translation are recognized in net earnings (loss). Non- monetary assets and liabilities that are measured at historical cost are translated using the exchange rate at the date of the transaction.

The financial statements of foreign subsidiaries whose unit of measure is not the Canadian dollar are translated into Canadian dollars using the exchange rate in effect at period-end for assets and liabilities, and the average exchange rates for the period for revenue, expenses and cash flows. Foreign exchange differences arising on translation are recognized in accumulated other comprehensive income (loss) in equity.

When a foreign operation is disposed of in its entirety or partially such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to net earnings (loss) as part of the gain or loss on disposal.

Foreign exchange gains and losses arising from a receivable or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in foreign operations, are recognized in other comprehensive income (loss) in the cumulate foreign currency translation differences.

p) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker (“CODM”). The CODM is responsible for allocating resources and assessing performance of the operating segments and has been identified as the Chief Executive Officer of the Company.

q) Dividends

Dividends on common shares are recognized in the Company’s financial statements in the period in which they are approved by the Board of Directors.

r) Earnings (loss) per share

Basic earnings (loss) per share (“EPS”) is calculated by dividing net earnings (loss) for the period attributable to equity owners of the Company by the weighted average number of common shares outstanding for the period.

Diluted EPS is calculated by adjusting basic EPS for the effect of dilutive instruments, which may include equity- settled share based payment plans and convertible debentures.

s) New accounting pronouncement adopted in 2019 – IFRS 16 Leases

Effective January 1, 2019, the Company adopted IFRS 16, Leases (“IFRS 16”), which supersedes previous accounting standards for leases, including IAS 17, Leases (“IAS 17”), and IFRIC 4, Determining whether an arrangement contains a lease (“IFRIC 4”). IFRS 16 introduces a single lessee accounting model, unless the underlying asset is of low value, and requires a lessee to recognize a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments.

Alcanna Inc. | 2019 Consolidated Financial Statements 17

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

As a result of adopting IFRS 16, the Company has recognized a significant increase to both assets and liabilities on our Consolidated Statements of Financial Position, as well as a decrease to operating expenses (for the removal of base rent expense for leases), an increase to depreciation (due to the depreciation of the right-of-use assets), and an increase to finance costs (due to accretion of the lease liability). Leasehold inducements received and average rent adjustments (which were previously included in accounts payable and accrued liabilities) and onerous lease provisions are no longer recognized as separate liabilities and are included in the calculation of right-of-use assets under IFRS 16.

The Company adopted IFRS 16 using the modified retrospective method and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The cumulative effect of initially applying the new standard is recognized as an adjustment to the opening deficit within the shareholders’ equity balance as at January 1, 2019.

Adjustments recognized on adoption of IFRS 16

On adoption of IFRS 16, the Company recognized lease assets and liabilities in relation to leases previously classified as ‘operating leases’ under the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the related incremental borrowing rate as of January 1, 2019. The incremental borrowing rates applied to the lease liabilities on January 1, 2019 ranged from 4.02% to 8.74%, depending on the relevant facts and circumstances of the underlying asset, geographical location, and lease term duration of the leased property. The associated right-of-use assets were measured as if the standard has been applied since the commencement date, discounted using the incremental borrowing rates as of January 1, 2019 adjusted for the effects of provisions for onerous leases.

Alcanna Inc. | 2019 Consolidated Financial Statements 18

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

A reconciliation of lease commitments as at January 1, 2019, outlining the effect of the transition to IFRS 16 is outlined below.

January 1, 2019 $ Operating lease commitments disclosed as at December 31, 2018 177,285 Onerous lease provision as at December 31, 2018 (4,721) Discounted using the incremental borrowing rate as at January 1, 2019 4.02% - 8.74% Discounted using the incremental borrowing rate at the date of initial 109,484 application Finance lease liabilities recognized as at December 31, 2018 181 Adjustments as a result of a different treatment of extension and termination options 145,011 Lease liability recognized as at January 1, 2019 254,676 Of which are: Current lease liabilities 15,904 Non-current lease liabilities 238,772 254,676

Alcanna Inc. | 2019 Consolidated Financial Statements 19

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

A reconciliation of the effect of transition to IFRS 16 on select accounts impacted on the Company’s Consolidated Statement of Financial Position as at January 1, 2019 is outlined below.

As originally reported at December 31, 2018 IFRS 16 January 1, $ adjustments 2019 Selected Accounts $ $ Assets: Accounts receivable 3,715 (1,397) 2,318 Assets held for sale 2,758 3,958 6,716

Intangible assets 38,344 (404) 37,940 Right-of-use assets - 178,650 178,650 Total assets 292,219 180,807 473,026

Liabilities and shareholders’ equity: Accounts payable and accrued liabilities 50,936 (9,623) 41,313 Current portion of provisions 1,440 (1,440) - Current portion of lease liabilities - 15,904 15,904 Liabilities directly associated with assets held for sale 1,461 4,956 6,417 Provisions 3,281 (3,281) - Lease liabilities - 238,772 238,772 Total liabilities 130,410 245,288 375,698

Shareholders’ equity 161,809 (64,481) 97,328 Total liabilities and shareholders’ equity 292,219 180,807 473,026

A deferred tax asset of $17,410 was calculated on the adoption of IFRS 16, which the Company has not recognized since the recovery of the deferred tax asset is dependent on future taxable earnings being in excess of those arising from the reversals of existing taxable temporary differences. The amount the Company did not recognize has been calculated by comparing the deferred tax asset to the probable tax rate effected forecasted taxable income amounts for a five-year period subsequent to period-end. The recognition of the deferred tax asset is sensitive to changes in market conditions and assumptions utilized; therefore, actual results could have a material impact on the recoverability of the deferred tax asset in the future.

Alcanna Inc. | 2019 Consolidated Financial Statements 20

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Leasing activities

The Company leases properties (i.e. various retail stores, warehouses and offices) and vehicles. Lease contracts are typically made for fixed periods of 5 to 10 years but may have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

Practical expedients applied

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:

• the Company has elected to use a single discount rate to a portfolio of leases with reasonably similar underlying characteristics; • the Company has elected to exclude initial direct costs incurred in obtaining leases in the measurement of the right-of-use assets on transition; • the Company has elected to use hindsight to determine the lease term where the lease contracts contain options to extend or terminate the lease; • the Company has elected to rely on an onerous lease assessment as of December 31, 2018, as an alternative to performing an impairment review as at January 1, 2019; and • the Company has elected not to account for leases for which the lease term ends within 12 months of January 1, 2019 as short-term leases or leases that meet the low-value exemption.

The Company has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered into before the transition date, the Company relied on its assessment made applying IAS 17 and IFRIC 4.

Alcanna Inc. | 2019 Consolidated Financial Statements 21

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

4 Business Combinations

a) Ace Acquisition

On November 23, 2018, Alcanna Inc. formed a new subsidiary, the Canadian Liquor Retailers Alliance (the “Alliance”). On January 1, 2019, Liquor Stores Limited Partnership (“LSLP”), a wholly owned subsidiary of Alcanna, transferred the underlying net assets of 50 liquor stores into the Alliance at cost.

On January 14, 2019, the Alliance acquired, through a business combination, the underlying net assets of 12 operational liquor stores and 3 liquor stores under construction from Ace Liquor Corporation (“Ace”). The Alliance paid consideration in the form of cash and partnership units of the Alliance (“Partnership Units”), providing 15,759,451 partnership units and $9,000 in cash to Ace as consideration. As a result of the transaction, LSLP holds 71% of the Alliance partnership units and Ace holds 29% of the Alliance partnership units at the transaction date. Alcanna owns 100% of the common shares of the Alliance’s general partner. The acquisition has been accounted for using the acquisition method and the results of operations from the Alliance have been included in Alcanna’s financial statements since the acquisition date. The acquisition costs associated with the business combination were $250, which are recognized in the Consolidated Statements of Loss, in selling and distribution expenses. Included in the Consolidated Statements of Loss for the reporting period is $48,028 of sales and $1,984 of net earnings of Ace since acquisition, of which $575 of the net earnings is attributable to the non-controlling interest.

The following table summarizes the purchase consideration and purchase price allocation for the acquisition:

Fair value as at January 14, 2019 $ Purchase consideration: Fair value of cash consideration transferred 9,000 Fair value of Alliance partnership units(2) 9,184 18,184 Net identifiable assets and liabilities: Current assets net of current liabilities(1) 4,379 Property and equipment 2,810 Right-of-use assets 12,163 Intangible assets 351 Lease liabilities (12,492) Fair value of net identifiable assets acquired and liabilities assumed 7,211 Goodwill 10,973 18,184 (1) Current assets are inclusive of $17 in cash. (2) A minority discount of 30% was applied to the fair value of the Alliance partnership units, as described below.

Goodwill is primarily attributable to the synergies expected to be achieved by integrating Ace’s discount liquor business with the Alliance’s operations after the acquisition. The entire amount of the goodwill is expected to be deductible for tax purposes over time.

Alcanna Inc. | 2019 Consolidated Financial Statements 22

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The significant assumptions applied in the determination of the purchase price allocation for the acquisition are described below:

• Cash flows: Estimated cash flows are determined using an income approach and discounted cash flow (“DCF”) model. Estimated cash flows are based on forecasted earnings before interest, taxes, depreciation and amortization (“EBITDA”). The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, growth rates and inflation rates. • Discount rate: The weighted average cost of capital (“WACC”) was selected from a range of 12.8% to 14.3%, which was based on market-based capital structure, risk-free rate, equity risk premium and business specific risks. • Minority discount: A minority discount of 30.0% or $3,936 was applied to the value of Ace’s partnership interest of $13,120, resulting in the final fair value of Alliance partnership units of $9,184, as an investor is willing to pay more for a controlling interest relative to a non-controlling interest. This was determined based on the marketability and liquidity of the partnership units, market studies and other business specific facts. • Terminal value growth rate: The DCF model includes five years of cash flows, capitalized based on a rate equal to the discount rate less the expected long-term growth rate of 2.0%. The long-term growth rate expectation is based on industry’s expected growth rates, forecast inflation rates and management’s experience.

b) Solo Acquisition

On June 25, 2019, the Alliance acquired, through a business combination, the underlying assets of 28 operational liquor stores operating as Solo Liquor, 2 additional leased locations that were not opened yet, the Solo Liquor brand and related trademarks from FTI Consulting Canada Inc., in its capacity as court-appointed receiver and manager of the assets, properties and undertakings of Solo Liquor Stores Ltd. and Solo Liquor Holdings Ltd. The Alliance paid cash consideration of $15,009, which was funded by the Company’s credit facility.

The acquisition has been accounted for using the acquisition method and the results of operations from Solo Liquor have been included in the Company’s financial statements since the acquisition date. Pro forma disclosures as if the acquisition was acquired at the beginning of the fiscal year have not been presented as this financial data was not readily available in sufficient accuracy due to the nature of the receivership process that these stores were acquired through. The acquisition costs associated with the business combination were $193, which are recognized in the Consolidated Statements of Loss, in selling and distribution expenses. Included in the Consolidated Statements of Loss for the reporting period is $32,908 of sales and $741 of net earnings of Solo Liquor since acquisition, of which $215 of the net earnings is attributable to the non-controlling interest.

Alcanna Inc. | 2019 Consolidated Financial Statements 23

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The following table summarizes the purchase consideration and price allocation for the acquisition:

Fair value as at June 25, 2019 $ Purchase consideration: Fair value of cash consideration transferred 15,009 Net identifiable assets and liabilities: Current assets net of current liabilities(1) 4,652 Property and equipment 5,830 Right-of-use assets 29,130 Intangible assets 800 Lease liabilities (29,029) Fair value of net identifiable assets acquired and liabilities assumed 11,383 Goodwill 3,626 15,009 (1) Current assets are inclusive of $56 in cash.

Goodwill is primarily attributable to the synergies expected to be achieved by integrating Solo Liquor’s discount liquor business with the Alliance’s operations after the acquisition. The entire amount of the goodwill is expected to be deductible for tax purposes over time.

The significant assumptions applied in the determination of the purchase price allocation for the acquisition are described below:

• Cash flows: Estimated cash flows are determined using an income approach and DCF model. Estimated cash flows are based on budgeted EBITDA. The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, growth rates and inflation rates. • Discount rate: The WACC was selected from a range of 14.9% to 16.9%, which was based on market- based capital structure, risk-free rate, equity risk premium and business specific risks. • Terminal value growth rate: The DCF model includes five years of cash flows, capitalized based on a rate equal to the discount rate less the expected long-term growth rate of 2.0%. The long-term growth rate expectation is based on industry’s expected growth rates, forecast inflation rates and management’s experience.

c) Non-controlling Interest

As at December 31, 2019 the Alliance’s Statement of Financial Position had current assets of $29,604, non- current assets of $96,704, current liabilities of $6,875 and non-current liabilities of $106,618. The Alliance’s Statement of Loss included sales of $207,136 and a net loss of $6,741. The Alliance operates out of the Company’s registered office.

Alcanna Inc. | 2019 Consolidated Financial Statements 24

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

d) Subsequent Event

Subsequent to December 31, 2019, Ace Liquor Corporation exchanged all of its units in the Alliance for 2,927,928 common shares in the capital of Alcanna (the “Shares”). The transaction was valued at $13,000, with the Company issuing the Shares at a price of $4.44 per share, which represents the five-day volume-weighted average trading price of the Shares prior to January 22, 2020.

This transaction resulted in the Company owning, through itself or through wholly owned subsidiaries, 100% of the Alliance and Ace Liquor Corporation, owning approximately 7.3% of the Shares of Alcanna.

5 Discontinued operations and assets held for sale

a) The Company has one liquor store in Norwalk, Connecticut classified as discontinued operations in 2018 and 2019. The Company entered into an agreement to terminate the lease on this location in 2019 and commenced abandoning operations in December 2019 with no further activity after January 5, 2020.

Alcanna Inc. | 2019 Consolidated Financial Statements 25

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Results of discontinued operations

A reconciliation of the major classes of line items constituting net income (loss) and comprehensive income (loss) from discontinued operations, net of tax, as presented in the Consolidated Statements of Loss and Comprehensive Loss is as follows:

2019 2018 $ $

Sales 11,430 10,213 Cost of sales 9,177 7,902

Gross margin 2,253 2,311

Selling and distribution expenses 2,650 2,500 Administrative expenses 50 137

Operating loss (447) (326)

Finance costs 213 - Lease remeasurement (945) -

Income (loss) before income taxes 285 (326)

Income tax - -

Income (loss) from discontinued operations 285 (326)

Other comprehensive income (loss) 983 (1,581)

Comprehensive income (loss) 1,268 (1,907)

The net cash flows (used in) provided by the discontinued operations were as follows:

2019 2018 $ $

Net cash provided by discontinued operations – operating activities 483 2,961 Net cash provided by discontinued operations – investing activities 15 8,259 Net cash used in discontinued operations – financing activities (525) - Total cash (used in) provided by discontinued operations (27) 11,220

Alcanna Inc. | 2019 Consolidated Financial Statements 26

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

c) Assets held for sale

December 31, December 31, 2019 2018 Note $ $ Cash 158 191 Inventory 267 2,560 Prepaid expenses and deposits - 7 Right-of-use assets 3s 29 - Assets held for sale 454 2,758

Accounts payable and accrued liabilities 506 1,461 Lease liability 3s 61 - Liabilities directly associated with assets held for sale 567 1,461

6 Inventory

The cost of inventory recognized as an expense and included in cost of sales for the year ended December 31, 2019 was $623,195 (2018 – $500,516). Included in cost of sales are $258 (2018 – $395) in writedowns of inventory to estimated net realizable value. No inventory writedowns recognized in previous years were reversed in the current year. The Company’s inventory is included in the calculation of its credit facility borrowing base, under the terms of the Company’s credit facility (note 12).

December 31, December 31, 2019 2018 $ $ Liquor inventory 98,658 83,986 Cannabis inventory 3,161 1,956 Merchandise and other inventory 3,000 3,642 Total inventory 104,819 89,584

Alcanna Inc. | 2019 Consolidated Financial Statements 27

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

7 Property and equipment

December 31, 2019

Leasehold Fixtures and improvements equipment Vehicles Total

Cost 94,190 74,060 2,455 170,705 Accumulated depreciation (44,701) (28,715) (1,503) (74,919) Accumulated impairment charges (2,930) (594) - (3,524) Net book value at December 31, 2019 46,559 44,751 952 92,262

December 31, 2019

Leasehold Fixtures and Assets under improvements equipment Vehicles finance lease Total Balance at December 31, 2018 36,987 33,042 1,546 179 71,754 Transition to IFRS 16 (note 3s) - - - (179) (179) Adjusted January 1, 2019 36,987 33,042 1,546 - 71,575 Additions 14,517 15,665 312 - 30,494 Acquisitions (note 4) 4,172 4,468 - - 8,640 Disposals (10) (44) (372) - (426) Depreciation (6,674) (8,050) (528) - (15,252) Impairment charges (2,416) (316) - - (2,732) Foreign currency translation (17) (14) (6) - (37) Net book value at December 31, 2019 46,559 44,751 952 - 92,262

Included in property and equipment are fully depreciated assets with a cost of $22,149 (2018 – $22,744) that are still in use. During the year, the Company accelerated depreciation on the assets of stores where there was a change in estimated useful life because the store either underwent or was confirmed for renovation or closure. Depreciation expense related to the accelerated depreciation of such assets was $532 (2018 – $1,304).

Alcanna Inc. | 2019 Consolidated Financial Statements 28

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

December 31, 2018 Fixtures Leasehold and Assets under Buildings improvements equipment Vehicles finance lease Total

Cost - 79,626 58,233 3,115 220 141,194 Accumulated depreciation - (41,755) (24,830) (1,569) (41) (68,195) Accumulated impairment charges - (884) (361) - - (1,245) Net book value at December 31, 2018 - 36,987 33,042 1,546 179 71,754

December 31, 2018 Fixtures Leasehold and Assets under Buildings improvements equipment Vehicles finance lease Total

Balance at January 1, 2018 297 23,826 24,214 142 1,055 49,534 Additions - 21,232 15,471 907 219 37,829 Disposals (436) - - (19) - (455) Transfers - - - 1,010 (1,010) - Depreciation 139 (7,433) (6,589) (502) (93) (14,478) Impairment charges - (884) (361) - - (1,245) Foreign currency translation - 246 307 8 8 569 Net book value at December 31, 2018 - 36,987 33,042 1,546 179 71,754

Impairments

The Company reviews the carrying value of its property and equipment at each reporting period for indicators of impairment. Upon completion of this review in both 2019 and 2018 it was determined the operating results of certain underperforming stores are an indicator of impairment. The Company completed impairment tests at each store location level using a discounted cash flow methodology. The recoverable amounts were based on fair value less costs of disposal (“FVLCD”) using level 3 inputs (refer to note 24 for further discussion of each level) using a discounted cash flow (“DCF”) methodology. The significant assumptions applied in the impairment test are described below:

• Cash flows: Estimated cash flows are based on forecasted EBITDA. The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, growth rates, and inflation rates. Management determined forecasted growth rates of sales based on past performance and its expectations of future performance for this location. Growth rates applied to expenditures in the forecast ranged from 2.0% to 7.0% for both 2019 and 2018.

Alcanna Inc. | 2019 Consolidated Financial Statements 29

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

• Discount rate: The WACC was estimated to be 11.4% (2018 - 11.5%) and is based on market capital structure of debt, risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded companies, the Company’s historical data, an unsystematic risk premium and after-tax cost of debt based on corporate bond yields.

• Long-term growth rate: Five years of cash flows have been included in the DCF models. Maintainable debt- free net cash flow beyond the forecast period is estimated to approximate the fifth year cash flows increased by a terminal growth rate of 2.0% (2018 – 2.0%) and is based on the industry’s expected growth rates, forecast inflation rates and management’s experience.

As at December 31, 2019, management recorded an impairment charge of $2,732 (2018 - $1,245) relating to non- transferrable property and equipment at the identified underperforming locations. The impairment charge was based on actual results in the year and a decline in management’s projections for future performance of these locations based on current market expectations.

Alcanna Inc. | 2019 Consolidated Financial Statements 30

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

8 Intangible assets

December 31, 2019 Favorable leases Retail liquor acquired Software licenses Trade names Other Total Cost - 6,105 47,083 1,515 495 55,198 Accumulated amortization - (1,261) - (800) (181) (2,242) Accumulated impairment charges - - (13,945) (295) - (14,240) Net book value at December 31, 2019 - 4,844 33,138 420 314 38,716

December 31, 2019 Favorable leases Retail liquor Trade acquired Software licenses names Other Total Balance at December 31, 2018 404 4,015 33,803 - 122 38,344 Transition to IFRS 16 (note 3s) (404) - - - - (404) Adjusted January 1, 2019 - 4,015 33,803 - 122 37,940

Additions - 1,119 1,750 - 303 3,172 Acquisitions (note 4) - - - 1,220 (69) 1,151 Disposals - - (11) - - (11) Impairment charges - - (1,920) - - (1,920) Reversals of previous impairment charges - - 104 - - 104 Amortization - (290) (66) (800) (42) (1,198) Foreign currency translation - - (522) - - (522) Net book value at December 31, 2019 - 4,844 33,138 420 314 38,716

Alcanna Inc. | 2019 Consolidated Financial Statements 31

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

December 31, 2018 Favorable leases Retail liquor acquired Software licenses Trade names Other Total Cost 4,392 4,987 45,988 1,152 261 56,780 Accumulated amortization (3,988) (972) - - (139) (5,099) Accumulated impairment charges - - (12,185) (1,152) - (13,337) Net book value at December 31, 2018 404 4,015 33,803 - 122 38,344

December 31, 2018 Favorable leases Retail liquor acquired Software licenses Trade names Other Total Balance at January 1, 2018 513 1,072 32,690 1,154 147 35,576 Additions - 3,208 13 - - 3,221 Disposals - - - (2) - (2) Impairment charges - - (695) (1,152) - (1,847) Reversals of previous impairment charges - - 910 - - 910 Amortization (109) (265) - - (25) (399) Foreign currency translation - - 885 - - 885 Net book value at December 31, 2018 404 4,015 33,803 - 122 38,344

Impairments

For the purpose of impairment testing, intangible assets with indefinite useful lives are allocated to a cash-generating unit as described in note 3e. The Company performs its annual impairment tests as of October 1 each year for goodwill and indefinite lived intangible assets. The Company will perform an impairment test on goodwill and intangible assets if there are indicators of impairment at the end of each reporting period.

The recoverable amount of all CGUs are determined based on FVLCD using level 3 inputs (refer to note 24 for further discussion of each level) using a DCF methodology. The significant assumptions applied in the determination of the recoverable amount are described below:

• Cash flows: Estimated cash flows are determined using a relief-from-royalty method by reference to the royalty rate a market participant would have to pay in order to license the use of the asset from a third party. In determining an estimate of the expected royalty rate, consideration was given to comparable market rates where available. The royalty rate is then applied to forecasted revenues to determine the total after-tax cash flows saved through ownership of the asset. Forecasted revenues are extended to a total of five years based on an analysis of historical and forecast volume changes, growth rates and inflation rates.

Alcanna Inc. | 2019 Consolidated Financial Statements 32

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

• Discount rate: The WACC was selected from a range of 11.3% to 12.7% (2018 – 12.0% to 13.0%), which was based on market-based capital structure, risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded companies, an unsystematic risk premium and after-tax cost of debt based on corporate bond yields. The WACC forms the basis of the discount rate before taking into account any premiums associated with specific asset risk.

• Terminal value growth rate: Five years of cash flows have been included in the DCF models. Maintainable debt- free net cash flow beyond the forecast period is estimated to approximate the fifth year cash flows increased by a terminal growth rate of 2.0% (2018 – 2.0%) and is based on the industry’s expected growth rates, forecast inflation rates and management’s experience.

Key assumptions used in calculating the recoverable amount, which reflect past experience and current market expectations, were as follows compared to the prior year:

2019 2018

Weighted average sales growth rates 2.0% 2.0% Pre-tax royalty rates 0.9% – 5.5% 1.0% – 5.0% Terminal growth rate 2.0% 2.0% Discount rate 11.3% – 12.7% 12.0% – 13.0%

Impairment testing was conducted as at October 1, 2019 (2018 – October 1, 2018).

Liquor operating segment

Canadian operations

Impairments related to retail liquor licenses were recorded during the year in the amount of $1,920 (2018 – $695) related to nine licenses (2018 – three licenses) in its Canadian operating segment where management’s forecasted sales and profitability decreased due to a reduction in continuing operating results. A reversal of previously recorded impairment charges was recorded during the year in the amount of $104 (2018 - $910) related to one license (2018 – two licenses) in its Canadian operating segment where management’s forecasted sales and profitability increased due to a sustained improvement in operating results. The carrying value of the licenses of the Canadian operating segment at December 31, 2019 was $20,998 (2018 - $22,814).

U.S. operations

The Company completed its annual impairment tests during the fourth quarter and did not identify any impairment related to its U.S. operating segment licenses (2018 – $nil) or reversals of previously recorded impairment charges. The carrying value of the licenses of the U.S. operating segment at December 31, 2019 was $10,386 (2018 - $10,978).

Management determined that the future economic benefits expected from the Canadian and U.S. liquor CGU’s trade names were not recoverable due to changes in branding strategies and as such, at December 31, 2018, a $1,152 impairment charge was recognized.

Alcanna Inc. | 2019 Consolidated Financial Statements 33

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Upon completion of the impairment assessment, it was determined that no impairment, incremental to that described above, was to be recognized on the Company’s intangible assets.

9 Leases

The Company leases properties (i.e. various retail stores, warehouses and offices). Lease contracts are typically made for fixed periods of 5 to 10 years but often have extension options. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.

Below is a summary of the activity related to the Company’s right-of-use assets for the period ended December 31, 2019:

December 31, 2019 $ Right-of-use assets, beginning of year (note 3s) 178,650 Additions 31,270 Terminations and remeasurements (5,416) Tenant inducement allowances (3,602) Right-of-use asset impairment (8,612) Acquisitions (note 4) 41,293 Right-of-use assets depreciation (18,056) Foreign exchange and other (428) Right-of-use assets, end of year 215,099

Below is a summary of the activity related to the lease liabilities for the period ended December 31, 2019:

December 31, 2019 $ Lease liabilities, beginning of year (note 3s) 254,676 Additions 31,949 Terminations and remeasurements (5,699) Acquisitions (note 4) 41,521 Accretion of lease liabilities (note 13) 19,226 Lease payments (35,879) Foreign exchange and other (606) Lease liabilities, end of year 305,188 Of which are: Current lease liabilities 18,288 Non-current lease liabilities 286,900 305,188

Alcanna Inc. | 2019 Consolidated Financial Statements 34

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The following table presents the maturity analysis of contractual undiscounted cash flows, excluding likely lease terms, related to the Company’s lease liabilities as of December 31, 2019:

2020 2021 2022 2023 2024 2025 Total and thereafter

Leases 37,326 34,159 29,287 23,305 18,168 53,514 195,759

Impairments

The Company reviews the carrying value of its right-of-use assets at each reporting period for indicators of impairment. Upon completion of this review it was determined the operating results of certain underperforming stores are an indicator of impairment. The Company completed impairment tests at each store location level using a discounted cash flow methodology. The recoverable amounts were based on FVLCD using level 3 inputs (refer to note 24 for further discussion of each level) using a DCF methodology. The significant assumptions applied in the impairment test are described below:

• Cash flows: Estimated cash flows are based on budgeted EBITDA. The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, growth rates, and inflation rates. Management determined forecasted growth rates of sales based on past performance and its expectations of future performance for this location. Growth rates applied to expenditures in the forecast ranged from 2.0% to 7.0%.

• Discount rate: The WACC was estimated to be 11.4% and is based on market capital structure of debt, risk- free rate, equity risk premium, beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded companies, the Company’s historical data, an unsystematic risk premium and after-tax cost of debt based on corporate bond yields.

• Long-term growth rate: Five years of cash flows have been included in the DCF models. Maintainable debt- free net cash flow beyond the forecast period is estimated to approximate the fifth year cash flows increased by a terminal growth rate of 2.0% and is based on the industry’s expected growth rates, forecast inflation rates and management’s experience.

As at December 31, 2019, management recorded an impairment charge of $8,612 relating to right-of-use assets at the identified underperforming locations. The impairment charge was based on actual results in the year and a decline in management’s projections for future performance of these locations based on current market expectations.

Alcanna Inc. | 2019 Consolidated Financial Statements 35

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

10 Goodwill

December 31, December 31, 2019 2018 $ $

Opening balance - 145,519 Acquisitions (note 4) 14,599 - Impairment - (145,519)

Closing balance 14,599 -

a) Impairment test for goodwill

Goodwill arising from a business combination is tested for impairment at the minimum grouping of CGUs that are expected to benefit from the synergies of the combination. For the purposes of goodwill impairment testing, the Company has grouped its CGUs by operating segment before aggregation, with the CGU grouping being Alberta liquor (2018 – Canada liquor). There is no goodwill attributable to any other CGU in 2019.

The recoverable amount of a CGU is determined based on FVLCD calculations using level 3 inputs. These calculations use projections over a five-year period based on financial budgets approved by management and the Company’s Board of Directors. Cash flows beyond the five-year period are extrapolated using the estimated growth rates stated below. These growth rates do not exceed the long-term average growth rate for the retail liquor industry in which the CGU operates. The Company performs its annual impairment tests as of October 1 each year, or more frequently if there is any indication that goodwill may be impaired at the end of the reporting period.

Management performed the annual impairment test as of October 1, 2019, in the Alberta liquor CGU grouping. The testing was based on forecasted results taking into account, a change in strategic direction of the Company, the challenging results experienced in the current year, and the decline in the economies of key markets in the CGU among other factors.

The carrying amount of the goodwill allocated to the Alberta CGU grouping as at October 1, 2019 was $14,599.

Alcanna Inc. | 2019 Consolidated Financial Statements 36

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Key assumptions used for fair value calculations:

2019 2018

Alberta Canada

Weighted average sales growth rate 2.0% 2.0% Terminal growth rate 2.0% 2.0% Discount rate 11.4% 11.5%

Management determined forecasted gross margins based on past performance and its expectations for market trends. Growth rates applied to expenditures in the forecast ranged from 2.0% to 7.0%. The discount rates used reflect specific risks relating to the relevant CGU grouping.

The recoverable amounts were based on FVLCD using DCF methodology. The significant assumptions applied in the goodwill impairment test are described below:

• Cash flows: Estimated cash flows are based on budgeted EBITDA. The forecast is extended to a total of five years based on an analysis of the industry’s expected growth rates, historical and forecast volume changes, growth rates and inflation rates.

• Discount rate: The WACC was estimated based on market capital structure of debt, risk-free rate, equity risk premium, beta adjustment to the equity risk premium based on a review of betas of comparable publicly traded companies, an unsystematic risk premium, and after-tax cost of debt based on corporate bond yields.

• Terminal value growth rate: Five years of cash flows have been included in the DCF models. Maintainable debt-free net cash flow beyond the forecast period is estimated to approximate the 2023 cash flows increased by a terminal growth rate of 2.0% and is based on the industry’s expected growth rates, forecast inflation rates and management’s experience.

Canada CGU

In fiscal 2018, the Company recorded an impairment charge of $145,519 to the Canada CGU grouping. The impairment was allocated entirely to reduce goodwill of the CGU grouping. The impairment loss was recognized due to a change in management’s forecasted sales, strategic direction of the Company and profitability as a result of increased competition in the areas that stores allocated to this CGU operate in.

Alcanna Inc. | 2019 Consolidated Financial Statements 37

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

11 Provisions

Restructuring Onerous lease Total

Balances at January 1, 2018 - 3,254 3,254 Provisions made during the year - 4,792 4,792 Provisions utilized during the year - (2,854) (2,854) Change in estimate - (554) (554) Foreign exchange - 83 83 Balances at December 31, 2018 - 4,721 4,721 Expected to be utilized within one year - 1,440 1,440 Expected to be utilized thereafter - 3,281 3,281

Adjustment on adoption of IFRS 16 (note 3s) - (4,721) (4,721) Restated opening balance - - - Provisions made during the year 2,260 - 2,260 Provisions utilized during the year (1,830) - (1,830) Balances at December 31, 2019 430 - 430 Expected to be utilized within one year 430 - 430 Expected to be utilized thereafter - - -

a) Restructuring charges

2019 restructuring charges, included in administrative expenses on the consolidated statements of loss, consist of severance costs incurred to downsize corporate overhead as the Company integrated the acquisitions of Ace Liquor and Solo Liquor into the Company and reduced duplicative overheads.

b) Onerous lease

2018 provisions for onerous lease contracts include estimated retail lease costs for locations under lease for which the Company will receive nominal economic benefit. The provision includes contractual lease payments and estimated direct costs to maintain the premises over the remaining lease term net of estimated recoveries through sub-leasing. This provision is recognized when the expected benefits derived by the Company from a contract are lower than the unavoidable cost of meeting its obligation under contract. Non-current onerous lease provisions were discounted using a pre-tax risk free nominal rate of interest.

In 2019, all onerous lease balances were recorded to the right-of-use asset upon transition to IFRS 16, refer to note 3s.

Alcanna Inc. | 2019 Consolidated Financial Statements 38

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

12 Long-term debt

Long-term debt comprises the following:

201 9 2018 effective December effective December Maturity date rate 31, 2019 rate 31, 2018 % $ % $ Credit facility advance(a) May 1, 2022 5.41 10,843 -(2) - 4.70% debentures(b) January 31, 2022 6.89 75,875 6.89 75,050 Finance lease liability(1) - 5.17 181 86,718 75,231 Unamortized deferred financing costs:

Credit facility(a) (345) - Debentures(b) (1,404) (2,044) 84,969 73,187 Less: Current portion of finance lease liability - (48) 84,969 73,139 (1) Accounting for finance lease liabilities changed due to IFRS 16 implementation, refer to note 3s. (2) The 2018 effective interest rate for the credit facility is not a meaningful measure as the credit facility advance was fully repaid in Q1 2018.

a) Credit facility

The Company entered into a new senior secured asset-based revolving credit facility (the “Credit Facility”) on May 1, 2019, with Canadian Imperial Bank of Commerce (“CIBC”) acting as the sole lender. The Credit Facility has a limit of $70.0 million, subject to the availability constraints of the borrowing base which is comprised of credit card balances in transit and liquor inventories, as defined in the credit agreement. The Company’s borrowing base as at December 31, 2019 was $63.1 million. The Credit Facility includes an uncommitted $15.0 million borrowing availability expansion feature. The Credit Facility has a three-year term ending on May 1, 2022, is secured by all of the Company’s assets and replaces the Company’s prior credit agreement, which was scheduled to expire in September 2019.

Borrowings under the Credit Facility are available by way of Canadian prime rate advances plus 0%, bankers’ acceptances for Canadian dollar loans plus a spread of 1.25%, and Libor advances for US dollar loans plus a spread of 1.25% per annum.

The Credit Facility does not contain financial covenants, provided the Company’s excess availability over the most recent 30-day period is equal to or greater than 10% of the calculated borrowing base. If the Company’s excess availability is less than 10% for any 30-day period, the Company will be required to maintain a springing fixed charge coverage ratio of 1.0:1.0. The Company’s excess availability was not less than 10% at any time during 2019. The Credit Facility requires the Company to comply with certain non-financial covenants, including restrictions on the declaration and payment of dividends on the Company’s shares.

Alcanna Inc. | 2019 Consolidated Financial Statements 39

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The Credit Facility is collateralized by various registrations and assignments including a general security agreement covering all present and after-acquired property of the Company and its affiliates and material subsidiaries, and an assignment of the Company’s insurance.

Financing costs related to obtaining the facility have been deferred and netted against the amounts drawn under the Credit Facility, and are being amortized over the term of the Credit Facility as finance costs in the Consolidated Statements of Loss.

b) Unsecured subordinated convertible debentures

4.70% Debentures

Balance at January 1, 2018 71,570 Interest accretion and amortization of transaction costs 1,436 Balance at December 31, 2018 73,006 Interest accretion and amortization of transaction costs 1,465 Balance at December 31, 2019 74,471

i) 4.70% unsecured subordinated convertible debentures (the “4.70% Debentures”) On September 29, 2016, the Company issued $67,500 of convertible unsecured subordinated debentures due January 31, 2022 (the “4.70% Debentures”). The underwriting syndicate exercised in full their over- allotment option on October 4, 2016, resulting in the issuance of an additional $10,125 aggregate principal amount of 4.70% Debentures at the same terms and conditions. The 4.70% Debentures are subordinated, unsecured obligations of the Company and bear interest at a rate of 4.70% per annum, payable semi- annually in arrears on January 31 and July 31 of each year, commencing July 31, 2017. The 4.70% Debentures are convertible at any time at the option of the holders into common shares of the Company at a conversion price (the “Conversion Price”) of $14.60 per share.

The 4.70% Debentures will not be redeemable prior to January 31, 2020. On or after January 31, 2020 and prior to January 31, 2021, the 4.70% Debentures may be redeemed by the Company, in whole or in part from time to time, on not more than 60 days and not less than 30 days prior notice at a redemption price equal to their principal amount plus accrued and unpaid interest, if any, up to but excluding the date set for redemption, provided that the volume-weighted average trading price of the Common Shares on the TSX for the 20 consecutive trading days ending five trading days prior to the date on which notice of redemption is provided is at least 125% of the Conversion Price. On or after January 31, 2021 and prior to the maturity date, the Company may, at its option, redeem the 4.70% Debentures, by way of cash payment or through the issuance of common shares, in whole or in part, from time to time at par plus accrued and unpaid interest.

The value of the conversion feature, which was determined to be $4,193, net of $206 in transaction costs, was recorded as equity and a deferred income tax liability of $1,187 related to the conversion feature was recorded directly to the carrying amount of the equity component. The remaining $69,809, net of $3,417

Alcanna Inc. | 2019 Consolidated Financial Statements 40

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

in transaction costs, was recorded as long-term debt. The 4.70% Debentures are being accreted such that the liability will be equal to the face value of $77,625 upon maturity.

13 Finance costs

Finance costs comprise the following:

2019 2018 $ $

Interest income (112) (462) Interest expense: Long-term debt(i) 1,299 442 Convertible debentures(ii) 5,113 5,084 Accretion expense - 132 Accretion of lease liabilities 3s, 9 19,226 - 25,526 5,196

i) Included in interest expense on long-term debt was amortization of deferred financing costs of $172 (2018 – $213).

ii) Interest expense on the convertible debentures of $5,113 (2018 - $5,084) represents coupon interest of $3,648 (2018 – $3,648) and $1,465 (2018 - $1,436) pertaining to the impact of capitalized transaction costs and the accretion of the debt using the effective interest rate method.

14 Fair value adjustments

Fair value adjustments recognized in the period comprise the following:

Fair value 2019 2018 hierarchy $ $

Interest rate swap Level 2 - 117 Derivative sunshine warrant liabilities Level 2 - (3,271) Derivative pro rata warrant liabilities Level 2 88 (2,640) Contingent consideration on sale of Kentucky Level 3 - - 88 (5,794)

Financial instruments recognized on the Consolidated Statements of Financial Position at fair value are classified in a hierarchy based on the significance of the estimates used in their measurement (note 24).

The fair value of the interest rate swap was calculated as the net present value of the future cash flows expected to arise on the variable and fixed rate tranches, determined using applicable yield curves at each measurement date.

The fair values of the derivative warrant liabilities are calculated using the methods as described in note 17.

Alcanna Inc. | 2019 Consolidated Financial Statements 41

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

In 2017, the Company sold its 15 retail locations in Kentucky to a third party and is entitled to a contingent consideration over a three-year period for certain Kentucky stores that were sold. The fair value of the contingent consideration is calculated based on the net present value of the probability-weighted forecast of future sales of the Kentucky assets sold. Management determined that the current fair value of the contingent consideration was negligible based on projected future sales of the Kentucky assets.

15 Dividends

2019 2018 $ $

Dividends declared - 9,807 Dividends paid: Dividends paid in cash - 11,446 Dividends paid in shares - 850

Effective December 13, 2018, the Company terminated its quarterly cash dividend and dividend reinvestment plan as part of the Company’s ongoing capital management plan and growth strategy.

16 Income tax

a) Income tax expense

On May 28, 2019, the Alberta government substantively enacted Bill 3 to reduce the Alberta corporate tax rate from 12% to 8% over the next four years. The Alberta corporate tax rate decreased from 12% to 11% effective July 1, 2019 and will further decrease to 10% on January 1, 2020, 9% on January 1, 2021 and 8% on January 1, 2022.

Alcanna Inc. | 2019 Consolidated Financial Statements 42

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Reconciliation of effective tax rate

The tax on the Company’s earnings (loss) before income taxes differs from the amount that would arise using the weighted average Canadian federal and provincial statutory tax rate applicable to the consolidated entities as follows:

2019 2018 $ $

Loss taxed at statutory rate of 26.6% (2018 – 27.0%) (10,840) (44,470) Increase (decrease) in income tax resulting from: Impact of difference between U.S. and Canada tax rates (28) (102) Non-deductible and non-taxable items (2) (1,322) Impairment provision not deductible for tax purposes 222 21,429 Impact of change in substantively enacted tax rates (422) 79 Change in unrecognized deferred tax asset 1,014 19,702 Adjustment to prior years’ deferred tax estimates 1,303 (1,308) Foreign exchange and other 574 (56) (8,179) (6,048) Income tax recovery: From continuing operations (8,179) (6,048) From discontinued operations - - Total (8,179) (6,048)

The following are the deferred tax balances recognized and movements therein during the current and comparative year:

Charged to net loss January 1, from continuing Exchange December 31, 2019 operations differences 2019 $ $ $ $

Deferred tax assets Goodwill 1,843 7,520 - 9,363 Issue and financing costs 2,926 (955) (81) 1,890 Lease liabilities 2,405 (2,371) (34) - Inventory 171 (119) (9) 43 Long-term incentive plans 691 406 (3) 1,094 Losses 1,800 (1,763) (37) - Partnership income 4,638 1,878 - 6,516 14,474 4,596 (164) 18,906

Deferred tax liabilities Intangible assets 3,630 556 (20) 4,166 Property and equipment 752 (568) (3) 181 4,382 (12) (23) 4,347

Net deferred tax asset 10,092 4,608 (141) 14,559

Alcanna Inc. | 2019 Consolidated Financial Statements 43

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Charged to net loss January 1, from continuing Exchange December 31, 2018 operations differences 2018 $ $ $ $

Deferred tax assets Goodwill (937) 2,780 - 1,843 Issue and financing costs 924 1,877 125 2,926 Deferred lease inducements 2,265 140 - 2,405 Inventory (6) 169 8 171 Long-term incentive plans 438 248 5 691 Non-capital losses 6,652 (5,453) 601 1,800 Partnership income (4,212) 8,850 - 4,638 5,124 8,611 739 14,474

Deferred tax liabilities Intangible assets 3,278 352 - 3,630 Property and equipment 1,044 (294) 2 752 4,322 58 2 4,382

Net deferred tax asset 802 8,553 737 10,092

The Company did not recognize $40,133 of deferred tax assets in 2019, of which, $32,138 were not recognized in 2018. Deferred tax assets of $17,410 were not recognized on January 1, 2019 upon the adoption of IFRS 16. The recovery of these assets is dependent on future taxable earnings being in excess of those arising from the reversals of existing taxable temporary differences. The amount the Company did not recognize has been calculated by comparing the deferred tax asset to the probable tax rate effected forecasted taxable income amounts for a five-year period subsequent to year end.

The forecast is extended to a total of five years, as it is the Company’s view that it is unable to conclude that estimated profitability is probable beyond five years. The Company’s forecasts are based on an analysis of the expected growth rates, historical and forecasted volume changes, growth rates and inflation rates. The key assumptions include:

• Forecasted average sales growth rate of 2.0%; and • Forecasted gross margin consistent with historical results.

Material uncertainty of future taxable earnings of the cannabis segment exist due to the startup phase of operations and uncertainty over the regulatory environment and process related to granting retail licenses. Cannabis forecasts have only been included to the extent the stores were operating at December 31, 2019.

The recognition of deferred tax assets is sensitive to changes in market conditions and assumptions utilized; therefore, actual results could have a material impact on the recoverability of the deferred tax asset in future periods. It is reasonably possible that changes to any of the Company’s key assumptions, and therefore forecasted taxable income, could be different than the Company’s expectations due to the inherent uncertainties in the forecast. An increase or decrease in the expected taxable profits, or loss, by $1,000 would result in a corresponding change to the deferred tax asset and income, or loss, by $266 based on 2019 tax rates. The recoverability of the deferred tax asset is uncertain and as such, there could be further differences to deferred tax assets recognized in future years that was not expected.

Alcanna Inc. | 2019 Consolidated Financial Statements 44

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The accounting treatment has no effect on the Company’s ability to utilize deferred tax assets to reduce future cash tax payments. The Company will continue to assess the likelihood that the deferred tax assets will be realizable at the end of each reporting period and adjust the carrying amount accordingly, by considering factors such as the reversal of deferred income tax liabilities, projected future taxable income, tax planning strategies and changes in tax laws.

The aggregate amount of non-capital losses for which no deferred income tax asset has been recognized is $41,467 (2018 – $51,607). The balance expires in varying annual amounts from 2028 to 2037.

The aggregate amount of Canadian capital losses for which no deferred income tax asset has been recognized is $147,946 (2018 – nil). These Canadian capital losses carryforward indefinitely.

The aggregate amount of U.S. capital losses for which no deferred income tax asset has been recognized is $12,523 (2018 – $13,153). These U.S. capital loss carryforwards expire in 2022.

The Company has recognized deferred tax assets related to non-capital losses of $nil (2018 – $5,276) available in Canadian and certain U.S. subsidiaries to offset income taxes of future years.

17 Share capital

a) Authorized:

An unlimited number of voting common shares are authorized to be issued.

b) Issued and outstanding:

# $

Balance – January 1, 2018 27,791,562 252,413 Shares issued under private placement 9,200,000 130,445 Shares issued under dividend reinvestment plan 86,823 850 Shares issued on settlement of equity-based compensation awards 22,048 225 Balance – December 31, 2018 37,100,433 383,933

Balance – January 1, 2019 37,100,433 383,933 Shares issued on settlement of equity-based compensation awards 20,526 248 Balance – December 31, 2019 37,120,959 384,181

c) Aurora private placement:

On February 4, 2018, the Company entered into a contract that closed on February 14, 2018 to issue 6,900,000 common shares through a private placement to an indirect wholly owned subsidiary of Aurora Cannabis Inc., 2095173 Alberta Ltd. (“Aurora”), at a price of $15.00 per common share for total gross proceeds of $103,500 (the “Aurora Investment”), representing approximately 19.9% of the Company’s common shares.

An additional 2,300,000 subscription receipts were issued on February 14, 2018, at a price of $15.00 per common share for aggregate gross proceeds of $34,500. The conversion of the subscription receipts into common shares

Alcanna Inc. | 2019 Consolidated Financial Statements 45

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

was approved by the Company’s shareholders (other than Aurora, its associates and affiliates) at the May 9, 2018 annual general meeting (“AGM”) and the satisfaction of other escrow conditions. Aurora’s ownership interest as at December 31, 2018 was approximately 25% of the Company’s common shares, and is a related party of the Company.

The Company has also issued to Aurora, two classes of common share purchase warrants:

• 10,130,000 warrants (“sunshine warrants”) at an exercise price of $15.75 per underlying common share to allow Aurora to increase its equity interest in the Company to approximately 40%; and

• Up to 1,750,000 warrants (“pro rata warrants”) exercisable by Aurora at an exercise price of $15.00 contingent upon the conversion of any of the outstanding 4.70% convertible unsecured subordinated debentures of the Company, to allow Aurora to maintain its pro rata equity interest in the Company.

Pursuant to the related Shareholder Rights Agreement and subject to applicable law, the Company has committed to use a portion of the net proceeds from Aurora and commercially reasonable efforts to open retail cannabis stores in Alberta and British Columbia either through the conversion of existing retail liquor outlets or the acquisition of new stores.

The $138,000 in total gross proceeds from the issuance and subscription have been allocated between the common shares and warrants issued based on the methods described below. Directly attributable transaction costs amounting to $1,113 were allocated between the common shares and warrants issued as follows:

Common shares and subscription receipts

Proceeds of $98,477 were allocated to the 6,900,000 common shares issued on February 14, 2018, and transaction costs amounting to $790 and a deferred tax recovery of $202 were recorded resulting in a net addition to share capital of $97,889.

The subscription receipts were initially measured and recorded at fair value, and were reduced by an allocation for the sunshine and pro rata warrants. At the time of subscription, proceeds of $32,618 from the private placement were allocated to the subscription receipts, and transaction costs of $267 were deducted from the value of the subscription receipts. The subscription receipt liability was recognized at an amortized cost of $34,090 (gross proceeds of $34,500, less a discount of $143 and transaction costs of $267), with the difference in fair value and amortized cost of $1,739 recorded as a reduction to share capital.

On May 9, 2018, escrow release conditions were satisfied and proceeds of $34,592 were released to the Company, which includes $92 in interest earned while the funds were held in escrow. Holders of the subscription receipts received one common share of the Company for each subscription receipt held. The subscription receipt liability

Alcanna Inc. | 2019 Consolidated Financial Statements 46

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

of $34,500, the transaction costs amounting to $267, and a deferred tax recovery of $62 have been recorded resulting in a net addition to share capital of $34,295.

Sunshine warrants

The Company’s sunshine warrants satisfied the derivative liability classification on the date of issuance, as the number of common shares to be issued per warrant was to be adjusted to sustain the agreed upon ownership percentage up until approval was obtained from the Company’s shareholders at the AGM and approval under the Competition Act (Canada) was obtained. Under IFRS, these warrants were to be initially accounted for as a derivative warrant liability measured at fair value with subsequent changes in fair value each reporting period accounted through profit and loss. The fair value of these warrants was determined using the Black-Scholes pricing model with the following assumptions:

May 9, 2018(i) Volatility 29.0% Risk-free interest rate 1.76% Dividend yield 3.77% Probability of approval at AGM 95% (i)The derivative warrant liability was remeasured to fair value immediately prior to the May 9, 2018 AGM

A fair value of $4,160 was recognized at the time of issuance, and transaction costs of $34 were recognized in administrative expenses.

The derivative warrant liability was remeasured to fair value immediately prior to the AGM, which was determined to be $889 (note 14) at that time. The ability to exercise the sunshine warrants was approved by the Company’s shareholders at the AGM. The warrants met equity classification criteria under IFRS on this date, as the holder will receive a fixed number of common shares for each warrant when exercised, and the fair value was reclassified to contributed surplus.

The sunshine warrants expired on August 14, 2019 and the expiration had no impact on equity.

Pro rata warrants

The Company’s pro rata warrants satisfy derivative liability classification requirements as exercise of the warrants is contingent on the conversion of any of the outstanding 4.70% Debentures, which allow Aurora to maintain its pro rata ownership percentage of the Company. The additional condition to obtain approval to exercise the pro rata warrants from the Company’s shareholders was satisfied at the May 9, 2018 AGM.

Alcanna Inc. | 2019 Consolidated Financial Statements 47

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Under IFRS, these warrants are to be initially accounted for as a derivative liability measured at fair value with subsequent changes in fair value each reporting period accounted through profit and loss. The fair value of these warrants is determined using the Black-Scholes option pricing model with the following assumptions:

December 31, December 31, February 14, 2019 2018 2018 Volatility 48.7% 36.7% 30.0% Risk-free interest rate 1.99% 2.22% 2.03% Dividend yield(i) - - 3.01% Probability of approval at AGM n/a n/a 95% Probability of convertible debenture conversion 5% 5% 5% (i)Effective December 13, 2018, the Company terminated its quarterly cash dividend. Refer to note 15.

A fair value of $2,745 was recognized at the time of issuance of the pro rata warrants, and transaction costs of $22 were recognized in administrative expenses. On December 31, 2019, the pro rata warrants had a fair value of $193 (2018 - $105).

As these warrants are exercised, the fair value of the recorded derivative warrant liability on the date of exercise is included in share capital along with the proceeds from the exercise. If these warrants expire, the related decrease in warrant liability is recognized in earnings (loss). The pro rata warrants are held by Aurora, which is a related party of the Company.

18 Loss per share

2019 2018 $ $

Loss attributable to continuing operations (30,731) (158,486) Income (loss) attributable to discontinued operations 285 (326) Loss attributable to owners of the parent (30,446) (158,812)

2019 2018 # # Weighted average number of common shares outstanding - Basic 37,116,067 35,390,199 Weighted average number of common shares outstanding - Diluted 37,116,067 35,390,199

2019 2018 Basic and diluted loss per share $ $ Continuing operations (0.83) (4.48) Discontinued operations 0.01 (0.01) Attributable to common shareholders (0.82) (4.49)

Alcanna Inc. | 2019 Consolidated Financial Statements 48

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Potential shares issuable in exchange for all equity-settled share-based payment awards, convertible debentures and warrants of 6,589,913 (2018 – 7,204,994) have been excluded in the diluted earnings (loss) per share calculation as their effect would have been anti-dilutive.

19 Share-based payments

The following summarizes the Company’s share based payment plans:

Cash settled Equity settled Year ended December 31, 2019 Deferred Share Restricted Share Performance Share Units(a) Units(b) Units(b) Outstanding, beginning of year 132,078 27,710 1,159,372 Granted and reinvested dividends 142,562 - 230,000 Settled / exercised (85,351) (9,187) (32,600) Forfeited - (1,882) (335,644) Cancelled - (16,641) (1,021,128) Outstanding, end of year 189,289 - -

Cash settled Equity settled Year ended December 31, 2018 Deferred Share Restricted Share Performance Share Units(a) Units(b) Units(b) Outstanding, beginning of year 60,334 58,201 122,322 Granted and reinvested dividends 106,012 1,516 1,238,171 Settled / exercised (34,268) (25,576) (29,801) Forfeited - (6,431) (171,320) Outstanding, end of year 132,078 27,710 1,159,372

For the year ended December 31, 2019, the Company recognized compensation expense on equity-settled plans of $2,081 (2018 - $1,231) and compensation expense on cash settled plans of $763 (2018 - $313) related to the Company’s share-based award plans.

a) Directors’ deferred share unit plan (“DSU”)

The Company has a DSU plan for members of the Company’s Board of Directors. Each DSU entitles a participant to receive cash equal to the market value of the equivalent number of shares of the Company. The number of DSUs granted is determined on the volume weighted average price of the Company’s common shares on the five trading days immediately prior to the grant date. The fair value of the awards granted under the DSU plan is initially recognized as a compensation expense on the grant date. Fluctuations in the market value are recognized as a compensation expense in the period in which the fluctuations occur.

The awards are settled at the time when the participant ceases to be a Director of the Company. The Company intends to settle all DSUs in cash; however, wholly at its own discretion, the Company may settle the units with shares either through the purchase of voting shares on the open market or the issuance of new shares from treasury.

Alcanna Inc. | 2019 Consolidated Financial Statements 49

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Incentive award plan

The Company allows the settlement of awards, wholly at its own discretion, in shares through the issuance of new shares from treasury, in shares purchased on the open market or by cash. The Company intends to settle all awards through the issuance of new shares from treasury. The incentive awards are accounted for as an employee benefit, the liability for which is revalued at each Consolidated Statement of Financial Position date using the closing price of the Company’s shares.

Compensation expense for equity-settled awards is recognized over each tranche vesting period by increasing contributed surplus based on the number of awards expected to vest for the RSUs, and evenly over the cliff- vesting period by increasing contributed surplus based on the number of awards expected to vest for the PSUs. The number of awards expected to vest is reviewed at least annually with any adjustments being recognized in the period they are determined.

Grants prior to 2018

On March 28, 2013, the Company adopted an incentive award plan comprised of restricted awards (“RSUs”) and performance awards (“PSUs”) for employees of the Company. RSUs are subject to service conditions and PSUs are subject to both service and market conditions. Restricted awards and performance awards issued under the incentive award plan are granted at the discretion of the Company’s Board of Directors. RSUs vest over three years, one third on each of the first, second and third anniversaries of the grant date. The PSUs cliff-vest on the third anniversary of the grant date. The PSUs are subject to a market performance condition where the total number of units that will be awarded is dependent on the Company’s total shareholder return relative to a predetermined group of comparable companies. Dividends paid earn fractional units and are treated as additional awards.

These awards were settled, forfeited or cancelled in 2019. The vesting of all cancelled awards was accelerated through compensation expense and contributed surplus in the amount of $116.

November 14, 2014 Grant

On November 14, 2014, a one-time special grant comprised of PSUs to senior executives of the Company was approved by the Board of Directors and approved by shareholders on May 8, 2015. The PSUs cliff vest on the third anniversary of the grant date and have a five year life. The number of common shares issuable to the executives pursuant to the PSUs is subject to the common shares meeting certain pre-determined 20 day volume weighted average trading price targets between the date of grant and the payout or settlement date of the PSUs (the "Performance Period"). No common shares are issuable under the PSUs if the 20 day volume weighted average trading price of the common shares does not reach a minimum of $15.00 during the Performance Period.

The remaining outstanding awards were exercised for shares and settled on March 29, 2019. The awards had achieved the $15.00 minimum weighted share price target, which resulted in applying a 50% award multiplier to these awards.

Alcanna Inc. | 2019 Consolidated Financial Statements 50

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

2019 and 2018 Grants

The Company granted PSUs in 2018 to employees that entitles them to common shares after three years of service if the Company’s common shares meet certain pre-determined 30-day volume weighted average trading price targets at December 31, 2020. If none of the price targets are met at December 31, 2020, a prorated number of common shares will be awarded if the Company’s common shares meet the pre-determined 30-day volume weighted average trading price targets at the end of any of the calendar years between January 1, 2018 and December 31, 2020 (the “Performance Period”).

These PSUs do not earn fractional awards for dividends paid during the vesting period. No common shares are issuable under the PSUs if the 30-day volume weighted average trading price of the common shares does not reach a minimum of $12.00 at the end of any of the calendar years during the Performance Period.

These PSUs were forfeited or cancelled in Q3 2019. The vesting of all cancelled awards was accelerated through compensation expense and contributed surplus in the amount of $1,583.

20 Related party transactions

a) Through the Aurora Investment, as discussed in note 17, Aurora’s indirect ownership interest was approximately 25% of the Company’s common shares at December 31, 2019, and is therefore a related party of the Company. The Company’s pro-rata warrants are indirectly held by Aurora. In addition, the Company purchased $90 (2018 - $nil) of cannabis merchandise.

b) The following transactions related to compensation of key management were carried out with related parties:

2019 2018 $ $

Salaries and short-term benefits 4,439 3,454 Share-based payments 1,151 1,353 Severance costs 842 398

6,432 5,205

Key management includes the directors and executive officers of the Company. These expenses are included in the administrative expenses and “Corporate and Other Reconciling Items” segment (note 25).

Alcanna Inc. | 2019 Consolidated Financial Statements 51

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

21 Selling and distribution expenses by nature

2019 2018 $ $

Wages and employee benefits 68,599 56,656 Lease, premises costs and property tax(1) 16,809 43,282 Advertising and promotion 8,981 9,371 Merchant processing fees 7,281 6,048 Utilities 5,940 5,425 Maintenance, janitorial and operating supplies 5,323 5,318 Other 3,943 3,173 Security, alarm monitoring and armoured car service 2,262 1,788 Store closure costs 116 310

Total selling and distribution expenses 119,254 131,371 (1) Due to the adoption of IFRS 16 (note 3s), lease payments previously included in selling and distribution expenses are now reflected as depreciation of right-of-use asset and finance costs on lease liabilities (note 9).

22 Administrative expenses by nature

2019 2018 $ $

Wages and employee benefits 12,781 12,659 Information technology costs 3,250 1,801 Share-based payments 2,844 1,635 Legal and accounting fees 2,042 2,890 Insurance, supplies, subscriptions and other 1,861 1,826 Severance costs 1,747 638 Public company and advisory services 1,446 2,016 Travel 519 850 Lease, premises costs and property tax 486 488

Total administrative expenses 26,976 24,803

Alcanna Inc. | 2019 Consolidated Financial Statements 52

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

23 Supplementary disclosure of cash flow information

a) Changes in non-cash working capital items comprise the following:

2019 2018 $ $

Accounts receivable 656 6,185 Inventory (8,104) (4,063) Prepaid expenses and deposits (1,521) (2,088) Assets held for sale 1,692 329 Accounts payable and accrued liabilities 3,654 1,800 Income tax recoverable (2,516) (1,400) Liabilities directly associated with assets held for sale (1,291) (100)

(7,430) 663

Interest and income taxes paid are included in cash provided by operating activities in the Consolidated Statements of Cash Flows.

2019 2018 $ $

Lease interest (note 13) 19,226 - Interest 4,665 3,577 Total interest paid 23,891 3,577

Income taxes paid - 4,676

Alcanna Inc. | 2019 Consolidated Financial Statements 53

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Reconciliation of movements in liabilities to cash flows arising from financing activities:

Credit facility Finance lease Subordinated advance liability debentures Total $ $ $ $

As at December 31, 2018 - 181 73,006 73,187 Transition to IFRS 16 (note 3s) - (181) - (181) Adjusted January 1, 2019 - - 73,006 73,006

Changes from financing cash flows: Proceeds and acquisitions from 74,923 - - 74,923 borrowings Redemptions, payments, or (64,080) - - (64,080) repayments Change in deferred financing fees (note 12) (517) - - (517) Total proceeds from cash flows 10,326 - - 10,326 Non-cash interest expense (note 12) 172 - 1,465 1,637 As at December 31, 2019 10,498 - 74,471 84,969

Credit facility Finance lease Subordinated advance liability debentures Total $ $ $ $

As at January 1, 2018 29,676 1,064 71,571 102,311

Changes from financing cash flows: Proceeds and acquisitions from 9,000 - - 9,000 borrowings Redemptions, payments, or (42,000) (901) - (42,901) repayments Change in deferred financing fees (note 12) 3,128 - - 3,128 Total repayment of cash flows (29,872) (901) - (30,773) Effect of changes in foreign exchange (17) - - (17) Non-cash interest expense (note 12) 213 18 1,435 1,666 As at December 31, 2018 - 181 73,006 73,187

Alcanna Inc. | 2019 Consolidated Financial Statements 54

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

Refer to note 9 for disclosure of the reconciliation of movements related to the Company’s lease liabilities as of December 31, 2019.

24 Financial instruments

Measurement of Financial Instruments

a) Fair value hierarchy

Financial instruments recognized on the Consolidated Statements of Financial Position at fair value are classified in a hierarchy based on the significance of the estimates used in their measurement, as follows:

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

Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 – Inputs for the asset or liability that are not based on observable market data.

There have been no transfers of instruments between levels in the hierarchy.

b) Financial instruments measured at other than fair value

Financial assets that are valued at other than fair value on the Consolidated Statements of Financial Position include cash and accounts receivable. The carrying value less loss allowance of accounts receivable approximates fair value due to the short-term nature of the instruments.

Financial liabilities that are valued at amortized cost are comprised of accounts payable and accrued liabilities, dividends payable and long-term debt. The carrying value of accounts payable and dividends payable approximates fair value due to the short-term nature of the instruments. Long-term debt has been recorded initially at fair value and subsequently at amortized cost using the effective interest method.

The carrying value of the credit facility advances approximates fair value, as the interest rate affecting this instrument is at a variable market rate. The fair value of the debentures is $73,720 (2018 - $67,728) and was determined based on market trading values at the Consolidated Statement of Financial Position date.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument might fail to meet its obligations under the terms of the financial instrument. The Company’s financial assets that are exposed to credit risk consist primarily of cash and accounts receivable.

The Company maintains its cash and cash equivalents with large financial institutions in Canada and the U.S. The Company, in its normal course of operations, was exposed to credit risk from its wholesale customers, however, this line of business was sold in 2019 and therefore this credit risk does not exist at December 31, 2019. Risk associated with account receivables throughout the year is mitigated by credit management policies.

Alcanna Inc. | 2019 Consolidated Financial Statements 55

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

The Company is not subject to significant concentration of credit risk with respect to its customers; however, all trade receivables are due from organizations in the hospitality industry in Alberta.

2019 2018 $ $

Trade receivables - 692 Lease inducement receivables - 1,478 Rebate and coupon receivables 700 680 Other receivables 924 865

1,624 3,715

The Company applied the IFRS 9 simplified approach to measuring the expected credit losses, which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been group based on shared credit risk characteristics and the days past due. The loss provision is based on the timing of the groups along with individual assessments for balances owing.

The credit risk associated with cash is minimized by ensuring these financial assets are held with Canadian chartered banks and Schedule I U.S. financial institutions.

The Company’s lease inducement receivables in 2018 pertained to current leases for which the lessor has agreed to provide remuneration to the Company for alterations at new or renovated store locations. Due to the nature of the relationship whereby the Company owes these same lessors monthly rent payments, management does not consider the recoverability of these receivables to be a credit risk material to current operations.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as market prices change.

a) Interest rate risk

The Company is subject to cash flow interest rate risk as its credit facilities bear interest at variable rates. Due to the limited amount (2018 – $nil) drawn on the Company’s credit facilities and the fixed rate of interest on the Company’s subordinated convertible debentures, an increase/decrease of 1.00% in market interest rates would result in a nominal decrease/increase in the Company’s finance expense, net earnings (loss), and net earnings (loss) per share.

The Company manages its interest rate risk through credit facility negotiations and by identifying upcoming credit requirements based on strategic plans. The Company entered into a forward-starting interest rate swap with a Canadian Schedule I bank, effective on December 14, 2015 and expiring December 14, 2019, to fix the effective interest rate on a notional $60 million of principal debt with a rate equivalent to 1.23% plus the applicable credit spread determined with reference to the credit facility. The Company terminated this swap in 2018.

Alcanna Inc. | 2019 Consolidated Financial Statements 56

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

b) Foreign exchange risk

The Company is subject to fluctuations in the value of the Canadian dollar relative to the U.S. dollar in the normal course of business. A portion of cash flows is realized in U.S. dollars and as such, fluctuations in the exchange rate between the Canadian dollar and U.S. dollar may have an impact on financial results. The Company’s foreign exchange cash flow exposure is limited to the payment of U.S. intercompany management fees, interest charges and dividends, which totalled US$2,595 (2018 – US$2,496). A 10% weakening or strengthening of the Canadian dollar against the U.S. dollar with all other variables held constant would result in a foreign exchange gain or loss of $260 (2018 - $250).

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting financial obligations as they come due. As well, the degree to which the Company is leveraged may reduce its ability to obtain additional financing for working capital and to finance its existing business and growth strategies.

To manage liquidity risk, the Company has historically renewed credit terms prior to maturity dates and maintains financial ratios that are conservative compared to financial covenants applicable to the credit facilities, when applicable. The business environment in which the Company operates has changed, as have the opportunities. In the past, the Company used a detailed consolidated cash flow forecast model to monitor its near and long-term cash flow requirements, supplemented with frequent evaluation of the financial covenants contained in its credit facility agreements. The Company has enhanced its capital management and liquidity monitoring to also consider its ability to borrow against its asset base, which balances the extent of capital investment against the available recourses, risks and rewards of such investments. This also assists the Company in optimizing its working capital and evaluating long- term funding strategies.

The Company maintains sufficient capital to meet financial obligations. Based on the remaining contractual maturities, the undiscounted cash flows of the Company’s financial liabilities, including interest payments are as follows:

Current Non-current $ $

Accounts payable and accrued liabilities 43,774 - Credit facility advance (May 1, 2022 maturity) - 10,843 4.70% convertible debenture (January 31, 2022 maturity) - 77,625

Refer to note 9 for disclosure of the maturity analysis of contractual undiscounted cash flows related to the Company’s lease liabilities as of December 31, 2019.

Alcanna Inc. | 2019 Consolidated Financial Statements 57

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

A breakdown of the Company’s accounts payable and accrued liabilities is summarized below:

2019 2018 $ $

Trade payables 26,094 21,834 Wages payable 7,436 6,709 Accrued liabilities 6,818 14,324 Leasehold inducements - 4,483 Indirect taxes payable 1,790 2,072 Accrued interest 1,636 1,514 43,774 50,936

As at December 31, 2019, the Company had $52,214 of undrawn capacity available under its existing credit facility which matures on May 1, 2022.

Capital management

The Company views capital as the combination of its available cash, working capital credit facility, convertible debentures and shareholders’ equity. In general, the overall capital of the Company is evaluated and determined in the context of its financial objectives when managing capital, which are to ensure the Company has capital and capacity to support its operating activities, capital spending requirements and growth strategy. It is the Company’s objective to provide investors with reasonable returns and ensure the Company has the financial capacity to support its operations and business strategies.

There have been significant changes to the operations, strategies and new growth opportunities for the Company in the past year. There have also been operational changes to the business, including the ongoing expansion of cannabis retail and changes in the Alberta liquor store operations, which have affected the capital management strategies and liquidity risks of the Company.

As at December 31, 2019 the Company’s existing capital resources were $63,921, which represents the cash on hand and undrawn credit facility at year end. The existing credit facility was established and structured to provide available capital based on previously experienced operating cash flows and related targets and benchmarks.

Management believes that the Company’s capital structure described above reflects the requirements of a company focused on growth, both through the development of new liquor and cannabis stores, acquisitions and other growth investments. Management will continue to monitor the adequacy of the Company’s capital structure and adjust it accordingly; additional changes could include new or additional credit facilities, issuing debt instruments, or issuing new shares.

There were no changes to the Company’s objectives, policies or processes for managing capital from the prior fiscal year.

Alcanna Inc. | 2019 Consolidated Financial Statements 58

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

25 Operating segments

The Company operates within two reportable business segments: Liquor Operations and Cannabis Operations. Each segment is a distinct unit that offers different products and services, has separate management structures, and their own marketing strategies and brands. Segmentation is based on differences in the regulatory environments of Liquor and Cannabis and reflects the basis on which management measures performance and makes decisions regarding the allocation of resources. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Corporate and other reconciling items include corporate administrative functions to support the Liquor and Cannabis segments.

Financial information regarding the results of each reportable business segment is included below. Performance is measured based on operating profit before amortization, and is included in the internal management reports that are reviewed regularly by the Company’s Chief Executive Officer (the Company’s chief operating decision maker, or “CODM”) and follow the organization, management and reporting structure of the Company. Operating profit before amortization is one of the primary benchmarks used by management to evaluate the performance of its operating segments. A reconciliation of operating profit before amortization to loss before income taxes, an earnings measure used in the Company’s Consolidated Statements of Loss, has been included in the table below.

Alcanna Inc. | 2019 Consolidated Financial Statements 59

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

December 31, 2019 Corporate and Other Liquor Cannabis Reconciling Operations Operations Items Consolidated $ $ $ $

Sales to external customers 760,628 41,114 - 801,742

Operating profit (loss) before amortization 56,583 2,452 (26,976) 32,059 and provision charges Property and equipment depreciation (note 7) 13,069 1,181 1,002 15,252 Right-of-use asset depreciation (note 9) 15,085 2,695 276 18,056 Intangible asset amortization (note 8) 800 - 398 1,198 Lease remeasurement (note 9) (950) 1,237 (4) 283 Provision for impairment of property and equipment (note 7) 2,732 - - 2,732 Provision for impairment of intangible assets (note 8) 1,816 - - 1,816 Provision for impairment of right-of-use asset (note 9) 7,666 946 - 8,612 Operating profit (loss) 16,365 (3,607) (28,648) (15,890)

Finance costs (note 13) 17,537 1,727 6,262 25,526 Net loss on foreign exchange from financing activities - - 247 247 Fair value adjustments (note 14) - - 88 88 Other income - - (998) (998) Loss before income taxes (1,172) (5,334) (34,247) (40,753)

Other information Expenditures for additions to: Property and equipment(1) 28,678 8,989 1,467 39,134 Intangible assets(1) - - 4,323 4,323 (1) A portion of the additions relate to the acquisitions described in note 4.

Alcanna Inc. | 2019 Consolidated Financial Statements 60

Alcanna Inc. Notes to the Consolidated Financial Statements December 31, 2019 and 2018 (in thousands of Canadian dollars except share data or unless otherwise specified)

December 31, 2018 Corporate and Other Liquor Cannabis Reconciling Operations Operations Items Consolidated $ $ $ $

Sales to external customers 650,965 7,966 - 658,931

Operating profit (loss) before amortization and provision charge 29,787 (5,025) (22,916) 1,846 Property and equipment depreciation (note 7) 13,366 142 970 14,478 Intangible asset amortization (note 8) - - 399 399 Provision for impairment of property and equipment (note 7) 1,245 - - 1,245 Provision for impairment of intangible assets (note 8) 937 - - 937 Provision for impairment of goodwill (note 10) 145,519 - - 145,519 Provision for onerous lease contracts (note 11) 1,698 2,540 - 4,238 Operating loss (132,978) (7,707) (24,285) (164,970)

Finance costs (note 13) - - 5,196 5,196 Net gain on foreign exchange from financing activities - - 6 6

Fair value adjustments (note 14) - - (5,794) (5,794) Loss before income taxes (132,978) (7,707) (23,693) (164,378)

Other information Expenditures for additions to: Property and equipment 27,236 9,036 1,557 37,829 Intangible assets - - 3,221 3,221

Geographic Information

2019 2018 Sales from continuing operations $ $ Canada 693,211 555,123 U.S. 108,531 103,808

December 31, 2019 December 31, 2018 Non-current assets $ $ Canada 342,242 95,196 U.S. 34,727 25,846

Alcanna Inc. | 2019 Consolidated Financial Statements 61