Management's Discussion And Analysis Of Financial Results

Entry level brand delivering accessiblehigh‐quality products for convenientcannabis experiences.Pre‐RollsMilled FlowerTHC and CBD OilsAvailable in 6 provinces: Alberta,British Columbia, Manitoba,Ontario, Québec andSaskatchewan.Available in 2 provinces: BritishColumbia and Ontario7ACRES brand extension focused onultra‐premium, small batch and highpotency craft cannabis products.Whole FlowerUltra‐premium brand brought toCanada through internationalpartnership with Khalifa KushEnterprises Canada.1International medical and wellnessbrand delivering medical cannabisproducts in international medicalmarkets and efficacy‐based CBDproducts in the UK.THC OilsAvailable in 4 provinces: Alberta,British Columbia, Manitoba andOntarioCBD OilsCBD TopicalsCBD CapsulesMedical CannabisCBD products available in the UKthrough E‐commerce distributionand medical cannabis available inIsrael.1 Khalifa Kush Enterprises Canada ULC ("KKE") is not a related party entity.2 Product categories are based on planned commercialization plans for each brand in FY2020.3 Provinces and other jurisdictions the brand is available in as at May 14, 2020.Supreme Cannabis’ Core Operating Assets in Canada.Supreme Cannabis’ brands are backed by a focused suite of world‐class operating assets that serve keyfunctions in the value chain, including, scaled cultivation, value‐add processing, genetics testing and ATION:7ACRESKincardine, ON440,000 sqft50,000 kgStandard Cultivation,Standard Processingand Sale for MedicalPurposesScaled cultivation,processing andpackaging ofpremium cannabisEXTRACTION &PROCESSING:BLISSCOLangley, BC12,000 sqft7,000,000tincturebottlesStandard Cultivation,Standard Processingand Sale for MedicalPurposesValue‐addedprocessing andsales of cannabisproductsGENETICS:CAMBIUMKincardine, ONOperates from alicensedlabratory withinthe 7ACRESCultivationfacilityN/ACambium is not aLicence Holder andoperates at the7ACRES Site under the7ACRES licenceProprietary R&Dfor cultivation anddevelopment ofnew varieties ofcannabis plants1 Figures are estimated on an annual basis upon full completion of planned expansion and current regulatory approvals.5

Key Developments During the Quarter.January 6, 2020Supreme Cannabis Announces Leadership Transition as Company Accelerates Transformation intoPremium Cannabis CPG CompanySupreme Cannabis’ Board named Colin Moore, Director of the Company and former President ofStarbucks Coffee Canada, Interim President and Chief Executive Officer. Mr. Moore succeeded NavdeepDhaliwal, who departed the Company.February 11, 2020Supreme Cannabis Focuses Organization and Reduces Cost Structure to Accelerate Profitable GrowthSupreme Cannabis announced the implementation of a new operating structure, including staffreductions, to drive efficiencies and support long‐term, profitable growth. The company decreased thetotal number of positions by approximately 15% and put in place a new structure that focuses the businesson accelerating revenue growth in the Canadian market.February 13, 2020Supreme Cannabis Announces Q2 2020 Financial Results and Updated Plan for Accelerated RevenueGrowthSupreme Cannabis announced its financial and operating results for the three and six months endedDecember 31, 2019, and provided an update on its strategy and outlook. The Company focused thebusiness on accelerated, near‐term revenue growth with an enhanced, coast‐to‐coast sales partnershipwith humble fume and announced near‐term revenue generating opportunities expected to driveprofitable growth.Key Developments Subsequent to March 31, 2020.April 2, 2020Supreme Cannabis Completes First Shipment to Israel and Provides Corporate UpdateSupreme Cannabis announced the completion of its landmark international medical cannabis export fromCanada to Israel. Supreme Cannabis partnered with Breath of Life International Ltd., Israel’s largest andleading producer of medical cannabis and cannabis products, to offer Truverra‐branded premium medicalcannabis to patients in Israel. The Company also provided a corporate update relating to COVID‐19.April 24, 2020Supreme Cannabis Announces At‐the‐Market Equity ProgramSupreme Cannabis announced that it has established an at‐the‐market equity program (the “ATMProgram”) that allows the Company to issue and sell up to C 9,750,000 of common shares in the capitalof the Company (the “Common Shares”) from treasury to the public. All Common Shares sold under theATM Program will be sold through the Toronto Stock Exchange or another marketplace (as defined inNational Instrument 21‐101 ‐ Marketplace Operation) upon which the Common Shares are listed, quotedor otherwise traded, at the prevailing market price at the time of sale. The volume and timing ofdistributions under the ATM Program, if any, will be determined at the Company’s sole discretion. TheATM Program is designed to provide the Company with additional financing flexibility should it be requiredin the future. Distributions of the Common Shares under the ATM Program are made pursuant to theterms of an equity distribution agreement dated April 24, 2020 entered into between the Company andBMO Capital Markets.6

April 27, 2020Supreme Cannabis Appoints Beena Goldenberg as President and CEOSupreme Cannabis appointed Beena Goldenberg, former CEO of Hain‐Celestial Canada, a leading organicand natural products company, as the Company’s new President and CEO to drive Supreme Cannabis’long‐term profitable growth as a premium cannabis CPG company. Ms. Goldenberg succeeds interimPresident and CEO, Colin Moore, who led the transformation of the Company, streamlining costs andfocusing on near‐term revenue drivers.Results of Operations.Three Months Ended March 31, 2020 vs December 31, 2019.Three months endedMarch 31, 2020December 31,2019Financial Highlights (in 000's)Gross revenueNet revenueGross margin, excluding fair value items (1)Gross marginOperating expensesImpairment on assetsNet LossNet comprehensive lossAdjusted EBITDA (2) 11,679) ,439)1Gross margin, excluding fair value items is an Additional Subtotal presented by the Company. The Company defines gross margin, excluding fairvalue items as the gross margin before recording fair value changes on growth of biological assets and realized fair value changes on inventorysold or impaired. More information on changes in fair value of biological assets can be found in “Changes in fair value of biological assets.”2Adjusted EBITDA is a Non‐GAAP measure and does not have standardized meaning under GAAP. As a result, it may not be comparable to datapresented by other cannabis companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial informationpresented in the Financial Statements prepared in accordance with IFRS, refer to the Results of Operations.During the three months ended March 31, 2020, Supreme Cannabis implemented a new operatingstructure, including staff reductions, to optimize costs, drive efficiencies and support long‐term, profitablegrowth. With an optimized cost structure in place, the Company began to realize quarter‐over‐quarterimprovements to its operating expenses and execute on its goal of accelerating near‐term revenuegeneration.For the three months ended March 31, 2020, net revenue increased to 9.7 million (December 31, 2019: 9.1 million) driven by an increase in both recreational and wholesale cannabis sales and offset by adecrease in the Company’s recreational average selling price per gram. The Company’s average sellingprice for recreational cannabis decreased to 4.32 per gram (December 31, 2019: 5.39 per gram). Asrecreational market competition matures, the Company made planned price reductions to cannabisflower products in certain Canadian provinces. In the three months ended March 31, 2020, the Companybegan executing on its goal to introduce additional high‐quality cannabis products at each key price point.During the three months ended March 31, 2020, recreational average selling prices were also impactedby the introduction of new cannabis products that address new consumer segments at lower price points.Gross margin, excluding fair value items for the three months ended March 31, 2020 was negative.However, excluding the impact of impairment charges included in production costs, gross margin,7

excluding fair value items would have been 37% (December 31, 2019: 46%). Excluding the impact ofimpairment charges, gross margin, excluding fair value items decreased as compared to the prior quartermainly due to lower average selling price per gram and the utilization of third party manufacturingpartners. The Company utilizes third party manufacturing partners for certain new products as a way ofassessing the cash flows generated by new products before investing further capital in internal productioncapabilities and to support production ramp‐up.During the three months ended March 31, 2020, the Company’s operating expenses, excludingrestructuring charges, decreased to 15.4 million (December 31, 2019: 19.8 million), a reduction of 23%.The cost efficiencies were driven by a decrease in wages and benefits of 30%, decrease in facility costs of12%, decrease in sales, marketing and business development expense of 63%, decrease in professionalfees of 22% and a decrease in general and administrative expenses of 17%. During the three months endedMarch 31, 2020, the Company incurred 2.1 million in one‐time restructuring costs as part of theCompany’s efforts to reduce headcount and optimize its cost structure. The cost savings are a result ofthe realigned and rightsized operating model that has delivered immediate substantial cost savings. TheCompany continues to realize efficiencies and retain its focus on cost savings and near‐term revenuegrowth.In addition to a reduction in operating expenditures, investments in capital expenditures during the threemonths ended March 31, 2020 decreased to 2.3 million (December 31, 2019: 11.9 million). With thecompletion of construction projects at the Company’s BlissCo and 7ACRES sites, capital expenditure forthe remainder of fiscal 2020 and fiscal 2021 is expected to be minimal and focused on productivityenhancements justified by near‐term cash flow returns.During the quarter the Company made revisions to its strategic plan and carried out certain restructuringactions. These factors combined with a decline in the market capitalization of the Company led to theCompany performing an impairment review of its businesses as at March 31, 2020. Based on this review,the Company recognized a total non‐cash impairment of assets of 57.5 million, primarily consisting ofimpairment to goodwill and intangible assets that were recognized as part of the BlissCo and Truverraacquisitions on July 11, 2019 and August 13, 2019 respectively. The impairment was primarily driven byslower than expected development of the recreational cannabis market in Canada that has resulted inslower than anticipated growth in sales of the Company. Further, the assumptions used by managementto value goodwill that arose on the BlissCo and Truverra acquisitions have been revised as marketconditions rapidly evolve and the Company’s plans for the respective assets has changed.Based on this review, the Company determined that no impairment charges were required on theCompany’s core cultivation asset. The 7ACRES Site continues to hold its value as a premium cultivationasset in Canada. The Company will continue to closely monitor market conditions and assess the carryingvalue of its assets, which could result in additional impairment or reversal of prior impairment charges.8

Three and Nine Months Ended March 31, 2020 vs March 31, 2019.Financial Highlights (in 000's)Gross revenueNet revenueGross margin, excluding fair value items (1)Gross marginOperating expensesImpairment on assetsNet Loss (2)Net comprehensive loss (2)Three months ended March 31,20202019 Adjusted EBITDA 6)(11,679)Financial Position (in 000's)Biological assetsInventoryTotal assetsTotal liabilities )March 31, 2020 8,781 46,653333,373173,526Nine months ended March 31,20202019 11)(27,050) 5,711)June 30, 20198,76219,026334,801123,8291Gross margin, excluding fair value items is an Additional Subtotal presented by the Company. The Company defines gross margin, excluding fairvalue items as the gross margin before recording fair value changes on growth of biological assets and realized fair value changes on inventorysold or impaired. More information on changes in fair value of biological assets can be found in “Changes in fair value of biological assets.”2The Company has applied IFRS 16 using the modified retrospective approach at July 1, 2019, under which comparative information is notrestated. Under IFRS 16, leases that were previously classified as operating leases are now on‐balance sheet. Instead of recognizing operatinglease expense, the Company now recognizes amortization and interest expense related to these leases. (See “New Accounting Standards andInterpretations Effective July 1, 2019”).3Adjusted EBITDA is a Non‐GAAP measure and does not have standardized meaning under GAAP. As a result, it may not be comparable to datapresented by other cannabis companies. For an explanation and reconciliation of Adjusted EBITDA to related comparable financial informationpresented in the Financial Statements prepared in accordance with IFRS, refer to the Results of Operations and Non‐GAAP Measures andAdditional Subtotals.For the three and nine months ended March 31, 2020, the Company reported net revenue of 9.7 millionand 30.2 million, respectively. Compared to the same periods of the prior year, this was a decrease of 0.2 million and an increase of 7.4 million, respectively. Net revenue decreased during the three monthsended March 31, 2020, compared to the same period of the prior year, primarily due to actual andexpected sales discounts and returns provisions of 1.3 million recorded in the current period. Thisdecrease was partially offset by higher revenues from recreational cannabis sales during the three monthsended March 31, 2020 compared to the same period in the prior year. Net revenue during the nine monthsended March 31, 2020 was higher than the same period of the prior year primarily due to an increase inrecreational and wholesale cannabis sales, partially offset by actual and expected sales discounts andreturns provisions of 1.8 million. Net revenue during the three and nine months ended March 31, 2020,were impacted by a decrease in the Company’s recreational average selling price per gram compared tothe same periods of the prior year.Gross margin, excluding fair value items was ( 1.5) million and 8.2 million for the three and nine monthsended March 31, 2020, respectively. These were decreases of 6.7 million and 4.3 million, respectively,compared to the same periods of the prior year. The decreases were primarily a result of the Companyrecording impairment related to inventory sold during the current periods in production costs of 5.0million and 6.6 million, respectively. The impairment recorded in production costs were driven by lowerselling prices for flower and trim products due to market conditions in the cannabis industry. Specifically,lower flower prices were driven by a slower transition of consumers into the legal market, while lowertrim prices are primarily due to lower demand in the wholesale market.9

Operating expenses for the three and nine months ended March 31, 2020 were 17.5 million and 55.7million, respectively. These were increases of 7.1 million and 28.6 million, respectively, compared thesame periods of the prior year. The increases are primarily driven by higher operating expenses consistentwith the scaling up of the Company’s operations, including the acquisitions of BlissCo and Truverra duringthe first quarter of fiscal 2020. Included in operating expenses is a restructuring charge recorded duringthe three months ended March 31, 2020, resulting from the Company’s cost optimization initiatives.The Company reported net comprehensive loss for the three and nine months ended March 31, 2020 of 73.4 million and 116.6 million, respectively. These were increases of 66.3 million and 102.5 million,respectively, compared to the same periods of the prior year. Excluding non‐cash valuation of investmentsand fair value items related to biological assets and inventory sold or impaired, the increase wascontributed to by the aforementioned lower gross margin, excluding fair value items and higher operatingexpenses. In addition, the increase in net loss for the three and nine months ended March 31, 2020 wasimpacted by impairment of assets of 57.5 million recorded by the Company during the three monthsended March 31, 2020.Adjusted EBITDA.Three months ended March 31,20202019Adjusted EBITDA (in 000's)Net loss(1)Adjustments:Amortization of property, plant and equipment & intangible assets(1)Amortization expense included in production costsShare based paymentsFair value changes on growth of biological assets(2)Realized fair value changes on inventory sold or impaired(2)Finance expense, net(1)Impairment of assetsLoss on disposal of property, plant and equipmentUnrealized gain on investmentsRealized loss on investmentIncome tax (recovery) expenseAdjusted EBITDA loss(1) (72,328) (7,139)Nine months ended March 31,20202019 (106,168) )3,019‐3,891(546)‐(4,710)(11,679) (1,598) (27,050) (5,711)(1)The Company has applied IFRS 16 using the modified retrospective approach at July 1, 2019, under which comparative information is notrestated. Under IFRS 16, leases that were previously classified as operating leases are now on‐balance sheet. Instead of recognizing operatinglease expense, the Company now recognizes amortization and interest expense related to these leases. (See New Accounting Standards andInterpretations Effective July 1, 2019).(2)Effective July 1, 2019, the Company made a voluntary change in accounting policy related to the accounting for biological assets. Previously, alldirect and overhead costs incurred during the biological transformation process and up to the point of harvest were expensed to production costson the consolidated statement of comprehensive loss in the period the costs are incurred. Under the new accounting policy, the Company willcapitalize all direct and overhead costs incurred during the biological transformation process and up to the point of harvest to biological assetson the consolidated statement of financial position. Prior period numbers have been updated to conform with the presentation under the newaccounting policy. (See Voluntary Change in Accounting Policy).During the three and nine months ended March 31, 2020, the Company generated an Adjusted EBITDAloss of 11.7 million (March 31, 2019: 1.6 million) and 27.1 million (March 31, 2019: 5.7 million),respectively. See “Non‐GAAP Measures and Additional Subtotals.”.The increase in Adjusted EBITDA loss during the three and nine months ended March 31, 2020 comparedto the same periods of the prior year is a result of an increase in net loss of 65.2 million and 92.1 million,respectively, partially offset by increase in non‐cash and other adjustments. Adjusted EBITDA for the threeand nine months ended March 31, 2020 were impacted by impairment expense related to inventory soldof 5.0 million (Mar

2 THE SUPREME CANNABIS COMPANY, INC. Management's Discussion and Analysis. The following Management's Discussion and Analysis ("MD&A") should be read in conjunction with The Supreme Cannabis Company, Inc.'s (the "Company" or "Supreme Cannabis") consolidated interim condensed financial statements and notes for the three and nine months ended March 31, 2020 (the