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  • Condensed Interim Consolidated Financial Statements (Unaudited)

    For the Three and Six Months Ended December 31, 2019

    February 13, 2020 (Expressed in Thousands of Canadian Dollars)

    The Supreme Cannabis Company, Inc. | TSX:FIRE

  • Management’s Responsibility for Financial Reporting

    To the Shareholders of The Supreme Cannabis Company, Inc. (the “Company” or “Supreme”):

    Management is responsible for the preparation and presentation of the accompanying condensed interim consolidated financial statements, including responsibility for significant accounting judgments and estimates in accordance with International Accounting Standard 34, Interim Financial Reporting. This responsibility includes selecting appropriate accounting principles and methods, and making decisions affecting the measurement of transactions in which objective judgment is required.

    In discharging its responsibilities for the integrity and fairness of the condensed interim consolidated financial statements, management has designed and maintains the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded, and financial records are properly maintained to provide reliable information for the preparation of the condensed interim consolidated financial statements.

    The Audit Committee is composed of Directors who are neither management nor employees of the Company. The Board of Directors is responsible for overseeing management in the performance of its financial reporting responsibilities, and for approving the condensed interim consolidated financial statements. The Audit Committee has the responsibility of meeting with management and external auditors to discuss internal controls over the financial reporting process, auditing matters and financial reporting findings. The Audit Committee is also responsible for recommending the appointment of the Company’s external auditors.

    February 13, 2020

    (signed) (signed) /Nikhil Handa/ /Kenneth McKinnon/ Chief Financial Officer Director

  • The Supreme Cannabis Company, Inc. Consolidated Statements of Financial Position (Unaudited - Expressed in thousands of Canadian Dollars)

    As at: Note(s) December 31, 2019 June 30, 2019 ASSETS Current assets

    Cash $ 48,705 $ 54,822 Restricted cash 13 6,300 - Receivables 5 13,558 21,969 Prepaid expenses, deposits and other receivables 6,019 4,248 Inventory 7 42,482 19,026 Biological assets 8 9,719 8,762 Assets held for sale 9 1,140 -

    Total current assets 127,923 108,827 Non-current assets

    Property, plant and equipment 9 210,688 181,726 Deposits on property, plant and equipment 3,053 3,001 Right-of-use assets 2 6,411 - Intangible assets 3, 10 42,472 24,446 Investments 12 1,899 15,325 Other assets and deposits 148 796 Goodwill 3, 10 25,506 680

    Total assets $ 418,100 $ 334,801

    LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities

    Accounts payable and accrued liabilities $ 24,926 $ 30,629 Lease liabilities 2 567 - Other current liability 11 1,434 1,318

    Total current liabilities 26,927 31,947 Long-term liabilities

    Long-term debt 13 54,036 - Convertible debentures 14 80,474 79,054 Other long term liability 11, 15 5,230 5,023 Long-term lease liabilities 2 6,912 - Deferred tax liability 3 15,435 7,805

    Total liabilities 189,014 123,829

    SHAREHOLDERS’ EQUITY Share capital 16 280,697 217,646 Reserves 52,226 53,312 Shares to be issued - 250 Accumulated other comprehensive income 12 (8,425) 950 Deficit (95,412) (61,186)

    Total shareholders' equity 229,086 210,972 Total liabilities and shareholders' equity $ 418,100 $ 334,801

    The accompanying notes are an integral part of these condensed interim consolidated financial statements.

    1

  • The Supreme Cannabis Company, Inc. Consolidated Statements of Comprehensive Loss (Unaudited - Expressed in thousands of Canadian Dollars)

    For the period Note(s)

    Three Months Ended

    December 31, 2019

    Three Months Ended

    December 31, 2018

    Six Months Ended

    December 31, 2019

    Six Months Ended

    December 31, 2018

    Gross revenue 6 $ 10,261 $ 7,965 $ 22,745 $ 13,105 Excise taxes 6 (1,202) (247) (2,253) (247) Net revenue 9,059 7,718 20,492 12,858

    Production costs 7, 9, 10 (6,426) (3,193) (10,794) (5,560) Gross margin, excluding fair value items 2,633 4,525 9,698 7,298

    - 8 16,239 7,348 25,460 10,558

    7, 8 (8,044) (4,134) (18,582) (6,633)

    Gross margin 10,828 7,739 16,576 11,223

    Operating expenses Wages and benefits 17 $ 6,753 $ 4,074 $ 11,663 $ 5,922 Facilities 1,043 885 1,912 1,349 Professional fees 1,306 1,067 2,257 1,336 Regulatory recovery fee 225 - 1,475 - Sales, marketing and business development 2,776 1,498 4,826 2,353 General and administrative 1,763 669 3,442 1,152 Acquisition related costs 45 - 723 - Amortization of property, plant and equipment & intangible assets 9, 10 1,870 808 3,571 1,058

    Share based payments 15, 17 3,974 1,890 8,377 3,659 19,755 10,891 38,246 16,829

    Other expenses Finance expense, net 2, 13, 14 $ 4,535 $ 1,200 $ 7,081 $ 1,017 Loss on disposal of property, plant and equipment 9 1,918 350 1,914 3,891 Unrealized loss on investments 12 - 2,401 - 1,910 Realized loss on investment 12 - - 680 -

    6,453 3,951 9,675 6,818

    Net loss before taxes $ (15,380) $ (7,103) $ (31,345) $ (12,424) Current tax recovery 403 - - - Deferred tax expense (2,338) 5,552 (2,495) 5,488 Net loss $ (17,315) $ (1,551) $ (33,840) $ (6,936) Loss on revaluation of investments, net of tax 12 (9,235) - (9,375) -

    Total comprehensive loss $ (26,550) $ (1,551) $ (43,215) $ (6,936)

    Weighted average number of common shares 354,360,014 283,047,747 345,313,405 270,235,520 Basic and diluted net loss per common share $ (0.05) $ (0.01) $ (0.10) $ (0.03)

    Fair value changes on growth of biological assets

    Realized fair value changes on inventory sold or impaired

    The accompanying notes are an integral part of these condensed interim consolidated financial statements.

    2

  • The Supreme Cannabis Company, Inc. Consolidated Statements of Cash Flows (Expressed in thousands of Canadian Dollars)

    For the six months ended December 31, 2019 December 31, 2018

    Operating activities: Net loss $ (33,840) $ (6,936)

    Items not involving cash: Amortization of property, plant and equipment, intangible assets and right-of-use assets 5,455 1,843

    Accrued interest and accretion, net of payment 1,027 (1,702) Flow-through share interest and penalties - 5 Share based payments 8,377 3,659 Loss on disposal of property, plant and equipment 1,914 3,891 Fair value changes on growth of biological assets (25,460) (10,558) Realized fair value changes on inventory sold 11,447 6,235 Impairment adjustment on fair value of inventory 7,135 398 Deferred tax expense 2,495 (5,488) Realized loss on investment 680 - Unrealized loss on investment - 1,910

    Changes in non-cash working capital: Biological assets and Inventory (12,590) (2,131) Receivables 8,944 (1,925) Prepaid expenses, deposits and other receivables (1,246) (2,362) Accounts payable and accrued liabilities (6,402) 2,033 Other assets and deposits 648 (53)

    (31,416) (11,181)

    Investing activities: Additions to property, plant and equipment (29,444) (51,483) Additions to intangible assets - (1,760) Acquired cash on business combination 757 55 Deposits on property, plant and equipment (52) (530)

    (28,739) (53,718)

    Financing activities: Borrowings from credit facility, net of issuance costs 54,076 - Warrants exercised 6,948 5,153 Stock options exercised 231 57 Convertible debentures issued, net of issuance costs - 95,759 Repayment of lease liabilities (917) - Transfer to restricted cash (6,300) -

    54,038 100,969

    Net change in cash (6,117) 36,070 Cash, beginning of period 54,822 55,896 Cash, end of period $ 48,705 $

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